Q1 2025 First Commonwealth Financial Corp Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I'd like to welcome everyone to the first Commonwealth Financial Corporation first quarter 2025 earnings release Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question.
Speaker Change: And the answer session, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star One again I'd now like to turn the conference over to Ryan Thomas Vice President of Finance and Investor Relations. Please go ahead.
Thank you Regina and good afternoon, everyone. Thank you for joining us today to discuss the first Commonwealth Financial Corporation's first quarter financial results participating on today's call will be Mike price, President and CEO, Jim Roth, Chief Financial Officer, Gingrey been Bank, President and Chief revenue Officer, Brian So hockey.
Speaker Change: Chief Credit Officer, and Mike Mcewen, Chief lending officer.
Speaker Change: A reminder, a copy of yesterday's earnings release can be accessed by logging on to the FC banking Dot com.
Speaker Change: The Investor Relations link at the top of the page.
Speaker Change: We've also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call.
Speaker Change: Before we begin I need to caution listeners that this call will contain forward looking statements. Please refer to the forward looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward looking statements. Today's call will also include non-GAAP fine.
Speaker Change: Interim measures non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation with that I will turn the call over to Mike.
Speaker Change: Hey, Thank you Ryan and good afternoon, everyone first Commonwealth met consensus estimates with 32 of core earnings per share in the first quarter of 2025, our return on assets of 114% in the first quarter was down from 123% in the fourth quarter as.
Speaker Change: Fences rose and fee income fell.
Speaker Change: Loans grew at an annualized rate of four 4% or $99 million in total commercial loans accounted for 63 million or 64% of the overall quarterly increase equipment finance and indirect auto lending both contributed meaningfully.
Pipeline and growth from that momentum continue into April.
Speaker Change: Net interest margin at three.
Speaker Change: Six 2% rose eight basis points with good fundamentals deposit costs fell to $1 99%.
Speaker Change: Interestingly deposit cost continue their downward March even as we grew deposits at an annualized rate of seven point.
7% using end of period figures as a team we have remained focused on improving our liquidity as our loan to deposit ratio has decreased from 97% to 90, 92% over the last two years and as Jim will further describe the NIM should benefit from macro swaps that are coming off.
Speaker Change: The remainder of 2025.
Jim: Credit is expected to continue to improve assuming stable economic conditions key trends are good including Npls watch.
Jim: And substandard criticized categories, all of which peaked in the second or third quarter of last year, but they've fallen as we've resolved problem credits.
Jim: Throughout the last two quarters. The team continues to closely watch the financial health of consumers, which comprise roughly 68% to 70% of U S GDP and about 40% of our lending business at this time.
Jim: The first Commonwealth consumers appear to be in good shape, the tariff uncertainty and the prospect of a resurgence of inflation have roiled financial markets over the last several weeks importantly.
Jim: Churn of inflation would also further weakened consumers and business households fee income was down $1 5 million in the first quarter of 2025.
Jim: We are encouraged that the $3 $5 million hit each quarter to interchange income due to the Durbin Amendment after crossing $10 billion in total assets has largely been absorbed by good momentum with other fee businesses, namely service charges gain on sale businesses Trust insurance brokerage and <unk>.
Jim: <unk> income our efficiency ratio rose to 59.08% up from 56.07% in the fourth quarter expenses increased $2 1 million to $71 1 million in the first quarter salaries and wages were the primary cause and more specifically incentive.
Jim: Compensation.
Jim: Total FTE FTE has also drifted upward as we continue to invest in our regional banking teams alongside our equipment Finance group. We view these investments as critical components of becoming the best bank for our business.
Jim: Center Bank will lead legally close at the end of April and could provide a boost efficiency and margin. We've picked up some good talent are genuinely excited about the strategic fit that center bank brings to a market that is already well led and ripe for growth.
Lord of directors approved the dividend increase of one half of 1%.
Jim: Per share.
Jim: Consistent with prior years, bringing our dividend yield and payout ratio to approximately three 5% and 40% respectively.
Jim: The announcement of tariffs.
Jim: Every country has led to uncertainty in the concern that a trade war if sustained could lead to a disruption of global supply chains renewed inflation and an economic slowdown. We saw initial signs of this strained with the preliminary GDP figures. This morning, our bankers have actively reached out to clients over the <unk>.
Jim: Last several months to gauge the impact of tariffs on their businesses and identify early signs of stress generally our clients our clients have been less phased by the administration's actions than we might have initially expected on balance while most commercial clients would prefer a more tailored.
Jim: Approach. Many believes that believes that tariffs may ultimately benefit their businesses. For example, the steel sector has been a vocal supporter of the tariffs and believes they are necessary to remain competitive on the flip side. Other sectors have expressed concern over the tariffs. These include polymers manufacturing aluminum coal production in <unk>.
Jim: A positive reflection is that many businesses have taken steps to secure supply chains and can pass on increased costs through price escalators because of their experience gained during the pandemic.
