F.N.B. Corporation

Good morning, everyone, and welcome to the FNB first quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To draw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Lisa Hajdu, Manager of Investor Relations. Please go ahead.

Good morning, and welcome to our earnings call. This conference call of FMB Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements and 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. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports, and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Thursday, April 24th, and the webcast link will be posted to the About Us Investor Relations section of our corporate website. I will now turn the call over to Vince Gilley, Chairman, President, and CEO.

Thank you. Welcome to our first quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrero, our Chief Credit Officer. FMB reported net income available to common shareholders of $116.5 million, or $0.32 per share. The first order had positive momentum on several key metrics, including tangible book value per share growth of 12%, totaling $10.83, record capital levels with CET1 of 10.7%, and tangible common equity to tangible assets of 8.4%. The ever-changing macroeconomic environment emphasizes the importance of the continued execution of our long-term strategy, particularly around diversifying revenue streams, active balance sheet management, generating ample capital and liquidity, and maintaining a balanced, well-positioned loan portfolio with consistent underwriting and robust credit monitoring. F&B generated modest revenue growth this quarter, reporting total revenue of $411.2 million, driven by net interest income growth and solid non-interest income. We benefited from a higher level of earning assets and stable margin with directional improvement during the quarter. Non-interest income totaled $87.8 million. benefiting from the strategic investments we have made to develop and expand high-value business units that diversify revenue and enhance product capabilities for our clients. During the past 10 years, we have significantly enhanced our capital markets offerings, which has led to revenues more than doubling during that timeframe. We recently announced our acquisition of a critique investment banking firm focused on delivering financial advisory services to public and private companies. This team of experienced bankers has advised on hundreds of transactions with an aggregate value of nearly $40 billion across a variety of industries for middle market and large corporate clients. Given the scale of our company, the growth of our client base, and the changing economic outlook, this is an opportune time to invest in expanding our capabilities. The first quarter annualized loan and deposit growth in a seasonally slower period were 3.5% and 1.4% respectively, demonstrating our success in growing client relationships and market share. F&B remains focused on being our client's primary operating bank by prioritizing high-touch services and a superior digital delivery channel, including our award-winning e-stores. This month, we launched automated direct deposit switch capabilities, the latest enhancement to our award-winning digital banking experience, which provides the option for customers to move their payroll direct deposits instantaneously with a few simple steps. Our comprehensive digital strategy, including the use of AI, is designed to drive client acquisition, engagement, convenience, and primacy. and is a major force behind our success gaining share throughout our footprint and broadening our client relationships. As we demonstrated during the 2008 financial crisis, the pandemic, and the more recent banking liquidity crisis, FMB maintains a diversified and granular deposit base, consistent and conservative underwriting, solid capital and liquidity levels, and sound risk management policies and governance. These practices have always been integral to F&B's long-term strategy and are ingrained in our culture and enterprise risk management program. Our team frequently engages in regular liquidity stress test analysis, capital stress testing, CISO reserve model analysis, and diligent and proactive credit monitoring, ensuring we are prepared for a range of economic scenarios. In response to the recent tariff announcements, Our team completed liquidity, capital, and credit stress tests. The results show strong coverage and ample liquidity in a severe scenario, once again demonstrating our preparedness. Our credit team has worked closely with our bankers to complete an extensive survey to identify any risk related to the tariff policy. According to our findings, F&B remains well positioned at this point, with manageable exposure to the most heavily tariff impacted businesses and consumer portfolios. We will continue to diligently monitor our loan portfolio and engage in active dialogues. FMB's approach to credit risk management has a proven history of providing strong and stable asset quality through various economic cycles, and I am confident that we will be able to manage through the current economic environment. I will now turn the call over to Gary who will provide additional details about the potential impact of tariffs and review our overall credit performance.

Gary? Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at stable levels. Total delinquency ended the quarter at 75 basis points, down 8 bips from the prior quarter, with NPLs and OREO unchanged at 48 bips. That charge-offs totaled 15 basis points, reflecting solid performance in the current economic environment. Criticized loans were essentially flat, up six bips on a linked quarter basis, reflecting continued stability across the portfolio. Total funded provision expense for the quarter stood at $18.6 million, supporting loan growth, charge-offs not previously reserved for, and a qualitative adjustment for potential tariff impacts, which I will later touch on. Our ending funded reserve stands at $429 million, an increase of $6.1 million, ending at 1.25%, unchanged from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.34%, and our NPL coverage position remains strong at 267%. We are monitoring the current market volatility from the recently enacted tariffs and its potential impact on our loan portfolio. In January, in anticipation of the tariffs, we required a mandatory assessment in the underwriting of all new and renewing C&I loan requests. We then surveyed more than 50% of our C&I and owner-occupied loan portfolio, down to 3 million in relationship exposure, with a focus on industries more likely to be impacted. We were pleased with the outcome of that analysis, which reflected that less than 5% of the exposures were at risk of greater impact from the direct tariffs. The results further supported the qualitative allowance adjustment mentioned earlier. Obviously, a wider credit impact could occur from a slowing or recessionary environment, which we cover in our quarterly stress testing process. Lastly, our concentration risk management framework allows us to assess the portfolios on a daily basis, including potential impacts on our reserve during a crisis, or periods of economic uncertainty. Additionally, we have reviewed other potential risks to our commercial and consumer loan portfolios regarding government contracts and employment. Our government contracting portfolio is small and consists primarily of a handful of investment-grade exposures. We are in frequent contact with these customers and feel comfortable as each generally supports critical government functions. We are closely monitoring our consumer exposures, particularly in the Mid-Atlantic region, and have not observed any negative impacts at this point. Regarding the non-owner CRE portfolio, credit metrics continue to remain at satisfactory levels with delinquency and NPLs at 82 and 77 basis points, respectively. This reflects an improvement from 99 and 84 BIPs at the end of last year. We continue to aggressively manage this portfolio as we have throughout this interest rate cycle, with the non-owner exposure declining by $283 million in the quarter, ending at 229% of capital. As we have done each quarter, we completed a full portfolio stress test. The results reflected further improvement with our current ACL covering 97% of our projected charge-offs in a severe economic downturn. In closing, our credit results reflected continued strength and stability. The success of our approach and strength of our leadership team through many economic cycles was recently reflected in an independent global study that named Vince DeLee as one of the top CEOs in the United States across all industries based on performance and reputation, and further placed him in the top five CEOs among the largest banks in the United States. Vince and our leadership team have created a culture that understands the importance of maintaining a strong risk philosophy across the company. including a robust credit underwriting and risk management function that has enabled us to deliver consistent credit results through these periods. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks. Thanks, Gary, and good morning.

