First Commonwealth Financial Corporation (FCF) Q3 2021 Earnings Call Transcript

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First Commonwealth Financial Corporation (FCF 2.11%)
Q3 2021 Earnings Call
Oct 27, 2021, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the First Commonwealth Financial Corporation's 3Q 2021 Earnings Release Conference Call. Today's conference is being recorded. [Operator Instructions] Thank you.

Vice President of Finance and Investor Relations, Ryan Thomas, you may begin your conference.

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

Thank you, David. Good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation's third 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 Karrip, our Chief Credit 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 have 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.

Thomas Michael Price -- President and Chief Executive Officer

Hey. Thank you, Ryan, and good afternoon, everyone. Third quarter net income of $34.1 million produced core earnings per share of $0.36, accompanied by core return on assets of 1.43% and core pre-tax pre-provision ROA of 1.79%. This was a very good quarter for First Commonwealth with solid profitability, growth in credit metrics. Other headlines for the quarter include first, excluding PPP loan payoffs, we're pleased with loan growth of 8.2% or $132.3 million in the third quarter with ongoing strength in indirect lending, home equity lending, commercial lending and mortgage lending.

Our growth is broad-based between commercial and retail lending disciplines and has become increasingly granular over the years. As an aside, our loan growth over the first -- over the last two quarters has not yet benefited from higher line of credit utilization. Second, the loan growth and improved margin enabled a $2.4 million quarter-over-quarter increase in net interest income to $70.9 million. Jim will have more color on the net interest margin. Third, non-interest income or fees grew $1.2 million quarter-over-quarter to $27.2 million on the strength of improvement in SBA and mortgage gain on sale income as well as higher wealth management income.

Importantly, our card-related interchange business generated $7.1 million in fee income. Our regional business model has been a strong contributor to fee income growth with better teamwork and collaboration enabling us to deliver a broader set of solutions for our clients. Fourth, our efficiency ratio increased to 55.27% as core non-interest expense rose some $3.7 million, primarily due to higher personnel expense, including higher incentive accruals based upon increased production, higher wages, particularly in entry level positions driven by inflationary pressure, higher hospitalization expense and then the hiring of the management team of the equipment finance division.

It is increasingly clear that we are not immune to expense headwinds in the current environment. Fifth and importantly on the credit side, we guided last quarter to stronger credit metrics in the second half of the year in 2021. That's exactly what is happening. The third quarter represented our lowest loan charge-offs in nine quarters, a decrease in specific reserves for troubled credits coupled with general improvement in economic conditions led to a provision of just $330,000 down from $5.4 million in the second quarter. Our reserves now represent 1.3% of total loans, excluding PPP and a 247% of non-performing loans.

The level of non-performing loans improved significantly from $52.8 million in the second quarter to just $38.1 million in the third quarter or 56 basis points of total loans. Similarly, non-performing assets of $39 million at quarter end now stand at 41 basis points of total assets. Subsequent to quarter end in early October a $6.9 million troubled credit was resolved and will be reflected in Q4 results. Other notable third quarter items follow. First Commonwealth earned the number one SBA lender ranking in Pittsburgh for the fiscal year ending September 30, 2021.

This is a significant accomplishment and reflective of both the talent in the SBA lending team coupled with the partnership enabled by the regional business model alluded to earlier. In the third quarter, we continued to transform our technology to include the selection of a new loan origination system, as well as introducing several new cash management solutions or TM Solutions for our business clients. We continue to be pleased with our adoption of our new mobile banking app, which is growing at an annualized rate of 18%. As we work through our three year strategic plan, I would share three of our six areas of focus that might be most relevant to investors.

First, this accelerates the growth trajectory of our company, and we'll do this primarily through organic, broad-based loan growth across both our commercial and consumer loans. Second, continue to increase digital relevance to drive customer satisfaction, ease of use and brand identity, primarily through the continued investment in customer-facing technology. And third, anticipate and offset expense pressure to maintain operating leverage over a multi-year horizon. I say this because we realize that building new businesses like equipment finance from the ground up will negatively impact operating leverage at first, but can have a powerful impact on operating leverage in the long run.

