F.N.B. Corporation (FNB) Q1 2015 Earnings Report, Transcript and Summary

Welcome to the FNB Corporation's first quarter 2015 earnings conference call. All participants will be in listen-only mode. [Operator instructions] Please notice this event is being recorded. Now I would like to turn over the conference over to Matthew Lazzaro. Mr. Lazzaro, please go ahead.

Thank you. Good morning everyone and welcome to our earnings call. This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements. Please refer to the forward-looking statement disclosure contained in our earnings release, related presentation materials, in our reports and registration statements filed with the Securities and Exchange Commission and available on our corporate Web site. A replay of this call will be available until April 30, and a transcript and the webcast link will be posted to the Shareholder and Investor Relations section of our corporate Web site. I will now turn the call over to Vince Delie, President and Chief Executive Officer.

Good morning, and welcome to our quarterly earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer and Gary Guerrieri, our Chief Credit Officer. I will be highlighting our operating performance and providing a strategic overview. Gary will review asset quality and Vince will provide further detail on our financial result, as well as an update on our guidance for the rest of the year. Vince will then open the call up for any question. Let's begin by looking at our operating results for the quarter. We are very pleased with the quarter's results that highlight high quality earnings growth on both a linked quarter, and year-over-year basis. Operating net income available to common shareholders reached another record high, at $38 million, and resulted in $0.22 per diluted share. These results represent a 16% increase in year-over-year earnings per share. This translates into a 111 basis point return on average tangible assets, and over a 15% return on average tangible common equity. Continued positive operating leverage in the first quarter reflects the successful execution of our disciplined growth strategy, with strong year-over-year revenue growth of 14% and operating expenses inclusive of additional acquisition run-rate expenses; well-controlled at a planned 9% increase. During the first quarter, our organic growth activity continued with solid organic loan and deposit growth, positive results from our fee based business unit, and excellent asset quality. If you recall, last year marked a transformational year for F.N.D in which we accomplished a number of strategic milestones to position the company for long term organic growth. As a management team we are excited about the company’s tremendous progress as we’ve continuously invested in our people, products and processes in all segments as progress is evident in the first quarter’s operating results. Let me remind you that we overcame $0.10 per share in 2014 from the impact of the Durbin Amendment and our 2013 Basel III related capital raise. These two regulatory items alone matched the fundamental earnings drivers of the company in 2014. With these costs in the earnings dilution now fully embedded in our quarterly run-rate looking at the first quarter of 2015 on a year-over-year basis now presents a clear view of the company’s core operating performance and reflects the successful integration of four acquisitions in the last two years. Despite the continued low rate environment in 2015, we were able to achieve positive operating leverage and double-digit year-over-year revenue growth led by strong organic loan growth, dedicated cross-selling efforts across all business units and added benefit from a full quarter of BCSB and OBA. Through our recent acquisitions we have positioned the company to acquire new customers in the Greater Baltimore and Cleveland markets as well as leverage our enhanced product set to deepen existing client relationships within FNB's legacy footprint. FNB's significant investment in proprietary sales management systems continues to pay off by providing our bankers with the robust set of market leading CRM tools. These tools are a valuable resource which when combined with the strategy to locate our business units together in major hubs provide for superior execution in cross-selling and generating organic growth. As an organization we structure performance goals that are aligned with our overall financial plan and are balanced from a risk appetite perspective. Through utilization of these tools and processes a cohesive team works in unison quickly identifying customer leads and enhancing our success rate in bringing in new clients. Our private banking team is an excellent example of a successful investment in a business line that increased its total loan portfolio to over 0.5 billion and grew total households by 28% year-over-year, particularly driven by expansion into the new markets. As evidenced in our first quarter results, our bankers have been successful in effectively cross-selling eBay services. On a year-over-year basis, wealth management revenues increased 15% and fee income from our capital markets activities which include syndications, international banking and interest rate derivatives