Jim: Although tariff Im certainly certainly could create loan growth headwinds our pipelines remained strong and we have not identified any specific credit impacts yet.
Jim: On the regional lending front, our northern Ohio, Pittsburgh, Central, Ohio, Cincinnati and community.
Jim: Markets are off to a terrific starts.
An interesting aside the country's largest match natural gas power plant alongside an AI data center is being constructed in Indiana County, our one county in Western Pennsylvania.
Jim: At four five Gigawatts the plant could power Manhattan and is expected to cost more than $10 billion and this is from a wall Street Journal article in April 2nd.
Jim: These types of projects are springing up throughout our markets, not all $10 billion, but theyre, creating jobs and revitalizing economies.
Jim: Good science and good for our home County.
Speaker Change: With that I'll turn it off and turn it over to Jeff to Jim.
Speaker Change: Great. Thank you Michael.
Jim: Okay.
Jim: Mike already mentioned the expansion of our NIM. So let me start there.
Jim: Our previous guidance was for NIM to be relatively flat in Q1, followed by expansion in the remaining three quarters of 2025.
Jim: So we are quite pleased to see eight basis points of expansion last quarter.
Jim: We had thought that the need to grow deposits to fund our loan growth would hinder our ability to bring deposit costs down but that wasn't the case deposit costs fell by eight basis points, even as we grew deposits.
Jim: On the asset side of the balance sheet fourth quarter fed rate cuts continued to be felt in the first quarter and our variable rate loan portfolio, but that was blunted somewhat by the fact that new loans are coming on in the low seven loans that ran off were in the high sixes.
Jim: That's why our loan yield was only down five basis points last quarter.
Jim: Contrast, the yield on the securities portfolio was up 15 basis points pardon me as a result of our small securities restructuring we did in January using the gains from the sale of our remaining visa stock as we have previously disclosed.
Jim: Purchase accounting marks from the Central acquisition added five basis points to the NIM in the first quarter unchanged from last quarter.
Jim: We expect that we will continue to fade by about one basis point per quarter.
Jim: Yes.
Jim: In terms of forward NIM guidance, our new baseline forecast contemplates three fed rate cuts up from two in last quarter's forecast.
Jim: And in that scenario, we would expect our NIM to expand at a high of $3 70 by the end of the year give or take a few basis points as always.
Jim: There are no cut at all we would expect the NIM to expand another 10 basis points from there. So the high <unk> by the end of the year.
Jim: And that gives you a sense of the impact of the railcar.
Jim: About seven basis points of the NIM expansion that we expect comes from the exploration of macro swaps with $150 million expiring tomorrow, and additional $25 million expiring in the third quarter and $75 million in the fourth quarter of this year and then finally, an additional 175.
Jim: Dollars expiring in 2026.
Jim: Okay.
Moving on to loan growth our previous guidance for a mid single digit loan growth remains unchanged.
Jim: Now to fee income.
Jim: Fee income is down from last quarter by $2 6 million.
Jim: We had about $1 4 million of unusual gains last quarter, along with a decline of about $600000 in the first quarter related to the fewer number of days in the quarter, which we expected.
Jim: So that combination of $2 million that swing of $2 million.
Jim: It was fully expected.
Jim: More fundamentally our SBA gain on sale income was down by about $1 million from last quarter offset somewhat by a $500000 increase in our insurance and wealth income.
Jim: Our fee income of $22 5 million actually came in right in the middle of our previous guidance of $22 million to $23 million for the quarter.
We expect that second quarter fee income should be roughly should be better than the first quarter about $1 million better than the first quarter or roughly $23 million to $24 million.
Jim: Growing another $1 million in the third quarter, and then coming down by about 1 million in the fourth quarter, which we attribute to seasonality in fee businesses like mortgage.
Jim: Expenses increased by $2 1 million over last quarter, and $71 1 billion were well in excess of our previous guidance of 60% to $69 million for the quarter.
Jim: As disclosed in our earnings release first quarter results included about $1 5 million in expense were finalizing incentive payments related to the prior year.
Jim: We also had a 700000 or increase in snow removal costs, which were higher than expected.
Jim: Salary expense was up slightly more than expected on higher head count.
Jim: Taking all of this into account, we believe that including the pending acquisition of Central Bank, which closes today.
Jim: Non interest expense should be in the $71 million to $73 million range for the rest of the year.
Jim: Capital ratios benefited from a reduction the OCI.
Jim: 102 million to $81 2 million as well as retained earnings.
Jim: Our tangible book value per share grew 16, 3% annualized from the previous quarter.
Jim: And 7% annualized even without the OCI.
Jim: There was no buyback activity in the first quarter timing of the closing of the center Bank acquisition.
Jim: We have $6 $7 million of remaining capacity under our previously authorized.
Jim: Buyback program.
Jim: And with that.
Jim: We will take any questions you may have.
Speaker Change: At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad, we will take our first question from the line of Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo: Hey, good afternoon, guys how are you.
