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First Commonwealth Financial Corp (PA) (NYSE:FCF)
Q2 2019 Earnings Call
Jul 24, 2019, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the First Commonwealth Financial Corporation's Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Ryan M. Thomas -- Vice President of Finance and Investor Relations

Thanks, John. As a reminder, a copy of today's earnings release can be found by -- 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 with -- on our Investor Relations page with supplemental financial information that may be referenced throughout today's call.

With me in the room today are Mike Price, President and CEO of First Commonwealth Financial Corporation and Jim Reske, Executive Vice President and Chief Financial Officer. After brief comments from management, we will open the phone call to your questions. For that portion of the call, we will be joined by Jane Grebenc, Chief Revenue Officer and President of First Commonwealth Bank, Brian Karrip, our Chief Credit Officer and Mark Lopushansky, our Chief Treasury Officer.

Before we begin, I would like to caution listeners that this conference call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

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 Generally Accepted Accounting Principles. A reconciliation of GAAP to non-GAAP operating measures can be found on page 13 of today's slide presentation.

And now, I would like to turn the call over to Mike Price.

Thomas Michael Price -- President and Chief Executive Officer

Hey, thanks, Ryan. Second quarter net income progressed nicely to $27.3 million and produced a 1.37% core return on assets. The quarter's results were driven by strong loan and deposit growth, a stable net interest margin at 3.75%, increasing contribution from the fee businesses and lower provision expense, all of which were offset by expense headwinds. Second quarter loan growth of $138 million or 9.4% annualized comes on the heels of loan growth of 6.6% annualized in the first quarter. Equally important, deposit growth has been commensurate with loan growth so far this year.

As we reflect on our momentum in organic growth in 2019, several thoughts come to mind. First, our four small low-risk Ohio acquisitions over the last four years have led to a $1.7 billion loan and a $1.5 billion deposit franchise in Ohio that contributed over 85% of the loan growth in the first half of 2019. The loans and deposits in Ohio have since grown impressively on top of the acquired loan and deposit footings at the time of each respective acquisition.

Second, two years ago, we moved to a regional market model led by local regional presidents, which is consistent with our community bank strategy and culture, cleanly aligns local leadership with P&L responsibility and fosters cross-selling. This regional model is really working well to drive results, enable teamwork and improve recruiting and talent development.

Third is our people. We have added numerous talented new hires to a bevy of very good producers in each of our businesses. Fourth, our commercial bank continues to perform very well and had another very solid quarter. Fifth, we're seeing more balanced production and growth across First Commonwealth to include mortgage, indirect auto, branch lending and SBA. We're seeing excellent production in our indirect group, at wider replacement yields and lower net charge-offs. By the way, this business performed very well for us through the last cycle.

Sixth, our customer service and sales culture along with our people continue to get better every quarter. I mentioned earlier that over 85% of our loan growth is from Ohio. Just as important, 75% of our deposit growth in the first half of 2019 came from Pennsylvania in large part due to our disciplined small business and middle market calling efforts that emphasize deposit gathering. This growth has come at a time of high credit standards and tight loan concentration limits as evidenced by steady improving asset quality metrics and is keeping with our trend of de-risking the balance sheet over the last half decade. For example, the commercial portfolio has become more granular as well in 2019 with even fewer borrowers over $15 million in total exposure.

Fee income gained traction in the second quarter and from last quarter. More fundamentally, fee income saw strong improvement in our fee-based mortgage, SBA and wealth businesses. This quarter marks the fifth anniversary of the de novo start-up of our mortgage business. Through June, mortgage originations from this business were up 20% year-over-year to a record $197 million, thus driving both gain on sale income of $3.6 million as well as mortgage portfolio growth. This business has been a source of younger creditworthy households, been an important offering to our clients, particularly business owners, helped enable a positive perception of our brand, helped us better manage our interest rate sensitivity and contributed meaningfully to our financial results.