increased 2 million compared to the year ago quarter. Mortgage banking had a very successful quarter with increased revenues of 1.6 million reflecting higher origination volume. While FNB has historically offered mortgage banking products to our clients, in the beginning of 2014 we strategically allocated resources to enhance this segment, reinvest in our mortgage banking sales and processing capabilities to align the market share of the mortgage business proportionate to the size of our organization. We expect mortgage banking to continue to be a source of solid fee income and support our efforts to increase household penetration and cross-sell activity. The first quarter efficiency ratio of 56.6% improved from 59% in the year ago quarter and marked a 12th consecutive quarter with an efficiency ratio under 60%. This is a proof point of FNB’s organic and acquisition growth strategy signifying our success in operating a larger organization more efficiently with the realization of increased scale and acquisition related cost savings. Looking at the balance sheet on a linked quarter basis, annualized average loan growth was a solid 7%. The total average loan growth was in line with our expectations due to seasonality in the first quarter. We saw solid performance in the consumer loan portfolio with annualized total average consumer loan growth of 10% which includes direct instalment, consumer lines, indirect auto and mortgage loans. Total annualized average commercial loan growth was a solid 5%. It is important to note that during the quarter our credit team reduced criticized asset level by $67 million, which included $31 million in planned exits. While this reduction in criticized assets reduced first quarter total loan growth, which would have been nearly 8% annualized, it further enhanced the quality of our total loan portfolio. Our commercial pipelines are solid and above both the prior quarter and year-ago levels, with the metro markets making up more than half of the total commercial pipeline. Average transaction deposits and customer repos increased slightly linked quarter. This movement reflected growth in average savings and interest checking balances offset by the timing of seasonally lower business transaction deposits and customer repo balances. Consistent with our cross-selling focus, our success in attracting deposits serves to deepen our client relationships and provides a low-cost funding source for our loan growth. I would like to remind you that customer repurchase agreements are part of our treasury management business, and have been a good source of stable low-cost funding. These balances typically experience seasonal movement throughout the year with declines in the first quarter. The funding position improved slightly from the fourth quarter, with a loan to deposit ratio, including customer repos, of 91%. The first quarter level of provisioning for newly originated loans reflects further strengthening of our balance sheet, as we continue to build reserves in support of loan growth. This illustrates our commitment to maintaining a low-risk profile and generating higher-quality earnings. Gary will elaborate on our credit philosophy and will provide further detail on the quarter’s asset quality results. At the end of March, we completed our second Dodd-Frank stress testing submission. This rigorous and extensive process requires a collaborative cross-functional effort. FNB has made significant investments in robust risk management tools and processes that will continue to serve us well in a challenging regulatory environment. Before turning the call over to Gary and Vince, I would like to congratulate and thank the entire FNB team for another great quarter. Record net income and 16% growth in operating EPS on a year-over-year basis is a tremendous accomplishment, reflecting the execution of strategic initiatives on a variety of fronts, including the recent acquisitions and geographic expansion to position FNB in higher growth markets. Loan and deposit growth remained strong, as we build on FNB’s established presence and add share in our expansion markets. We have grown loans organically for 23 consecutive linked quarters, a period of nearly six years. Asset quality results were again excellent as we continue to deploy consistent underwriting standards footprint wide. Our first quarter returns on tangible capital have increased even as we operate with higher capital levels. Since the end of 2013, we have bolstered our capital levels and our current TCE ratio of 7.0% represents the strongest operating level since 2003. As we have communicated, continued focus on cross-selling is deeply ingrained in our culture and is paramount to the successful execution of our strategy as we are focused on building our platform to drive sustainable earnings growth. Looking ahead to the remainder of 2015, with strong year-over-year operating EPS growth and 2014 earnings headwinds fully-absorbed in our run-rate, we believe the current underlying fundamentals remain strong and FNB is poised to generate additional positive operating leverage and continue to create long-term value for our shareholders. With that, I will turn the call over to Gary so he can share asset quality results.

