FNB Corp
NYSE:FNB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
11.5678
17.15
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
FNB Corp
You don't have any saved screeners yet
Good morning, everyone, and welcome to the FNB First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded.
At this time, I'd like to turn the floor over to Lisa Hajdu, Manager of Investor Relations. Ma'am, please go ahead.
Good morning, and welcome to the conference call. We will now turn it over so that we can hear some of the prepared remarks that we have. Thank you.
Good morning, and welcome to our earnings call. This conference call of FNB Corporation and the reports that filed with the Securities and Exchange Commission also 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 25, 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 Delie, Chairman, President and CEO.
Thank you, and welcome to our first quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer.
FNB produced a solid quarter, reporting operating earnings per share of $0.34 and operating net income available to common shareholders totaling $123 million. Our balance sheet resilience, robust fee income generation, strong credit results and continued progress of our Clicks-to-Bricks strategy were at the forefront this quarter.
Our team remains focused on balance sheet management, physician FNB for optimal flexibility during the volatile interest rate period. This is evidenced by our tangible common equity ratio ending the first quarter at an all-time high of 8%.
In addition, our company reported solid loan growth of 6% and deposit growth of 2% on a year-over-year basis. Deposit mix remained similar to the prior quarter with a favorable total deposit cost of less than 2%, which is expected to remain superior to peers. Tangible book value per share also reached a record high at $9.64, an 11% increase year-over-year as tangible book value growth remains a key value driver of our strategy.
FNB maintained strong levels of liquidity and uninsured and non-collateralized deposit coverage ratio of 162%. Our noninterest income continues to grow reaching $87.9 million, a near record level. This achievement is the result of our geographic expansion in a decade of strategic investments in our mortgage, wealth management, international banking, treasury management and capital markets capabilities, including the launch of loan syndications and the FNB debt capital markets platform.
Our diversified business model has enabled noninterest income to grow 75% from $200 million in 2016 to over $350 million on an annualized basis. We recognize the benefit of having diverse revenue stream, which complement one another during various points of the economic cycle. Looking ahead, we will continue to diversify our noninterest income products and services with plans to further enhance our treasury management, merchant services and payment capabilities.
This past decade also included the launch of our Clicks-to-Bricks strategy. That vision along with our investments in people and infrastructure for data analytics has laid the groundwork for the success of our digital bank today as well as FNB's increased use of AI in the future.
What began with QR code enabled product boxes has evolved into an omnichannel experience with our proprietary eStore. Paired with our new common application, we can bundle products and streamline the application process, enabling customers to open 30 products with 1 application, creating efficiencies and significantly reducing the number of keystrokes for our clients.
Our strategy offers us the opportunity to align high-value product solutions for our customers based upon need in a bundled manner, which helps retain and attract clients. FNB also leverages our investments in data infrastructure and analytics for driving revenue growth through enhanced lead generation. Our enterprise data warehouse stores over 71 billion records across 41,000 attributes, enabling our data scientists to utilize machine learning more effectively.
We developed Opportunity IQ, our proprietary tool that utilizes AI and data aggregation to produce a one-page snapshot of our customers, including the lead score next best product to offer in an overall need. This at-a-glance insight enables our employees to have elevated conversation and deepen our relationships with data-driven knowledge.
Leveraging our proprietary data and analytics within our common app, we can improve product penetration through tailored offerings to our customers, to increase their financial well-being and client loyalty to our brand. As we continue to expand our current relationships and gain new households, FNB remains steadfast in our consistent underwriting standards and credit management process.
I will now turn the call over to Gary to provide additional information on our credit risk metrics. Gary?
Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at a solid level. Total delinquency finished the quarter at 64 basis points, down 6 bps from the prior quarter. NPLs and OREO decreased 1 basis point to end at 33 bps, a multiyear level with net charge-offs of 16 basis points.