Our SBA business is gaining momentum as well, as fee income from sales of the guaranteed portion of our SBA originations improved to $982,000 in the second quarter, up from $617,000 last quarter. In the second quarter, we remained the number two SBA lender in Northern Ohio and Western PA. In wealth management, pre-tax income contribution is up 36% year-over-year as retail brokerage set production records in the second quarter due to better line of business partnerships.

Finally, our focus on digital banking continues to pay off. Our objective measures show strong traction and supporting evolving digital and payment technology with commensurate adoption by our customers, here is just a few examples. First, at least 18 substantial second quarter projects were completed to improve efficiencies, redesign processes and/or improve customer service.

Second, online banking penetration ended the second quarter at 67% of enrolled users with mobile banking and mobile deposit penetration at 41% and 22% respectively. All channels are exceeding our 2019 goals and experiencing solid growth. And third, active users of mobile wallets; Google, Samsung and Apple increased 30% year-over-year to over 25,000 current customers. Total transactions for these same users were up 65% versus the same period in 2018. Contactless cards and additional mobile wallets are in the pipeline.

Finally, I'd be remiss if I didn't mention that our previously announced acquisition of 14 branches from Santander is proceeding well. We received all regulatory approvals before the end of June and we intend to have the transaction closed and converted by September 9.

And with that, I'll turn the much more interesting topics of net interest margin and non-interest expense over to our esteemed CFO, Jim Reske.

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

Thanks, Mike. I appreciate that. As Mike mentioned, there were some headwinds in non-interest expense this quarter. So let me get that out of the way before turning to margin. We took about $900,000 in charges in the second quarter as we cleaned up what little [Phonetic] remains in our other real estate owned portfolio, moving that portfolio down to approximately $1.9 million by the end of the quarter.

We also took a $200,000 writedown on an empty branch building that we have up for sale. Fortunately, these effects were somewhat offset by a $400,000 gain on a non-performing loan that we sold in the second quarter, although that gain shows up in the fee income line and not non-interest expense.

There was also a noteworthy impact to non-interest expense from the reserves that we set aside for growth in unfunded loan commitments every quarter. While this is a good problem to have, because it's commensurate with loan originations, it did represent $612,000 of expense in the second quarter compared to a release of $381,000 in the first quarter, reflecting seasonality in construction lending. So this one item represented a swing of approximately $1 million of non-interest expense between the first and second quarters.

In addition, our non-interest expense was affected by health insurance costs, which are up by approximately $2 million in the first half of 2019 over the first half of last year due to claims experience.

Let me turn now to the net interest margin. We were pleased to see the margin hold steady at 3.75%, unchanged from last quarter. There was 1 basis point of quote-unquote fade out of accretable purchase accounting yield in the quarter, without which NIM would actually have expanded by a point. Looking forward and depending of course on broader market conditions, the acquisition of the low cost Santander deposits in early September should benefit the margin for a portion of the third quarter and for all of the fourth quarter. As a result, we expect that our NIM may be well positioned to perform relatively well compared to the forecasted down drafted margins for the banking industry in the remainder of 2019.

And with that, we'll take any questions you may have.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Steve Moss with B. Riley FBR. Please go ahead.

Steve Moss -- B. Riley, FBR -- Analyst

Good afternoon, guys.

Thomas Michael Price -- President and Chief Executive Officer

Hey, Steve.

Steve Moss -- B. Riley, FBR -- Analyst

I guess starting with the margin here, just wondering what you guys are thinking if it wasn't for the Santander acquisition, how much the margin would compress and obviously you would get a bump up from -- you'd likely get a bump up from the acquisitions. So just how to think about that this quarter and in the fourth quarter if we get 50 basis points?

Thomas Michael Price -- President and Chief Executive Officer

Jim?

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

Well, you just at the end of your question mentioned if we get 50 basis points, we've done some of analytics around a 25 basis point cut. And I can tell you that for every 25 basis point cut, our margin would probably compress by 3 or 4 basis points. Want to put that in context though because we really have worked quite a bit to make the balance sheet more neutral this year by retaining some of our mortgage production, shifting the balance sheet mix in favor of loans versus securities, slowing the pace of deposit increases in light of that pending branch acquisition as soon as we have that announced. So we've done some things to make ourselves more neutral, but there still is some asset sensitivity in the balance sheet and that's where you get the 3 or 4 bps on the downside for every cut.