Regarding growth, we've received many good questions about our equipment finance efforts, so let me provide an update on our progress. As you recall, we did a lift out from our large -- from a larger bank in June of a Philadelphia team with a 20-year track record of performance. As we enter the business we expect the funds small ticket loans and leases on equipment on a nationwide basis. The group's primary experience has been with essential used commercial equipment diversified across industries and equipment type. The manufacturing, construction and professional service industries represent more than half of their originations by industry.

Primary equipment types included utility trucks, highway trucks, machine tools, trailers and manufacturing and packaging equipment. A good example of a piece of essential use equipment would be a machine tool like a lathe that a small business needs to run its business. We expect the average ticket size to be about $80,000 and an average term of 60 months. Based on the historical performance of this team, we expect yields in the mid-5% range and spreads in the mid-4% range with charge-offs typically ranging from 55 basis points to 75 basis points. If all goes according to plan, we believe that we can generate some $200 million to $250 million of equipment finance assets on our books by the end of 2022 before really hitting our stride in '23 and '24.

And with that, I'll turn it over to Jim.

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

Thanks Mike. As Mike already mentioned, we were pleased with our financial performance this quarter. Hopefully I can provide you with a little more detail on our net interest margin fee income and expenses. The GAAP net interest margin expanded by 6 basis points this quarter to 3.33%. Net expansion was driven by strong organic loan growth of just over 8% annualized. The NIM expansion wasn't impacted by PPP. Total PPP income in the third quarter was $5.7 million, up by only $200,000 from last quarter.

As of September 30, we had $152 million of PPP remaining on the books with $6.3 million in fee income that remains to be recognized. We expect that most of the remaining PPP balances will be forgiven in the fourth quarter, which should help the GAAP NIM. The core NIM which we calculate to exclude the effects of PPP and excess cash fell from 3.20% last quarter to 3.16% this quarter because we purchased $134 million of securities in the quarter. Had we not purchased the securities and just let the money sit in cash, we would have excluded that cash from the core NIM calculation based on the way we calculate it and the core NIM would have dropped by only 1 basis point to 3.19%.

We think that the core NIM has bottomed out and should drift upwards from here as we redeploy excess cash into loans. Our cost of deposits in the third quarter was down to only 6 basis points. I'm pleased to report that our last remaining tranche of high cost deposits totaling $52 million at a cost of 1.65% repriced on October 13 subsequent to quarter end. That alone will save us nearly $1 million a year in interest expense at about a point of NIM. We will reap the benefit of that starting in the fourth quarter. With that behind us, we're down to about $400 million in time deposits remaining at a cost of 36 basis points, three quarters of which will mature by the end of 2022.

So while some deposit repricing opportunity remains we are very far along in repricing our entire deposit book leaving us very well-positioned if rates rise. With that in mind, we've taken a hard look at the deposit beta assumptions in our interest rate and risk sensitivity calculations. In light of unprecedented levels of liquidity, we are revising our interest rate risk assumptions to reflect the ability to lag deposit rate increases for the first two 25 basis point rate hikes. The result will be what we believe to be a more accurate picture of our asset sensitivity in the current environment.

You'll see this in our IRR tables once we published our 10-Q but to give you a preview a 100 basis point parallel shock will show an increase in the first year net interest income of over 5%. That's roughly double the previous level of sensitivity so we wanted to explain the reason for the change. Even without a rate hike however the NIM story in 2022 will be driven by the redeployment of excess cash and loans especially since we believe that deposit balances will remain relatively stable throughout 2022 and any loan growth above cash levels can be funded by cash flow from the securities portfolio. This effectively rotates lower earning assets into higher earning ones.

This asset rotation should benefit NIM in 2022 even if rates don't rise and then if rates do rise our asset sensitivity will kick in and expand the margin even further. Turning now to fee income; fee income of $27.2 million in the quarter remains a bright spot and seems to be one aspect of our company that is consistently underappreciated. There's been talk of slowdown in mortgage all year but our mortgage gain on sale income actually increased by $400,000 over the last quarter. SBA is another fee income engine that continues to gain momentum now that PPP is mostly behind us with SBA gear and sale income up by $700,000 from last quarter to $2.4 million.