I'll provide an update on our CRE portfolios and conclude with an overview of our credit risk management strategies and focus around the current environment. Total provision expense for the quarter stood at $13.9 million, providing for loan growth and charge-offs. Our ending funded reserve stands at $406 million or 1.25% of loans, flat compared to the prior quarter, continuing to reflect our strong position relative to our peers.
When including acquired unamortized loan discounts, our reserve stands at 1.36%, and our NPL coverage position remains strong at 425%, inclusive of the discounts. We continue to closely monitor the nonowner-occupied CRE portfolio, and on a monthly basis, review upcoming maturities, largest exposures and analyze overall market performance across our footprint.
At quarter end, delinquency and NPLs for the nonowner-occupied CRE portfolio improved slightly and continue to remain very low at 19 and 13 basis points, respectively. Specifically related to the nonowner-occupied office portfolio, our most recent review reflected a 60% weighted average LTV, providing additional protection for potential market declines. Delinquency and NPLs were 3 and 2 basis points, respectively, outperforming the prior quarter.
Net charge-offs for the nonowner-occupied CRE portfolio reflected solid performance for the quarter at 9 basis points, confirming our consistent underwriting and strong sponsorship. We remain focused on credit risk management, along with consistent underwriting, which allows us to maintain a balanced well-positioned portfolio throughout various economic cycles.
On a quarterly basis, we continue to perform specific in-depth reviews of our portfolios as well as full portfolio stress tests. Our stress testing results for this quarter have again shown lower net charge-offs and stable provision compared to the prior quarter's results with our current ACL covering approximately 90% of our projected charge-offs in a severe economic downturn, again confirming that our diversified loan portfolio enables us to withstand various stressed economic scenarios.
In closing, our asset quality metrics ended the quarter at good levels. Our loan portfolio continues to remain stable and benefits from proactive risk management being further enhanced by experienced banking teams and tenured leadership, which have successfully managed through many economic cycles.
We continue to seek loan growth through a diversified mix of products and geographies, while maintaining our strong core credit philosophy and consistent approach to underwriting through the cycles.
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.
Total loans and leases ended the quarter at $32.6 billion, a 3.3% annualized linked quarter increase driven by growth of $209 million in consumer loans and $53 million in commercial loans and leases. Residential mortgages led consumer loan growth driven by on-balance sheet production this quarter in physicians and jumbo mortgage loans.
Total deposits ended the quarter at $34.7 billion, a slight increase of $24 million linked quarter even with the headwind of seasonal deposit outflows. For context, our seasonal deposits peak in mid-November and troughed in mid-February, and balances should continue to build through the next couple of quarters, benefiting from normal seasonality and our team's success driving deeper market penetration on an organic basis.
As of March 31, noninterest-bearing deposits comprised 29% of total deposits, maintaining the same level at year-end. While the deposit mix continues to shift from low interest checking and savings products into higher-yielding CD and money market products, we believe we will continue to outperform the industry in both a mix and deposit cost perspective.
Our deposit costs ended the first quarter at 2.04%, leading to a total cumulative deposit beta of 36% since the current interest rate increases began in March of 2022. The first quarter's net interest margin was 3.18%, a decline of only 3 basis points. A 15-basis point increase in the total yield on earning assets to 5.40% was slightly more than offset by a 19-basis point increase in the total cost of funds to 2.33%.
On a monthly basis, net interest margin was down a modest 1 basis point per month during the first quarter, and March's net interest margin was 3.17. Net interest income totaled $319 million, a $5 million decrease from the prior quarter, with over half the difference due to the current quarter having 1 less day.
Turning to noninterest income and expense. Noninterest income totaled a robust $87.9 million with linked quarter growth in nearly every line of business. Wealth management revenues increased 12% compared to the prior quarter, reaching a record $19.6 million through continued strong contributions across the geographic footprint.
Mortgage banking operations totaled $7.9 million, the highest quarterly figure since 2021 with our focus on the purchase market driving good production growth. Several of the lines of business, Vince mentioned, had strong performance this quarter.