Speaker Change: Yes.
Speaker Change: I guess first on the on the loan growth guidance.
Speaker Change: It sounds like things are still kind of.
Speaker Change: Moving in the right direction and even more than that it was it was a good quarter.
Speaker Change: During and I guess, specifically on the equipment finance portfolio, just curious the momentum that you've been seeing there if you think that.
Speaker Change: Continues from here and if we did go into.
Speaker Change: Some kind of slowdown just curious how you think that portfolio would react from a growth and also from a credit perspective.
Speaker Change: So so far so good on credit.
Speaker Change: We might have seen some pull through just because of the anticipation of tariffs and perhaps that has <unk>.
Speaker Change: Increase the volume in the first three to four months of the year, we'll see but we're seeing pretty healthy application volume now well into April.
Speaker Change: <unk>.
Michael: Actually I have like Mcewan on the phone or was our chief lending officer, Michael would you add.
Michael: I would just add that part of the investment you referenced Mike was additional talent in the equipment Finance group and we've also benefited a little bit.
Michael: Some of the larger.
Michael: Foreign owned finance teams groups have pulled back from the market.
Michael: And so that's probably helped us a bit too, but we have not seen a let up yet and the application growth is still pretty strong.
Michael: Is that helpful. Dan.
Mike: It is Mike Thanks, Yeah.
Michael: Maybe on <unk>.
Michael: Similar vein, but just different book.
Michael: The commercial books.
Michael: This area as well as the traditional commercial just curious if you you.
Michael: Gave some color on.
Michael: Borrower sentiment in your comments, but just curious if you're adding else in terms of you know.
Michael: What youre seeing from them.
Michael: A pull through rates.
Michael: How they're reacting to.
Michael: Uncertainty in Washington, and tariffs everything Allison.
Michael: And kind of your expectation for near term versus back half if theres a difference in terms of where loan growth could land.
Michael: Yes.
Speaker Change: After Mike could I would say, we have seen some pull through there on equipment.
Speaker Change: Seeing commercial real estate more active than it certainly was.
Speaker Change: This time last year and so the pipeline there is pretty good the construction book.
Speaker Change: And commercial real estate is starting to build I mean, we've been very intentional about wanting to grow the C&I book and we feel like we're starting to have some excess success, there with even larger credits and we build out our talent and the regional teams.
Speaker Change: Two new.
Speaker Change: President's within the last 12 months or so and probably at least.
Speaker Change: Half a dozen to a dozen additional lenders TM professionals.
Mike: So that feels really good Mike what would you add.
Yes, I would just add that the really the momentum is starting to feel good in the fourth quarter. The mood swings. The pipelines. We're building. So we're benefiting from activity that was generated in the fourth quarter.
Mike: But we haven't seen a let up the real estate developers have a little bit better view on cost rates were slightly down.
Mike: So some projects that were deferred or now be put in place. These are long time customers of ours in our markets that we know extremely well so that part of it we feel pretty good about and again.
Mike: I think the mood has totally changed on the future, but our eyes are wide open based on these.
Mike: What happens.
Mike: With the tariffs and so forth, but haven't seen a lot of yet.
Mike: So I feel pretty good.
Dan the only thing I would add that we didn't mention is just <unk>, Mike and I are out on a number of calls and we just thought customers seem to be way ahead of us.
In terms of their supply chain, perhaps if theyre getting tungsten from China or this product from Europe.
Mike: They've already thought of how to deflected to another country or to a domestic supplier and I think a lot of that came from the challenges that came with COVID-19. So even if it was a smaller family owned business.
Mike: And they almost it's not that they anticipated or would incurred but they just seem to be dealing with it in the normal course, despite the headlines of the last month.
Mike: That's great color, Mike Thanks for that.
Mike: And maybe just a last one here on deposits it looks like the.
Mike: Growth in the quarter is really driven by the savings the savings segment. There curious if there is anything unusual happening there if you guys had.
Mike: Any color on that in.
Mike: What kind of rates that.
Mike: New rates on the savings deposits that you are seeing.
Speaker Change: Yes, I mean, I will turn it to Jim and Jane but it just seems like we've given up a little on the beta because we want to keep growing deposits and if you remember in the last cycle, we use the beta in the later stages to drive down our deposit costs and we just haven't gotten there yet we still want to grow deposits and b.
Speaker Change: More liquid so we probably have given up a little bit on rate and could have taken our deposit costs down a little quicker. It's also just a culture of deposit gathering where that's a big part of the goals and incentives of everybody from a branch manager to a corporate banker.
Speaker Change: Jane or.
Speaker Change: Jim What would you add John go ahead.
Speaker Change: I would guess that much of the growth that youre seeing in savings is.
Speaker Change: Almost.
Speaker Change: A substitute product to CD is as we've been bringing down the rates on Cds.
Speaker Change: Customers aren't taking the money out of the banks, but they might be parking it in some money markets, while they wait and see what happens here.
