First Commonwealth (NYSE:FCF) Financial Corporation (NYSE: FCF) has reported its first-quarter financial results for 2024, surpassing earnings estimates with $0.37 per share despite higher depository costs. The bank experienced a decline in net interest income by $3.4 million due to increased interest expenses, which overshadowed a $1.2 million increase in interest income.
Still, balance sheet liquidity has improved, and the bank has set multiple earnings records in 2023, which has impacted year-over-year comparisons.
Key Takeaways
- First Commonwealth Financial Corporation exceeded earnings expectations with $0.37 per share.
- Net interest income declined by $3.4 million, while interest income increased by $1.2 million.
- Loan-to-deposit ratio improved to 95.6%, reflecting better balance sheet liquidity.
- The bank has seen strong performance in SBA business and mortgage sales.
- A dividend increase and the redemption of $50 million in subordinated debentures were announced.
- Net interest margin compressed by 13 basis points, primarily due to higher cost of funds.
- Fee income and non-interest expense remained stable.
- The company forecasts net interest margin stability and mid-single-digit loan growth focused on commercial lending.
Company Outlook
- Expectation of mid-single-digit loan growth for the rest of the year, with a focus on commercial growth.
- Forecasting stability in the net interest margin considering a falling rate environment.
- The redemption of subordinated debentures is expected to save about $1 million in pretax expense annually and improve the net interest margin by 1 basis point.
Bearish Highlights
- Increase in depository costs, with deposit costs rising by 25 basis points.
- Net interest income decline due to increased interest expenses.
- Non-interest expense slightly unfavorable compared to the last quarter.
Bullish Highlights
- Commercial business showing improvement with growing pipelines and customer spending.
- Strong performance in SBA business and mortgage sales, with consistent run rates expected.
- Improved regulatory capital ratio and internal management changes to enhance operational scalability.
Misses
- Net interest margin suppression of 3 basis points in the first quarter due to non-existent back-to-back swap fees and lower interchange.
Q&A Highlights
- The company discussed deploying excess cash into securities but emphasized a preference for making loans.
- Updated guidance maintained for fee income and expenses.
- Positive outlook on the office loan portfolio with granular exposure and strong performance.
- Deposit strategy focused on competitive growth in line with loan growth to maintain a stable loan-to-deposit ratio.
First Commonwealth Financial Corporation, with a commitment to improving loan pricing and growing its commercial and industrial lending, continues to adopt a digital approach in all aspects of its operations.
The bank's reserves are well-positioned to support business and potential growth, with an expectation to shift the loan portfolio composition more towards commercial loans. The company remains confident in its ability to progress and contribute positively to the communities it serves.
InvestingPro Insights
First Commonwealth Financial Corporation (NYSE: FCF) has demonstrated resilience in its first-quarter performance for 2024, and the InvestingPro data provides a deeper look into the company's financial health.
With a market capitalization of $1.37 billion and a Price to Earnings (P/E) ratio of 8.27, the bank shows a compelling valuation relative to its performance. The adjusted P/E ratio for the last twelve months as of Q1 2024 further refines this figure to 8.13, suggesting a stable valuation over recent quarters.
The company's revenue growth of 14.99% over the last twelve months is a testament to its ability to expand its financial operations effectively. This growth is supported by a robust operating income margin of 47.61%, indicating efficient management and a strong profit generation capability. These metrics are particularly relevant as they underscore the company's profitability and operational effectiveness, which are critical in the banking sector.
InvestingPro Tips highlight some key aspects of First Commonwealth Financial Corporation's strategic financial management. The company has maintained dividend payments for an impressive 38 consecutive years, showcasing its commitment to shareholder returns. Additionally, analysts predict the company will be profitable this year, which aligns with the positive revenue growth and operating income margin reflected in the real-time data.
For readers interested in a deeper analysis and more InvestingPro Tips, there are additional insights available at https://www.investing.com/pro/FCF. These tips can provide further guidance on the company's financial standing and future prospects. Moreover, users can take advantage of an exclusive offer by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes access to a wealth of financial data and expert analysis. There are 6 more InvestingPro Tips listed for First Commonwealth Financial Corporation, offering a comprehensive view for informed investment decisions.
Full transcript - First Commonwealth Financial Corp (FCF) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator for today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation First Quarter 2024 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-and-answer session. [Operator Instructions] I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.
