Welcome to the F.N.B. Corporation's second quarter 2017 quarterly earnings conference call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, today's event is being recorded. I would now like to turn the conference over to Matt Lazzaro. Mr. Lazzaro, please go ahead.

Thank you. Good morning everyone and welcome to our earnings call. This conference call of F.N.B. Corporation and our reports at 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 and in our earnings release. Please refer to these Non-GAAP and forward-looking statement disclosures contained in our earnings release, related presentation materials and in our 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 July 22 and the webcast link will be posted to the About Us - Investor Relations & Shareholder Services section of our corporate website. I will now turn the call over to Vince Delie, President and Chief Executive Officer.

Good morning and welcome to our earnings conference call. Joining me this morning are Vince Calabrese, our Chief Financial Officer and Gary Guerrieri, our Chief Credit Officer. Gary will discuss asset quality and then Vince will review financials and open the call up for any questions. First, I will cover some highlights from the second quarter and then provide an update on our long term strategic objectives. Looking at the quarter, our performance was solid and included the first full quarter of our North and South Carolina operations. Second quarter operating EPS increased 4% to $0.23 compared to the second quarter of 2016. Additionally, first half 2017 operating EPS increased 6%, compared to the first half of 2016 as we demonstrated year-over-year organic loan and deposit growth, record revenue and record net income as well as an improved efficiency ratio. As we stand today, we have essentially achieved the model cost savings target of 25% from the Yadkin acquisition. We expect to generate positive operating leverage and move closer to our long term efficiency ratio target in the coming quarters. As evidenced in our first half results, we continued to progress well in implementing F.N.B. business model in our new attractive markets. After a successful conversion and integration in March, the teams in North and South Carolina have shifted from defense to offense with their primary focus on new client acquisition. And during the quarter, we have begun to see a shift in momentum. The overall growth in the commercial loan portfolio in the second quarter was encouraging as we still have a long runway to generate future growth in our new markets with total commercial pipeline ending June at a record $2.7 billion. This represents an increase of 60% over last year with North and South Carolina adding approximately…

Thank you Vince and good morning everyone. We finished out the first half of 2017 with our key credit metrics remaining consistent and in line with historical levels over the last several quarters. On a GAAP basis, we ended the quarter with the level of delinquency at 1.44%, NPLs and OREO at 78 basis points and net charge-offs at 23 basis points annualized. In addition, we also saw a significant improvement in the level of rated credits which was largely driven by positive trends in the Yadkin portfolio after just one quarter following that acquisition. I will provide some further updates on how the Yadkin integration is progressing but let's first take a closer look at some of the highlights for the quarter on the originated portfolio, after which I will touch on the acquired book. Turning first to the originated portfolio. The level of delinquency increased slightly during the quarter, up five bips ending June at a very solid 99 basis points and remains in line with historical levels. NPLs and OREO decreased on a linked quarter basis down for bips at 1.08% with solid OREO sales activity that helped offset a slight increase in non-accruals. Net charge-offs for the second quarter were $12.7 million or 38 basis points annualized and on a year-to-date basis 31 basis points annualized. The originated provision at $17.5 million dollars supported net charge-offs and strong organic loan growth in the quarter, resulting in an ending originated reserve position of 1.15%. Shifting over to our acquired book. We are very pleased with the performance of the portfolio this quarter, which was marked by stable past-due levels, some healthy credit upgrade activity and a flat ending reserve position. The portfolio totaled $6.7 billion at the end of June, with contractual delinquency remaining at $159 million…

Thanks Gary. Good morning everyone. Today I will discuss the results of the second quarter and comment on guidance for full year 2017. Let's start with the balance sheet for the second quarter on slide six. Looking at organic loan growth on a linked quarter basis, average loans increased 6% annualized. Average consumer loans increased 9% annualized, due primarily to increased volume in the indirect and residential mortgage portfolios. The commercial portfolio grew average balances 4% annualized with growth concentrated primarily in the Cleveland and Baltimore markets. In the commercial portfolio, we had a number of larger transaction close late in the quarter leading to spot growth of 6% annualized, which will provide a good launch point for the third quarter. On an organic basis, average total deposits increased $60 million compared to the first quarter as growth in non-interest-bearing deposits was offset by an expected decline in higher cost broker time deposits. From a total funding perspective, transaction deposits made up 82% of total deposits and the relationship of loans to deposits was 97.5% at the end of the quarter. I will note that given our strong loan pipelines, we recently redoubled our efforts on retail and commercial deposit gathering. As Vince mentioned earlier, we expect to leverage our investments in enhanced data analytics through our clicks-to-brick strategy to drive new household acquisition and deepen existing relationships. Turning to revenue on slide seven. Net interest income grew $45.7 million or 26.4%, due to organic loan growth and the benefit of a full quarter of acquired Yadkin balances. Our net interest income or margin was 3.42%, an increase of seven basis points compared to the prior quarter. This is due to a combination of a full quarter of higher-yielding loans acquired from Yadkin and the impact of the March and…

