F.N.B. Corporation Aktie

Good day, and welcome to the FNB First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Lisa Hajdu, Manager of Investor Relations. Please go ahead.

Good morning, and welcome to our earnings call. This conference call of FNB Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements and 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 Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and our earnings release.

Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Friday, April 24, and the webcast link will be posted to the -- About Us, Investor Relations section of our corporate website.

I will now turn the call over to Vince Delie. Chairman, President and CEO.

Thank you, and welcome to our first quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer.

FNB produced a solid quarter with net income of $137 million. EPS increased 19% over the first quarter of 2025 to $0.38 a Pre-provision net revenue increased 17% from the year ago quarter as we generated positive operating leverage of 4.9%. Our capital ratios remained strong and continue to move favorably, all while producing a strong return on average tangible common equity of 13.2%.

Tangible book value per share of $12.06 represents an 11% increase from the year ago quarter. Since 2009, we expands the tenure of our leadership team's management of the bank and holding company. We have focused on a disciplined and strategic approach to developing and executing our long-term growth plan. Our actions have resulted in the company's robust capital accumulation sustainable, superior financial performance, investments and a resilient risk management framework and a strong balance sheet.

Over time, we have grown our capital to record levels and effectively manage the dividend payout ratio from nearly 80% down to 31%, in line with our peers. During that time period, we also grew the balance sheet 477% and with an organic compounded annual growth rate of 8%. We invested in our enterprise risk management framework, built out our advisory and capital markets businesses to diversify our revenue streams and established FMB as an industry innovator with an award-winning digital and data analytics capability, including the eStore. These significant investments occurred over time while maintaining an industry-leading efficiency ratio in the low to mid-50% range.

I can't emphasize enough the hard work and superior execution by our team. to get to where we are today. These efforts have produced sustained levels of increased profitability, significant returns and strong capital generation. This strategy was fully aligned with shareholders' interests. We recently announced an 8% increase to our quarterly cash dividend to $0.13 per share, starting with the dividend to be paid in June.

Our Board of Directors also unanimously approved our management's recommendation for an additional $250 million for the repurchase of our common stock on top of the $50 million remaining in our existing share repurchase program. Inclusive of the March dividend, and $35 million repurchased in the first quarter of 2026.

FNB has returned a total of $2.4 billion in capital to shareholders through both dividends and repurchases since 2009, demonstrating our long-term commitment to optimize value for our shareholders while also growing and reinvesting in the company for continued future success.

FNB's financial performance is achieved through consistent execution and sustained growth in our engaged customer base. We were thrilled to recently announce our partnership as the official and exclusive retail bank and financial provider to the Pennsylvania State University. Beginning in July, Penn State's 90,000 students faculty and staff will have exclusive access to FNB's on-campus banking services, including our proprietary eStore.

FNB was also selective as the primary treasury management provider to all Penn State campuses. Our continued success of winning despite significant competition, demonstrates our capabilities and leadership in the industry.

As a core business, University Banking highlights another differentiated product offering. In addition to significant investments in AI and digital, FNB's innovative solutions also extend to our ATM network. This month, our first ATM that offers foreign currency disbursement for Canadian dollars and Mexican pesos opened at the new Pittsburgh International Airport. Once again, an industry leader, our ability to offer foreign currency disbursement through an ATM is very rare across the banking industry and builds upon our momentum to improve the ease of banking for current and new customers.

We congratulate the airport authority and its leadership on the completion of the new terminal, which includes FNB's state-of-the-art visually stunning banking center. We are proud to play a role in this transformational Pittsburgh asset with our ATMs and sponsorship.

The first quarter reflected a promising start to 2026, with our ability to continue to attract top-tier talent, deploy innovative solutions and deepen customer relationships, period-end loan growth of 3.9% annualized linked quarter was driven by 4 middle market C&I. It is important to note that our growth has not benefited from NDF or lending into private credit, a category that we continue to avoid.

With that, I would like to now turn the call over to Gary to discuss all of our credit results for the quarter. Gary?

Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at solid levels. Delinquency along with NPLs and OREO increased slightly, each up 3 bps compared to the prior quarter, totaling 74 and 34 basis points, respectively. Net charge-offs continued to show strong performance totaling 18 basis points, down 1 bp compared to the prior quarter. Criticized loans increased slightly, consistent with the seasonality we have seen in the first quarter over the last several years.

Total funded provision expense for the quarter stood at $19.4 million, supporting the C&I loan growth and charge-offs. Our ending funded reserve now stands at $443 million, an increase of $3.5 million, ending at 1.26%, unchanged from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.32%, and our NPL coverage position remained strong at 393%, inclusive of the discounts.

While we have not experienced any impact related to tariffs, we are maintaining the related qualitative overlays from a year ago due to the ongoing conflict and uncertainty in the Middle East. Our comprehensive risk management oversight, including concentrations of credit line utilization, proactive CRE management, stress testing and the 360-degree risk view of our client relationships allows us to maintain a strong risk profile throughout economic cycles and during periods of economic uncertainty.

We are monitoring the situation in the Middle East closely, as we have done in the past during the pandemic, the Ukrainian conflict supply chain disruptions, inflationary periods and tariff increases. Throughout all of these periods of disruption, our loan portfolio and customer base have proved resilient and did not experience any material adverse impacts.

Our consumer portfolio remains very strong with average origination FICO scores of 782 with delinquency and charge-offs ending the quarter at multiyear lows of 67 and 5 basis points, respectively. We continue to originate loans within our commercial and consumer portfolios under our long-standing and consistent credit underwriting philosophy.

In the quarter, we had solid C&I activity leading to increased loan growth with a slight uptick in line utilization. Additionally, we are seeing increased levels of high-quality CRE opportunities. However, our exposure declined in the quarter, ending at 194% of Tier 1 capital plus allowance.

In closing, despite the continued volatility in the markets, we look forward to building on the momentum we had in the first quarter with our pipelines at near record levels across the majority of our portfolios. With the quality and diversification of our portfolio, we are well positioned to achieve our growth objectives in the year ahead.

I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary, and good morning. Today, I will review the first quarter's financial results and walk through our second quarter and full year guidance. First quarter net income totaled $137 million or $0.38 per share, with total revenues up a strong 9.4% from the year ago period and coupled with prudent management of operating expenses, PPNR increased nearly 17%.

Turning to the balance sheet. Loan activity began to accelerate late in the quarter with spot total loans and leases ending the quarter at $35.1 billion, a 3.9% annualized linked quarter increase driven by growth of $198 million in consumer loans and $136 million in commercial loans and leases. Spot C&I loan balances were up over 4% linked quarter on annualized were $314 million, driven by growth in the Carolinas, Cleveland and the Mid-Atlantic.

CRE balances continue to be impacted by expected payoffs and were down $110 million linked quarter. Residential mortgages, indirect and HELOCs all contributed to the consumer loan growth. Spot total deposits ended the quarter at $38.9 billion, a linked quarter increase of $142 million with the first quarter impacted by normal seasonal outflow for corporate deposits. Noninterest-bearing deposits increased $89 million or 3.6% linked quarter annualized and remained stable at 26% of total deposits.

The loan-to-deposit ratio held steady at 90%. First quarter's net interest margin was 3.25% and down 3 basis points sequentially as the timing of the Fed rate cut in December 2025 impacted NIM for the quarter. Additionally, normal seasonal outflows and deposits were funded temporarily with higher cost short-term borrowings.

Interest-bearing deposit costs declined 13 basis points linked quarter, driven by lower rates paid on money market CD balances and total borrowing cost decreased 12 basis points. Our cumulative total spot deposit beta since the fed interest rate cuts began in September of 2024, was 27% at quarter end. The total yield on earning assets declined 11 basis points to 5.14 on an 11 basis point decline in loan yields and a slight 2 basis point decline in investment securities yields. Reinvestment rates on investment securities remained well above the overall portfolio yield. Looking ahead to next quarter, the margin for the month of March was at $3.30 on Net interest income increased nearly 11% from the year ago period as the NIM expanded significantly, increasing 22 basis points with earning asset growth of 3.5% year-over-year.

Turning to noninterest income and expense. Noninterest income totaled $91 million, up 3.7% in the first quarter of 2025. And Capital markets income increased 27.8% to $6.8 million on solid contributions from debt capital markets, swap fees and international banking. Wealth management revenues increased 2.8% year-over-year to $21.8 million, with contributions across the geographic footprint.

Noninterest expense totaled $257.9 million, a 4.5% increase from the year ago quarter. Salaries and employee benefits increased less than $1 million or 0.4% as lower performance-based compensation and health care costs offset strategic hiring and normal merit increases. Occupancy and equipment increased $5.1 million or 11%, primarily due to technology-related investments and higher occupancy costs, which included unusually high seasonal snow removal costs.

Other noninterest expense increased $6.8 million or 30% due to a combination of higher fraud losses litigation-related expenses and the impact of our mortgage down payment assistance program. The first quarter efficiency ratio remained solid at 56.1% down meaningfully from 58.5% a year ago, and we continue to manage our expense base in a disciplined manner.

FNB continues to actively manage our capital position to support balance sheet growth and optimize shareholder returns while appropriately managing risk. Given the new share repurchase authorization, Vince mentioned earlier, we now have remaining capacity of $300 million after repurchasing a total of $35 million in the first quarter of this year. The 8% quarterly common dividend increase marks our first quarterly dividend increase since 2007 and reflects our strong financial performance and capital levels as evidenced by the TCE ratio of nearly 9% and the CET1 ratio of 11.4%.

Let's now look at guidance for the second quarter and full year of 2026. All guidance is based on current expectations, are remaining cognizant of the highly uncertain macroeconomic and geopolitical environments. We are maintaining our full year balance sheet guidance for spot balances, projecting period-end loans and deposits to grow mid-single digits on a full year basis as balances continue to build on the growth acceleration we experienced late in the first quarter.

Our projected full year income statement guide is largely unchanged with last quarter. Full year net interest income is still expected to be between $1.495 billion and $1.535 billion. We are assuming no Fed interest rate cuts for 2026 versus our previous expectation for 225 basis point cuts, while maintaining our previous net interest income range due to our expectation of continued deposit pricing pressures in an environment with no Fed cuts and accelerating loan growth in the industry.

Second quarter net interest income is projected between $370 million and $380 million. The noninterest income full year guide remains $370 million to $390 million with second quarter levels expected between $90 million and $95 million. The full year guidance range for noninterest expense remains unchanged between $1 billion and $1.02 billion, but we now expect to be at the higher end of that range due to increased investments in franchise growth and new strategic initiatives.

Second quarter noninterest expense is expected to be between $250 million and $255 million. We continue to expect strong positive operating leverage for the full year of 2026. Full year provision guidance is maintained at $85 million to $105 million, given the stability in our credit performance to start the year and will be dependent on net loan growth and charge-off activity.

Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur.

With that, I will turn the call back to Vince.

Thank you. Our team is cultivated in an environment that succeeds through passion, collaboration, hard work and respect. We pair the advantages of our scale with the discipline of agility to win business that is heavily sought after by both large and small competitors.

As a regional bank, FNB's differentiated investments in technology and product offerings have enabled us to win against competitors of all sizes to gain market share, drive shareholder value and meet the needs of our commercial and consumer customers.

I would also like to thank our Independent Lead Director, Bill Campbell, who announced his upcoming retirement from our Board in May. I want to extend my great appreciation for his distinguished service independence, dedication, leadership and mentorship to many, including myself. He instilled in all of us a desire to put the shareholders first, and his insight on the Board will be missed. Best wishes to Director Campbell in his future endeavors. His presence will be missed, but his legacy at FNB will live on.

In closing, we are proud of our differentiated culture, which continues to be one of the most recognized in the industry for leadership, innovation, employee engagement and client experiences. This quarter, FNB received numerous awards including America's best customer service and financial services by USA TODAY, America's best financial services by time, America's greatest workplaces for entry-level employees by Newsweek a top workplace U.S.A. by Energage and a Greenwich Excellence Awards winner for client service, a recognition we have earned annually since 2011.

These awards and recognition occur because of the dedication and commitment of our employees. On behalf of the Board and executive team, I would like to thank them for their extraordinary accomplishments.

With that, I will turn the call over to the operator for questions.

[Operator Instructions]. Our first question comes from Daniel Tamayo with Raymond James.

Maybe starting on the C&I loan growth, really strong in the first quarter. You made a comment in the release that it accelerated towards the end of the quarter. Maybe you can expand a little bit on what that looked like. And I think Gary made a comment about Vince about near-record pipeline. Just curious what those look like in C&I and kind of the path forward given the strong quarter.

Yes, Dan, we saw a lot of activity. It started building fairly early in the quarter and finished up really strong. The pipelines have increased significantly and are pretty close to near record levels. It's really across the whole company.

On top of that, we've seen a lot of high-quality opportunities from very strong investment grade type of larger corporate borrowers. We saw some M&A activity, so it's really been across the board and very diverse. We did have one maturing loan that paid out, which even impacted the growth even further, right at the end of the quarter or that number would have even been stronger. So we really like the position of the pipeline right now and the activity that we're starting to see we expect it to build throughout the year.

Great. And maybe one for Vince. Just curious if you can expand on the strategic initiatives comment in the release about, which drove the increase in the expense guide to the higher end of the range?

There's a variety. As you know, we've consistently been investing in our Fit-to-brick strategy. And as part of kind of the normal capital investment that we're doing. I mean there's a variety of things. We've announced that we were going to be launching 30 de novos over the next 5 years. So that's part of it. We're fully launching that with DC Metro as far as the ATMs throughout that network.

We continue to invest in the eStore and have some new initiatives looking to create a 360 view of our customers. We began that initiative to be able to pull in internal data as well as external data so that our customer-facing employees have all the data right at their fingertips on what customers have here and somewhere else and then leverage AI to kind of say, well, what's the next product that would make sense for them. So it's really continuing those key tech investments that we've been making.

And I would say that we've redesigned how we're approaching development within the company. We moved from a traditional IT development environment where IT coordinates all of the -- with business analysts and interactions with the front line, they coordinate all of the development assets that we have, which includes a large number of consultants. We've kind of changed the model. We're pushing those programmers to the 3 areas that we feel are the most impactful for us from a revenue and efficiency perspective. So that's part of of the expense build. We're looking at some AI in incidence that we've invested in.

So there's personnel expense related to bringing those development contractors on that's reflected in the guide. Most of it ends up being capitalized for software applications that we develop and then put it online. Vince mentioned the 360 view of the customer that's essentially both an inward and outward tool, tool for clients to review their relationship within FNB.

There is an AI overlay that permits for those clients to see the products and services that they're using and how they can best improve their circumstances, either from a cash flow perspective or from managing risk. It's a really cool product. It's proprietary. I don't see it anywhere. We're slated to put it out by the end of the year. It should be in production at the end of the year and then into the first quarter of next year.

But it will also help internally because what it does is it actually evaluates what's going on. It looks at numerous data fields based on what the customer is doing within our organization. And when we open it up to outside, it will be opened up to bring in external aggregation as well. That will help us guide the customer to better products and services and a better solution within FNB's product offering.

So if they have a high rate mortgage somewhere else and we offer a better product, this tool will actually tell them and they will actually explain that they could save X amount of dollars by refinancing. And then to tie it all together, because we built out this platform that enables us to apply for multiple products simultaneously, which is also being improved with AI.

We will be able to move those clients into an environment where they're seeing their 360 view, they're actually getting recommendations on things that they should be doing to improve their banking relationship, and then they'll be able to purchase the products because tab, and it will actually -- they can just put them in the cart and then proceed to check out.

We have automated data flooding and authentication and all that stuff built into the common app. So -- that's the game plan. And that's why there's a little extra we're saying there's going to be a little extra spend in the forecast.

Yes, part of that, we've also baked in investing in treasury management, some of our offerings to make it easier for customers, wealth management, there's initiatives that are part of that as well.

And then on top of that, just normal process improvement, I mean, leveraging AI and machine learning -- someone that we've had in place for many years, leveraging those tools to extract costs as we move forward, which will help improve the run rate.

Yes, some of this is transitory, though. This is not embedded in the run rate of the company. And there's quite a bit of contract expense or contractor expense built into that guide, the change that we're pro Yes.

The next question comes from Casey Haire with Autonomous.

Yes. Great. So I wanted to touch on the NIM outlook, the 330 NIM in March, so you get some pretty good momentum entering the second quarter here. I'm guessing that was on the funding side of things, given the seasonal outflows in DDA, but just a little color on where that's trending. Maybe the spot deposit cost rate at the end of the quarter and some thoughts on how the 2Q NIM trends.

I guess just looking at net interest income overall, the $6 million decrease from the fourth quarter, right in the middle, the number we landed out at $359 was right in the middle of our range we provided in January, which was $3.55 to $3.65.

The timing of the last Fed cut clearly makes a difference on loan yields for us. As you know, I'm talking about that in the past that 45% or so of our loan portfolio reprices based on SOFR changes. So originally, we had that in January and that coming forward to December kind of affects the net interest income for the first quarter.

The other element is we have our normal trough in deposits that happens every year in the first quarter, and we fund that temporarily with short-term borrowings that's about 2 basis points of margin, $2.5 million in net interest income in the first quarter, and then that kind of goes away as we move forward. But we have been operating with a dual mandate of trying to grow deposits to fund the loan growth that Gary talked about and Vince talked about that we saw to accelerate in March and the expected loan growth as we go forward.

So we're trying to balance growing deposits to help fund that loan growth as well as managing the deposit cost down. So there's clearly a balancing act there. And then, Casey, as you mentioned, the 330 exit margin for the month of March is key. And as we look forward, I mean, our guidance implies that going up gradually a few basis points or so a quarter between the first quarter and the end of the year. And without the Fed cut expected for the rest of the year, at this point, there are several levers we have to support net interest income growth. I mean average earning asset growth, obviously, is the key.

In our investment portfolio, we're reinvesting 75 to 125 basis points above the roll-off rate. For CDs, we're still picking up 20 to 25 basis points. Next quarter alone, that's $3.3 billion worth of CDs maturing. And then in our fixed rate loan portfolio, we're picking up about 35 basis points on $2.5 billion over the next 12 months. So there's a lot of levers there that will kind of work off with that 3/3 launch point. the spot deposit cost of 199.

177 total Yes. IBD versus the 240?

That's total deposits?

Right.

Total IBD 236, Casey, is interest-bearing. $177 million includes noninterest.

Okay. Great. Just 1 more on the capital front. So very strong buyback this quarter. The CET1 ratio kind of held flat. I'm just wondering, is that -- is that kind of what you guys want to -- you going to manage it here? Just keep it at this level within balancing between loan growth and buyback? And then any thoughts on the Basel III proposal?

Yes. I would say, I mean, with the CET1 ratio at 11.4%, the payout ratio now in the low 30s, combined with our guidance, implying continued strong internal capital generation, -- as we talked about last quarter, we're in the best position to deploy capital, which is why we made the announcement that we made earlier in the week.

Beyond supporting the expected balance sheet growth, we continue to see buybacks attractive at current valuation levels, for sure. I think the earn back is maybe 3 years at this point with where the stock is trading. We bought back $50 million for the full year of last year, and I talked about buying at least that or more.

First quarter, we did $35 million -- so I think we'll continue to be opportunistic on the buyback program. We were down to $50 million. So it was the right time to increase the authorization. So kind of have $300 million worth of powder there. And with the earnings generation level, we would expect capital ratios to still build. I mean I would just say, off the cuff, not looking to reduce 11.4%, but being active on the buyback, the dividend another component of that, which isn't a lot in dollars from a capital standpoint, but I think it's important.

If you go back to -- last time we had raised dividend was 2007. And in 2009, for those that were following us when everybody went to a nickel or $0.01, we went from $0.24 to 12%. So our Board made a decision only to go at that point. So we had a super high payout ratio, but investors are getting paid a very nice dividend yield over that entire period. So that was important.

And we reached a point with the way capital is building that we were comfortable not only having the buyback but increasing the dividend. -- at this point in time. And the goal would be, over time, to be able to move that up as we grow and as earnings continue to grow. So I think that's another important point.

On Basel III -- II, Casey, I'm sorry, that was the last part of your question. I mean we're studying it. I mean it has a meaningful impact if it gets in place the way it is. I mean we've looked at different ways of analyzing it. And it's definitely meaningful. So I guess we'll see how that plays out in the end. We've studied what's in the proposal. And that's not baked into our plans here as far as capital deployment, right? That would be a new factor if it gets approved way it's proposed.

And the next question comes from Russell Gunther with Stephens.

