Hello and welcome to First Commonwealth Financial Corporation fourth-quarter 2024 earnings conference call.
Please note that this call is being recorded.
(Operator Instructions)
I'd now like to hand the call over to Ryan Thomas, Vice President of Finance and Investor Relations. You may now begin.
Thank you Ellie and good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation's fourth 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; and Brian Sohocki, Chief Credit Officer.
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 have also included a slide presentation our investor relations website with supplemental 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 statement.
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 gapp a reconciliation of these measures can be found in the appendix of today's slide presentation with that. I will turn the call over to Mike.
Hey, thank you Ryan and welcome everyone in the fourth quarter. We met consensus earnings estimates of $0.35 per share and preserved relatively strong profitability. We ended the year with 1/4 quarter pretax preprovision roa of 1.77%, an ROE of 1.23%, a NIM of 3.54% and a core efficiency ratio of 56.1%. Reflecting on the year we stabilized the margin grew deposits, managed expenses and selectively pursued high yielding loan categories in the face of unanticipated deposit pricing pressure, higher credit costs and six months of Durban.
We believe that 2024 was a year that sets us up well. For 2025, we ended the year in a better capital and liquidity position than when we started. We made some key hires that will enable C and growth further integrated our last acquisition and announced another all1 while staying focused on achieving and maintaining top quartile profitability. Importantly, higher rates led to tepid load demand throughout the year. In both CRE and C and lending demand was tepid in consumer categories as well. C and equipment finance was a notable bright spot and the portfolio grew $61 million alone.
In the fourth quarter, average deposits grew 8.7% in the quarter but were skewed by a large commercial customer deposit that came in at the end of the quarter which drove much of the average balance increase. A better comparison would be for the year where average deposits grew some $451.1 million or 5% that drove our loan to deposit ratio down from the high 90s at the end of the year to 92.5% at the end of 2024 leaving us with dry powder to lend.
We're seeing fairly balanced deposit growth across most of our regions and our teams are all tasked to grow core deposits with an emphasis on transaction accounts. More importantly, we feel our balance sheet is now primed for growth and profitability. As we turn on the loan growth engine in 2025 in the fourth quarter, we saw good commercial real estate activity after being selective for some time due to heightened credit liquidity and pricing concerns. We continue to emphasize the acquisition acquisition of C and relationships across middle market. Business, banking and small business.
Our optimism regarding loan growth in 2025 and beyond stems from, we have a strong, we have strong regional accountability and two new regional Presidents in key growth markets, both of whom have strong C&I backgrounds. We've hired a bevy of talented cni commercial bankers and leaders over the last 24 months.
We believe we've gotten the portfolio runoff headwinds behind us with the former centric acquired loans and aspects of CRE we've never been stronger in C&I commercial real estate SBA equipment, finance, indirect and consumer lending. We will strive for mid single digit loan growth this year, Jim will expand on the revenue detail, but we believe the evolving interest rate environment that seems to favor higher for longer should help our NIM and in terms of fee income, we overcame a meaningful $6.7 million.
Durbin hit the fee income in the second half of 2024 because mortgage B and wealth management stepped up and other service charges scaled up as well. Credit costs driven by lingering pressures in our centric acquired loans were elevated throughout the year but moderated in the fourth quarter. Encouragingly, NPLS declined from 0.83% to 0.68% and reserve to loans remained above tier levels. Signaling continued strength in our credit position.
We had elevated charge offs in this quarter, but a lot of that reflected the chargeoff of three nonperforming loans we had recognized and provided for last quarter. Our 2024 credit metrics were significantly impacted by the acquired centric loan portfolio. However, our asset migration trends are favorable as we enter 2025.
We announced our first acquisition in two years with Centre Bank in Cincinnati. We really like this small acquisition. It's strategic and the bank is well led with a cast of good talent for a bank of its size. We see a lot of upside in this market to leverage our existing presence and build more critical mass in Cincinnati that will help us replicate the success we've had in Ohio's other major metro markets, all of which goes above and beyond the deal.
Math lastly, customer experience metrics improved as the net promoter score and branch customer satisfaction reached historic highs for first commonwealth. Our organization continues to rally around living our mission and that is to improve the financial lives of our neighbors and their businesses. And with that, I'll turn it over to Jim Reske, our CFO.