[Operator Instructions]. The first question comes from Jared Shaw with Wells Fargo Securities.

Hi. Good morning.

Good morning Jared.

I guess if you could start with the auto growth and some of the trends you are seeing there? As you are adding new dealers, is that primarily in Pennsylvania at this point? And what's the opportunity, if so, to see growth into the new markets. And as you add new dealers, how competitive is that? And are you having to give a lot of in terms of your reserve and things?

Yes. Hi Jared. In reference to that portfolio, with the Metro acquisition last year we were able to take on a few new dealer relationships that we had wanted to get into for quite some time. So we did expand a few dealer relationships there. The indirect business is really across our legacy Pennsylvania footprint as we sit here today. And yes, there are opportunities in our newer Metropolitan and the North Carolina markets going forward, where we don't operate that business model today. So we do see a future opportunity there. We like the position of where we are today. You will recall that we do run this business from a credit perspective. The book is performing very well with delinquency at 70 bips and charge-offs running at a very good level at 44 bips. So you know, a very well positioned book and we are doing good business there.

Okay. Great. And then on the mortgage banking business, similar opportunity with the new geographies?

Yes. I would say, the mortgage banking business, the major contributor to the volume this quarter was our core franchise. So we have not yet fully achieved the revenue benefits of the expansion in North and South Carolina. It's starting to gear up. So we are very optimistic about that. In fact, Vince mentioned in his prepared comments that the capital markets area, the wealth management area, the insurance business, the SBA business and really to a lesser degree the mortgage business, they have contributed very, very little in terms of fee income to the quarter. So we are very excited about gearing up in North and South Carolina. We have filled the positions that we needed to fill in those areas for the most part. We are still rounding out the insurance side, but we are in very good position to start to drive revenue synergies that was on model. And I think given the performance of the company in this quarter without the benefit of those areas I am very excited about it and our people have now moved from being in a very defensive position, sorting through the credits and dealing with conversion to conversion and integration to offensive mode. So from a fee income perspective, we are looking good as we move forward.

Okay. Thanks. And then just kind on the deposit side, you had said that the attrition was less than you were expecting and with some of the move in categories you saw this quarter do you feel that that's really settled out here or do you expect to see maybe some more move maybe within the categories? And I guess how are you looking at your relationship between the deposits and the borrowings over the next few quarters?

The deposit portfolio, we have moved out certain deposit categories that we brokered time deposits that had a higher yield on them. It doesn't benefit us. So we have moved a lot of that out. There is a lot of noise in the deposit base. We are gearing up the machine. I mentioned in my prepared comments that we started to rollout our digital strategy. We have been spending a lot of time working internally on producing leads by algorithms that we have written. Our data scientists are focused on writing algorithms based upon attributes or behaviors that customers express through their account activity. And we have been pushing those leads out to the field. We have just started gearing up. We generated about $900,000 leads out of our own customer base. So we are really in a great position. We have a great delivery channel to exploit that activity with. And I think that we will start to see some significant gains in the deposit base. When I mention the attrition, the attrition has been extraordinarily low for this acquisition. It's low single digit attrition in the transaction account categories, setting aside the wholesale deposits that we weren't interested in. So we have done extraordinarily well. The adoption rate for mobile and online is better than any other acquisition. So I would say, all-in, we are looking pretty good as we move forward. So I again view this quarter, there's a lot of noise in this quarter but it's like landing at 737 on an aircraft carrier in the North Sea. I think we successfully landed and we are now going to go on the offensive. So I am looking forward to the next few quarters.

Great. Thank you

Thank you. And the next question comes from Frank Schiraldi with Sandler O'Neill & Partners.