Thank you Vince and good morning everyone. We ended the first quarter of 2015 very well positioned, with credit quality results that moved positively from already good levels. This favorable first quarter performance was highlighted by lower delinquency, a further decrease in problem assets, and good net charge-off performance of 20 basis points annualized on a GAAP basis. I would now like to walk you through some of the key results for the period, starting with the originated portfolio. During the quarter, the level of NPL's and OREO decreased by $2 million to end March at 1.08%, representing a 5 basis point linked quarter improvement. Delinquency decreased by $10 million, representing a 13 basis point improvement to a very solid level at 86 basis points, with all past due categories contributing to this favorable movement. Net charge-offs totaled $5.8 million or 24 basis points annualized, and reflects solid performance that is slightly better than our targeted levels for the period. Originated provision at $9.1 million exceeded our charge-offs and covered our loan growth for the quarter, resulting in an ending reserve position that remained flat at 1.22%. Turning next to our acquired book, we ended the quarter with $1.5 billion of loans outstanding, with credit quality results that demonstrated continued positive movement marked by reductions in both delinquency and rated credits. The level of delinquency decreased by $7 million on a linked-quarter basis, ending March at $56 million, and was driven by improvements within the real estate secured portfolio. The level of rated credits also trended favorably in the quarter as we successfully exited several smaller relationships, with many of these borrowers refinancing with more aggressive lenders. These positive results are reflective of our strategy to resolve and exit sub-performing credits proactively and efficiently, which remains a key aspect of our credit philosophy. Our dedication to maintaining a strong credit culture is evidenced by the ongoing investments we have made in our credit and risk management areas. Commensurate with our growth, we have bolstered our credit team by adding talent from outside and by continually developing our internal talent to better position the company's risk management team. We also continue to further refine internal credit systems, which provide us with consistent underwriting across the footprint, in-depth credit migration analysis, enhanced ALLL modeling, comprehensive forecasting and planning, and better oversight of the portfolio’s performance. As we position FNB in higher growth markets, this concerted effort to acquire and retain talented personnel and to provide them with robust analytical systems and tools will enable us to more effectively manage our portfolios through the various business cycles. As we have done in the past, we will continue to make these types of investments to keep us well-positioned for the future. In closing, we delivered another quarter of solid results, highlighted by the stable and consistent performance across all portfolios. Our hands-on approach to approving, monitoring, and managing credit has been a key contributor to the solid performance of the portfolio and the high quality earnings being generated by these assets. As our loan book increases in size with each passing quarter we will continue to operate according to our core credit philosophy of prudent underwriting, proactive risk management, and attentive workout of problem assets carried out by our experienced banking team. I’d now like to turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks Gary and good morning everyone. Today I will discuss the first quarter’s operating performance and provide an update to our guidance for the remainder of the year. Looking at the balance sheet, organic average loan growth was solid with average loans growing 7.1% annualized linked-quarter, led by solid results across the commercial and consumer portfolios. With the amount of criticized credits we were able to exit during the quarter the underlying organic total loan growth was closer to 8%. On a linked-quarter basis, average commercial growth totaled $81 million, or 5.2% annualized. Adjusted for the criticized commercial credits we exited the underlying organic commercial loan growth was 6%. As Vince mentioned earlier, looking ahead, we are excited about the increased quantity and quality of opportunities created by our recent geographic expansion. The linked-quarter growth in the consumer portfolio reflects solid contributions from multiple product lines. Average organic growth in consumer home equity loans totaled $42 million, reflecting better market penetration and effective marketing campaigns. Average organic growth in indirect auto loans totaled $48 million, reflecting increased consumer demand given the auto industry’s recent growth trends. Average organic growth in residential mortgage loans totaled 29 million, reflecting better than expected origination volume and successful cross-selling efforts. On a linked quarter basis, organic growth in average transaction deposits and customer repos totaled 10 million or 0.4% annualized. On a spot basis, transaction deposits and customer repos increased 320 million, representing a strengthened funding mix at the end of the quarter. As Vince mentioned, we are committed to attracting low-cost deposit relationships to enhance our funding mix and provide meaningful cross-sell opportunities. We ended the quarter well positioned as 79% of total deposits and customer repos were transaction-based. From a total funding perspective, our relationship of loans to deposits and