Jim Reske
Thanks, Mike.
Fourth quarter, core earnings per share of $0.35 is up $0.04 from last quarter, largely driven by a $4.1 million improvement in provision expense on a linked quarter basis, we saw a combined improvement in fee income and expense of $1.9 million that was somewhat offset by a $1.4 million decline in spread income.
We had total NIM compression of 2 basis points in the quarter. The purchase accounting contributed 7 basis points to the third quarter and five basis points in the fourth quarter. So without the fade out of the purchase accounting, the reported nim would have been unchanged.
If you look at our deposits. There were two dynamics happening in our deposit book this quarter.
The first one is the previously disclosed $175 million corporate deposit that we received toward the end of last quarter. Average deposits were up in the fourth quarter by $207 million or 8.7% annualized over last quarter. So the average was up largely though not entirely due to that large commercial deposit.
The new growth came as we continue to acquire new deposits at less than our borrowing cost all while pricing down our overall book. The result was a modest one basis point decline in our total cost of deposits to 2.07%.
The other dynamic affecting deposits was movement in public funds. Our end of period deposits were down by $67.5 million largely as a result of a seasonal $206.5 million decline in public fund balances which always declined toward the end of every year before coming back in the first quarter, turning to loans, loans grew by $23.5 million in the fourth quarter for an annualized growth rate of 1.04%.
We are projecting mid single digit loan growth next year as we build upon some of the groundwork we've laid for C&I growth that I talked about and some of the portfolio runoff headwinds that we had in 2024 get behind us.
So putting that together growing spread income in 2025 will be a function of loan growth. M&M, we believe that the net interest margin can expand in 2025. Our internal forecasting is now based on only two rate cuts next year. And in that scenario, the name is relatively stable in the first quarter but expands steadily over the remainder of 2025 to end the year 10 basis points to 20 basis points higher than it is now together with the return of moderate loan growth per our guidance.
Top line revenue should steadily improve over 2025 and do so at a fast equipment expenses leading to positive operating leverage. In 2025, we were confident of our ability to grow top line revenue before the recently announced central bank acquisition, but that acquisition will create modest additional operating leverage after we close as planned in the second quarter of this year. Contributing about a penny a share to S per quarter starting in the third quarter of 2025.
Fee income was an interesting and generally positive story in the fourth quarter, fees improved by $800,000 over last quarter. Despite the fact that the third quarter had a benefit of about $900,000. In onetime only income fee income rose quarter over quarter. Nevertheless, due to a $700,000 increase in swap income combined with about a half million dollar gain on a limited partnership investment and a half million dollar improvement in mortgage gain on sale income over the last quarter netted hedging costs.
Of course, stepping back a bit, the income was a good story for us, not just because of the quarter over quarter improvement, but because of how the bank has been able to more than offset the long expected Durbin impact on interchange income that hit us in the second half of 2024.
Looking back at 2024 as a whole debit card related interchange income was indeed $6.7 million lower than last year due to Durban.
But fee income in total is up year over year by $2.6 million. Primarily because of improvement in our core fee income, businesses including mortgage wealth and SB as we look ahead to 2025 we believe we'll generate fee income of about $22 million to $23 million a quarter in the first quarter of '25 growing gradually as the year goes on.
The center bank acquisition contributes a few $100,000 of fee income per quarter. In the second half of the year. Non-interest expense improved by $1 million in comparison to last quarter, largely due to some items that we experienced last quarter, including elevated operational losses and severance expense fraud losses declined compared to recent quarters. As we began to realize the benefits of investments and enhanced fraud detection, software and staffing.
We believe that noninterest expense will be approximately $68 million to 69 million in the first quarter of 2025 jumping by about $2 million in the second quarter as merit increases kick in and increasing by another $1.3 million per quarter in the second half. Once we close the previously announced central bank acquisition in the second quarter, turning to provision total provision expense was $6.5 million, down from $10.6 million in the third quarter.
You may recall that our credit experience last quarter was a tail of just a handful of credits and this quarter's elevated charge off experience is largely driven by the chargeoff of three of those credits totaling about $8 million. In fact, in total, approximately $8 million of our charge offs in the fourth quarter were loans specifically reserved for prior period.
