Q2 2025 First Commonwealth Financial Corp Earnings Call
Mike Price: Ladies and gentlemen, thank you for standing by and welcome to the First Commonwealth Financial Corporation's second quarter 2025 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number one. As a reminder, today's call is being recorded. I will now hand today's call over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead, sir.
Ladies and gentlemen, thank you for standing by and welcome to the First Commonwealth Financial Corporation's Q2 2025 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, press star followed by the number 1 on your telephone keypad.
If you would like to withdraw your question, press star followed by the number 1 as a reminder. Today's call is being recorded. I will now hand today's call over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead, sir.
Ryan Thomas: Thank you, Tameka, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's second quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grabins, Bank President and Chief Revenue Officer; Brian Sochacki, Chief Credit Officer; and Mike McEwen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We've also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements.
Discuss First Commonwealth Financial Corporation's second quarter financial results.
Ryan Thomas: Please refer to our forward-looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to defer materially from those reflected in the forward-looking statement. Today's call will also include non-GAAP financial 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. And with that, I will turn the call over to Mike.
Participating on today's call will be Mike Price president and CEO. Jim russki Chief Financial Officer, Jean gruben Bank, president and chief Revenue officer. Brian sahaki Chief credit officer and Mike muan Chief lending officer. As a reminder, a copy of yesterday's earnings release can be accessed accessed by logging on to FC banking.com, and selecting the investor relations Link at the top of the page, we've also included a slide presentation on our investor relations website with supplemental information that will be referenced. During today's call. Before we begin, I need the cost and listeners that this call will contain for looking statements. Please please refer to our forward. Looking statements disclaimer on page, 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to defer materially from those reflected. In the forward-looking statement.
Today's call will also include non-GAAP financial 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. And with that, I will turn the call over to Mike.
Jim Reske: Hey, thank you, Ryan. We are generally pleased with our performance this quarter. Our core earnings per share of $0.38 surpasses consensus estimates by $0.03 and was an improvement from the $0.32 reported in the first quarter. Our headline financial metrics were robust, with core return on assets of 1.31%, a core pre-tax pre-provision ROA of 1.95%, and a core efficiency ratio of 54.1%. We've consistently worked towards building a high-performing franchise. This quarter's results reflect those efforts and occurred just one year after absorbing a $13 million down draft in annualized debit card interchange income due to the Durbin Amendment as we crossed $10 billion in assets. Let me highlight a few key drivers this quarter, many of which build on the trends we've discussed in past calls.
Hey, thank you, Ryan. We are generally pleased with our performance this quarter; our core earnings per share.
Of 38 cents, surpassing consensus estimates by 3 cents and representing an improvement from the previous 32 cents.
Reported in the first quarter.
Our headline financial metrics were robust, with a core return on assets of 1.31%. A core pre-tax, pre-provision RLA.
Of 1.95% and a core efficiency ratio of 54.1%.
We've consistently worked toward building a high-performing franchise.
This quarter's results reflect those efforts and are occurring just one year after absorbing a $13 million downdraft in annualized debit card interchange income due to the Durbin Amendment, as we crossed $10 billion in assets.
Jim Reske: First, our net interest margin expanded significantly from 3.62% in the first quarter to 3.83% in the second quarter, a 21 basis point increase. This was driven primarily by improved loan yields and lower deposit costs and aided by the Center Bank acquisition and the rolloff of the macro hedges. This margin expansion, coupled with strong loan growth of 8.1% annualized, fueled a $10.7 million increase in net interest income over last quarter to $106.2 million. We've said before that our focus on optimizing our balance sheet and driving high-quality loan growth would position us well in a dynamic rate environment, and we're seeing those efforts bear fruit. Loan growth was broad-based with standout performance in equipment finance, alongside meaningful contributions from small business, commercial, indirect, and branch lending. Perhaps even more importantly, we grew both deposits and loans in four of our six geographic markets.
Let me highlight a few key drivers. This quarter, many of which build on the trends we've discussed in past calls.
First, our net interest margin expanded significantly from 3.62% in the first quarter to 3.83% in the second quarter, a 21 basis point increase.
This was driven primarily by improved loan yields and lower deposit costs, and was aided by the Center Bank acquisition and the roll-off of the macro hedges.
This margin expansion, coupled with strong loan growth of 8.1% annualized.
Fueled by a $10.7 million increase in net interest income over last quarter, we reached $106.2 million.
We've said before that our focus on optimizing our balance sheet and driving high-quality loan growth would position us well in a dynamic rate environment, and we're seeing those efforts bear fruit.
Jim Reske: On the fee income side, we saw a $2.1 million increase in non-interest income to $24.7 million, with strong contributions from mortgage, SBA, interchange, wealth, and other service charges. The growth reflects our ongoing efforts to deepen customer relationships and expand our non-interest income streams. Our deposit franchise remains a cornerstone of our bank. Total deposits grew 9% year to date, reaching $10.1 billion. Notably, our community Pennsylvania region, which accounts for 37% of our deposit funding, continues to perform exceptionally well. And we're pleased with our continual progress in Ohio, where organic growth and small but strategic acquisitions have built a $4 billion bank. Ohio also accounts for the bulk of our new loan growth. The integration of Center Bank, which closed on May 1st and converted in early June, is progressing smoothly. Center added $295 million in loans and $278 million in deposits, bolstering our presence in Cincinnati.
Loan growth was broad-based, with standout performance in Equipment Finance, alongside meaningful contributions from small business commercial, indirect, and branch lending. Perhaps even more importantly, we regrouped both deposits and loans in 4 of our 6 gears.
On the fee income side, we saw a $2.1 million increase in non-interest income to $24.7 million, with strong contributions from mortgage, SBA, interchange, wealth, and other service charges. The growth reflects our ongoing efforts to deepen customer relationships and expand our non-interest income streams.
Our deposit franchise remains a cornerstone of our bank.
Total deposits grew 9% year to date, reaching $10.1 billion. Notably, our community Pennsylvania region, which accounts for 37% of our deposit funding, continues to perform exceptionally well, and we're pleased with our continual progress. In Ohio, our organic growth and small but strategic acquisitions have built a $4 billion bank. Ohio also accounts for the bulk of our new loan growth.
$95 million in loans and $278 million in deposits bolstering our presence in Cincinnati.
Jim Reske: We're confident that the long-term value of this acquisition will enhance our Ohio franchise, as we've seen with prior integrations. On the credit front, we experienced the continuation of positive trends in charge-offs and delinquency. Our second quarter provision expense was $12.6 million, with $3.8 million tied to day-one Cecil provision for Center Bank, which we've excluded from our core income metrics. Of the remaining $8.8 million in provision expense, $2.6 million can be attributed to a net increase in specific reserves, which was driven by a $4.2 million specific reserve for a single commercial floor plan loan that was moved to non-accrual and reserved for in the quarter. With respect to the floor plan credit, we are operating under a forbearance agreement. And as it remains an active workout, we appreciate your understanding that we'll not be able to provide a lot of further detail on today's call.
We're confident that the long-term value of this acquisition will enhance our Ohio franchise, as we've seen with prior integrations.
On the credit front, we are experiencing the continuation of positive trends in charge-offs and delinquency. Our second quarter provision expense was $12.6 million.
With $3.8 million tied to Des 1, Cecil provision for Senator Bank.
Which we've excluded from our core income metrics.
Of the remaining $8.8 million in provision expense.
$2.6 million can be attributed to a net increase in specific reserves, which was driven by a $4.2 million specific reserve for a single commercial floor plan loan that was moved to non-accrual and reserved for in the quarter with respect to the 4 credit. We are operating under a forbearance agreement.