Today I will review the first quarter's financial results and walk through our second quarter and full year guidance. First quarter operating net income totaled $116.5 million, or 32 cents per share, with total revenues coming in near the higher end of our first quarter guidance range and non-interest expenses coming in near the lower end of our guide. Total loans and leases ended the quarter at $34.2 billion on a spot basis, a 3.5% annualized linked quarter increase driven by growth of $224 million in consumer loans and $72 million in commercial loans and leases. Residential mortgages continue to lead consumer loan growth, and nearly half of the mortgage production for the quarter was saleable. Spot C&I loans and commercial leases combined grew at a mid-single-digit annualized rate from year-end 2024. Total deposits ended the quarter at $37.2 billion on a spot basis, an increase of $132 million linked quarter. Non-interest-bearing demand deposits increased 1.1% late quarter and comprised 26.5% of total deposits, up 19 basis points from the fourth quarter. The loan-to-deposit ratio increased slightly to 91.9%. Our total deposit costs ended the first quarter at 1.95%, down 13 basis points from year-end, leading to a cumulative total deposit beta of 28%, since the interest rate cuts began in September of last year. The first quarter's net interest margin was 3.03%, stable with last quarter. The margin bottomed early in the quarter, and March's net interest margin was 3.08%, five basis points above the quarterly average. Interest-bearing deposit costs fell 24 basis points linked quarter, driven by lower rates paid on money market and time balances. An 11 basis point decrease in the total yield on earning assets to 5.23% was offset by a 10 basis point decrease in the total cost of funds to 232. The average yield on the investment securities portfolio increased three basis points length quarter to 3.41%, benefiting from restructuring actions taken in the fourth quarter. Net interest income totaled nearly $324 million, It's a high end of our guide and a $1.6 million increase from the prior quarter, even with two fewer days. Net interest income increased 1.5% from the year-ago quarter, the first year-over-year increase since the third quarter of 2023. Turning to non-interest income and expense, non-interest income totaled $87.8 million, consistent with the year-ago quarter and right in the middle of our guidance range from January. Wealth management revenues increased 8.4% year-over-year to a record $21.2 million, with contributions across the geographic footprint. Capital markets income of $5.3 million was impacted by lower commercial customer activity given the current macroeconomic environment. Non-interest expense totaled $246.8 million, a slight decline from last quarter and at the low end of our guide. Salaries and employee benefits increased $7.1 million due to normal seasonal long-term compensation expense of $7.6 million and seasonally higher employer-paid payroll taxes, which increased $4.4 million. These were partially offset by lower employer-paid healthcare costs. Salaries and benefits reflect strategic hiring associated with our efforts to grow market share and continue investments in our risk management infrastructure. Compared to the year-ago quarter, outside services increased $3.5 million, or 15.1%, from higher volume-related technology and third-party costs associated with ongoing investments in our enterprise risk management framework in support of our strategic initiatives. The seasonably affected first quarter efficiency ratio remains solid at 58.5%, and we continue to manage our expense base in a disciplined manner. We expect improved performance with positive operating leverage in the second half of 2025. FMB continues to actively manage our capital position for ample flexibility to support balance sheet growth and optimize shareholder returns while appropriately managing risk. Our financial performance and capital management strategies resulted in our TCE ratio reaching 8.4% and the CET1 ratio reaching 10.7%. both multi-decade highs. Tangible book value per common share was $10.83 at March 31st, an increase of $1.19 per share, or 12.3%, compared to March 31st of last year. We repurchased 741,000 shares during the quarter and expect to pursue opportunistic share repurchase activity once there's more clarity around tariff policies moving forward. Let's now look at guidance for the second quarter and full year of 2025. All guidance is based on current expectations while remaining cognizant of the highly uncertain economic environment we are all operating in. We are maintaining our full-year balance sheet guidance for spot balances by year-end 2025, projecting period end loans to grow mid-single digits on a full-year basis as we increase our market share across our diverse geographic footprint. Similarly, we are projecting total deposit balances to grow mid-single digits, also on a year-over-year spot basis. Our projected full-year income statement guide is unchanged with last quarter. Our projected full-year net interest income is still expected to be between $1.345 and $1.385 billion, factoring in 25 basis point rate cuts in both June and September. Second quarter net interest income is projected between 325 and 335 million. The non-interest income full-year guide remains between 350 and 370 million. The second quarter non-interest income guide is between 85 and 90 million, with seasonality expected to carry us to the higher end of the range. Full-year guidance for non-interest expense is expected to be between 965 and 985 million, with the second quarter non-interest expense expected to be between $235 and $245 million. Full-year provisions guidance is maintained at $85 to $105 million, given the stability in our credit performance to start the year and will be dependent on net loan growth and charge-off activity. As Gary mentioned, while we performed a deep-dive assessment of the risks caused by the current economic environment, The potential impacts are highly uncertain at this point given the fluidity of trade negotiations. Lastly, the full year effective tax rate should be between 21 and 22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince.

