First Commonwealth Financial Corp (FCF) 2024 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is [Desiree], and I will be your conference operator for today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation first quarter 2024 earnings release conference call. (Operator Instructions) I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Desiree, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's first quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; Brian Karrip, our Chief Revenue Officer, and Mike McClellan, our corporate banking executive.

And as a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We've also included a slide presentation on our Investor Relations website with supplemental financial information that will be referenced during today's call.

Before we begin, I need to caution listeners that this call will contain forward looking statements. Please refer to our forward-looking statements disclaimer on page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliation of these measures can be found in the appendix of today's slide presentation.

And with that, I will turn the call over to Mike.

Hey. Thank you, Ryan, and welcome, everyone. Despite pressure on the net interest margin through higher depository costs, First Commonwealth beat consensus earnings estimates by one penny was $0.37 per share in the first quarter of 2024. Core ROA and the efficiency ratio were 1.31% and 55.05%, respectively.

The bank set a number of earnings records in 2023 and had a particularly strong fourth quarter. That was certainly worth celebrating, but it affects most of the period-over-period comparisons. For example, in the fourth quarter of 2023, we had negative provision expense of $1.9 million due to the release of reserves. This quarter provision expense was a more typical $4.2 million. That swing strongly affected quarter-over-quarter comparisons of financial metrics like core EPS, return on assets and return on tangible common equity.

In addition, interest expense increased by $4.6 million over the last quarter, overwhelming the $1.2 million increase in interest income and resulting in a $3.4 million decline in net interest income. As a result, the core non-GAAP measures that we report on a pre-provision basis such as core pre-tax, pre-provision net revenue and core pre-tax, pre-provision ROA, they also declined from last quarter.

Importantly, balance sheet liquidity strengthened as our loan to deposit ratio fell from 97.9% at year end to 95.6% at the end of the first quarter. End-of-period deposits increased over $254 million or 11.1% annualized, while loans increased just 1.5% annualized or $33 million.

Consumer CDs constituted the bulk of deposit growth, primarily from our core consumer customers. While business deposits fell due to seasonal factors, we have begun to taper CD pricing based on first quarter growth and market conditions, and we'll continue to watch competitor rates and consumer behaviour. Loan growth for the quarter may appear to be on the low side for us but it's very much in line with our long-term plan to tilt the balance sheet more towards commercial lending.

Commercial loans grew at an annualized rate of 5.24% right in line with our long term, mid single digits guidance. That commercial growth offset declines in consumer real estate balances in the movement in consumer balances business price. We're now selling over 90% of our mortgage originations, including mortgage construction loans and in fact, mortgage gain on sale fee income increased over last quarter.

Second lien products like E-locks and E-loans are naturally down because of the rate environment. And also because a lot of those balances were driven by refi activity during the pandemic. In the auto book is replacing runoff and nicely pricing upward exactly as planned.

Overall, we see the diversification of our loan portfolio as one of our key strengths and slow growth or even modest declines in consumer balances in any given quarter, provide us with the liquidity and capital to grow commercial loans and maintain our current mid-single digits guidance.

As we execute regionally and profitably grow core deposits, loans, fee income, then we will grow meaningful -- meaningfully in the years ahead, becoming the best bank for businesses and their owners will be a big part of that growth. The capital, Columbus and Cincinnati regions presents significant opportunities for growth at First Commonwealth. Our branch and business space, Deposit-gathering efforts have also led to our low cost funding advantage.

With mild loan growth, it might appear from the outside like this was an uneventful quarter for us, but nothing could be further from the truth. We've made a number of internal management changes to maintain our momentum and ensure our success. Since hiring a new Chief Lending Officer last September, we have made a concerted effort to upgrade regional leadership, create more enduring operational scalability and improve our SG&A expertise.

Some recent actions include naming new regional presidents in Pittsburgh and Cincinnati, new leadership in the Harrisburg region and a new head of Corporate Banking portfolio management and commercial loan documentation. We've also hired five new commercial bankers during the same period.

As we like to say, we always keep our feet moving. In other words, we actively cultivate a culture of continual transformation improvement so that we can produce steadily improving financial results year in and year out.

