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First Commonwealth Financial Corp (PA) (NYSE:FCF)
Q1 2021 Earnings Call
Apr 28, 2021, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the First Commonwealth Financial Corporation's First Quarter 2021 Earnings Conference Call. [Operator instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator instructions]

I would now like to hand the conference over to Ryan Thomas, Vice President, Finance and Investor Relations. Thank you. Please go ahead, sir.

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

Thank you, operator. And good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's first quarter financial results. Participating on today's call today will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Brian Karrip, Chief Credit Officer; and Jane Grebenc our Bank President and Chief Revenue Officer. As a reminder, a copy of today's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We've also included a slide presentation on our Investor Relations website with supplemental financial information that will be referenced during today's call.

Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on Page 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 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 GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.

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

Mike Price -- Chief Executive Officer

Hey. Thank you, Ryan and welcome to those on the call today. I'll start with several first quarter headlines for First Commonwealth Financial performance. All-in-all, a very good quarter. Net income of $39.8 million yielded $0.41 in earnings per share both quarterly records for our company. ROA was 1.77%, and regardless of credit tailwinds our core pre-tax pre-provision ROAA was 2%. Net interest income was up $1.9 million, to $69.4 million as our borrowers received forgiveness of the 2021 PPP loans. This PPP forgiveness help buoy margin to 3.4%.

Our consumer lending categories were all strong with several delivering record originations. Commercial lending originations had some first-quarter momentum, but could not outrun liquidity-induced payoffs, PPP forgiveness and lower line utilization from our business customers. Geographically, our Ohio markets continue to lead the way in growth. The team did a nice job of further reducing our already low-cost deposit funding to help strengthen the margin as well. We expect excess deposits start to slowly bring down as spending increases.

Non-interest income of $27.4 million comprised 28.2% of revenue and represents the third consecutive quarter of outstanding non-interest income performance. Comparing the current quarter to the first quarter of 2020, our debit card interchange income was up 22%, our mortgage gain on sale income doubled versus last year's level. Our SBA gain on sale income was up 170% and our wealth business was up 18.7%.

Low first quarter charge-offs of $3.3 million, coupled with an improving economic outlook in our CECL model led to a negative provision of $4.4 million. The associated reserve release represented 4.5% of our December 31 loan loss reserves leaving a healthy reserve of $96.8 million or 1.55% of total loans ex-PPP as of the quarter end. Our gross level of non-performing assets fell in the first quarter by $3.7 million as well to 0.48% or 58 basis points of total ex-PPP loans. Expenses of $51.9 million were down $2.7 million over the fourth quarter, as our core efficiency ratio fell to 53.2%.

In short, we saw improvement in net interest income, non-interest income, credit, expenses and deposits. Only commercial loan growth lagged our targeted growth rate. We expect commercial loan growth to remain somewhat muted and take a bit longer to pick up given higher levels of liquidity and the overall strength of the permanent market. Pipelines have started to build in both C&I and investment real estate. And we also expect to see strong consumer and small business loan growth in the second half of 2021, as spending has started to pick up. As a result, we believe that we can achieve the upper end of our mid-single-digit loan growth target for the remainder of this year.

As an aside, in round two of PPP lending, the team has helped 2,500 small business and mid-sized businesses secure roughly $255 million in funding. If you recall in round one in 2020, the team made roughly 6,000 loans for $500 million. In the first quarter, we also received over $326 million in stimulus payments for approximately 95,000 households who bank with us further increasing the bank's excess cash. We continue to see very strong adoption of our new digital platform with first-quarter growth rates of 7.5% in active mobile users.

In addition, our customers have displayed strong demand for Zelle, our person-to-person payment solution, as new Zelle token enrollments are averaging 2,400 a month during the quarter. Our digital account opening is up significantly year-over-year as well. Overall, we're very pleased with the response from our markets to our new digital platform and solutions.

Lastly, on our corporate governance culture, the team and I are grateful for the leadership and counsel of David Dahlmann over the past 15 years as Chairman of our Board of Directors. David has created a strong independent Board and a strong corporate governance culture that creates appropriate accountability with the management team.