Capital ratio has improved. As a result of strong earnings with limited balance sheet, we repurchased 477,000 shares of stock in the quarter, but shut off the buyback after we announced the center acquisition and we won't be resuming buybacks until after that deal closes.
And with that, we will take any questions you have.
Operator
(Operator Instructions)
Daniel Tamayo, Raymond James.
Daniel Tamayo
Maybe we can just start on the fees if you don't mind, Jim the I appreciate the guidance and very clear how you laid it out, but just curious if you can talk a little bit about some of the lines, specifically mortgage banking and then the other, the other loan sale gains as well as the card income. I know you, I know you had the impact from Durban last year, but just curious if you think that particularly on the on the card, you're at a decent run right now.
Jim Reske
On the card income, we are, we felt that urban impact has really hit us in the third quarter and the fourth quarter, but that's been pretty consistent. There's some long term benefits perhaps of doing more with credit cards as opposed to debit cards, but the run right there is pretty solid. The SB a business continues to grow. Mortgage had a really good year and that's actually at a time when you think that might be slow is actually doing well for us.
And then wealth had a tremendous year. For the summer, selling fixed income at a time when customers thought rates were going to go down, generate a lot of fee income that faded out a little bit towards the end of the year. But it actually looks really good things for that business this coming year as well.
And then Mike, I don't, if you want the fundamental businesses, there are other things as well. One more thing, the swap fee income we got in the fourth quarter was good. It's really different by customer preferences on your back to back swap business.
So swapping fix to floating depending on where the rate movements are. What expectations for rate movements are. That was really good in the fourth quarter. And in fact, we generated more in the fourth quarter than we expect to generate next year. So we think that it actually is prime for growth next year. They were underestimating the amount of swap fee income we could generate next year. So a good source of fee income for us.
Mike Price
Yeah, I just think Jim stated it. Well as the year over year difference from the third, fourth quarter of '23 to '24 is about a $3.3 million downdraft. That's a little less than we thought it would be. I think we pegged it at about $6.7 million. So maybe at $3 million, $3.5 million. Here you go.
Very close. But I think we're, there's some uptick that really helped you know, just compensate for it was gain on sale in SB this time last year was 1.7. It's 3.1 gain on sale of mortgage was 7, 76 in the fourth quarter. Last year, $1.6 million, we saw a nice little uptick and we're seeing better spreads there and then also trust income and our Wealth management group last year, this time was 2.5.
This year, it's three. So just really not spectacular, but pretty solid growth year over year that helped compensate and really blunt the impact of Durban.
Daniel Tamayo
And then maybe, maybe one for Mike on the loan growth. You know, I got your guidance for mid single digit growth next year coming off, headwinds in 2024 curious if that's something that you expect to really start to accelerate, you know, early 2025 that's more of a ramp. And if that's more DNI driven or, or commercial real estate or consumer, just just curious what the, what the drivers are between in that 2025 loan growth guide.
Mike Price
Well, really, after not doing a lot of commercial real estate in the first two or three quarters of 2024 we had a nice solid quarter with good quality credits in commercial real estate in the fourth quarter. So that helped jump start it. We are, we hope that it will be yoked between CRE and CN. Likely it will be probably a good portion will be CRE long term. I think if we can get a balance sheet that is 25% plus C and we will have a best in class bank and that's the goal and we've put the mechanisms in place with that with talent vision, treasury management support.
So that is common and then we also have really capable consumer lending businesses like indirect where the spreads have just bumped up a little bit. The team has done a really great job of managing that and we're probably going to turn those loose a little bit in 2025 where we really metered them because of liquidity and pricing in 2024. And last but not least.
And perhaps most importantly, our equipment finance group continues to ramp up. We had a nice year, good spreads. We were satisfied with the lost content and just the handle that our leader has on that business. And so that feels good. The other thing he's done that's so impressive is he's built a bridge over to the corporate bank and we've done just a handful of true leases on out of that division that really complements our corporate bank.
So we're enthused, but I know where you're at, Dan kind of show me and we had a couple of years where we grew every region, every line of business for about two years straight and we were falling out of bed and growing at a pretty good clip. We hope to get back there, but it will probably be a bit of a ramp this year. But hopefully this will be in our rearview mirror and we'll be talking about how much growth in 2026.