Our debt capital markets platform, which is part of capital markets, had a record number of bond transactions this quarter and more than double the prior record. Treasury management revenues have gained momentum as we execute on our strategic initiatives, building out the platform with total [ TM ] revenues increasing around 19% from the year ago quarter, driving the increase in the service charge line item.
Operating noninterest expense totaled $234.1 million, an increase of $15.2 million from the prior quarter after adjusting for $3 million of significant items in the current quarter and $46.6 million last quarter.
This quarter's significant items included $1.2 million of branch consolidation expenses and $4.4 million estimated for the additional FDIC special assessment, partially offset by a $2.6 million reduction to the previously estimated loss on the indirect auto loan sale that closed in February.
The largest driver for operating noninterest expense with salaries and employee benefits, which increased $15 million, primarily related to normal seasonal long-term compensation expense of $6.9 million, seasonally higher employer payroll taxes, which increased $4.6 million and reduced salary deferrals given seasonally lower loan origination volumes.
As previously mentioned, FNB redeemed all of our outstanding Series E perpetual preferred stock on February 15, and paid the final preferred dividend of $2 million on the redemption date. The excess of the redemption value over the carrying value on the preferred stock of $4 million was considered a significant item impacting earnings.
FNB continues to actively manage our capital position for ample flexibility to grow the balance sheet and optimize shareholder returns, while appropriately managing risk. Our financial performance and capital management strategy resulted in our TCE ratio reaching 8% and CET1 ratio at 10.2%, both record levels.
Tangible book value per common share was $9.64 at March 31, an increase of $0.98 or 11.3% compared to March 31, 2023. AOCI reduced the tangible book value per common share by $0.70 as of quarter end compared to $0.87 for the year ago quarter.
Let's now look at guidance for the second quarter and full year of 2024. We are maintaining our full year balance sheet guidance. We project period ending loans to grow mid-single digits on a full year basis as we increase our market share across our diverse geographic footprint. And total projected deposit balances are expected to grow low single digits on a year-over-year spot basis.
Overall, our projected full year income statement guide is consistent with last quarter with some additional thoughts on where we expect to land within the provided ranges. Our projected full year net interest income is still expected to be between $1.295 billion and $1.345 billion, assuming 225 basis point rate cuts occurring in the latter half of 2024.
Our current expectation is to be in the lower half of the full year guide, given those 2 rate cuts, but where we ultimately end up in the range may change due to the fluidity of the rate environment and the number and timing of interest rate cuts that actually occur.
Second quarter net interest income is projected between $315 million and $325 million. The noninterest income full year guide remains between $325 million and $345 million. However, given the strong momentum in the first quarter, we anticipate being in the upper half of that range. The second quarter noninterest income guide is between $80 million and $85 million.
Full year guidance for noninterest expense is expected to be between $895 million and $915 million, with the second quarter noninterest expense expected to be between $220 million and $230 million.
Full year provision guidance is $80 million to $100 million and is dependent on net loan growth and charge-off activity. 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.
FNB had a good start to the year. And we are optimistic that as we enter the second half of the year, we have the potential to return to positive operating leverage and benefit from a more favorable interest rate environment as well as a growing pipeline for loans and deposits.
Our award-winning client experience is shaped by our digital technology and eStore. And we are proud to appear among some of the nation's largest banks as a finalist for a fintech award for innovation and customer experience.
Our strategy is consistently supported by third-party recognition. In fact, we received approximately 30 awards for our client service, financial performance and culture during the first quarter alone, with multiple awards received in 2024 for small business and middle market excellence.
These select examples of FNB's third-party recognition highlights the strength of our business model and financial achievements which led to FNB being named by S&P Global Market Intelligence as one of the top 50 performing U.S. public banks.
The ongoing recognition that our company receives is made possible by our engaged teams. We provide an environment where everyone has an opportunity to excel. And as a result, FNB is a top workplace U.S.A. for the fourth consecutive year based upon employee feedback.