Thank you, Vince. In closing, I want to thank the entire FMV team for their commitment to our core values, including innovation and collaboration. Also, thank you, Gary, for your comments. The recognition that I've received is a direct result of many contributors to F&B's success, including our board of directors and exceptional leadership team and passionate and engaged employees. Our culture, risk management, and employees' hard work and dedication have delivered strong first quarter results and will continue to guide us through as we protect and grow shareholder value through various economic scenarios. Thank you, and we will now open the call for questions.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Russell Gunther from Stevens. Please go ahead with your question.

Hey, good morning, guys. Good morning, Rachel. Well, I wanted to start on the NII outlook. If I could, you know, first, if you could just remind us of the cadence of the swap maturities over the course of the year and how that benefit NII this quarter has And then to follow up, maybe just walk us through the scenario underlying the high end of the NII guide and what that contemplates from a loan growth perspective, shape of the curve, and whether any additional security portfolio restructuring.

Yeah, I would say, I guess, a couple of things. The net interest income guide cuts from June and September, we talked about, so that's you know, we're maintaining the same full level for the full year. I would say that for the second quarter, you know, based on where we exited the first quarter, kind of 308 for the month of March, as I mentioned, you know, you could potentially see us, depending on what happens with rates during the quarter, right, it's very volatile, but you could definitely see us being in kind of the upper half of that second quarter range. You know, for the full year, there's just too much to play out. You know, we're still comfortable, as we've reaffirmed all of our income statement guidance for the full year. So we're still comfortable with the full year levels. But the second quarter, you know, the two areas in our guidance where there's some upside in the range would be the net interest income and the non-interest income, as I mentioned in my prepared remarks, just seasonally, you know, getting us at the higher end of that range and then kind of upper half of the net interest income range for the second quarter. Got it. And then as far as restructuring activities, do you have any additional restructuring activities based in You know, the fourth quarter restructuring we did, you know, was a nice couple of penny benefits to the full year that we had done. So we're not contemplating anything as we sit here today. And the first part of your question, Russell, again, what was the first part?

Just the impact of the swap maturities and how that played out this quarter. Sure.

I mean, that was – remember, we've talked about $10 million a quarter, which is where it was in the fourth quarter. It was about $8 million dragged in the first quarter. goes down to six million in the second, and then it kind of goes down from there, a couple million in the third, and then a small amount, less than a million in the fourth quarter, because by that, it's all rolled off. So eight million for the first quarter, about six million for the second quarter.

Vince, that's really helpful. Thank you very much. And then just last line of questions for me would be on the expense side of things. I know you talked about the expectations for more positive operating leverage in the back half of the year. I'm just curious, as you think about 1Q results, what could take us to the low end of the range in 2Q? And then is that kind of improved back half performance contemplative of any specific efficiency initiatives or maybe just some help in terms of how you're thinking about the cadence?

Yeah, I would say, I mean, we have the history of taking clocks out every year. We've been very disciplined expense managers for as long as we've been here. So, and this year's guidance has us, you know, with a similar kind of in the $15 to $20 million kind of cost savings target through renegotiating contracts, space optimization, continued process improvement focus, leveraging AI and machine learning, and some of the tools that we already have kind of in the building. So, that's kind of already baked in and some cost saves, as well as heightened standards, right? We've talked about that in the past, and that's, again, in our guidance, and, you know, that's in the $5 to $10 million kind of area. of expenses that are baked in as we're close to 50 billion and approaching that high standards kind of level. So I would say, I mean, to me, the expense guide, kind of middle of the range is best to use for the quarter as well as for the full year, based on what we know today.

Okay. That's really helpful, guys. Thank you very much for taking my question.

Sure. Thank you.

Thanks.

Our next question comes from Daniel Tamayo from Raymond James, please go ahead with your question.

Thank you. Good morning, guys. Maybe talking about, I'll take the other side of that question on the NII, specifically as it relates to loan growth. Just curious where you see risk to that guide. Obviously, there's a lot of uncertainty right now in the environment. We all understand that, but I guess I'm curious how confident you are in that mid single-digit number, maybe some color around what you're hearing from borrowers and how they're being impacted from a pull-through rate on the loan growth side from tariffs right now.