The offset to that is, I think we had previously announced the benefit of branch acquisition is probably 5 to 10 basis points of NIM due to the ability to pay off higher cost borrowings. And the reason that's a range is that it depends on what the level of interest rate is at the time we complete the acquisition. But those two effects are offsetting each other, so probably a little bit of compression for the first two months of the third quarter and then some expansion in the third month of the third quarter, leaving us to think that our NIM in the aggregate will probably be fairly neutral in the third quarter, give or take a few bps.

Steve Moss -- B. Riley, FBR -- Analyst

Okay. That's helpful. And then the other thing I was wondering about is just in -- wondering where are replacement yields for loans here, you guys mentioned that there was -- there are higher replacement yields versus what's running off and just give a little flavor for that too?

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

Yeah, let me be clear about that. Most of the loan categories do still have positive replacement yields. And where we do see negative replacement yields it was because of the run-off of higher yielding loans, particularly towards the end of the second quarter. In the aggregate, the replacement yields were 5 basis points negative in the quarter, but the new loans coming on were still higher yields in the portfolio yield and that helped lift the entire portfolio yield over the course of the quarter. Hopefully that makes sense?

Steve Moss -- B. Riley, FBR -- Analyst

Okay. So higher yields relative to the portfolio at least, even though it's lower than the run-off?

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

That's right. Yeah, that's right. That's right.

Steve Moss -- B. Riley, FBR -- Analyst

Okay.

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

Just looking at the loans that did run-off had caused the replacement yields to be negative but really in one category, commercial lending and that was really because we had some very high price loans run-off really in the second two months of the quarter. But new origination yields for that portfolio was still over 5%, so still very healthy. So it didn't appear as there was any price cutting taking place, but overall that 5 basis point negative replacement yield did have an effect.

Steve Moss -- B. Riley, FBR -- Analyst

Okay. That's helpful. And I guess one more thing related to the loan portfolio just in terms of what percentage of loans are tied to LIBOR and Prime these days?

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

I think we've got the exact number for you, yeah. There is about $1.5 billion of loans. Yes for percentage, 25.23% is tied to LIBOR off the top of my head and 11.64% is tied to Prime. In dollars, rough dollars it's about $1.5 billion of loans tied to LIBOR and it's one month LIBOR not three months and about $700 million tied to Prime.

Steve Moss -- B. Riley, FBR -- Analyst

Great. And I guess shifting to loan growth here, another good quarter for loan growth. You guys had previously hinted at loan growth possibly being at the high-end of mid-single digits, obviously continues to be strong. Just kind of wondering, it sounds like the pipeline is still strong. Where -- how should we think about loan growth for the second half of this year? And where are you seeing -- what types of C&I loans are you seeing?

Thomas Michael Price -- President and Chief Executive Officer

Yeah. The good thing about our loan growth, it's pretty broad-based across commercial and also consumer categories. And I think it's also a function of our regional business model and just a better ground game around calling an execution. And on the C&I side, I just had dinner with kind of a group of middle market manufacturing and business owners and we're doing a better job on the small business side as well. And just very solid, very broad-based and certainly the regional business model has been a shot in the arm for us.

Steve Moss -- B. Riley, FBR -- Analyst

Okay.

Thomas Michael Price -- President and Chief Executive Officer

Is that helpful? And the guidance I would give specifically is with 6.6% and 9.4%, we hope to continue probably somewhere in that range. And again, we were leaking a little oil in the consumer side, that's been shored up. And we just have better and better teams each quarter, the team gets better.

Steve Moss -- B. Riley, FBR -- Analyst

Okay. So, this -- so basically what we saw for the first half is likely to continue for the second half it sounds like?

Thomas Michael Price -- President and Chief Executive Officer

Yes. Somewhere between that, probably the mid-5%, 6% and maybe the higher end this past quarter we did 9%. I think that was an outstanding quarter. That would probably be the upper end of the range.

