First Commonwealth Financial Corp (FCF) 2012 Q3 法說會逐字稿

Good day, and welcome to the First Commonwealth Financial Corporation's third-quarter 2012 earnings conference call and webcast. All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Rich Stimel, Communications Manager. Mr. Stimel, the floor is yours, sir.

Thank you. As a reminder, a copy of today's earnings release can be accessed by logging onto fcbanking.com and selecting the Investor Relations link at the top of the page and then selecting News on the left side of the page under News and Market Data. We've also included a slide presentation on our investor relations page with supplemental financial information that will reference throughout today's call.

With me in the room today are Mike Price, President and CEO of First Commonwealth Financial Corporation; Bob Rout, Executive Vice President and Chief Financial Officer; and Bob Emmerich, Executive Vice President and Chief Credit Officer. After brief comments from management, we will open the call to your questions. For that portion of the call, we will be joined by Mark Lopushansky, our Chief Treasury Officer.

Before we begin, I'd like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its business, strategies, and prospects. Please refer to our forward-looking statements disclaimer on Page 2 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. And now I'd like to turn the call over to Mike Price.

Thanks, Rich, and good afternoon, everyone, and thanks for taking the time to join us on today's call. After two quarters of solid traction on multiple fronts, the third quarter was somewhat disappointing. We made $0.09 per share, some $0.03 less on a linked quarter basis. Driving earnings down were provision expense that was up some $2.5 million over the average of the prior two quarters and an external fraud that led to a loss of $3.5 million. We are pursuing the legal recovery of those funds, and we have filed insurance claims as well.

Net interest margin was down some 7 basis points. On the plus side of the ledger, we continued our momentum with lending, and now have grown loans over 6% during the last 12 months and for each of the last four quarters. Loan growth here to date is driven in large part by our retail bank, and on the corporate side, new production is equally yoked between our large corporate or participation portfolio and our middle market and direct lending areas.

Along with good loan growth, we have also seen progress with our non-interest bearing deposits and some improving credit quality. As you think about First Commonwealth in the future, I would draw your attention to two strategic themes that I have discussed in the last two calls. First, we want to be the best bank for businesses and their employees among our community bank competitors. We are winning customers in the trenches, both small businesses and middle-market clients. In addition to our regular calling efforts, our team members participate in business blitzes each month, and the discipline around these blitzes just in this past year has resulted in over 6,000 calls through nine months.

As part of delivering the best financial solutions to businesses and their employees, we have a special program for business clients called WorkSmart. Here we deliver retail benefits to the employees of our participating business customers. Our WorkSmart program now represents roughly 20% of all new checking account activity, and that's through the business.

The second strategic area I'd like to mention is our clear opportunity to become more efficient. We are focused on efficiency as we build for 2013 with an objective of getting to something sustainable, quickly by the way, around $40 million per quarter. As a result, we will continue to be especially thoughtful about each position and rationalizing our branch footprint. We believe business as usual will not provide the returns shareholders expect and deserve, so we are looking for more transformative change as well. We are reevaluating our approach to retail banking and our strategy as it relates to technology and operations. But these are longer-term, more comprehensive efforts, the results of which probably won't be felt until 2014. But the work has started just in the last quarter or so.

In short, delivering an authentic community bank experience, winning particularly with business customers, and improving our efficiency will drive our success. On that note, I will turn it over to Bob Rout for a quick overview of the financial highlights. Bob.

Thank you, Mike, and good afternoon, everyone. As Mike just mentioned, we believe the organization is making great progress on the fundamentals of community banking. Loan and core deposit growth are now reflecting our strategic efforts in these areas over the last couple of years, with $54 million growth in loans this past quarter. Credit issues are fast approaching a more normalized level here too. We are benefiting from a long-term strategic focus and credit administration that we believe will be a competitive advantage going forward. Especially noteworthy is the downward trend in our criticized and classified assets, despite some fluctuations in the nonperforming numbers this quarter that Bob Emmerich will be discussing.