I wanted to follow up on the deposit pricing pressure commentary you guys made would be helpful to get a sense for how you would expect deposit cost to trend from here -- the spot rates you gave us were pretty darn close to the full quarter average. And I think in the past, you've talked about a mid-30s terminal deposit beta versus the 27 we've got right now. So it would be helpful to just understand whether we should expect some upward pressure on total deposit cost, but that's what's embedded in that kind of March 30 guide moving higher.

Yes. No, I would say -- I mean, there's still opportunity for that cost of deposits to come down. I mentioned the CDs picking up 20 to 25 basis points on $3.3 billion. So that obviously affects that.

Our success bringing in noninterest-bearing deposits which has been a strategy forever, obviously, is key to the overall cost of deposits there and the cost of funds. So I think there's still room for us to bring it down strategically, Russell, is the way I would say it, because without the cover of the fed cuts, you have to be very strategic.

And I think our team has done a very nice job analyzing the different components and maybe customers that don't have as much with us, you're a little more aggressive on how you adjust the rates and it's just a constant day-to-day process for us to look at where there are opportunities. But there's still opportunities for the total deposit cost to come down.

And like I said, the focus on noninterest-bearing is key. The -- going after some larger kind of accounts to bring in larger deposit balances has been something we've focused on over the past year and have had some good success bringing in some larger deposit.

We basically -- we brought some very attractive, large, complex treasury management relationships over. They're in the pipeline. They're moving over to us. And they're coming from all over. I mean, some of the larger banks bank them today. So that's going to have an impact. It will have an impact on our free balances because they use balances to pay for services. So there's quite a bit in that pipeline. That's what Vince is referring to.

But if you look at it globally, take a step back, that's one of the only ways we can really control. We're not a price setter. We have to react to the marketplace. So the way we drive our cost down despite increasing the noninterest-bearing component in the mix. And that's a strategy that we have talked about for a long time, will continue to do. So I think there's some optimism here from a cost funding cost perspective because of those opportunities that we have and some success that we're seeing, particularly in the consumer bank as well.

With new clients coming over and increasing share of wallet with the consumer. Some of the things we've done, we've invested in a number of tools to create client primacy and it's really starting to pay off. And the investment in our AI to analyze lots of data to make pricing decisions is also paying off so.

So -- that was a large corporate following efforts right. It's helping on the loan side as well as the deposit side.

So we're -- we've got some -- there are some good things coming. But if you look at it overall, what Vince was saying in his comments, if the industry is going to be trying to loan up particularly in C&I. There's going to be the pricing pressure from a funding perspective kind of. That's the expectation. So that's the uncertain part about it is how aggressive do others get from a pricing perspective.

We're sitting in one of the best positions we've been in from a loan-to-deposit standpoint, at this point in the year, too. So there's a -- there's definitely -- we're definitely sitting in a much more favorable place to give us some flexibility on pricing.

That's really helpful, guys. I appreciate all of that color. And then let me just follow up on the capital front. If you guys could just remind us of how you think about a CET1 floor and how active you would expect to be with the buyback against your kind of mid-single-digit loan growth expectation.

I mean we've been using 11% as a floor for CET1. We're at 11.4%, and we're not looking to really drive that down. We'd like to have a powder there. if the loan growth and when the loan growth really accelerates and comes on board, we want to have that capital to support the loan growth. So -- but I mean, if I had to state the floor, I would say 11% would be a floor for that level for the CET1 ratio.

Previously, we had said 10% and we grew about 10%. Now we're at 4% or so.

I'd be okay with 10, [indiscernible].

That's true, [indiscernible] 10%.

And the next question comes from David Smith with Truist Securities.

So now that you've taken those cuts out of the outlook seems like it's a little bit of a tougher backdrop for loan growth, although you kept the guidance the same in that mid-single-digit range. Can you talk about any puts and takes there? Has your expectations for where that low loan growth is coming from evolved over the last 3 months?

Yes. As we've said, our short term -- if you look at the short-term C&I pipeline, commercial pipelines, they're up 10% in the same period. So this is typically a seasonally slower period. So we're starting to see more activity. If you look at our leasing and finance project finance area. They've had -- they continue to have really strong pipelines and had great production last year. There's -- because of the tax law changes, that's going to continue. If you look at the commercial bank or the consumer bank, we -- our pipelines are up significantly in the consumer bank. So I think nearly all correct.

So there are some bright spots out there. On the flip side of that, CRE still continues to trite because we've already gotten into all this, but we pulled back a little bit, and we're just letting those large bonds go to the permanent market. right, Gary.

Yes. And even with that, we are starting to see some extremely strong new CRE credit opportunities. So there is -- there are some shoots there that are starting to show and we've liked what we've seen so far.

Yes. So as I mentioned on the last call, our capital growth, the reduction in that exposure, we're below 200%. I expect that probably in the different. So it gives us the ability to go out and pick good high-quality projects to do in the CRA space. that's not even reflected in our our pipeline yet because that all tons should be coming in the second half of the year. But there are some bright spots.

So that's why we're not changing our guide. -- and that's why we still believe pretty strongly in our ability to produce net interest income that we -- that's reflected in our guidance.

Okay. And then the fee guidance implies a little bit of a ramp-up in the second half from $90 million in the first quarter and $90 million to $95 million this coming quarter. Can you just unpack your expectations there, like where you see that growth coming from?

Sure. The investment banking segment should produce some pretty significant fee events. So the public finance and the investment banking group that we brought on -- there are some deals that are slated to happen in the second half of the year that will contribute to that that are already in the works.

I think that's one contributor. We also think that when there's less interest rate volatility here, if things settle down a little bit, there should be a pickup in derivative activity. We're still pretty optimistic about our ability to grow market share in the mortgage business, so there's gain on sale. Opportunities up and down the Eastern seaboard because those markets are continuing to grow. We've got wealth growing.

We have some great momentum in our wealth shop. So we're building out a group to handle family office, opportunities. So we're going to be moving up market in that space, and there's some promising opportunities there.

So I think fee income mortgage treasury management as I've mentioned earlier, we have some fairly significant treasury management clients. Penn States, one of them. There are others that we have won that are even larger that will come over. So fee income in the treasury management space should continue to expand.

And then there's interchange. We've seen a pickup lately in interchange activity. We've not even really spent a lot of time activating our debit portfolio, and it's a fairly sizable fee income stream for us. So there's going to be a focus on that. particularly with the use of AI and some tools that we have to try to drive more activity on our -- in our debit card platform and with our small credit card portfolio, but it's small relative to the debit side. Those are the drivers.

And this is our fourth consecutive quarter with fee income at $90 million or above. So I think that's a key point for us. And I think there's good momentum in the businesses that Vince talked about in debt capital markets and public finance. So there's a lot of excitement about what the rest of the year holds for us on the fee side.

Yes. And we've been doing really well from an international perspective as well. We just won another word, I'm not like to mention what it is, but those people have done well. the person that runs it, Gener is a long-time associate of mine and respective -- and he's done a terrific job, and that continues to grow, too.

So we're seeing more and more opportunities with international banking with hedging and spot transactions for our clients, particularly as we're moving upmarket. So I'd say given that we have a really low relative share to some of these large players in the capital market space and the revenue lines associated with some of these businesses is relatively small, and it's already reflected in the run rate. There's upside.

Less public finance is another door business.

So that -- yes, as I mentioned earlier, with investment banking, that's another one. We think hundreds, maybe thousands of municipalities across our footprint. We have a specialization and handling their principal treasury management fees. And I think that, that will open the door, building out that team opens the door to some significant opportunities in the public finance space for us. And that's a highly competitive business, but we have the relationships already.

We've been farming it out or turning it over to others, and we now can capitalize on it. So very granular I mentioned all these areas. So there's a lot of granularity. So it doesn't take much of a number of those areas increase even low single digits. It starts to really drive the total revenue number.

And the next question comes from Kelly Motta with KBW.

We've talked a lot about your capital as well as the organic loan pipeline and the opportunities in C&I, I'd like to circle back to M&A and get another updated thoughts here on your appetite for deals and a reminder of what you look for given it does seem like your organic outlook is quite strong.

Yes. I've said it a number of times, we're going to be opportunistic. There's not a lot out there that we see that is high value even if they were available. Like there are things that we could look at that would make a lot of sense, but a bank has to be for sale to do a transaction. We're not actively in the market. I'm just referring to deals that have been done, things that I'm hearing in the marketplace. But I think our early drive to do M&A was to gain the scale to get over some of the regulatory hurdles and to be able to do some of the things that we're doing today.

And I think given the size of the organization, we're in the sweet spot, even though some don't believe it, we're able to compete very effectively with everybody, and we have a very deep product set. And I think what you get from us is a $50 billion balance sheet and maybe a $1 trillion banks product offering, at least for our clients, right, because we're not banking Fortune 100 companies as their primary bank.

So the middle market and large middle market clients that we bank, we can do everything that a lot of the other banks that are much, much larger than us to, but we do it in a way that is more boutique-ish there's more attention paid to getting stuff done. There's less bureaucracy. We're a little more creative because we don't have the same level of infrastructure or systemic methods of doing things. So it lets us be a little more entrepreneurial.

And I think the customers enjoy that, and we're seeing great opportunities because of that. And I think that -- and I've said this, I just did a podcast it's not out yet with the ABA, but the smaller banks have an incredible opportunity right now to build product that's unique.

Because of AI, because of the changes that are occurring from a tech perspective with cloud-based computing, the speed of computing, the ability to develop software with I think you're going to see some pretty interesting things come about, and I think it's changing the equation on scale, particularly relative to technology. So that's -- and if you look at our cost of funds and you look at our returns and our return profile and our efficiency ratio, we're right there with the larger banks.

So efficiency within the consumer bank was actually better when we did the analysis. So we're able to do that because we're very smart about how we deploy our resources, we're able to do it because we don't have the bureaucracy, we're able to do it because we're not arrogant. There's a bunch of things that we've seen out there that certainly play in our favor. So I'm sorry for the long answer, but we've talked a lot about this internally.

I really appreciate all the color. That's very helpful. Maybe to turn back on the margin. I appreciate the commentary about C&I growth being really strong and pipeline to record levels. Hoping, I apologize if I missed it, but if you could provide additional color as to how loan pricing and spreads are holding up. I know you gave some color about the continued repricing opportunities here, but just hoping to get more on pricing.

Yes, you would expect in this environment for credit spreads to broaden because of the geopolitical environment that we're in, we're not seeing that necessarily in the middle market. I think there's still some pretty significant tailwinds from an economic perspective that keep people optimistic and I think the tax law changes were very favorable for capital investment. So you're not seeing what you typically would see when we have the geopolitical environment that we have. So I would say what that means is that you're not going to see a broadening of credit spreads because of issues with repayment or problems. I don't know, Gary, you could speak to that.

But there is competitive pressure, obviously, but there's always competitive pressure. I've been doing this for a long, long time. I've been in corporate bank and my whole career. And one of my pet peeves is when I sit there with the commercial bankers and they tell me that it's so competitive. I can remember back 30 years ago when I was competing for deals in the upper middle market and transactions were priced at 50 basis points over LIBOR on a sub investment-grade credit opportunity. That's that pricing doesn't exist today so the margins are better today.

So it goes through ebbs and flows and changes and credit spreads impact how pricing is impacted. So we'll see what happens with the economy. We've always benefited because we were more conservative. So when credit spreads were broadening, what that means is that we're going to get paid more for lower risk transactions, because we have the capital and the appetite to deploy capital.

And Gary has talked about that many times. Others will get out over their skis from a lending perspective and then have to pull back during those periods. And there during frothy periods, credit spreads are thinner. So I would say if you want to shorten, sorry for all these long answers, Kelly. But the reality is it's a complicated business. And in certain segments, like if you move deep down into small business lending, I think spreads have come in because there's increased competition for C&I opportunities.

When you move up into the larger end of the spectrum. I think spreads are pretty consistent with how they've been underwritten, particularly on syndicated deals. It may have come in a little bit. I don't know, Gary, if you...

Inch you hit it pretty well. Spreads are where you expect them to be today on a transaction-by-transaction basis, you can get squeezed a little bit, but we're very comfortable with the with the spreads that we're seeing in the marketplace today and based on where the economy is, is it going to probably get a little more competitive as we move forward. It wouldn't surprise me, Kelly. So we'll keep an eye on that. Continue to manage it accordingly.

Great. I really do appreciate all the color.

And the next question comes from Manuel Navas with Piper Sandler.

Just a quick follow-up on Kelly's question. What are kind of new loans coming in at what yield?

It depends on the category.

New loans originated during the first quarter came out at $557 million -- if you look at it compared to the fourth quarter on average, I mean, it's 589 in the fourth quarter, you had 2 Fed cuts affecting fourth quarter levels. So on a spot basis, so the overall portfolio yield is at $561 -- it was only down a basis point in total, which includes all of the different categories of loans, no Fed costs during the quarter.

So total moving a basis point the lines have kind of have approached each other now where we have been -- if you go back a few quarters to new loans, we're coming on 25, 30 basis points higher than the portfolio yield. It's kind of more in line based on the mix of what we originated during the first quarter.

Okay. I appreciate that. The deposit pipeline, you're speaking to some commercial clients that are going to come on over time with treasury management solutions, -- is that pipeline also -- how does that compare to your current deposit costs?

Yes, it's a -- that's a hard -- it's a good question. It's a hard 1 to answer on the fly. -- because you're going to have different levels of demand deposits based upon floor balances that are set because they use an earnings credit to pay for services. It depends on the client and the level of services -- so I don't know if I have a good answer for you, but it's a great question.

In the pipeline, some of it you really don't know because I mean -- well, I think most of the stuff we're doing, we're the operating bank, right? So you will see higher cost deposits coming on board as well. But that's the excess balances that are being swept. So if you look at that, typically, they're swept into our standard price, it doesn't change our stated pricing. So we don't exception price that. The focus is on setting the floor balance and whether the client is going to pay with fees or use demand deposits. So -- and the level of -- but the cost is for us.

So I would just add one thing 2-minute well, but the commercial deposit pipeline is up meaningfully. I mean we were a little under $1 billion at the end of the year, and we're around $1.2 billion now. So we convert and we continue to add new names into that.

That's great. I appreciate that. Just my last one is can you talk about how quickly some of your investments in account primacy or AI, when they should kind of pay off and how kind of should we track your progress beyond deposit growth, solid returns. You planned to some market share gains. Any other metrics you'd like to point us to kind of see how this is paying off?

Well, we have mentioned in the past, applications. Our application volume is up considerably. Using the platform that we've developed that utilizes AI and our common app. So I think 38% increase in deposit applications through that network. It's kind of hard to give a global number because you've got disintermediation going on with traditional origination methods. But we track how many come through that channel and it's up significantly. It continues to grow significantly.

I think loans were up. I don't remember what the number is 10%. Yes, 5% actually loan application volumes up 5% quarter-over-quarter and 31% is the increase in deposit applications. So you're seeing increases in those categories that should accelerate over time. The best way to look at this, I think, for any bank would be to look at their overall performance because it's so dispersed throughout the organization. And we're trying to balance obviously, we have limited resources, as I've said earlier.

So we don't want our expenses to grow and then not get a benefit right? So we're not a tech company, we can't burn cash and then tell you we're not going to make any money. So we're a bank. So we basically have to gain the efficiency, pick the project, deploy it, gain the efficiency and it's reflected in the numbers. But I will say, we have a number of things that we've already pulled off. We have upgraded our ability to monitor deposit base and affect deposit betas with analysis that we've done. And we had a system before opportunity.

We have a new opportunity Q2, which is much more sophisticated and speedy because we're using AI to assist with it, not just machine learning tools and insights. So I think that's 1 example. We've got a project underway to automate our pulse center. Based on some research that we've done. So we -- there's some pretty spectacular AI software that's available that really can have a significant impact on the customer experience and our cost servicing a customer via the call center.

So we're engaged and looking at that, we are in the throes of building out our 360 View, which has an AI overlay I mentioned it earlier, that we're in, I'd say, mid phase there, and we're moving very quickly. We're building out a proprietary mortgage application that's going to be embedded into the common app. That's coming, which will help us in the long run with cross-sell opportunity because we'll be able to -- as we originate a mortgage loan use those data fields instantly for the customer to purchase other products like in insurance, home insurance, depository products.

And then we've already announced, we have embedded in our mobile app, the ability to move your direct deposit instantly and repetitive ACH transactions. We're working on bill pay. We're going to get there. We're integrating that into the origination platform, and we have pushed that common app origination platform into the field. So the entire branch network is originating on the same digital platform that consumers use online. So there's a lot. We've done a lot.

There's a lot that's already done that's reflected in the expense run rate. And then there are some things that we're finalizing that should come online very shortly here and be additive probably in '27 either from an efficiency perspective or generating additional revenue for us. I don't if that's helpful. But I don't have a precise number to give you. I can only tell you...

Were going to be building out external dashboards where we've been building internal and I think we mentioned before, having more dashboard type data that we'll be sharing as we proceed with these initiatives.

And the next question comes from Brian Martin with Green Capital.

Maybe one follow-up for Gary. Just maybe it's Vince. Just on the loan growth, just on the CRE side, in terms of the sales into the secondary market and just kind of managing that. How are you thinking about that? It sounds like there's opportunities, but you're still seeing payoffs just in terms of contribution to growth this year. It sounds like C&I is obviously was strong this quarter. The pipelines are good there. But just on the CRE side, given your capacity and how you're thinking about that in the secondary market.

Yes, Brian, we still have projects that we've been involved with for the last couple of years that are coming on a quarterly basis regularly that are moving into the secondary market. So we'll continue to see that as we work our way through the year ahead there.

That being said, we were pleasantly surprised by the ramp-up in new CRE opportunities. And pretty much across the board, those opportunities have been really solid. So we're going to aggressively pursue those solar transactions in that space. I will tell you that, that is, as we talked about competition earlier, it's very competitive because many banks are getting back in the CRE business.

So we're seeing that there's a lot of activity there, and we expect that to build throughout the year. So in terms of those payouts and moves into the secondary market, they will continue. That will be a headwind in that category, but we're going to be very choosy of the assets that we're putting on, and we will see we will see activity from a new booking standpoint there build throughout the year.

By the way, the C&I growth that we have, does not include MDFR. So I've been saying this for a long time. I think people finally started looking at it. But when you look at the H8 data, it included basically warehouse lending for consumer borrowings that get reflected in the commercial line because you can't segment it out or there's another category that you can't really figure out what's sitting in that bucket when you look at the public disclosures. But we don't have that. So we're not -- we're growing with traditional C&I.

So we haven't had any help in any way, right, from and [indiscernible]. And I think that's an important distinction. So as the economy starts to accelerate, you'll see us perform even better as we continue to build out some of these tools that I mentioned, we'll see better penetration in the small business segment. We should get there. The consumer business that we talked about, we're starting to see pretty explosive opportunities in certain segments and consumers? Right?

Yes. The consumer book has been really strong. The performance of it continues to be exceptional that record low credit metric levels at this point, high-quality paper, and the teams are doing a really good job generating opportunities and those pipelines are very high.

Just as a reference point, too, if you look at our changes since the end of the year, our NDF balances, which were very low, and we're in probably the lowest decile there. Ours came down 5%, 7%. The other -- all banks were up 7%. So it's driving a lot of the loan growth at some of our competitors.

Perfect. That's a great segue. Just one last one on the CRE Gary. I'm assuming that, that CRE concentration level around 200 pie stands or it's not moving a whole lot based on origination -- potential originations with payoffs. So that's not like it's going to ramp up.

We're at 194% at the end of the quarter, Brian, to Tier 1 plus the allowance. I would tell you that I would expect that to be lower as we move into the second and third quarters before we start to see some stabilization.

Got you. Okay. And then just to Vince's comment or both Vince's comments on NBFI, can you just remind us that your -- how low that exposure is today, just so we have that clarity in terms of that exposure relative to other banks?

Yes. In terms of our bucket, the largest bucket that we have in there is the other category, which is a mix of wealth management, advisory, family office and insurance companies for nonlending purposes. The credit facilities that we have in place, their support working capital acquisitions and lift-out strategies for our clients.

Remaining is a handful of customers, which is a little over $100 million clients that we do C&I business with that have formed some REITs and our PTCs, which we got from an acquisition a number of years ago, and we pared it back to the strongest of the strong. There are 5 of them. They're 4 of them are investment-grade companies. The balance is $40 million -- so it's really small. Right? Yes. $40 million.

And again, we've not focused -- that is not a focus of this company. That's the byproduct of acquisitions and clients accommodating certain clients. But we don't have a practice of going out and originating in that space.

And it's only 1% of the total loan book, too. So it's tiny. Minimal.