Operator
Karl Shepard, RBC Capital Markets.
Karl Shepard
J let's let's start with you. The guidance calls for new expansion next year and I know maybe half of that is just from the swaps.
Can you talk a little bit about the other piece of it.
Jim Reske
And just what gives you confidence when you look at your models and how much of it is from loan growth versus the balance sheet and the deposits repricing Carl. I'm so glad you asked because it gives us a chance to talk about it. The guidance number is pretty high. We see that and I want to tell you how I think about that.
So for a couple of things, one is you're right, about half of it comes from Macro swaps. There's a table in the supplement we put out on the relation portion of our website shows just the in the environment that we're looking at. The Macro swaps alone. We had 8 basis points to 10 basis points of nim for the year. And so the, so the question is, where does the rest of it come from? The short answer is in our projections, it's all on the asset side and I'll tell you why it's because looking at the way we were projecting them maybe a year ago on the way up when rates were on the upswing, the weakness in our projections was consistently the ability to predict customer deposit behavior.
And we're very aware of that. So we would be what we thought were fairly aggressive, predicting customer behavior and then customers made their own choices and predicting deposits priced up. We saw that.
So as we forecast now, we're very conservative, maybe too conservative in the way we're forecasting deposit costs now. So in the forecast, I just gave you, our cost of deposits is not going down at all. We do have embedded beta assumptions in some of the loans on rack rates and all the rest. But we also are generally in our philosophy, pricing for deposit growth.
We want to grow with loans. So we want to grow deposits commensurate with that growth. We like the fact that we've gotten a loan to deposit ratio from the high 90s down to the low 90s. We'd like to keep it there. So we want to keep growing deposits.
But the deposit pricing that we have in there ends up showing almost no reduction in deposit costs. Now, if you look at banks that have reported so far this quarter, everybody's reducing deposit costs. We see it in our own internal market studies to show what everybody is doing. So there's opportunity for us to lower deposits. I'll give you an example. We have a $1.75 billion CD book about half a billion of that.
This is going to mature in the first quarter and about $900 million, almost actually about a billion 1.75 in the first half of next year because we kept everything so short like everybody else.
So we have opportunities to manage the deposit costs down, but we're not banking on it.
What's happening in the forecast is on the loan side and that's because of positive replacement yields. There are about 40 basis points positive next year.
They were about 100 basis points positive in the first half of 24 we saw that come down as the year went on about 50 basis points positive as the year went on.
But we look at positive replacement yields next year at about 40 basis points. And that brings the overall loan portfolio yield up from close to six, just under six to about six and a quarter. So about 25 basis points of loan portfolio yield improvement. So when I do that in forecast for us, it's all the forecasts all on the asset side. Of course, it depends on the rates we have two cuts in the new forecast. They're towards the end of next year, things gyrate and we'll update the guidance that's appropriate.
And we're also trying to stay conservative by saying next quarter to quarter, next quarter, don't expect a lot. It's really going to kick in when those macros start to come off. And that really the first, the 1st 150 million comes off out of the 250 this year, the 1st 150 million comes off on May 1st. So we're counting down the days. So that's a lot of color. But I hope that helps.
Karl Shepard
No, I appreciate all of it. And then maybe one for Mike.On center adding assets. In Cincinnati makes a lot of sense to us. But can you just walk through a little bit how you got to know them and, and what you like about that franchise and, and. Some of the key pieces that, that attracted you?
Mike Price
Yeah, I mean, I've known Stewart for about six or seven years through the Ohio Bankers League and then just through our acquisition down there. And I love that this franchise straddles an area called Indian Hill with on either side on Madeira or Milford where we have a branch. So it just fits nicely and it's, and, and then he has some good mortgage and commercial lenders that seem to complement ours pretty well and he's pretty ingrained in the community and his board.
He's a good board that, hopefully will refer some business. So it's just a nice little deal that could be really powerful to help us, maybe we have a really good leader down there now and feel like she can get that franchise. We grew from $186 million in loans to $700 million.
And perhaps we can double or triple it with the combination of our new market President in this acquisition. So it just could be just really nice and powerful way beyond the size of the bank. And so anything you want to add.