Sure.

Oh, good.

Yeah, I was just going to say this instantly. I was going to let Vince answer if he wanted to, but I guess I could jump in. I mean, the pipelines are softer on a year-over-year basis. If you look at them, you know, they're down about 10% in total. The short-term, the good news is the short-term pipeline has built a little bit. And we've looked at it across the seven-state region that we cover in the United States. And as you know, we have... you know, a pretty heavy focus on manufacturing within the Rust Belt states that we operate in. So Gary spent quite a bit of time studying the impact of tariffs on our customers. So we were able to gather quite a bit of feedback. We put a process in place where we collected data, divided the portfolio up into segments, and then focused on the higher risk tariff clients. And, you know, there's a lot of uncertainty Obviously, around the tariffs and, you know, how it's going to impact them specifically. I mean, you could see a wide range of activities going on within the customer base. Everything from, you know, some clients utilizing their excess liquidity to bring inventory in. in so that they don't face supply chain disruption or substantial increases in cost initially. So you're seeing some of that. You see some borrowers cutting back, you know, canceling CapEx expansion plans because they're going to wait and see, you know, what's going to happen with the tax code and what's going to happen, you know, with the tariffs individually. So it's kind of a mixed bag and it's caused, I'd say, a pause in capital investments. at least substantial capital investment. We expect that as we move through the next several months and hopefully resolve many of the issues associated with these tariffs. Maybe not China. China might be a longer-term issue. But we would expect demand to pick up in the second half of the year. And, you know, based upon the activity that we're seeing, you know, I think that is in the cards. You know, from a CRE perspective, you know, CRE is slower. You know, we have intentionally pulled back a little bit to let that normalize within the company. So we're still seeing quite a bit of activity in the secondary market there.

I know, Gary, I don't know if you want to comment on that. And that's been pretty consistent. So, you know, there's good secondary market activity starting to show. And, you know, the projects are performing, and they're moving through the normal channels there. So that's continuing to move in a good direction as we manage that level down to, you know, a level that we desire it to be at going forward as we cross the $50 billion level.

Yeah, I think you're going to see, you know, we have probably an outsized proportion of large corporate investment-grade borrowers, right, because we have the debt capital markets platform. We have products we can sell them to justify the returns. We're starting to see more utilization on those facilities. So, you know, there's a pickup there. So there's puts and takes, you know, as we move forward, but we're pretty confident, Dan, we're going to hit that guide that we put out there. And there's still quite a bit of activity across the footprint. We're very fortunate in that we have a very diverse footprint, so we're not reliant on one particular industry or one geography to generate asset growth. And that's playing out for us. I think it'll support our thesis on growth.

Yeah, and the guidance, again, is a spot-to-spot, right? So I think that's important. And underlying, you know, mortgage activity picks up in the second and third quarters. So that's also a component of kind of the mid-single digits. But one of the things I'd comment on, too, just while loan growth may be a little bit slow, it's giving us opportunity to continue to bring down deposit rates. You know, we had for our cost of interest-bearing deposits down significantly, you know, 24 basis points this quarter. And, you know, we continue to have opportunities to bring those rates down, you know, in a slower loan growth environment. that opportunity is there. You know, we'll continue to manage that actively.

That's terrific, Keller. I appreciate all of that. I guess maybe one for Gary and anyone else who wants to chime in on credit. Gary, you talked about less than 5% of exposures at risk of greater impact from the direct tariffs. I'm wondering if you could just go into a little more detail on what you were referring to there and then I'm curious kind of how you're thinking about the potential impact of a recession on reserves, looking back at where the coverage was in the pandemic. It looks like you were about 20 basis points higher. So I guess just if that's about the good way to size it with CECL now, that'd be helpful. Thanks.

Yeah, sure, Daniel. took a very proactive approach around the tariff situation in trying to get ahead of any potential impact with our client base. And naturally, you know, there's a lot of uncertainty around it, specifically around how's it going to impact, you know, growth that Vince was just referencing, reduced spending, higher inflation, etc. potential supply chain issues. So there's a lot of uncertainty out there. And, you know, will it drive the economy into a recession? I don't think any of us know the answer to that at the moment. Early in the year, you know, we put a mandatory assessment around potential tariffs in our new underwritings. We identified the five sectors that that we felt that would be most impacted in our C&I portfolio, and we surveyed about 50% of the C&I exposure really across the company. And as I mentioned in my prepared remarks, you know, those clients went all the way down to $3 million in relationship, and that low-risk category was less than 5%. of the book. So what are we focused on around that? Our plans are to really have frequent communication with those clients in that bucket, as well as in the higher end of that medium bucket of clients that we surveyed. to manage the financial performance, manage their margin, discuss with them the liquidity position they're in, review fixed charge coverages, collateral monitoring, and all of the above to manage the portfolio and determine what potential impact there could be on the reserve, if any. So we'll continue to manage that portfolio in that fashion with frequent touches with those clients. So, you know, just summing it up, it is a very fluid situation, and I think we're well ahead of it and we'll manage any potential risks as the situation continues to evolve. In terms of reserves... We did run our stress test in a recessionary environment, both inclusive of a severe recession. Those reviews and those analyses are reflecting manageable results. builds from a reserve standpoint that we feel very comfortable with. So really nothing too alarming there from that standpoint. And the portfolio at this point continues to perform in a very stable fashion. So we feel we're well positioned, even with all the uncertainty that's in the environment today.