And with that, I'll turn it over to Jim, Our CFO.

Thanks, Mike. Before I break down the margin and other elements of the income statement, I'd like to highlight a few balance sheet items. Regulatory capital ratios improved due to strong retained earnings and the absence of any buyback activity in the quarter, combined with modest balance sheet expansion.

Strong deposit growth, coupled with modest loan growth, improved our liquidity as well. Not only did it bring down a loan to deposit ratio, as Mike mentioned, but it also left us with $223 million of excess cash at the end of the quarter. The strength of our internal capital generation and our improved liquidity position has allowed us to announce two actions with first quarter earnings. First, a regular increase in the dividend of $0.02 per year in keeping with prior years and our long term goal of smooth and steady increases in the dividend for our shareholders.

And secondly, the redemption of $50 million of our $100 million in outstanding subordinated debentures on June 1. The timing of this redemption was right for several reasons. First, the sub-debt would have lost another 20% of its Tier 2capital treatment on June 1 and refinancing options operatively expenses.

Second, the consolidated total risk-based capital ratio improved organically by 34 basis points in the quarter -- 34 basis points. That mostly offset the 44 basis points impact of colleagues sub debt in the second quarter. And we have modelled further organic growth in our capital ratios in the second quarter as well.

Third, the excess cash at quarter end provided liquidity with which to fund the repurchase without taking on any additional borrowings.

Finally, the coupon of this tranche of the stock that was currently about 7.45%, and we're paying it off in funds that are currently sitting at the Fed earning 5.4%. So its redemption will save the company approximately $1 million in pre-tax expense per year and improve the net interest margin or NIM by about 1 basis points.

Our strong deposit build in the first quarter came at the expense of the net interest margin as our NIM compressed by 13 basis points in the quarter. We had expected that the yield on earning assets would improve by approximately 10 basis points to 15 basis points, matching a 10 basis points to 15 basis points anticipated increase in the cost of funds producing NIM stability. It didn't turn out that way. Instead the yield on earning assets only improved by 5 basis points and the cost of funds went up 19 basis points.

In the aggregate, we originated new loans at just over 8% in the first quarter. But the old ones that are running off and were in the aggregate about 7% resulting in relatively modest replacing yields.

On top of that, the loan portfolio yield was negatively impacted in first quarter by the continued effect of received fixed macro swaps that we entered into several years ago. Fortunately, $25 million of those swaps run off on June 30 of this year and another $50 million run off in December.

Those are only had a 1 basis points benefit to the NIM in 2024, but a further $250 million one-off in 2025, which we expect to produce a cumulative benefit to the NIM of 8 basis points to 11 basis points, depending on the trajectory of rates. If rates stay higher for longer and the benefit of the macro swap roll-off will be on the high side of that range.

On the liability side, deposit costs increased by 25 basis points as we saw a $233 million decline in low cost deposit categories, combined with a $283 million increase in the more expensive categories. Despite the movements in balances, we saw net gains in consumer households in the quarter.

In fact, our deposit pricing strategies have been effective, not just in retaining our deposits from attracting new dollars to the bank. While the cost of deposits went up 25 basis points. The cost of funds only went up by 19 basis points because we benefited from participation in the Federal Reserve Bank term funding program in the quarter.

We got in the program and borrowed just over $500 million, while the Fed was still pricing the borrowings on the forward curve. So we are grandfathered in so to speak at 4.76% on those borrowings until next March. We didn't enter the program with the intent to arbitrage the rate recently borrow that much because that's what we needed at the time and the Fed's rate was less than the FHLB.

Ordinarily, we would use the excess cash generation from the strong deposit growth we enjoyed in the first quarter to pay off borrowings. But given the rate differential, we prefer to stay in the BTFP program for now, which is why we ended the quarter with $242 million on deposit at the Fed at 5.4%.

Well, obviously accretive to income to the tune of about a penny a share 2024, it did have a 3 basis points of pressure the effect on the NIM in the first quarter. Fee income and non-interest expense were both little changed but slightly unfavorable to last quarter. Back-to-back swap fees were nonexistent as customers have little desire to lock in fixed rates and interchange was down seasonably compared to the fourth quarter with holiday spending.