Jim Reske
No, we love these small positions like this. I mean, they built a great bank. We're really happy to partner with them. It really, we think of it in terms of time, we were going to build out a big nice bank in Cincinnati anyway. But this moves us maybe half a decade forward. It's just really nice and with the smaller positions is a lower risk. So we've got a great receptivity to these small positions, by the way, not that we wouldn't do larger acquisitions. We're open to that too. It all depends on what's available.
Operator
Kelly Motta, KBW.
Kelly Motta
I guess I'll take that follow up on that. You know, it's really nice to see, you know, that the deal you announced in December, this, this little deal here wondering, I mean, it seems, obviously relatively small, how the pace of conversations have been, have been going and your appetite and willingness to, potentially string along, some more of these.
Mike Price
Yeah, we're, we're, we're on the ground the day after we announce a deal with whatever bank we acquire and have the privilege to partner with. Just we meet the people, two or three times over the course of the 1st month and, and assess them and, and they, typically we find people with talents that can really help us. So we get enthused about that and our market President there is already getting integrated with the leader there, the CEO and so it's exciting and it's exciting to grow your bank and, and like I said before, we did a little $186 million acquisition with a family down there, family owned and they helped us really grow that to three quarters of a billion dollars in about five or six years.
So that's just those are powerful, nice little deals and I mean, just line them up. It just, we're pretty thoughtful around pricing. So, we'll leave something on the table for a couple of bucks a share and maybe to a fault unfortunately. And, but we just want to grow our company and we just have a good team and we're getting to a point where we've kind of got through $10 billion and we're still profitable. And so pretty enthused about the growth prospects, some of the talent we've put on in the last year and a half to two years and what the bank could look like at $15 billion or $20 billion we feel like our best years are ahead of us.
Kelly Motta
I also want to touch on credit. I appreciate the charge off you took was our previously reserved for we are hearing more banks talk about the normalization of credit and what that looks like. I understand a good portion of your MP A S are related to credits that that were required in prior acquisitions. But if you look ahead, can you can you provide, just remind us specific reserves remaining on NPAS and kind of how you guys are are working through. You know, the risk rating of your portfolio.
Mike Price
I'm going to turn it over to Brian Sohocki, our Chief Credit Officer who's intimately involved in all of this, but credit is just vital to the future of our bank and we feel like notwithstanding this recent acquisition, our numbers are really clean nonetheless. We, as we get through this, we look at the prospects in Harrisburg and to grow that market. And we really like where we're at and the team we have in place. But Brian.
Brian Sohocki
No, thanks Mike. I'll answer a couple of ways first. You know, overall the asset migration in the portfolio, we saw some positive trends in the, especially over the last two quarters.
You know, starting with improvement from our watch rated credits through delinquency through criticized assets and NPLS.
And I know your focus is on the centric acquired centric portfolio. We saw some nice improvement in each of those categories across the board. So as we look at it, watch assets and the centric portfolio for the year were down $148 million, a nice reduction.
And you know, then the criticized assets, we saw a further reduction, and in the third quarter, we saw the first nice drop in criticized assets and we built on that in the fourth quarter and then last some really nice movement in the NPLS, the nonperforming loans overall decreased by just over $13 million in the fourth quarter.
Centric loans decreased 9.5 in the quarter. So as we turn the page into next year, it surely provides a headwind as a percentage of our asset base. But we've seen some nice favorable trajectory and in those trends and look for more of a normalization in the centric portfolio.
Kelly Motta
And how about looking beyond the centric portfolio into, just originated credits. Ho how is credit more broadly holding up? How our conversation with your borrowers? Are you seeing, any, any signs of stress, particularly with rates potentially staying higher for longer?
Mike Price
Yeah, we're watching equipment finance closely. We're pretty pleased there with how that's unfolding. Same thing with indirect auto and just consumers having higher interest rates and more debt, credit card debt, things like that. We're pleased with what happened with Delinquency here in the last quarter. I think it was almost cut in half Brian from like 50 basis points to 25 basis points. Am I in the ballpark?
And so it's just a pretty good news. I think we're feeling it a little bit with the SB a portfolio. Those are higher rates, but even there you have a 75% guarantee. And so, we're, we're monitoring it closely and I think the guidance we have for chargeoffs longer term is guys 25 basis points to 30 basis point, right?