It's a privilege also to welcome Jon Gorney into the position of Board Chair. Jon's 37-year banking career at two top-10 US banks includes C-Suite leadership roles in technology, digital and operations alongside integrating over one dozen banks in the payment processing acquisition. Jon's background makes him uniquely positioned to lead our company at this time.

Now, I will turn it over to Jim. Jim?

Jim Reske -- Executive Vice President and Chief Financial Officer

Thanks, Mike. Mike has already provided a high level review of our financial results for the quarter. So I'll spend my time providing some additional details on our margin and our non-interest expense. The reported net interest margin or NIM improved from 3.26% to 3.40%. New PPP round two net originations of $215 million in the first quarter almost perfectly matched the $260 million of net round one PPP loans that were forgiven, leaving PPP balances virtually unchanged at approximately $479 million as of March 31.

I thought the forgiveness worked to the benefit of the margin, as expected. Fortunately, these effects were telegraphed in advance and well anticipated in our forecast and by the market, as we couldn't help but note the consensus estimates of our spread income came with it approximately $400,000 of our actual figure of $69.8 million.

However, our consensus estimates for net interest income for the remainder of 2021 don't yet seem to reflect the anticipated recognition of fee income from PPP round two loans that we generated in the first quarter, which is, of course, completely understandable. To be clear, as of March 31, we had $13.1 million in total PPP fee recognition remaining from both rounds, $9.5 billion of which is from round two. Of that $13.1 million, we expect to recognize $10.2 million in the remainder of 2021, $8.5 million of which is from round two. These forecasts assume 90% of the balances from both rounds are forgiven by the end of year.

On the other end, our core NIM excludes the effects of both PPP and excess cash. That improved from 3.29% to 3.36%, excuse me, in the first quarter, mostly due to improvement in the cost of interest-bearing deposits. In one quarter, we took nearly a third of the cost of our interest-bearing demand and savings deposits off from 14 basis points to 10 basis points, and about a quarter off of the cost of time deposits from 105 basis points to 75 basis points.

With the growth of non-interest bearing deposits this quarter, the total cost of deposits fell from 17 basis points to 11 basis points. And some repricing opportunity remains, all of which gives us the confidence to raise our core NIM forecast for the remainder of this year from our previous guidance of 3.20% plus or minus 5 basis points to 3.25% plus or minus 5 basis points. Our forecast incorporate expectations of a steepening yield curve that should have blunt the impact of excess cash and provide some measure of margin stability to this year and next.

Core operating expense came in $2.2 million lower than last quarter to $50.9 million. Part of that was due to expected seasonality in some of our line items like healthcare expense, where we spend more in the fourth quarter every year. While non-interest expense was lower than expected this quarter, where line items like OREO, and collection and repo costs which together were about $0.5 million less than we expected they would be.

Also our ability to defer expenses associated with PPP round two production, which amounted to $428,000 in the first quarter, along with high vacancy rates in our retail network as we staff up now that we have fully reopened our branch lobbies. Mike already spoke to our strong fee income for the first quarter. I would only add that even with mortgage income slowing down a bit in the second half, we anticipate being able to sustain the pace of $26 million to $27 million per quarter in non-interest income for the remainder of 2021.

Finally, we have implemented our $25 million share repurchase program in the first quarter albeit at a slow pace with only 28,000 shares repurchased in the quarter at an average price of $13.99. We announced yesterday a 4.5% increase in the dividend.

With that, I'll turn it over to Brian.

Brian Karrip -- Executive Vice President and Chief Credit Officer

Thank you, Jim. Management is pleased to report our solid first quarter credit results, underscoring the effectiveness of our underwriting standard, the discipline around our portfolio management practices and the strength of our credit culture. While we see the light at the end of the pandemic tunnel, the final episodes of the mini-series are still being written. Management continues to be prudent and reasoned as we navigate the economic recovery and the reopening of our local economies.

Let's turn to the numbers. Our Q1 commercial delinquencies were quite low at 0.03% reflecting our hands-on relationship management approach to commercial lending. Our consumer delinquencies were well behaved at 0.27%. This is due to our strategy of early calling by our borrowers assistance team, as well as stimulus checks, and early tax refunds. Criticized loans decreased in Q1 by approximately $31 million to $272 million, reinforcing my earlier comment that we are seeing the light at the end of the tunnel.