Progress on efficiency has been steady despite the noise from credit cleanup costs and external frauds. Thus far, that progress has been incremental. As Mike mentioned we are seriously rethinking our legacy IT strategy that could provide more transformative type opportunities in this area. With credit and core earnings now approaching a more consistent trend, stock buyback programs, increased dividends and organic growth are helping to manage down the excess capital that we built up during more troubled times. There's no doubt that net interest margins will be an important performance factor, not only for our Bank but for the industry as a whole. The Federal Reserve's efforts to drive down long-term rates in order to salvage a very weak economic recovery is working. At least the downed rates part is working. The jury is still out on the recovery fees.

Reinvestment yields on our investments in loans are coming down much quicker than we can pull down funding costs, especially with our overall cost of deposits now at 42 basis points. Our net interest margin has been contracting 5 to 7 basis points per quarter. We expect this trend to continue until long-term rates begin to move upward. The good news is that we have seen spreads on new loans holding fairly firm.

The ways we can mitigate this squeeze without putting undue risk on to the balance sheet are first, to continue the good growth that we have seen in our DDA balances, particularly with the success of our corporate cash management and WorkSmart products, continue the good growth in variable rate commercial loans, particularly C&I. We will be glad to have these type of loans once rates do turn. And we certainly still have some pricing room on maturing certificates of deposits.

We had two unusual issues in our performance this quarter, the first being a $1.9 million termination fee that we received for a mortgage banking joint venture with another financial institution. We believe residential mortgages are an essential product line for community bank relationships, and we are currently pursuing other strategic options, whether that be de novo, acquisition, or another joint venture arrangement. The other is a $3.5 million charge for an external fraud. This amount reflects the maximum exposure to the fraud and does not include any potential recoveries. We are pursuing recovery from a number of different angles, but for obvious legal reasons, we do not want to get into too many specific details at this time.

So with that, I'll turn over the discussion to Bob Emmerich for some details and color on our credit performance this quarter. Thank you.

Thank you, Bob. As you are aware, First Commonwealth has made substantial improvements in asset quality over the last year. We continue to work on resolutions for our handful of legacy problem assets that we still have on the books. In the third quarter, we did not reach conclusion on any of those assets. However, asset quality metrics remain in line with the median of our peer banks, and we continue to have favorable year-over-year comparison for credit costs. The Bank did see a $9 million increase in nonperforming loans in the third quarter, going from $84.9 million to $93.9 million, which equated to 2.23% of total loans compared to 2.04% at June 30.

There were three primary reasons for the increase. First, the Bank began taking a more aggressive stance on loans 90 days past due and still accruing interest. As a result, we moved $4.8 million of loans in this category to nonaccrual. These were primarily residential real estate loans, 150 days or more past due. Second, the Bank placed on nonaccrual a $6.7 million loan to a western Pennsylvania nonprofit entity that operates a general inpatient care facility. The Bank also placed a nonaccrual of $2.8 million loan to a western Pennsylvania construction firm.

During the third quarter, we did have the following decreases. First, the bank took charge-offs of $1.425 million and $326,000 on two of the remaining Bank First Marshall Bank participations to recognize the offering prices of letters of intent for possible note sales. These two notes have not been moved to the held for sale category due to the prior poor history of concluding sale transaction, and the bank groups continue to work down a dual path of foreclosure. Second, the Bank was paid out by a refinance of a $1.3 million lot development loan that was placed in nonaccrual in the second quarter.

Other real estate owned was reduced from $19.1 million at June 30 to $16 million at September 30. The Bank closed on the sale of raw land in central Pennsylvania. This property was sold for $1.9 million, and the bank recorded a gain on the sale of $645,000; although, this was the property for which the Bank took a $2.8 million write-down in the first quarter. The Bank sold a Pittsburgh auto dealership property for $1.1 million, approximately what it was being carried at on the books.

Total nonperforming assets increased $6 million for the quarter from $105 million to $111 million, which represents 1.85% of total assets. The provision expense for the quarter was $6.8 million compared to $4.3 million in the second quarter and $7 million in the third quarter of last year. Net charge-offs for the quarter were $4.3 million. The loan loss reserve at September 30 was $64.1 million, or 1.52% of total loans, compared to $61.7 million, or 1.48% of total loans at June 30. The reserves on impaired loans were $13.5 million, or 14.4% of the impaired loan balances, and the general reserve for the non-impaired loans was $50.6 million, or 1.23% of non-impaired loans. That compares to a reserve coverage of the non-impaired loans of 1.22% at June 30 and 1.21% at year end.