Speaker Change: So I think we still have much of it in the house.
Speaker Change: But.
Speaker Change: But.
Speaker Change: It's moving around a little bit.
Speaker Change: Alright that makes sense. Thanks, Dan Thanks, Mike I appreciate the color today.
Speaker Change: Our next question comes from the line of Frank <unk> with Piper Sandler. Please go ahead.
Frank: Hey, good afternoon.
Speaker Change: No.
Speaker Change: Just in terms of.
Speaker Change: Jim just in terms of that.
Speaker Change: The NIM guide.
Speaker Change: Can you share what that assumes for.
Speaker Change: Do you anticipate.
Speaker Change: Posit costs move lower from here without additional rate cuts.
Or is that continued kind of steady state given that you expect or trying to grow the deposit book.
Speaker Change: Thanks, Frank for asking because we talked about this on last quarter's call. So appreciate the question. It gives me a chance to clarify a little bit.
Speaker Change: Last quarter, we talked about how we took a very conservative line with our ability to drive deposits because we thought we really really will not grow deposits, we want to keep the loan to deposit ratio where it is in the low 90, we want to fund that growth with the deposits that might just consider this a moment ago are kind of pricing strategies and following that so last quarter on the call. We are saying we're not assume.
Speaker Change: <unk> rates are going to fall in deposits and loans held in the first quarter, we were able to lower deposit costs by eight basis points, which is great.
Speaker Change: Looking for their forecast for the rest of the year.
Speaker Change: <unk>.
Speaker Change: I just would reiterate the guidance for the first quarter with an ability to drop the deposit rates in other words, if I look at the 199 of the total cost of deposits right now.
Speaker Change: The assumption is that that holds fairly steady by the end of the year. So when I say, our NIM can get to the high 300 Seventy's.
Speaker Change: <unk>.
Speaker Change: That doesn't assume an ability to do it by dropping deposit cost since it could drop deposit costs.
Speaker Change: It could be even better than that there'll be upside to that.
Speaker Change: Yeah, just to add one more thought to that some of those assumptions on deposit costs, while we're looking at their historical betas and ability to drive deposits and the need to fund it.
Speaker Change: We're done.
Speaker Change: Before we saw a lot of competitors dropping rates and what we've seen in our local market. When we see when you look at the peer reports for the quarter. This quarters like last quarter, everybody is dropping rates.
Speaker Change: And that's part of our story too in the first quarter and Jamie was alluding to it a moment ago in Cds mature money markets mature, we're able to present, our customers with lower rates than they had in pay per se. So we.
Speaker Change: We have done while the <unk> maturity short and that rollover processes benefiting just like everybody else and so that assumption of not taking deposit rates down probably.
Speaker Change: Very conservative, but to the extent of conservative and we're able to do better than that it just gives it a little more upside of that NIM forecast.
Speaker Change: Oh, great. Thanks, Yeah, that's great, but just on that just.
Speaker Change: Is does that NIM.
Speaker Change: <unk> you gave your outlook that that includes the center deal.
Speaker Change: Yes. It does include synergies and I'll tell you we're working on the Mark So this entity right now.
Speaker Change: Closing, we're getting it.
Speaker Change: Final numbers from them and then do the final look at our third party to do the marks it's just not that significant to move the needle that much.
Speaker Change: It might.
Speaker Change: Can be one or two basis points of that NIM forecast, but.
Speaker Change: This is not going to be that.
Speaker Change: Helped with additive and overall.
Speaker Change: So we're very excited about the acquisition for lots of fundamental reasons, but in terms of the NIM guidance, it's not.
Speaker Change: Big enough to move the needle that much.
Speaker Change: Okay, and then just lastly on buying.
Speaker Change: Buybacks, obviously now that you've got the deal closed.
Speaker Change: It could change things and so just curious your appetite or just thoughts given the pullback in shares.
Speaker Change: The use of buybacks as capital return here and any thoughts I guess around.
Speaker Change: Sizing that as well. Thanks, yes, yes, so I was watching the stock prices in the Fourteens. We thought this would be granted pertaining to both the market and now backup.
Speaker Change: That's going to come out of blackout here in a little bit in that opportunity.
Speaker Change: Our capital priorities haven't changed we want to make sure we can capitalize growth in loan pool for organic growth the first priority.
Speaker Change: Increase the dividend.
Speaker Change: Steady rate, which we did this year again.
Speaker Change: And then look for these high buybacks way to return capital to shareholders, we generated excess capital after the dividend of $20 million last quarter, plus another $20 million of USPI, which you can count on every quarter, but there's plenty of capital generation.
Speaker Change: So.
Speaker Change: We have not made any official decision to turn on the buyback.
Speaker Change: But we would look at all those factors in the second quarter to see if it's appropriate to do so.
Speaker Change: Okay Alright.
Speaker Change: Alright, I appreciate the color. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Carl Shepard with RBC capital markets. Please go ahead.