Operator
Matthew Breese, Stephens.
Matthew Breese
A few questions for me. The first one, just maybe on balance sheet stuff, cash balances seem to be a little bit on the lower side and I was hoping Jim, you could just give us some update or some outlook on securities and the securities portfolio as a whole for 2025.
Jim Reske
Yeah, thanks, man. Very straightforward. We were carrying a ton of excess cash through three quarters of last year. We participated in the Feds BT FP program and we had previously talked about this. It was about $500 million when we were able to lock that rate in. We kept it turn around and put some of that money back on the path of the Fed and benefited from that arbitrage to some small extent, but it had a, we were carrying a lot of that cash through three quarters of the year. We paid off most of that in the first three days of the fourth quarter. And the remaining, I think we had $80 million left, we paid off in November.
So it's nice, but actually, it had such a distortive effect on things and it's really nice to have that behind us. Now, we're basically a much more normal position. So I think yesterday we were borrowing $50 million any given day. That's just about right. That's a pretty well balanced and well funded bank in my view. So that's pretty normal on the securities portfolio. We're generally going to keep it about where it is.
We have a plan for very modest growth and, there's obviously there's some runoff with the rates where they are that's still pretty slow. We did do a little prefunding of run off at the beginning of the fourth quarter. So if you look really into the details in our financials. You'll see a term borrowing and that's because we prefunded about $125 million of expected, run off, bought the securities.
That's when we thought rates would be falling. So we bought it locked in the rates and then we went out on the curve when the curve was inverted, the two year borrowing to fund that. And so that's just kind of a one off event, but that was nice. But for 2025 the security proposal is going to stay pretty flat.
Matthew Breese
You had, you had discussed the equipment book a little bit and, and certainly a kind of up into the right trajectory for C&I as a whole. Where do you start to draw the line as you know, in terms of concentration equipment, finance as a portion of total total loan book.
Mike Price
We thought about that and, probably in the vicinity of 10% or less is where my head's at and my team and I will debate that and we really like the business. We just like the way it's run. I think we have a very good athlete there that can build a bridge to the corporate bank. You know, maybe that could take a bigger portion of the pie. But I, we just like the business. We like, I don't know, it's almost consumer like business helping small business with essential business equipment, a lot of that is in market. So it kind of fits us like b and so that's probably, I'm probably going to get some blowback from somebody at 10% or less, but, it can't be 20% of the book, that's for sure.
Ryan Thomas
Right. And, and as I think about your comments on mid single growth next year, but thinking about what's going to drive C&I it feels like equipment could be the biggest driver again. Is it fair to assume that this, this portion of the book is going to grow by 15% a quarter or so until you kind of get to that 10% loan level.
Mike Price
Well, the equipment finance in itself will grow at that rate. You have about a billion dollar book outside of equipment finance in C&I that has to go grow through its own volition. That's the book that we want to grow aggressively. We feel like that's one that in small business and that business banking segment and then the middle market segment is one of the most valuable segments in any bank in terms of profitability. You know, you have lending, you have deposits, you have owners, accounts and family owned businesses, you have employees, you cross sell treasury management services and you know the people and you get to know them and get through things over decades in a good C&I relationship and that, and that's hard for banks smaller than us to build those kinds of relationships.
And we just feel like we'll be able to do that very well, particularly with, the concentration of talent we have and also the credit acumen and skill. And so we're, we're, that's, that's probably a segment we're most excited about and commercial real estate will still grow. However, I think over 5, 10 years, I think I'd like to see the C and become a prominent piece of the portfolio, 1,617 18% to more like 25 to 30.
Matthew Breese
Yeah, on the center bank field, could you help me out with a few items? Just basic accounting stuff? And what is the projection for share issuance or, or what was their share count? And Jim, do you have any idea of what expected a credible yield is, should look like, the first, the first quarter of integration just to kind of get the name? Right.
Second question. First, I don't think the credible yield would be much. I don't know the exact figure for you yet, but I'll disclose when I have it. It's, it's not going to be much. I'm glad you asked though because I'm not sure it's fully appreciated in our estimates. We look at the their revenue and expense per quarter in the second half of this year. It's about a little over $4 million of spread income I mentioned in my parity marks a couple of 100 grand the income about $1.3 million of expenses.