We have normally reported on the level of credit commitments that exceed $15 million. At September 30, the commitments over $15 million were $358 million, or 50.8% of risk-based capital, down from $366 million, or 52.3% at June 30. I'll now turn the call back to Mike.

With that, we would love to answer your questions and be helpful in anyway we can.

Thank you, sir. We will now begin the question-and-answer session.

(Operator Instructions)

The first question comes from Bob Ramsey of FBR. Please go ahead.

Mike, I missed it, but in your introductory comments, you mentioned as part of the changes you all are working on getting to a $40 million number. And I just, as I say, I missed what exactly you were talking to there. Could you give me the detail?

Yes, just two things I mentioned is just the incremental in getting after the -- we've really have been grinding on departmental budgets, open positions, things like that. But then the more transformative opportunity, I think, is we are looking closely at our branch network and where we might combine some branches. And then, additionally, we are really looking pretty comprehensive review of the state of our technology with the help of a third party, determining what technologies should be maintained, upgraded, replaced, identifying gaps between current practices, industry best practice, and really specifying where we can simultaneously save money and get better and deliver better. And then really looking along, and Bob and I both mentioned technology, where we might renegotiate a contract. So that's more transformative. It will take some time, and we are pretty deep into a project that really began in the third quarter there.

Okay. And I know you mentioned that you guys were trying to get there as quickly as possible, but then also mentioned that some of those changes, maybe the more transformative ones, will take until 2014. Is it a -- do you get a little improvement in the next couple of quarters, and then towards the end of next year you come down to that level? And is there growth in other areas that offset some of that, or how are you thinking about the trajectory?

This is Bob Rout.

Hello.

I'll take a shot at that. Our non-interest expense has just been a plain mess the last couple of years with all of the credit cleanup costs, with some of the corporate restructurings that we have done with respect to the executive management team, and also more recently, this fraud that we came across. When we strip all of that stuff out, we think we are getting that core trend below the $160 million number or $160 million or $40 million a year. And that core number really all depends on how much of that credit cleanup and collection costs you think are core going forward.

So all of those unusual activities is really blurring some fairly good progress that we are making on the infrastructure. And while at the same time we have done heavy investments within both our lending and other business relationship-type areas, shifting costs away from the support areas into more of the lines of business. So core-wise, I think we are already there. It's just not showing up in the numbers, because we -- the unusual items just seem to pop up here every quarter.

Okay, and then on the credit front, I know you guys have highlighted two in the release, the reclassification of some resi loans. Was that related to the regulatory guidance for bankruptcy cases, or was this a different issue where you all had some reclassifications going on?

Well, I'll jump in first again; it's Bob Rout. No, it wasn't related to that new guidance. It was really only our desire to maybe be a little more aggressive on those loans. You have a mortgage loan that's greater than 150 days, it's really hard to make the argument that it's in the process of coming back just because it's well collateralized. And it gives us -- and by taking that more strict approach to classifying those type of loans, it allows us to keep a better eye on them. Bob Emmerich, would you -- you wanted to touch base? No?

I don't have anything else to add to that, Bob, no.

That was really our thought process. No one forced that on us.

Yes, that's helpful. And then how -- I know you guys express a little bit of frustration with the volatility in credit this quarter, but how should we be thinking about the provision line going forward? What is -- are charge-offs the key factor there? Is it the new non-performing loans, the two new loans that moved into non-performing that drove the outsize provision? Or what are the big things to keep an eye on?

It was largely the two loans that we put in nonaccrual this month -- or this quarter that caused the provision to be higher than what it had been the last two quarters.

Okay. Did you all say how much of the provision related to those two loans?

We did not, and we probably -- we'd like to get away from the practice of identifying reserves to each loan because a lot of these loans then become recognizable to our customers, and that's not information we really want to get out.