Hospitality continues to represent the largest segment within criticized loans, as well as the largest portion of loans on deferrals. On a case-by-case basis, [Indecipherable] we have negotiated a variety of structural improvements including increased recourse, debt service reserves, addition of collateral, equity contributions and additional covenants.

Let me say that we are hearing from our customers that the trends in occupancy have improved and are expected to continue to improve reflecting increased vaccinations. Borrowers are seeing increased leisure travel, increased bookings for both weddings and some business travel, including small corporate events. Contribution from food and beverage has increased with the lifting of certain restrictions. We are pleased that end-of-period net non-performing loans totaled $50.4 million, an improvement of approximately $3.7 million.

Our non-performing loans as a percentage of total loans, excluding PPP fell to 0.80% down from 0.86% at year-end. Reserve coverage ratio increased to a healthy 192%. Similarly, non-performing assets as a percentage of total assets fell to 0.55% for the quarter down from 0.62% at year-end. Net charge-offs were at the low end of our internal quarterly range at approximately $3.3 million. Quarter-to-date net charge-offs annualized were 0.21% excluding PPP.

Now, let me provide some color on the provision and our reserves for the quarter. First, let me remind you that we adopted CECL on December 31, 2020. We utilized certain Moody's forecasts of key economic indicators, including GDP and unemployment and our internal calculations. The provision for the first quarter of 2021, with a negative $4.4 million due to changes relating to unfunded commitments, lower loan outstandings in certain portfolios, improvement in quantitative input metrics and improvements in certain qualitative factors.

Overall, we are well reserved in $96.8 million. Reserves as a percentage of total loans at quarter-end were 1.44% and 1.55% excluding PPP. As I mentioned last quarter, management sees the potential for tailwinds toward the back half of 2021. Future releases will be predicated on a number of factors including loan growth, credit metrics and continued improvement in economic conditions.

Now, let me turn it back to Mike for Q&A.

Mike Price -- Chief Executive Officer

Hey, thanks, Brian. And, operator, questions?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Steve Moss of B. Riley Securities. Please go ahead. Your line is open.

Steve Moss -- B. Riley Securities -- Analyst

Hi. Good afternoon.

Mike Price -- Chief Executive Officer

Good afternoon, Steve.

Steve Moss -- B. Riley Securities -- Analyst

Good afternoon, Mike. And maybe just start off with loan pricing here kind of seen -- just kind of curious as to what you're seeing for competition in your markets? I noticed your yields ex-PPP were stable quarter-over-quarter, but curious of that dynamic going forward here?

Mike Price -- Chief Executive Officer

Just looking at our net production, Jim, I think it was pretty flat from quarter to quarter, maybe a little pressure on mortgage loans, installment loans, commercial fixed was pretty flat. Tale of the tape, is that fair?

Jim Reske -- Executive Vice President and Chief Financial Officer

Yeah. That's pretty much it. The commercial loans are coming on in the low 3s. That's been pretty consistent. Part of the story for us, Steve, is the replacement yields story is getting better. It's not -- hasn't gone away, but in the fourth quarter, we had negative replacement yields of 62 basis points, negative, and this quarter was only negative 20. And so that's playing itself out like kind of like we thought it would and getting us closer to neutrality and it's helping stabilize the loan portfolio yield. That's why this quarter, we saw an improvement. The loan portfolio yield was relatively unchanged, actually, was up 1 basis point that's not statistically significant. It was really on the deposit side, where we had improvements. So...

Mike Price -- Chief Executive Officer

Is that helpful?

Steve Moss -- B. Riley Securities -- Analyst

That is helpful. Exactly what I was looking for. And then just in terms of sticking with the margin and the balance sheet here, just you guys added securities this quarter, cash still went up, just kind of curious on the rates of your purchases this quarter and maybe the potential for additional purchases in the upcoming quarter?

Mike Price -- Chief Executive Officer

Jim?

Jim Reske -- Executive Vice President and Chief Financial Officer

Yeah. Sure. So achieved quite a bit over the quarter, actually. At the beginning of the first quarter, we were buying securities in the low-ones, a little over 1% and most of what we buy is plain vanilla NBFs, we don't really look at the securities portfolio. That's the place where we want to take risk, so it's pretty plain vanilla. Those deals are in the low ones.