Yes. Okay. Good to highlight that. And just maybe the last 1 Yes. Maybe just the last one for me was your comments on the cost of deposits. It sounds like -- it sounds as though they are kind of flat to down maybe over the balance of the year, just with that balance of the C&I potential growth of the -- and I guess that's assuming that there's no rapid growth in loans and no change in rates. But that funding cost trending down. It seems like the outlook we should be looking at. Is that right?

And b, just can you talk about the pipeline of commercial deposits. Is that -- do you see that the baseline of 26% today trending a bit higher given your outlook for that pipeline?

It's too hard to say given the inflows and outflows in that bucket, what can happen potentially with disintermediation. I think that's a hard thing to say. -- right -- and we've been pretty steady at that level. It's risen and then the yield curve changes and then elaborates away and then comes back. So it's kind of hard to say, but we tend to target that levels, right? So it's reflected in our guide, and that's what you have. If we can do better, it's going to come from the things that I mentioned earlier.

Yes. Just from a higher for longer environment, Brian, I mean there's still some room for the deposits to come down, but it's going to be a function of the overall loan growth and the competitiveness like Vince mentioned earlier on the deposit pricing side. So I think there's room for to come down a little bit from here, but the rest of -- the back half of the year is going to be a function of what's happening with the overall loan growth.

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

Thank you. Thank you for the questions. And I want to thank our shareholders for sticking with us for so long. I think I've been in the seat for a long time. I've been here 20 years. So it's pretty amazing how time goes by. But it's great to be able to be here and to really deliver a dividend increase. I know a lot of shareholders -- individual shareholders and one that -- we're finally at a point here where we've accumulated capital. We have capital flexibility. So it gives us the opportunity to defend the company from a risk perspective to invest in some of the great things we're investing in that drive returns, right? We're very return-oriented.

And now because of the capital position we're in. We can continue to repatriate capital at even higher levels. And just so everyone doesn't forget we have returned $2.4 billion in capital since I became CEO here since CFO. So we are focused on taking care of our shareholders. And we did that all while we acquired banks and grew 8% to 9% on an organic basis over a sustained period. So anyway, thank you, and it's a great honor.

And I also want to say one more thing. I want to thank Bill Campbell again because he was a tremendous director and a phenomenal advocate to shareholders. He's done a lot of creative things over time. Early in his Board career, he was focused pretty heavily on governance, and that built the framework for what we have today. So he's kind of ahead of this time he's a great person and a great mentor, and we're going to miss him. So thank you for everything you've done, Bill.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone. And welcome to the FNB Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

Please also note that today's event is being recorded.

At this time, I'd like to turn the conference call over to Lisa Hajdu, Manager of Investor Relations. Ma'am, please go ahead.

Good morning, and welcome to our earnings call. This conference call of FNB Corporation and the reports as filed with the Securities and Exchange Commission often contain forward-looking statements and 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.

Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Wednesday, January 28, and the webcast link will be posted to the About Us, Investor Relations section of our corporate website.

I will now turn the call over to Vince Delie, Chairman, President and CEO.

Thank you, and welcome to our fourth quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer.

FNB reported fourth quarter operating net income available to common shareholders of $182 million or $0.50 per diluted common share. Full year 2025's operating performance reflected several records, including revenue of $1.8 billion, operating net income available to common shareholders of $577 million and operating earnings per diluted common share of $1.59.

Full year operating EPS grew 14% year-over-year, driven by the 9% growth in net interest income, significant margin expansion and record noninterest income. We delivered strong profitability and capital metrics with return on average tangible common equity equaling 16% and tangible book value per share of $11.87, an increase of 13% from the year ago quarter. Throughout 2025, we focused on resetting the balance sheet to best position FNB for continued future success, including managing loan concentrations as well as improving the loan-to-deposit ratio to 89.7%.

In December, we transferred approximately $200 million of performing residual mortgage loans to held for sale in anticipation of a loan sale to close in the first quarter of 2026. Additionally, as I mentioned on the earnings call a year ago, we have strategically decreased our CRE concentration organically to 197% over the past few years. We are generating enough capital to support growth across our loan portfolio, including CRE and have ample capacity to achieve historical growth rates. Since launching our Clicks-to-Bricks strategy 10 years ago, FNB has introduced innovative solutions, including the eStore and common application that provide an enhanced client experience to deepen relationships and achieve customer primacy. Our comprehensive digital strategy, including our early adoption of AI, remains a driving force behind client acquisition, engagement and convenience.

This quarter, we introduced payment switch, which enables customers to easily switch preauthorized payments to their primary checking to FNB through our mobile app. With direct deposit switch and payment switch, we've eliminated 2 of the most common barriers for customers to move their primary banking relationship to FNB. This is another great example of how FNB is leading the industry with our eStore Clicks-to-Bricks strategy and comprehensive digital capabilities. We are planning on introducing additional unique features over the coming quarters that will benefit our customers and further differentiate us in the marketplace.

Concurrently, FNB continues to expand to AI and data analytics usage to drive efficiency and accelerate revenue growth. Through our disciplined expense management culture, FNB has achieved annual cost savings of $10 million to $20 million per year since 2019. Leveraging our investments in technology, AI and data analytics, we expect even higher levels of cost savings in 2026 through increased automation and process improvements. This provides FNB the ability to continue to invest in our revenue-generating businesses and differentiated omnichannel customer experience while continuing to produce meaningful positive operating leverage.

With that, I would like to turn the call over to Gary to discuss the strong credit results for the quarter. Gary?

Thank you, Vince. Good morning, everyone. We ended the quarter and year-end with our asset quality metrics remaining at very strong levels. Total delinquency ended the quarter at 71 basis points, up 6 bps from the prior quarter with NPLs and OREO down 6 bps, ending at a multiyear low of 31 basis points. Net charge-offs totaled 19 basis points and 20 basis points for the year, showing continued strong performance throughout an uncertain economic environment.

We experienced a further decline of $147 million or 10.2% in criticized loans on a linked quarter basis, driven by payoff activity with decreases again observed throughout all of the commercial segments. Once again, we were pleased with the improvements we saw during the quarter and throughout 2025. Total funded provision expense for the quarter stood at $18.7 million, supporting the C&I loan growth and charge-offs. Our ending fund reserve stands at $440 million, an increase of $2.3 million, ending at 1.26%, up 1 basis point from the prior quarter.

When including acquired unamortized loan discounts, our reserve stands at 1.32%, and our NPL coverage position remained strong at 438%, inclusive of the discounts. Regarding tariffs, we continue to monitor line utilization and industry concentrations, especially customers with a higher potential impact over the longer-term. Since Q1, we have not seen any material impacts on the loan portfolio and have continued to experience positive credit migration since then. Furthermore, this quarter marked our strongest C&I loan production activity for the year, enabling us to achieve positive net C&I loan growth in the quarter and year-over-year which offset another decrease in line utilization. Regarding the nonowner CRE portfolio, all credit metrics improved quarter-over-quarter and year-over-year with delinquency and NPLs at 34 and 31 basis points, respectively.

We have successfully managed the CRE risk and exposure to end the year within our desired range as a percentage of our capital base. We started to see some high-quality opportunities during the quarter However, exits through ongoing secondary market activity resulted in a reduction in exposure. We continue to enhance our concentration risk and allowance for credit loss frameworks and our proprietary credit management tool that provides a comprehensive view of our customer base. Not standing periodic uncertainty in the economic environment our core credit philosophy and strong credit risk management practices position us to successfully navigate any potential volatility across the various economic cycles.

In summary, we continue to be very pleased with the performance of our loan portfolio and our team's attention to managing risk, which has positioned us well for growth in the year ahead. Building on the strong momentum we saw in the quarter, we continue to focus on core C&I and equipment finance growth with our building pipelines. Additionally, with potential for increases in line utilization, our growth expectations for high-quality CRE and our well-positioned retail franchise, we look forward to achieving our desired levels of balance sheet growth in the year ahead.

I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary, and good morning. Today, I will focus on the fourth quarter's financial results and walk through our guidance for the first quarter and full year of 2026. Fourth quarter operating net income totaled a record $181.8 million or $0.50 per share when excluding a discretionary $20 million charitable contribution to the FNB Foundation partially offset by a reduction in the estimated FDIC special assessment.

Record total revenues of nearly $458 million, grew a very strong 12.4% on an operating basis and operating pre-provision net revenue grew 21.5% from the year ago quarter. The fourth quarter's performance also includes investment tax credits of $37.2 million from a renewable energy financing transaction, partially offset by related noncredit valuation impairment of $4.4 million pretax on the financing receivable, which is included in other noninterest expense. FNB's Equipment Finance business originates renewable energy financing transactions is a core element of their business strategy. While we continue to have an active pipeline in the renewable energy sector, certain types of projects are limited by changes in the tax laws.

Total assets at year-end 2025 exceeded $50 billion for the first time in company history. Fourth quarter average loans and leases of $35 billion, increased $169 million from last quarter or 1.9% annualized. Average consumer loans grew $223 million, primarily due to higher residential mortgage and consumer line of credit balances. Average commercial loans and leases slightly decreased $54 million linked quarter driven by higher attrition from secondary market activity, lower line utilization and further scheduled reductions in CRE balances. Average commercial and industrial loans increased $81 million and commercial leases increased $26 million, while average commercial real estate loans declined $158 million.

CRE exposure has reached our desired concentration range and combined with record capital levels and a sub-90% loan-to-deposit ratio provides FNB a meaningful opportunity to participate in an economic environment with more favorable loan growth prospects. As part of our ongoing balance sheet management strategies, approximately $200 million of performing residential mortgage loans were transferred to held for sale late in the fourth quarter with the actual loan sale expected to close in the first quarter.

Residential mortgage loans are expected to roughly approximate the growth in the overall loan portfolio in 2026. Fourth quarter average deposits totaled $38.6 billion, an increase of $740 million or 7.7% linked quarter annualized driven by organic growth in new and existing customer relationships. Average interest-bearing demand balances grew strongly, particularly interest-bearing checking and money market balances. Average noninterest-bearing deposits exceeded $10 billion and were up 4.5% linked quarter annualized. The mix of noninterest-bearing deposits to total deposits on a spot basis remained at 26%. Success of our ongoing balance sheet management strategies and deposit gathering initiatives brought our loan-to-deposit ratio below 90%, a more than 170 basis point improvement from year-end 2024. Fourth quarter net interest income totaled a record $365.4 million, up 1.7% linked quarter and 13.4% above the fourth quarter of 2024.

Average earning assets were up $310 million sequentially on higher loan and investment securities balances. The yield on earning assets declined 11 basis points sequentially as variable rate loans were impacted by the 75 basis points of Federal Reserve interest rate cuts since September of 2025, while the yield on the investment securities portfolio only declined slightly. Interest-bearing deposit costs decreased 13 basis points linked quarter to 2.53% and borrowing costs declined 30 basis points to 4.35%. The resulting fourth quarter net interest margin was 3.28%, up 3 basis points linked quarter and up 24 basis points year-over-year. Our total cumulative spot deposit beta. Since the Fed interest rate cuts began in September of 2024, ended the year at 25%. We continue to strategically lower deposit pricing in step with the downward trend in the Fed funds rate and we expect a relatively stable net interest margin in the first quarter of 2026.

Operating noninterest income was $92.3 million, up 8.8% from the year ago period. Wealth Management revenues grew 15% from 2024 levels, driven by securities commissions and fees and growth across the geographic footprint. Service charges increased 4.1% from last year reflecting increased contributions from treasury management activities. Increases in SBA sold loan premiums and other miscellaneous gains drove the strong increase in other income and BOLI income was boosted by higher life insurance claims. Capital markets income included higher swap fees and increased international banking revenue. Despite higher gain on sale and net positive fair value adjustments from hedging activity, mortgage banking income declined on higher MSR amortization and a net MSR fair value recovery in the fourth quarter of 2024.

Operating noninterest expense totaled $256.5 million and $8.3 million or 3.4% increase from the year ago quarter. Salaries and employee benefits expenses were up 4.5% from the year ago quarter, primarily reflecting strategic hiring and higher performance and production-related compensation. Output Services increased 15.3% from last year due to higher volume-related technology and third-party costs and occupancy and equipment increased 7.3% primarily due to technology-related investments and higher occupancy costs. Other operating noninterest expense decreased $3.3 million and included a financing receivable noncredit impairment of $4.4 million from the tax credit transaction mentioned earlier, which was approximately $6 million lower than the impairment recognized for the fourth quarter 2024 tax credit transaction.

The efficiency ratio remained solid at 53.8% for the fourth quarter, 307 basis points better than the fourth quarter of 2024. We continue to manage our expense base in a disciplined manner which is expected to generate significant positive operating leverage in 2026. FNB's capital levels remained at record levels with a CET1 ratio at 11.4% and tangible common equity ratio at 8.9%, providing flexibility to optimally deploy capital to increase shareholder value. On a year-over-year basis, tangible book value per common share increased $1.38 or 13.2% to $11.87, demonstrating our strong profitability levels and commitment to peer-leading internal capital generation. Share repurchases totaled nearly $50 million for the full year of 2025, the highest level since the program originated in 2020.

Let's now look at the guidance for the first quarter and full year 2026 starting with the balance sheet. For full year 2026, period-end loans and deposits are expected to grow mid-single digits versus year-end 2025 as we continue to increase our market share across our diverse geographic footprint. Full year 2026 net interest income is expected to be between $1.495 billion and $1.535 billion with first quarter net interest income expected between $355 million and $365 million.

Our guidance assumes 225 basis point rate cuts in April and October. Noninterest income for the year is expected to be between $370 million and $390 million, with the first quarter expected between $90 million and $95 million. Full year guidance for noninterest expense is expected to be between $1 billion and $1.02 billion, representing a 1.5% increase at the midpoint compared with 2025 operating expenses. First quarter noninterest expenses are expected in a range of $255 million to $260 million as compensation expense is seasonally higher in the first quarter due to the timing of normal long-term stock compensation and higher payroll taxes. The 2026 provision expense is expected to be between $85 million and $105 million, dependent on net loan growth and charge-off activity.

Lastly, the full year effective tax rate should be between 21% and 22%, which does not include any investment tax credit activity that may occur.

With that, I will turn the call back to Vince.

As you've heard in our prepared remarks, we are very pleased with our financial results and achieved a number of records for 2025 including revenue, noninterest income and EPS. Our balance sheet surpassed $50 billion in assets, and we are well positioned to benefit from technology investment and expected growth opportunities. Our performance reflects steadfast execution of our multipronged strategy, diversifying revenue streams, optimizing our balance sheet, deploying capital thoughtfully and serving as the primary bank for our clients, enabled by our tech investments in eStore and omnichannel capabilities. Successful execution of FNB's strategy has led to enhance profitability and capital accretion, all while achieving some of the highest returns in the industry.

Looking ahead to 2026, we are confident in our ability to deliver meaningful loan and deposit growth, margin expansion and further diversification of fee income. Our improved capital levels and double-digit tangible book value growth year-over-year provide strong capital flexibility and position FNB to continue to deliver sustainable long-term value benefiting our customers, employees, communities and shareholders.

[Operator Instructions] Our first question today comes from Daniel Tamayo from Raymond James.

Maybe we start on the fee income side. Obviously, at the Investor Day last quarter, you talked a lot about growth that has been expected -- sorry, investments that have been made into the fee income businesses and kind of long-term growth pathways. Just curious, as you look at the guidance range for '26, what do you think might get you towards the upper end of the guide and how likely that could be in your mind?

Yes. I mean, I don't -- do you want to answer, Vince.

Sure. I can jump in and you can add. I think just a couple of things on fee income, right? It again highlights the importance of diversification. So we had all-time highs for 7 of our fee-based businesses for the full year and 4 of them in the fourth quarter alone. When you look at the kind of moving parts that were there, the growth in service charges, insurance and securities commissions and BOLI offset mortgage banking and capital markets being lower than the prior quarter.

So the benefit of the diversification comes through. When you look ahead to '26, we're projecting continued solid growth there. The newer businesses that we've talked about starting to contribute at higher levels is definitely baked into the guidance. I think there might be some upside to that. And then strong performance from our kind of core fee-based businesses, wealth, treasury management, capital markets and mortgage. I think there's an opportunity for them to have another strong year as we did in 2025.

The only thing I was going to add, Vince, is that the macroeconomic environment, as we mentioned, when we were all together, Danny, plays in our favor. So the interest rate environment is positive for the mortgage banking business. We sell servicing release gain on sale from the sale of mortgage loans. So that's reflected in the fee income number. More activity in treasury management moving into next year because of what Vince said, with market share gains, expect...

New initiatives there.

And new initiatives there and the build-out of our TM platform. We expect that to continue to grow with contributions from merchant and other areas that relate to treasury management. Derivatives, we would expect, given the interest rate environment from a derivatives perspective to play out in our favor. And then we built out the public finance division in the process of building it out. We're very optimistic about contributions from that business and the debt capital markets arena. So that should play out for us. And then the M&A advisory business is they're seeing a lot of opportunities that we're expecting to translate that into fee income in '26. So there are quite a few drivers that's why we're fairly confident that we're going to be able to achieve what we've laid out in the guide.

And we did move the first quarter guidance up a bit, Danny, too. The implied guide for the fourth quarter was [ 88% to 93% ] we moved it up to [ 90% to 95% ] In a seasonally slower quarter. So I think that's an indication too.

Great, Vince. Maybe a bigger picture question on operating leverage. Just your thoughts around operating leverage in 2026 and what might be potential issues in not getting there or levers to achieve it?

Yes, I would just -- a couple of things. So if you look at the PPNR was lower in the fourth quarter versus the third quarter, all very explainable. We had about $12 million of not -- what I would call discrete nonrun rate expenses that came through in the fourth quarter. We had the solar tax impairment that we mentioned in the remarks. We had some higher medical claims that occur in the fourth quarter every year, our mortgage down payment program was a little over $3 million.

And then year-end performance-based accruals and 401(k) contributions based on the strong overall financial performance. So -- and then in the third quarter, we had that $5.4 million recovery. So there was a lot of noise kind of moving from third to fourth quarter. I mean as we go forward next year, our guidance includes a meaningful increase in PPNR and in the operating leverage. And I think as we talked about at Investor Day, expenses growing in the low single digits, while we're continuing to invest in the new initiatives, some of the ones that Vince mentioned. So I think we feel pretty good about our ability to meaningfully increase the operating leverage in 2026.

We also don't have the expense related to heightened standards, building as rapidly because we've completed many of the initiatives that we needed to complete from a personnel perspective and from a consulting and systems perspective. So -- we don't expect that to be a headwind anymore. We've also completed -- we fulfilled our obligation to fund grants for low income mortgage loans. So that was a pretty significant expense in '25. So that will be behind us as well. So we're fairly confident that we're going to be able to achieve the results that we reflected in our guide. In addition, we've had a number of expense initiatives that Vince has mentioned in the past.

And this year, we believe we can achieve even better cost takeouts on a run rate basis than we have historically. We've been focused on it. So efficiency is a focus moving into next year. And we're also leveraging some of the digital investment changes that we're making from a process perspective by utilizing AI and data analytics to make our operations more efficient. And the deployment of the common app in the retail delivery channel also provides a great deal of efficiency from a back office perspective because a lot of that processing is digitized. So that should all play well for us as we move into next year with elevated volumes in the consumer set.

Yes, some of the initiatives baked into from a CapEx standpoint is investing in our data science platform, AI and machine learning data platform with the new leaders that we have on board, investing more to get even more benefit out of those functions there. And that's part of why we were confident with the higher cost savings goal that we have for '26. And if you baked into our guidance has the efficiency ratio kind of getting down into the low 50s by the end of the year or second half of the year, I would say.

Our next question comes from Russell Gunther from Stephens.

I wanted to ask on the -- the loan growth outlook for '26 of mid-single digits. First, Vince, I want to make sure I caught you that your expectations for the resi portfolio would be around that sort of mid-single-digit level.

And then second, as you discussed at the Investor Day, C&I and CRE are expected to be the loan growth leaders going forward. So if we are thinking about resi in that mid-single digits, is it safe to assume C&I and CRE would outpunch that and maybe just some comments around the drivers of the magnitude within commercial.

Sure. I mean if you strip out the large payoffs that we had, particularly in the CRE space, we had a very strong production quarter. I know it's not reflected in the spot balance because of those payouts, acceleration in payoffs, particularly in multifamily with some larger C&I credits that went the way of capital markets versus bank debt. So I think the production -- the underlying production was very strong. The C&I production was extraordinarily good, I would say, for the fourth quarter of the year. So we're moving into next year with some good momentum. We do have a lot of capacity.