Okay. That is very helpful. I'll hop back out and jump back in later if I have more questions.

The next question we have comes from Damon DelMonte, KBW.

I was wondering could you guys comment on your outlook for the sustainability of the loan growth? I know you've seen good growth four consecutive quarters in a row. How does the pipeline look, and what is your outlook for the upcoming few quarters?

Pretty good. Just reviewing today, just going through the different portfolios, the branch portfolio to include the HELOAN, HELOC, really on pace for a record year for us. And the pipeline looks pretty consistent with what it has been the last couple of quarters. On the commercial side, I would highlight small business. We've made quite an investment there, and that has indeed picked up and we are seeing, after really not a lot of movement in the first three to six months, probably getting annualized there at 4% plus, which is a nice pick up. And on the commercial side, pretty equally yoked there between participations and some larger corporate loans and then also some middle market loans now as we look at the numbers in both units and dollars.

And so, pretty positive that we can continue that 5%, 6% growth quarter to quarter. There may be a little fluctuation with a large payoff or, maybe in one quarter, we won't get any payoffs. And I would also share that, that's despite some continued deleveraging with some larger loans, because we have very thoughtfully over the last seven, eight quarters continued to work that down in both number of dollars -- number of loans and aggregate exposure. And then as you know, we have the mortgage headwind that's lessening a little bit each year as that portfolio liquidates. So, feel pretty good about that and how the business is touching down with business customers and in our branches.

And did you -- the corporate finance portfolio, that continues to produce good opportunities for you guys as well?

It does. That portfolio has a cap on it, as you and I have discussed, but what we are seeing is, as you know, a lot of private equity firms are really buying up companies. So really the entree is through participation, even a local company. And it gives us -- it seems like the pricing on those loans, because they clear a little broader market perhaps, is a little void versus the same kind of direct loan. And usually -- and, most of ours are right in our backyard, so more than our fair share, well over half, are very relationship-oriented where we have treasury management. In one case we have a branch in the corporate headquarters, so that's a business that -- and the credit quality through the cycle has been good. So it's a business that we managed well here the last few years.

Great. I appreciate that color. Regarding the fraud for this quarter, I know you don't want to get into too much granularity and specifics, but can you give us a little indication as to was it a single event? Was it more broad based and it was discovered, or what can you tell us about it?

So, good questions. It was a single event with a single client whose system had been violated, and that's probably enough.

Okay.

I'm getting a lot of no-nos here.

Fair enough, fair enough.

Sorry.

And I guess just my last question, probably for Bob Emmerich about non-performers. What was the total amount of new non-performing loans that came in this quarter?

It was $9 million.

$9 million, so it was primarily driven just by those two credits that you discussed?

Yes.

Okay. All right, that's all I had. Thank you.

The next question comes from Mac Hodgson of SunTrust Robinson Humphrey.

Couple questions. Maybe first on the buyback, I was expecting a little bit more in repurchases during the quarter. Could you maybe walk me through your thought process on how much you want to deploy? Is this a relatively decent run rate, that type of thing?

Mac, hi. It's Bob Rout. Yes, the buyback is going well. We have set out some price parameters where we don't want to be pushing the price of that stock up. And of course you also have your 10D18 guidelines, too, on volumes. And to be quite honest with you, the volume on bank stocks appear to be muted here the last couple quarters for a variety of reasons. So we are buying as much as we can. We have $50 million out there as an authorization, and it will be our intent to satisfy that whole target of $50 million.

Is there any expiration, or it's $50 million until it's completed?

Currently, it goes to the end of the year, and then we will reevaluate and discuss it with our Board and see if we need to do more if it's necessary.

Okay, so realistically you have to renew it and extend it through next year?

Well, we can renew it and extend it next fall, the whole year doesn't have to be an issue. The other thing that -- we have ample capital right now, and we are really keeping a close eye on these Basel III proposed rules, how they are going to finally fall out. And we keep running scenarios on how that might affect our own position as well, too. So until we get some clarity on there, I think we are comfortable going with $50 million at this time.