Steve Moss -- B. Riley, FBR -- Analyst

Okay. Thank you very much. I appreciate that guys.

Thomas Michael Price -- President and Chief Executive Officer

Thanks, Steve.

Operator

Our next question comes from Russell Gunther with D.A. Davidson. Please go ahead.

Russell Gunther -- D.A. Davidson -- Analyst

Hey, good afternoon, guys.

Thomas Michael Price -- President and Chief Executive Officer

Good afternoon.

Russell Gunther -- D.A. Davidson -- Analyst

Maybe just while we're on the loan growth topic, I appreciate your thoughts on the magnitude going forward, but could you give us a sense for some of the drivers as well? Would you expect this broad-based kind of contribution to continue? And perhaps regionally or geographically, what are some sources of strength going forward?

Thomas Michael Price -- President and Chief Executive Officer

Yeah, great question. I think on the consumer side, mortgage has already been a strength for us through six months. The consumer indirect auto business has been a source of strength with widening yields and very good credit quality. And then on the commercial side, we've really had a nice run with commercial for several years. And probably, this quarter we were down on commercial real estate, but pretty equally yoked ideally between C&I and commercial real estate. And as we think about geographies, we probably have at this point, a little bit more of our growth coming from Ohio. But I think -- I really -- I think Pittsburgh is taking off. We've invested heavily in that market. And so really those areas, probably led by Ohio on the growth side with Pittsburgh gaining traction. And then on the deposit side, quite frankly, pretty broad-based there, that's a matter of execution. And our bank president there, Jane Grebenc really has a lot of alignment with the team on going out and gathering deposits.

Russell Gunther -- D.A. Davidson -- Analyst

That's really helpful color. Thank you. On the expense side of things, just trying to -- I appreciate the reminder on some of the moving pieces intra-quarter on the core expenses, but trying to tie together comments made on the impact to the margin with a potential Fed cutter too. Is that mid-55% efficiency ratio target for the end of the year still good or is there any pressure on that?

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

We'll probably revisit that after we find what the Fed does this week and going forward. 55% guidance that we gave last quarter was really predicated on a more stable rate environment. So it's still our goal and we still have very tight expense controls and we're very proud of that and have a long history of that. But part of that equation is on the revenue side and that depends on the margin as well. So we hope to get to 55%, it's still our target. It may not be in the fourth quarter, but it remains our target.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. Thanks for your thoughts there. And then lastly on the Santander closing next, coming in next quarter. Maybe just get your thoughts if you could about your interest and appetite in depository deals, geographies of interest, just a reminder on your thought process there?

Thomas Michael Price -- President and Chief Executive Officer

Just we've been very interested in contiguous markets that are good depositories that we could put a commercially -- a commercial franchise on top of that and begin to grow it. We've done that in Cincinnati, Columbus and Greater Columbus metro up in the Delaware County in Northern Ohio. And now we'll have the opportunity and we already have some traction in North Central PA from State College over into Williamsport, which were our kind of markets. I mean good depository, but also we feel like we will compete very effectively for that $1 million to $2 million to $5 million to $10 million deal. And in fact we're already chasing down a deal or two up there even prior to the close. So -- and in terms of acquisitions or branch opportunities, probably contiguous to into those four metros and we really like rural depositories and we -- our brand tends to do well there.

Russell Gunther -- D.A. Davidson -- Analyst

Great. Well, that's all I had. Thanks for taking my questions.

Thomas Michael Price -- President and Chief Executive Officer

Thank you.

Operator

Our next question will come from Collyn Gilbert with KBW. Please go ahead.

Collyn B. Gilbert -- Keefe Bruyette & Woods Inc. -- Analyst

Thanks. Good afternoon, guys.

Thomas Michael Price -- President and Chief Executive Officer

Good afternoon.

Collyn B. Gilbert -- Keefe Bruyette & Woods Inc. -- Analyst

Maybe Mike, just and Jim as well, but just following up on the deposit comment, you guys gave great color in terms of some of the loan dynamics and where you are seeing growth and how the pricing on some of those credits was looking. Can you just walk through similarly on what you're seeing on the deposit side? I mean that's great that you hope to maintain a similar level of deposit growth that you're seeing on the loan side, but just sort of where you see those opportunities coming in, at what price do you need to put on in order to get that deposit growth?