We were pleased, however, to see mortgage and SBA gain on sale income pickup from last quarter. That was because the noninterest expense comparison to last quarter was also affected by a tax accrual reversal that benefited the fourth quarter and by higher occupancy expense in the first quarter.

And with that, I'll turn it back over to Mike.

Thanks, Jim. And operator, if we could pause for some questions.

Thank you. We will now begin the question and answer session. (Operator Instructions)

Daniel Tamayo, Raymond James.

All right. Thank you. Good afternoon, guys. Maybe, Jim, I appreciate all the detail on the puts and takes of the margin in the first quarter as well as with what's coming in the next item rest of the year and even into '25 with those swaps. But maybe you can kind of fill us in on how you're thinking about the core margin and the total margin path for the rest of the year?

Daniel, I think you may have noticed it from absence from my prepared remarks as any kind of forecast of demand, and that was conscious. But just to be clear that can be we're very cognizant of the fact that the last three quarters in a row, we were forecasting instability and yet the margin compressed by about 10 basis points every quarter.

I would tell you that the forecast that we have suggests the same thing, I mean, stability going forward. So that is our forecast and those forecasts actually take into account a falling rate environment. Those are the rate environment forecast and take our progression of those forecasts.

A project the Fed funds down to 4.3% by the end of the year, about four rate cuts. If there is a slowdown recapture and a higher longer providing an environment that will benefit and that will be even better. I will say we have sharpened our pencils and gotten better at forecasting deposit movements. That's something I think we were a cashing -- we caught out on in the last couple of quarters and last year, we've gotten better at that.

So we're trying to understand where deposits are going. And we've also in light of the disparity between loan growth and deposit growth this quarter fell back the aggressiveness of the deposit rates a little bit.

So we still have decent specials out there, but they're not top of market specials and that's probably going to bring deposit current more and there in line with the loan growth and help them achieve that kind of stability target. That's how we're thinking about it now, Daniel.

Okay. That's very helpful. And just to be clear, the 1 basis points benefit from swaps in 2024 and then the 3 basis points negative impact, I mean, it was from the funds at the window at the Fed. I know that's all baked into your assumption there?

It is the cash on hand at the Fed, right now that 3%, 3 basis points. Suppressant effect that I talked about. The recent have a little bit of optimism that cash has come down a little bit here in the first quarter -- in the second quarter so far. So without telling tales out of school or right, about $150 million right now, if it stayed at $250 million for the full quarter, it would have about a 6 basis points or 7 basis points at accross the fact.

The average for the first quarter was only $112 million, even though we ended the quarter $223 million of exces cash. The average excess cash for the quarter is $112 million. That's why it was only achieved 3 basis points suppressive effect. If it stayed at $250 basis points for the full second quarter, that's like a 6 basis points or 7 basis points of effect, but it's come down and I see a little hopeful.

And I would just add the thin margin balance sheet leverage business is generally not something you find attractive and don't pursue. But now we've got it. We are going to say the program because we make a little money off that and we would hate to paper borrowings and then find that we had great loan growth in the second half of the year, we were borrowing again from the FHLB of 5.4%. Hope that clarifies things a little bit of the excess cash question anyway.

It does, yeah, it does. Thank you. I guess and then just lastly, what are your thoughts on accretion, what the contribution was in the first quarter and then where that may go rest of the year?

Your EPS accretion or I'm sorry, what do you mean?

I'm sorry, discount accretion purchase account.

Oh, I think it was seven basis points in the quarter is going to be fading out about 1 basis point every quarter. Is it based on for the first quarter and fading out 5 basis points each quarter.

All right. Well, thanks for taking my questions. Appreciate it.

Thanks, Dan.

You're back.

Karl Shepherd, RBC Capital Markets.

Hey, good afternoon guys.

Hey, Karl

Jim, I wanted to pick up on the margin discussion a little bit. When you talk about the swaps on slide 14, should the message that we should take away? Is that the overall margin can drift higher for the next couple of quarters and into '25, everything near term stability in those kind of fall off? Is that a fair way for us to think about it?