Carl Shepard: Hey, good afternoon guys.
Speaker Change: <unk>.
Speaker Change: Jim just to pick up the deposit cost guidance, one more time.
Speaker Change: I just wanted to get it straight.
Speaker Change: <unk> assumes a couple of cuts.
Speaker Change: And you're saying stable deposit cost even in buckets like savings are interest bearing demand and that scenario that seems conservative to me. So thats why I just want to make sure our pricing.
Speaker Change: Go ahead.
Speaker Change: Yes, it is and so look the whole bank of redoing, our re forecasting exercise actually this month for the rest of the year, so that guidance might change for the next quarter.
Speaker Change: There's a couple of things going on I think.
Speaker Change: The macro swaps alone get you halfway there.
Speaker Change: So the NIM guidance and the rest of <unk>.
Speaker Change: It is coming from positive replacement yields even as in a falling rate environment.
Speaker Change: So.
Speaker Change: Yes, I agree with you there.
So the assumption on the deposit cost might be conservative you start to go down. This avenue of the different categories is obviously mixed shifts going out to those categories. So I'm not we're not saying that it's stable in every category across the board.
Speaker Change: The aggregate cost of deposits, which includes time and noninterest bearing.
Staying stable, so we'll revisit that assumption hearing update guidance as the year goes on.
Speaker Change: Okay, sorry to pick at it I know, it's not the easiest thing to forecast and you're doing your best every quarter, yes, sorry I.
Speaker Change: We anticipated the question. So thank you very much Carl.
Speaker Change: Kind of moving over to expenses the ftes.
Speaker Change: Kind of ticked up a little bit over the course of the quarter I guess is there any more plans for the rest of the year and then just.
Speaker Change: Anything else going on besides stripping out the incentive comp from last quarter, and adding back center that you want to flag for us.
Speaker Change: Yes, the FTE is really an investment in probably half of it on the commercial side of the bank.
Speaker Change: And pretty pleased with the prospects of return there I think.
Speaker Change: Part of it is also just filling vacancies.
Speaker Change: In.
Speaker Change: Our financial solutions network and <unk>.
Speaker Change: We're also going to look closely at costs here in the second quarter.
Speaker Change: It feels like the run rate is a little higher than it should be and we'll probably be back to you perhaps.
Speaker Change: In the next quarter or so.
Jim: Some opportunities there Jim what do you want to add.
We're happy to be able to pick up talent, where we can we're able to do that in some select pockets here and a commercial bank. So thats a good addition to FTE.
Jim: We had some measures as well to make sure that.
Jim: Our turnover rate is under control and ours.
Jim: Branch network.
Jim: And people like to work here and stay here, so that helps the <unk> count as well with respect to the FTE count as well.
Jim: Okay.
Bob: Thank you Bob.
Jim: Thank you.
Speaker Change: Our next question comes from the line of Kelly Motta with <unk>. Please go ahead.
Kelly Motta: Hi, good afternoon. Thanks for the question and congrats on getting.
Speaker Change: The deal to close so quickly.
Speaker Change: Following up on on the expense question maybe.
Speaker Change: Maybe framing it in another way you talked about.
Speaker Change: New talent <unk> hired.
Two new President's and Treasury management wondering acknowledged.
Speaker Change: <unk> that you are paying close attention to expenses. If there is any other areas, where you think you might be opportunistic with adding talent.
Speaker Change: With adding talent I think.
Speaker Change: We've added two and bolstered our equipment Finance group.
Speaker Change: And our commercial banking teams.
Speaker Change: Not at the time I think that we're pretty pleased with our fee businesses our gain on sale businesses. The staffing we have there.
Speaker Change: Wealth management and they are contributing nicely.
Speaker Change: <unk>.
Speaker Change: Mortgage is probably up year over year in terms of originations in volume, but probably not at that point or inflection point, where you would consider adding to some of those consumer lending businesses site. I think we're pretty good we're going to be off site on Monday, and we're going to talk about.
Speaker Change: Getting better processes.
Speaker Change: And how we improve the flow through our bank and our operations areas.
Speaker Change: And.
Speaker Change: And we will.
Speaker Change: Become more efficient than we were this quarter.
Speaker Change: Got it that's helpful and.
And then on the SBA front those gain on that gain on sale came in at that this quarter. We've seen that a couple of other banks wondering if you could.
Speaker Change: Sure the drivers of that if it was just.
Speaker Change: A pipeline there or gain on sale margins and your outlook.
Speaker Change: For this businesses Q4 more of a normalized level or.
Speaker Change: When do you anticipate this quarter to be at go ahead Ryan.
Speaker Change: Right right in the near term.
Speaker Change: We're a little protects perplexed by that the SBA was.
Speaker Change: Going along pretty well I think perhaps fee.
Speaker Change: Just the longevity of higher rates now on those borrowers that have just slightly more leveraged.
Speaker Change: Perhaps as part of the answer I guess so.