Jim Reske: The impact of this single credit and the inclusion of Center caused non-performing loans to increase by $40.1 million from the prior quarter. Absent these two events, our core credit metrics were criticized, classified, and non-performing loans were all neutral quarter over quarter. Looking ahead, we remain optimistic about our trajectory. The momentum we've built through disciplined execution, strategic acquisitions, a regional business model, and a customer-centric approach positions us well for the second half of 2025 and beyond. As we've said before, our goal is to be the leading community bank in our markets, delivering value to our stakeholders while staying true to our mission of improving the financial lives of our customers and communities. I'll now turn it over to Jim Reske for a more detailed review of our financials. Jim?
And as it remains an active workout, we appreciate your understanding that we will not be able to provide a lot of further detail on today’s call.
The impact of this single credit in the inclusion of Center caused non-performing loans to increase by $40.1 million from the prior quarter absent. These two events are core credit metrics; criticized, classified, and non-performing loans were all neutral quarter over quarter. Looking ahead, we remain optimistic about our trajectory.
The moment we have built through disciplined execution and strategic acquisitions.
Brian Sohocki: Thanks, Mike. As Mike mentioned, the second quarter of 2025 was a strong quarter for us. Our earnings performance was driven by an expanding margin and strong fee income, so I'll focus on those two areas and wrap up with some brief thoughts on expenses and capital. The net interest margin, or NIM, expanded 21 basis points to 3.83%. We closed our acquisition of Center Bank during the quarter, so the natural question is, how much of that NIM improvement comes from the acquisition? Center's impact prior to March was actually fairly neutral, which is not that surprising considering that its first quarter NIM was almost the same as ours, just three basis points less, and it was a relatively small acquisition for us. The marks on their loan portfolio, however, added four basis points to our NIM in the second quarter.
A regional business model and a customer-centric approach position us well for the second half of 2025 and beyond. As we've said before, our goal is to be the leading community bank in our markets, delivering value to our stakeholders while staying true to our mission of improving the financial lives of our customers and communities. I'll now turn it over to Jim Reske for a more detailed review of our financials. Jim.
thanks Mike.
Mike mentioned that the second quarter of 2025 was a strong quarter for us.
Our earnings performance was driven by an expanding margin and strong fee income. So, I'll focus on those two areas and wrap up with some brief thoughts on expenses and capital.
The net interest margin, or NIM, expanded 21 basis points to 3.83%.
We closed our acquisition of Center Bank during the quarter. So the natural question is, how much of that NIM improvement comes from the acquisition?
Centers impact prior to Mars.
It was actually fairly neutral, which is not that surprising considering that its first quarter in him was almost the same as ours, just 3 basis points less, and it was a relatively small acquisition for us.
The marks on their loan portfolio, however, added 4 basis points to our ninth in the second quarter.
Brian Sohocki: Of that four basis points, two were related to the acceleration of marks related to loan prepayments, but the other two should continue. All of that means that most of our NIM expansion was due to our organic banking business. We did have the benefit of a maturity of $150 million in macro swaps for two-thirds of the quarter, which added about three basis points to NIM in the second quarter and should add another two basis points next quarter. The rest of the NIM expansion was split between assets and liabilities, with nine basis points of the increase coming from assets and five from liabilities. New organic loan growth was strong at 8% annualized, and those loans came onto the books at rates that were 42 basis points higher than the ones that ran off.
Of that 4 basis points, 2 were related to the acceleration of MARC related to loan prepayments, but the other 2 should continue.
All of that means that most of our new expansion was due to our organic banking business. We did have the benefit of the maturity of $150 million in macro swaps for two-thirds of the quarter.
which added about 3 basis points to NIM in the second quarter and should add another 2 basis points next quarter.
The rest of the Nim expansion was split between assets and liabilities, with 9 basis points of the increase coming from assets.
105 from liabilities.
New organic loan growth was strong at 8% annualized, and those loans came off the books at rates that were 42 basis points higher than the ones that ran off.
Brian Sohocki: The cost of deposits fell by eight basis points, but we had increased borrowings by the end of the quarter, so the total drop in the cost of funds was only five basis points. Our forward NIM guidance this quarter is based on a revised baseline forecast that now contemplates two Fed cuts by year-end, down from three in last quarter's forecast. And in that case, we'd expect our NIM to expand to the low to mid-390s by the end of the year, give or take a few basis points as always. If there are no cuts at all, the NIM would expand another five basis points on top of that by the end of 2025.
The cost of deposits fell by 8 basis points, but we had increased borrowings by the end of the quarter, so the total drop in the cost of funds was only 5 basis points.
Our forward guidance for this quarter is based on a revised baseline forecast that now contemplates two Fed cuts by year, down from three in last quarter's forecast.
And in that case, we’d expect our name to expand to the low to mid 390s by the end of the year, give or take a few basis points, as always.
If there are no cuts at all, the NIM would expand another 5 basis points on top of that by the end of 2025.
Brian Sohocki: That guidance includes an additional two basis points in the third quarter of '25 from the macro swaps that matured last quarter, plus macro swap maturities of $25 million on August 25th, $25 million on October 10th, and $50 million on November 5th. It also reflects expected pressure on loan spreads and the need to price deposits to fund our loan growth. All told, with the loan growth, the acquired center portfolio, and the improved margin, we believe that our net interest income should be between $110 to $115 million per quarter for the remainder of 2025. Turning now to fee income, our non-interest income increased by $2.2 million over the last quarter. There are about $600,000 of items here worth mentioning. First, we had about $375,000 in gains on the sale of Oreo properties in the quarter.
That guidance includes an additional 2 basis points in the third quarter of 2025. From the macro swaps, the majority matured last quarter.
5th, $25 million on October 10th, and $50 million on November 5th.
It also reflects expected pressure on loan spreads and the need to price deposits to fund our loan growth. Also, with the loan growth.
The acquired center portfolio and the improved margin.
We believe that our net interest income should be between $110 million to $115 million per quarter for the remainder of 2025.
Turning now to see income.
Interest has increased by $2.2 million over the last quarter.
There are about $600,000 worth of items here that are worth mentioning.
Brian Sohocki: There's only about $1 million of Oreo left in our books, so I wouldn't count on outsized Oreo gains again anytime soon. Second, the $436,000 increase in BOLI income included $166,000 from a debt claim, while the rest of the increase comes from higher crediting rates on the BOLI portfolio. Other than that, our fee income improvements in the quarter were broad-based and, as Mike mentioned, included improved performance in fee income businesses like mortgage, SBA, and wealth. Turning now to expenses, operating expense, which excludes merger expense, was up by about $1.1 million from last quarter. Increased salary expense associated with the newly acquired center employees was offset by lower incentive expense compared to last quarter, leaving the salary and benefits line item relatively unchanged. Some of the increased expense that shows up in other this quarter was associated with increased loan volume in areas like SBA.
First, we had about $375,000 in gains on the sale of Oreo properties in the quarter.
There's only about a million dollars of Oreo left in our books.
So, I wouldn't count on outside Oreo gains again anytime soon.
Second.
The $436,000 increase in bold income.
Includes $166,000 from a debt claim.
While the rest of the increase comes from higher crediting rates on the bully portfolio.
Other than that, our fee income improvements in the quarter were broad-based.
And, as Mike mentioned, we included improved performance in fee income, particularly from businesses like mortgage, SBA, and wealth.
Turning now to operating expenses, the operating expense, which excludes merger expenses, was up by about $1.1 million from last quarter.
Increased salary expense associated with the newly acquired Center employees was offset by lower incentive expense compared to last quarter, leaving the salary and benefits line item relatively unchanged.
Some of the increased expenses that show up in "other" this quarter were associated with increased loan volume in areas like SBA.