We talked a little bit in the prepared remarks about resetting the balance sheet. So we used '25 to kind of position our company to grow CRE loans and to grow C&I loans more rapidly. If you look at our loan-to-deposit ratio, we've had great success generating deposits. As I said earlier in the year, my hope was we would be closer to 88%. We're at 89.7%. So we're close. That gives us a lot of capacity to fund loan growth moving into '26 and to manage our margin from a deposit cost perspective. So those are positives.

If you look at the capital generation that this company has been able to produce historically, we generate sufficient capital levels to sustain mid- to high single-digit loan growth with relative ease. If you look at capacity from a CRE perspective, we're one of the few banks in our peer group that has a concentration as low as we do. And we've specifically managed that down. We mentioned we wanted to be under 200%. We finished just under 200%...

197%.

197% capital. So this is a reset and that should give you great confidence because now we can move into '26 and be much more aggressive in the CRE space and in the C&I lending space. And we have a much stronger platform from a fee income perspective to support leading those credits. So I think all of that is why we're very optimistic about achieving the guide that we put out there.

The other thing I will note, if you look at the H8 data and you exclude some of the payoffs that we've had, we've actually performed significantly better than the banks in total in the last quarter. So again, not looking at the full year because we were being very measured and we were reducing exposures in a bunch of areas that we wanted to reduce exposures in to prepare for '26. But if you strip out some of the payoffs, we were many times greater than the other banks in the industry. So we're optimistic about it. We haven't pulled back in terms of our pursuit of good C&I opportunities. We're not an NBFI. We're not a commercial finance driven C&I shop. So this is core C&I across our markets. where we're taking market share.

The line utilization is very low.

The line utilization remains low. So there's upside there as well. So all in, I think we're in a fairly strong position moving into '26 to continue to drive growth in our loan categories. In mortgage, I would -- we're -- there's a sale of performing mortgage loans. We decided there were some single household mortgage loans that we felt we should move off the balance sheet to give capacity for other things to provide higher returns, and that's the decision driving that. So I would expect growth in the mortgage business to be more tempered moving into '26 and with the change in rates probably an opportunity to get better gain on sale margin as we move into '26 to help fee income. So more moving off the balance sheet in '26. I hope that helps.

Okay. Great. And then my second question would be capital related. CET1 11.4% not too long ago, that target was 10% than 10.5%. It would be helpful to get a sense for where you would plan to manage that in 2026. And as you grow that CRE where are you willing to flex that concentration level to?

Yes, I would say a few things on that topic, right? Like you mentioned, the 11.4%. It wasn't that long ago that we had a goal of 10% and then 10% was the floor and now we're at 11.4%. Dividend payout for the full year, then you combine that with our expectation for strong internal capital generation based on the guidance that we have. So we're in the best position we've ever been to deploy capital to optimize shareholder value. The organic growth is the first use of that, of course. But like Vince said, we're generating enough capital to really support high single-digit loan growth. So I think that Vince...

To stop you right there because you asked a question about our ability to maintain the concentration levels. We did look at that -- we do generate a lot of capital, as you mentioned, our strong internal capital generation. We could -- basically, based on that in our guide, we could originate nearly $1 billion in CRE loans and not change the concentration level at this point in time. I think that's an important point, and I'm sorry to interrupt you. I thought given your speech on our capital.

Yes.

So there's -- I mean there's significant capacity to do business as usual there. And we're going to pick the transactions that we want to bank. But we've got plenty of capacity with the capital generation that the company is achieving.

But if we move slightly above 200%, that's not going to kill us. We're still well below others that we compete against in the marketplace. But our goal is to stay there if we can. Go ahead.

So beyond supporting that balance sheet growth, we still think buybacks are attractive. I mean we did $50 million for the full year. We did $18 million in the fourth quarter. Even at these valuation levels, we still think it's attractive. And for 2026, I would expect we'd be at the same level or higher as far as buyback activity. And then the dividend, we've been having conversations. I mean it's something we discussed regularly, and we'll be discussing with our Board. In the past, we had that elevated payout ratio for such a long period of time.

And we like the flexibility of the buybacks. So that will be a component of capital management. But our payout ratio in the 25% level at least creates the ability to increase the dividend at some point if we decide to do that. So it's definitely something that's on the table for us to discuss. There hasn't been a decision or anything, that's a Board decision, but it's something we'll take a hard look at this year. This is a strategic planning cycle for us. So it would be kind of part of our capital management planning as we look ahead.

And the Board is going to look at it through the lens of our shareholders. They want to do what's absolutely best from a capital deployment perspective. That has always been their stated mission. They want to drive returns at the company, drive higher stock price performance. So they're going to look at all of that and look at our relative valuation with buybacks in mind when they make those decisions. So deployment of capital is a focus of the Board will continue to be. .

Yes. The last point I would make, too, is just when you look at our financial performance, Alfred always says and it's a good point. We have a 16.3% return on tangible common equity on a TCE ratio that's 8.9%. So that TCE ratio has built significantly from the 4.5%. It was when the 3 of us started in our roles, it's 8.9%. So I think that's important, too. So even with the higher levels of capital, we're generating a top quartile for sure, return on tangible common equity and managing that capital will be key to our performance as we move forward.

Our next question comes from Casey Haire.

I want to touch on the margin. So the -- just wondering the interest-bearing deposit beta, where does that trend throughout '26 versus that 25% cycle to date?

Yes. I would say we've still talked and still feel that kind of mid-30s on a terminal beta makes sense to us. By the end of the year, our guidance probably get to about 30% or so, up from the '25. I think our team has done an excellent job managing the deposit rates through this cycle, being very thoughtful and strategic in how we're adjusting rates and which tranches we're adjusting rates at. So there's still opportunity for us from end of the year reference point forward to continue to bring down deposit rates and big slugs of the deposit base. So I would say 30% or so by the end of the year, Casey, and still kind of a mid-30s once this cycle finishes.

Okay. Excellent. And then just a credit question.

Total, too. sorry, I should comment.

So that's not IBD. That's total deposit.

That's total. Yes, I'm sorry. You're asking interest. That's total.

Okay. Got you. Okay. All right. And then on the credit side, so the provision guide, does that assume -- like that assumes that the ACL ratio. The reserve ratio kind of holds this level supports mid-single-digit growth, and then the charge-off outlook, I'm assuming that presumes that we kind of hang out at this 20 bps level.

Yes. I think you're spot on, Casey, with your assessment of that, all sounds pretty close to what we're expecting there with the guide. .

Okay. Great. And just last one for me and one more on the capital front. So you guys clearly have a very nice capital generation. It's not inconceivable that you're above 12% CET1 in a year from now. So I guess, kind of the other way, is there -- I know you're well above your floor, are you looking at -- is there a level of capital that's too much? Or are you happy to just let capital stockpile for I mean you have more room to be more aggressive and take the payout ratio higher. I'm just wondering what's preventing you.

Nothing is really preventing us. I mean, as I commented on, the dividend will be a discussion with our Board this year as far as potentially increasing the dividend, having buybacks at or higher than the level that we did last year is kind of part of what's baked into our plan. The capital ratio, if you do the math and run it forward, you get around 12% by the end of the year. So some of that at some point, the loan growth activity picks up to get to the high single digits, right? And you want to have the ability to do that. But we're looking at all the pieces of it between funding loan growth as well as the dividend and the buyback.

Yes. We don't want to sit here and keep accumulating capital, Casey. We're focusing on a bunch of avenues to deploy capital to move some returns too. I mean we -- if we can invest capital in high-returning opportunities, then we're going to have a much higher return on tangible common equity on a slightly lower capital base. But it has to be sustainable. It can't just be a onetime deal, where we bought back shares, and then everything rolls back. And we're looking forward and making sure that we're deploying that capital in the most productive ways on a go-forward basis, so we can drive returns.

Yes. And the industry has been moving higher, too. The peers generally have been shifting upwards. So kind of keep one eye on that and then the rest of our eyes on kind of what we're doing.

Yes. I mean the -- it's kind of tough when you look at the AOCI impairment that occurred a few years ago, and there's accretion going on, Casey. So some of the TBV build is just a reversal of impairments that occurred and we didn't have that. So when you look at these big outsized numbers and TBV growth, you have to take that into consideration. Ours is core earnings and retained earnings. That's a big difference. So when you're evaluating all these banks, you should be taking that into consideration, I hope. I think you are...

And we've returned with $2.2 billion capital since 2009. So I mean it's been an active part of our overall shareholder positioning.

[Operator Instructions] Our next question comes from Kelly Motta from KBW.

So not to beat a dead horse with capital, but just kind of building off of the last couple of questions there. It sounds like you believe your stock is still attractive here. Can you, one, remind us any price sensitivity that you have regarding the buyback, if there's any sort of guiding principles there.

And then two, I'd be remiss if not to ask about any updated thoughts on M&A here.

Yes. I would just say valuation, we think our stock is worth a lot more than where it's trading. If you look at where it was trading sake in the last year or 2, I mean, it had been trading at a discount on a P basis to our peers, which didn't make sense to us. And now it's kind of equal to the peers, and we think it should be higher than it appears. So we still think it's a good investment for us to make even at these higher valuation levels. And there's not a bright line, Kelly, I guess I would say, where we would stop. I mean, we look at our relative positioning and what's happening with the market and what's happening with the economy. So -- but definitely room for us to continue to be active.

Yes, we're -- from an M&A perspective, we're 9 years past our last M&A -- large M&A transaction. We did 2 small bank deals, very small. We've said repeatedly, we're focused on internal capital generation. We're focused -- we've said this back going back 5, 6 years ago. We're going to continue to look at the mechanisms that we have to drive returns through organic growth. So that's our priority. We've been able to do that very successfully. We've been able to invest in tech and outperform some of the largest banks in the country in certain aspects of our tech offering.

So we're going to keep doing that. And if something comes up opportunistically, it really has to be a good fit. And I think it would have to provide us with -- it can't dilute what we built. So 26% noninterest-bearing deposits and the deposit mix is pretty strong still even after it declined post the effect of stimulus. And I think our goal is to continue to drive that mix in a favorable manner. We don't want to dilute that. We don't want to dilute capital tangible book value materially because we've spent a lot of talking focusing on it and driving TPV growth. So we have good momentum there.

If something provides us with an opportunity to drive organic growth at a faster clip, sure we would look at it. But we've got tremendous markets. We're spread across a pretty broad geography. We -- as I've said before, we've grown market share in 75% of the MSAs that we compete in. So we are proving that we can compete effectively at our scale and size and our efficiency ratio is very strong. So I don't place that as a high priority anymore. I know that seems surprising to people, but because we've been here for so long. I mean, I've been in this seat for almost 15 years. So we did a lot of M&A transactions to get to where we are, but we needed to get to this level.

And then leveraging the investments we made that are really early stages of contributing.

Yes. So I guess the answer is we're going to do whatever we think makes the most sense for the shareholders, and we're going to be very cautious as we move forward, just like we have been over the last in 5, 6, 7 years. And if something presents itself that checks all the boxes, sure, we'll look at it. But we're going to continue to stay focused on organic growth, driving organic growth, building out our platform leveraging our retail bank, which is, I think, the 19th, if you look at locations, it's the 19th largest retail bank in the country, right, Alfred, and one of the most efficient if we looked at metrics relative to the largest banks in the country, and we run a very efficient retail bank. So the consumer business for us is a good business.

Anyway, that's our take on it. And I appreciate the question.

Got it. I appreciate all the color makes total sense. Maybe 1 follow-up for me just asking the operating leverage kind of in a different way. Clearly, you've set the stage very well for 2026 to drive positive operating leverage ahead. And you noted you anticipate the efficiency ratio getting into the low 50s kind of by the second half of the year. Looking back, you were more a mid- to high 50s efficiency ratio type bank. You've obviously made a lot of investments in tech that you're able to really leverage now. Just wondering, as you kind of think about the longer-term efficiency ratio of the bank, given these significant investments you have made in technology, do you think that low 50s is that lower run rate is sustainable? Any kind of thoughts in either direction here, particularly as de novo expansion remains a focus here?

Yes. I think there's 2 things. One, there's the efficiency that's being produced through automation and digitization of the banking industry. We've talked about this where we built out the data hub. We're using that data to drive efficiency in the delivery of products and services.

I think we've only scratched the surface on taking cost out, right, over time. With looking at how we process transactions across the entire bank and thinking about the impact of AI and automation on driving efficiency and what that means over time, I think, is pretty positive for the industry. That should be viewed as positive. I also think from a revenue generation perspective, which is the other side of this, our ability to analyze data, present information to prospects, clients for our own internal people extremely fast, so that they're able to react to it and produce better revenue results per engagement with a customer is going to drive that efficiency ratio as well. So revenue growth through automation and efficiency are still -- we're still looking down the road for that. We've started to experience some of it, but there's quite a bit to come. So I'm very optimistic about that. I don't know, Vince, if you want to add anything to the question?

No, I would just say sustaining around that low 50s to 50% level feels very achievable as we move forward, given all the things Vince just described. That's all I would say.

And I also think when you look at us relative to the other banks our size, we have a disproportionately large retail bank. So the efficiency ratio in the retail business is not what it is in the commercial business. So if we were a pure commercial bank, yes, we would be below 50%, well below. But Alfred gives us all these branches. We've got a good note, you're laughing. But the truth is, we've got this big machine that we have to run, and it's a good business for us. And as I've said, we were able to do it very efficiently, which is remarkable given our size and scale.

I mean, in fairness to the retail business, we do run an incredibly efficient retail delivery channel. It compares very favorably to the largest banks in the country. And if you look at the efficiency ratio broadly speaking, there are probably going to be some puts and takes to it. We're going to continue to drive efficiency in the areas that we can through automation. But as Vince mentioned earlier, we have plan to grow fee income, which tends to be a higher efficiency ratio business in and of itself. And the idea is that all these investments that will continue to drive the efficiency ratio plus the investments in growing additional fee income. I think net-net results in a top quartile ROE that compares pretty favorably to our peers.

And you saw Kelly, you were here, you saw what we've already done with the digitization of the retail delivery channel. We've already embedded the eStore into the ITM. So that somebody remotely can engage a customer fully digitally in a branch and provide them with the ability to transact, cash checks down to the penny, make loan payments. And also, it buys them on what they have in the shopping cart, help them proceed to check out right there. So that in and of itself reduces the need for personnel in the branches over time. So that helps us gain efficiency as well, and we've already built it. It hasn't been deployed fully, but it's built. So that's coming as well. Anyway, that -- that's all. I don't know what else to add. Yes. I think we're in a pretty good spot, and we're very optimistic about efficiency.

So it seems like there is a break with our operator. But Manuel, I think that you're on the line, if you have a question, please go ahead and ask it.

Okay. Great. I hear you guys on the lending capacity from your end and kind of strong production. Can you discuss lending sentiment in your markets? And how -- does that drive kind of expectations for growth to be more back half of the year loaded? And are you already seeing headwinds from payoffs and secondary market improvement slowing already?

Yes. I'd say we -- I think you're right. We tend -- typically in this business, we tend to see the loan growth come in the C&I side anyway. Real estate is kind of all over the board depending on when the project was launched, but from a C&I perspective, you tend to see it build towards the second half of the year because companies are completing their financial statements, they're turning them over to the bank. They're planning from a CapEx perspective now.

So then they're coming back right about now and they're starting to reach out to the bankers and start to make plans for capital expenditures and working capital needs. So that's happening, like discussions are happening. I would expect growth to be more back-ended this year. I also think bonus depreciation in some of the comments I read, we get comments back from every region before we do this call. So we all read them. They do a pretty nice job. I thought this was the best they've ever done, giving me commentary. I spent last night reading 38 pages of commentary.

But I think when you look at the Southeast, you look at Charlotte and Raleigh and Greensboro, there's a lot of competition. You've got branches being built out across that footprint. But our people continue to see opportunities. We're entrenched in those markets. We have been building out our delivery channel as well and introducing digital strategy and building out our treasury management capabilities. So those markets have performed extraordinarily well, and I would expect them to continue to perform well. If you pivot to Pittsburgh, Cleveland, Baltimore, the more mature markets that we're in, they've had some pretty significant payoffs in those markets, not because we lost customers to other banks, but because we tend to play upmarket. So we have a lot of clients drives that debt capital markets business where we get fee income on bonds as well.

Unfortunately, the flip side of that is the company has access to capital markets and they paid down the facility. So we had a lot of that going on last year. I think that's pretty much over unless you see a significant decline in interest rates from here, short-term rates from here, which would be positive for us from a margin perspective, but negative from a capital markets access standpoint, but it also reduces the cost of capital from a bank loan perspective for clients. So I would suspect that next year should be a pretty good year for everyone, assuming that those markets remain calm. We don't have some big turbulent event. But the sentiment around the table is people are starting to have serious talks about capital investment. So that bodes well for loan growth. That's what we're seeing. That's what I've read across the board. I will also pivot to the depository side. We have a lot of large deposit prospects that are coming in. So I see that being positive, too, for next year.

Yes, in the past, you've talked about the treasury management pipelines being solid. It's showing on the fee side. Do they remain -- they're remaining robust as well on the commercial treasury management deposits?

Yes. We're seeing lots of opportunities across the footprint from a depository perspective, from a treasury management perspective. So...

We still have a large pipeline close to $1 billion of deposit prospects we're going after.

Yes.

The other thing I would add, Manuel, is we are starting to see increased levels of opportunities around some high-quality CRE. Discussions were pretty active over the last 60 to 90 days here, and we're seeing some really nice opportunities there. .

All right. That's good to hear. Anything -- any more details on the mortgage sale? And I hear you that you're just opening up capacity. Were they specific to any region? Just any more color on kind of this sale that's coming up in the first quarter?

Yes, they were predominantly -- they were out of market predominantly, not out of market -- not out of our operating area, but out of our immediate area, so around branches. So we looked at them from a practical perspective and said our probability of cross-selling additional services to this pool is limited. So there's nothing wrong from a credit perspective, they're good credits, but we just don't see an opportunity to be able to deploy cross-sell engagement.

So we decided to return the capital and reuse it for something we can become the primary client, right? And that's what drove that. That plus it helps us manage the -- my expectation is as we move into next year, we're going to see prepayment speeds elevate anyway. So we're going to see attrition in that book anyway. And I think we're going to be able to move more off the balance sheet because there's more activity in the conforming space moving into next year, particularly in a lower rate environment. So I would expect us to drive fee income, manage the exposure and be able to still grow the other categories because we have the capital to do that, the other higher returning categories. But those loans, in particular, we just viewed as a drag on capital.

Yes. We were -- the other thing I would add too is just from a concentration management standpoint, mortgages as a percent of total loans, around 25%. You can see that in the slide deck. So kind of managing that level of concentration, we decided to take $200 million off. I mean we're very strategic in how we take actions. Remember, during the year, we had pricing strategies to generate more saleable production, just to again manage the total mortgages on the balance sheet. And I think as we go forward in '26, that creates capacity for the commercial growth that you heard us talk about. And as far as the sales too, we expect sales to be basically at par when it settles this quarter.

Right.

And our next question comes from Brian Martin from Janney Montgomery.

Just your last comment, maybe Gary made a comment about the loan growth, but -- and I joined late. So from a commentary standpoint, it sounds like the loan growth outlook is mid-single digits, back-end loaded. Did you talk about kind of the current pipeline? And then also just maybe your comment about Vince, the mortgage being coming down around 25%. When you think about big picture about the loan concentration levels, where they are today, where do you see opportunity to maybe make some additional changes throughout the year as we get to the end of '26, is there a target in terms of where that mortgage number might be, where other buckets may be that you can kind of talk a little bit about in terms of how the positioning looks?

I'll do a high level, and then I'll turn it back over to these guys. Our goal would be to shrink the mortgage book and redeploy over time, right? If you see prepayment speeds accelerated in a different interest rate environment, you're going to see that portfolio basically stay the same in size, right, or grow very small as a percentage of the total. But our goal would be to redeploy that capital into C&I and CRE lending. And I said earlier, I don't know if you missed it, but earlier I talked about our internal capital generation, Brian, and the ability for us now that our CRE concentration is at 197%. It's below 200%.

There's capacity there to lend. So keeping that concentration at the same level, given the internal capital generation, we could still originate and fund...

About $1 billion.

$1 billion in CRE loans. So we don't have to keep it at 197%. There's some way to move up and down. That was just our internal goal, right, from a concentration perspective. It puts us in a much better position than many of the peers. So there's a lot of capacity to lend there. We can be very selective. On the C&I side, I think we have a great opportunity to deploy capital there and grow over the next 12 months because we think that, that business will start to accelerate for us and we can move in. Again, we're not doing the consumer finance stuff, NDFI, all the other stuff that is baked into the H8 data for C&I growth that really is mass consumer growth. But we're doing true middle market transactions across our footprint and growing that business. And I think we've done a pretty good job and the pipelines have actually built over time? And go ahead, Gary, you're going to...