Mike: I'll turn it over to Mike or.
Speaker Change: Jane who are closer to the business your thoughts.
Mike: Okay.
Mike: Mike.
Mike: Yes sure go ahead.
Mike: So couple of things.
Mike: We think that.
Mike: SBA gain on sale will be.
Mike: A bit trough year.
Mike: SBA progresses.
Mike: The pipeline and the mix of deals that are in there there's some construction.
Mike: There are some construction deals in there.
Mike: That need to.
Mike: To close before we can do anything with them and and we've got some larger projects in there that are just taking a bit longer to complete.
Mike: But it's not a question of margin gain on sale.
Mike: Margin is right around where we expected it today.
Mike: So far.
Mike: Got it Thats helpful.
Mike: Paul.
Speaker Change: Maybe last question for me on the expense guidance just wanted to clarify if that that includes the impact of.
Speaker Change: The run rate of the acquisition and the timing of the conversion on that yes. It does.
Speaker Change: Okay.
Speaker Change: Conversion is slated for the first weekend in June.
Speaker Change: Yes, Julien actually we gave some of that guidance on last quarter's call. I think you all reflected in the solid reflecting a consensus pretty well for the expense run rate.
Speaker Change: Great. Thank you so much I'll step back. Thanks, Kelly. Thank you are.
Speaker Change: Our next question comes from the line of Matthew Breese with Stephens. Please go ahead.
Speaker Change: Hey, good afternoon.
Speaker Change: Good afternoon.
Speaker Change: Sorry to beat a dead horse here, but the NIM outlook, just sounds really robust.
Speaker Change: And Jim I was hoping you could maybe extend that outlook a little bit granted there's more factors that get into 2026, what is the outlook for the NIM into 2026 still kind of up until the right.
Speaker Change: Well it depends a little bit on the forecast.
Speaker Change: The flat rate forecast.
Speaker Change: Which we didn't kind of bracket what if there are no rate cuts at all which is stays where it is yes, it's great in 2006 it keeps talent.
Speaker Change: I guess, the 300 <unk> and stays in the 300 <unk>.
Speaker Change: We've actually hovers in the three to three <unk> in 2025.
Speaker Change: But in 2026 in the high <unk>.
Speaker Change: Yes.
Speaker Change: Based on our forecast we have a free cuts.
Speaker Change: Then it stays in the.
Speaker Change: Right around 388 to 370 <unk> hundred 80 next year.
Speaker Change: So it depends on that but thanks for the question. It's a good opportunity to say there are other assumptions in there as well there is no recession forecast in that so so part of the assumption.
Speaker Change: All of these forecasts is that we're able to continue to grow loans.
Speaker Change: To put on new loans that we have rates that we have seen the willing to put them on and that will replace the runoff that we assume we're going to have the lower rate loans. So you can get the nice benefit of that pickup in replacement yields.
Speaker Change: But theres not theres no contemplated slowdown in any of that so there are other assumptions in there.
Speaker Change: Perfect alone.
Speaker Change: There is yes, there is all of it.
Speaker Change: Go ahead, Mike, Yes, just let me use for a moment I mean, if rates come down quicker than that we're pretty broad based in our offerings.
Speaker Change: With consumer products, which are on the sidelines, particularly consumer lending out of our branches are good mortgage capability that we havent dismantled and those businesses could really turn on in an environment like that.
Speaker Change: Our mortgage business made $10 million a year for us. So it just I think we're hedged that if rates go down.
Speaker Change: Certain kinds of businesses pick up.
Speaker Change: We just don't feel like it would be a train wreck in fact, we think if rates went down a little bit.
Speaker Change: Yield curve was upward sloping and it just <unk>.
Speaker Change: Spruce demand a little bit.
Speaker Change: We can have the best for us.
Speaker Change: Both worlds and the consumer and the commercial banking side.
Speaker Change: I appreciate that.
Speaker Change: In my career, a handful of times, you've seen a 4% NIM usually not for very long I am curious if you think you start to see kind of competition erode margins as you hover.
Speaker Change: Hover in this re <unk> there.
Speaker Change: I suspect I think.
Speaker Change: We're a bank also that we're about 19, 5% fee income appear.
Speaker Change: Our peers of about 16 five.
Speaker Change: The top quartile is probably.
Speaker Change: Two percentage points better than that we really need to get there I mean, we've come a long way in a decade, but we really need to be a better fee income bank and we've got to drive that through our regional business model, which we put in place and we have good product offerings in wealth management the gain on sale businesses insurance and other places and we just feel.
Speaker Change: We can get there and get that fee income up as well over time and Thats, just all blood sweat and tears and what Jane and Mike the queue and are good at in the teens and that's that's just execution.
Speaker Change: Understood.
Could you help me out with new loan yields holding pricing or what is the blended rate on the pipeline are you starting to see competition erode margins anywhere if so to what extent.
Speaker Change: Yes, I'll turn it over to Mike the coupon on that.