Our employees' dedication enables us to serve all of our stakeholders and positions FNB for continued success. I want to thank the team for their outstanding efforts in the first quarter, given the difficult operating environment, and I look forward to working together to build on our momentum throughout the year.
[Operator Instructions] And our first question today it comes from Frank Schiraldi from Piper Sandler.
Just on the -- on the NII -- well, on the NII guide and also on the loan-to-deposit ratio. I think in the past, you've talked about as you get up to 95%, 96% taking some potential actions to help mitigate getting up to 100% loan-to-deposit ratio. And so I know there's some seasonality on the deposit side, but just curious maybe if you could talk about what some of those actions might be?
I know you had the indirect sale -- indirect auto sale, which, I guess, helped a bit. But just curious if you could talk about what some of those potential actions might look like? And then also just remind us of what you get on a 25-basis point cut on -- in interest rates.
So I would say on the loan-to-deposit ratio, Frank, we've historically talked about 97% is kind of a level where we've taken action. And the action was leveraging our franchise we have to generate deposits. So last time that had happened, we generated close to $1 billion in CDs to kind of bring it back down into the kind of low to mid [indiscernible].
So -- the 100% is there as a line, but 97% is a line that we would kind of -- we got close to that, we kind of manage it down. And there's a lot of things we can do. I mean, as you know, we have a big focus on generating deposits -- demand deposits throughout the company, our traditional commercial businesses, treasury management, small business, it's a focus throughout the company. It's always been.
So generating additional deposits, bringing in new households, new customer, more to clients is a key part of it. And then also things like managing the [indiscernible]. We've adjusted our pricing strategy kind of midyear last year to create more salable product out of our originations than what we had been before.
And now we're up in the mid-40s for saleable percentage where we were low in the 20s. So that's another lever we have. In the indirect business, while we did a sale, we also have a lever there as far as how much we want to grow any point in time depending on kind of what's the shelf space on the balance sheet.
There are a whole list of things that we look at both asset and liability. So there's a -- Vince mentioned many of them. I think our pipeline for new production is pretty strong from a deposit perspective. So I don't think that we're worried about that.
So obviously, in the event that we need to generate deposits, the pricing mechanisms that we did the point, but we prefer to grow organically and try to bring in a balanced mix of deposits that are accretive. That is going very well for the company.
Great. And then just on the NII side. I mean, I guess, you have one less rate cut baked into your expectations now, but guiding towards the lower half of the previous range. Is that just given where you sit in the first quarter and the trends from here? Or I guess I would be -- I assume you still pick up a little bit potentially from less rate cuts baked into your guide. So just curious the driver there.
You answered it pretty well Frank, how did we sell. Because of the key drivers. I mean, in our guidance in January, we had 3 cuts. One of them was December. So December falls off, which doesn't have much of an impact for the full year. So the 2 cuts we have in the second half of the year in the short-term is positive. We're still in an asset-sensitive position. We've been organically moving back towards neutral. So there's -- in the short-term, there is a benefit from having that cut.
The guide we adjusted in the first quarter, we were at the lower end of our range for net interest income. The timing of our seasonal deposits, average borrowers were a little higher, just potentially the timing of that. But by the end of the quarter, we were back to flat, up a little bit.
So kind of just capturing that first quarter as we look ahead. And there's -- we'll see the mortgage interest rate environment is very fluid. There's potential for us to beat that, if the loan growth is stronger, that's kind of what's baked in there. There's an opportunity for us to be above that.
But just kind of where we sit, how we started the year, we thought it was appropriate to kind of guide. And it's the bottom half. It's at the bottom of the range. It's kind of the lower half of the range is what we had guided to.
Right. Okay. And then just -- so to confirm there, you'd be the third-rate cut was late in the year, really didn't. So going from 3 to 2 rate cuts really just doesn't have an impact given the timing of the rate cuts?
Right.
Okay. Great.
Thanks, Frank.
Our next question comes from Daniel Tamayo from Raymond James.