Brian Sohocki: Finally, with regard to capital, capital ratios improved due to retained earnings, along with a reduction in AOCI. Our tangible book value per share grew by 7.3% annualized from the previous quarter. There's very little buyback activity in the second quarter, but we ended the quarter with $6.2 million of share repurchase authority and just obtained an additional $25 million in share repurchase authority from our board yesterday. And with that, we'll take any questions you may have.
Finally, with regard to capital ratios, improved due to retained earnings along with a reduction in AOCI, our tangible book value per share grew by 7.3% annualized from the previous quarter.
There's very little buyback activity. In the second quarter, though, we ended the quarter with $6.2 million of share repurchase authority and just obtained an additional $25 million in share purchase authority from our board yesterday.
Hey, with that, we'll take any questions you may have.
Mike Price: At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star followed by the number one. Your first question is from the line of Daniel Tamao with Raymond James.
At this time, if you would like to ask a question, press star followed by the number 1 on your telephone keypad.
If your question has been answered and you would like to remove yourself from the queue, press star followed by the number 1.
Your first question is from the line of Daniel Tamiyo with Raymond James.
Ryan Thomas: Good afternoon, guys. Thanks for taking my questions. I apologize, Jim. Did you give a guidance range for expenses in the third quarter or the back half of the year?
Good afternoon, guys. Thanks for taking my questions. Um,
I, uh, I apologize. Jim, did you give a guidance range for expenses in the third quarter or the back half of the year?
Jim Reske: You know, I didn't, Kenny. I looked at the expenses, and the expenses and the consensus seemed like they're pretty much on track. I think the consensus for the third quarter, I'm looking at it now, is 72.8 million. Fourth quarter is 73.1. You know, since you asked the question, though, I will take the opportunity just to mention something. When we look at our own internal budgeting and forecast, we see a little trail-off in expenses and non-interest income together. They kind of offset each other, but we see a little trail-off in the fourth quarter just due to seasonality, just the way we budget.
You know, I didn't get any, I looked at the expenses and the, the, um, expenses and the consensus seemed like, they're pretty much on track.
I think the consensus for the third quarter here, I'm looking at it now, is 72.8 million.
Fourth quarter is 73.1. You know, since you asked a question though, I will take the opportunity.
Just to mention something, when we look at our own internal budgeting and forecasts, we see a little trail-off in expenses and non-interest income together that kind of offset each other. However, we see a little tail-off in the fourth quarter, just to see the seasonality.
Jim Reske: There's some income, some business lines that have some seasonality where customers are shopping for cars and mortgages and buying homes more in the summer months, and it trails off a little bit, along with some expenses towards the end of the year, like hospitalization, that trails off because of the way we operate our self-insurance or hospitalization expense. And the consensus forecast has both of those pretty, pretty consistent in not, I think, a notch expense from third to fourth quarter, and both of those should trail off a little bit in the third to fourth quarter. It doesn't matter that much because they kind of offset each other, but I appreciate you asking.
Just the way we budget, there are some business lines that have seasonality. For example, customers tend to shop for cars and mortgages and buy homes more in the summer months, which trails off a little bit along with some expenses towards the end of the year. This includes hospitalization, which also trails off because of the way we operate our self-insurance for hospitalization expenses.
And the consensus forecast has both of those pretty consistent and not just inconvenience expense in the third or fourth quarter, and both of those should trail off a little bit. In the third or fourth quarter, it doesn't matter that much because they kind of offset each other. But I appreciate you asking.
Ryan Thomas: And then, but then they would, they would both bounce back in the first quarter of next year.
Jim Reske: Yeah, probably.
Ryan Thomas: Where there's kind of seasonal items. Yeah.
Jim Reske: That's right. That's right. And then, you know, we had pretty fairly, off the top of my head, like 4-ish percent growth in expenses year over year, pretty consistently.
And then, but then they would both bounce back in the first quarter of next year. Yeah, probably seasonal items. Yeah, that's right. That's right. And then, you know, we'd have pretty fairly.
Uh, off the top of my head, like 4-ish percentage growth and expenses year over year. Pretty consistently.
Ryan Thomas: Okay. Helpful. Thank you. You know, I guess secondly, you talked about it at the end there on the repurchases. You know, the stock price is higher now. You didn't buy back much or any in the second quarter, but you had the deal happening. And I'm just curious kind of what the appetite is. Obviously, you've got the new authorization. You've got plenty of dry powder, if you will. So how are you guys thinking about repurchases now?
Okay, helpful, thank you. Um,
you know, I, I guess, secondly, you talked about it at the end there on the purchases, um, you know that the stock price is higher now you didn't buy back much or any in the, uh, in the second quarter. But yeah, the, you know, the deal happening and um, I'm just curious kind of what the appetite is. Obviously, you've got the new authorization, you got, you got plenty of um,
Is now.
Jim Reske: Yeah, we'll go back into the market after we're out of blackout and probably set a price, and we buy back our shares according to a pricing grid that we set with a maximum cap. So for example, in the last quarter, I think towards the end, after we got out of the Center Bank acquisition, once that was closed for a few days, we set the cap at $15.50 a share, but the price was going higher than that, so we went with the buying backs. We're not like some companies that might say, you know, come hell or high water, no matter what the price, we're going to retire 3% of our shares this year. And we don't care what the price is, we're just going to spend the money and buy it. We really haven't done that.
Yeah, we'll go back into the market after about a blackout and probably set a price. We will buy back our shares according to a pricing grid that we set with a maximum cap.
uh, so for example, um,
Uh in previous, the last quarter, I think towards again after we got out of the center Bank acquisition like that was closed for a few days. We set the cap at 1550 a share but the price was going higher than that. So we won't really be buying back. Uh,
Jim Reske: We try to keep some dry powder for dips in the price, and when it gets too expensive, we just come out of the market. So we haven't set that price yet for the fourth quarter. If I had a gun to my head right now, I'd guess it's somewhere in the $17 range, and we'd say, okay, at that lowest price of $17 or $17.50, buy back stock. When it gets to be above that, wait, keep the powder dry, and then go back in on the buy on the dips. That's kind of how we do it.
We're not like some companies that might say, you know, come hell or high water, no matter what the price, we're going to retire 3% of our shares this year and we don't care what the prices are. We're just going to spend the money. We really haven't done that.
We try to keep some dry powder for dips in the price.
And when it gets too expensive, we just come out of the market. So we haven't set that price yet for the fourth quarter. If I had a gun to my head right now, I guess it's somewhere in the $17 range, that all of those prices is $17.70 buy back stock. When it gets to be above that, we keep the powder dry and go back in on the buy, on the dips.
That's kind of how we do it.
Ryan Thomas: Okay. That's helpful. And then lastly, you know, I appreciate you can't give more color on the loan that drove the increase in NPLs, but maybe you can give color on where you think charge-offs trend from here. They've been low for the first half of the year. You know, I think hopefully lower than expectations. So you guys thinking that is there a reason that they would be moving back up to a more normalized range in the back half, or pretty, pretty clear in terms of the outlook for charge-offs?
Okay, that's helpful. Um, and then lastly, you know, I appreciate you can't give more color on the um, on the loan. That drove the increase in npls but um, maybe you can give caller on where you think charge offs trend from here. They've been um, low for the first half of the year you know I think probably lower than expectations. So you guys thinking that is there a reason that they would be?
Moving back up to a more normalized range in the back half or pretty clear in terms of the, uh,
Jim Reske: Yeah, I'll let Brian Sochacki, our Chief Credit Officer, answer that. Brian.
The outlook for charge offs.