So that's enough after tax to be about $2 million of net income benefit. But we're issuing 3 million shares together. That's why you get to about a penny a share. Pick up hope that some of those details help you.
Ryan Thomas
In the ballpark. Okay and then Jim the last one for me just you know, your prior comment on loan yields that you basically loan yields can go from 6 to 6 and a quarter.
I think you had said you're you're expecting two cuts this year and from prior comments, I think you've said you have about a third of the book that floats and so if I think about, the floating rate portion is going to be repricing down from fed cuts and then the other two thirds of the book is going to have to go, pretty sharply up into the right. It just, it feels like a steep ramp to get the whole loan book from 6 to 6 and a quarter. Can you help me square all that and maybe provide some additional color on what new loan yields are to help get you that 25 bits.
Jim Reske
Yeah, the new loans are coming in like it 7,475.
We look at next year's projection because we took rates down, we're taking right around 50 basis points next year. The new yields are in the high sixes 50 basis point about 6.7 to that.
That helps the rate cuts that we have planned in our forecast. Don't come in towards late in the year. They're like in September, November.
So you don't really get that downdraft in the VA portfolio that you're talking about that is in our model, but you don't get until towards the end of the year. So that's kind of what helps to work together and get the yield in the portfolio up even in the year when Rachel and are going to be declining.
Operator
(Operator Instructions)
Manuel Navas, DA Davidson.
Manuel Navas
What happens if we have one less cut? Could that range of 4Q exit then be a little bit be even 25 basis points on the high end? What other wildcards are you thinking with that range for the end of the year?
Jim Reske
So, it's funny, I remember a year ago before the Fed cut it all, we were kind of asked, what's the goldilocks scenario for us? We had said one cut because one cut lets us cut deposit rates and doesn't price on the portfolio. March. So we've had four cuts since then. And now we're looking at it too. So the answer to your question is if they just stay where they are right now, it's a great environment.
Rates are one cut instead of two, it's better than our forecast because we have the two B in. So, there's another aspect to this with the shape of the yield curve because we find that when the 10 year drops a little bit, we get a lot of refinance out of our commercial work that goes to the premier market. And so the prepayment speeds pick up and the 10 year picks up again that slows down.
So there's, that affects the loan balances on growth and it has some effect also on consumer demand because a lot of consumer products are priced in the middle of the yield curve. And so it goes up and consumer demand slow down a little bit. So there lot of effect across the curve.
Generally speaking, two cuts is better than four and one cut is better than two.
Manuel Navas
If we get those two cuts and then have a steep yield curve, like, would you kind of expect them to stay stable at that point in 2026? I know there's a lot in that question, I just kind of thought thinking about like, could it get higher after that point or would it kind of be stable at that point?
Jim Reske
I'll hesitate to answer because all our projections going to 26 had rates been dropping, dropping and dropping and I haven't run it to see what it looks like. If you just do what you just laid out ought to look at that and maybe give more guidance next quarter to get more 2026 guidance off the cuff. I would think it would, we continue to be better to get it stopped. We'll continue to be issuing new loans in the seven S or high sixes at least. And that's higher than the portfolio yield.
And that will just keep going and be able to bring deposit prices down from where they are. Now, we're not even banking on that to get to our forecast. So I would think that there's upside for us over the forecast in 2026. But I was just looking at this and even the outside vendor we use that everybody uses for rate forecast still has quite a bit of cuts in '26. So we have to run it differently to see what that looks like.
Mike Price
Since I'm a non-profit finance guy, the only thing I would add is a scenario like that primes the pub for demand. It helps consumers, it will help our fee businesses. And so there will be a nice counterbalance there in terms of demand. All of a sudden, we're not really expecting a lot in mortgage and other kinds of fee businesses. They could be back on the table if that mortgage rate gets into the mid fives. And so yeah, there's another side to that too, aside from just the impact on the m is the demand. What it could do for us.
Manuel Navas
Switching to the deposit side for a moment. You talked about it wasn't that much of deposit cost declined this quarter. But if you look at the components, there aren't a lot of components, but your product rates did come down in the quarter. Do you feel that that's continuing? And maybe the next shift to cds will slow as well?