I guess, first, I just wanted to dig into the office loans. I appreciate the detail you guys gave there. Looks like the -- and you touched on it in your comments, the delinquency and the NPLs for the office loans came down in the quarter.
I guess, first, I was just wondering, if there was anything in particular that happened that drove that. There were sales or what? And then just curious on the small increase in the criticized portion of the office loans, if there's any other details you can provide there?
Yes, Daniel, the slight increase was really one credit that we moved into that category. At this point, it's not a concern for us. It's a credit that is extended out already another 5 years. It was originally underwritten at a 52% LTV, and it's fixed through a swap at 4.5%. So they had one tenant move out. They're working on replacing that, but we felt it appropriate naturally to replace that in a rated credit situation.
The LTV on it was, like I said, right at about 50% going into the thing. So that increased that 9% criticized to right around 11%. And in terms of the portfolio, the portfolio in office was down $37 million in exposure and down $15 million from a balance perspective. So we have seen some loans pay off in that category as we're managing that book of business. And with the performance of it, where we sit today at those very low levels, we'll continue to be aggressive around it and manage it appropriately.
Okay. That's great color. Appreciate that. And then maybe, Vince, on the swaps that you have in place that are going to impact 2025. Just curious if you could provide a little color on how much impact do you expect those -- the rolling off to potentially have on the margin in 2025?
There's $1 billion moving to of swaps we have, they'll mature throughout '25, a $1 billion actually within '25. And those are -- received rates are around 75 basis points to 1% currently. We put those on a while ago. Luckily, we didn't do a lot of it, but we had some of that we did put on an -- so that negative drag will come off really starting in January. There's 250 that comes off in January. And then the rest of them by October, the last of the $1 billion kind of rolls off. So that will be additive, I can't do that math in my head, but that will get in next year.
Got it. Okay. So $250 million in January and then the last $1 billion in October. That's it for me. I appreciate the color.
And our next question comes from Kelly Motta from KBW.
I was hoping to dig in a bit more into your fee guidance, how you notably took that to the upper half of the range. Just wondering, which areas have been performing a bit better than maybe you had expected at this time last quarter? And where you see the greatest opportunities to continue to pick up some nice fee diversification and help with fee growth?
Yes. You hit the nail on the head diversification is the answer. We built out a pretty broad set of fee-based businesses over the last decade. Capital markets I mentioned in the prepared comments, we added a debt capital markets platform. So we could participate in bond economics for some of our larger clients.
And as you know, the capital markets opened up, and there was quite a bit of activity there in the first quarter. So we benefited from that business unit that we've built out a few years ago.
Syndications, ebbs and flows, but as the pipelines build, our pipelines are up about 15%. I would expect there to be more syndications activity as we move through the latter half of the year. So we'll get some benefit there. We have a pretty robust derivatives program where we have structuring teams in the marketplace that provide counsel to clients and help them address interest rate risk.
And that particular group did pretty well this quarter. So surprisingly, given the rate environment, they were able to do some interesting things for clients to help them as we move through this volatile rate cycle.
The mortgage company, one of the strategies we mentioned this kind of goes back to Frank Schiraldi's comment about the balance sheet and how we manage loan-to-deposit ratios, but we became much more aggressive on salable mortgage loan pricing. We gave up a little bit of margin, but moved quite a bit off the balance sheet.
So they're contributing from a pure volume perspective because we're positioned in some very attractive markets. We continue to see a lot of purchase money activity, where in our legacy markets, there's not a lot of inventory. So we're not seeing a lot of action. But in the other markets in the Southeast and the Mid-Atlantic regions, we've seen quite a bit of pickup. So that's contributed.
SBA had a very solid quarter. Some of the loans that we originated with higher yields in the construction phase that were built -- basically based on building something our had construction draws associated with them became salable. So we moved some of that off with a decent gain.
And then the treasury management business that we've been talking about, we've received a lot of Greenwich Awards for treasury management over the last few years in the small business and middle market segments in particular. We continue to build out that business unit. We've added personnel.