It could, if rates stay high and replacing yields tick up a little bit and we can bring the deposit cost center. Can you control the growth or we are getting closer and closer to the your questions about those macro swaps, risk enclosure maturities, we thought we'd provide some helpful disclosure this quarter to kind of spell out the effect of those that roll off of those swaps of the -- there's a page in our supplement that we put on the PowerPoint presentations. I can call it an earnings presentation supplement that is on the Investor Relations portion of our website.

It's page 14 that kind of has a bar chart that spells out the dollar volume of the swap. On maturities, the macrocell maturities and then the cumulative impact for all those, the real benefit of that until next year. But maybe you could think about it this way to answer your question directly, that will help produce the stability that we're looking for, right. If that supports from those things rolling off, but that can only help.

And it's that the stay at a higher rate, higher for longer rate environment. We'll just keep repricing of the fixed rate loan portfolio and those macro seltzer will often it worked out really well.

Again, Jim, your team modelled really in a baseline scenario or falling to about 8 basis points of cumulative impact accreting to the margin and the flat rate scenario, 11 basis points.

That's right.

That's through 2025 call. Yeah. Okay. And then on loan growth, so we've got deposits outstripping loans this quarter. I know you guys are trying to be very measured awaiting the Q, but should we think about this quarter's performance is giving you a little bit of runway for the rest of the year? Or do you think on this pace on loan growth is a fair assumption?

I think it does give us runway. I think that we've proven was 7.5% loan growth last year, notwithstanding our acquisition of centric in the new capital region and that we can generate deposits. And then through this fourth quarter, even if it cost us a little some. And so we're excited about that and we've also grown deposits households, as Jim mentioned.

And so we're going to taper and dial that in better and better each quarter. But we're also excited about growing the Corporate Bank, maybe a real estate deal or two this year and turning that back on a bit, but more importantly, growing C&I, small business SBA, which will become the core of the company over the next five plus years and so we're optimistic about the future and our ability to grow.

Okay. Thank you. Both.

Hey, before next question, if I could circle back, I said 7 basis points of accretion is actually [7.6 billion], eight of purchase accounting accretion for the first quarter just ended just for the record.

Kelly Motta, KBW.

Hi. Thanks so much for the question. I guess kind of taking up on loan growth, I'm picking up on that question there. Just wonder if you could talk a bit about your pipeline where you're seeing opportunities and the best opportunities and where you're seeing the most demand from your clients?

Yes, right now on the consumer side, we have pinched the volume there really across the board and we're just replacing what is running off at best. On the commercial side our SBA business has pretty good pipeline. C&I, the pipelines are building somewhat dependent on the region and commercial real estate, the demand there is still tamped down and we -- in a bit, there will be a deal to there.

So it's not fulsome like we were growing maybe two years ago where it seemed like each year, we would guide in the high single digits, and we would eclipse that. And now our guidance is probably more like mid-single digits.

Got it. That's super helpful. Sorry, I mean to cut you off.

No worries. I just have Jane Grebenc, our President and Mike, [McEwen] Executive Vice President of Corporate Banking. Anything that the two of you would add, this is an important consideration on loan growth?

Sure. Couple of things. We are bullish on SBA and it's important to know that only 25% of them fix the balance sheet. The other 75% ultimately get sold and we get the gain on sale income in lieu of the balanced growth.

So we're seeing good SBA business. And Brian has reminded me that the SBA business that we are booking now is probably the best we'll see because it's some -- it's able to be approved under today's interest rate environment. So this is all good stuff.

Most of that SBA business acquisition and business acquisition and would you like the SBA business a lot. And then as Mike said, the commercial business is a little bit more muted, but we are seeing pipelines growing and I think customers and prospects are starting to finally, I think maybe the recession isn't right around the corner and they're starting to just spend a little bit.

Got it. That's super helpful. Thank you so much. And then maybe actually then switching to fees mortgage you had a nice quarter for mortgage. And in your prepared remarks, you mentioned selling more production there and you just mentioned SBA and I have heard from some other banks that the premiums have come back a bit in that line item, just wondering if you know a gain on sale in both lines for us pretty strong this quarter. If this is a good run rate for those that those items and any sort of puts or takes off of Q1 levels to be correct?