Yeah, I would just add, too, that in like a moderate recession scenario, I mean, I think you mentioned 20 basis points in COVID. I mean, our modest recession scenario is more like half of that.

That's great. Very helpful. Thanks for taking my question.

Thank you. Our next question comes from Casey Hare from Autonomous Research. Please go ahead with your question. Good morning.

This is Jackson Singleton on for Casey Hare. Good morning. A couple quick ones for me. First, I wanted to follow up on expenses. I know this was asked about, but it looks like the 2Q quarterly expense guidance was brought down a bit from the 1Q quarterly guide, but the full year guidance was left unchanged. So I was just wondering if you could give any color on flex and expenses to where you can maybe bring that full year number down lower.

Well, the 2Q level is reflective of the first quarter having about $16 million of seasonal expenses between long-term compensation, payroll taxes, restarting a year 401K kind of thing. So the delta first 1Q to 2Q is really just driven by that.

Okay, got it. And then if revenues come in any lower than expected, is there any flex to where you can bring expenses down?

Yeah, I mean, there's commissions and incentives that are tied to revenues. So if the revenue is slower, obviously those numbers would be lower. As I mentioned earlier, we already have a $15 to $20 million kind of cost savings goal baked into our guidance overall. But definitely that piece of the expenses would flap down.

Okay, got it. Great. And then for my follow-up, so most of the loan growth in 1Q looks like it came from the RESI mortgage book. Is this Is this level, is that, do you expect to be able to continue that throughout the year or will it subside a little bit or can you give any color on that?

Yeah, I would say, I mean, the residential mortgage levels definitely takes off seasonally in the second and third quarters every year. So that'll kind of come through. If you look at the, I mentioned in my remarks, the CNI and leasing component kind of grew mid-single digits annualized in the first quarter. commercial real estate, as Gary mentioned, was down during the quarter. So those levels were kind of baked in. I mean, mortgage is probably 40% or so of the kind of net growth that you'd see in the loan portfolio as you go through the year.

Okay. Got it. Thank you for taking my questions. Sure.

Thank you. Our next question comes from Kelly Mata from KBW. Please go ahead with your question.

Hey, good morning. Thanks for the question. Maybe turning to the fee side of things, it was really nice to see those hold in really nicely, even with kind of just the slowdown in capital markets, which is really a testament to what you're doing, building out all these lines. Wondering, your fee income guidance to get to the high end would imply a Nice step up in the second half of the year. In order to get there, would that require capital markets activity picking up, or are there other green shoots you're working on that could, you know, help offset, you know, some continued weakness there if we kind of get that going on?

Yeah, well, I think, you know, capital markets in the broader context of what we do is derivatives, so derivative fee incomes directly linked to the interest rate environment. I would say that we've seen some pretty decent activity recently. So that's one area that could help contribute to doing better in non-interest income. The other areas are we've expanded into commodities hedging. That's relatively new. We just brought the investment banking boutique on board. They'll contribute a little bit this year. I mean, it's not but it will contribute to the diversification. It's additive. And then unlike other banks, large banks that rely mainly on investment banking and trading fees, we have syndications platform. I would expect there in the latter half of the year to be more activity in that space. You know, and I do anticipate, you know, I'm going to go out on a limb here. I'm anticipating an acceleration in M&A activity in the middle market and you know, principally because of what's happening structurally within the country. You know, I think that there are a number of manufacturers that will look to combine or to acquire, you know, companies that may help them vertically integrate into the supply chain. So you might see, you know, an acceleration in middle market M&A. I would expect that to help us on a number of fronts with syndications, with derivatives, with, you know, as we finance the transaction. And then, you know, the advisory business that we just picked up, we should benefit from. Obviously, there's downward pressure, too. I mean, if you look at our trust and investment management businesses, I mean, you're going to be facing, you know, lower outright net asset values because of what's happened to the market. You know, I'm hopeful that that will reverse itself over time. Maybe if we see, you know, tax reform passed, you'll see a lift across the board or some of the tariff issues being resolved more expeditiously. That should impact the markets positively. So I think those things are why we're optimistic about the guide. And we've consistently delivered the income. The other area that contributes to the income in total for us is the mortgage business. And we have always outperformed the industry in metrics within that mortgage business. So it's predominantly a purchase money business. We built it out from scratch. You know, we have pretty decent market share in most of the major markets that we compete in. I know housing supply has been an issue, right, more so than demand, outright demand. You know, that may balance out. But I would expect that business to continue to perform or outperform the industry. They're very well managed and Our leadership there does a fantastic job, and I would expect them to contribute. We have SBA. We have an SBA business that will see more activity from a gain-on-sale perspective as we move forward, so we're positive about that. And then we've started to invest more heavily in our treasury management platform. Treasury management also contributes to the income line. We've seen some substantial growth in the payments category and You know, we're retooling and revamping a number of our products on the TM side to help us, you know, move off market as our portfolio shifts off market. So pretty excited about the opportunities there as well from a service charge perspective for treasury management services that we provide. Anyway, so you can see it's a pretty balanced pool. of products that contribute and they're all high value products. So we're not really relying on consumer fees, right, to drive anything. They're actually declining in certain categories. So, you know, having that offering built out and being able to continue, and I should bring up international banking too. I'm pretty excited. Given what's happening, you know, there are opportunities for companies to hedge currencies. You know, you'll see quite a wide range of of value exchange changes within currencies in the exchange market because of what's happening within tariffs. So there's an opportunity for us to go out and assist clients with hedging their foreign currency needs as well. Anyway, that's why we feel good about it.