Okay, on expenses and the $40 million target, if I take out the fraud charge this quarter and maybe take down some of the collection repossession expenses, you're almost at $40 million. So are some of the initial initiatives related to headcount and branches more to act as offsets to normal expense increases? Or is the goal to get it more below that $40 million mark?

We are definitely going for below the $40 million mark.

Okay. And then could you give any color on the termination fee related to the mortgage banking joint venture? I'm not sure I understand really what is going on there, why you see the fee for the cancellation of that.

Yes, we had entered into an agreement probably about 2005, 2006, when we had exited the mortgage business with a large bank. And it was a JV in an arrangement, and I think we had a longer-term contract. I think it was 10 years. And I think we both were mutually reaching an agreement that it was time to -- it really wasn't working out, and part of that agreement, if whoever gave notice first had to -- had a breakage fee.

Got you. Okay. Is there going to be any offset in the income or expenses that we will see going forward, like will you have less fee income as a result of termination of that, or --?

I wish I could say yes. No, it wasn't material. It was a $200,000 a year.

Okay.

In a great year. So it wasn't making a whole lot of rain for us.

Got you. And then one just last one. What was the $1.7 million related to the improved credit risk on the swap portfolio, could you explain that?

Yes. We have, I believe about $220 million of swaps outstanding with our commercial loan customers, where we have entered into arrangements where they can acquire a fixed rate, and we receive a variable rate, which we do like a lot for balance sheet purposes. As part of your quarterly assessment, you go through those swap arrangements to make sure that you have properly reflected the credit exposure that you have with those arrangements, and you book a reserve appropriately. Last year this time, we had two large real estate loans that had a swap on that we eventually took some sizable charge-offs related to. And we also had to put some extra reserves aside, credit-wise, for their respective swaps as well. So that loan has either been -- it's been restructured into an AB note, charge-offs have happened, we unwound the swaps, and as a result of that, it's a much better credit profile for our whole swap portfolio than what we had last year at this time.

Okay. Great, I appreciate it. Thanks.

Mac, you also had a question that you had e-mailed earlier about the elimination of the tag program on the unlimited insurance coverage --

Right.

-- related to DDA accounts, and just talking with our people out in the field and our corporate cash management, we are not hearing this being a big subject with our customers. And the other fact is, less than 1% of our total DDA -- corporate DDAs is really reflective of those type of arrangements where they might have balances in excess of the $250,000 coverage. So I wanted to make sure that I got back to you on that question.

Okay, great. Thanks, Bob.

Next we have Collyn Gilbert of Stifel Nicolaus.

Just a question around the construction growth that you saw this quarter. Can you just talk a little bit about the activity that you're seeing in the markets, your expectation for where that portfolio can go? And then I was just curious about the construction credit that came on non -- that you charged off this quarter when that was originated.

Bob will get to you on that, but we are seeing just a palpable uptick in some commercial real estate and construction opportunity, and I'm just looking at the list of approvals here in the last few quarters, and most of it will be like a build-out for a high-quality single tenant, a couple of those, and actually a sewage treatment facility, and just garden-variety, back-of-the-yard stuff.

Okay, so mostly on the commercial side, commercial real estate side, not residential?

That's correct.

Okay. Are you seeing any pickup in residential construction?

We are not. And we don't -- with our JV and we didn't do residential construction.

Okay. Okay. And then just one final thing. You guys have done a great job in growing fee income this year, so do you think that momentum can continue for next year, or how are you thinking about that side of the P&L?

We do. It really goes to just systemic household growth, and we are putting on a lot of nice, new consumer and small business households. And those good people pay us fees, and so we seem to be taking share and really growing at some nice rates, particularly in metro Pittsburgh. That market has really been good to us.

Okay.

Collyn, I don't know if we answered your question about the construction charge-offs that showed on the slide as $1.987 million. Most of that are the two charge-offs I mentioned, the $1.425 million is the nonperforming loan number 5, where we took a write-down to reflect a letter of intent offer for the note, and the other one was $326,000 for a land development project in Nevada.

Okay. Do you know roughly when these were originated?

They were originated in 2008. They were both part of the Marshall Bank portfolio.

Got it. Okay, great. That was all I had.