Mike McCuen: Yeah, thanks, Mike. No, I mean, we're obviously pleased with the quarter. I'd highlight that, you know, after experiencing the centric charge-offs in 2023 and 2024, you know, those really diminished in the second quarter. We were down to 34,000 in that category. You know, across the portfolio, charge-offs have been at acceptable levels. Equipment finance, indirect have outperformed, you know, industry peers. You know, as you mentioned, we reserved for, you know, this problem credit, as well as others, and, you know, worked through those resolutions. But, you know, absent that one large relationship, and with less headwind from centric, I feel we've normalized. We've always referenced kind of a mid-20 basis point charge-off range, 25 to 30. And, you know, we could see a return to those levels with the problem assets, but, you know, no, nothing else to note.
Yeah, I'll let Brian sahaki our chief credit officer. Uh, answer that right? Yeah, thanks Mike. I mean, we're we're obviously pleased with the quarter. Um, I'd highlight that, you know, After experiencing the Centric charge offs in 20123 and 2024, you know, it was really diminished in the in the second quarter. Um, we're down to 34,000 in that category, um, you know, across the portfolio charge offs have been at acceptable levels. Um, equipment, Finance indirect and have outperformed, you know, industry peers. Um you know as you mentioned, we've reserved for, you know, this problem credit uh, as well as others, and you know, work through those resolutions. But, you know, absent that 1 large relationship. Um, and, and with less headwind from Centric, I feel that we've normalized, we've always, uh, reference kind of a, a mid 2020 basis point charge off range, 25 to 30 and uh, you know, we
We could see a return to those levels with, uh, the problem assets. But, um, you know, no, uh, nothing else to note.
Ryan Thomas: Okay, great. Thanks for all the color, guys.
Jim Reske: Thank you.
Okay, great. Thanks for all the color, guys.
Thank you.
Mike Price: Your next question is from the line of Carl Shepherd with RBC Capital Markets.
Your next question is from the line of Carl Shepard with RBC Capital Markets.
Ryan Thomas: Hey, good afternoon, everybody.
Jim Reske: Hey, Carl.
Hey, good afternoon, everybody.
Hey, Carl.
Ryan Thomas: Jim, I guess I wanted to start on the margin. You mentioned loan yield, I think, replacing 42 bips higher this quarter.
Jim Reske: Yeah, that's right.
Ryan Thomas: Any guidepost to maybe how that's gone in July and any way you want to frame up, I guess, the quarter the best you can?
Um, Jim, I guess I wanted to start on the margin. You mentioned loan yield, I think, replacing 42 bps higher this quarter. That's right.
Any guidepost to maybe how that's gone in July and any way you want to frame up, I guess, the quarter as best you can.
Jim Reske: Yeah, so all those forecasts we give on NIM really are predicated on continuing trends of the previous quarters and continuing that kind of loan growth trajectory. And that's the best we can do. So we assume if we continue if the past repeats itself and we can go forward, we'll be able to keep that replacement rate up. It's been pretty consistent. It was a little few basis points higher in the first quarter. I think it was 46 off the top of my head and then 43 in the second quarter. So, as long as the Fed doesn't cut rates, that should persist for a while. And obviously, even if the Fed does cut once, it'll still probably be positive.
Yeah, so all those forecasts we give on them really our predicated on continuing trends of the previous quarters and continue, that kind of loan, growth trajectory, that's the best we can do. So we see if we continue with the past repeats itself so we can go forward, we'll be able to keep that replacement rate up. It's been pretty consistent. It was a little too basis points higher in the first quarter. I think it was 46 off top of my head and then 43 and the second quarter. So uh, as long as the FED doesn't cut rates,
Jim Reske: But there is somewhat of, there are some, definitely some estimates of loan production that go into that, that whole model that predicts the, that does an NIM forecast.
Um, that should persist for a while, and obviously, even if the Fed does cut once, it'll still probably be positive.
Ryan Thomas: Okay.
But there is somewhat of there. There are some, uh, definitely some estimates of loan production that go into that, uh, that whole model that predicts the, uh, that doesn't inform forecast.
Jim Reske: Carl, I would just add that, of a 42 point basis points increase, commercial fixed is really dragging that number up at like 111. And indirect installment loan is probably 73 basis points. So, that's that's pulling it up. And just, and they had big volume. The mortgage and some of the other categories have nice replacement yields, but there's there's not a lot of volume, honestly. So, I would expect those dynamics to stay in place. You know, if I could just pile on on to that as well, just what Mike was saying. If you look at the whole, all the loan categories, about 40% of the new originations coming out were fixed and 60% were variable. The variable rate ones are just a matter of spread. So the replacement yields on those are, they were nine basis points positive, not that much this quarter.
Okay, Carl. I would just add that, of the 42 basis points increase, commercial fixed is really dragging that number up at like 11.
And indirect installment loan is probably 73 basis points. So, uh, that's that's pulling it up and just and they had big volume, the mortgage and some of the other categories have nice replacement yields, but there's, there's not a lot of volume on us. We so, um, I was expecting Dynamics to stay in place.
Jim Reske: But the fixed ones were 115 basis points positive. That's how you get to the overall 42 basis points. So the fixed replacement yields at 115 positive last quarter, that'll persist even through a few Fed cuts.
This quarter, the fixed ones were 115 basis points positive. That's how you get to the overall 42 basis points. So, the fixed replacement yields at 115 positive this quarter; that'll persist even through a few Fed cuts.
Ryan Thomas: Okay. That's helpful. And then shifting topics, I guess, M&A is picked up for the industry. You guys have a pretty good track record of looking at lots of stuff and doing a few things that make sense on the smaller side. Just kind of curious what discussions you guys are having and what makes sense and what your priorities are. Thank you.
Okay, that's helpful. And then shifting topics, I guess. M&As picked up for the industry. You guys have a pretty good track record of looking at lots of stuff and doing a few things that make sense. But on the smaller side, I'm just kind of curious what discussions you guys are having, what makes sense, and what your priorities are. Thank you.
Jim Reske: Just a discussion or two, not a lot. I mean, I think Jim and I always say, you know, we've looked at, I think, 70 loans or 70 opportunities over 10 years, so about 70 a year. I don't think that's really picked up for us. And a big item, but we just, we tend to bow out on price on the larger deals, and the smaller deals remain interesting to us. We also have to see a pretty good path of low-risk execution before we get super excited as well. So maybe our box is a little tighter than others. We do like smaller deals. We think we can really leverage them into something a little bit more as we bring our different verticals in.
Uh, uh, just a discussion or two, not a lot. I mean, I think Jim and always Jim, and I always say.
You know, we've looked at, I think, 70 loans or 70 opportunities over 10 years, so about 70 a year. I don't think that's really picked up.
And, uh, and a big item, but we just uh...
Jim Reske: And I think Jane Grabins over the years and Mike McEwen now, they're really good at, you know, indirect auto, mortgage, small business, and just bringing them into the mix, maybe a little higher-end investment real estate, and then just really creating some magic. The key is to make sure the deposits keep up with the loan growth, and the focus is on funding the loans. And that's, we'll be doing that even in quarters where the loans aren't growing. Mike, Mike or Jane, do you want to add anything to that?
We just, we tend to bow out on price on larger deals, and the smaller fields remain interesting to us. Um, we also have to see a pretty good path of low-risk execution before we get super excited as well. So maybe our box is a little tighter than others. We do like smaller deals. We think, um, we can really leverage them into something a little bit more as we bring our different verticals in.
I think Jane Graben, over the years, and Mike McCuan, have really become skilled at, you know, indirect auto, mortgage, small business, and just bringing them into the mix. So maybe a little higher in.
Uh, investment real estate and, uh, and then just really creating some magic. The key is to make sure the deposits, uh,
Keep up with the, um, with the loan growth. Uh, and the focus is on funding the loans. Um,
and that's
We'll be doing that, even in quarters where the loans aren't growing.