Just going to add, Brian, the equipment finance business for us has been extremely strong. And you would expect that with the bonus depreciation that group had an exceptional year, and that just continues to build. They had a very strong fourth quarter, and we expect to have a really, really solid 2026 across that group through the quarters and even building more, as Vince mentioned, towards the latter part of the year with where we sit economically at the moment. So really, really excited about that piece of the business and the C&I opportunities ahead of us.

Yes. Brian, I would just mortgage point, just to close it out. I mean we're looking for production levels to still be very strong. So it's not that we're trying to lessen the activity in that business, the amount of originations. It's just what ends up on the balance sheet. And just for reference, I was looking back, Last year, it was 23% of total loans at the end of '23, it was 20%, just as kind of reference points. Today, it's 25%. So just managing that concentration -- the commercial activity that Gary and Vince have talked about.

Got you. And Gary, that equipment finance, how big a piece of the loan book is that today?

That portfolio today sits at right about $1.5 billion.

$1.5 billion. Okay. Perfect. And then maybe just 1 or 2 last ones. Just on the loan pricing, maybe -- I don't know if you talked about this earlier, but we've heard that some of the pricing has been a bit rational of late. So just wondering how that -- how you're viewing on the loan pricing and just how that plays into the trajectory on your outlook for the margin for the year and kind of what's embedded in your guidance on that as you kind of look into 2026.

I don't think loan pricing in the C&I book or across the board? What are you referencing specifically?

I guess the commentary we've heard is that people are really looking to be aggressive on pricing just because they haven't had the ability to grow. So I guess I haven't heard that it's whether it's on CRE or C&I specifically. So just kind of wondering...

I wouldn't say -- yes, the CRE pricing has been a little -- it's been more firm. The C&I pricing is more aggressive, but it has been. I mean I -- you sound like some of the people that run the regions that we have, they talk about how competitive it is. It's always been competitive. For the 40 years I've been in banking, I've never sat there and said, well, it's not -- it's so uncompetitive. I just -- I can do anything I want. It's always competitive. But there's always a threshold for returns, right? Everybody is running the same models.

So we try to achieve a certain return risk-adjusted return on capital. And I would say that kind of governs it. So it tends to fluctuate. Let's say, C&I is good, solid C&I credit, not risky stuff because that could be all over the board. But your traditional middle market transaction that's on solid footing, good fixed charge coverage, lots of capital. You're looking at 25 basis point variance between extraordinarily competitive and not as competitive. So it's never that wide of a margin right? It gets skinny from time to time. But I think you've got to be able to overcome that with products and services that produce returns. And you look at the broader relationship and bring in deposits, compensating balances to support treasury management fees, provide capital markets fees with derivatives and debt capital markets opportunities that's what gives the return. We kind of look at those returns holistically, and we look for returns that are north of sticking 15%, 16%, 17% all in some cases higher. So that kind of drives the whole marketplace essentially.

Yes. And I think we've done a good job driving that cross-sell activity across all of those fee income products that we have. We talked about the diversification of those income streams earlier. The group is very focused on it. And I can tell you, the leadership there is really driving that through the banking teams.

And Brian, I would just add 1 point. So top of the house, the new loans that we made during the fourth quarter came on at 5.92%, which up 24 basis points above the portfolio rate. So it's still additive to the overall return.

Vince is always bringing you facts. I'm giving anecdote. He layers into the stuff you really want to hear.

It all works together.

Exactly. Cool. And then how about just -- did you guys -- any commentary on kind of what's embedded in the NII outlook in terms of margin, just kind of trajectory of margin kind of as you kind of go through the year, given your outlook for rate cuts here and just kind of the better environment?

Yes. I would just say what's baked into our guidance is 2 rate cuts, 1 in April, 1 in September. I mean, April and October. If we don't get to next one, I think last I saw the market was saying in July. I mean it's -- if you don't get it, it's like a couple of million dollars' worth of benefit to a quarter. So just kind of as a reference point, baked into our guidance, has the margin moving up modestly, a few basis points a quarter, say, between the 3.28% and the end of the year is kind of what's baked into our guidance if you do the math.

Okay. I think I'm good. And Vince, just the question on M&A, I guess, just in terms of big picture, if we do see something, if there's a great opportunity out there, does it feel like it's a smaller opportunity given you don't want to kind of take momentum away from what you have, all you've talked about today? Or is that the wrong way to think about it because the right opportunity could be something bigger. It just feels like it might be something smaller and less disruptive if there was an opportunity out there. But I guess maybe I'm reading into that.

No, I think we're pretty focused internally on organic growth. And what we're doing is, we're looking at capital deployment constantly. We've talked about this before somebody else asked a similar question. I don't know if not. But we're going to do whatever we think makes the most sense for the shareholders from a return and capital deployment perspective. We're not out trying to find things. I think given where we are right now and the success we're having and how valuations line up, it's more unlikely that we do a large M&A transaction, right?

And if you look back over the last I said 9 years going back to the large -- last large deal we did. We've only done 2 deals. Since then, they were relatively small, and they were -- they basically were additive to the overall strategy. So both deals have really high demand deposit mix it as set. And they provided lots of customers, it was like granularity in the customer base, and it could be plugged into the consumer bank and we could drive on the cross-sell strategies and drive fee income. And that's that made sense to us, but those are more opportunistic than plotted.

Yes. Okay. Yes, that answers it. Congrats on the quarter and the momentum you guys have going into '26.

Yes. Thank you very much. I appreciate it. Thanks, Brian. Thank you, everybody. I think that concludes the questions. And I want to thank our employees for a tremendous year. I know there was a lot of hard work that went into this year, and I want you to know the executive leadership team. I appreciate it. And thank you to our shareholders for continuing to believe in us and support us. Thank you.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good day, and welcome to the F.N.B. Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I'd now like to turn the conference over to Lisa Hajdu, Manager of Investor Relations. Please go ahead.

Good morning, and welcome to our earnings call. This conference call of F.N.B. and reported files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not in this alternative for our reported results prepared in accordance with GAAP. A reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website.

A replay of this call will be available until Friday, October 24th, and the webcast link will be posted to the About Us, Investor Relations section of our corporate website.

I will now turn the call over to Vince Delie, Chairman, President and CEO.

Thank you, and welcome to our third quarter earnings call. Joining me today are Ms. Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer.

F.N.B.'s third quarter earnings per share grew 14% linked quarter to a record $0.41 and reported net income available to common shareholders increased to $150 million. Operating pre-provision net revenue increased 18% from the year-ago quarter, contributing to positive operating leverage and a peer-leading efficiency ratio at 52%. F.N.B. produced another quarter of record revenue, totaling $457 million, with strong contributions from fee-based businesses, most notably in capital markets, and mortgage banking, driving total noninterest income to a record $98.2 million. F.N.B.'s capital position has reached record levels with tangible common equity at 8.7% in CET1 at 11%. Our growing capital base provided our company with flexibility to return to $162 million to shareholders year-to-date through our active share repurchase program and quarterly dividends. The company's profitable quarter resulted in a return on average tangible common equity of 15% and tangible book value per share growth of 11% to $11.48. Period-end loans increased 3% on an annualized linked quarter basis with growth led by equipment finance, consumer lending and seasonal residential mortgage production.

Commercial and industrial loans grew 2% annual last linked quarter, impacted by lower line utilization and higher than normal attrition driven by outsized customer M&A activity. Equipment finance had a strong quarter with 21% annualized loan growth, reflecting activity across our footprint, likely driven by fiscal policy. We continue to maintain our strict credit discipline with a primary focus on traditional C&I lending. We are not in the business of lending to private capital providers particularly entities that engage in direct consumer and small business lending. As we've indicated on prop polls, 2 areas of focus that position F.N.B. for future growth are continuing to grow low-cost deposits and reducing our CRE concentration. This quarter, we made good progress on both fronts with a loan-to-deposit ratio ending the quarter at 90.9%, and our CRE concentration improving to 214%.

Our business model and its emphasis on a diverse and attractive footprint is contributing factor to grow deposits at a favorable level. Annualized linked quarter deposit growth of 7% outpaced the industry and reflected continued commercial client acquisition. The FDIC deposit market share data released in September revealed that F.N.B. grew in nearly 75% of the MSAs we operate in. We now rank in the top 5 in nearly 50% of our MSAs and in the top 3 market share in nearly 30%. Noninterest-bearing deposits comprised 26% of total deposits stable to the prior quarter with favorable total deposit cost of 193% at quarter end. Our strategy has been to price our deposits competitively to support our client base while protecting our net interest margin by leveraging our digital capabilities and data analytics. We have successfully executed on broadening our household penetration and becoming the primary bank for new and existing clients through our streamlined digital customer experience in our proprietary store and common application.

Since our in-branch Common App pilot concluded in May 2025, the percentage of applications originated through the common app has nearly tripled. Our data analytics team now mine the data and leverages AI to provide our customer-facing team with quality leads to accelerate sales and grow revenue. We have been able to gain insight on our customers' references and competitor pricing from data points housed in our enterprise data warehouse system and through external data aggregation. This allows us to strategically price our deposits and analyze the relationship holistically. Implementing this pricing approach contributed to our net interest margin expanding 6 basis points linked quarter. Our newly formed AI and innovation team is actively reviewing and prioritizing high-impact use cases from across the organization. I am energized by the transformative potential of AI elevate operational efficiency, accelerate revenue growth and deepen client engagement. As we grow our AI footprint, we remain committed to strong risk management framework and controls, ensuring our innovation is both responsible and sustainable.

With that, I would now like to turn the call over to Gary to discuss the strong credit results for the quarter. Gary?

Thank you, Vince, and good morning, everyone.

We ended the quarter with our asset quality metrics remaining at solid levels. Total delinquency ended the quarter at 65 basis points, up 3 bps from the prior quarter with NPLs and OREO up 3 bps remaining at a solid 37 basis points. Net charge-offs totaled 22 basis points, bringing the year-to-date results to 21 bps, reflecting good performance despite the continuation of a somewhat volatile economic environment.

Criticized loans were down 7.3% or $113 million on a linked-quarter basis, with decreases observed throughout all of the commercial segments. We were pleased with the stability and improvements we saw during the quarter and were successful in removing some risk from the loan portfolio. Total funded provision expense for the quarter stood at $24.9 million, supporting loan growth and charge-offs. Our ending funded reserve stands at $437 million, an increase of $5.2 million, ending at 1.25%, unchanged from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.32%, and our NPL coverage position remained strong at 368%, inclusive of the discounts.

Regarding tariffs, we continue to monitor line utilization and industry concentrations especially customers with a higher potential impact over the longer term. Since Q1, we have not seen any material impacts on the loan portfolio and have, in fact, experienced positive credit migration, as I mentioned earlier. Also of note, our overall C&I line utilization was down again in the quarter, including sectors that could potentially be impacted by higher tariffs, remaining at stable levels. The government shutdown remains a fluid situation. We are monitoring the portfolio closely and are having discussions with our customers that are potentially impacted to support them in what should be a temporary event. Each quarter, we continue to run a lot of sensitivities in a full portfolio stress test. Our stress test results were stable with our current ACL more than covering projected charge-offs in a severe economic downturn.

Regarding the nonowner CRE portfolio, credit metrics also improved, contributing to the criticized decline I mentioned earlier with delinquency and NPLs at 53 and 50 basis points, respectively. This reflects an improvement from 64 and 62 bps at the prior quarter end. We continue to aggressively manage this portfolio as we have throughout this interest rate cycle with a nonowner exposure declining by another $226 million in the quarter, bringing the year-to-date decline to $646 million, ending at 214% of capital.

In closing, we continue to be pleased with the performance of our loan portfolio. We look forward to increasing levels of activity with the fiscal policies that have been enacted which are already driving our equipment finance portfolio growth. As uncertainty eases, we expect broad-based growth in a potentially more robust and business-friendly environment. Our consistent credit results through many cycles and uncertain times continue to be driven by our credit risk appetite and credit selection. Our robust concentration risk management framework and our 360-degree view of our customer activity and performance. As Vince referenced earlier, our credit philosophy continues to be focused on core C&I lending activity, which has and will continue to drive our growth into the future.

I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary, and good morning. Today, I will review the third quarter's financial results and walk through our updated full year guidance.

Third quarter operating net income totaled $147.7 million or $0.41 per share. Total revenues were a quarterly record at $457 million with both net interest and noninterest income exceeding the high end of our prior quarterly guidance ranges. As a result, third quarter operating pre-provision net revenues grew 18.3% in the year-ago period. Third quarter average loans and leases totaled $34.8 billion, a 3.6% annualized linked quarter increase. Average consumer loans increased $431 million on strong residential mortgage and home equity lending growth as seasonality and a drop in interest rates provided a favorable environment for consumer lending. Average commercial balances declined $119 million linked quarter due primarily to a planned reduction in commercial real estate balances, offset by growth in C&I. Average deposits totaled $37.9 billion, a strong 8.2% annualized linked quarter increase, reflecting organic growth in new and existing customer relationships. Both noninterest-bearing demand deposits grew 1% linked quarter and were stable at 26% of total deposits. The loan-to-deposit ratio declined nearly 1% in the second quarter level to 90.9%. The cumulative total deposit beta since the interest rate cuts began in September of last year was 24% at quarter end, reflecting the timing of the most recent Fed cut late in the third quarter.

Record net interest income of $359.3 million grew 3.5% from the prior quarter and over 11% from the year ago period, attributable in part to our diligent management of deposit costs. The third quarter's net interest margin of 3.25% was up 6 basis points sequentially and 17 basis points from last year's third quarter. Earning asset yields increased 3 basis points linked quarter to 5.36 driven by higher yields on the investment securities portfolio, with reinvestment rates on securities remaining well above the average portfolio rate and higher yields on new fixed rate loans compared to maturing loans. The average loan yield held steady sequentially even with lower mortgage rates and the Fed cut late in the quarter.

On the funding side, the cost of total deposits and borrowings was down 3 basis points linked quarter as a result of a 7 basis point decline in the cost of borrowings and the funding mix shift towards deposits. Average borrowings were down $424 million linked quarter, primarily due to the $350 million of 5.15% senior notes that matured in August of 2025 and the growth recorded in deposits.

Noninterest income totaled a record $98.2 million, up 9.5% in the year-ago period. Capital markets income grew 27% on a record debt capital markets and international banking income as well as contributions from customer swap activity, syndications, public finance and advisory services. Wealth Management revenues increased 8% year-over-year on solid trust income and double-digit growth securities commissions and fees. Mortgage banking income increased $3.6 million from last year to the strong sold loan volumes, net positive fair value adjustments from pipeline hedging activity and the $2.8 million MSR impairment in the third quarter of 2024.

Other noninterest income increased $5.3 million, primarily due to a $5.4 million recovery on an asset previously written off through purchase accounting as part of a 2017 acquisition. Operating noninterest expense totaled $245.8 million, up 5% from the third quarter of 2024. We Salaries and employee benefits increased $5.5 million or 4.4%, primarily reflecting strategic hiring, continued investments in our risk management infrastructure and higher production-related compensation.

Outside services increased $1.7 million due to higher volume-related technology and third-party costs. Other noninterest expense increased $3.7 million primarily reflecting our mortgage down payment assistance program.

Year-over-year operating revenue growth of 10.7% was more than twice the 5% increase in operating expenses. As a result, the efficiency ratio reflected strong improvements and declined nearly 280 basis points from the third quarter of last year to 52.4%. We expect continued strength in operating leverage performance in the fourth quarter and positive operating leverage for the full year of 2025.

We are in the process of developing our annual cost savings target for 2026 and to maintain our positive operating leverage momentum moving forward by renegotiating vendor relationships and leveraging investments in AI, data science and machine learning.

F.N.B. continues to actively manage our capital position for ample flexibility to support balance sheet growth and optimize shareholder returns while appropriately managing risk. Our financial performance and capital management strategies resulted in our CET1 ratio, reaching 11% and our TCE ratio reaching 8.7%, both record levels. Tangible book value was $11.48 per share at quarter end, an increase of $1.15 or 11.1% compared to last year.

Let's now look at updated guidance for the full year of 2025. All guidance is based on current expectations, while remaining cognizant of operating in an uncertain economic environment. We are maintaining our balance sheet guidance for spot balances, projecting period-end loans and deposits to grow mid-single digits on a full year basis as we increased our market share across a diverse geographic footprint. For loans, we expect to be towards the lower end of the mid-single-digit guide given continued expectations for secondary market activity and our continued active management of CRE exposures. We are raising our 2025 net interest income guidance for the second consecutive quarter to incorporate the strong performance in the third quarter and our fourth quarter outlook. Our revised full year net interest income guidance range is $1.39 billion to $1.405 billion. This guidance includes an expectation for a 25 basis point rate cut in October compared to our previous expectation for a cut in December.

The noninterest income full year guidance range has been revised to $365 million to $370 million, with fourth quarter levels expected to approximate $90 million. Full year guidance for noninterest expense has been maintained at $975 million to $985 million. The revised full year provision guidance range of $85 million to $95 million reflects a $5 million decrease on the high end, given our year-to-date performance and strong asset quality metrics. As always, provision will be dependent on net loan growth and charge-off activity, and we continue to monitor risks posed by the current economic environment.

The full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur.

Lastly, we also remain opportunistic and disciplined in our approach to buybacks, taking advantage of attractive valuation levels.

With that, I will turn the call back to Vince.

Thanks, Vince. Last month, we announced plans to further deploy our organic growth strategy by adding 30 new branches to our network by 2003, focused primarily in the high-growth Carolina and the Mid-Atlantic markets. This expansion will build upon our commitment to client service and will incorporate the modern concept design and latest technology including our AI-driven e-store platform, now found in all branches throughout F.N.B.'s multistate footprint. We also recently announced a leadership transition for the consumer bank with the hiring offer show as Chief Consumer Banking Officer, succeeding Barry Robinson upon his retirement. Over his 15 years at F.N.B., Barry has been a valued leader during a period of prolific growth for our company and has contributed to the build-out of our mortgage banking operations, the rollout of our retail scorecards and the expansion of our distribution network. I am grateful to Barry for his many years and dedicated service and contributions.

[Audio Gap]

throughout the company, we have continued to attract the line with our world culture and key strategic initiatives to drive growth and a superior client experience. As we continue to expand the depth of our strategic management team, we recently hired Frank Schiraldi as Director of Corporate Strategy, who joined us with 20 years' experience as a prominent New York-based sell-side analyst. I welcome Alfred Frank and other recent strategic hires to Pittsburgh and look forward to working alongside them and our current team to create value for all of our stakeholders.

F.N.B. remains dedicated to advancing our technology, people and delivery channels to gain scale and operational efficiency. This happens by cultivating meaningful lasting relationships with our clients and communities, while simultaneously creating value for our shareholders.

With that, I would like to turn the call over to the operator for questions.

[Operator Instructions] And today's first question comes from Kelly Motta with KBW.

So loan growth has been really solid. I know it's now expected to be sort of on the lower end of the mid-single digit. Wondering just as a high level, you're one of the few banks who had some really nice growth in residential mortgage. I'm wondering, you mentioned the secondary markets, but wondering as we've had a look ahead here with rates coming down, if you see any sort of headwind from refi risk of your existing book that was put on at higher rates.

Yes, I -- we -- obviously, we analyze the mortgage book. We spent a lot of time looking at it. I think we shifted strategically a while ago in terms of pricing pricing more aggressively in the conforming space. So we've been moving assets off the balance sheet through origination for a little bit here. I would expect that to continue. So we don't -- our cost things shift that we're able to reduce our -- I don't think the prepayment speeds accelerating in the mortgage book is a negative, even though there's a margin impact, we can redeploy that capital in the commercial book and get deposits and really drive return on equity at the company. I think that's really the strategy in the long run. Most of the production that's coming online for us is they're very wealthy individuals that do jump up mortgage loans and physicians. So we're bringing that on our book, which has tremendously good credit metrics. Maybe they're priced a little thinner because it's a pretty competitive space to begin with. So that's the book I would see maybe turning over a little bit. But again, that's not a terribly negative thing because we're using data analytics on those customers to try to cross-sell wealth and other products and services. So -- and we've retained the servicing, we try to refinance it if we can get it into a conforming product and then retain the searching and retain the customer over time. So we're not that concerned about that. I think you'll see a shifting in production over time, less consumer-centric, more commercially oriented as we move through this choppy period. I'm pretty optimistic in certain sectors. We're a traditional lender. We're not doing anything fancy. It's block and tackling, it's going after clients in the markets, it's middle market banking. It's the hard stuff. That's why we don't produce outsized loan growth. We manage the exposures. We go after the holistic relationship and try to achieve primacy from a depository and treasury management perspective. And you can see it in the results that we have, it's very steady, very stable, there's really strong credit results. We continue to grow demand deposits and deposits overall. So it's that business. So yes, I don't know, I probably gave you too much information, but I wouldn't get hung up on a particular asset class within our balance sheet because we're focused on all of it, from an exposure perspective and there's strategies in place to deal with margin erosion in those portfolios with acceleration of prepayment speeds.