Thomas Michael Price -- President and Chief Executive Officer

You know ideally we'll continue to lead [Phonetic] the easiest one is non-interest bearing. We're out calling every week on small and mid-sized businesses and public entities even where we might price a money market to get the core non-interest bearing checking account. And Jane and the team have proved a very effective of that. And there, quite frankly, you'd be surprised, we're doing just as well in our rural geographies as we are in our metro markets, if not a little better. In fact I think last year it was stunning, I think our community PA market probably led the way in commercial deposit gathering. And also when you think about the growth there, I'll be -- for us, for our size, a disproportionate amount of that is coming from the business side and our calling efforts just week in and week out on small and mid-sized businesses. Jane, would you add anything to that?

Jane Grebenc -- Executive Vice President and Chief Revenue Officer

Hi, Collyn. The only thing I would add like is that we have not been as dependent on CDs and CD specials as some of our competitors. So this isn't whipsawing us as much as it maybe otherwise would.

Collyn B. Gilbert -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. That's really helpful. Excuse me. And then that was going to be my next question, but maybe that's kind of a move point. But in terms of where you're putting on new CD rates and what the competition is doing relatively to...

Jane Grebenc -- Executive Vice President and Chief Revenue Officer

We're putting -- we're putting on less new CDs. And our competition somewhat -- we’re seeing some of the more rational competitors doing exactly what we're doing, but we're still feeling some pressure in some routes. And so we'll have some CD run-off.

Collyn B. Gilbert -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. Okay, that's helpful. And then Mike, interesting comment on the fact that 85% of your loan growth for the first half of 2019 has come from Ohio, but then of course, it's been a four year trajectory that you guys have been sort of adding on with those acquisitions. Has that percent accelerated as of late? I'm just curious how that would have trended maybe say a year ago or two years ago? And then digging in a little bit deeper, like what, what's really the cause of that? Do you attribute that to the economy in Ohio, is it a competitive event? And obviously, I know the people on the ground is probably maybe most important and that might be how you answer it. But just curious to get a little bit more color as to the favorable results you're seeing in Ohio?

Thomas Michael Price -- President and Chief Executive Officer

Yeah, great question. I don't know that it continue to be that disproportionate because we really have a solid team that's doing a great job on the commercial side of gathering deposits and we're still doing nice. We probably have just had in the first half more pay-offs and Pennsylvania is probably underlying a lot of this. So I expect it will be more equally yoked, particularly the fact that only 31% of the franchise on the loan side is in Ohio. So that's my outlook. In terms of -- it's really about talent. I look at our teams in Northern Ohio, Central Ohio and in Cincinnati and they're not a typical LPO team, they're really ground and they are bigger middle market lenders all the way down to small business. So we really have some people that just can produce and have good relationships.

And then on the commercial real estate side, we're really tied into some of the best developers in each of those metro markets where we really have, we feel to pick up the litter. I think what helps us is our brand. I think in Pennsylvania, I think there is more community banks that are commercially oriented, right? I think in Ohio, a lot of the community banks are really focused more on mortgage. And so I think our brand probably stands out versus the bigger bank brands in the three metros in Ohio, so that helps.

I don't know, Jane...

Jane Grebenc -- Executive Vice President and Chief Revenue Officer

On the consumer side, we have started out with such a small base in Ohio that had a couple of things. Neither FirstMerit nor DCB has done any branch lending or any small business lending. So we've started to do that and I expect we've got a fairly good runway there. And then property values in Central Ohio are so much higher than they are in Western Pennsylvania that the mortgage and home equity, loans and lines that we do in central Ohio are just larger and so that helps quite a bit. And then indirect so far has gone very well, it’s a really strong team in Ohio. And they came over to us with good dealer relationships and a good command of the business and that's turned into a nice business for us and one that is some -- I think we have some additional runway and really good risk profile.