That's super helpful. Thank you so much for that.

Just to be straight, that's a lot different than relying on just trading, right? Trading activity and M&A advisory as our principal contributors. So it's very granular. Anyway.

Yep. Absolutely. I really do appreciate all the color there. On the deposit side, I think you did a really nice job bringing deposit costs down. And I also saw there's at an EOP basis, the NIBs were up. It looks like that might have been end of quarter. Can you just remind us any kind of dynamics that you're seeing there on demand accounts, as well as where the incremental cost of new funding is coming on relative to the overall deposit base? That would be very helpful.

Well, I'll let Vince address the where the deposits are coming on relative to where we sit today. He has those statistics, I think. But I will say that, you know, Kelly, we rolled out the Common App digitally. You know, our strategy is clicks to bricks, which is to integrate, you know, the online experience into the branches. We are currently that platform within the branches itself so that we can originate loans and deposits in a paperless environment and in a digital environment. And, you know, the first phase of this has happened and, you know, I've gotten pretty positive feedback back from our branches that were in the beta experimental phase. And we're getting ready to roll that out pretty broadly. Within that application itself, the reason I'm bringing this up is because we use AI, you know, we have a database that we have trillions of fields of data on, and we run algorithms against that database and write software, machine learning and AI software that looks at customer behaviors and permits us to present products to customers to optimize the customer's experience, right? So once we roll out that platform, those retail people will be able to, you know, get customers centralized advice on what's best for the client, and they'll be able to recommend products, and you can put them in the cart and proceed to checkout without taking the client through any extra steps. So I think that should help us in two ways. One, in broadening the household penetration per customer, and two, enabling us to bring on more clients where we're the primary depository, which drives demand deposits for us. I also think our strategy around client privacy and, you know, making the investment in Techatomic and creating the opportunity for customers to move direct deposit instantaneously is also removing a huge barrier to become the primary bank. And that is embedded in our process, and it's embedded in our mobile app. So that just rolled out, you know, March 31. So it's still pretty early to tell how we're doing there. I see a great opportunity there to drive deposit costs down by becoming the principal bank for small businesses and consumers. Anyway, go ahead, Vince. Do you have any information?

Yeah, I could just add, I guess, a couple things. It's regarding kind of the special rates that we had last year. Remember, we were very focused on bringing down our loan-to-deposit ratio. If we kind of look to mid-year of last year to where we are today, we brought all those rates down between 100 and 150 basis points from kind of the peak levels last If you look at one of the big rolling pieces through is the CDs, obviously. So, you know, we have, you know, 2.8 billion of those that are going to mature in the next quarter, 404, another 2 billion in the third quarter at like a 370 rate. Where we're putting CDs on today on kind of a new enrolled rate, as we call it, it's like around 3.5%. So there's, you know, there's a pickup that happens there. And then if you just step back and look at kind of the balance sheet overall, I mean, we have fixed rate maturities in the loan portfolio, around $2.5 billion kind of for the year. We're probably picking up somewhere between 170, 180 basis points on that. You have the annual cash flows from the investment portfolio. I mean, those are rolling off around the 320 level, and we're investing in the high fours, mid to high fours, to higher end of that range. So that's kind of another key dynamic there. And then we have the balance sheet repricing slides. So, you know, there's kind of $8 billion of liabilities that are kind of repricable today that is just part of us managing the overall balance sheet. But it gives you some feel for the moving parts that are there.

Got it. Thank you so much. I will step back. I really do appreciate all the callers today. Nice quarter.

Thanks, Kelly. Our next question comes from Frank from Piper Sandler. Please go ahead with your question.

Morning. Follow up on, on long growth. Gary talked about pre and getting that in the right place as you go through kind of the next threshold asset wise. I'm just curious if you can, you know, is there a specific, you know, runoff portfolio at this point? Is there, you know, some timing, you know, a specific level you guys expect to get to? Or, you know, when do you assume getting back to growth in that portfolio?

Yeah, Frank, in terms of the positioning against the capital base, I mean, right now we're at 229%. And, you know, our target, and we don't have a – finite measure, you know, drawn in the sand. But just call it 200%, for example, give or take. That's going to put us at a level where we feel very comfortable. And truthfully, with a portfolio and the position of it today, you know, we feel good with our levels where we sit. But the target is to get it to that 200% level. As we continue to grow the capital base, it allows us to continue to generate new assets. And our team continues to look for quality assets in that space. I think we'll be able to continue to generate the desired level of assets that we have in the plan. So that will offset some of the planned reduction from a capital perspective as we move forward. And I think the capital growth will be important. in allowing us to do the business we want to do and maintain it and get it to that level.