Ryan Thomas: Thank you, Desiree, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's first quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; Brian Karrip, our Chief Revenue Officer; and Mike McKeon, our Corporate Banking Executive. 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 financial 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. 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 differ materially from those reflected in the forward-looking statements. 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. 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.
Mike Price: Thank you, Ryan, and welcome, everyone. Despite pressure on the net interest margin through higher depository costs, First Commonwealth beat consensus earnings estimates by $0.01 with $0.37 per share in the first quarter of 2024. Core ROA and the efficiency ratio were 1.31% and 55.5%, respectively. The bank set a number of earnings records in 2023 and had a particularly strong fourth quarter. That was certainly worth celebrating, but it affects most of the period-over-period comparisons. For example, in the fourth quarter of 2023, we had negative provision expense of $1.9 million due to the release of reserves. This quarter provision expense was a more typical $4.2 million. That swing strongly affected quarter-over-quarter comparisons of financial metrics like core EPS, return on assets and return on tangible common equity. In addition, interest expense increased by $4.6 million over the last quarter, overwhelming the $1.2 million increase in interest income and resulting in a $3.4 million decline in net interest income. As a result, the core non-GAAP measures that we report on a pre-provision basis, such as core pre-tax pre-provision net revenue and core pre-tax pre-provision ROA, they also declined from last quarter. Importantly, balance sheet liquidity strengthened as our loan-to-deposit ratio fell from 97.9% at year-end to 95.6% at the end of the first quarter. End-of-period deposits increased over $254 million or 11.1% annualized, while loans increased just 1.5% annualized or $33 million. Consumer CDs constituted the bulk of deposit growth, primarily from our core consumer customers, while business deposits fell due to seasonal factors. We've begun to taper CD pricing based on first quarter growth and market conditions, and we'll continue to watch competitor rates and consumer behavior. Loan growth for the quarter may appear to be on the low side for us, but it's very much in line with our long-term plan to tilt the balance sheet more towards commercial lending. Commercial loans grew at an annualized rate of 5.24% right in line with our long-term mid-single-digit guidance. That commercial growth offset declines in consumer real estate balances and the movement in consumer balances is no surprise. We're now selling over 90% of our mortgage originations, including mortgage construction loans and in fact, mortgage gain on sale fee income increased over last quarter. Second lean products like HELOCs and HE loans are naturally down because of the rate environment and also because a lot of those balances were driven by refi activity during the pandemic. And the auto book is replacing runoff and nicely pricing upward exactly as planned. Overall, we see the diversification of our loan portfolio as one of our key strengths and slow growth or even modest declines in consumer balances in any given quarter provide us with the liquidity and capital to grow commercial loans and maintain our current mid-single-digits guidance. As we execute regionally and profitably grow core deposits, loans, fee income, then we will grow meaningfully in the years ahead. Becoming the best bank for businesses and their owners will be a big part of that growth. The capital Columbus and Cincinnati regions present significant opportunities for growth at First Commonwealth. Our branch and business-based deposit gathering efforts have also led to our low-cost funding advantage. With mild loan growth that might appear from the outside like this was an uneventful quarter for us, but nothing could be further from the truth. We've made a number of internal management changes to maintain our momentum and ensure our success. Since hiring the new Chief Lending Officer last September, we have made a concerted effort to upgrade regional leadership, create more enduring operational scalability and improve our C&I expertise. Some recent actions include naming new regional presidents in Pittsburgh and Cincinnati, new leadership in the Harrisburg region and a new Head of Corporate Banking portfolio management and commercial loan documentation. We've also hired 5 new commercial bankers during the same period. As we like to say, we always keep our feet moving. In other words, we actively cultivate a culture of continual transformation and improvement, so that we can to steadily improving financial results year in and year out. And with that, I'll turn it over to Jim, our CFO,