By the end of the first quarter, we actually were able to buy securities because of the steepening of the yield curve that were at 2%. But the yield curve has flattened out a little bit since then. That was in the 10-year up a little higher than yesterday, It's come back a little bit and our preference is generally is not to extend duration in the securities portfolio, so we have been trying to buy securities in the four to five-year duration window, but not really gone beyond that. So those yields have come down south of 150 in the last week or so.

[Indecipherable] probably, in general, and with that much cash sitting around we do expect to buy more securities going forward. We want to make sure that we maintain sufficient liquidity for our customers. If they spend that money, obviously, we anticipate some good loan growth. So we want to make sure we take those funds and deploy them into profitable loan growth, which is of course our first choice. But even with all that, we will probably increase the securities portfolio somewhat over the course of the year.

Steve Moss -- B. Riley Securities -- Analyst

Okay. That's helpful. And then just one last one for me in terms of expenses here down nicely quarter-over-quarter. Just kind of, and I apologize if I missed this, just kind of curious as to how to think about expense for the upcoming quarter and if there is any maybe a PPP impact this quarter?

Mike Price -- Chief Executive Officer

Yeah, I don't know that the guidance has changed, this is Mike, 52 to 53. Jim, I don't know if you want to add any color to that?

Jim Reske -- Executive Vice President and Chief Financial Officer

Yeah. It still looks good, seems to be the right guidance and we looked at the consensus forecast and didn't see any reason to update that guidance. We think it's a benefit of a few things in the first quarter. I think you were asking about, if there's any round one deferrals on PPP and that was total allowance giving earlier $428,000 that reduced [Indecipherable] 428 in the first quarter. We assess anyone every quarter production, but that was really associated with PPP round two. So we have is purely figure just for the first quarter production for PPP round two.

Steve Moss -- B. Riley Securities -- Analyst

Okay. Great. Well, nice quarter and thank you very much for all the color.

Mike Price -- Chief Executive Officer

Thank you.

Operator

Your next question comes from Steven Duong of RBC Capital Markets. Please go ahead. Your line is open.

Steven Duong -- RBC Capital Markets -- Analyst

Hey. Good afternoon, guys. Jim, I appreciate the core NIM now. It's great, you guys are getting that to $325 million maybe just a little detail on just the liability side, what do you have maturing on your time deposits, and where are you currently pricing in that?

Jim Reske -- Executive Vice President and Chief Financial Officer

Yeah. We have actually, I'm glad you asked, we have some detail I'm happy to share with you, we have but $320 million of CDs maturing in the remaining three quarters of this year. And that pool of CDs is currently yielding 60 basis points. So, those are maturing -- the current offerings, we have the rack rates are not very different from the other banks in our area, CD pricing and for times [Indecipherable] different terms tends to be fairly middle of the pack but new 12 month CD will be close to 10 basis points. Again and that's not new news there. That hasn't moved in a while that's pretty middle of the pack for our market and what we are experiencing our rollover rates that are anywhere from 1.5 to two-thirds of the maturing CDs rollover.

So that's 60 basis points of CDs $320 million for the remainder of this year. We also have in addition to that, Steve, another $81 million in money market accounts that had a guaranteed time on them. And those are actually yielding 1.14% and those are going to be priced eroded this year as well. So there really is some repricing opportunity. Overall, when your cost of deposits is 11 basis points that's not a negative carry versus the interest on excess reserves that effect, right? So that's getting to parity with the 10 basis points we get from the Fed, it's not a drag on earnings anymore. But there's some opportunity to bring down this further.

Steven Duong -- RBC Capital Markets -- Analyst

Right. I guess so with CDs at -- you're pricing at 10 basis points. Are there actually people rolling it over into a CD at 10 basis points versus just putting in a savings account?

Jim Reske -- Executive Vice President and Chief Financial Officer

Steve, in every season, think of then every interest rate environment there is always a group of CDs that get to maturities on a roll without any action by borrower all. That you see across every bank and that's continuing. So in this environment right now there is almost no one in our market are offering any time deposit specials at all and then remaining hold out for some of the banks that we're still offering higher rack rates has finally brought those down as well. So there is -- if you want a time deposit the customer there is just not many places where you can go.