Thomas Michael Price -- President and Chief Executive Officer

Great comments. And Collyn, we probably do more units in Pennsylvania, but we do more dollars in Ohio to Jane's point, great point.

Collyn B. Gilbert -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. That's really helpful color. Okay, that's great. That's great. I'll leave it there. Thanks guys.

Thomas Michael Price -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question will come from Frank Schiraldi with Sandler O'Neill. Please go ahead.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Hey guys, good afternoon.

Thomas Michael Price -- President and Chief Executive Officer

Hey Frank.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Just wondered if you could remind us on the balance sheet mechanics as the deposits come on board, I think the idea was to pay down some FHLB borrowings. Just wondering if given the loan growth, it seems to build the stronger than you guys had anticipated maybe keeping more liquidity on the balance sheet, anticipating some more loan growth over the next several months?

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

It's a great question. We really do think about that. I think the plan now, it will be consistent with what we have thought all along that we'll probably have about $400 million of overnight borrowings at the time we close the deal. And net of premiums and everything else, we'll probably receive about $400 million of cash from the deals. We'll pay off most of the remaining overnight borrowings with the cash received and which will instantly improve the margin and lower our borrowing costs.

[Indecipherable] great questions, but we would answer differently if our deposit growth have been different in the first half of this year, but the deposit growth as you can see has really been keeping up with loan growth. And so, we really have pretty good experience in deposit growth so far this year, which will enable us to go ahead with that plan.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay, great. And then I think in the opening remarks, Mike, you talked about SBA ramping up and you gave us some numbers from 2Q and 1Q in terms of revenues. Just wondering, where do you think that continues to grow in the near-term here given where you see margins and given your comments overall, where do you think that sort of ramp up, ramps up to on a quarterly basis?

Thomas Michael Price -- President and Chief Executive Officer

I think, I think we're pretty satisfied. We're the number two lender in two metropolitan areas. And I think maintaining that or getting to number one would be good. This is we're kind of a taker in the market. And what I mean by that is, we apply it as a credit enhancement to take a deal that otherwise wouldn't be bankable and make it bankable and I think that's the spirit of the SBA program. We're not chasing verticals across the country, we're not doing niche plays that I think some SBA platforms tend to do. We're just using it primarily in our market in a few places strategically outside of our market, perhaps as an entree to some day to expansion into those markets. But that's, it's -- so it might – it’s not going to grow disproportionate probably and unduly influence the net non-interest income of the bank, but it's, you know it could double in the next couple of years. But in terms of the gross income of the business, it's not going to be a huge driver of our income. I don't know if that's fair, Jim?

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

That's right.

Thomas Michael Price -- President and Chief Executive Officer

Okay. But we like the business a lot and we like our team, we like what it does for our clients. So we're committed to it.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Okay. And then just finally on, just on the credit front, I wonder if you could just talk a little bit about your thoughts on credit more generally? And then also specifically on, we saw some inflow into NPLs in the quarter, if you could just give some color on that?

Thomas Michael Price -- President and Chief Executive Officer

Yeah. I'll hand it over to Brian Karrip, our Chief Credit Officer in a minute. But I just am proud of what the team has done. We've de-risked the balance sheet over the course of the last five or six years. We've run off portfolios that we thought were more risky. The portfolio is much more granular. A number of you have heard me say at one point we had probably 70 plus credits over $15 million in exposure and now that number is half that or less and trending down. And so -- and then we also have a lot of discipline around concentration limits. And we're living thoughtful around the sizing of our portfolios and even the sub-portfolios within commercial real estate and not letting any one of those get too large. So I think when I think about credit risk appetite, I really like where we're at. And we model a lot how to do through the next recession and Brian presents that to the board at least once a year.

And so, but why don't you speak to some specifics, Brian?

Brian G. Karrip -- Executive Vice President and Chief Credit Officer

Yeah. We did over the past several years, we worked hard to de-risk the portfolio. We didn't have an increase in our NPLs this quarter. It was an acquired loan in our Ohio market that borrowers are not-for-profit and they have shut their doors. We've work very closely with the borrower and we’re fully secured by real estate.