Card related interchange income continues at new record levels for us of approximately $7 million a quarter, and deposit service charges after the off pace for much of the pandemic due to heightened cash levels and customer accounts have returned to more normalized levels. Turning to non-interest expense, last quarter, our guidance was $53 million to $54 million, and we came in at $55 million for the reasons Mike described. Like many of our peers, we are experiencing expense pressures mostly related to people costs like salaries and benefits. While there are some normal variability and costs quarter-to-quarter, it's difficult to see NIE falling from current levels.

Fortunately, the pace of our loan growth gives us confidence that our revenue can outpace expense growth. Finally, we repurchased 997,517 shares of stock during the third quarter at an average price of $13.35. While we ended the quarter with approximately $10.3 million remaining of our $25 million share repurchase authorization we are also pleased to announce that our board authorized an additional $25 million share repurchase authorization yesterday. We increased the authorization so that we could have repurchase authority available to redeploy expected excess capital generation in the fourth quarter and into next year.

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

Questions and Answers:

Operator

[Operator Instructions] And we'll take our first question from Mike Perito with KBW.

Michael Perito -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hey, good afternoon, guys. Thanks for taking my questions.

Thomas Michael Price -- President and Chief Executive Officer

Good afternoon.

Michael Perito -- Keefe, Bruyette & Woods, Inc. -- Analyst

I want to start here just on the cost piece. It sounds like between the kind of the qualitative items that might describe and then the guide, I mean that this $55 million range is kind of here to stay. I guess as just we try to extrapolate down to what kind of growth we can see next year. I mean, obviously, it's a fairly sizable step up. I mean, do you think that there's a lot of upward, maybe not a lot, but is there upward pressure off of kind of this quarterly run rate on an annualized basis or do you think it's more kind of low single digits full year on year type of growth for the expenses?

Thomas Michael Price -- President and Chief Executive Officer

On the expense side, yes on the expense side -- over the last seven or eight years, we have nip and tuck expenses and done some significant things to make sure and sure we have operating leverage and we plan to continue to do that. We're going to have a little blip here as we invest in equipment finance and that's it could be a huge platform for us. And then we'll realize revenue really in the latter half of next year. The $50 million does feel like kind of a new number. It's a bit unexpected.

Its impact a lot of our lower -- our entry level positions, which is absolutely vital for customer service. Our call center has just blossomed and boomed and it held its supports the digital capacity of the bank, but the costs are higher than we would have anticipated 6 to 12 to 18 months ago. So that's really the foundation. I think we're just sorting through it a bit. I think Jim's statement that $50 million is something we're coming to grips with -- $55 million forgive me. And but we're working through plans for next year and invariably, we do things that make sure that we get costs up from time-to-time and but we're not prepared to announce anything like that at this time.

Michael Perito -- Keefe, Bruyette & Woods, Inc. -- Analyst

Sorry. Go ahead.

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

No. Just to add, it's hard to give exactly. Every time we do this, there's always some variability quarter-to-quarter. There were a few things in the third quarter that were one-time costs, but not many. So that's kind of like -- there's some general guidance there.

Michael Perito -- Keefe, Bruyette & Woods, Inc. -- Analyst

Yeah. I was going to say maybe it's come out slightly differently. I mean obviously 2021 was a bit of anomaly in many ways. You're on pace to do a -- call it 55% efficiency ratio for the year. But if we think about 2023 -- I mean 2022 relative to 2020, right, I mean you guys, I think we're at 57%. I mean, it's reasonable to think that you'll probably be below that as PPP comes out. But not where you've been year-to-date just because of some of the equipment finance investments and some of the wage pressures that may be a better way to frame it.

Thomas Michael Price -- President and Chief Executive Officer

Yeah. I think so. I mean I think also the reality is, is that we have to think long-term not only about the business at its current state, but how we continue to invest in digital platforms, business platforms of account origination and other tools that we'll invest in for the future. So it -- we really have to find costs and find opportunity to continue the level of investment we've had in the last five years on top of general inflationary and other pressure. So there's a lot that -- there always is a lot to be -- that needs to be done in a three-year plan and that isn't changing. Our company changes pretty significantly if you look at it every two to three years in terms of how we do business, the platforms we've broadened them, our digital relevance is there. We'll continue to invest there. That's a long-winded answer, but it's not a cryptic answer to your question. There's a lot of plans that will go into maintaining operating leverage over the next year or two.