Speaker Change: I would love to hear your response.
Speaker Change: I mean, the loan yields as Jim alluded to are coming in around 7% today.
Speaker Change: We'll say that competitively it feels like there's more competitive pressure today as folks are looking to grow loans. So we have seen.
Speaker Change: Some slight moves down in margin in bids.
Speaker Change: Still pretty healthy overall, but you can anticipate I think that is.
Speaker Change: And looking for more to grow their portfolio is a little more pressure on that yield, but it's still somewhat elevated level from where it has historically we are just watching that closely as we select the right deals and the right clients.
Speaker Change: Got it okay.
Speaker Change: How much SBA exposure do you have on the balance sheet and are you seeing anything notable credit trend wise there over the past last bunch of weeks, particularly post tariffs.
Speaker Change: And then any notable exposures that might be more.
Speaker Change: Consumer oriented I'm thinking franchises and restaurants and things like that.
Speaker Change: Yes, I'm going to turn it over to Brian So hockey for that one great question.
Speaker Change: Apologize can you just repeat the first part of it.
Speaker Change: You referenced a specific industry and I didn't catch the wording, yes. It was.
Speaker Change: Looking for SBA exposure, that's on the balance sheet.
Speaker Change: Notable credit trends overall, and then specifically if there is exposure to some of the more consumer oriented categories I'm thinking franchises in restaurants.
Speaker Change: Thank you thank you for repeating it.
Speaker Change: The SBA portfolios.
Speaker Change: Quite diverse.
Speaker Change: We do have one individual that focuses on franchise lending.
Speaker Change: We've had a number of parameters of box builds around that business.
Speaker Change: To.
Speaker Change: To ensure that its franchises with.
Speaker Change: Broad depth of locations that experience, we've built boxes around it to ensure that there is.
Speaker Change: Additional liquidity.
Speaker Change: On the balance sheet at the individualized.
Speaker Change: Start that franchise, so we feel pretty good about the business that we have.
Speaker Change: And SBA for franchises.
Speaker Change: Beyond that.
Speaker Change: I wouldn't highlight any concentrations retail or otherwise.
Speaker Change: That.
Speaker Change: Bring any concern.
Speaker Change: We sell the <unk>.
Speaker Change: <unk> share of our business.
Speaker Change: And those that are on the books came via acquisition.
Speaker Change: Or as I think Jane highlighted earlier.
Speaker Change: We do do a fair number of business expansion.
Speaker Change: Loans in those construction projects stay on the books until they're constructed and occupied.
Speaker Change: So feeling pretty good about the diversity of the book hopefully that helps.
Speaker Change: We have that for.
Speaker Change: SBA footings on the balance sheet, we can probably get at that point by the end of the call.
Speaker Change: Okay, and then just last one for me Jim.
Speaker Change: As the swaps expire.
Speaker Change: What part of the average balance sheet are going to be affected by that.
Speaker Change: Sorry for the JV question, but I'm, just trying to figure out the average balance sheet with that rollout.
Speaker Change: While the average balance sheet size won't change.
Speaker Change: The assets there hasnt stays there so right now we've seen the example, the one thats expiring tomorrow and count on counting down the days $150 million that is right. Now we have received fixed swaps. So we're getting the sweat spread excuse me plus 0.5% 95%.
Speaker Change: So we see fixed we're receiving $5 95%.
Speaker Change: The day after Tomorrow will we see one month, so far and we will get a spread.
Speaker Change: The spread is plus one month, so far for three 7%.
Speaker Change: So that $150 million still on the books. So it will stay there and it's going to pop up.
Speaker Change: By the difference between $4 three to seven and $5 95.
Okay. So does that loan yields will be affected by that is that what you're saying correct.
Speaker Change: Okay, correct loan yields so.
Speaker Change: Yes, I mean that one swap alone is enough to add.
Speaker Change: Slide $5 6 million.
Speaker Change: Year and income spread income.
Speaker Change: That's all I had thanks for taking my questions you bet. Thank you very much.
Manuel Novice: Again for any questions Press Star one and our next question comes from the line of Manuel Novice with D. A Davidson. Please go ahead.
Speaker Change: Okay.
Speaker Change: I appreciate that the peak and kind of.
Speaker Change: Some of the credit issues with last year.
Speaker Change: Could you just kind of speak to the trend in provisioning from here.
Speaker Change: In reserving.
Speaker Change: Yes.
Speaker Change: I'll hand, it over to Brian in a minute.
Speaker Change: We're about.
Speaker Change: One <unk>.
Speaker Change: 32 reserve I think about last year.
Speaker Change: And about $30 million in charge offs and $29 one in provisioning. So as you would expect that kind of matched our charge offs.
Speaker Change: And in the first quarter is pretty good are our charge offs are down provisioning stayed high a little bit.
Speaker Change: Ideally over the course of the year, they would match and we're already in a pretty good position will probably seven basis points higher than our 10% to $100 billion peers.