Great. That is actually a super helpful color and underscores the strength that you guys have. Maybe since you mentioned the deposit base, maybe I could ask a follow-up on that. I mean deposit growth was really solid. And most impressively, in demand deposits, noninterest-bearing, wondering if you could provide additional color and commentary as to how much of that is coming from your growth market, what's the drivers of that? I know you guys have been doing a lot with the DAE store in AI and just hoping to get additional color.

Yes. I think it's across the board. I can't just point to 1 specific market. We've had great success growing deposits in the Carolinas. I know everybody was a little nervous with us moving in there and said it's highly competitive, but we've grown in many, many markets there, a lot of the FDIC data that we refer specifically to those markets in Carolina, where we have pretty decent share. We've been able to continue to grow. Pittsburgh, for example, is not a high-growth market from a deposit expansion perspective. I think deposits declined in the market overall because there's big balances that shift around with some of the -- with the custody banks that are located here. There's large institutional deposit bases that move around here and then P&C is faced here. So it's kind of hard to say. But we've grown deposits out right here. I think on a relative basis, we've gained share, and we've solidly positioned ourselves as the #2 retail deposit bank in Pittsburgh. That comes from a whole bunch of things. Really solid execution in the field, a technology offering that enables us to compete with large banks, the efficiency contained within the common app to bring customers in quickly and using AI to guide them into depository products right away and let them purchase those products instantly. So a lot of those things come into play. And then on top of all of that, the commercial bankers have really been trained to go after depository only relationships. So they do both. And that's the old traditional corporate banker, that's what I was trying to do, go after. I don't just focus on loans. I focused on whatever would drive good results for the balance sheet. And our incentive compensation plans are aligned to produce results because we incent people to originate low-cost deposits, not specialty priced. They don't get incentives to bring in high-priced deposits. It's the solid stuff. So there's a lot of block and tackling. It's not -- there's no silver bullet. It takes a lot of people that are pretty dedicated to making that happen, and you have to stay true to the model that that you've developed. And we have a very solid growth model, a very good execution in the field and a laser focus on doing what we think is best for the shareholders and then incenting people to do that. So I know that doesn't give you your answer because you were looking for 1 specific thing. But I don't think there is. It's a combination of things, and we have a very well thought out strategy and it's playing out, it's played out over 15 years.

I would add, too, if you look at the FDIC market share data, right, the June to June, I mean, we more than doubled the market growth in that period. We grew in 75% of the MSAs that we're in, outperformed the market in 38. We're now with this growth and performance we had, we're top 5 and nearly 50% of our MSAs and top 3 and 30%. So it's really kind of across the footprint.

Next question today comes from Casey Haire at Autonomous.

So question Vince , a question for you on Slide 15. So the interest-bearing deposit beta down to 35% from 40% cumulatively. Just where do you see that going through the cycle versus the 54% on the upswing?

Yes. I would say just as a reminder, on the way we finished the cycle with a cumulative beta, total deposit beta of 39.8%, and we outperformed our peers by 8 percentage points during that period. And meaningfully on the deposit cost, 38 basis points. As you would expect, I mean we have a very active process discussing strategy and tactics for bringing rates down and we've started to do that. in anticipation of the Fed moving as we move through this cycle. So I think we have a very good game plan for how to do that as we move forward. Just kind of where we think it might go. I mean, we still think mid-30s terminal down beta seems reasonable for us given our historical performance. As far as year-end, I guess it depends on if you get a December cut, right, which obviously a cut late in the quarter just affects the math. So if we do get that cut, we're probably in the low 20s or so. Without a December cut, we're kind of in the, I would say, the mid-20s just for this year, but kind of mid-30s as we move forward through the cycle.

Okay. Very good. And then switching to capital management, just to see the CET1 ratio at 11%. I don't think -- I mean that's a very big number. And I just wanted to get some updated thoughts. You guys do have an attractive stock price. You had to buy back a little. I think you could have done it more. Just what is the go-forward strategy with a very strong capital ratio. And the Vince, if you want to tell me to shut up about M&A, please take that opportunity.

I'm going to reserve my comments. The M&A answer, I'll give that right away. We haven't changed our position. So we're still focused on executing our core model. and it's performing very well. So I've said it before, often would be opportunistic, but we're focused internally. And we need to be focused internally right now. I think it's paying off for us. So again, opportunistic but not looking to make any huge moves here. Go ahead, Vince.

Sure. So I would just -- as far as capital management, like you mentioned, CET1 ratio at a record for us at 11%. Dividend payout ratio, 30% below 30%. We're in a great position to deploy capital as we move forward to optimize shareholder value. And with the risk of the balance sheet, combined with -- as you look ahead, and our guidance implies higher earnings, higher capital generation. So we'll be well positioned to support the loan growth. We do expect the commercial growth to start to pick up at some point and very well positioned to be able to support that. With where the stock is trading, clearly, the valuation is very attractive. So we've been active in the last 3 or 4 quarters. I would expect it to be active again this quarter as we move forward. And then the dividend is another element. I mean, we have regular conversations about the dividend. In the [indiscernible], we had a very elevated payout ratio for a long period of time. carried a higher cash dividend. And with the sub 30% level, and it's definitely something we're actively talking about. We still like the flexibility of the buyback to be able to do that opportunistically with valuation. The dividend is something that we'll continue to talk about.

Okay. Great. And just last 1 for me. The Investor Day upcoming in a couple of weeks here, but it's been a while since you guys -- I think it was 2019. Just you guys are a lot bigger. Just wondering what we can expect? Are you guys looking to put up profitability targets? Just a little color on what to expect.

Well, we -- the purpose of the Investor Day is to show off the tech to introduce you to the team. There's a lot of depth here. I think just having the ability to interact with our digital and AI people and our leadership from the field here in this building, which is brand new. I think it's going to be very impactful for the investors. So you hear a lot of things people talk about things when you come and experience the tangible effect of the new building and the tech that we have, and what we're doing, I think the investors will leave energized. It's very impressive. And we wanted to show it off. And I think that we pulled it off and we got the building built, and we got everybody in here. 800 people or more working in this building. It's very impressive. And employees are very, very proud of it. And I thought it would be a great opportunity to bring investors in to show them what we've built for now, right? This is all about us driving business. So you'll see when you come through the entire building designed to entertain clients and to drive business to grow revenue and earnings. You'll see that when you come...

It's collaboration.

It's collaboration. It's An awesome space and should bode well for us as we move into the future.

Our next question comes from Russell Gunther at Stephens.

A question on the expense side of things. So nice to see the revenue guide up and expenses flat and efficiency come down nicely for the quarter, and it sounds like guided to continue to improve in I think for the year, that would still kind of get you towards the higher end of what I believe an internal target has been a 50% to 55%. So is that still the right range to think about for you see you guys making some progress on that ratio going forward? I guess, can that back half of the year efficiency sustain in 2026? How do we think about it?

Let me -- can I answer quickly, and I'll turn it over to you, Vince.

Yes, of course.

We're very cognizant about the expenses here at this company, we spend a lot of time focused on it. We actually have a team that reports up through Vince that focuses exclusively on our line expense line items, right? We have meetings and talk about it. But there's an expense initiative moving into next year that's fairly sizable. Vince mentioned it in his prepared remarks. We have, over time, taking picking expense out run rate expense out historically at a pretty healthy [indiscernible], $20 billion per year for consecutive years. We're planning on reengaging and working to optimize our expense base, right? There are certain things that are coming from an efficiency perspective, which is helping us the common app over time will help us because that's a very, very efficient onboarding process with a lot of digital components to it. So we're already starting to see benefits from an operational perspective by using that those digital work streams and using that software application to origin across a variety of product areas. That's all part of the evolution. And then the other part of this is approaching $50 billion in assets. We have spent a lot of money, okay, invested a lot in our risk infrastructure. So we have automation like you couldn't believe. We're tracking thousands of metrics internally using AI in our data science. We did process mapping across our entire operations area. So we're very, let's say, well prepared to move through a cycle and to benefit from that study from an efficiency perspective. But go ahead, Vince, you can answer that.

Yes, which is all I would really ask that is as we planned for '26, I mean the focus, we're always a disciplined manager of expenses. So it's -- the focus isn't just on cost savings, but on efficiency, scalability, kind of leveraging the stuff that Vince was talking about. We'll continue to focus on renegotiating vendor contracts. We're going after that pretty hard. It's part of every year, but we're definitely going after that in a meaningful way, kind of streamlining operations through automation. And then we've made investments in people, technology, data science, AI and we're at early stages for some of that, some of it's been around for longer, but leveraging those investments to just really drive overall profitability.

Yes. Well, our efficiency ratio is 52%, and we have been making those investments all along. So there's been -- we opened a number of de novo branches over the last few years. We didn't even talk about it. We we're better positioned to drive revenue growth today and the expense -- a vast majority of those expenses are baked into the fund rate. And we start to see good positive operating leverage as we move forward, but because we're going to leverage those investments to drive threat.

No, that's what I was going to say. That's the key point is positive operating leverage, right? So we're going to have it for this year and enhance that and grow it even more as we move forward. And to the direct question on the efficiency ratio, there's still room to bring the efficiency ratio down. But it really -- the key is the overall profitable operating leverage combined with the efficiency ratio and then return on tangible common equity, driving the profitability.

Yes, and the Board and the management team, are laser focused on efficiency, the efficiency ratio be stuff pretty extensive reporting to the Board about our progress. Operating leverage -- positive operating leverage is a mandate for operating plans. We're very focused on it. So I would expect it to continue to improve over time.

That's great color, guys. I appreciate both your thoughts there. And then just last for me, Gary, would you be able to expand upon your comment about having removed some risk from the portfolio maybe size up the exposure you examined as potentially impacted by a government shutdown, just be helpful to get your thoughts about how you're thinking around that issue.

Yes, I'll touch on the government shutdown first, Russell. I mean, we're continuing to watch for fallout from the [ those ] efforts earlier in the year as well as the new government shutdown. At this point, we have seen absolutely nothing from an impact standpoint coming out of either one of those situations. The government shutdown is a fluid situation and a twist and turns every day here. but we're keeping an eye on it. We'll continue to keep an eye on those portfolios that are potentially impacted. But as mentioned, nothing at all at this point. In terms of taking the risk off the table comment, essentially, we saw, again, another good reduction a couple of quarters running now in our criticized asset levels on a net basis, down about $113 million. A number of those clients were exits from the bank, just normal payouts, getting refinanced at other institutions. So we were pleased to see some of that activity with those clients move off the books. We also did see a few upgrades where performance was improved, but that's a chunk of risk that has been taken off of our balance sheet. We're pleased with that and continue to manage the portfolios each and every day in that manner. So just kind of normal blocking and tackling from our perspective in what we do here every day.

And our next question comes from Daniel Tamayo with Raymond James.

Yes, maybe first one for Gary here. We've had some issues here with other banks with the depository financial institution loans. You talked about it in the comments, that's really not what you guys are doing. But curious if you can provide kind of where you stand end of quarter you had pretty low concentration relative to other banks at the end of the second quarter, just on the [ Y9 ] data, but just curious if that's changed at all in the third quarter? And then maybe if you could give a little bit of a breakdown of what those loans are that you have on the balance sheet, you could give us comfort around credit.

Yes, the call report, any really cast a pretty large and wide net there. I mean, our customers are primarily in the other bucket. -- and it's really diversified across a number of sectors, such as wealth management firms, advisory firms, insurance firms, investment companies and that's primarily the type of companies that we see in that bucket. And when you look at those companies, our lending arrangements or generally for working capital and expansion versus direct lending activities. And as Vince mentioned earlier, we're not in the business of lending to private capital funds, including private equity and private debt funds. So we're not in that business, and that's not where we're going to play. That was a conscious decision that was made a long, long time ago, and we're going to continue to manage the book that way. It's not a business we have any interest in.

Okay. And then maybe one for...

As I said earlier, the bulk of our portfolio, but if you look at our portfolio, it's extraordinarily granular and it's small businesses, middle-market companies across the 7-state footprint. So I don't think from a concentration perspective, you're going to find material concentrations that are unmanageable. And Gary and I, people have come forward with proposals on verticals we have jointly shut them down, okay, because we have a belief that we need to stay true to focusing on serving the communities that we're in and providing capital to middle market and small businesses. That's our end consumers, that's our goal. So I don't know if you want to...

No. You've heard Vince. You use the word lock and tackle a couple of times today. I mean, that's what we do each and every day here at the company. I mean, it's core banking business, core C&I in the communities that we do business with through all segments of the C&I space, small mid and corporate. And those portfolios, we understand really well how they performed through the cycles. We've been through many cycles of this management team. And we've continued to to focus on providing stable EPS streams through good and bad environments. And that's what our focus is and is going to going to continue to be.

And we don't have verticals here to speak of. I mean there's a CRE vertical, but that's intentional for credit management. We don't believe in institutionally originating credit. So we're characters first. We have to know the customer, it's very disciplined across the footprint. So I guess that's part of the reason why our performance has been so strong from a credit perspective over long periods of time.

Very helpful, Vince and Gary. Yes, maybe a follow-up just on the fee income side. So in the slide deck, you had a bullet there that said you've had 9% fee income CAGR over the last 10 years, which is certainly a nice number. You talked a little bit in the conversation about efficiency ratio, about investments that you've been making. Just curious where you see runway for continued growth on the fee income side kind of in the medium term as we look forward here?

We've made recent investments in our indebted banking platform in public finance. We have an effort. We've expanded our hedging offering and treasury management investments and treasury management. Those are the areas that I see the biggest lift in over time. The pipelines are building in public finance. Obviously, we're a very active player any municipal space on the depository side. And we're not just taking the high-yielding deposits we're actually providing treasury management services and when their principal bank. So there have been many, many requests over the last few years for us to participate in bond activity, we weren't able to do it, but we built out the platform. So we're -- that's something we're very excited about. We're seeing a lot of activity as we build that out, we now are a viable option for a number of municipalities across our footprint nonprofits who want to raise capital by issuing bonds. We're there now. That's purely fee-based, and we're excited about that. We're seeing a pipeline build. From an M&A perspective, the people that we brought over the best you could find. I mean, they are just terrific people. I've known Greg forever. They're going to do a great job, and he's got some really great opportunities out there. So we'll get some benefit from that. I think as we see the balance sheet has grown, we're a large organization. We have a deeper penetration in commercial across our footprint. We will see a pickup in syndication activity as we get through this period. So I'm very excited about underwritten traditional bank deals and our ability to be the left fleet in those transactions. That to me is a game changer for us from a return perspective. And then to add on top of that, we've been a player. We built out our debt capital markets capability with the creation of a broker-dealer focused principally on taking bond economics. That's also to help Gary because he's very risk averse. So we play in the investment-grade space in the near investment grade space. And those companies that need capital in that space, they don't -- the spreads are pretty thin. There's a lot of unfunded commitments, but when you factor in the bond economics, the returns are north of 15%, right, because you're getting paid to provide capital through the investment banking activity. So I think that's all worked extraordinarily well for us, and those will continue to drive. We'll be able to drive fee income. And then from a treasury management perspective, if you look at our treasury management platform, we really have not penetrated the small business segment. We have 90,000 to 100,000 small businesses, and we have very low penetration from a merchant and treasury management perspective. And we're using AI, and we're building out tools and bundling products right now to go after that segment. So there's a lot of granularity in that segment. We already have the delivery channel through the retail distribution channel and the POs that we have. We're layering in additional expertise there. I'm very excited about TM as we move forward. And then there's mortgage banking. As we shift into this lower rate environment, another thing that's going to happen is you're going to see we're principally a purchase money originator. So historically, we've had much, much higher gain on sale activity in a lower rate environment. So if we can get there with a more normal yield curve and lower rates, we're going to see a significant pickup in fee income from the mortgage bank as well. So hopefully, that all lines up, and we continue to see an expansion in the noninterest income bucket here. Our fee-based businesses are poised to grow. And then wealth has grown historically 9% to 10%. So -- and we've only scratched the surface from a wealth perspective because we really haven't fully built out the wealth capabilities across our new geography. So the Mid-Atlantic, the D.C. market still need -- we need to hire people and build that out in the Carolinas, we have people, but there's an opportunity to add more because of the number of opportunities there. So I'm very optimistic about our ability to continue to sustain that growth in that fee income bucket and shift our dependence away from just being a spread bank, right? So fee income is north of 20%, right? I mean, as noninterest income increases, hopefully, that fee income outpaces it. We're able to have a larger portion of our revenue contributed by those high-returning businesses. Anyway, that's the strategy. I think that we're in a really good place. And I think we've proven over time that we can execute.

Yes, there's a couple of key points on that. Slide 17, just for reference. We mentioned that we've either started from scratch or expanded from very small 10 business lines that are now multimillion dollar revenue generators. So that diversification is really important. And the newest stuff that we've added, that Vince mentioned, the public finance and the investment banking it really allows us to serve our clients through their whole life cycle. So this has been a strategic plan that we probably started, I don't know, 12 years ago in adding these other capabilities. And now that we have that, really, there's no reason for our clients to go to another bank or have to go to another bank for those services. We can take them all the way through.

Great color.

Come to the Investor Day, you'll see more.

I'll be there.

And our next question today comes from David Smith at Truist Securities.

In the past, you've spoken about your balance sheet being short-term asset sensitive, medium-term neutral, long-term liability sensitive. As we think about the ongoing Fed cut cycle what should we be on the lookout for in terms of the timing of how you're will be reacting right now?

Yes, I mean we're essentially neutral right now. I mean, if you -- we're around 1% or so for a 100 basis point move at June 30th. We'll probably be a little bit closer to neutral. Historically, we've managed to neutral. That's really what we've managed to as we've gone through these periods from a profitability standpoint, we're more asset sensitive to kind of benefit from what was happening with the yield curve. So the goal moving forward will really be to stay neutral-ish I would say, and then benefit net interest income by growing loans and deposits. So we have a lot of levers. If you look at what's kind of driving the net interest income performance that we've seen this quarter, and we've raised the guide again. I mean the new loan originations are coming on 50 basis points above the portfolio rate. Cash flows from securities. We're reinvesting 147 basis points above the roll-off rate. So that's positive. We have fixed rate loans that we're originating. In total loans, we're put on the books in the 630. So we're originating loans there above the maturing rate. So that's all helping on that side. We have the chunk of the loans that are will adjust as SOFR adjust, and that's kind of part of what we have to manage through. And then on the deposit side, I mean we've kind of had a dual mandate for our team of growing deposits while really optimizing the cost side. And I think we've done a nice job bringing the cost down. And again, like I commented earlier, we're very active in the tactics and the strategies we're deploying to continue to bring those rates down. And with the Fed moving and there's been plenty of cover with other banks too, that have been doing the same thing. So that we've been able to start to bring rates down on slugs of the deposit portfolio and really have not had any negative customer reaction to that.

And then when you compare the 75% of the markets where you grew your deposit market share, it's a minority where you didn't? Are there any lessons you can learn about what's working in those markets that you can apply to the ones where you're not growing share right now?

Yes. It's -- when you look at the FDIC data, the areas that we're not growing share all over the board, it can be a circumstance where there's a large player that controls a significant portion of the MSA, and we only have 1 or 2 branches there. So the growth that we're going to experience isn't going to move the needle there, right? So it depends on the MSA, but I think lessons learned. I think we gain more from focusing on the 75% where we grew. I think the 25% when you drill into it, the vast majority of those markets are not markets where we're going to meaningfully change our position without significant investment. So we're focusing on the markets that were down, and we do have a big investment, and we need to drill in and figure out why we have it wrong like we have in the markets where we've had achieve success. So there aren't very many of those, so that's the good news, and we continuously look at it. And I've listened to Alan Mulally's book on tape. And one of the things he did was he sat down with all of his executives and they had to present to them. We do the same exact thing here I've just told our folks, when you're in a market that's not performing, you have to tell us that you're in a market that's not performing, and what you're going to do to fix it. So we're very keenly focused on it. We have quarterly and monthly meetings, any scorecard, daily scorecards with automation and with AI now, it's going to be mind-blowing because we have daily scorecards with all these metrics, and we're tracking performance daily. So we can layer on top of that an analysis, right, through open AI Architect. So instead of me calling and offer it and asking him questions about where the retail bank is performing. I could just go in and queue it up myself. So that's going to be a game changer for us and for the leaders in the field who are trying to drive performance.