Yeah, Jane, any thought?

Well, we feel good about the volumes and you're right the premiums have come down in both businesses. Some it just means we have to work harder for each dollar, but I think the run rates in both businesses are -- I don't I don't want to I'm over promise, but I think we're about where we're going to be.

Got it. That's helpful. I will step back. Thank you so much.

Thank you.

Matthew Breese, Stephens.

Hey, good afternoon, everybody.

Hey, Matt.

Mike, just a point of clarification. So traditionally when we talk about kind of mid-single-digit loan growth, it's usually all inclusive, but we've definitely made a difference this quarter. And you're talking about commercial versus consumer growth when you point to mid-single digits growth for the rest of the year. Are you implying all in loan growth or just commercial growth and that means we'll probably see loan growth similar to what we saw this quarter.

I'd like to see it all in, which means we would get maybe a little tailwind from the consumer side and maybe a little back. We've done a nice job of pricing our consumer and maintaining some volumes, particularly in the indirect auto, which is an end market business.

And so we could maybe get a tipping point there and maybe some tailwinds. And so it but maybe be more, it will be have to be commercially driven, but that is for the whole year and we would have to do a lot more in the second half of the year, undoubtedly.

Okay. So all in loan growth is probably more than likely to be on the lower side of mid-single digit growth with commercial being kind of X factor.

So I suspect you're right, but we're going to hold our feet to the fire in terms of space kind of 5%.

Fair enough.

Mike, we could turn up consumer loan volume. So we would have to blink on price and we'd have to blink a little bit more than we're comfortable blinking right this minute. The auto business is softening a little bit. So if we wanted to -- if we wanted to turn it up, we would have to -- we have to compete on price.

I've got it right. And then, Jim, maybe just a couple for you. You know, you pointed out in your opening comments that we do have a bit more liquidity on the balance sheet today. Securities also grew a little bit. I was hoping for hoping for some more color on those two items strategy around securities at this point and liquidity point?

Yeah. Thanks for asking. We'll take some of the excess cash and deployed in liquidities, but not aggressively. Really on what -- security right now, we can maybe get in the high fives. We're getting 5.4 overnight at the Fed. Obviously, the securities has some duration. And whenever we buy, we're always looking at four to five year duration.

So that helps a little bit in a falling rate environment, but the yield pickup is not tremendous and securities. Right now, we've gotten securities were probably up a little bit from last year. When it got a little uncomfortably low just in terms of on-balance sheet, liquidity is back up a little bit now, but we just always would rather be making loans my securities. So if we have a loan growth opportunity, we just rather deploy it there.

And we will not we don't want to put all in securities and find that we're borrowing overnight to fund loan growth, we just ready to put a longer so for a keep our eyes on it. But for the moment, my thought is some securities growth will take some of that cash. I mean, if we have already disclosed, if we have [$150 million] today, we'll take $50 million to pay off the sub-debt on June 1. So maybe we'll whatever's left half of that securities growth and we'll see what happens with loan growth going forward.

Okay. Appreciate that. And then, Jim, historically, you do provide some update on what kind of the forward outlook is for total fee income and expenses? Expenses came in actually better than expected this quarter, and I appreciate some update there.

Yeah and our guidance really isn't changing those things. I think the fee income and the expenses will be consistent with the guidance we've previously given. So I think that was on the fee side $67 million to $68 million and $67 million to $69 million for the quarter. But I don't mean to change the guidance because I thought actually both PM and analyst consensus and those in our previous guidance because of the need to be updated.

Understood. Okay. And then just an update on overall credit. All eyes are on office and some you have some great disclosures. But I'd love to hear a little bit more about kind of your top exposures in office, what's the typical sizes of the biggest loans and how they're performing and if anything is keeping me up at night?

There's always a two. I get comfortable from the fact that in office we only have 11 loans over $10 million and probably 18 between 5 and 10. So we're pretty granular. We worked down our exposure somewhat over the course of the last year, and we're pretty thin on central business district. I think we have just $73 million there.

I have Brian Karrip, our Chief Credit Officer with us. Brian, do you want to add some other color?