Jim Reske: Thanks, Mike. Before I break down the margin and other elements of the income statement, I'd like to highlight a few balance sheet items. Regulatory capital ratio has improved due to strong retained earnings and the absence of any buyback activity in the quarter, combined with modest balance sheet expansion. Strong deposit growth, coupled with modest loan growth, improved our liquidity as well. Not only did it bring down the loan-to-deposit ratio, as Mike mentioned, but it also left us with $223 million of excess cash at the end of the quarter. The strength of our internal capital generation and our improved liquidity position has allowed us to announce two actions with first quarter earnings. First, a regular increase in the dividend of $0.02 per year in keeping with prior years and our long-term goal of smooth and steady increases in the dividend for our shareholders. And secondly, the redemption of $50 million of our $100 million in outstanding subordinated debentures on June 1. The timing of this redemption was right for several reasons. First, the sub debt would have lost another 20% of its Tier 2 capital treatment on June 1 and refinancing options up ahead bit of expenses. Second, the consolidated total risk-based capital ratio improved organically by 34 basis points in the quarter, 34 basis points. That mostly offsets the 44 basis point impact of calling the sub-debt in the second quarter. And we have modeled further organic growth in our cap ratios in the second quarter as well. Third, the excess cash at quarter end provided the liquidity with which to fund the repurchase without taking on any additional borrowings. Finally, the coupon of this tranche of the sub debt was currently about 7.45%, and we're paying it off in funds that are currently sitting at the Fed earning 5.4%. So its redemption save the company approximately $1 million in pretax expense per year and improved the net interest margin or NIM by about 1 basis point. Our strong deposit build in the first quarter came at the expense of a net interest margin as our NIM compressed by 13 basis points in the quarter. We had expected that the yield on earning assets would improve by approximately 10 to 15 basis points matching a 10 to 15 basis point anticipated increase in the cost of funds, producing NIM stability. It didn't turn out that way. Instead, the yield on earning assets only improved by 5 basis points and the cost of funds went up 19 basis points. In the aggregate, we originated new loans at just over 8% in the first quarter, but the old ones that are running off and were in the aggregate about 7%, resulting in relatively modest replacement yields. On top of that, the loan portfolio yield was negatively impacted in the first quarter by the continued effect of received fixed macro swaps that we entered into several years ago. Fortunately, $25 million of those swaps run off on June 30 of this year, and another $50 million runoff in December. Those who only have a 1 basis point benefit to the NIM in 2024, but a further $250 million runoff in 2025, which we expect to produce a cumulative benefit to the NIM of 8 to 11 basis points, depending on the trajectory of rates. If rates stay higher for longer, the benefit of the macro swap roll-off will be on the high side of that range. On the liability side, deposit costs increased by 25 basis points as we saw a $233 million decline in low-cost deposit categories, combined with a $283 million increase in the more expensive category. Despite the movements in balances, we saw net gains in consumer households in the quarter. In fact, our deposit pricing strategies have been effective, not just in retaining our deposits, but we're attracting new dollars to the bank. While the cost of deposits went up 25 basis points, the cost of funds only went up by 19 basis points because we benefited from participation in the Federal Reserve's bank term funding program in the quarter. We got in a program and borrowed just over $500 million, while the Fed was still pricing the borrowings on the forward curve. So we are grandfathered in so to speak, at 4.76% on those borrowings until next March. We didn't enter the program with the intent to arbitrage the rate. We simply borrow that much because that's what we needed at the time and the Fed's rate was less than the FHLB. Ordinarily, we would use the excess cash generation from the strong deposit growth we enjoyed in the first quarter to pay off borrowings. But given the rate differential, we prefer to stay in the BTFP program for now, which is why we ended the quarter with $223 million on deposit at the Fed at 5.4%. While it's obviously accretive to income to the tune of about $0.01 a share in 2024, it did have a 3-basis point suppressive effect on the NIM in the first quarter. Fee income and non-interest expense are both little changed, but slightly unfavorable to last quarter. Back-to-back swap fees were non-existent as customers have little desire to lock in fixed rates. And interchange was down seasonally compared to the fourth quarter with holiday spending. We were pleased, however, to see mortgage and SBA gain and sale income pick up from last quarter. That was good. The non-interest expense comparison to last quarter was also affected by a tax accrual reversal that benefited the fourth quarter and by higher occupancy expense in the first quarter. And with that, I'll turn it back over to Mike.
Mike Price: Thanks, Jim. And operator, if we could pause for some questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Daniel Tamayo with Raymond James. Your line is open.
Daniel Tamayo: All right. Thank you. Good afternoon, guys. Maybe, Jim, I appreciate all the detail on the puts and the takes of the margin in the first quarter as well as what's coming in the next rest of the year and even into '25 with those swaps. But maybe you can kind of fill us in on how you're thinking about the core margin and the total margin path for the rest of the year?