Frank Schiraldi -- Sandler O'Neill -- Analyst

Thanks for that.

Thomas Michael Price -- President and Chief Executive Officer

Is that helpful?

Frank Schiraldi -- Sandler O'Neill -- Analyst

Yes, thank you. Thanks guys.

Thomas Michael Price -- President and Chief Executive Officer

You bet.

Operator

Our next question comes from Daniel Cardenas with Raymond James. Please go ahead.

Daniel Cardenas -- Raymond James -- Analyst

Hey, good afternoon, guys.

Thomas Michael Price -- President and Chief Executive Officer

Hey, Dan.

Daniel Cardenas -- Raymond James -- Analyst

So maybe just a quick follow-up on the credit quality discussion here. So trends look good and I think non-performers are manageable despite the modest hiccup that you saw here in the non-performing credit. But is there anything or any sector within the portfolio that's maybe giving you pause for concern right now and maybe you're sharpening your pencil and taking a harder look at that?

Thomas Michael Price -- President and Chief Executive Officer

I'll let Brian answer that.

Brian G. Karrip -- Executive Vice President and Chief Credit Officer

We think about the overall portfolio in our attempt to de-risk it over the past several years through geographic diversification, through sector diversification. We think about living in ground zero for oil and gas and yet our oil and gas exposure now is a very modest number. So there is -- there isn't an area today that gives me some concerns in terms of concentration of credit or putting earnings at risk. So we feel pretty good about where we're at.

Thomas Michael Price -- President and Chief Executive Officer

Great. I would obviously echo that.

Daniel Cardenas -- Raymond James -- Analyst

And it's good to hear. All right. And then maybe if you could just remind me about what would you consider optimal capital levels. I think everybody is kind of assuming some TCE contraction here with the branch closure, but what's kind of the low-end of your comfort zone? And what are your, if you could remind us as well, what are your priorities for capital utilization?

Thomas Michael Price -- President and Chief Executive Officer

Yeah, great question. Thank you. We don't have an official position like a policy statement on that, but we have repeatedly kind of given informal guidance on that to keep the TCE ratio somewhere between 8% and 9%. It's over that right now, but as you mentioned, it will absorb some of the hit that comes as we generate goodwill from the branch acquisition in the fourth quarter. So that's kind of a long-term target for us, 8% to 9%.

Our preferred use of capital is supporting organic growth. Selective acquisitions like the branch acquisition and acquisitions we've done in Ohio. Those really add shareholder value. We, as we had previously announced, we have a share repurchase program that's still in place, it's just suspended right now in favor of those better uses of capital. I'd say that it's suspended, but if a market price were to get low enough, we would opportunistically buy some shares back even though we suspended that program for the time being. But that gives you maybe hopefully a perspective on our thoughts on the use of capital.

Daniel Cardenas -- Raymond James -- Analyst

Perfect. Thank you. And then just kind of a clean up question here for modeling purposes. How should I think about your tax rate on a go-forward basis?

Thomas Michael Price -- President and Chief Executive Officer

Effective tax rate right now is 19.10%.

Daniel Cardenas -- Raymond James -- Analyst

Perfect, great. Thanks a lot guys.

Brian G. Karrip -- Executive Vice President and Chief Credit Officer

Thanks, Dan.

Thomas Michael Price -- President and Chief Executive Officer

You bet.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mike Price for any closing remarks.

Thomas Michael Price -- President and Chief Executive Officer

Just as always, 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. Thank you again.

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Ryan M. Thomas -- Vice President of Finance and Investor Relations

Thomas Michael Price -- President and Chief Executive Officer

James R. Reske -- Executive Vice President, Chief Financial Officer & Treasurer

Jane Grebenc -- Executive Vice President and Chief Revenue Officer

Brian G. Karrip -- Executive Vice President and Chief Credit Officer

Steve Moss -- B. Riley, FBR -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Collyn B. Gilbert -- Keefe Bruyette & Woods Inc. -- Analyst

Frank Schiraldi -- Sandler O'Neill -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

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