Good morning. Just curious on the margin. You talked obviously about the purchase accounting accretion that was in this quarter versus last. It would seem to me that based on not changing your accretion assumptions that a better number going forward might include seven or eight basis points of purchase accounting accretion. Is that a better way to think about the NIM going forward?

Well, I would say a few things, Frank. I think overall, we felt good about the margin up 11 basis points if you put the purchase accounting aside and I think there is additional benefit here come from the June fed move obviously that just happened at the end of the quarter. So that's going to help the margin as you go forward into next quarter. I think that we had a lot of the loan growth, as I mentioned earlier was kind of late in the quarter. So it doesn't help all that much from an average balance perspective in the second quarter, but it gives you some nice really good starting point to the third quarter from a net interest income standpoint. And then the accretion, if you add up the total accretion for the first half, it's $4.9 million. I think that the one thing to keep in mind is that we have yet to do kind of a first reestimation. So with this fun purchase accounting that we all have to live with, the first quarter that you have a company onboard and this was similar last your when we had Metro, actually it really doesn't add anything in that first quarter and then you do the reestimation, it kind of catches you back up for where interest rates are, fed has moved a couple times since day one. So it captures those types of things. So I think when you do that reestimation, I will expect to see the purchase accounting accretion higher in the third quarter. So I think our $15 million to $20 million is still a reasonable range based on what we know today. And we do have to go through that reestimation process. So there is that uncertainty to what comes out of that, but it does that have a positive impact kind of as you move forward. So that $15 million to $20 million is what's baked into the margin guidance and I would use that range.

Okay. So that's for the full year. So talking $10 million to $15 million left, that's still reasonable for the back half of this year? Or was the $15 million to $20 million for the full year 2017? I don't remember.

Yes. That's for the full year.

Okay.

And the reestimation is going to inform us a lot as far as how that comes out.

Right. but you don't foresee, I mean there is no reason to foresee a big change there? The $15 million to $20 is still, as you say, a reasonable estimate.

Yes. That's still reasonable range to use.

Okay. And then I wonder if you could just talk a little bit about what really is the main driver on pulling back a little bit on the revenue guidance, both NII and the fee income side? Is it just a little bit, you seem to mention timing. Is it just a little bit slower traction than you anticipated? Or if you could just maybe give a little more color there?

Sure. I think now that we had our first full quarter with Yadkin on the books, it gives us an opportunity to pave the guidance mainly reflecting the change in legal day one. So when we originally had modeled Yadkin, we were using February 1 as our kind legal day one when we expected them to become part of F.N.B. and as we know at the end of the day, we converted and closed, they became part of us on March 11 over that weekend. So basically, we lost half a quarter of everything. So I think it's important to keep in mind, everything is going to be a little bit lower because of that, which is reflected in the current guidance. Revenues lower, expenses are lower, the provision guide is lower. I think if you add it off together as we said last quarter, it's less than $0.01 of an impact from a kind of pure EPS standpoint. The economics that we modeled are still intact and we are still on track to generate that the other 5%-plus accretion that we talked about next year. So it's really just a function of catching up for the change in the legal day one and capturing launch points and all those types of things. So kind of as you go forward, this is based on what we have in our forecast today. So kind of a long to say it, it's really that change in legal day one. We hadn't given the February 1 before, because now that we sit here, we have a quarter of it. So we can provide additional guidance on all the components. We can do that after two weeks of having Yadkin on our books last quarter.

And then finally just on efficiency ratio. You may have implied, as I am not sure, but it seems to me that your long term goal, you are basically or you should be there in the back half of this year. Is that reasonable?

Well, I think the guidance is for where we are looking to get to. I would say from a time horizon. It's not a long term. I think that's a nearer term. I don't know that we are going to get to it in the second half of the year, but I think it's nearer than long, let's put it that way. And with 54.3% this quarter, revenue starts to kick in with Yadkin, as Vince was talked about earlier with some of the pieces that really haven't even started to contribute yet, there is generally more positive operating leverage to be gained as we go through this year and into next year. So the direction will definitely be down. I can't comment on exactly when you get to that number, but we are on a good pace to get there over the nearer term, I would say, as opposed to long term.

Okay. All right. Thank you.

Thanks.

Thank you. The next question comes from Jason Oetting with JPMorgan.