Michael Perito -- Keefe, Bruyette & Woods, Inc. -- Analyst

No. No, that's helpful. So thank you. And then the last for me is just on the capital TCR, don't want to talk for others, but little bit more buyback activities than I was expecting, it sounds like you guys still have some appetite moving forward. I was wondering if you could expand on that a little bit and then just, Mike maybe provide an update on kind of the M&A environment and any changes over the last, 90 days was reported?

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

Yeah. No, sure, it's pretty simple. I mean, we had authorization remaining about $10 million, but we're just generating a lot of capital. So loan growth is really working, we think we'll generate over $20 million of excess capital in the fourth quarter. And so there's a good chance that we would run out of authorization. And so we went to the board and said it'd be prudent to increase the authorization. And the way we go back into the market and buy the stock, we accelerate buying back on the dips. We just think it's smart to do that. And so we wanted to have authorization ready in case that happens. So, there's also the prospect of perhaps taxes on buybacks, but that's all speculative at this point but that's been in the news. So there's some background motivation to do some buybacks now, but that's highly speculative, really driven by excess capital generation.

Thomas Michael Price -- President and Chief Executive Officer

Yeah. On the M&A front, I mean, we've had over the years, I think Jim and I have shared, over 55 irons in the fire to do five. So it has to work for both strategically and financially. We want something that we see a nice pass to execution with lower risk and those have been our criteria and we've kind of tended to do smaller type deals rather than larger deals and those deals have worked for us, every one of them. And so that's our MO, there's always something in the air, but there's a big difference between that and making an announcement.

Michael Perito -- Keefe, Bruyette & Woods, Inc. -- Analyst

Got it. Helpful guys. Thank you for taking my questions. Appreciate it.

Thomas Michael Price -- President and Chief Executive Officer

Thanks, Mike.

Operator

And next, we'll go to Steven Duong with RBC Capital Markets.

Steven Duong -- RBC Capital Markets LLC -- Analyst

Hey, good afternoon, guys. Mike, just the SBA gains, I means those are -- it looks like, yeah, it did pretty good this quarter. I guess is there anything specific about the environment now that you jump to -- we are up by $700,000 to $2.4 million. And I guess what was it? It was one something before. Yeah, just curious like what led to the strong performance in that business?

Thomas Michael Price -- President and Chief Executive Officer

Just like mortgage and SBA and soon to be equipment finance, we've made major investments in these platforms. It takes several years to realize the investment. And in the past year, if you go back to gain on sale income over the last seven or eight quarters, I mean, you were $400,000 or $500,000, up to $1.3 million, $1.5 million, $1.1 million, $1.6 million, $2.4 million now. And that was been very intentional. We've added to the sales force. We've invested in the capacity. Our Chief Credit Officer, Brian Karrip, likes to say crawl, walk, run.

That's exactly what we've done. But we feel like we're just beginning to hit our stride in this business. And that was the intention to go from SBA is kind of an exception business to SBA as a real crown game kind of business. Jeff comes from a larger bank environment, Jeff Rosen, and who runs this business. And his team and they've run some large platforms for some bigger banks. So, we think we have the vision to execute this and make it a core part of our non-interest income. And we're excited about it too, because it really helps our borrowers who can't quite get over the hump to get a deal done for them.

And when you do that you really have a customer for a lifetime. So we -- quite frankly we really like the business. And I think the other thing is just with the onset of PPP our capacity was with PPP and appropriately so. I mean at the end of the day, we did over 8,000 loans for $900 million which we felt was appropriate in our communities to support our clients. So this is a business that it's not a fleeting thing. I mean we have -- we had one now we have two or three we're going to have more oars in the water in this business each year.