Sure, and thanks for your question. We have two deals that are above $20 million. Both are performing well. Both have low LTVs, strong debt yields, strong DSCR. What maturities we saw in the slide number 18, third quarter of '24, $22 million will mature. We're extending that loan for six months. We gave you the maturity ladder, so you could see it with with greater clarity and emphasizes who we are and how we think about our portfolio.

It emphasizes how we think about the granularity in our portfolio, how we break it out, how we stratify it and how we think about our overall office business.

The slide is fairly complete. I'd be happy to answer any questions.

What is the -- I'm sorry, what's the nature of the extension?

Yeah, you're looking at a property and so we have agreed. So we have a proactive approach with each one of our borrowers. In fact, Matt we went out and did a physical inspection of each one of our office properties that will mature between '24 and '25.

We wanted to better understand physical occupancy versus economic tenancy. And in doing so, we meet with our clients and we say what is the next step of what are your thoughts. With this borrower, they said our plan is to sell the property and we went to them and have the discussion about let's do a six month extension to can you have an orderly exit.

Okay, that makes sense. And you feel like there's any loss content you're well reserved for that.

I absolutely. And that's performing.

Great. I appreciate all the answers there and the color. Thank you.

Thank you.

(Operator Instructions) Manuel Navas, D.A. Davidson.

Hey, good afternoon.

Good afternoon.

A lot of my questions have been answered, but I just wanted to -- I was wondering some of the marginal rates of things and what was the marginal deposit rates for what came on? And I'm going to ask about different loan yields as well.

Yes. So the current -- we have numerous different specials like the current short term, similar fee pressure, 5.05%, and then the money market specials, 4.5%. If you blend the volume, the overall deal volume rate on deposits coming in around about 4.8% for new deposits coming in.

So that was 4.48% last quarter and it's coming down a little bit, right, you could be able to price down a little bit.

We are -- last quarter that CD special events, you would have been 5.1 actually five and a quarter now it's [5.05] for the bulk. I don't -- I'm sorry if I said the overall blended rate should be down from last quarter for us, I mean to say this quarter's 4.8% of segment sentiment should be down from last quarter.

And then on new loan yields, you had strong equipment finance. You have to remind me the yields there an interim order.

Yeah, and write off of in the high seven that is net of dealer reserves and the and we get it for you on the equipment finance, I think was right around 8% for the quarter.

And I think you said earlier, commercial is roughly around 8% in general.

We are cautious a little bit higher, a little lower. The current finance average of 7.98% [0.8%] and indirect 7.6% new money yields for the quarter. Selling direct, for example, that's 7.6% for the quarter, $110 million came on at [7.6%], $109 million rolled off at slide 24. So just the way we like it.

Okay. Thanks. I was going ask a questiom about better OpEx. I think you called out a little bit of a hospitalization expense didn't kind of and improved linked quarter, and it's just going kind of bounce back up a little bit?

Yes, that's fair to say. We don't get too hopeful and aspirations like for a given quarter because it bounces around so much of the year, just based on our experience, we self insure we talked about before publicly we layoff we have a reinsurance for a layer of Taiwan.

We reinsure layer of costs once it gets reviewed at a certain level. But if we have good experience in a given quarter the hospitalization, especially low, but it does bounce around.

Okay. So stay staying as previously expected. I appreciate it. Thank you.

Take you, back.

Frank Schiraldi, Piper Sandler.

Good afternoon.

Frank.

Just in terms of you guys talked obviously about the tapering the CD rates here and seems like your commentary was also that your not -- higher at the -- high end of the market, but you're still competitive?

And just kind of curious what you're seeing so far is the idea that given the kind of loan growth expectations you laid out on that you can be competitive enough on the deposit side to kind of grow the deposits in line with that and hold the loan to deposit ratio kind of flattish through the year. What's the linking here?

Yes, I think that's right and we watch that daily, everyday in terms of what the flows in and how are, and it does impact how we think about consumer lending to start with and whether we continue to meter it or not.

And but the replacement yields and some of the portfolios like indirect auto, that's not where we started a year ago and the team has done a great job getting our rates up there. Jane, do you want to ask any commentary you want to provide in terms of the sparkling water of liquidity in place to help us grow loans.