Jim Reske
Yes. And I'm really glad you asked because there is stuff going on below the surface. Some of it was just about the large deposit.
So we brought that in that.
And so that alone, I think added three or four basis points to the total cost of deposits, just that one deposit.
So there is movement in different categories. But let me give you an example. I was, I pulled this out. I'm so glad you asked because I want to have a chance to talk about this. We just, we try to track the intra category movement in our deposit categories again because that's what we got wrong on the way up. Looking at how many of our low cost money markets, for example, would we price upward to higher cost money market? Take advantage of the special we have in the, in the in the branch window.
And so we segment it and we stratify it. And so for example, in the second quarter of last year, we stratified by rate over 50% of our entire money market category, which is our largest deposit category was over 4% 50% over 4%. And then in the third quarter, it was only 43% of that category of 42%. Total money markets were over 4%.
And in the fourth quarter, that was down to 36%.
So they're not, they're not falling to 1%. They're going to the next year, right? So well, but it does show you that what we, what we saw happening on the way up was this deposit rotation of the story on every earnings call is really kind of ground to a halt and we're able to along with other banks because they competitions that Emirates do the same thing, bring these deposit costs down.
I mentioned the CD maturities earlier. We already have plans in place that are the maturity to bring the renewal rates down and we've been very good at retaining about 80% of the CD maturities mature anyway. So there's a real opportunity there on the deposit side.
Manuel Navas
I just swinging back to your 2026 for a second.
Should I expect you to try to defend the NIM across this year or towards the end of the year? Is that something you would consider if you have that view on next year and you're getting like a strong nim this year, would you try to defend it and keep it up synthet synthetically or otherwise.
Jim Reske
It's a great question. It's an interesting use of language. But I don't think as we think about the bank, we have fundamentals. We want to grow our share, we want to develop value for shareholders, grow our way, grow our way. All those things, we try to understand the NIM, but we would not try to defend the NIM at the expense of all the other things we're trying to do to go to the bank and we do it right for shareholders.
So a lot of what we're doing for next year, for example, we keep talking about is loan growth. We come off a period of relatively low loan growth, a great deposit growth that's really helped out the and capital position. It's been great, but we want to just return to normalcy that single long is not reaching for the stars. It's normal for us and very achievable.
So a lot of we're thinking of is grow the balance sheet table sticks just normal organic growth fund that as you go and then let's see what happens to them, but we wouldn't upset that Apple Cart just to defend the, if you see what I'm saying, I think we understand it as opportunity will rise anyway. But there's a, there's a, there's a place we want to take the bank organically and that's really what's driving the balance.
Okay.
Mike Price
Yeah, I think we look at relative profitability pretty closely. If you look at 82 banks between 10 and 100 billion, we're looking at where we stack rank in terms of our profitability every quarter and the quality of the bank part of that equation is profitability, part of it is growth and but also you can get to ROA a couple of different ways you can get there with credit, you can get there with Nim, you can get there with costs. We're pretty good cost managers. So it's all in there. But we want to be, in any three or four year horizon that we return on tangible common equity R A. We want to be in the upper quartile Have, it's the way we think and kind of obsess about our financial performance.
Jim Reske
And then I'm going to give you one more thought on that. Hopefully, this puts a fine point on it. For example, just that thinking, hopefully this illustrates it for you. If we look at any given quarter, we have for example, 1% loan growth and we say, oh in this quarter, we have opportunity to really bring down deposit costs because we don't need the deposit growth in this given quarter. We could have, we could manage the even higher, manage deposit costs down even lower.
We generally don't do that because we manage the bank for the long term. And we want to continue to have a nice steady unli path of deposit growth to make sure we're funding the bank for the long term. It's more, that's the way we think of it for better or worse.
Operator
Are no further questions at this time. I will turn it to Mike Price, President and CEO.
Mike Price
I think we put everybody to sleep, Jim. Thank you. We appreciate your sincere interest in our company and we look forward to being with a number of you over the course of the next quarter. Have a great remainder of the winter. Take care. Thanks, operator.
Operator
Thank you. This concludes today's conference call. Thank you for joining you. You may now disconnect.