And then you can call out.

Then I can call out. Then I call and say, what's going on.

Yes I've worn them out after 15 years. So new person here. But that's how it works. I mean, that's how you keep driving results.

And our next question today comes from Brian Martin at Janney.

And it appears their line is on hold. So at this time, I'm going to move on, and I will turn the call over for final remarks to Vincent Delie. Vincent Delie, please go ahead, sir.

Yes, thank you very much for the questions, giving us an opportunity to present to you. I'm just very pleased with our people. I think we've gone through a number of challenging periods. We've had headwinds like you couldn't believe the performance of this company has been outstanding, and it's outstanding because of the people that work here. So thank you to our employees. Take care, everybody.

Thank you. This concludes today's conference. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good morning, everyone, and welcome to the F.N.B. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded.

At this time, I'd like to turn the conference call over to Lisa Hajdu, Manager of Investor Relations. Ma'am, please go ahead.

Good morning, and welcome to our earnings call. This conference call of F.N.B. Corporation and the reports [ it ] files with the Securities and Exchange Commission often contain forward-looking statements and 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. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials in our earnings release. Please refer to these non-GAAP and forward-looking statements disclosed within our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website.

A replay of this call will be available until Friday, July 25, and the webcast link will be posted to be About Us Investor Relations section of our corporate website.

I will now turn the call over to Vince Delie, Chairman of President and CEO.

Thank you, and welcome to our second quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer.

The second quarter's strong financial performance led to net income available to common shareholders of $130.7 million, or $0.36 per share. F.N.B. achieved linked-quarter revenue growth of 6.5%, driven by net interest income of $347 million and noninterest income of $91 million, all at record levels. Pre-provision net revenue rose 16% from the prior quarter to $192 million. Because of our sustained strong profitability, we continue to grow capital and have achieved record levels with the CET1 ratio approaching 11%, tangible common equity at 8.5%, and tangible book value per share of $11.14, up 13% year-over-year.

The expansion of our capital base provides flexibility as F.N.B. repurchased 725,000 shares this quarter at a weighted average price of $13.85. Even with strong growth of capital, we continue to produce solid returns with return on average tangible common equity at 14%. There was significant margin expansion of 16 basis points linked-quarter resulting in a net interest margin of 3.19%. F.N.B. benefited from continued organic growth throughout our diverse geographic footprint as spreads on new commercial originations in the second quarter remained relatively stable, and average annualized loan growth totaled 5.3%. Additionally, our aggregate funding cost declined linked-quarter while overall deposit balances and other funding sources grew nearly $600 million.

Average total deposits grew to over $37 billion, while we continue to maintain a noninterest-bearing demand deposit level of 26%. Our success in growing deposits and maintaining a favorable deposit mix is a key part of our strategy to grow profitably. The loan-to-deposit ratio ended the quarter at 91.9%, down slightly from the last quarter, and down 450 basis points since June 2024. These results were driven by our focus on deepening customer relationships by growing deposits and serving as their primary bank.

F.N.B. continues to invest in capabilities to gain market share and further outpace our competitors, particularly around noninterest income and initiatives to diversify our revenue streams. Adding to a series of records, we reported the highest level of noninterest income in the company's history, more than doubling our noninterest income over the last 10 years.

Debt capital markets and treasury management reached record levels this quarter and are examples of how F.N.B. has established, or significantly expanded, 8 business lines that are now multimillion dollar revenue generators. The returns produced are significantly greater than our cost of capital, creating value for our shareholders.

We continue to deploy this strategy with additional high-value businesses, including our recent expansion into public finance and corporate investment banking services. We have fulfilled an important milestone in our Clicks-to-Bricks strategy by integrating the eStore common application into our in-branch origination platform across our physical delivery chain. This is a major milestone as we've completed our industry-leading omnichannel approach to onboarding customers with the eStore common app now aligning originations across online, mobile and in-branch channels. This [ agent ] quicker processing times for our retail team, stronger risk and fraud controls and provides a better experience for our clients.

Common App submissions increased 108% linked-quarter with our full branch network originating applications on this platform starting in June. Through the use of the common application, multiproduct purchasing is expected to grow as our bankers will now be able to leverage AI to identify the next best products and services tailored for our customers within the same streamlined application process.

In addition, business deposit account origination was launched this week, providing small business owners with the opportunity to open a business checking account and apply for a loan product simultaneously with the common app. The increasing utilization of the common app provides additional data that our data science team leverages for personalization and better customer experiences. AI, data science and digital technology play such an integral role in our operations and ongoing success that we realigned our organizational structure. F.N.B.'s digital channels, e-commerce, data science, data management and governance, corporate strategy, and a new vertical of AI and innovation will now report to our Chief Strategy Officer. This organizational structure further expands the utilization of our digital tools, data-driven analysis, predictive modeling and artificial intelligence to position the company for ongoing success.

Our organizational alignment is necessary as we continuously invest in our digital and data capabilities to efficiently scale development, data consumption, business insights, lead generation and client personalization across F.N.B.'s digital ecosystem. From Clicks-to-Bricks, to our proprietary eStore and [ Opportunity IQ ], F.N.B. has been an innovation leader in banking.

Our team is working to further expand our use of AI and evaluate other emerging technologies such as stable coin and tokenization. We have created a generative AI task force to monitor our existing applications, intake and source new use cases across the enterprise, and ensure that we are upholding responsible risk management frameworks and controls around our growing AI usage. This past year, our credit team developed an internal performance monitoring tool that provides a 360-degree view of our commercial clients. By using internal and external data aggregation through our enterprise data warehouse, we are able to evaluate the real-time risk profile of our customers and monitor changes.

Our team continues to assess the impact from tariffs and geopolitical events, as we monitor our loan portfolio and manage our strong liquidity and capital position. Gary and his team remain steadfast in our consistent underwriting standards and credit management program, with aggressive and proactive actions, which led to continued strong credit results for the quarter.

I will now pass the call over to Gary to provide further detail on the overall asset quality. Gary?

Thank you, Vince, and good morning everyone. We ended the quarter with our asset quality metrics showing notable improvement. Total delinquency ended the quarter at 62 basis points, down 13 bps from the prior quarter, with NPLs and OREO down 14 bps, ending at a very solid 34 basis points. Net charge-offs totaled 25 bps, bringing the year-to-date results to 20 basis points, reflecting good performance despite the somewhat volatile economic environment.

Criticized loans were down 4.5% on a linked-quarter basis, driven by a 20% decline in classified loans. We were pleased with the improvements we saw across these categories during the quarter. Total funded provision expense for the quarter stood at $24.9 million, supporting loan growth and charge-offs, as we were successful in removing some risk from the loan portfolio. Our ending funded reserve stands at $432 million, an increase of $3.2 million, ending at 1.25%, unchanged from the prior quarter.

When including acquired unamortized loan discounts, [ fund reserves ] stands at 1.32%, and our NPL coverage position improved significantly to 393%, inclusive of the discounts.

As mentioned in the previous quarter, we continue to closely review the loan portfolio for tariff impacts, which remains a fluid situation. This includes very granular monitoring of line utilization and industry concentrations by portfolio and country, which we highlighted during the Q1 survey. Of note, our C&I line utilization was down in the quarter as we are not experiencing significant tariff-related draw activity. Each quarter, we continue to run allowance sensitivities in a full portfolio stress test. The stress test results reflected further improvement with our current ACL more than covering our projected charge-offs in a severe economic downturn.

Regarding the nonowner CRE portfolio, credit metrics also improved, contributing to the decline in rated credits that I mentioned earlier, with delinquency and NPLs at 64 and 62 basis points, respectively. This reflects an improvement from 82 and 77 bps at the prior quarter end. We continue to aggressively manage this portfolio as we have throughout this interest rate cycle with a nonowner exposure declining by another $137 million in the quarter, bringing the year-to-date decline to $420 million, ending at 223% of capital.

In closing, our active credit risk management further strengthened the position of our portfolio as shown in this quarter's results. I would like to thank our banking teams for managing risk in their portfolios throughout a challenging economic environment. With more clarity now around fiscal policy, and a somewhat stabilizing economy, we look forward to increasing opportunities to achieve prudent loan growth through the remainder of the year.

I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary, and good morning. Today, I will review the second quarter's financial results and walk through our third quarter and full year guidance.

Second quarter operating net income totaled $130.7 million, or $0.36 per share. Total revenues were a quarterly record at $438 million with both net interest income and noninterest income exceeding the high end of our prior quarterly guidance ranges. As a result, second quarter operating pre-provision net revenues grew 7.9% from the year-ago period.

Second quarter average loans and leases totaled $34.5 billion, a 5.3% annualized linked-quarter increase, driven by growth of $365 million in consumer loans, and $86 million in commercial loans and leases. Seasonal growth in residential mortgage loans was the primary driver of the consumer loan increase. Owner-occupied commercial real estate advances and commercial leases were the primary growth drivers on the commercial side. While C&I loan production was solid in the second quarter, it was largely offset by a decrease in line utilization that Gary mentioned.

Looking ahead, we are optimistic for a pickup in commercial loan growth in the second half of 2025, given the strong increase in the short-term commercial loan pipeline we saw during the second quarter. Average deposits totaled $37.1 billion, a 1.7% annualized linked-quarter increase, reflecting organic growth in new and existing customer relationships. Average noninterest-bearing demand, and interest-bearing demand balances, grew linked-quarter while time deposits were relatively stable and savings deposits declined.

Spot noninterest-bearing demand deposits were up slightly the last 2 quarters and stable at 26% of total deposits, and the loan-to-deposit ratio held steady at 91.9%. The cumulative total deposit beta since the interest rate cuts began in September of last year was 28% at quarter end. Net interest income of $347.2 million was more than $12 million above the high end of the quarterly guide and grew nearly 10% from the year ago period. The quarter's net interest margin of [ 3.19% ] was up 16 basis points sequentially, and 10 basis points from last year, to the highest level since the fourth quarter of 2023. Earning asset yields increased 10 basis points linked-quarter to [ 533 ], driven by increased yields for both loans and investment securities.

The second quarter average loan origination yield was more than 50 basis points above the total loan portfolio yield and cash flows from the investment portfolio were reinvested 165 basis points higher than the roll-off rate. Purchase accounting accretion from payoffs of previously acquired loans added 2 basis points to the margin for the quarter.

On the funding side, interest-bearing deposit costs fell 10 basis points linked quarter on lower average rates paid across the deposit franchise.

Turning to noninterest income and expense. Noninterest income totaled a record $91 million. Capital markets income grew strongly from the year ago period due to record debt capital markets income, and contributions from international banking and customer swap activity. Wealth management revenues increased 5.2% year-over-year, with contributions across the geographic footprint, and other income included higher-than-normal gains from our leasing business.

Operating noninterest expense totaled $246.2 million. Salaries and employee benefits increased $8.9 million from the year ago period, primarily reflecting strategic hiring associated with our efforts to grow market share, and continued investments in our risk management infrastructure, as well as higher production-related compensation. Net occupancy and equipment increased 10% year-over-year, largely from technology investments and de novo branch expansion.

Other noninterest expense increased $4.3 million from the year ago period, primarily due to the impact of community uplift, our mortgage down payment assistance program that was enhanced and expanded in conjunction with our previously announced settlement agreement with the Department of Justice. The second quarter efficiency ratio remained favorable at 54.8%, as we continue to manage our expense base in a disciplined manner, and expect positive operating leverage for the second half and full year of 2025.

F.N.B. continues to actively manage our capital position for ample flexibility to support balance sheet growth and optimize shareholder returns, while appropriately managing risk. Our financial performance and capital management strategies resulted in our CET1 ratio reaching 10.8%, and our TCE ratio reaching 8.5%. Tangible book value was $11.14 per share at quarter end, an increase of $1.26, or 12.8%, compared to last year.

Let's now look at guidance for the third quarter and full year of 2025. All guidance is based on current expectations while remaining cognizant of risks in an uncertain economic environment. We are maintaining our balance sheet guidance for spot balances, projecting period-end loans and deposits to grow mid-single digits on a full year basis, as we increased our market share across our diverse geographic footprint.

We are raising our 2025 net interest income guidance to incorporate the strong performance in the second quarter. Our revised full year guidance range is $1.37 billion to $1.39 billion. This guidance includes an expectation for 25 basis point rate cuts in both September and December, compared to our previous expectation for cuts in June and September.

For the third quarter, we expect to be in the upper half of our $345 million to $355 million guidance range. The noninterest income full year guidance range has been revised to $355 million to $365 million, with third quarter levels expected between $87.5 million and $92.5 million, building off the record levels in the second quarter.

Full year guidance for noninterest expense has been revised to $975 million to $985 million, a $10 million increase to the low end of the prior guidance range, with the high end of the range left unchanged. This guidance reflects results through the first half of the year and the down payment assistance program costs referenced earlier.

Third quarter noninterest expense is expected to be between $240 million and $250 million. The revised full year provision guidance range of $85 million to $100 million reflects a $5 million decrease on the high end, given our first half performance and the improvement in asset quality metrics during the second quarter. As always, provision will be dependent on net loan growth and charge-off activity, and we continue to monitor risks posed by the current economic environment. Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur.

With that, I will turn the call back to Vince.

F.N.B. consistently achieved great results through superior execution from the hard work and dedication of our employees. We remain keenly focused on driving long-term shareholder value, benefiting from our strong balance sheet with record capital levels and ample liquidity, organic loan and deposit growth across our dynamic geographic footprint, investments in our eStore initiatives, diversified fee income streams and exceptional credit risk management. Thank you, and we will now open the call up for questions.

[Operator Instructions] And our first question today comes from Daniel Tamayo from Raymond James.

Maybe one for Vince on the margin guidance to start. It looks like the third quarter number, I mean, you had a significantly wider margin in the second quarter, including some benefit from payoffs. But is there an assumption of a little bit of a contraction in the third quarter to get to that guidance you're talking about before it starts to expand again in the fourth quarter? Is that the way to think about it?

No, the margin, I would say, flattish to up a tick as we go through the next 2 quarters of the year. I mean just to comment on results for the second quarter, too. I mean, you saw the dollar increase, net interest income up $23 million. Really a combination of a few things kind of hitting very well. We had growth in earning assets. We had higher yields on earning assets. We had a lower cost of funds as we had some good success bringing down interest-bearing deposit costs during the quarter, as well as benefit from $250 million a quarter in swaps that rolled off. So that all contributed to that big jump in the margin moving up 16 basis points.

And when you look at the underlying activity, I mean we were putting new loans on 56 basis points above the portfolio rate. We are reinvesting securities, 165 basis points above the roll-off rate and then the interest-bearing deposit costs that I mentioned. So what's baked into our guidance is kind of flattish to up a little bit and net interest income moving forward. And we have a September rate cut and a December rate cut baked in there. So right, none of us really know what the Fed is going to do, but that's what's baked into our numbers.

Okay. So flat to up on the margin, so probably not much average earning asset growth, I suppose to get to that upper...

The [indiscernible] growth will still be there. Danny, I'm sorry, the average earning asset growth in the second half of the year, we get to our mid-single digits. And we had a really nice move in our short-term pipeline, less than 90 days on the commercial side. So we're -- if we get a significant pickup in commercial activity, that would even move us above the kind of mid-single-digit level.

Okay. All right. I will -- I'll follow up with you offline if I have additional questions on the margin.

And then I think you guys kind of addressed what was going to be my second question on the expenses. It sounds like most of the increase in the and the guide was due to the payment assistance program. Anything else on that? Is there any kind of additional investment that you're looking to make now that you're expecting the NII side to be stronger than 3 months ago in the credit environment looking to be more clear?

Yes. I would say, I mean, the down payment assistance program you mentioned, which was $3.1 million for the quarter, probably at that same kind of level is what's baked into the guidance for the rest of the year and then that should start to come down next year as we've kind of fulfilled the commitments that we had from that settlement. So the higher commissions are always a swing item. Those are tied to revenue.

So that was high this quarter. A lot of it tied to the mortgage volume, and depending on how well we do on the revenue side, right, you always have that higher commission level that would come through in accordance with that.

As far as investments, I mean, we mentioned last quarter about a couple of new things that will drive fee revenue going forward. The commodities hedging that we added, as well as adding public finance and the investment banking firm that joined the team. So those are items that are on board, and we expect to start to contribute revenue in the second half of the year. So those are our newest investments as far as driving fee revenue.

Our next question comes from Russell Gunther from D.A. Davidson.

Russell Gunther, Stephens. I wanted to follow up on the margin conversation we just had.

What are you guys expecting from a deposit cost perspective? We've heard some kind of increased competition in Mid-Atlantic Southeast this quarter. I know you guys are trying to continue to match loan growth like you've done successfully. So really just trying to get a sense for how that incremental margin, or spread, would be with a focus on deposit costs?

And then in the past, I think you've shared sort of where that deposit rate ended the quarter even end of the month NIM. So all of those puts would be helpful.

Yes, I would say, I mean, the total [indiscernible] deposit cost is between now and the end of the year, probably kind of around the level that it's at until you get the Fed move, right? So I think we've reduced rates where it's made sense strategically for us to do that, and we got the benefit of that in the second quarter.

I think as far as any meaningful move down going forward, it's really going to be more tied to a Fed cut and our team has tactics and strategies kind of in place to -- how we're going to try to capture as much of that as possible. once there is movement down there.

Russell, we feel pretty confident about our ability to gather deposits given the diverse geographic footprint. I had our folks go back and calculate organic growth rates in loans and deposits over the last 15 years. We've averaged 9%, roughly 9% in both loans and deposits in organic growth, not including any acquired deposits. So I think we're pretty well situated and we've invested in the right tools to help our team gathered deposits as we move forward.

You can see that we had a decent pickup in margin, and we still grew our deposits, and the demand deposit mix remained at 26%. So some of the things we've been talking about is playing out in the numbers here, which is very positive for us.

And then our total deposit cost at the end of the quarter was [ 196 ], and all in. The other thing I should mention, too is that, Russell, we do have -- we continue to have a strong pipeline of commercial deposit prospects that we're calling on, and we've had good success bringing in new relationships and which helps to support the noninterest-bearing deposit growth. So there's a pretty strong pipeline that the team is going after, as we sit here today.

So our goal internally, whether we achieve it or not is a question given the competitive environment, but we would like to grow earning assets and get the loan-to-deposit ratio down if we can, continue to drive it down. So it gives us the capacity to scale when things start to really turn. So that's the internal strategy. And it's not a huge pipeline.

That's all very helpful color, guys. I appreciate it. And then just going through, yes, the NII side. I hear you on 3Q and the upper half of that. I'm just trying to get a sense for the puts and takes that would potentially get you to the high end.

It sounds like commercial loans could pick up again in the absence of any Fed cuts, could we see you guys through the high end? It just seems like you're in a good position relative to guide, and it would be helpful to get a sense for the drivers behind the high end are potentially exceeding?

Yes, I would say the September Fed cut is a big swing item, right? So that doesn't happen. Our -- we still have a benefit from that. We're still very slightly asset sensitive. I mean I think we've done a nice job kind of managing the overall balance sheet interest rate risk position. And we're at a point now where I think it's like 1%. If you go to a down 100 basis point ramp, it's like 1.2%. So it's really -- we're very much approaching kind of neutral there.

But if we don't have the September cut that's additive, that moves up into that upper end. And then the mix of loans that we put on, obviously, I mean, we've -- the second quarter had a good level of mortgage loans that we put on, which are in the mid- to high [ 6s ], so that kind of comes through. And even on the reinvestment side, I mean, we continue to have $1.1 billion cash flows over the next 12 months, rolling off at like [ 322 ]. So we're reinvesting in the [ 4.5% ] -- kind of mid- to high [ 4s ] right now. So depending on where we can reinvest that could be additive, too.

And then the success we have bringing in noninterest-bearing deposits, right? So we mentioned that the pipeline. The better we do there, the better the net interest income and margin is.

And our next question comes from Casey Haire from Autonomous Research.

Another margin question for you guys. So I guess number one, like the guide for NII feels a little conservative. Just wondering if you're doing that on purpose?

And then two, just color on the loan yields and the bond yields, which were obviously a positive swing factor for you guys in the second quarter. How are they trending, or looking ahead?

Casey, what was the first part of your question because we had to raise the volume a little bit. It was kind of coming in softly.

I'm sorry, guys. So I was just making a point. The NII guide seems a little bit conservative given you have your NIM up and accelerating loan growth. Just wondering if that's on purpose. And then I have a follow-up question on the loan and bond yields, which were obviously can that momentum continue going ahead.