customer repos improved slightly to 91% at the end of the first quarter. Net interest income decreased 1.7 million or 1.3%, reflecting two fewer days in the quarter at a cost of 1 million per day, a continued low-interest rate environment and pressure on loan yields from a competitive lending environment. Given the absolute low level of interest rates, our cost of interest bearing liabilities remained stable at 41 basis points compared to the prior quarter. Net interest income levels compared to the prior quarter included 1.8 million of benefit from acretable yield adjustments, equal to the level of benefit realized in the fourth quarter. Our core net interest margin narrowed 6 basis points to 343, which is slightly lower than our original expectations. The narrowing is attributable to lower loan yields and security reinvestment rates given the downward move in interest rates during the first quarter. Turning to non-interest income and expense, core non-interest income was 24% of total revenue, reflecting strong results from multiple business lines. These results were driven by successful cross-selling efforts and organic sales growth with the newer Greater Baltimore and Cleveland markets providing meaningful contributions. Excluding securities gains and non-recurring items, core noninterest income increased 1.7 million compared to the prior quarter. The first quarter had strong contributions from our mortgage banking business unit driven by strong purchase activity and a slight increase in re-finance activity. Solid results from wealth management, capital markets activities and mortgage banking provide FNB with a strong and diversified platform for continued fee-income growth moving forward. Non-interest expense, excluding merger and severance costs, decreased slightly by 0.4 million, reflecting lower OREO expense, seasonally lower marketing costs and decreased professional services expenses compared to the prior quarter. The first quarter efficiency ratio was 56.6%, compared to 56.1% and 59.0% in the prior and year-ago quarters. The first quarter is a good display of our commitment to disciplined expense control and our demonstrated ability to generate positive operating leverage. Regarding income taxes, our overall effective tax rate for the quarter was 30%, consistent with the prior quarter level. Our expectations for the remainder of 2015 are generally consistent with prior guidance. We reaffirm expectations to achieve strong year-over-year organic total loan growth in the high single digits and total organic deposit and customer repo growth in the mid-to-high single digits. We are slightly tweaking our core net interest margin guidance to account for the continued low-interest rate environment and our expectations for the remainder of 2015. As we sit here today, we expect the full-year net interest margin to narrow modestly from the fourth quarter core net interest margin of 349. This is a change from the narrow slightly language used in January when we provided guidance for 2015. Let me remind you that that our forecast was built with an expectation for a modest increase in interest rates beginning in the second half of the year. Similar to other banks, the pace of compression will be largely dependent on potential movement in interest rates during the second half of the year. With expectations for the first Fed move in interest rates changing so frequently, the timing for a potential Fed move is difficult to predict. In dollar terms, we reaffirm our expectations for net interest income to increase from full year 2014 due mainly to the strong planned organic loan growth as well as the benefit from having a full year of BCSB and OBA. Looking at non-interest income and expense, we reaffirm our expectations to achieve positive year-over-year operating leverage. We reaffirm our expectations for full year core non-interest income to grow in the mid-to-high single digits, and core non-interest expense to increase in the mid-single digits. Regarding the provision for loan losses, there are fluctuations from quarter to quarter as you’ve seen in the amount related to the acquired loan portfolio. For guidance purposes, the provision for the originated portfolio has ranged from $7.5 million to $10 million over the last five quarters. With the first quarter originated provision at $9.1 million with a very good net charge-off quarter, we would guide to the high end of the range for the last three quarters of the year in support of strong planned organic loan growth. Regarding the acquired loans, we expect there will be some slight level of quarterly provision as acquired loans migrate, with the exact amount difficult to predict. A reasonable range to use for the acquired provision would be $0 to $1 million each quarter. The overall effective tax rate for 2015 is expected to be in the 31% area. In summary, we are very pleased with our performance three months into the year, as the early results from our geographic expansion strategy have translated into meaningful earnings growth. The results were marked by solid organic loan growth, strong core fee income growth, continued efficiency, positive operating leverage, and increased returns on equity and assets. I would also like to congratulate and thank our entire team for another great quarter. As we navigate a competitive landscape and pro-longed low interest rate environment, the first quarter’s earnings per share reflects the tremendous progress we have made as an organization. Looking ahead, we are very excited about the company’s position to drive further EPS growth in 2015. Now I would like to turn the call over to the operator for your questions.