Jim Reske: Yeah, thanks. You may have noticed that from absent from my prepared remarks, there's any kind of forecast of the NIM. And that was conscious. But -- just to be clear as I can be, we're very cognizant of the fact that in the last three quarters in a row, we were forecasting instability and yet the margin compressed by about 10 basis points every quarter. I would tell you that the forecast that we have suggests the same thing, NIM stability going forward. So that is our forecast. So those forecasts actually take into account a falling rate environment. The rate environment forecast or preparation of those forecasts project the Fed funds down to 4.38% by the end of the year, about four rate cuts. It slows down rate cuts, in a higher longer environment that will benefit the NIM probably even better. I will say, we have sharpened our pencils and gotten better at forecasting deposit movements. That's something that I think we were catching -- we were caught out on in the last couple of quarters in the last year, we've gotten better at that. So we're trying to understand where our depositors are going. And we've also, in light of the disparity between loan growth and deposit growth this quarter, saw back the aggressiveness of the deposit rates a little bit. So we still have these specialists out there, but they're not top of market specialists. And that's probably going to bring deposit growth more in line with the loan growth and hopefully achieve that kind of stability target. But that's how we're thinking about it now, Dan.
Daniel Tamayo: Okay. That's very helpful. And just to be clear, the 1 basis point benefit from swaps in 2024 and then the 3-basis point negative impact, I mean, from the funds at the Fed window, that's all baked into your assumption there?
Jim Reske: It is, the cash on hand at the Fed right now, that 3% -- 3 basis points suppressant effect that I talked about. The reason I have a little bit of a lot of this is vet cash has come down a little bit here in the second quarter so far. So without selling sales out of school, we're right about $150 million right now. If it stayed at 250 for the full quarter, it would have about 6 or 7 basis points aggressive effect. The average for the first quarter was only $112 million, even though we ended the quarter 223 of excess cash. The average excess cash for the quarter was $112 million. That's why it was only 3 basis points impressive effect. If it stayed at 250 for the full second quarter, that's like a 6 or 7 basis points once it starts to effect. But it's come down and nice to be a little hopeful. And I would just add, thin margin balance sheet leverage business is generally not something we find attractive and don't pursue. But now we've got it, we're going to stay in the program because we make a little money off of it. And we would hate to pay off those borrowings and then find that we have great loan growth in the second half of the year, we were borrowing again from the FHLB at 5.4%. I hope that clarifies things a little bit on the excess cash question anyway.
Daniel Tamayo: It does. Yeah, it does. Thank you. I guess, and then just lastly, what are your thoughts on accretion, what the contribution was in the first quarter and then where that may go to the rest of the year?
Jim Reske: EPS accretion? Or I'm sorry, what do you mean?
Daniel Tamayo: I'm sorry, discount accretion, purchase accounting.
Jim Reske: I think it was 7 basis points in the quarter. It's going to be fading out about 1 basis point every quarter. It was 7 basis points for the first quarter and fading out by 5 basis points each quarter.
Daniel Tamayo: Got it. Well thanks for taking all of my questions. Appreciate it.
Jim Reske: Thanks, Dan. You bet.
Operator: Our next question comes from the line of Karl Shepard with RBC Capital Markets. Your line is open.
Karl Shepard: Hey, good afternoon, guys.
Jim Reske: Hey, Karl.
Karl Shepard: Jim, I wanted to pick up on the margin discussion a little bit. When you talk about the swaps on Slide 14, should the message that we should take away is that the overall margin can drift higher over the next couple of quarters? I mean to '25 we think in near-term stability and those kind of roll off. Is that a fair way for us to think about it?
Jim Reske: It could. If rates stay high and the replacement yields tick up a little bit and we can bring the deposit costs under control. But those are a lot of -- we're getting closer and closer to the -- your question is about those macro swaps. So we just getting closer to maturities. So we thought we'd provide some helpful disclosure this quarter to kind of spell out the effect of those roll off of those swaps of the. There's a page in our supplement that we put on the PowerPoint presentations, we call it an earnings presentation supplement that is on the Investor Relations portion of our website. It's Page 14 that kind of has a bar chart that spells up down volume of the swap maturities, the macros swap maturities and then the cumulative NIM impact for all those. The real benefit of it is until next year. But maybe you could think about it this way, to answer your question directly, that will help produce the stability that we're looking for. Right that we have that support from those things rolling off, but that can only help. And it's stay in a higher rate -- higher for longer rate environment will just keep repricing up the fixed rate loan portfolio and those macros starts to roll off and that will work out really well.