Steven Duong -- RBC Capital Markets -- Analyst

All right. I guess then, if we look into next year, is it possible that we could see cost of deposits like 5 basis points to 10 basis points?

Jim Reske -- Executive Vice President and Chief Financial Officer

Yeah, I mean, we're 11 now total. NIB is still growing too, right? So that helps the overall mix as well. But -- yeah, well let me switch now, you could see that in the 5 basis point to 10 basis point range for the rest of this year.

Steven Duong -- RBC Capital Markets -- Analyst

Right. And you're pretty much limited on what you could do on the borrowing side, right?

Jim Reske -- Executive Vice President and Chief Financial Officer

That's right. We have some borrowings that are going to roll off in May. I think there is a $50 million of FHLB borrowings that's going to roll off in May. But the way those are priced not worth paying prepayment penalty. So we just let it ride or let roll off but that will come up here next month with healthy NIM as well.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. And just one last one, just on this margin, if the 10-year stays where it is currently. Do you expect your overall core loan yield to increase or just remain stable?

Jim Reske -- Executive Vice President and Chief Financial Officer

Probably likely to remain stable. I mean the steepening has helped us. And I think we've been pretty successful in our originations in getting the most spread we can in our commercial originations getting floors for customers as well those picked up quarter-over-quarter. So I think we were pretty successful on that, but given the steepening of the yield curve, given where the tenure is right now, we're probably looking at yield stability of the loan side.

Steven Duong -- RBC Capital Markets -- Analyst

Great. That's all I had. And this is a nice print on the -- further quarter. Thank you.

Jim Reske -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from Russell Gunther of DA Davidson. Please go ahead. Your line is open.

Russell Gunther -- DA Davidson -- Analyst

Hey. Good afternoon, guys.

Mike Price -- Chief Executive Officer

Good afternoon.

Russell Gunther -- DA Davidson -- Analyst

I wanted to follow up, Mike, on your commentary about the organic growth outlook. A lot of good color and detail there, trying to triangulate to progression of the consumer strength and when that pattern gets passed to the commercial, does your mid-single digit guide contemplate commercial growth contributing to the positive momentum or is the mix going to be more consumer-weighted...

Mike Price -- Chief Executive Officer

I believe we could cross the Rubicon kind of late in the second quarter or in the third quarter, and we're satisfied with production in the last two quarters. It's just the liquidity, the shrinkage in the line usage and the excess liquidity that created some payoffs kind of our brand is a bit. Bit I expect that commercial side to ramp up somewhat. So I think we could have both of them [Indecipherable] by the second half of the year and moving in the same direction. And a small business lending, we really set some records in the first quarter with production. SBA hits the fee income, we have good momentum there, indirect lending, good momentum we just need cars and houses -- the inventory shrinkage for both.

And then consumer lending branch based [Indecipherable] just done a great job I mean that number is up probably 30% year-over-year and that's mostly sales-related. Then of course mortgage, plus the mortgage gets converted into gain and sale income and does -- it is not really hitting the balance sheet right now. So, I feel good about the consumer side and the commercial side is always been the big engine for us and we expect that to kick in the next couple of quarters.

Russell Gunther -- DA Davidson -- Analyst

Thank you, Mike. Yeah, it's very encouraging on the organic growth outlook. And then just switching gears last line of questions would be on the fee income side, also encouraging to hear that $26 million, $27 million number on a quarterly basis despite mortgage coming down. You guys just spend a minute in terms of what you think the drivers going forward will be of that fee income strength and perhaps comment on the SBA gain on sale specifically if you could? Thank you.

Mike Price -- Chief Executive Officer

Yeah. I just a couple of comments and then Jim can fill and perhaps Jane as well. Just we really haven't seen a lot in swap fees that could create some tailwind and hasn't. Mortgage is tapering somewhat but remained strong in the second quarter. SBA loans we expect to have a nice quarter and have a good pipeline there. Our brokerage business and trust business just get better every year. Interchange is strong and so you'll see -- you might see a little taper in mortgage. Jim or Jane, any color there? Any additional color?

Jim Reske -- Executive Vice President and Chief Financial Officer

I think you hit the high points, Mike. I'll only add if those numbers reflect some tapering of the mortgage income that we anticipate to be even higher. Mortgage income will continue on the current trajectory but could expect that to slow a bit. And then Jane, I'll hone it up to you if you have any other color on the thing that Mike was mentioning.