Speaker Change: On the reserves. So we're in a good position there and we also feel like.
Speaker Change: And as some of the acquired loans.
Speaker Change: We can see the tail of the watch list and everything's starting to dissipate and we didn't really feel a lot from our legacy portfolio or as much over the last few years, Brian what would you add.
Speaker Change: I wanted to add too much to the reserve.
Speaker Change: Outlook.
Speaker Change: I would anticipate it to remain relatively stable.
Speaker Change: We experienced loan growth in the first quarter bolt on the.
Speaker Change: Funded side and the unfunded construction side, we will continue to.
Speaker Change: Yes sure.
Speaker Change: Growth.
Speaker Change: And the reserve based on that.
Speaker Change: And pending macroeconomic environment.
Speaker Change: We will see changes in our.
Speaker Change: Just on a qualitative side.
Speaker Change: Thank you Mike covered most of it there.
Speaker Change: That's helpful.
Speaker Change: With the <unk>.
Speaker Change: Shifting topic for a second with center bank closing.
Speaker Change: Yes.
Speaker Change: Is there any kind of updated metrics with that one I noted adds density to your sense Cincinnati footprint.
Speaker Change: Anything anything to update there it's already in your guidance, but just maybe more qualitative how it helps with loan growth and then any further thoughts on the next transaction kind of what would you consider going forward. If any of your interest have shifted or just stayed on the same.
Speaker Change: Disciplined process.
Speaker Change: I would just add on centered bank.
Speaker Change: We've gotten some unexpected good talent from that organization.
Speaker Change: It's already integrated with our regional President there who are they are in the same space.
Speaker Change: And that's really positive in terms of.
Speaker Change: Cohesion and culture.
We get several good lenders.
Speaker Change: We'll hit the ground running and add to the team.
Speaker Change: <unk>.
Speaker Change: So pretty excited about that we've also felt like we got to the expense targets that we.
Speaker Change: Pretty easily and added some talent even added some corporate talent.
Speaker Change: To fill open positions throughout first Commonwealth.
Excited about that I think that.
Speaker Change: Think that week and Jim Youll have to coach Vihear. If memory serves it's kind of outsized accretive for the size it was almost like.
Speaker Change: 253% accretive.
Speaker Change: 2026 for banks that was pretty small.
Speaker Change: Pretty high on it and we also think that market is just ripe for growth we have a number of our senior executives now that live in Cincinnati and have terrific.
Speaker Change: Brands, there personally and I just I, just really believe we could.
Easily over the next few years.
Speaker Change: Rapidly increased.
Speaker Change: Our deposit and loan footings, there and we just already have quality relationships with developers and other businesses.
Speaker Change: So that's a great place to start regarding M&A I mean, it's the full gamut.
Speaker Change: We've done smaller deals they've tended to do very well for us and.
And we've been very conservative as you know in terms of.
Speaker Change: Being pre picky.
Speaker Change: And almost all of our deals have been strategic and really added to our geography, primarily Ohio.
Speaker Change: A decade ago, we had hardly had anything in those markets have been aligned.
Speaker Change: The lion's share of our growth over the last five or six years last 10 years. So.
Speaker Change: I don't know that our appetite has changed much I think there.
Speaker Change: There might be more conversations in the offing.
Jim Youll: Last six months or so Jim what am I missing.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: Nothing to add Mike.
Speaker Change: Hey, Mike one thing to add with Santo Bank.
Speaker Change: I thought you captured it all beautifully but.
Speaker Change: The one really nice surprise, we expected all of the good stuff that we're going to get but the one really nice surprise was the caliber of the mortgage operation.
Speaker Change: So we think that'll help us.
Speaker Change: Deliver the mission in Cincinnati, we think it will help us grow the <unk>.
Speaker Change: And for mortgage business as well as the home equity business and consumer businesses generally.
Speaker Change: Greg comment Jamie Thank you for that.
Speaker Change: Hey, Mike if I might if I might just go back for a moment the SBA balances among the book is about $165 million.
Speaker Change: I appreciate all the commentary thank you guys.
Speaker Change: And that will conclude our question and answer session I'll turn the call back to Mike price for any closing comments.
Speaker Change: Hey, as always we appreciate your interest in our company.
Speaker Change: We're excited about the future.
Speaker Change: Growing our C&I businesses and our regions alongside when we feel like are great offerings in CRE equipment finance.
Speaker Change: Consumer offerings mortgage.
Speaker Change: We also are a bank that has a granular depository lots of households, and we're anxious to grow our fee businesses as a percentage of our overall revenue again, leveraging the regional model and our locally local teams and the relationships that we already have with clients. We also will be intentional and vigilant.
Speaker Change: Our costs and.
Speaker Change: And continuing to perform there as we have in the past so.
Speaker Change: So thank you for your interest and look forward to seeing a number of you over the course of the second quarter.
Speaker Change: That will conclude today's call. Thank you all for joining you may now disconnect.
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Okay.
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