Next we have John Moran of Macquarie Capital. Please go ahead.

Just real quick, two ticky-tack questions on the NIM. Bob, I think you had mentioned some CD repricing. Could you quantify how much is rolling over the next couple quarters and at what rate?

I don't have that in my fingertips, but we will look for it and get back to you before the conference is over.

Okay. That would be helpful. And then, on the securities book, I'm sorry if I missed it in the prepared remarks, but do you have duration handy, or even easier or better would be how much actually rolls next year?

I think the duration has been holding fairly steady.

Right now we are about 3.46 on the entire portfolio.

Yes, 3.5, and that includes our $100 million truck portfolio that we have. If you strip that out, we are probably very short at maybe 2.6.

Okay. That is helpful. Then just a quick question I guess for Bob Emmerich. On the larger, chunkier NPLs, I know that you said -- I think you just mentioned on credit 5 there is an LOI on the note there. Is there any other progress on some of the larger ones here? Are we moving toward resolution on anything, or anything that you guys could share there?

As I mentioned, we continue to work on resolutions to these, and we may have something in the fourth quarter, but I really hate to set up expectations around this. And the other loan is number 6, we've gotten a $900,000 pay down on that loan, so we are making progress on that. But nothing, I really don't think I can share with you.

Got you. So still working it hard. Appreciate that.

John, just to get back to you on the CD question, it looks like we have about $800 million coming -- maturing next year, with an average price about 48 basis points, so a little bit of room there. Not a lot.

So it's 48 basis points of yield pick up, or the current price that you're paying on the $800 million is 48 basis points?

Current price.

Okay, got you. Okay, thanks very much.

Next we have Matthew Breese of Sterne, Agee.

Getting back to your -- the provision, I think you guys had mentioned that you felt like credit was approaching a more normalized level. As it relates to provision, does that mean we can expect the provision to track back down to a normalized level as well?

Well, I think in terms of charge-offs, we have been running pretty consistent on charge-offs in that $3 million to $5 million a quarter. And you'll need to cover your charge-offs. But as we have new impaired loans pop up from time to time, we've got to make a reserve assessment for them. And then on top of that, as the portfolio grows, and we do have plans for growth in the portfolio, we will have to add to the reserve a provision expense just to cover the growth in the portfolio. That's not something we'd want to lose sight of. We haven't seen that -- the need to do that recently because of the contraction in the portfolio, but if it turns around and starts growing, we would have to try and cover the growth as well.

So it sounds like near term, it could be -- remain lumpy and then further out, as the portfolio continued to grow and credit subsides, it will normalize. Is that a fair way of thinking about it?

Yes, I'm afraid -- I wish the provision expense could be very consistent, but it's not. It does end up being a little bit lumpy.

Okay. Maybe stepping back a little bit, you guys I know are involved in the energy lending side of things, especially with the Marcellus Shale going on. A little color on that, and then there was an article front page of the journal this morning related to Beaver County and chemical plant out there. It just sounds like things are picking up on the natural gas front, just looking for color.

Yes, the color is we attracted and I think we had given numbers a few quarters ago that directly or indirectly we saw probably 10% of our quarterly loan committing volume, energy-related. But when I say energy-related, it's more indirect -- it's a building for an oil company, it's the waste water haulers. It's not the drilling. It's a lumber company that -- or a steel fabricating company that's a part of 75 or 80 contractors that are on the drill site in the 15 months before it gets into production. It's that type of activity, which is really a nice rising tide. And I think you have to be careful with contractors, too; a fairly cyclical industry, but a lot of the good folks that we do business with really have a nice bedrock of business, and this is incremental to them. And they have been around for a quarter of a century here or so. So that's -- I hope that's helpful in terms of the feel of it.

Yes, very much so. Last question, just related to modeling, what would be a good tax rate to use going forward?

I think ours was 26%, at least for this quarter.

Okay. So that's good to use. All right, thank you, guys.

Next we have Bob Ramsey, FBR.

Hi, thanks for taking the follow-up. Just wanted a point of clarification. I know you all said that the intent is to finish the $50 million of share repurchases. Is the intent to finish that by year end, or is it the intent just to finish it, and you could end up renewing to take care of that next year, if volume works the way you'd like?