No, I would say, I mean, we're guiding to the upper half. And I think to Russell's question kind of went to the -- what are the things that moved you into the higher end of that and just I just commented on.

So I think it's a reasonable the September cut, who knows what's going to happen. Again, that's probably the biggest swing item if that doesn't happen, then that's...

I think it's too early to really call -- there's still a lot of noise out there. Who knows what could happen. There's geopolitical issues. You've got the interest rate scenario of changing. So that's why our guidance is what it is. I don't think it's too conservative, but I think it's spot on. I don't think that's what you [indiscernible]

Yes. And there's a lot of uncertainty. So.

If we have more clarity, Casey, we would be more optimistic, but there's still a lot of fog.

So we're guiding to upper half?

Yes, the upper half. So I don't know if that helps.

Okay. Yes. No, no, that's fine. And then just Vince Delie, a question for you. As we potentially enter an up-cycle in M&A activity here. You guys in the past have been pretty acquisitive. And that's really the [indiscernible] deal obviously has provided a lot of the growth -- organic growth opportunities that you're enjoying today. But it's not -- it was not without its -- or that is [ paused ], given the tangible book value dilution at that time.

I'm just wondering how do you guys -- you guys feel the need to be as aggressive going forward? Or do you feel like you can enjoy the current footprint that you have without being very aggressive?

Well, we haven't really done -- we've done very little over the last 10 years. That was almost 10 years ago. So I mean, we're starting to get to the point where that's ancient history. I mean it's part of the company. It's contributed nicely. We're very optimistic about the markets we're in. We've made heavy investments in tech that are paying off. I mentioned in the prepared comments, our applications as we integrate the eStore [ Common App ] into the branch delivery channel. So now in-store originations are happening on that same platform.

The reason that's important is because now the client can start an application online, come into the branch and finish it, right? And that AI oversight that helps those salespeople find opportunities is going to be available to them in the branches, so we can accelerate additional sales, hopefully, of products and services that meet the needs of the customers that come in.

So we're very excited about that. We're very excited about the markets that we entered and the market share growth that we've experienced over the last few years. And if you go back and look at our company over the last 10 years, we've grown tangible book value, it accelerated in the last 5 years, I think we're an outlier. We're one of the better growers of tangible book value, and it's been 12% over the last 2 years. So it's a high single-digit growth.

I think that all keeps me pretty excited. And sure, I mean, I know the landscape changes. The M&A landscape changes all the time, and I think we're in a great position where we sit today.

And 9% organic growth, too.

Yes, the organic growth. By the way, we look back over the last 15 years, our loan and deposit growth organically was 9%, loan and deposit. That's setting aside the assets that we acquired. So our business model from an origination perspective, organic origination perspective, it works perfectly fine and there's opportunity for us to continue to grow.

And that becomes much more with the capital that we're accumulating, the deployment of that capital. We're much better off deploying that capital with loan growth, because the returns on that capital deployed is much greater. So we're seeing high teens to low 20 returns on those -- on that capital that's going towards loan and deposit growth, customer growth, in the commercial segment in particular.

So I think that's why we're pivoting and have pivoted, and I think we have a great franchise, and we're going to leverage that.

Plus to new businesses we've entered that I mentioned earlier.

Yes, we've also invested. You can go back and look at that chart, too, it's in our deck. I mean -- we said a long time ago, 10 years ago, this is really going to help us accelerate our noninterest income. It's more than doubled. So from $160 million to $350 million last year and growing. And I think there's opportunities for us to continue to grow those businesses. And they were organically grown. We didn't go out -- other than the small boutique we bought in the investment banking business and having a very, very small mortgage business. The rest of those businesses were all organically grown, well north of our cost of capital and are extremely accretive to the shareholders.

So I think all of that keeping the same focused on that, keeping people focused on the deployment of AI and the tools that we've developed internally, which is why we restructured, realigned the company's organizational structure to focus on it. That excites me more than M&A. So of course, opportunistically, if something comes up, sure, we might look at it, but it better be pretty high-quality opportunity and provide us with the right tools like really good deposit mix or additional clients that we could use our -- deploy our model against.

All I would add to is our de novo expansion strategy has been a key part of us expanding. And we've continued to be active into Northern Virginia and D.C. and other key markets for us, Charleston. So that's been kind of quietly way for us to expand geographically and get more customer opportunity.

We basically either plan to open, or opened 30 branches, in these high-growth areas over the last few years. So some of the expense build is related to the expansion of those de novo operations. But if you look at the markets that we went into, they're performing very well.

Charleston's purely de novo, purely organic and is doing extraordinarily well. So that's an example of the market we went into. And we didn't buy anything. So I think given our model and what we have, what we've invested in, we're positioning the company to grow without capital dilutive acquisitions.

Our next question comes from Timur Braziler from Wells Fargo.

Hoping to get some color on what you guys think the composition of future loan growth is going to look like. Obviously, it's been led by mortgage more recently, some constructive comments around the C&I pipeline.

I guess as commercial loan growth becomes a more meaningful part of the story, does that lessen your appetite on the resi side? Or is that additive? And I guess, where do you think loan growth could ultimately end up once commercial starts to manifest in a more meaningful capacity?

Yes. I think our guide kind of directs you to what our expectations are globally. So I don't think we want to shift off of the guide, yes, right? We will update you next quarter once we see what's happening.

Like I said, it's a very difficult time to forecast because it is so volatile. But I will tell you that the commercial pipeline, as Vince mentioned, the short-term pipeline. We have a 90-day pipeline. We have a long term pipeline. And long-term pipeline is kind of flat and the 90-day pipeline is up 20%. So we've got a lot of deals moving through our pipeline [indiscernible] towards closure in the C&I business.

CRE and continues to decline. We expect that to continue to come down. I think we're what, Gary?

[indiscernible] [ 223% ] of capital [ deployment ].

Yes. So our expectation is that continues to decline over time. the mortgage lending business should start to taper off because we're moving out of the peak of the mortgage lending business. And the commercial business that we [ have ] been short-term pipeline hopefully, lands in the next quarter. So the shift will be towards commercial, probably less emphasis on mortgage, right? And then we'll see some growth in the balance sheet in the C&I segment, offset by probably continued CRE declines. That's what we're seeing. That's what we're using in our forecast for the model.

And I will tell you, like Vince said, we haven't exclusively been focusing on the asset side of the balance sheet because it's very competitive. We've been focusing our folks on the depository side with very, very significant treasury management opportunities, and we've landed some huge deals recently. So that strategy seems to be paying off. And as I mentioned earlier, I'd love to see our loan-to-deposit ratio continue to come down with high-quality deposits.

And I'm very excited to see the FDIC data when it comes out because we've been monitoring our performance relative to last year's FDIC data, and we're showing some pretty strong results across the board in market share gains. So I'm going out on a [ limb ] here, I don't know what it's going to say. Maybe I'll be wrong. But we've grown ourselves in those markets, in some of those markets fairly substantially. So we've closed the gap. And we want to be in the top 5 share in most of the markets, top 10 and the ones that are dominated by some of the largest banks.

But anyway, that's what we're seeing. And I think we're optimistic about deposit growth. We're optimistic about our C&I pipeline in the short run. I think real estate will taper off a little bit on the resi side and CRE commercial real estate loans should continue to decline with institutional takeouts on the construction financing that we've done.

I would just add, too, that Vince mentioned earlier, the 9% long-term loan growth organically. I mean, while we're guiding at mid-single digits today, we've historically been in that mid- to high single digits. And for that period, we were high single digits at 9%. So I think that gives you kind of a range.

Yes, that's good. Well said, thank you Vince.

Yes. Timur actually, during the quarter, we had really strong gross C&I originations. It was a really solid quarter. As I mentioned in my remarks, the line utilization was down fairly significantly, which reduced that loan growth there. With tax policy now finalized and the 100% depreciation, clients are very excited about that. And I think there's going to be some heavy investment as we move forward. So we're very optimistic when we look at...

To that point, our equipment finance business has done phenomenally well also. It used to be strong, good credit metrics. Good leadership there, even though I tease them all the time. Vince's done a great job. I think they're going to do well in this environment. That's another area that could potentially start to accelerate because of the bonus depreciation.

Great. That's good color. And then one for Gary. You had mentioned that you had some success in reducing some of the risk on the balance sheet this quarter. Can you just maybe provide a little bit of color around that statement?

Yes. We were successful in resolving and removing a few CRE credits from the balance sheet. We also saw a little improvement from a migration standpoint, but bringing some CRE exposure down, as I mentioned in my remarks, another significant amount there continues to be a strategy that we focus on.

And in terms of the performance of the of the migration, we were very pleased with a 20% reduction in classified loans is a significant move in any period, let alone 1 quarter. And it's the work that we're doing earlier in the year and late in last year in setting those credits up to the removed from the balance sheet. So it doesn't happen overnight, I'll tell you. But we saw some resolutions, and we were really, really pleased with those results.

Great. And then just a final modeling question. The increase in down payment assistance costs this quarter, is that onetime in nature? Is that more or less a catch-up? Or is that something that sticks around with us as we go forward?

I was saying that we'd be at that same level kind of next quarter and it would start to kind of come down.

It's not a forever -- and just so you know, I mean, that -- we made a commitment. We significantly increased the grant money that we were providing on a per loan basis significantly to jump start our lending activity in certain areas where we need [ loans ]. And I think that's going to taper off. It's going to be sustained for a little bit and then it's going to taper off. We're going to revert back to our normal -- we always have a [indiscernible]. It's reflected in the run rate, just to understand that we significantly increased it to search volume in certain markets for fair lending purposes.

And we expect that to taper off because we're -- the markets that we were targeting were above -- well above the peer median. So that will taper off over time. But it is something that we felt was important to call out. So you understood what was happening there with the expenses.

Our next question comes from Kelly Motta from KBW.

Maybe turning to the capital base. Capital impressively continues to grow, it's at near record levels. Even with the balance sheet growth you're seeing. It sounded like from your commentary, M&A is in top of mind, but maybe you could walk us through how you're thinking of managing your capital base?

It's a good problem to have excess capital, but how you're thinking of managing that and if there's any target ratios in mind that you're looking you have in mind while managing the balance sheet?

Yes. I would just say that when the 10% level we've been talking about was a target, obviously, when we were below that. And now that we're above that, we kind of think about that as like an operating floor. I guess, is one way to refer to it. We think it's very appropriate given the risk profile of the balance sheet, combined with the higher levels of earnings and capital that we're generating, and PAT ratio in the low [ 30s ]. So I think it talks about the overall position. And with the prospect of earnings and internal capital generation moving forward, we have flexibility.

We've been active on the share repurchase. We've had some level of that each quarter. We're studying dividend as another way, something that we may do at some point. So we have that opportunity. And then to Vince's point earlier, the first thing we're going to do is fund loan growth. So I think having the capital cushion, or buffer that we have, to fund the loan growth when it does accelerate, I think, is important. But we have the flexibility really to generate shareholder value through all those different needs.

To sum it all up for you, we're going to do it is absolutely invest for the shareholders. We're going to look at the earn back on share repurchases versus valuation and earn back. We're going to look at -- well, everything is on the table, right, because we want to be as efficient as possible.

And we feel the shares are still undervalued. So at this point, we'd still be active repurchasing.

Right.

Got it. That's helpful. And then on a high level, you've mentioned at length the de novo expansion you've done in the past couple of years, I think, 30 branches. As you look at your footprint, can you [ opine ] on any areas where you see additional need for expansion or density of the footprint?

Just wondering how much of a driver that is of the growth outlook over the longer-term horizon?

Yes. No, that's a great question. I think because we haven't been very hopeful about our expansion. But as those locations start to take off. We've also been hiring commercial bankers in these markets, right? Charleston, Richmond. We're looking at Virginia, Southern Virginia. There are some very attractive markets there, from both the C&I lending perspective and from a consumer perspective. Mortgage banking, consumer depository services and the like. So we're -- that's where we've been focusing. D.C. we've continued to add in the D.C. market. I think those will be accretive.

It takes a while for a de novo branch, right? That's the difference between going with M&A taking costs out and having customers immediately versus put investing capital, having expenditure and then needing to grow the customer base over time. there's a period of time that it takes to get to breakeven and then get to the returns that you're targeting. And usually, that's 3 to 5 years to get the maximum return on capital, is usually 5 years on these things. 3 years, 3 years to break breakeven [indiscernible].

And I think we're going to be seeing that growth. is going to come through because we have those locations rolled out. So that will be part of our guidance as we move forward. But we're doing very well. I mean, we're surprisingly doing well in these markets, even with big competitors. So I think it's been a good strategy, and it's going to pay off for us in the long run.

Our next question comes from Manuel Navas from D.A. Davidson & Company.

Can you talk about that confidence on deposit growth? Kind of touch on seasonal trends and where the current pipeline is strong? I mean you talked a little bit about commercial. [ CD ] growth was really strong. I'm just wondering how much of that was new versus old customers? Just kind of talk through that confidence on the deposit side.

I mean it's been a focus here for as long as we've been here, particularly on the noninterest-bearing deposit side. So I think we've had -- if you look at our success last year, remember, the comps deposit ratio got up into the [ 96s ] and really had tremendous growth in deposits across the footprint. What we have in the guidance to mid kind of mid-single digits is very comfortable. And the prospect list and pipeline that I commented on the commercial side could even bring us above that, so.

Yes, if you go to Page 13 in the deck that we put out with the deposit composition, we take you all the way back to 2009, which is one [indiscernible] when I took over, right, as President of the bank.

You could see the difference. I mean my God, we've done extraordinarily while there was 9% organic growth driving this deposit growth. The mix has improved substantially over time. We were able to maintain a fairly high demand deposit level even after the surge, right, that occurred during the pandemic in '21 and '22. And that's despite almost $38 billion in total deposits.

So we're -- again, I'm very optimistic about our ability to grow deposits organically and to do it in a way that's accretive to earnings. And we're a very strong deposit franchise. And I think if you really drill into the banking industry, that's what matters the most. So your ability to fund yourself to have granularity, to be able to be the primary bank. All that stuff that we talk about is really important to ensuring that we can continue to sustain that growth in a very profitable way.

So I think this kind of sums it up if you look at it. [indiscernible], that's why I'm optimistic about what's coming. In addition to that, we have retold, we've refocused people. We've changed our comp structure slightly. We reorganized our -- we reorganized our data management and the digital bank put it up under [ Chris ]. So we've got corporate strategies in alignment with the data consumption area, that [ your data hub ], the digital folks, and we now have an [ AI SAAR ] that we put into effect. So I mean, we're trying to really use all of those tools to drive the appropriate deposit mix and growth.

We've rolled out the eStore common app across all those branches so that we can feed leads to those people in real time that are actionable, and they can just simply ask the client if they would like an additional product, put it in the cart, and they don't have to do anything additional. That common app basically enables them to do that seamlessly. It removes obstacles.

Yes. So I think all of that, plus our commercial calling effort, beefing up treasury management, we've added significantly to the treasury management area. We have an initiative to upgrade our treasury management products and services we're in the middle of. And that's happening. Our investment in payments is occurring. And I think that's going to be an area we're going to have to stay keenly focused on given the changes that are happening, particularly with the [ Genius Act ] and stable coin, and the use of blockchain technology. So we're all -- we're focused on it, and I think we're going to continue to be focused on it, continue to drive deposit growth.

And [indiscernible] de novo strategy obviously feeds at. And if you look at some of the regions, I mean, year-over-year, Carolinas are up 17% in deposits. Pittsburgh is up 7%. So I mean some of our critical markets really growing quite nicely.

Is that it? Did I answer your question? Or did I just go on too long, I don't know.

No, that's all that's all great. But Carolinas is -- good to see that regional strength. And better than their [indiscernible] more interest, but you are winning there. How are you kind of fending off competition?

How are we [ vending ] off competition? Was that the question? I'm having trouble hearing you.

Yes, the Carolinas. I'm seeing here...

Really good people that work really hard and they're very focused. We're very focused on it. So we monitor pipelines. I know [indiscernible] you watch my [indiscernible] cast Manuel, I talk about it. But we try to align all of those things so that we can compete more effectively. And I think it works. I think paying attention and ensuring that we have compensation aligned with what our expectations are, being able to report information back to the field very quickly about their performance. That all matters.

So it's not just one thing. It's not just hiring talent or -- it's everything. There's a lot that goes into it. So the banks that are succeeding are doing the same thing.

Lead generation is getting better and better.

Our ability to produce leads and focus people every -- there's a finite amount of time per person. So all this technology really helps make people that maybe weren't able to focus as well as others, focus on what they need to do to get the job done. To win, to get paid to benefit the shareholders. So that's -- I think that's what's happening, right?

I spend a lot of time with those people and down there. So I can tell you they're very hungry. They're good people. It's a good culture, too. That's the other thing. They want to be there, they want to work. They get they get awards and they get recognized for what they're doing and it keeps driving success.

Shifting over to the asset side. I mean, I appreciate all that commentary. Just to go over to the asset side, the C&I pipeline increase. Is there any like one single driver that kind of increased optimism this quarter in the pipeline? Is it the tax bill? Gary touched on that.

I would say it briefly. I think we were a little slower. So there's a lot of pent-up demand and people are waiting to see what happened with tax reform because of the bonus depreciation. So this is my guess. I haven't -- this is anecdotal, I haven't gone out to survey the clients have talked to some of them, and they've said the same thing. So all of a sudden, that just broke, right? And they're all like we're doing it now.

So there's -- we're going to finance this piece of equipment. We're going to expand our facility. We're a little more optimistic about demand in the future. Little bit tamer view on tariffs. People were very concerned. Now they're not as concerned. Still concerned, but not as concerned. So they were worried about supply chain disruption and other things.

So I think with that out of the way, that's what happened. Everything got pushed forward. The deals that were more likely to get done moved into the 90-day category, and hopefully, we can get it closed and impact the C&I footings.

Our next question comes from Brian Martin from Janney Montgomery.

I joined here a little bit late. So if you address this, you can -- I'll go back and relisten but just -- I know you talked a little bit about M&A and less focus here. just to be clear, just on the M&A, but if you do look at M&A strategically, is it -- would it be more today given all the opportunities you have elsewhere? Is it just kind of like a fill-in, -- that's the way to think about how you'd be looking at M&A rather than entrance to a new market? Or is that the wrong way based on kind of less focus on M&A today?

I'm just less focused on M&A. I have been for the last -- since we built out the franchise and we spread across that broad geography. We've not been as focused on it. People keep talking about it because early on -- by the way, if you look at the total number, if you look at total assets, acquired assets here, since Vince and I started and what was it [indiscernible] I think it's like $15 billion. So add $8.7 billion to $15 billion, half the company came from organic growth, okay? So let's talking about it.

I mean we have a better opportunity to grow accretive earnings through -- I mean, honestly, that you have to really take a step back and say what did they really buy other than [ Yadkin ] everything is small. So the reality is we're focused on what I think are the right things to drive organic growth of the company. We're going to continue to focus on it.

I figured that was a question. It was more filling because like you said, you've got great opportunities with what you've already done and what you're doing, but it's just more clarification. So I'm not suggesting you need to do more what you've done has been great in but the -- what you've gotten that in front of you, now that you've gone to those markets...

Pushing M&A, okay.

I'm not pushing. I just gave the color. Vince. And then -- how about just on one other question. I know you talked about a little bit earlier about M&A, but on the margin, just in terms of if we see some benefit to the yield curve kind of a more normalized level, kind of where the margin could trend over time in the out quarters, maybe you get into '26, and you get a little bit of benefit there from the curve. I appreciate the comment that it's more static here in the near term, but just longer term, what that could look like?

We're going to let our corporate strategy guy, answer this question because it's long term. So go ahead.

Yes. Brian, I think there's still a great opportunity for margin in the long term to head higher. I mean if you just look at the building blocks, clearly, loan origination, security yields will continue to move up. If you get more rate cuts, I mean that's just going to help us generate more deposits and continue to grow that base.

So I mean, you can look at where the pieces can go ultimately and kind of come to your own determination as where that level is. But this is a better rate environment that we're potentially heading to than we've had for the last 15, 20 years in the banking industry. So I think you can kind of think about it that way as well.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Vince Delie for any closing remarks.

Okay. Thank you very much. Again, I'd like to thank all of our employees for the hard work that they've done. This was a terrific quarter. We got to keep it going. It's over. So we now need to focus on the next quarter, okay? So everybody keep doing what you're doing. You're doing a great job. And I want to thank the shareholders for continuing to support us and -- the best is yet to come. So we're very excited about it. Thank you.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.