Steven Duong -- RBC Capital Markets LLC -- Analyst

Right and that's great to hear. And I guess the business is it -- you made all these investments is it fair to say that there's a little bit of a moat around the business that it's not something that anybody can just jump in? And also with the business is there any cyclicality to the business or is this something that it's just you guys just hit the ground and you just continue on growing the business?

Thomas Michael Price -- President and Chief Executive Officer

You know what I'm going to turn it over to Jane Grebenc. She's our President and Chief Revenue Officer, and she works closely with Jeff and the team on this business. Jane do you have -- can you answer Steven's question?

Jane Grebenc -- Executive Vice President and Chief Revenue Officer

Sure. Thank you, Steven. I think the important things that we've done with SBA, between Jeff Rosen and Keith Possano. We have some pros that have run the business, as Mike said with much larger platforms. And we've been very clever about integrating that oversight with local market representation. So our local BDOs are part of our regions and we think we've got the compensation structure where everybody's interests are mutually aligned. There is no fighting, no bickering, no arguing about what's right for the client and so it's nothing that's too fancy but it is tough to replicate because it all has to work together.

Thomas Michael Price -- President and Chief Executive Officer

A great question, Steve about the about the barriers to entry. I think it's -- you're a year or two or three and that's with the right talent. And then James said something pretty profound. And that is, it has to be integrated with the local markets. That's so important. And we feel like we get there with the regional business model and with tight integration between our commercial banking floors doing SBA loans, and that's a real credit to them.

Steven Duong -- RBC Capital Markets LLC -- Analyst

That's great to hear. And is there any cyclicality like the mortgage business or is it less cyclical?

Jane Grebenc -- Executive Vice President and Chief Revenue Officer

I apologize. I think it will not be cyclical like mortgage. I do think we're going to have to work a little bit harder next year because we will lose the 90% guarantee and it'll go back to more normalized 75% guarantee. But I think that -- I think that regardless we're going to do just fine. The pipelines today are probably up by double from last year in the last year we did have a lot of PPP going on. So we have very healthy pipelines in closing and underwriting.

Steven Duong -- RBC Capital Markets LLC -- Analyst

Got it. And I really appreciate that that's really helpful, and yeah, it's just sounds like such a great, wonderful business to have some recurring fee income going forward with that. And then maybe just on the rate sensitivity that you guys spoke about, the plus 100 basis point rise. It's great to hear that, you looked at the data assumptions. And so if I'm reading this or listening to this right, there's a lag on the first to 25 basis point rate hike. Does that mean that it's zero and then the third rate hike, you put a beta -- a higher beta on it and if so what is the beta number?

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

Yeah, no. Good question. Just to clarify the beta number is based on our historic deposit studies and its 25% beta and we've been using a 25% data for some time. The lag means 0% beta for the first two rate hikes, and then you just click to the 25% beta for like three, four and then five, six, seven when you do the 200 basis point and 300 basis point parallel shifts as well.

Steven Duong -- RBC Capital Markets LLC -- Analyst

Got it. Okay.

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

We looked at and there's some -- I think there's some that suggest you could feather it in a little bit for the first time and the second estimate said that the third that just gets too complicated. We think this is just a helpful assumption, and I think it's a much more accurate picture of what we and other banks like us with a lot of liquidity would actually do in a rising rate scenario.

Steven Duong -- RBC Capital Markets LLC -- Analyst

Yeah, I totally agree, I mean, considering all the deposits that you guys are having right now. I can't imagine anybody's really taking for deposits on the first, first one or two rate hikes. Well, that's it for me. I really appreciate you guys taking the question. Thank you.

Thomas Michael Price -- President and Chief Executive Officer

Thank you.

Operator

And next, we'll go to Daniel Tamayo with Raymond James.

Daniel Tamayo -- Raymond James & Associates, Inc. -- Analyst

Hey, good afternoon, everyone. Thanks for taking my questions. This is probably something you've explained in the past, but the calculation of the core NIM figure, which you talked about being 3.16% in the quarter. I just want to make sure I understood that correctly because the margin expansion in the third quarter you said did not come from PPP fees, but the core NIM contracted in the quarter. And did I hear that there was you excluded excess cash from that calculation?