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Bob Ramsey with FBR.

First question I wanted to ask about it seems like the other was a little stronger than it was sort of expected to be and I’m just curious if there is anything unusual or whether a sort of $8 million is a good, I know it can balance quarter-to-quarter. But sort of a good base level to think about the quarterly number there.

I would say couple of things Bob. The other income increased kind of fourth quarter to first quarter. I think Vince mentioned in his remarks that about $2 million of increase in capital markets activities between swap fee income syndication and some foreign exchange these from a new business that we launched. So that’s really the most of the increase in others. There is no way some other noise in the other category. The overall guidance that I’m giving for non-interest income, it kind of mid-to-high singles full year to full year encompasses the kind of the run rates that’s in there, I mean there is nothing big. But there is always plus and minus in there smaller items. But the main driver is really those swap fee income is probably the biggest piece of the three. But those capital markets activities are the key driver to that increase.

Okay, that’s helpful. Shifting the sort of the tweak in of your margin guidance. If I heard it correctly I think before you all had said slightly lower and now you are saying modestly lower. I’m just where you can elaborate a little bit on what difference between these two is, is it just sort of accounting for the greater than expect to compression this quarter or is the compression we saw this quarter a good rate to use of compression until rates move or how should we think about that?

Sure, it’s a good question. I guess a few things, if you look at what happened -- if we start with the actual -- and kind of fourth quarter to first quarter, when you look at what happen with interest rates during the quarter as we all know. It’s pretty significant, as we know there is no movement at the short end. Look at 3 years treasury rates were down 27 basis points from December to the middle of April basically, 5 year treasure rate to down 39 basis points. So that obviously has a big impact on securities portfolio and we reinvest around that kind of four to five duration, so you’re losing 40 to 45 basis points on a 150 million a quarter. So, that’s just a big move in interest rates that occurred during the quarter it affects us as it affected everybody else. Couple of other things that kind of happen in the first quarter to seasonal offers and demand deposits and customer repose, we expect those to build through the year as they normally do that obviously affects the margin in the first quarter and then Gary talked about the credits, the criticized credits that we exceeded which obviously is a positive from balance sheet positioning standpoint but you know as the higher rates so that hurts the margin a little bit and then importantly we had some significant growth in the loan portfolio at the end of the quarter and throughout the quarter had a $90 million in commercials loans that are tied to one month LIBOR. Again, put pressure on margin in the short term but long term you get the benefit run rates start to move. So, really the first quarter we absorb what I would say the biggest impact on the margin creating that 6 basis point compression from all over those items. So, I don’t expect to have six quarter as we forward. The guidance is really we were slight before, I guess the way I would characterize it now is probably couple of basis points per quarter based on current rate expectations.

Okay. No, that is helpful. And in this quarter was there a material impact from the day count as well as that part of the six.

I mean affected dollars in net interest income by $2 million, you can kind of normalize for the days when you do your margin calc. So, affected dollars but not really affecting the margin.

Okay, great. And then last question and I’ll back out but I know you’ve mentioned couple of time some of the activity in Baltimore and Cleveland and the near markets. Just kind of curious how much for those two markets, I guess how much of the contribute to the overall loan growth and if you can maybe just elaborate a little bit on sort of how those markets are progressing.

Yes. Both of those markets have performed, this is Vince. Both markets have performed better than we had originally planned. So, they’re contributing – if you look at the total amount of production that it was originated in the first quarter of this year, those two new markets accounted for about 35% of the total production roughly in the first quarter. So, they’re contributing significantly as they continue to scale they should make a bigger and bigger impact on the total production of the company. If you go back and look at Pittsburgh, Pittsburgh has continued to deliver good solid loan production and performance and they’ve been growing above double digit rates for a long time. So, our expectation is that we will continue to see good solid growth out of those two markets as we planned that was part of the strategic expansion.

Thank you. And the next question comes from Casey Haire with Jefferies

So, follow up on the loan growth front, I guess two part of question here. Number one, commercial real estate obviously a very big bucket to you had a kind of a flat quarter I appreciate the commentary about the commercial loan pipeline is doing pretty well but is CRE a part of that and sort of what’s holding that bucket back. And then the second part is the exists obviously weighed on loan growth this quarter, just wondering if they’re more in the pipeline in the coming that will be headwind to overall loan growth.

When, you look at the overall performance of the company from a credit perspective and I’d like Gary speak to this. The balance sheet is pretty clean the credit metrics look pretty good while there is probably a little bit of room to move some things off the balance sheet given the robust lending environment that we’re in. obviously we’re going to take advantage of this environment and the desire of others to originate credit on terms to take us out of some of these distressed assets or criticized assets. I can’t really tell you that there is a tremendous amount in our book to move out but where we can move that assets out we’re going to do that because as we move through the cycle particularly where we are in the credit cycle today, this is the best of times and if you don’t prepare yourself for changes in the credit cycle down the road it comes back to haunt you. So I think that’s probably the answer, I like Gary chime in that regard.

Yes, in reference to the CRE book we’re seeing very solid activity there in terms of what’s coming in the door the assets that we were able to move off the balance sheet. We are very heavily CRE related. So that impacted that category of growth a little bit during the quarter with the exits of those credit being planned. But the activity is very solid out of more market place is generating some very good activity in that space. We are seeing some good activity across Pittsburgh there as well. So really please with the activity we are seeing. We do expect that to continue to be a good driver going forward.

Okay, great. And just switching to expenses, given the asset quality seems pretty benign, can we hold that OREO run rate? And then, the other expense line also had pretty decent leverage this quarter. Is that a good run rate for ’15?

From OREO stand point, the OREO balance is continued to remain relatively stable. You have some spikes in there when assets get sold. But for the quarter I mean that’s pretty much what we expect that fall. Absent of spikes of moving some assets of the books. It’s in a range where we anticipated that it would be for the quarter.