Frank, to be clear, there's no runoff portfolio. We're not running customers out. We basically underwrite to a takeout, typically. So we tend to be a short-term player. So the volume on the origination side has been brought down because of really more macroeconomic issues. issues and basically those takeouts continue to happen. You know, if we're in office, which isn't that frequent, you know, it's usually suburban, it's usually lined up with a lease, you know, high quality tenant that, you know, we're doing the construction financing for. So that book tends to move out and that market's still liquid. So we're seeing those assets roll out. We're not originating as strongly as we were historically.

And the multifamily continues to move into the secondary market as well. And that really, that along with some office moving off the books in the quarter really drove that $280 million that I referenced.

But we're really not a big retail player. You know, some people may want to worry, you know, about tariffs relative to, you know, retail tenants, right? If you're a big box, if you're financing big box retail. You know, we don't have

No, we don't. We're not exposures here, so we're not really there. I mean, we do have some grocery anchored retail. Yeah, outside of grocery. Yeah, outside of grocery. It's pretty minimal.

Okay. All right. And then just on the tariffs and the idea of kind of looking through the portfolio, seeing what's at risk, I'm just curious, you know, an obvious sort of area of expansion for you guys, just given the geography. of where you are is further into DC and Northern Virginia. And just given some of the narrative around government cuts and real estate in and around the DC area, just curious if your thoughts have changed at all on that geography or strategy around any other geography here, just given the recent volatility and uncertainty?

Well, remember, there's a hole in the donut, right? So there's less density for us. I'm saying that sarcastically because people said that to me when we bought the bank in North Carolina. But there's less density in the Virginia and D.C. area for us. So, you know, while we're de novo-ing into those markets, we're not picking up legacy portfolios. We're very selective about what we do from a CRE perspective in those markets. And, you know, from a consumer banking perspective, we are not, you know, we're not heavily entrenched in those areas. So we're not going to have as much exposure there. You know, with government employees being laid off, with government agencies cutting back, having their budgets cut, right, by the initiative that's going on, the efficiency initiative that's going. So, you know, we're less – at this point, we're less susceptible to legacy issues. So I think it gives us an opportunity to come into the market a little more heavily, right, and pick up share because others will be forced to pull back. So, you know, the timing of our expansion into the donut hole is probably the right time. Thank goodness. But, Gary, do you want to talk about – you know, our exposures there. I don't think they're material.

No, they're really not material in that market. In terms of the mortgage assets and consumer assets that we have there, you know, we're monitoring those things on a weekly basis. And those levels are right at about Three billion dollars, about a billion nine in Maryland, and about 900 million in that Virginia marketplace, all the way down into southern Virginia. So two-thirds of that portfolio are sitting in Baltimore, just to be clear. Yes, that's correct. Okay. And so from that standpoint, it's heavy Baltimore. The D.C. market, it's a couple hundred million dollars. It's very, very minimal. So, you know, those balances, we continue to watch them. As I mentioned, we're watching them weekly, and we have seen no change in asset quality across those books at this point. So we'll continue to stay on top of that and see how that all plays out. But all told, you know, we feel it's a very manageable exposure. And, you know, it's a market that, you know, is temporarily being hit from some of the government actions. You know, we think that too shall play out. Right.

Okay. And then just lastly, if I could sneak in one more, just, you know, given where – The industry has gone in terms of bank stock prices. And given that you've got strong capital levels and continue to create capital here, even even putting up, you know, mid single digit loan growth. Just curious the potential your thoughts on I know you bought back some in the quarter, but your thoughts on ramping up the buyback here. Is that something, you know, can you possibly, if that's the case, possibly size that a bit, or is that just less of a priority here?

Yeah, no, as you mentioned, Frank, I mean, the capital ratios continue to move up, as we had discussed previously. And, you know, with the level of earnings that we're generating, payout ratio in the kind of mid to high 30s, you know, we would expect that to continue. You know, when the loan growth picks up in earnest at some point, right, which we expect it will, We do want to have some powder to be able to support that loan growth. But even with that, I mean, there's opportunity to, you know, repurchase shares for sure. You know, as we sit here today with all the uncertainty, we thought it made sense to kind of pause. As you mentioned, we bought about $10 million worth of stock in the first quarter, but we thought we should pause for now. But kind of once we get a little bit more visibility and the dust settles, I mean, the stock's very cheap, right? I mean, from a valuation standpoint, no matter how you look at it. So, you know, we bought shares back in the mid-13s. I mean, and where it is today, we would be very opportunistic once we feel better just about the visibility with where the world's going. So we have plenty of authorization in our share buyback program as it sits here today. So, you know, opportunistic is always the way we approach it. But with valuation, definitely you would expect to see us be active as we go through the year.

Got it. Okay. Thank you. Appreciate all the calling.

All right. Thanks, Brian. Thanks, Brian. Once again, if you would like to ask a question, please press star and then one. To remove yourself from the question queue, you may press star and two. Our next question comes from Manuel Navas from DA Davidson. Please go ahead with your question.

Hey, good morning. I appreciate all the commentary. A lot of my questions have been answered, but I'm Can you go a little bit deeper on the Raptor partners acquisition? What are the expected benefits and costs? And what else are you seeing out there in M&A for capital deployment? You talked about being opportunistic on buybacks, but just kind of what else are you seeing on the potential M&A front? Fees, banks, what are you seeing out there?