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

Yeah. And look, we've recognized that there's no real industry standard for a core NIM. So we want to be careful about that kind of thing. We do publish a full reconciliation. It's in the earnings release PowerPoint supplement that is available on our website and the Investor Relations portion of the website. We try to be pretty disclosed of about these things and give all the numbers so that you could do the calculation differently. But you understood it properly. We are trying to exclude PPP as if it never even happened from the numerator and the denominator of the earnings in the balances. And then the excess cash as well because those are both distorted effects on the NIM and the PPP will probably be behind us pretty soon, but the cash will linger for a while, so we'll probably keep that practice and publish a reconciliation probably through next year.

Daniel Tamayo -- Raymond James & Associates, Inc. -- Analyst

Okay, great. I'll find that, thank you. And then your assumptions just want to make sure I heard this correctly as well, that deposits are going to be flat in 2022 what does that assume for the excess liquidity on the balance sheet?

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

Yeah. Part of that assumption comes from the idea that some of the excess liquidity will finally be spent. We haven't seen a lot of that. We looked at some industry studies that show people will start spending down some of that less liquidity. And the basic idea behind it, it's not that complicated. It's that we always got normal growth in deposits we have I think 6% growth in non-interest bearing deposits this last quarter. So, there is some growth in deposits normally and there but the spend down will offset that and as those two offset each other and roughly reach deposit balances steady and that's good for us because that means instead of growing both sides of the balance sheet you can just take the excess cash or redeploy into higher asset like loans, that's the idea.

Daniel Tamayo -- Raymond James & Associates, Inc. -- Analyst

Understood. I appreciate you getting me up to speed. That's all I have. Thank you.

Thomas Michael Price -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Next we'll go to Russell Gunther with D.A. Davidson & Company.

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

Hey, good afternoon, guys.

Thomas Michael Price -- President and Chief Executive Officer

Hey Russell.

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

I want to spend a minute on the organic growth outlook you guys have been outperforming on that front for the last couple of quarters depending on how 4Q shakes out, really tracking above that mid-single digit rate. As you look to Mike layer in that equipment finance you mentioned even the low-end $200 million. I mean, that's quite a quite a head start. So, how are you thinking about overall growth rate both within, I don't want to call it core FCF because this is going to be gore to you but growth expectations outside of the equipment finance and then layering that on top as you look into next year?

Thomas Michael Price -- President and Chief Executive Officer

Yeah. I'll make some comments and let Jane, our President clean up after me. I got a report let's start on the commercial side. I got a report from Brian Karrip, our Chief Credit Officer right before the call. The loan committees have been pretty busy. We're seeing some nice activity in commercial real estate particularly multifamily and industrial warehouse. And our commitments have really climbed newer have really climbed newer commitments over the last several months since really May and with a lot of nice new approvals, but the utilization and the outstandings are still low and that will turn as these projects mature, there are some tailwind there in the construction portfolio.

As we move the C&I we really de-risk that business over the last decade or so, and it's a lot less chunky than it used to be because we look at our pipeline and say we really like the activity, Jane and I mentioned SBA pipelines are very strong. And so we feel good about the commercial business even better than a quarter or two ago. And then the consumer businesses have been really hitting their stride. I mean, when we look at the activity, whether it's consumer lending in our branches or the indirect activity, it's up nicely order of magnitude 20% in each probably year-over-year.

So I think fundamentally, Jane and the team have just -- the businesses continue to improve. It's not really sexy. It's just training, it's increased productivity. It's focused. And Jane what would you add to that? I mean, we feel good about where we're at with lending and the future over the course of the next year notwithstanding equipment finance, Jane anything I'm missing.

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

I don't think you're missing anything, Mike. But the only thing I'd add, Russell is our loan growth is so diversified that it does make it a little bit tricky to manage the efficiency ratio, we've got a couple of extra businesses that other banks don't have. And I would take that problem any day, but it does mean that we always have to be thinking about the expenses, but I feel good about where all of the businesses are. We tightened a little bit on the consumer side during COVID, and we did not -- we didn't loosen yet. So we're still getting the structure that we want. Delinquencies are at historic lows and we're still growing the books, and the pipelines are healthy across the whole bank. I feel really good about it.