I guess on the expense front I would say just to remind you that guidance so overall kind of mid single digit growth year-over-year. It’s hard to take the first quarter and just annualize it really camp because it start to year and restart if I could taxes and the things that are seasonal that do effect the first quarter level. But the overall guidance of the mid single digits captures what we expect to happen. Efficiency ratio continues to be in a very good place top a little bit from the fourth quarter given the seasonality’s that I just commented on and it’s a focus for us I mean we’ve continued to focus on that overtime. The acquisitions have clearly help our ability to grow revenue faster than the cost. It’s created some nice positive operating leverage for us and we’ll continue to focus on kind of just managing the expenses in relation to revenue and there is just kind of ongoing processes we have looking at vendor contracts and branches and looking potential process improvements throughout the companies. So it’s a key focus area for us.

I think the good part if there is a good part about getting through the regulatory burdens that we had to get through over the last few years as we put pretty good systems in place to control expenses and we’ve diligently managed salary expense we had to invest in the infrastructure for stress testing and compliance with Dodd-Frank while maintaining a positive efficiency ratio or improving the efficiency ratio that required quite a bit of work around salary expense and the deployment of personnel. We continue to look a branch consolidation opportunities given the advent of the new technologies that are available to clients and our investment in that area and that’s paid off for us. I think it’s pretty evident and how we performed throughout the last 2 years given the headwinds. The other piece of it truthfully is managing CapEx very efficiently and managing large vendor relationships we’ve done a very good job of evaluating our contracts with the larger vendors and negotiating better terms as we move through more difficult cycle. So that should all continue. That’s an ongoing process that will continue throughout the year.

Okay, great and then just to clarify Vince, I got the acquired provision guide of zero to one. What the originated provision guide?

Originated provision we mentioned the range of 7.5 to 10 million over the last 5 quarters and really guiding to the high end of that range. Just based on normal level of charge offs and growth in the loan portfolio.

Thank you and the next question from Frank Schiraldi with Sandler O'Neill.

Just on back to Cleveland and Baltimore expansion. I wanted to talk a little bit about build out there in terms of people in terms of lenders. Is that still ratching up? Do you largely have people in place already? Or could we see even some acceleration in growth later this year if that is continuing to ratchet up?

So we’ve continued to focus on adding personnel in both markets. I would say based upon the original plan that we had, we’re pretty much – we’re staffed up. There are opportunities that continue to add bankers as we see better bankers come forward in those markets, we’d be happy to speak with them. I think the potential in those markets is not fully – we’ve not fully tapped the potential, so there’s definitely an opportunity to continue to evaluate ads. As we move through this portion of the credit cycle as I’ve indicated there are competitive pressures on structure, the structural migration going on across the footprint, you have pricing pressures, so having those two new markets is key to our success because it gives us an opportunity to pursue the absolute right opportunities for us and maintain the credit quality there.

And then I believe you guys already did mention this but in terms of the NIM guidance. I believe back in 4Q it had assumed that the short end of yield curve begins to move higher in 2015, is that no longer in your expectations and that guidance that you gave?

No, I think if you look at this the current consensus Bloomberg for kind of where people are expecting fed funds to be kind of gets you to 75 basis points by the end of the year but starting later than what was in the prior guidance, our original plan had rates not just us but what everybody was expecting getting the 1% fed funds by the end of the year, so it’s down and it’s also starting later. So it doesn’t have much of an impact on the forecasted guidance so that provided.

So basically it makes sense just consensus in terms of where you’re expecting interest rates to be by year end. Okay And then just on trusting comp I’m wondering if as we look at that growth and that line item going forward is it best to assume what we’re assuming or what the guidance is for total fee income the mid to high single digit fee income growth or could that be growth there be outsize do you think?

Well in terms of what it contributes to the total fee income for us, I don’t know that I would change the guidance, but we are having very good success in that area particularly because of how we’ve aligned ourselves in the new markets the hires that we’ve made in that space. We’re having really-really good organic growth in that segment and overtime that translates into better fee income, but there are pressures on other areas of the organization, so [indiscernible] are continuously under pressure given the changes in the rules. And we’re hopeful that we’re able to outpace that with growth in our wealth and insurance segments, so I would expect them to continue to produce double digit growth but there are smaller piece of the total puzzle.

And then just finally as we think about the trajectory as we think about positive operating leverage going forward, do you think it’s a reasonable place to look at efficiency ratio in 2016 of 50% to 55% efficiency ratio or does that require significant help on the revenues – on really I guess the interest rate environment side?