Jane Grebenc -- President and Chief Revenue Officer

It's been a very good quarter for SBA and we expect that to just get better. The SBA pipelines are very strong, so that won't show on the balance sheet, but 60% or more of our SBA business comes from referrals from small business lenders are corporate bankers. So we're happy either way. So the pipelines are very strong in SBA and the gain on sale in SBA has been stronger than I've ever seen it, 11%, 12%. So, I feel good about -- I feel good about the non-interest income.

Russell Gunther -- DA Davidson -- Analyst

Thank you all for taking my question.

Mike Price -- Chief Executive Officer

Thanks, Russell.

Operator

Your next question comes from Frank Schiraldi of Piper Sandler. Please go ahead, your line is open.

Frank Schiraldi -- Piper Sandler -- Analyst

Hi, everyone. Just wanted to ask about, sorry if I missed it, but in terms of share repurchases, I know you have a new program, but just wondering your appetite there, given the move in the share price?

Mike Price -- Chief Executive Officer

Jim?

Jim Reske -- Executive Vice President and Chief Financial Officer

Yeah. We're happy to have the program and the authorization to put that in place. We had looked at the price levels where we wanted to buy and we want to be more aggressive in the $14 and that's why the average price is $13.99. With the share price coming up a little bit we had tapered off those purchases, but we're really good at that. For us, it's not so much -- sometimes people talking about the calculation of the earn back period across the period. The purpose for us is a question of generating excess capital and the best use of that excess capital. So, share purchases will continue this year. And I didn't pick up from here.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. And then lastly on the -- and I know you guys touched on this in terms of the potential for releases going forward, but in terms of the reserve to loan ratio, just wondering your thoughts on where that could trend to as some more uncertainty maybe comes out of the environment and is it best to kind of think about where we were early in 2020 before the pandemic or what's the best way to think about where that could sort of stabilize?

Mike Price -- Chief Executive Officer

Brian?

Brian Karrip -- Executive Vice President and Chief Credit Officer

Thank you. Thank you for your question. So we continue to be disciplined and prudent in the way we reserve. We look at our loan growth, we're going to look at our charge-offs are quantitative and qualitative components of our model, including our high-risk model, our high-risk portfolio. And then we will potentially bring the reserves down depending on the economic outlook.

Let me also note that we had almost $13 million in our high-risk portfolio at year-end, we have reduced that to about $6 million this quarter. So we brought the number down consistent with the improvement in the economy. But we'll continue to look at it and as the picture gets clear we'll continue to dial-in to what is an appropriate level of reserves for our company.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. Do you -- I mean, it's always hard to say, but you got the high risk portfolio, you have -- is that actively being looked at in terms of do you see the potential to maybe move some of that off balance sheet this year. I'm just trying to get a sense if there is any reason to expect anything other than very normalized loss rate for 2021?

Brian Karrip -- Executive Vice President and Chief Credit Officer

We give you the high risk portfolio in the slide deck. And what is hard for you to tease out of it is that the retail portfolio, we reduced the reserve associated with that high risk portfolio cut it more than half. And so we're seeing great improvement, in the retail side of our portfolio. Senior living, we've got one problem we're dealing with energy, restaurants, we watching closely but we brought those reserves associated to the COVID related reserves down purposefully because we are seeing improvement in their portfolio.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. All right. Thank you.

Mike Price -- Chief Executive Officer

Thanks, Frank.

Operator

Your next question comes from Matthew Breese of Stephens. Please go ahead. Your line is open.

Matthew Breese -- Stephens -- Analyst

Hey, good afternoon.

Mike Price -- Chief Executive Officer

Good afternoon.

Matthew Breese -- Stephens -- Analyst

Hey, Mike. Just on the loan growth outlook, auto loans has been a strong driver, a strong component of consumer growth recently. We've heard more recently of some chip shortages in the area for I think particularly for the new car sales. Just curious if you're seeing any impact there and as you look toward the end of this year if that could impact your ability to put new auto loans on the book? Maybe give us a sense for the mix between new and used auto?

Mike Price -- Chief Executive Officer

Hey, Jane. Why don't you handle this one?