H. Good morning everybody.

Good morning Jason.

I was wondering, could you break up the contribution to NIM from the recent fed hikes versus say the higher yielding Yadkin portfolio and other various items in the quarter?

Yes. We have said before that the fed moves are worth about two to three basis points to margin depending on the overall mix. When we brought Yadkin's loan portfolio in, that added about four basis points or so to the margin. So you have benefit from the March move. You have a little bit of the June move. And then you obviously have Yadkin in there for a full quarter. So those are the kind of the big moving parts in there and have the purchase accounting accretion and cash recoveries kind of adding three basis points on top of that.

Okay. That's helpful. And then I am looking at the rate on the interest bearing demand deposits. It looked like they went up about 10 basis points in the quarter. Once again, similar question, but I am just wondering how much of that is due to like kind of pressure in the legacy F.N.B. portfolio versus maybe some shift because of Yadkin?

Yes. I would say that there is some shift from Yadkin that would be in there plus you have some of the components of the deposit side that are more market sensitive than others. I mean overall, we haven't really had pressure on the deposit rates, but there is certain segments that money markets and some of the business accounts there move not 100 cents on a dollar with the move in rates, but there is just kind of a quicker moving some of those. But the vast majority, we haven't had any pressure in moving at all. So I think that's just kind of normal activity I would consider that. And we had looked at on this a couple months ago, just looking at our overall data with the fed moves that have happened kind of to-date and we were in the high single digits as far as how much of that of the fed moves to-date had been kind of moved through the year the rates in the portfolio. So that's how I would characterize that.

Okay. That makes sense. And then one more, if I may. With the numerous headlines on retailers struggling recently, could you guys break out your exposure to the retail industry in terms of both commercial real estate as well as C&I lending? And what trends are you seeing in those portfolios?

Yes. Hi Jason. Our book is a very diverse book of business and it really covers a large range of categories. You have everything from automobile dealers, healthcare, building supplies, gas stations, auto parts, grocery stores, it goes on and on, including CRA categories as well as CRE categories. And when you look at the CRE, it's about 6.5% of our portfolio. That portfolio continues to perform extremely well. We have a large number of high quality borrowers in there and delinquency runs at 57 basis points. So we are very comfortable with where we sit today and the future outlook of that portfolio.

Okay. Thank you.

Thank you. And the next question comes from Casey Haire with Jefferies.

Thanks. Good morning guys. A question on the liquidity profile. Loan deposit ratio at 97.5% is a little bit higher than where you guys have been running. Are you guys comfortable there? Or are you going to look to work that down? I know Vince Delie, you said the deposit engine is primed. But just wondering where does that loan deposit ratio go from here?

Yes. I think our objective is to work it down and obviously the most beneficial to EPS growth is trying to grow transaction deposit. So the focus is there. It's there in the second half of the year. We have make adjustments to our compensation plans. We have added the analytics tool that has been rolled out recently. So we pushed out about 900,000 leads to the employees. The other thing is the attrition rate that I mentioned that was minimal helps as we move forward from here. There is some seasonality as well that comes into play. But another statistic I didn't mention that is relevant is 85% of the Yadkin mobile and online users had logged into the system and started using our services within six weeks of the conversion date. That's half the amount of time of all of our other acquisitions. Typically that doesn't occur until we are 10 to 12 weeks out. What that means is that those folks are utilizing those services to make payments and we are their primary depository bank. So that's a very strong indicator for retention moving forward. And I think that stabilization in the deposit base as we move into the next few quarters will help us in addition to some seasonal lift and increased focus and activity. But our goal is to drive it down, but it's to drive it down with lower cost transaction deposits not necessarily time deposit growth.

The only thing I would add to that is, as I mentioned earlier, the loan growth, there was significant amount of loan growth late in the quarter. So that kind of came on right at the end of the quarter and obviously that moves that number up a little bit.

Okay. Understood. And then just switching to the expenses. I appreciate the guide and I can take a look at the model and see what that implies. But I know you guys pulled forward a lot of -- you got all the cost saves this quarter I was just wondering, did that fully run rate? Is there more to come in the third quarter whereby the third quarter expense run rate could actually be lower as you fully realize these saves from Yadkin?