Mike, Mike, or Jamie? Do you want to add anything to that?
Jane Grebenc: I don't think so, Mike. I think you've, I think you did a good job of sort of explaining our psyche.
I don't think so, Mike. I think you've, uh, I think you did a good job of sort of explaining our psyche.
Jim Reske: Yep. Yeah, I agree.
Yeah, I agree.
Ryan Thomas: Great. Thank you, thank you all.
Great. Thank you. Thank you all.
Mike Price: Your next question is from the line of Kelly Amato with KBW.
Your next question is from the line of Kelly and motto with KBW.
Ryan Thomas: Hi, guys. This is Charlie on for Kelly. Thanks for the question.
Hi guys, this is Charlie on for Kelly. Thanks for the question.
Jim Reske: Hey.
Ryan Thomas: You guys saw some strong organic loan growth this quarter. Just wondering if you could expand on kind of what you're seeing in the pipelines that this level of growth is and general momentum is continuing. Thanks.
Hey, hey, um, you guys saw some strong organic loan growth this quarter. Just wondering if you could expand on what you're seeing in the pipelines. At this level of growth, is the general momentum continuing? Thanks.
Jim Reske: I think the pipeline is pretty good. I do think that we're going to have a little, a few more payoffs in the third quarter. Mike, do you want to expand on that? Yeah, I think a little bit of the summer lull and some payoffs from the permanent market, but I expect activity to stay at this pace in the fourth, once we get into the fourth quarter, a strong finish to the year.
I I think the pipeline is pretty good. I do think that uh we're going to have a little a few more payoffs in the uh,
Third quarter. Mike, do you want to expand upon that? Yeah, I think a little bit of the summer law and some payoffs.
From the permanent market, I expect activity to stay at this pace in Q4. Once we get to the fourth quarter, we anticipate a strong finish to the year.
Ryan Thomas: Okay. Great. And then specifically, if you could touch on the equipment finance portfolio, you guys had some good like momentum there. I know you brought on some new teams recently, just like the growth there, and if what you're seeing is sustainable and maybe what it could get up to in terms of a percentage of the portfolio. Thank you.
Jim Reske: Yeah, I'll start there and let Mike and Mike finish. But we're about three, three and a half years in. Those loans are typically five-year loans. So we're going to hit a wall here in about a year and a half. Even if we continue to put on loans at the pace we are, the portfolio will probably flatten out a bit. And so I'd start there. And we just like the business. We like, we have a professional that's been doing this for about three decades and a good team. And we just like the credit quality we're seeing and the types of assets he's putting on. Mike, what would you add? Just.
Okay, great. And then specifically, if you could touch on the equipment finance portfolio, you guys had some good momentum there. I know you brought on some new teams recently. Just like the growth there and if what you're seeing is sustainable, and maybe what it could get up to in terms of a percentage of the portfolio. Thank you.
Yeah, I'll start there and let Mike Mike finish, uh.
but more about 3 3, 3 and a half years in those loans are typically 5 year loans. So we're going to hit a wall here in about a year and a half even if we continue to put on loans to the PACE, we are we're the portfolio will probably flatten out a bit.
Ryan Thomas: Mathematically, the growth looks huge because it's obviously a startup operation. And I would just say that so far, we're pleased with the type of assets we're financing and the credit quality of those assets. And furthermore, it's augmenting our bank relationships, where historically we did not have equipment finance options for clients, especially tax leases. We now have that. So we expect incremental value from that relationship.
And um so I'd start there and and we just like the business we'd like uh we have a professional that's been doing this for about 3 decades and a good team and just like the credit quality we're seeing in the types of assets he's putting on like what would you add? Just a mathematically. The growth looks huge because it's obviously a startup operation and I would just say that.
Jim Reske: Yeah. We also are very, we're very focused on growing CNI through our regional model from the smallest small business out of branches and $50 and $100 million loan hunks up through commercial. And then most importantly, getting operating accounts and core deposit relationships from businesses.Let's
So far, we're pleased with the type of assets we're financing and the credit quality of those assets. Furthermore, it's augmenting our bank relationships. Historically, we did not have equipment finance options for clients, especially taxes; we now have that. So, we expect incremental value from that relationship.
Yeah.
We are very focused on growing CNI through our regional model, starting from the smallest small businesses, up to branches and $50 million and $100 million loan hunks.
Mike Price: find our growth.
And core deposit relationships from businesses to fund our growth.
Operator: That's great. Thank you. I'll step back.
That's great. Thank you. I'll step back.
Rachel Smith: Your next question is from the line of Manuel Navas with D.A. Davidson.
Your next question is from the line of Emmanuel Novice with DA Davidson.
Ryan Thomas: Hey, growth is really strong this quarter. Are you going to stay on a mid-single-digits core ex-acquisition level of growth, or is there any upside to it? And maybe comment on a mix as well.
Mike Price: Yeah, I think the guidance would need to be mid-single digits because funding for us is an imperative and keeping pace with the funding. The mix, we would love to see that continue to rotate towards CNI commercial real estate, owner-occupied commercial real estate, and those loans that right now have a seven handle on them. And that being said, you know we're a larger community bank than most than most banks of our size with about, you know, about 40% of the action. And we know that credit leads to cornerstone deposit relationships, particularly with younger households. So we want to have credit access for the good consumers, some 200,000 plus customers in our six markets. So we will remain open there. And we feel that even though the rates are a little lower, the replacement rates on those loans are very positive.
Hey, uh, growth is really strong. Uh, this quarter is, you can stay on the mid-single digits Core X, the acquisition, um, level of growth. Or is there any upside to it and maybe comment on a mix as well?
Yeah, I I think uh the guidance need to be mid single digits because uh funding for us is an imperative and keeping a pace with the funding um the mix. Um we would love to see that continue to rotate towards cni commercial real estate owner occupied commercial real estate. And those loans are right now. Have a 7 handle on them.
And, uh, that being said, uh, you know, we're a larger community bank than most, uh, than most banks of our size, with about, you know, about 40% of the action. And we know that credit leads to cornerstone deposit relationships, particularly with younger households. So we want to have, um, credit access for the good consumers: some 200,000 plus customers.
You know, our, uh, six markets. So we will remain open there, and we feel that, um, even though the rates are a little lower, the replacement rates on those loans are very positive.
Mike Price: Jane, anything you would add on consumer or Mike on commercial?
Jane, is there anything you would add on consumer MIC on commercial?
Jim Reske: Well, we've had a good run in the consumer businesses, and that's all in-market existing bank customers. So we have no interest in pinching that. Those are good relationships. As you said, small business, every one of those loans is really important to us. And the other consumer businesses, indirect, you know, replacement yields have been good, and mortgage is generally a for-sale business for us. It's a fee business right now. We're not running it generally as a balance sheet business. So we like them all.
well, uh, we've had a
Uh, that's all in market. Existing bank customers. So we have no interest in pinching that. Uh, those are good relationships. As you said, uh, small business, uh, every one of those loans is really important to us.
and uh,
The other.
Consumer businesses, indirect.
Um, you know, replacement yields have been good and mortgage, uh, is generally, uh, for sale business for us. It's a fee business. Right now, we're not running. It generally is a balance sheet business. So, uh, we like them all.
Mike Price: And I would just say for the benefit of all the employees, Leslie and Mike and Jane insist upon core deposit relationships with every loan.
And I would just say, for the benefit of all the employees, we're seeing and making, and Jane insists upon core deposit relationships with everyone. You love them.