No, Mike, I think, Frank, it sounds so simple when you say it, Frank, but that's exactly what we're trying to do.

And in terms of just curious like you have the pressure now in the existing portfolio, it is has that obviously in terms of deposit costs moving higher, is that just mostly new money at this point has the existing stuff on sort of stabilized to a degree?

Jane, I have some thoughts, but why don't you lead us off?

Sure. We see, we still see new money coming in and any given special, we see about 50% new money and 50% of our existing book potentially repricing. And we've been pretty gracious about that because we'd rather keep the deposits and but we are seeing the rate of repricing slowing down. Six months ago, it was bad, nine months ago, it felt horrible, today it feels like it's starting to normalize and pricing is really slowing down.

Is that helpful, Frank?

Yeah. And then just lastly, yeah, just thinking about reserve to loan levels, I mean, it seems like some of the smaller banks are trying to build reserves a bit here, just given where some of the bigger banks are on reserve coverage of the total booking and for you guys, just kind of curious, how do you think about that? I mean, just given that commercial is going to be the driver here, what does that alone kind of say about the reserve-to-loan ratio? Should we -- at the end of the day, I just expect continued increase a modest increase in that quarter-over-quarter as you grow the commercial book?

Yeah. I mean, we obviously fund reserves and we have growth and that's a key part and a component of building the reserve and that's what build it in the past. And Brian, what would you add to that?

It just that we have about $3.3 million in specific reserves from the acquisition, we have about $2.9 million in PCD reserves. So we did grow from [$131 million] to [$132 million] in our reserve ratio, but we've got adequate reserves to support our business and potentially to support some growth.

Can I just add? I think our approach is very thorough. It's a bottoms up approach. In other words, rather than just some thinking about. I wanted to quickly ask a question, tonic, we say, well, let's do this separation and find a way to solve for that ratio. Anecdotally you might your bankers, like you mentioned small banks talking about that and thinking that way. But ours is very far from the bottom up.

So if we say, hey, the economic conditions are changing that our quantitative reserve would be changed to reflect that. If we see GDP or unemployment factors changing and then some of the qualitative factors we look at changes in underwriting standards or staff all the factors. We look at that if you made some changes this quarter as well as loan growth,

Yeah, right.

As well as loan growth. So then we do all that work and they say, it turns out that given the way the portfolio grew or didn't grow that much. And so the ratio is 1.32. Rather than saying, let's find a way to get it to 1.32. So anyway, I don't know if that helps or not. But that's kind of how we're thinking about it.

Yeah. No, I guess I'm just thinking through like as you build -- what the reserves are in the commercial book, I guess versus reserves of consumables as a percentage of total loans. I don't know if you have that handy.

I don't, but I could -- we could get it back to you.

Okay.

We've had our reserve higher than our peers generally, and that's with some -- a pretty good mix between probably heavier consumer than our commercial and almost 50 50. And really, that could switch to a more than 60 -- 60%-plus commercial, just because that's where the spread is and that's where the customer relationships, the more robust cross-sell and the fulsome depository is.

Okay, and I appreciate all the color. Thanks.

Thank you.

There are no further questions at this time. Mr. Mike Price, I'll turn the call back over to you.

Yeah. Thank you, operator. And as always, we appreciate your engagement and interest in First Commonwealth. As we think about our 2024 strategic themes we've shared these with you before, and they really don't change as much from year to year. But we think about as an organization living our mission every day that is to improve the financial lives of our neighbors and their businesses who do that well.

And then growing our business and we think we can improve our loan pricing, we can improve partner introductions in the regional teams. We can grow our C&I lending each year going forward, particularly given the team that we've put together.

And then we also think a lot about getting better. So live the mission grow, get better and not just vaguelly than in every region, every line of business, every business support unit. And we're trying to become digital in every facet of our business. And so those -- that's where our heads are. Those of you who know us, we talk about these things and that we expect to get better every year even as we cross $10 billion.

And we have a little wind taken out of our sails with Durbin this year and just stay after it. And this is a fund business. We make a difference in the lives of our consumers and small business in our respective communities. And it's a great business to be in. Thank you.

This concludes today's conference call. You may now disconnect.