Yes. All that's really left to do is just properties to sell that we have identified that we don't need going forward. So there is carrying cost related to those properties. But that's not a big number. So the vast majority other than that really the cost saves are realized by the end of the quarter. As you went through the quarter, you are realizing it kind throughout. So as you enter the third quarter, it's really very clean from a cost savings perspective, absent of just selling those properties. So it's at a good place. And we have accomplished our 25% cost base which is very important to know that.

Okay. So essentially we are growing from the 2Q expense run rate?

Just for general expenses, you mean?

Yes.

Yes.

Okay. All right. And then just Vince Delie, a question for you. With Yadkin now integrated, are you now open to M&A? Or are you heads down working on this on keeping Yadkin primed?

Yes. I think for the time being, we are focused on driving growth in transaction deposits, continuing to gain market share in North and South Carolina. Everything's gone very well, but we still have work to do. So we are going to stay focused. The digital build out is on everyone's agenda. So we are very focused on ensuring that we have a very strong product set in the commercial and consumer bank digitally and that we have rolled out our kiosks and continue to work on our clicks-to-brick strategy. We have rolled out a number of new branches that are concept branches that are being received pretty well. So we are going to stay focused on that. Data analytics is a hot topic and we are continuing to build out the team to drive smart decisions for cross-sell. And even credit monitoring and stress testing requires those capabilities. So that tends to be the focus. M&A is not on the horizon. We were not engaged in that activity at this point in time and we are going to continue to focus on driving EPS growth and organic growth in our new markets and our existing core markets.

Great. Thank you.

Thanks.

Thanks.

Thanks.

Thank you. The next question comes from Michael Young with SunTrust.

Hi. Good morning.

Good morning.

Hi Michael.

Hi Michael.

Vince, you gave us some good color on the customer retention that you have thus far. Can you maybe comment on the other side on the personal side and just lender retention, how that's gone and any additional hiring plans you have in the North Carolina, South Carolina markets with all the deals that have gone on there?

It's gone extraordinarily well. I think we have been helped somewhat by the disruption in the marketplace. I think most of the places they could have gone to have been sold since we bought Yadkin. So I think we have been helped there. I think we have a great team and the people that we have retained really fit in well with the culture. So I think there is quite a bit of synergy from a personnel standpoint. I think the culture fits well. We have not lost many bankers. We have lost a few, very few, other than in the mortgage business where we lost a group. But it's gone very well and, in fact, there is not, believe me being in the Northeast and as soon as we head into wintertime, we have a lot of people asking to move I think. But we have had quite a few inquiries about opportunities in those markets from folks at other banks. And I think we are in a very good position to bring in good people if we need to. And I think we have retained a lot of great people. So I would give an A rating to retention on personnel in this transaction. Much, much better than others that we have done and we are very pleased with the people that we have.

Plus the energy is very strong.

Yes. There is a lot of energy. There is enthusiasm that is infectious.

Okay. Great. And shifting gears a little bit on the one-time cost and we kind of gotten most all of those at this point and it seems like maybe we are at around $60 million thus far versus your original expectations of $100 million. Is that about right?

Well, there is some portion, that's a little bit low actually. There is probably about $20 million that Yadkin ends up booking on their books, just the way it gets booked. So I would say, in total we are probably going to be about $10 million to little more than $10 million better than the $100 million at the end of the day. There is still some more smaller pieces to kind of work through. But that $60 million is more like kind of $85 million, if you look at it all-in with what's on our books and what they would have booked. It all gets reflected in capital but if you look at it kind in total.

Okay. And maybe just kind of dovetailing off of that. Overall, the four-and-half year earnback that you originally estimated were a little better on cost saves and maybe a little sooner cost save realization but maybe you are kind of at the lower end of the EPS accretion range. So net net, is it about the same in your view?

No. I wouldn't say that's I an accurate depiction. I think that we feel good about the EPS accretion that we modeled. I mean we are optimistic about it. We haven't received all the benefits of some of those product areas that I mentioned that are big contributors. If you go back and look at our fee income growth here in our core business, you know none of the acquisitions that we did contributed to capital markets, fee income, mortgage banking fee income, insurance. So we have grown that organically and we see the Carolinas as a tremendous opportunity for us because they lack those product areas. So the EPS accretion, we feel comfortable with. I think as we measure M&A, the success of our M&A practice, you know we are very conservative. So unlike others, we tend to fare on the conservative side in terms of our estimation of one-time expenses, the credit mark. The cost takeouts were right on.