Mike Price: Jim, your team modeled really in a baseline scenario or falling about 8 basis points of cumulative impact accreting to the margin and a flat rate scenario 11 basis points.
Jim Reske: That's right. So it's material. And that's through 2025, Karl.
Karl Shepard: Yeah. Okay. And then on loan growth, so we've got deposit outstripping loans this quarter. I know you guys are trying to be very measured aligning the two, but should we think about this quarter's performance is giving you a little bit of runway for the next year? Or do you think this case of loan growth is fair assumption?
Mike Price: I think it does give us runway. I think that we've proven with 7.5% loan growth last year. Notwithstanding our acquisition of Centric in the new capital region and that we can generate deposits. And then through this first quarter, even if it cost us a little some and some. And so we're excited about that. And we've also grown deposits. The deposit households, as Jim mentioned, and so we're going to taper and dial that in better and better each quarter. But we're also excited about growing the corporate bank, maybe a real estate deal or two this year and turning that back on a bit, but more importantly, growing C&I, small business, SBA, which will become the core of the company over the next five-plus years. And so we're optimistic about the future and our ability to grow.
Karl Shepard: Okay. Thank you both.
Jim Reske: Before our next question, if I could circle back, I said 7 basis points in accretion was actually 7.6. So it around 8. That's purchase accounting accretion for the first quarter just ended, just for the record.
Operator: Next question comes from the line of Kelly Motta with KBW. Your line is open.
Kelly Motta: Hi, thanks so much for the question. I guess, kind of picking up on growth picking up on the question there. Just wondering if you could talk a bit about your pipelines where you're seeing opportunities and the best opportunities where you're seeing the most demand from your clients?
Mike Price: Yes. Right now, on the consumer side, we have pinched the volume there really across the board, and we're just replacing what is running off at best. On the commercial side, our SBA business has a pretty good pipeline. C&I, the pipelines are building somewhat depending on the region. And commercial real estate, the demand there is still tamped down, and we -- but there will be a deal or two there. So it's not fulsome, like we were growing maybe two years ago, where seem like each year, we would guide in the high single digits, and we would eclipse that. Now our guidance is probably more like mid-single digits.
Kelly Motta: That's super helpful. Sorry to mean to cut you off.
Mike Price: No worries. I just have Jane Grebenc, our President; and Mike McKeon, our Executive Vice President of Corporate Banking. Anything that the two of you would add. This is an important consideration on loan growth.
Jane Grebenc: Sure. A couple of things. We are bullish on SBA, and it's important to note that only 25% of that hits the balance sheet. The other 75% ultimately gets sold and we get the gain on sale income in lieu of the balance growth. So we're seeing good SBA business. And Brian has reminded me that the SBA business that we are booking now is probably the best we'll see because it's able to be approved under today's interest rate environment. So this is all good stuff. Most of that SBA is business acquisition. And so we do like the SBA business a lot. And then as Mike said, the commercial business is a little bit more muted, but we are seeing pipelines growing and I think we -- I think customers and prospects are starting to finally think maybe the recession isn't right around the corner, and they're starting to spend a little bit.
Kelly Motta: Got it. That's super helpful. Thank you so much. And then maybe actually then switching to fees, mortgage, you had a nice quarter for mortgage. And in your prepared remarks, you mentioned selling more production there. And you just mentioned SBA and I've heard from some other banks that the premiums have come back a bit in that line item. Just wondering if gain on sale was in both lines were pretty strong this quarter. If this is a good run rate for those items and any sort of puts or takes off of Q1 levels would be great.
Mike Price: Yeah. Jane, any thoughts?
Jane Grebenc: Well, we feel good about the volumes. And you're right, the premiums have come down in both businesses, some -- it just means we have to work harder for each dollar. But I think the run rates in both businesses are -- I don't want to overpromise, but I think we're about where we're going to be.
Kelly Motta: Got it. That’s helpful. I will step back. Thank you so much.
Mike Price: Thank you.
Operator: Next question comes from the line of Matthew Breese with Stephens.
Matthew Breese: Good afternoon, everybody.
Mike Price: Hey, Matt.