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

I appreciate that.

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

I feel good about equipment finance. It's tough to stand up a business in the middle of a pandemic because -- everybody's working remote and all that, but we're staying on track. The vendors are a good partner, so I think we're going to be just fine.

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

Thank you, Jane. Thank you, Mike. I guess just as a follow-up, you mentioned consumer just hitting its stride. Haven't loosened there yet? Would you expect those verticals to continue at a similar pace or is there any appetite to dial that back or remix growth as the equipment finance comes on?

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

I think it's too soon to say that we would remix. We are close to any one businesses segment limits, so we can I think we can keep going just the way we are.

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

Okay, great. Well, thank you both. That was it for me.

Thomas Michael Price -- President and Chief Executive Officer

Thanks, Russell.

Operator

And next, we'll go to Frank Schiraldi with Piper Sandler.

Frank Schiraldi -- Piper Sandler Companies -- Analyst

Hi, everyone.

Thomas Michael Price -- President and Chief Executive Officer

Hi, Frank.

Frank Schiraldi -- Piper Sandler Companies -- Analyst

Just on a follow-up on buybacks, James. I wonder if you could just remind us in terms of parameters around where the buyback is attractive. Is it an earnback and then sort of where's the threshold there?

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

Yeah, it's really not driven by an earnback calculation. We understand people will look at the earnback calculations and say that's long. And I'd rather not do it because of the earnback [Indecipherable] not really driven by that. Right now, in the marketplace, we're in blackout, but we have an arrangement, a 10b-5 arrangement that's under the current authorization. So, we are, right now, buying back at any price below $14. With the -- when we come out of blackout three days from now under the remaining authorization with a new authorization, we may increase that.

And it's really driven by our view that we are still fundamentally undervalued. And we're not just saying that as bank manager teams that always say they're undervalued. We look at kind of the regression analysis that shows up banks with our ROE should be trading at. And we think that even though we like where we're trading right now on a price neutral basis, we're earning a higher multiple that we have. So, as long as that's the case, we think there's room to buy back that stock because there'll come a day when we're trading at a much higher level, we'll look back and wish we had bought more at this level.

So now, it's the buyback, the nice thing is that it's flexible. If there's a better opportunity to deploy the capital like an accretive merger, so we can cause the buyback and do that instead. And we've done in the past. So, that's always on the table as well. But this is just a way to redeploy the capital. The other thing is the capital ratios, because we're generating so much capital, keep creeping up. And so, we want to make sure we're not underleveraged. I think we published in the earnings release the tangible common ratio XPPP is at 8.9%, probably at the higher end of the range where we like it. So, there's plenty of excess capital to deploy. And that's kind of our philosophy on buybacks.

Frank Schiraldi -- Piper Sandler Companies -- Analyst

Okay. And then, just lastly, just want to make sure I'm thinking about it right in terms of my modeling. You talked about the core NIM bottoming out. And just wondering, does that assume any securities purchases, additional securities purchases or, or given the loan loss you guys are expecting, does that kind of take care of the, the excess cash over the next 12 months?

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

Thanks for asking, Frank, gives me a chance to clarify the, that was really driven by the idea that the excess cash would be redeployed into loan growth. We, we have deployed some of the excess cash generated through the pandemic, through the government stimulus programs and the conversion of the PPP loans as had been forgiven into cash. We've redeployed some of that into security, so the security portfolios you can see in our balance sheet has grown, but that's mostly run its course. At this point, we will probably maintain the security portfolios right about at the level that it's at, we'll reinvest cash flow from the securities portfolio to keep it at that level, but the idea is that the cash we have remaining on the books which was close to $300 million around quarter end that should be, is to be redeployed into more profitable loan growth over the next 12 months.

Frank Schiraldi -- Piper Sandler Companies -- Analyst

Right. Okay. That makes sense. Thanks for the color.

Thomas Michael Price -- President and Chief Executive Officer

Thanks, Frank.

Operator

And next, we'll go to Daniel Cardenas with Boenning & Scattergood.