Yes I guess at this point it’s hard to comment on next year, I mean as far as where we’re going I think that the key is that directionally we continue to believe there’s opportunity to improve the efficiency ratio with the positive operating leverage. We’ve talked about a 55 target and you need some help from rates I think to get 55 or lower, but I’m not going to really put out a number for next year, but directionally there’s still operating leverage to be gained here.

And the next question comes from Preeti Dixit with JP Morgan.

To follow up on the loan growth question it also looks like indirect instalments slowed a bit in the quarter. Can you talk about the pricing competition in that category and then your appetite to grow that book here?

Yes Preeti, we had another good solid quarter there. Naturally seasonality comes into play in Q1 in that business and especially with some of the weather related issues that we saw in our markets. In terms of our pricing, you will recall that our book of business is heavily centered on used car market with about 75% of it in that space. We're seeing actually increase in or yields in our portfolio as we worked our way through the quarter. We're seeing gross rates in 435 plus range. So we're seeing improvement across that space. We do anticipate continued positive results over that group.

Okay, that's helpful. I am curious if you're seeing any impact from lower energy prices trickle through your customer activities putting down on consumer side of the business.

We really haven’t seen anything material at this point.

So the service charges this quarter -- was any of that more than a typical seasonal impact, I am just trying to get a sense of, other banks, you know talked about customer balances moving higher and activity slowing, I am curious if you are seeing that in your footprint.

No, I think it is a combination of seasonal impacts plus as we have talked about, and [indiscernible] also talked about these customer behaviors, how people manage their money. So there is some both in that numbers.

Okay, helpful, and then I know you talked about the pipeline being up, is there any way you could help quantify for us, how the pipeline for commercial change quarter-on-quarter, and maybe how that's comparing to where you are a year ago.

Well, I will tell you, in total, compared to a year ago we are pretty much on top in total. But if you break out the new markets, I will give you Maryland for example, is up 35%, first quarter last year over this year. So it's fairly significant, the pipeline that has grown significantly. Cleveland is looking pretty similar. It’s actually right on top of where it was in the prior year. So a lot of growth in the pipeline in Baltimore, and remember, for us this is not the seasonal peak in our pipeline. So when you look at it historically over a multi-year period, we view our pipeline as being relatively strong at just about a 1.7 billion here where we stand in the first half of the year, at the end of the first quarter. So, pretty good place to be moving into what I would consider to be a fairly competitive year.

The next question comes from Collyn Gilbert with KBW.

This is actually Chris O'Connell for Collyn Gilbert. Mortgage banking looks strong this quarter. I was just wondering with the outlook for the remainder of the year and maybe with the split this quarter, as we know purchasing refi?

The split I think is pretty close to 60 - 40, it’s probably about 60 - 40 refi purchase, right. That's right around there. It is running around. A year ago it was pretty anaemic. We have made significant investments in that area in fact. Historically if you look back at our production here at this company, if you allow, considering our market, penetration in the markets we are in, we moved into the other major metro markets and we started to evaluate our production levels relative to the market share that we had. We brought in a consultant and they basically told us that we were way-way under our potential, given our retail share in the markets that we were in. So we made an effort to build out the mortgage banking unit. We hired a new person about two years ago. He has done a fantastic job of building out that business unit. He has added a number of talented mortgage loan originators. We revamped and retooled the collection efforts, so that we could align ourselves with the new rules that came out from regulatory standpoint. We beefed up the servicing area. We invested heavily in processing and underwriting so that we could accommodate more production and So that we could accommodate more production and we’re on track to greatly exceed what we’ve done historically, so that and that is included in the guidance that Vince had given you originally. So we plan that going into the year, but we’re planning significant increases in gain on sale and we’re actually ahead of plan through the first quarter. So I hope that answers the question for you. I think there’s a lot of potential there for us not that we’re going to be a dominant player in the mortgage space, but that we would be able to capture what we should be capturing given our proportionate share in the markets that we’re in.

And then I think you guys have previously stated that your oil and gas exposure is about 1.75% of the total loan portfolio. I was wondering, if there’s a change at all and then also how often you’re getting financial statements from the borrowers in that phase?

It ticked up very nominally from the 1.75 still under 2% at the end of the first quarter. We’re getting financial statements on a quarterly basis from that group of plans as we deal with all of our clients.

In many instances they’re even monthly.

Some are monthly financials, but generally speaking across the board it’s quarterly.

Thank you. And the next question comes Brian Martin with FIG Partners.