We've built out our merchant services business, we're getting nice contributions from merchant. And kind of the strategy here was to offset the consumer fees that we see declining like overdraft fees and other fees with higher value fees for customers from our -- that's our opinion.
But we kind of focused on building that out from a treasury management perspective. And then going after small businesses, we have 90,000 to 100,000 small businesses in our portfolio. We have a tremendous opportunity to go in and drive a broader relationship through the eStore. So we're now focusing on building out a bundled product for small business that will include treasury management and merchant as part of the bundle.
So -- those are the things that -- I mean, there's a lot of work that goes into it. We've got quite a bit of granularity and it gives us confidence that we can hit the upper end of the range on the guide. I think it's 350, right? [ 77. ] Annualizing the first quarter, which usually the first quarter is weak, weaker than others. So we're pretty pleased with the quarter we sit.
No, I really appreciate all the color. Maybe a last question for me, switching back to the balance sheet is on deposits. It seems like if I'm reading your prepared commentary correctly, some of the kind of qualification to NII to the lower half of the range has to do with what you're seeing on the deposit flow side.
So can you remind me the seasonality you have with deposits? And is there any color you can provide as to the cadence of what you're thinking about in terms of customer deposit growth to get to that low single-digit range that you reiterated?
Yes. I think, first of all, I -- there is an extreme amount of seasonality within the deposit portfolio. So it's kind of difficult to look at the first quarter and draw improvements because the outflows and inflows they're recurring throughout the quarter. And really, it starts to build now. So we're starting to see considerable inflows.
The demand deposits were pretty steady at about 29%, I think, right, on a quarter-over-quarter basis. So imagine that's the core of our profitability. It's basically maintaining those noninterest-bearing deposits. What's happened over the last few quarters is we've seen some of the higher-priced deposit categories moving into CDs or moving into something with a little bit of term within the customer base.
So that's eroded a little bit of the net interest income, right? We saw that happen. That's not surprising. You can see it in the escalation in the data. I believe that over time, throughout this year, we should be able to manage the noninterest-bearing deposit balances in that range and grow the other categories without sacrificing margin because we've seen -- some lower pricing stick in the marketplace. We have to be as hot on the pricing.
So I think that should help us as we move through the rest of the year, and then also the inflows that occur. In many instances, even with the municipal deposits, which is the truth for just about all of them.
We don't do those transactions with municipalities to just get balances. We kind of have a rule here where we have to be the primary disbursement bank for those entities. And what ends up happening is the increased activity with ACH activity and wire activity and the movement of funds increasing the amount of free balances grow to cover those services. So that's part of what happens over the course of the next 3 quarters as well.
So anyway, Vince, I don't know if you want to add anything on the timing.
No, I really...
Interesting from [indiscernible]...
We commented on it kind of troughs in mid-February and builds through October, November is kind of that -- the cadence of that. That's all I would add.
[Operator Instructions] Next in line, we have Nick Lorenzoni from Stephens.
Filling in for Russell Gunther. I just had a quick question with regard to your office portfolio. I appreciate the color in the deck. I was wondering if you could provide some additional detail on the geographic breakdown, including specific office exposure in your DC and Baltimore markets?
Yes. In terms of the exposure in DC, we have substantially one transaction in the D.C. market. We had a few on top of that over the last year. We've been able to move those off the balance sheet just in the normal course of refinance at other institutions.
So we only have one transaction there, and it's a transaction is a $20 million loan. And that's a market that we saw quite a while ago that we felt was extremely overheated. So we were very cautious going into that market. And we're pleased with where we sit today with very, very little [indiscernible].
And our next question comes from Brian Martin from Janney Montgomery.
Just a couple, maybe, Gary, just one for you on the credit side. Just in terms of overall trends in criticized and classified levels, can you give any broad characterization of how trends went this quarter just before we see the 10-Q filing, just on kind of how those trends were for the whole portfolio rather than just a specific bucket?