Daniel Cardenas -- Boenning & Scattergood, Inc. -- Analyst

Hey, guys. Good afternoon. Quick, quick question for you. So given, given the improvements that we've seen in non-performing assets and in loan growth, we saw a decline in your loan loss reserve levels to $140 million from $144 million last quarter and minimal, minimal provisions this quarter. Should, should we expect to continue to see that ratio decline as you continue to grow and, and how should we think about provisioning on a, on a go forward basis for you guys? Does that just match charge-offs or are you thinking about growth as well?

Thomas Michael Price -- President and Chief Executive Officer

Yeah. Hey, Brian, you're on the call. Why don't you answer this? Brian Karrip, our Chief Credit Officer. Brian, you out there? Because credit's a good story and positive. Yeah. Well, we -- long-term charge-offs match provisioning. We feel good, and we have mentioned the subsequent event of $7 million the drops are NPAs and in NPLs. So we're well-positioned. We have good coverage of our non-performing loans. We're in a good position with credit and with low delinquencies, they criticized in the other categories have fallen. So I think there will be pressure in our modeling probably to release some reserve.

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

Yes, Dan, if I -- I'll just add and we must have connectivity issues with Brian, so terribly sorry about that. But that basic agent formula of reserving for charge-offs and then for loan growth kind of remains the same. But the wild card is CECL, and CECL kind of extra qualitative factors we have for general economic conditions. So that could always change. And if the economy looks like it's going south, it's predicted to go south, I see some reserves could be affected by that. But the general provision expense for the quarter is really going to be driven by charge-offs and loan growth.

The only color I'd add on top of that whole conversation is that our asset quality is getting so good and the economic outlook is not -- does not look like it's going south, it looks pretty good that banks like us are having a hard time finding rationales to hang on to the qualitative reserves that we have. It's getting harder and harder to justify the quality of reserves you have. And as much as you might want to, you probably will not be able to do that going forward.

Operator

Brian, your line is open.

Thomas Michael Price -- President and Chief Executive Officer

Do we have Brian?

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

Yeah. Can you hear me?

Thomas Michael Price -- President and Chief Executive Officer

Yes, we can hear you now.

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

Okay. Yeah. No, I think you were spot on with your answers and I don't really have anything to add. It will really be very much around loan growth, economic conditions, improvement in our loan portfolio and charge-offs.

Daniel Cardenas -- Boenning & Scattergood, Inc. -- Analyst

Great. And then just one last question here on the equipment finance on the guidance that you gave of the expected growth. Is that purely with the team that you have in place or does that factor in additional hires throughout the course of the year?

Thomas Michael Price -- President and Chief Executive Officer

Yeah, great question. That factors in additional hires. I mean today we only have 17 members on the board. They're the brass and the people that run it they'll be adding a cadre of more operations and salespeople over the course of the next year. So there'll be some cost associated with that. Is that helpful Dan?

Daniel Cardenas -- Boenning & Scattergood, Inc. -- Analyst

Yes, sir. Great, that's all I have. I'll step back. Thanks, guys.

Thomas Michael Price -- President and Chief Executive Officer

Okay. Thanks, Dan.

Operator

There are no further questions. At this time I'll now turn the call back over to Mike Price, President and Chief Executive Officer for any additional or closing remarks.

Thomas Michael Price -- President and Chief Executive Officer

Yeah, I always say this but I appreciate your interest in our company. I know I'll be with a number of you over the course of the next quarter, both Jim and I. And our story is one where we just try to get better every quarter and we deliver on that. We think obsessively about operating leverage. We've really broadened the base of our fee businesses. Our core commercial and consumer businesses get better every year. We've switched gears to a regional banking model that is really producing for us on the non-interest income and the growth side as well and this is so good about the future of our company and -- but thank you again and look forward to being with you over the course of this fourth quarter. Take care.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Ryan M. Thomas -- Vice President/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

Michael Perito -- Keefe, Bruyette & Woods, Inc. -- Analyst

Steven Duong -- RBC Capital Markets LLC -- Analyst

Daniel Tamayo -- Raymond James & Associates, Inc. -- Analyst

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

Frank Schiraldi -- Piper Sandler Companies -- Analyst

Daniel Cardenas -- Boenning & Scattergood, Inc. -- Analyst

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