Matthew Breese: Mike, just a point of clarification. So traditionally, when we talk about kind of mid-single-digit loan growth, it's usually all inclusive, but we've definitely made a difference this quarter in talking about commercial versus consumer growth. When you point to mid-single-digit growth for the rest of the year. Are you implying all in loan growth? Or are you just commercial growth and that means we'll probably see loan growth similar to what we saw this quarter?
Mike Price: I'd like to see it all in, which means we would get maybe a little tailwind from the consumer side. Maybe a little -- we've done a nice job of pricing our consumer and maintaining some volumes, particularly in the indirect auto, which is an end market business. And so we can maybe get a tipping point there and maybe some tailwinds and so -- but maybe be more -- it will be -- have to be commercially driven. But that is for the whole year, and we would have to do a lot more in the second half of the year undoubtedly.
Matthew Breese: Okay. So all-in loan growth is probably more than likely to be on the lower side of the mid-single-digit growth with commercial being kind of the X factor.
Mike Price: I suspect you're right, but we're going to hold our feet to the fire internally 5%.
Matthew Breese: Fair enough.
Jane Grebenc: Yeah. Mike, we could turn up consumer loan volume, but we would have to blink on price, and we'd have to blink a little bit more than we're comfortable blinking, right this minute. The auto business is softening a little bit. So if we wanted to turn it up, we'd have to compete on price.
Mike Price: That's right.
Matthew Breese: Got it. All right. And then, Jim, maybe just a couple for you. You pointed out in your opening comments that we do have a bit more liquidity on the balance sheet today. Securities also grew a little bit. I was hoping so for hoping for some more color on those two items, strategy around securities at this point and liquidity deployment.
Jim Reske: Yeah. Thanks for asking. We'll take some of the excess cash and deploy in liquidities, but not aggressively. Really securities right now, we can maybe get in the high 5s. We're getting 5.4 overnight at the Fed. Obviously, the security is as on duration and whenever we buy, we're always looking at four to five year duration. So that helps a little bit in the falling rate environment, but the yield pickup is not tremendous in securities right now. We've gotten securities for probably up a little bit from last year when it got a little uncomfortably low just in terms of on-balance sheet liquidity. It's back up a little bit now, but we just always would rather be making loans to buy security. So if we have a loan growth opportunity, we just have to deploy it there. And really not -- we don't want to put it all into securities and finally we're borrowing overnight to fund loan growth. We just had to use it for the loan growth. So we'll keep our eyes on it. But for the moment, my thought is some securities growth, we'll take some of that cash. I mean, if we have -- I already disclosed it, if we have $150 million today, we'll take $50 million to pay off a sub debt on June 1, maybe whatever is left half of that, the security go and we'll see what happens as loan growth going forward.
Matthew Breese: Okay. I appreciate that. And then, Jim, historically, you do provide some update on what kind of the forward outlook is for total fee income and expenses. Expenses came in actually better than expected this quarter, and I'd appreciate some update there.
Jim Reske: Yeah. And our guidance really isn't changing in those things. I think the fee income and the expenses are going to be consistent with the guidance we've previously given. So -- and I think that was on the fee side, $67 million to $68 million. I mean it was $67 million to $69 million for the quarter, but I don't mean to change the guidance because I thought actually both the analyst consensus on those and our previous guidance did need to be updated.
Matthew Breese: Understood. Okay. And then just an update on overall credit. All eyes are on office, and you have some great disclosures, but I'd love to hear a little bit more about kind of your top exposures in office, what the typical sizes of the biggest loans and how they're performing, if anything is keeping me up at night.
Mike Price: There's always a few. I get comfortable from the fact that in office, we only have 11 loans over $10 million and probably $18 million between 5 and 10. So we're pretty granular. We've worked down our exposure somewhat over the course of the last year. And we're pretty thin on central business district. I think we have just $73 million there. I have Brian Karrip, our Chief Credit Officer with us. Brian, do you want to add some other color?
Brian Karrip: Sure, and thanks for your question. We have two deals that are above $20 million, both are performing well. Both have low LTVs, strong debt yields, strong DSCRs, one we mature we saw in the slide number 18. Third quarter of $22 million will mature. We're extending that loan for six months. We gave you the maturity ladder, so you could see it with greater clarity and emphasizes who we are and how we think about our portfolio and emphasizes how we think about the granularity in our portfolio, how we break it out, how we stratify it and how we think about our overall office business. The slide is fairly complete. I'd be happy to answer any questions.