Hey Vince just wondering if you could talk about the competitive nature this year on the lending side just maybe what you’re bringing on new loans today and just how that progresses throughout the year? And then and some context just maybe kind of the cost of funds as far as your seem pretty stable here over the last couple of quarters, just any changes you expect there as you looked upon the loan pipeline this year?

I mean I don’t know why I was going to say first of all from a cost of funds perspective I think as you look at the first quarter as Vince indicated that’s typically a low point for us in terms of non-interest bearing deposit. So that usually builds overtime and we’ve been able to really do a pretty nice job of growing the non-interest bearing category particularly on the business side over the last few years, so our expectation would be that we would continue to do that. We’re holistic sellers. We cross-sell treasury management services. We get the operating deposits and we set for balances that help fund our growth. And that should continue. From a competitive standpoint there is – having been in this business for a long time too long that count over 20 years personally and being on the front line as a commercial banker at one point in my life you go through cycles and unfortunately bankers revert back to pre-crisis structure and pricing. So pricing fluctuates, structure fluctuates as you move through the credit cycle and we’re at a point now where it replicates where we were pre cycle in a more robust lending environment. Our ability to continue to sustain the growth trajectory that we’ve laid out has been greatly enhanced by our moves into these new markets, so I’m very while it is very competitive I’m very confident that we’re going to be able to be selective from a credit perspective and disciplined from a pricing perspective coupled with the cross-sell strategy and incentive compensation plans that we’ve designed to drive the right behavior to get us through this. So I think we’re doing a great job. The pipelines reflect it and while it is competitive, I think we’re able to produce good solid customers that are structured well and are priced effectively. That’s all I can tell you.

Okay. Can you comment at all about as far as what the rates are that you're putting the new business on, maybe just in the commercial portfolio?

Well actually Vince and I, Vince Calabrese and I sat down and we were going through some of the new origination volume and it’s interesting because in the small business in consumer segment we saw a slight uptick in credit spreads, so we were actually gaining a little bit there. In the middle market in commercial banking it’s intensely competitive, so it’s rolled back a little bit, but it’s not outrageous it’s Back a little bit, but it’s not outrageous. We are talking 10 basis points in either direction and fortunately for us we’ve been able to grow the other segments that have a better contribution. So it’s balancing out. I would expect as banks rationalize pricing we continue moving along in this low rate environment eventually pricing will be rationalize it will come back to normal levels.

Okay, that’s helpful. Maybe just any update if any on the M&A outlook just kind of status quo and kind of what you said in previous quarters?

I’ll reiterate what I’ve said, I mean I think it’s pretty stable relative to what I’ve said before. We’ve done quite a few, we’ve done a tremendous job of integrating those acquisitions. So if you moved around the company today you wouldn’t feel like there is just 4 acquisition to just being completed. It feels like one company. So all the systems are in place, all score cards are in place, the credit underwriting systems in place, the credit officers are on their seats, the commercial bankers are placed and have been trained and everything seems to be working very-very well that really is a direct result of the team that we have and the job that they do and integrating and managing these people. So culturally it feels good. We feel we’ve absorbed those acquisition nicely, it’s given us some scale to compete more effectively and I would say from an M&A perspective we’re going to be very selective, we’re looking for opportunities that would be additive to our overall effort and additive to our organic growth strategies and obviously they would have to meet criteria that we’ve established for EPS, accretion and tangible book value dilution.

Okay, that’s helpful and maybe just kind of brands network kind of distribution [0:02:18.5] and involved more I mean is it the branches in those markets [0:02:24.7] are you looking to add or subtract in those markets?

We continuously, we have a program here internally we call project ready which is a continuous evaluation of the retail delivery channel. So quarterly we review all of our branches, we look at production relative to planned production, we look at the market that they sit and changes, end market conditions we analyze the financials and we look the transaction volumes. We do this for two reasons, one to maintain efficiency and to ensure that our delivery channel is optimally structured relative to the changes and technology and two because we want to sure that our position in places to achieve higher growth. So we constantly look at it and I would say there is always room for improvement. So we are closing branches, we opening to noble branches in better markets and that’s an ever evolving process. Particularly today I think as we move down the road having this process in place will be very beneficial as more and more customers seek out electronic solutions.

Thank you. There are no more questions at the present time I would like to turn the call back over to management for any closing comments.

I just like to say thank you for participating in the call. It was a tremendous quarter and I would like to congratulate the team for producing yet another very solid quarter with good growth and great solid profitability. So thank you very much.

Thank you. The conference is now concluded. Thank you for attending this presentation. You may now disconnect.