Really the latter, really just with a nice rhythm, we are worthy appropriate, appropriate smaller portion of the daily trading volume. And if it leaks into next year, that's fine.

Okay. And then I was wondering, too, if you guys could just touch on the margin outlook. I know you guys were pretty open in the comments about, it's obviously a tough rate environment for all banks. But is the pace of compression this quarter a good way to think about what we look like in the fourth quarter, give or take a little bit?

I think so. I think if you look at the pace in the fourth quarter, that's been the pace for the last year.

Yes. And is that -- do things get closer to the end as we work through 2013 and slow a little bit? Or as long as the curve looks like it does and we've got more and more quantitative easing, do you continue to stay at this pace?

We obviously have a forecast for next year. We have more of a community bank that looks more like a larger bank in terms of the portion of our loans that are C&I, and, consequently, those loans are more variable-rate pricing. And there's been more downward pressure on that, as opposed to maybe a more of a garden-variety community bank would have a bigger residential real estate with more fixed-rate pricing. So maybe we take a lump or two earlier, but I think as rates turn, we probably adjust, and we are really poised for as interest rates bottom and then they start to head up, just our gut. But probably any guidance more than that, you would probably be holding my feet to the fire at a quarterly. (laughter) But I don't know. Bob and Bob here are pretty smart guys. If you want to give any more counsel or guidance, I will look to my colleagues on the right here.

I think you framed it up pretty appropriately, Mike.

All right, that's helpful. Thank you, guys, for taking the follow-up.

And next we have John Moran, Macquarie Capital.

I just had a quick follow-up on the syndication book. It looks like it's up like almost $100 million year to date. And I know that most of what you guys are doing is in state and household name, but maybe you could just remind us what that book looks like, what stuff you're putting on.

It's really some back yard -- we have about 70 names in that portfolio, and most of those are really names that you would recognize in western PA. And when we get out of state, they are really in markets that generally we are familiar with, places like Cleveland and Columbus and places like that. I'm looking at the list right now, and obviously larger companies, probably two or three agents that we like to work with. We have some real experienced folks, probably three or four, mostly from Mellon that have had their hands on the reins of this business for the better part of 30 plus years. We have a Chief Credit Officer to my right, Bob Emmerich, who -- when I was doing credit sheets for him 30 years ago, we were doing some of this type of paper.

And so we are very comfortable with it, and -- but we also understand that we are not the stuffee at the end of the deal. We are over the wall, the first three or four banks. And so we are underwriting it fairly thoughtfully. And we say no, and we pick and choose. And an important part of the credits that we bank is what is the opportunity to be the number two or three bank. And usually we have -- unlike a New York bank coming into Pittsburgh, because we have branches here, it's pretty easy for us to be the number two bank and really get some nice cross selling and really know the management team and have a really strong relationship. And they are typically in industries that we follow and we like. They might be related to energy, shallow or deep gas drilling here, obviously, and we have been doing that for 50 years. Am I hitting on things that are important to you?

Yes, I think that's helpful. One of the things I think that you touched on here that would be -- that would actually be an interesting thing if you could share on a go-forward basis would be, of the syndicated portfolio, how many of those folks do you have multiple touch points with? In other words, how many -- is it just, hey, we participated in the paper here versus how many are real core relationship multiple product users.

Yes, I think the number from my gut, and we can follow up with that, is probably at least half.

Terrific. That's helpful.

Yes, and I would add in the last -- our deposit portfolio with this group is probably over $100 million.

Great. I really appreciate all the detail.

Mr. Stimel, gentlemen, it appears that we have no further questions at this time.

Thank you, everybody. Appreciate your interest and your good questions, and I would just remind the group that we are focused on being an authentic community bank, really winning on the business side with business customers, their owners, and their employees. And then also really a third pillar is efficiency, and we are excited about the future of the Company and look forward to being with a number of you over the course of the next quarter or so. Have a great day.

And we thank you, sir, and to the rest of management for your time. The conference is now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, and have a great day.