Matthew Breese: What is the -- I'm sorry, what's the nature of the extension.
Brian Karrip: We're looking to sell property. And so we have agreed, so we have a proactive approach with each one of our borrowers. In fact, Matt, we went out and did a physical inspection of each one of our office properties that will mature between '24 and '25. We wanted to better understand physical occupancy versus economic tendency. And then in doing so, we meet with our clients and we say, what is the next step and what are your thoughts? With this borrower, they said our plan is to sell the property. And we went to them and had the discussion about, let's do a six-month extension, so we can have an orderly exit.
Matthew Breese: Okay. That makes sense. And you feel like if there's any loss content in your well reserved for that?
Brian Karrip: Absolutely. It's performing -- that's performing.
Matthew Breese: Great. Well, I appreciate all the answers there and the color. Thank you.
Mike Price: Thank you.
Operator: [Operator Instructions] We have another question coming in comes from the line of Manuel Navas with D.A. Davidson. Your line is open.
Manuel Navas: Hey, good afternoon.
Mike Price: Good afternoon.
Manuel Navas: A lot of the questions have been answered, but I just want to -- I was wondering some of the marginal rates of things. What was the marginal deposit rates for what came on? And I'm going to ask about different loan yields as well.
Jim Reske: Yeah. So the current -- we have a number of different specials like the current short-term 12 month fee specials 5.05%. And then the money market specialists 4.5%, if you blend the volume, the overall used volume rate on deposits coming was right about 4.48% for new deposits coming in.
Manuel Navas: So that was 4.48% last quarter, and it's coming down a little bit, right? You're able to price down a little bit.
Jim Reske: We are. Well, last quarter, that CD special I mentioned would have been a 5.1 -- actually 5.25, and that's 5.05. Yes. I don't -- and I'm sorry, if I said the overall blended rate should be down from last quarter. I'd just say this quarter it's 4.8%, if I think about the unit should be down from last quarter, not up.
Manuel Navas: And then new loan yields, we had strong equipment finance growth. Remind me the yields there and indirect out?
Jim Reske: Yeah, Indirect out in the high 7s after the net of the dealer reserve, and to get it for you. Equipment finance, I think was right around 8% for the quarter.
Manuel Navas: And I think you said earlier, commercial is roughly around 8% in general?
Jim Reske: Yeah, commercial is a little bit higher, a little in the low 8%. The coming finance every of 7.98 so yeah 8%. And indirect 7.6% the amount of yield for the quarter. So indirect, for example, that's 7.6% for the quarter, $110 million came out of 7.6%, $109 million rolled off at 524. So just the way we like it.
Manuel Navas: Okay. Thanks. A little bit of a hospitalization expense didn't kind of improve linked quarter? And it's just going to -- is that just kind of going to bounce back up a little bit?
Jim Reske: Yeah. That's fair to say. We don't get too hopeful in hospitalizations like for a given quarter because it bounced around so much just based on our experience. We self-insure. We talked about it before publicly, the layoff, we have a reinsurance for a layer of -- really reinsurance a layer of cost once we get to a certain level. But if we have good experience in a given quarter, the hospitalization expense low, but it does bounce around.
Manuel Navas: Okay. So staying as previously expected. I appreciate it. Thank you.
Jim Reske: Yeah, you bet.
Operator: Next question comes from the line of Frank Schiraldi with Piper Sandler. Your line is open.
Frank Schiraldi: Good afternoon. Just in terms of -- you guys talked obviously about the tapering the CD rates here. And it seems like your commentary was also that you're not high, you're not at the high end of the market, but you're still competitive. And just kind of curious what you're seeing so far. Is the idea that given the kind of loan growth expectations you laid out that you can be competitive enough on the deposit side to kind of grow the deposits in line with that and hold the loan-to-deposit ratio kind of flattish through the year? What's the thinking there?
Mike Price: Yeah, I think that's right, is -- and we watch that daily, daily every day in terms of what the flows in and out are. And it does impact how we think about consumer lending to start with, and whether we continue to meter it or not. But the replacement yields in some of the portfolios like indirect auto -- it's not where we started a year ago, and the team has done a great job getting our rates up there. Jane, do you want to -- any commentary you want to provide in terms of the sparkling water of liquidity, how it might help us grow loans.
Jane Grebenc: No, Mike. I think Frank, it sounds so simple when you say it, Frank, but that's exactly what we're trying to do.