Ryan Thomas: I appreciate the commentary. Shifting over to deposits, the NIM guide, I understand it. Can you just dive into some of the dynamics? And you point out that there might be some expected loan yield pressure in the model and then some deposit cost increases to fund that future loan growth. Can you kind of flesh that out a little bit?
I appreciate the comments area. Is shifting over to deposits the main guide? I understand it. Can you just dive into some of the dynamics in it? You point out that there might be some expected loan yield pressure in the model and then some deposit cost increases to fund that future loan growth. It can be kind of.
Mike Price: Yeah, Emmanuel, Jim, I'll tell you exactly what I was thinking. I mean, the model is giving me numbers that are a little higher than the guidance I'm giving to you. But I happen to know of some things that we're doing that we're not in the model, and the model was last updated. So I know that, for example, we looked at the deposit growth and loan growth in the second quarter and put the pedal down on the gas, again, put the gas pedal down a little firmer on the deposit growth. So the deposit rates we're paying to get that growth, we want to make sure that we fund our loan growth with deposits as we go along. And so that's probably going to put a little bit of pressure on the margin going forward. And then anecdotally, we hear about tightening loan spreads.
flush that out a little bit.
Yeah, manual. Jim, I'll tell you exactly what I was thinking. I mean, the model is giving me numbers that are a little higher than the guy that I'm giving to you. But I happen to know.
Uh, of some things that we're doing that are, um,
That we’re doing that. We’re not in the model of the model that was last updated. So I know that, for example, we looked at the deposit growth and loan growth in the second quarter and put the pedal down on the gas—put the gas pedal down a little firmer on the deposit growth.
Uh, so, um, the deposit rates were paying to get that growth. We want to make sure that we fund our loan growth for deposits as we go along.
Mike Price: We could say that you might hear those anecdotes in a lot of quarters, but you hear them more and more. And so if the model, I'll just tell you, the model was saying that the NIM would be 3.97 and 4.00% in the third and fourth quarters respectively. But knowing what we know, we haircut that a little bit to give the guidance that we do give, which is low to mid 390. Now, the loan replacement yields, we had nine basis points of that. So if that just continues, that's nice. That just keeps going. If the Fed starts cutting rates, then that might be a little lower. But you do have those macro swaps coming off, which would be positive towards the end of the year. So all that goes into that guidance, and that kind of gives you maybe a little background of our thinking.
And so, that's probably going to, uh, put a little bit of pressure on the margin going forward. And then anecdotally, we hear about fighting loan spreads.
We could say that you might hear those antidotes. It's been a lot of quarters, but you hear them a little more. And, um, so if a model, I'll just tell you, the model is saying that the NID would be 3.97. And 4.00% is the third and fourth quarters, respectively.
But knowing what we know, we haircut that a little bit to give the guidance that we do give, which is low to mid $390 million now.
The low replacement yields.
We had 9 basis points of that, so if that just continues, that's nice. Um, that just keeps going. If the Fed starts cutting rates, then that might be a little lower. But you do have those macro stops coming off, which will be positive towards the end of the year. So all that goes into that guidance, and that's kind of because you made a little background of our thinking.
Ryan Thomas: That's great. And that's the natural push against kind of the high end of the NIM is that at some point, competition can step in. Like how high could this get into next year? Is that just, it just really depends on the rates? Any thoughts on that type of discussion?
That, that's great, and and.
that that's the natural push against kind of uh, the high end of of the Nim is at some point competition can step in like
Mike Price: Yeah, yeah, thanks for asking. It's early to talk about next year. I mean, the the math, if the Fed doesn't cut rates at all, the math just keeps clicking away, and the margin just keeps going up, up, up, up, up. But as someone actually pointed out on last quarter's earnings call, you know the industry generally doesn't sustain NIMs over 4% for very long. It gets competed away on both the asset and liability side. And we've heard the same anecdote. We've already seen some of that pressures on spreads on the on the commercial loan side and you know the need to price up deposits to get that growth. So the model would say if the Fed doesn't cut rates, it's tremendous. But realistically speaking, you know, as they say, the trees don't grow to the sky.
How high could this get into next year? I think it really just depends on rates. Any thoughts on that type of discussion?
Next year, I mean, the math, if you, if that doesn't cut rates at all, the math just keeps clicking away. And the margins just keep going up, up, up, up, up.
But as someone actually pointed out on last quarter's earnings call, you know, the industry generally doesn't sustain means over 4% for very long. If it gets competed away on both the assets and the liabilities side and we...
Reflect those things. We've already seen some of that pressure on spreads on the commercial loan side. And
Operator: Yeah, I would just add just a little counterintuitively, if rates settle a bit, I think it primes the pump for demand, and we have a broad business model for consumers' business. And I think we have more business, more cross-selling opportunities, and consumers are in better shape as are small businesses, the SBA business. There's more fee income. So I just think, you know, Jim and I and the team, Jane and Mike, we just have tried to make it 50/50 variable fix. So we do well irrespective of where interest rates go. And I think our fee income, our fee businesses would benefit from that. So I think either way, we can do quite well.
You know, the need to price up deposits to get that growth. So the model would say the Fed doesn't cut rates; it just, it's tremendous. But realistically speaking, you know, this is, as they say, the trees don't grow to the sky.
I would just add, a little counterintuitively, the, uh,
If rates settle a bit.
Um, I think it primes the pump for demand and we have a broad business model for consumers business, and I think we have more business, more cross spelling, opportunities and consumers are in better shape as our small businesses, the SBA business. There's more fee income. So I I just think, you know, Jim and I and the team Jane and Mike we just have tried to make it 5050 variable 6.
So we do well irrespective.
Mike Price: Yeah, and that actually gives me an opportunity, Manuel. I'll take your mind for me to mention, Mike, since you're talking about that kind of view in the next year, we do have more macro swaps maturing next year. There's $150 million in May of 2026 and another $25 million in October of 2026. So that will help the margin. So even in a world where the Fed and our forecast, there are four more cuts in 2026, the model is predicting a NIM that stays above slightly above 4% for next year. So, but we'll know more as we really work on sharpening our pencils on budgets and get a little more accurate forecast in the earnings calls for the third and fourth quarter of this year.
Of where interest rates go. And I think our fee income, our fee businesses would benefit from that. So, I think either way we can do quite well.
Yeah. And that's actually gives me an opportunity manual. If you don't mind for me to mention Mike, since you're talking about that kind of view of the next year, we do have more macro response. Maturing next year, there's a 150 million dollars in May of 2026 and another 25 million in October 26th so that will help the margin. So, even in a world where the fed and our forecasts are 4 more Cuts in 2026.
The model is predicting a state slightly above 4% for next year.
So, uh, we'll know more as we really work on sharpening our pencils on the budgets.
Get a little more accurate forecast in the earliest calls for the third and fourth quarter this year.
Ryan Thomas: That's great. Anything you want to add? I'm all ears.
Mike Price: Thanks.
Okay, that's great. Is there anything you would like to add? I'm all ears. Thanks.
Ryan Thomas: Thanks. Thanks for the commentary.
Thanks.
Thanks for the commentary.
Mike Price: Thanks, Manuel.
Thanks, Noah. You
Rachel Smith: Your next question is from the line of Mike Brees with Stevens Inc.
And your next question is from the line of May Breeze with Stevens Inc.
Ryan Thomas: Hey, good afternoon, everybody.
Hey, good afternoon, everybody.
Mike Price: Hey, man.
Ryan Thomas: You know, maybe to start, just a modeling question. Securities were down a bit this quarter and now sit at 13.5% of total assets. It feels a little low versus where we've been recently. Maybe not, but it just feels a little low versus where we've been. Is that right? Do you like to be kind of in the 14 range, or is 13.5 adequate?