Yes. In terms of the criticized trends, they were up slightly less than that, less than 7 or 8 credits in the criticized. We got a couple move into the substandard. I touched on one of them earlier, Brian. Those credits basically were from just some slight softer performance. We're very aggressive in moving those type of credits into a special mention category, which was primarily where the movement was.
And we don't have any concerns with any of those credits that moved into there from a loss perspective. Long-term customers, just a little softer performance. And so we build a little bit of reserve against that software performance. We expect that to turn around over the next 6 to 12, 18 months in terms of those particular movements.
And Brian, I have a tremendous amount of confidence in Gary and his team. I can tell you, as we look at the portfolio, Gary's on top of the credits, his people are on top of the credit, the line looks at these credits and they downgrade them if it's necessary very quickly. That's different than what you'll find in other companies. So you're going to see movement.
I think it's positive because it keeps us well reserved relative to risk. So I think as you look over long periods of time, and Gary has been in the seat for a long time and we go back to long as I do, at least 14, 15 years. Maybe longer [indiscernible], putting in the bag, I'm 15. I'm getting old. It's 15 years so you were there 15 years. Yes, we're all fiber.
So we've got a long track record to look at. Our delinquencies are surprisingly low at historical lows. The overall quality of the portfolio appears to be good. We are focusing on certain segments that we believe globally are soft. You've mentioned office. That's one area we look at, we focused on.
With thank goodness, we have tremendous granularity and opt credit culture that encourages prompt action. And I think that's what you're seeing. There was a slide we presented. I think in the past, I don't know if it's in the deck with charge-offs versus reserve build for us. We tend to be very early at reserving and then our charge-offs end up better than the peers.
So that's a testament to Gary and his team and getting out early, addressing situations early helps you get out of trouble so that you're not experiencing the charge-offs down the road, waiting and not addressing issues creates a shortfall, which exacerbated credit problems when you're in a cycle. So I don't know -- I think we've done a great job. He won't say that, but I'm going to say it about.
No, I appreciate it. The numbers speak for themselves, Vince and Gary, I mean, they're great and even the criticized not being up much is testimony to kind of the portfolio and the granularity. So just trying to stay in front of it if there's things that are coming down the pipe.
Gary, you mentioned that you distressed testing. Was there anything specific you guys' stress tested this quarter that you would call out? Or just in general, that you just continue to stress test the entire portfolio?
Yes. It's a general stress test of the entire portfolio on a loan level basis, Brian, so it is a really deep dive every quarter that Tom Fisher and his team undertakes. We review that every quarter. Updates are made on a monthly basis when necessary.
So it keeps us forward looking from that perspective. And I think it's a best practice that we've put into place that has been very beneficial as we look forward through the economy and what we expect down the road.
Got you. Okay. And then maybe just one or 2 others. So just on the 2 things on the loan side, just maybe just kind of how the pipeline -- I appreciate the guidance for the year. Just kind of -- just trying to get a lot of where the pipelines are today on the commercial side primarily.
And then just I think you mentioned on the mortgage side, you were a bit more aggressive on the sales. I mean, first quarter is typically a seasonally weaker quarter. So I guess do you expect to remain aggressive on the sales, which could mean that potentially 1Q is a bottom for the mortgage revenue as you look throughout the year? Is it any difference in strategy there as you go to the balance of the year?
Yes. I think the first quarter typically is seasonally slow, right, because they are less -- especially when we're focusing on purchase money mortgage loans because of fewer transactions that occur in the first quarter. I would expect that to build through the next 2 quarters and then come back down again.
On the -- just speaking to the purchase money side and with conforming mortgage loans, I would expect that to happen. There are other origination areas that will produce through that -- we have physicians' loans that we do, which are pretty much throughout the year. So they kind of offset some of the declines in the later happen on the conforming stuff. So you'll see more jumbo private banking loans coming online, which is why we do what we do. We want to balance out what goes on the balance sheet and what becomes sale.