Jane Grebenc -- President and Chief Revenue Officer

Thanks, Mike. Thank you for the question. We are predominantly newish used car lender, but the chip shortages, part shortages generally are affecting used cars as much as they are new cars. And we've had a very good first quarter, as you've noted. We're going to have a good April but I think it's going to -- I think it's going to mute our growth a bit over the next couple of months. I think it will be good, but it could have been great. Supply is definitely being outstripped by demand.

Matthew Breese -- Stephens -- Analyst

Got it. Okay, I appreciate that. And then Mike, just acknowledging the size of the balance sheet, relative to the $10 billion threshold in Durban [Phonetic], I know M&A is something that's been brought up before just curious how conversations have gone? Are they picked up or not and do you think M&A and your ability to acquire is something that could happen this year?

Mike Price -- Chief Executive Officer

We are very cognizant of the $10 billion. Indeed, we feel like we're prepared certainly from an enterprise risk perspective and -- but on the acquisition side, I mean, ideally you either do something and find a way to stay under it for a year, which pushes it out 2023 or it is something larger. And there is nothing imminent right now. There is lots of conversations out there, but I doubt that that's significantly different than like-sized peers.

But we also feel like with the impact of Durban it's incumbent upon us to find other sources of fee income to compensate for the loss in Durban and scale other businesses over a period of time. And we feel like we've been our way into a lot of things and we've been successful. And the team on the operations and on the business development side have executed flawlessly whether it's mortgage, indirect, enhanced consumer lending, SBA, we just have a good team, that can build things out.

So we'll try to help you both ways. We try to do it thoughtfully, in terms of staying on this side we're going decisively over and then we're cognizant of fee income as a percentage of revenue is important to us. We've made great strides here in the last decade with lots of investment and we look to continue to grow those non-interest income and fee businesses.

Matthew Breese -- Stephens -- Analyst

Got it. Okay. Last one for me, just on the digital banking front, it feels like that is a big push for all banks, especially in the back of COVID, could you just give us a couple of areas where you feel like on the digital banking side you are different or set apart or further ahead on the curve than your peers?

Mike Price -- Chief Executive Officer

Yeah. A couple of places. And I think we're getting very good at digital account opening, as a percentage of our overall new deposits. I feel like we've just put in a new treasury management platform and so we can play bigger than perhaps some of our community bank peers, certainly we're not doing -- for in lock boxes and things like that bigger banks do, but nevertheless I just good utility there, I think our user interface and our customer experience from the mobile, to the online, to the tablet is very contemporary and user friendly has personal financial management tools that can help people with budgeting and other things.

And this is the fun part of our business to maintain our relevance, and I also think we can we could finance the digital with the community bank brand in a way that the bigger banks always don't have to win. I think you can like local and get a good digital experience. I have the expert on the line Norm Montgomery who is our CIO Norm, do you want to add anything to that?

Norm Montgomery -- Executive Vice President and Business Integration Group Manager

I would just add to that, last year, we set ourselves up well by changing our digital platforms as Mike indicated on both the consumer side and business side. So we are really ready to grow in those areas with the latest solution.

Mike Price -- Chief Executive Officer

Thanks, Norm. Is that helpful?

Norm Montgomery -- Executive Vice President and Business Integration Group Manager

Very helpful. That's all I had. Mike. Thanks for taking my questions.

Mike Price -- Chief Executive Officer

Thank you.

Operator

And there are no further questions at this time, I will turn the call back over to Mike Price, President and CEO for closing remarks.

Mike Price -- Chief Executive Officer

Thanks again. We appreciate your sincere interest in our company. We look forward to being with a number of you over the next quarter or two. We appreciate the on-trade to terrific investors and just thank you for your efforts and your diligence in following First Commonwealth.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

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

Mike Price -- Chief Executive Officer

Jim Reske -- Executive Vice President and Chief Financial Officer

Brian Karrip -- Executive Vice President and Chief Credit Officer

Jane Grebenc -- President and Chief Revenue Officer

Norm Montgomery -- Executive Vice President and Business Integration Group Manager

Steve Moss -- B. Riley Securities -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

Russell Gunther -- DA Davidson -- Analyst

Frank Schiraldi -- Piper Sandler -- Analyst

Matthew Breese -- Stephens -- Analyst

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