Um, you know, maybe to start just a modeling question. Securities were down a bit this quarter and now sit at 13.5% of total assets. That feels a little low.
Versus where we've been recently, maybe not. Um, but it just feels a little low versus where we've been, is that right? Do you like to be kind of in the 14th?
Mike Price: No, we're okay with that. 13.5 is adequate. We want to make sure we have securities on hand to pledge against borrowings and other things we need to use those for. It's down a little bit this quarter because our purchase activity was slow this quarter. We had pre-purchased some in previous quarters to get ahead of it a little bit. And so I didn't feel the need to buy much this quarter. But we don't feel, from a liquidity standpoint, that we need a higher percentage. We have so much available liquidity. And real good, there's a slide in our webcast presentation that talks about this. So we have still some liquidity backed by assets that we can pledge. I think it's over $5 billion. So we don't feel like we need to keep 15, 20% of our assets in securities just for the sake of on-balance sheet liquidity.
No, we're okay with that 13 and a half is adequate. We want to make sure we have Securities on hand to pledge, against borrowings other things. We need to to use those. For, um, we it's downloaded this quarter because our purchase activity was slow, this quarter. We had pre-purchase, um, and previous quarters to get ahead of it a little bit. And so, it didn't feel the need to to buy my fifth quarter, but we don't view from the liquidity standpoint that we need a higher percentage. We have so much available liquidity. Um, and real good. There's a slide in our our, um, webcast presentation that talks about this, but we have source of liquidity backed by assets that we can touch. I think it's over 5 billion dollars so we don't feel like we need to keep
Mike Price: Our liquidity is very strong without that. So we're very comfortable with where it's at.
15 20% of our Assets in the communities, just just for the sake of on balance sheet liquidity. Uh, we are liquidity is very strong without that. Um, so it's we're we're very, very comfortable with where it's at.
Ryan Thomas: Got it. Okay. A couple of bigger picture ones. You know, strategically, just thinking about your markets, where from a market share position standpoint do you feel like there's the most room for opportunity? We hear you talk a lot about Ohio as being an engine for growth. Can that well continue for a lot longer? And if not, where on the map might we see you go that could be the next kind of vehicle for growth, the next Ohio for you?
Got it. Okay, a couple of bigger picture ones, you know, strategically just thinking about your markets.
Um, from a market share position standpoint, do you feel like there's the most room for opportunity? We hear you talk a lot about Ohio as being an engine for growth.
Can that well continue for a lot longer? If not, where in the map might you see you go that could be the next kind of vehicle for the next Ohio for you?
Mike Price: I honestly believe, and perhaps I'm delusional, but I think between Cincinnati, Cleveland, Columbus, Pittsburgh, and our community markets in Western PA, we could build out a bank that's two times the size because we're just not a market maker. We're kind of on the fringes of market share, and we just see a lot of crumbs coming off the table from bigger banks. And I just I just feel like we can fill in and love to add some rural depositories, you know, fill in in those metro markets, maybe do a little bit of de novo. We have some cities between in Ohio, like Dayton. We also have opportunities in Western PA. And then we really haven't penetrated all of our lines of business in each of our markets. I just think within these markets, we can grow the company substantially.
I honestly believe in perhaps some delusional, but I think between, uh, Cincinnati.
Cleveland Columbus.
Pittsburgh and our community markets in Western PA, we could build out a bank that's two times the size.
We have some cities in Ohio, like Dayton. We also have opportunities in Western PA, and we really haven't penetrated all of our lines of business in each of our markets. I just think within these markets, um,
Mike Price: Now, that doesn't mean we wouldn't go to Northern Kentucky or we wouldn't do something contiguous. We just feel like we have to be able to extend the brand thoughtfully and be able to cover, just not outkick our coverage, as they say in football. And so I don't know that we're super interested in just getting to the next market. I think we can grow where we're at, honestly. Jane or Mike, anything you would add there? You know.
We can grow the company substantially. Now, that doesn't mean we wouldn't go to Northern Kentucky or we wouldn't do something contiguous. We just feel like we have to be able to expand the brand thoughtfully and be able to cover, um, just not outkick our coverage, as they say in football. Um, and so I I don't know that we're super interested in just getting to the next market. I think we can grow where we're at, honestly. Jane or Mike, anything you would add there?
Operator: The recent acquisition is a good example of that. It's in market. It gives us more of a higher profile. But even with that, we're still, you know, maybe 10th in market share in that market. So we have a lot of upside. Those are the kind of things that we absorb quickly and we can move on to the next one and grow that market further.
You know, the reason acquisition is a good example of that is, uh, it's in market. It gives us a higher profile. But even with that, we're still...
Mike Price: Yeah. And we haven't really penetrated our fee income businesses. We're really good in community PA and in Pittsburgh, but we're just getting there with our regional model, with businesses like wealth and insurance and other things that we do pretty well at and SBA. And so I'm pretty enthused just about Western PA and Ohio, honestly.
You know, maybe 10th in market, share in that market. So we have a lot of upside. Um, those are the kind of things that that we absorb quickly, we can move on to the next 1 and, uh, grow that market further. Yeah. And, and we haven't really penetrated our fee income businesses. We've we're really good in, uh, in community PA and in Pittsburgh, but we're just getting there, uh, with our regional model, with businesses, like wealth, and uh, insurance and and other things that we do pretty well at and FBA. And so, I, I'm, I'm pretty enthused just about
About Western piano. Ohio honestly.
Jim Reske: Yeah. Mike, to put a finer point on it, two things. One, our product penetration for the existing households we have still leaves a lot of room for growth. So as our execution gets better, there's a lot of embedded upside there. And there's a lot of terrific small businesses and middle market, lower middle market companies as we drive from Pittsburgh to Cleveland. And we're interested in all of those. So, and we've spent some money on our treasury management offerings so we can bank those companies in addition to just lending to them.
Yep. To put a finer point on it, uh, two things.
1. Um,
Our product penetration.
Uh, for the existing households, we still have a lot of room for growth. So as our execution gets better, there's a lot of embedded upside there.
And there's a lot of terrific small businesses in the Middle Market. Lower Middle Market companies, as we drive from.
Pittsburgh to Cleveland, and we're interested in all of those. So, uh, and we've spent some money on our treasury management offerings, so we can bank those companies in addition to just lending to them.
Ryan Thomas: I appreciate all that. Maybe just as a follow-up, you know, Senator McCormick a couple of weeks ago, a few weeks ago, held a conference in Pittsburgh around AI and data centers and power investments in Pennsylvania. I think to the tune of maybe like $90 billion or just a huge number. Curious if you attended, what you heard, how beneficial could this be to the area and if any of these forms of real estate or investments are, you know, directly or indirectly helpful to you all. That's all I had. Thank you.
I appreciate all that. Maybe, just as a follow-up, you know, Senator McCormack, a couple weeks ago, or a few weeks ago, held a conference in Pittsburgh around AI, data centers, and power investments in Pennsylvania. I think to the tune of maybe like $90 billion or just a huge number.
Mike Price: Yeah. And we see it all over. We see it right in our backyard in Indiana County. There's a $10 billion investment for a power plant just for a data center. And it's a conversion of a coal and natural, and it'll be a natural gas power plant. And they're really firing up really the Marcellus shale to help fuel that. And we're seeing it all over. We're seeing it in the infrastructure with the gas pipelines, the trucking, everything. And not to mention the plastics that complement the natural gas. So I don't know. I just think, you know, this area, particularly Pennsylvania, has been harder hit over the last 25 years. I just think, you know, the future could be brighter, and we're seeing a significant investment everywhere.