Yeah, I mean, Raptor was, you know, a long time in the making. You know, we had a pretty, I've known, for years, decades. So we both worked at the same investment bank years ago, different times, but we worked for the same investment bank. You know, I think we picked up a tremendous person and people, a great team. They fit in culturally. They're going to be able to leverage the basically leverage the platform that we've built and as we've grown and moved into upper middle market, large corporate, there presents many opportunities for them across a broader geography. So I think it's the perfect combination. You couldn't find a better, more qualified person to help us build out that platform, which is what Craig has embarked on doing. You know, so I'm very excited about having him on board and having him as part of our team. I've worked with him in the past on transactions on different sides. I, you know, financed some companies that he had done some M&A work for, advisory work for. He's just a terrific guy. So I think that will bode well for us. And, again, that's in alignment with our strategy to continue to build out our capabilities and support businesses throughout their life cycle. And, you know, it creates granularity within the non-interest income, you know, revenue generation basket. So that's, you know, basically, you know, what we've shot for. So, you know, over time, while we've expanded eight business lines that are now multimillion-dollar revenue generators, and they started very small, kind of like this opportunity. This is not a substantial opportunity. impact to earnings, right? It's less than a penny, I think. But, you know, the reality is we'll be able to leverage that platform and continue to invest in it and grow it just like we've grown the other businesses that we've, you know, put on the ground and started from square one. And we've been able to achieve, you know, nearly a 9% to 10% growth rate on a compounded basis in that space in the non-interest income area. So this will be additive to that. Sure, we would look for opportunities to add to our fee income capability. So, you know, we just made a strategic investment in a FinTech as well, which was very small, but, you know, that is also helping us generate business and should help us produce really good returns on that investment. just based upon what they've enabled us to be able to do. From an M&A perspective, it's the same story. I think it becomes more challenging to get deals done in this environment, right, because it is so volatile and the banks have all seen a pullback on their share prices. It makes it more challenging. But we're going to stay focused on what we've done historically, which is in market with significant cost saves. deals that are immediately accretive to earnings and have limited tangible book value dilution. And then we look for returns well above the cost of capital. It hasn't changed. It's the same story. We're also going to look at options. You know, we're going to look at different options for us to deploy capital, not just M&A. You know, look at the dividend. We'll look at share repurchase. And as you've seen, you know, our capital ratios have been improving steadily and are currently at record levels. So we have to do things we couldn't do in the past. So kind of everything's on the table. We're going to do whatever we think is absolutely best for the shareholders and, you know, the long-term prospects for creating shareholder return.

I appreciate that. The FinTech investment and that direct deposit capability can be Talk about the potential there. I know it's early innings. Is anyone else doing that? And the potential for its impact on account primacy seems pretty strong. Can you just talk about all that kind of benefits there?

Well, I think there are a handful of banks that are doing it. You know, we're one of the first out there. We've embedded it into our mobile app and into our e-store common application, the onboarding process, which makes it even more powerful. So the reality is what it does is it takes a barrier away. When you're out selling to a customer and you are trying to get that customer to move their primary checking account to you, if they have to go through a ridiculous process to move direct deposit, they're never going to leave the bank that they have direct deposit established with. So in this process, with a few simple steps, you can move the direct deposit instantly. They don't have to do anything except go through the app. There's a few simple steps. And then, you know, the account is opened. And actually, I don't know, Chris, you want to comment on it? He's here. Chris was the one that really started looking at this opportunity.

Yeah, no, there are a few banks using, like Ben said, Manuel, I think, where we're unique is how we're implementing it and tying it into the account onboarding process, like Ben said, and tying into relationship pricing. I think it becomes a very powerful tool for us to drive that primacy higher and And, you know, I think we're very excited about what the medium term will look like. And I know Vince talked about the previous quarter, you know, eventually adding the bill switch feature as well, which we're actively working on. And that will just continue to lower barriers and be able to, you know, drive primacy even higher and make that switching cost lower for our consumers.

If you're sitting in front of a customer and they come into the branch and they want a loan product, you know, many times we say you should open a checking account because we can give you bundles. pricing, and then you get direct debit, and it's better for us, and it's better for them. And then they open an account. They don't move their principal disbursement account over. They open another account just to move money in to make the loan payment. That's not what we're really looking for. What we're looking for is to become the primary bank. So everything that we've done digitally is to enable customers to come into the bank choose the right products and services with the help, assist of AI and our common applications, they have to fill out redundant fields, move their direct deposit immediately, move their repetitive ACH transactions and their bill pay instantly, and just move on. If we can do that, we're eliminating barriers that exist today, structural barriers that prevent people from moving their deposit relationships to us. So that's what we're focused on. That's it in a nutshell. And they, they help us get there. And I think it was a great opportunity. And, you know, I credit Chris with, you know, coming to the table with the idea and being the champion to get it done here.

I appreciate the color. Thank you.

Thank you. And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Vince DeLee for any closing remarks.

Well, again, thank you very much. I appreciate everybody's interest in the call. The questions were great. You know, we had a very solid quarter. We're looking forward to outperforming throughout the year. Everybody's keenly focused on doing the absolute best we can for the shareholders. And, you know, I just want everybody to know that. And I appreciate the work our employees do. They're engaged. They're passionate, like I said. You know, it makes it easy to get recognition when you have great people around you, and that's what I have. So thank you, everybody. Appreciate it. Take care.

And, ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.