Frank Schiraldi: And in terms of -- just curious like the pressure now in the existing portfolio is has that obviously, in terms of deposit costs moving higher, is it just mostly money at this point? Has the existing stuff sort of stabilize to agree?
Mike Price: Jane, I have some thoughts, but why don't you lead us off?
Jane Grebenc: Sure. We see -- we still see new money coming in. On any given special we see about 50% new money and 50% of our existing book potentially repricing. And we've been pretty gracious about that because we'd rather keep the deposits. And -- but we are seeing the rate of repricing slowing down. Six months ago, it was bad. Nine months ago, it felt horrible. Today, it feels like it's starting to normalize and pricing is really slowing down.
Mike Price: Is that helpful, Frank?
Frank Schiraldi: Yeah, yeah. And then just lastly, yeah, just thinking about reserve to loan levels, I mean, it seems like some of the smaller banks are trying to build reserves a bit here, just given where some of the bigger banks are on reserve coverage of the total book. And for you guys, just kind of curious how you think about that? I mean just given that commercial is going to be the driver here, what is that alone kind of say about the reserve to loan ratio? Should we at the end of the day, I just expect continued increase -- modest increase in that quarter-over-quarter as you grow the commercial book?
Mike Price: Yeah. I mean we obviously fund reserves when we have growth, and that's a key part and a component of building the reserve, and that's what's built it in the past. And Brian, what would you add to that?
Brian Karrip: Just that we have about $3.3 million in specific reserves from the acquisition. We have about $2.9 million in PCD reserves, so we did grow from 131 to 132 in our reserve ratio. But we've got adequate reserves to support our business and potentially to support some growth.
Jim Reske: Can I just add? I think our approach is very thorough to bottoms up approach. In other words, there's just some thinking about -- I want to be clear that the way you asked the question. It sounds like we say, well, let's do this on the ratio and then find a way to solve for that ratio even though I have a [Indiscernible] bankers, like you mentioned, small banks talking about that and thinking that way. But ours is very far from the bottom up. So if we say, hey, -- the economic conditions are changing that our quantitative reserve would be changed to reflect that if we see GDP or employment factors changing. And then some of the qualitative factors we look at changes in underwriting standards or staff, all the factors we look at, I think we made some changes this quarter as well as loan growth. Yeah, right, as well as loan growth. So then we do all that work and they say, it turns out that given the way the portfolio grew, we didn't grow that much, and so the ratio is 1.32, rather than saying, let's find a way to get it to 1.32. So anyway, I don't know that helps or not, but that's kind of way we think about it.
Frank Schiraldi: Yeah. No, I guess I'm just thinking through like as you build what the reserves are in the commercial book, I guess, versus the reserves of consumer book as a percentage of total loans. I don't know if you have that handing.
Brian Karrip: I don't, but I could -- we could get it back to you.
Mike Price: We've had our reserve higher than our peers generally, and that's with a pretty good mix between probably heavier consumer and commercial. And almost 50-50. And really, that could switch to more of a 60%, 60%-plus commercial just because that's where the spread is and that's where the customer relationships, the more robust cross-sell and the fulsome depository is.
Frank Schiraldi: Okay. I appreciate all the color. Thanks.
Mike Price: Thank you.
Operator: There are no further questions at this time. Mr. Mike Price. I'll turn the call back over to you.
Mike Price: Thank you, operator. And as always, we appreciate your engagement and interest in First Commonwealth. As we think about our 2024 strategic themes, we've shared these with you before, and they really don't change that much from year-to-year. But we think about as an organization, living our mission every day. That is to improve the financial lives of our neighbors and their businesses. We do that well and then growing our business, and we think we can improve our loan pricing. We can improve partner introductions in the regional teams. We can grow our C&I lending each year going forward, particularly given the team that we put together. And then we also think a lot about getting better. So live the mission, grow, get better and not just vaguely but in every region, every line of business, every business support unit and we’re trying to become digital in every facet of our business. And so those – that’s where our heads are at. Those of you who know us – we talk about these things, and we expect to get better every year even as we cross $10 billion. And we have a little wind taken out of our sales with Durbin this year and just stay after it. And this is a fun business. We make a difference in the lives of our consumers and small business and our respective communities, and it’s a great business to be in. Thank you.
Operator: This concludes today's conference call. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.