Curious, if you attended what you heard, how beneficial could this be to the area. And if any of these forms of real estate or Investments, are you know, directly or or indirectly helpful to you all? That's all I had. Thank you. Yeah. We, we see it all over. We see it right in our backyard, in Indiana County. There's a 10 billion dollar investment for a power plant, um, just for a Data Center and it's a conversion of a quote.
And natural, and it'll be a natural gas power plant, and they're really firing up, really the Marcellus Shale to help fuel that. And, uh, we're seeing it all over. We're seeing it in the infrastructure with the, uh, the gas pipelines, the trucking, everything, and not to mention the plastics that complement the, um, the natural gas. So, I don’t know. I just think, um, you know, this area, particularly Pennsylvania, has been harder to get over the last 25 years. I just think, um, you know, the future could be brighter, and we're seeing a significant investment everywhere.
Ryan Thomas: Appreciate it. Thank you.
Appreciate it. Thank you.
Rachel Smith: As a reminder to ask a question, press star one on your telephone keypad. Your next question is from a line of Daniel Carnitas with Janice.
As a reminder to ask a question.
Press star 1 on your telephone keypad.
Your next question is from the line of Daniel Caretas with Janice.
Ryan Thomas: Hey, good afternoon, guys.
Good afternoon, guys.
Mike Price: Daniel, just quickly returning to credit quality. Of this floor plan non-accrual, what percentage of your total non-accrual portfolio does this represent? And then second, you know, what's the overall health of the remainder of the portfolio?
Daniel.
Quickly returning to credit quality. Um,
Of this, not a floor plan. Non-accrual what? What percentage of your total non-accrual portfolio does this represent? And then second, you know, what's the overall health of the remainder of the portfolio?
Brian Sohocki: Sure. I could take that. And I may just have you repeat the second part. I couldn't hear it entirely, but it's approximately just over 30%. Our non-accruals, as you saw, I mean, I referenced the non-performing bucket increased 40 million to just shy of 100. And 31.8 of that was the floor plan. So pretty straightforward on that 100 basis, just over 30%.
Sure, I could take that and I might have to have you repeat the second part. I, I couldn't hear it entirely but, uh, it's approximately just over 30%. Um, are not acrs as you saw that. I mean, a reference to non-performing bucket increased, uh, 40 million to, to just shy of a 100. Um, and 31.8 of, that was the floor plan. So, um, pretty, pretty straight forward on that. 100 basis to be just, uh, just over 30%.
Mike Price: Brian, because you mentioned the remainder of the increase in NPLs was from the acquisition, right?
Brian Sohocki: Sure. Yeah. So, and that's a good point, Jim. So the remainder, if you look at the 40 million increase, 31.9 from the dealer floor plan, 8.4 from center bank acquisition. So absent those two events, we had a $300,000 minimal, but $300,000 decrease in the quarter. We would have went from 65 basis points to 63 basis points.
Acquisition right? Sure. Yeah. So and and that's a good point Jim. So the remainder, if you, you look at the 40 million increase 31.9 from the dealer floor, plan, uh, 8.4 uh, from Center Bank acquisition. Uh so absent. Those 2 events, we had a 00000 minimal but dollar decrease um, in the quarter, we would have went from 65 basis points to 63 basis points.
Ryan Thomas: Okay. And so is this large loan, the floor plan loan, is that a legacy, an FCF legacy loan, or was that acquired?
Okay. And and uh so is is this large loan? The the floor plan loan is that a a legacy in FCF Legacy loan, or was that acquired
Brian Sohocki: No. Yeah, I'll tell you a little bit about the dealer floor plan portfolio. It is legacy. None of our floor plans have been acquired. At the 630, our floor plan segment was 154 million of outstandings. So a rather manageable small portfolio, 23 customers. And this was the only one over $20 million of exposure. We just have two others over $15 million, with the rest really being granular inside $10 million of exposure. And you know the portfolio is performing well, strong weighted average risk rating in compliance. You know, show here we really had an isolated event with the one dealer happened to be the largest.
No. Yeah, I'll tell you a little bit about the deal with floor plan portfolio. Um, it it is Legacy. None of our floor plans have been acquired, um, uh, at the at 6:30 or floor plan. Segment was uh, 154 million of outstandings. Uh, so a rather manageable small portfolio, uh, 23 customers. And uh, this was the only 1 over 20 million dollars of exposure. Uh, we just have 2 others over 15 million, uh, with the rest. Really being granular inside, 10 million dollars of exposure. Um, and uh, you know the portfolio is performing well, uh, strong weighted, average risk rating in compliance, um, you know, show you know, here we we really had an isolation
Event with the, with the 1 happened to be the largest.
Ryan Thomas: Okay. Excellent. And then in terms of just your larger relationships, is this like in the top 20 or 25 overall?
Okay, excellent. And then in terms of just your larger relationships, is this like in the top 20 or 25?
Overall.
Brian Sohocki: It was. You know, we manage our borrowers over, you know, really, we've monitored internally over 15 million. Yeah, there's really about 10 relationships over 25. So this was one of the larger.
It was, um, you know, we manage our borrowers over, you know, really? We monitored internally over 15 million. Um, you know, there's nearly about 10 ships over 25. Uh, so this was one of the larger.
Ryan Thomas: And how are those relationships performing?
And how are those relationships performing?
Brian Sohocki: Very well. You know, that portfolio is very strongly risk graded. All but one, I would comment, or two would be better than past watch. So it's a strong portfolio. No early signs of or any early indications of weakness in that portfolio.
Very well. Um, you know, that portfolio is, uh, very strongly risk-rated. Um, uh, all but 1 or 2 would be, uh, uh, better than past watch. Um, so it's a strong portfolio. Um, no, no, no early signs of, or any early indications of weakness in that portfolio.
Ryan Thomas: Okay. And did this credit have any impact on the margin this quarter?
And did this credit have any impact on the margin this quarter?
Brian Sohocki: Well, the move to non-accrual was we had a late in May, about 300,000.
Um, it was a move to non-accrual.
Ryan Thomas: It did. Yeah. So it probably took away a basis point or two.
Mike Price: Reversal of interest in that area in April.
Ryan Thomas: That's right.
Mike Price: Yeah. Yeah, I don't know if you heard that. So we went to not accruals reversal of interest of about 300,000 or so. That would have hit them into maybe maybe around it at one basis point.
In late May, so that's 300,000 it did. Yeah, so it's probably took away a basis point or two of interest in that area. That's right. Yeah.
Yeah, I don't know if you heard that, so we went to not a cool reversal of interest about $300,000, so that would have hit them to maybe around 1 basis point.
Ryan Thomas: Okay. Excellent. Excellent. I think I think that's it. You've answered all my other questions. I appreciate the the time. Thank you.
Um,
Mike Price: Thanks, Dan.
That's it. You've answered my other questions. I appreciate the, uh, appreciate the time. Thank you.
Thanks, Dan.
Rachel Smith: At this time, there are no further questions. I will now hand the call back over to Mike Price, president and CEO.
At this time.
I will now hand the call back over to Mike Price, President and CEO.
Mike Price: Very good. Thanks for the questions. It's always good to engage. Excited about the future of our company to grow organically, remain disciplined with M&A, to make sure that our low-cost deposits keep pace with our commercial loan growth, and just do a better job of cross-selling our clients and bringing them fee income opportunities. But just thank you and just have a good day.
Very good. Thanks for the questions. It's always good to engage. Uh, I'm excited about the future of our company, to grow organically and remain disciplined with M&A.
To make sure that our low-cost deposits keep pace with our commercial loan growth and to do a better job of cross-selling our clients and bringing them in.
Uh, P income opportunities. But just thank you, and just have a good day.
Rachel Smith: This concludes today's call. Thank you for joining. You may now disconnect your lines.
this concludes today's
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