Our team has done a great job. We have terrific people in the mortgage business. We've grown it over the last 10 years or so. I mean it's a big part of our business and a key product for the consumer. So it really adds to our ability to obtain clients. And I think we're going to continue to focus on it and manage it very conservatively, but I would expect that to contribute more over the next few quarters, I think it's fair to say, given the seasonality.
And I would just add from an income statement standpoint, I mean, baked into our guidance is the mortgage banking income coming down a little bit from the first quarter level. That was going to be a function of how much we do sell, right? I mean, we'll continue to manage like Vince said, seasonally, second and third quarter not quite a big in production, which is what's baked into our guidance and then it falls and then it kind of falls off over the quarter.
The bell shape. But I'm pretty obvious I think they're doing pretty well. And we're very well entrenched. We have great people in that business, like I said. So I feel good about it.
The activity is very good. Even the first quarter was very good, too, and then expect it to see the move up in the second, third, like Vince said.
Obviously impacted by interest [indiscernible] right? I mean that if rates go up, that game over. We'll talk about it down the road. But I think given the way things are today, and in a stable interest rate environment for now, they should pick up. There should be more activity.
Yes. Got you. And just on the commercial pipeline, how -- what you're seeing there?
Yes. The pipelines -- they're up 15%, and the overall pipeline is up from the last quarter. Remember, we had a big quarter closing out in December of last year. So the fourth quarter of last year was pretty solid from a production perspective. So pipelines are rebuilding, South Carolina is at their second highest level historically.
So there's a lot of activity there. We've always got a nice pipeline that what we call the capital region, which is a central part of the state. It has a tremendous pipeline and we've seen some good activity in some of the rural Pennsylvania markets.
The folks in State College, [indiscernible] DC and his team doing a terrific sell. I mean we're seeing a lot of activity and good solid middle market C&I opportunities. So I would expect us to continue to build the pipeline as we move through the year and businesses, hopefully become more confidence in the economy.
Got you. Okay. And the last one for me, and I'll step back. Was just the -- it sounds like the DDA level your comfortable that you can maybe sustain this around the current level? And then just kind of the outlook on the capital flexibility with kind of reaching a record level of TCE and CET1, just kind of your thoughts on capital deployment here if it's still just primarily organic growth?
Yes. I would say, I mean, on the capital front, we still like 10% is our CET1 target. We think that's the right level, just given our risk profile of the balance sheet and also the high level of capital generation that we've been producing.
If you look at our -- what's baked into our guidance, the capital ratio is kind of gradually build from here between now and the end of the year. As you saw this quarter, we had a nice pickup in CET1 and TCE ratio.
We have commented in January that once the indirect sale kind of cleared that would be additive. Added like 10 basis points CET1 and relative to TCE ratio. So we have that and then we'll kind of gradually build from there.
And we'll be opportunistic as we have been in the past. We'll look to do some buybacks. We have issuance of stock in the first quarter from normal incentive stuff. We could repurchase some of that and we look to do some level of activity as we go through the year.
Given the profitability of the company, we have options, and we're building capital you go back pretty far, so 8% is a pretty nice number for us. It's a solid TCE of ratio.
And ladies and gentlemen, with that being our last question, I'd like to turn the floor back over to Vince Delie for any closing remarks.
I just wanted to make one comment. There was a question earlier about the swaps, we have rolling off next year. I mentioned kind of what we're receiving. We're paying $544 million on that $1 billion. So just as far as the math, as you get into 2025, it's basically 250 million a quarter kind of sub-1% what we're receiving and we're paying around 5.44%. So that will be a benefit next year starting in January. I just wanted to clarify that.
Yes, sure. Yes. Excellent. Thank you, everybody. Appreciate it. Appreciate the support from our shareholders and again, very appreciative of our employees and the teams that we have and their desire to win. So we have a great culture, winning culture and people just want to do the best they can for their clients and compete. And I think we've proven that we do that very effectively. So thank you.
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.