Flat rates we used.

Flat rates we used. We did not use escalation in the portfolios in our modeling in the first year, which is pretty close to reality. It's difficult to grow a portfolio when you have got things moving out for credit reasons and there is transition going on. So very conservatively modeled and I think there is upside in the fact that we modeled Yadkin without increases in rates. There is upside in that we didn't model all of the revenue synergy that I mentioned. I think that the expense base getting to 25% in a market extension is an accomplishment and it's done. So I look at it as if I were looking at this quarter outside of the company, I would look at it and say wow, they were able to take on all of those assets, they grew their asset base 50% over a little over a year with two acquisitions and they have not missed a beat from an EPS perspective with the incremental increase in share count. That's an impressive feat, given what's gone on. And to have such stability in the expense base and opportunities moving forward and good retention with employees and the deposit loan base moving forward, I would be very optimistic.

And I would just clarify, Michael. Regarding the guidance, that half-a-quarter movement in legal day one affects 2017. It doesn't affect our outlook for 2018. So that accretion that we talked about for 2018 is still what we are tracking towards. Obviously, it's just the sheer volume of not having the loan to deposits on your books for basically almost 45 days just effects 2017.

Understood. Thanks.

Thank you.

Thank you.

Thank you. The next question comes from Russell Gunther with D.A. Davidson.

Hi. Good morning guys.

Good morning there. How are you?

Hi Russell.

I would just like to dig a little bit deeper on the potential cross-sell within the fee income line. You guys seem pretty fired up there. Just a little bit of color in terms of, you called out capital markets, insurance, SBA. Where do you think the greatest upside is within those fee verticals? And with that, who is kind of running these businesses down there in the Yadkin franchises? Is it these legacy Yadkin folks? Is it legacy F.N.B. that's come down there? Or some new hires? Just a little color around the opportunity.

Sure. In the capital markets arena, we have hired a couple of people from larger institutions who are actually based here. They service the area from a syndications perspective. The person that leads syndications for us is a former BofA person. He worked on BofA in region syndications platform. He is done $40 billion in syndicated transactions in his career. So we have very experienced people. We have very, very little contribution from those markets in that arena. But we got some good prospects and we are very excited about our opportunity to lead transactions in that market in the middle market. From a derivatives perspective, our derivatives executive also hails from a large CCAR seek. He is a BofA person who worked in London, worked in Dubai. He is very experienced. He has hired somebody from a larger institution that's based in Charlotte that covers the derivatives area for us. We have had very, very minimal contributions from that market and there is a tremendous opportunity there because there is quite a bit to swap as we move forward in that portfolio, because they didn't have the product set. Insurance, we are still building out the team. The majority of the folks that work for us here in Pittsburgh hail from a large insurance agency that was based here that we brought over a few years ago and they are doing very well. SBA. the SBA fee income that Yadkin generated, we have essentially reduced that significantly because we have repositioned that business to focus on our own franchise. So where they may have been contributing two to three times the amount in fee income historically, we have reduced that temporarily and now it's starting to build back up again. So there is significant upside there. In the mortgage business, we lost a number of people. There was a lift out that was done. So it delayed our ability to achieve some of the results that we wanted in that market. But we have made it up elsewhere. And we have been kind of overwhelmed in terms of response from a number of people that want to work for us in those markets. So we have made some marquee hires in Charlotte and in the Raleigh market. We have also hired an international person. We had great success already in international down in that market. We brought at least eight or nine clients over that are fairly sizable. And the person that runs international for us has tremendous amount of experience and he has come from much larger institutions as well. So we have a great team. And we are charged up about it because we are just scratching the surface in those markets. And it's very beneficial to have the commercial bankers in their seats down there and to have the caliber of personnel that we have with these new product specialists mainly on the ground in the Carolinas. So that's why we are so excited about it.

That's great. Very helpful. Okay. And then just an unrelated question. I caught kind of the high single-digit loan growth guide. But if you didn't already, could you comment on expectations for the securities portfolio going forward and where we might see total earning asset shakeout for the end of the year?

Yes. The securities portfolio, we manage around that 18% to 20% of total assets. So if you look at the average balance from first to second quarter, it's is really just the repositioning of the Yadkin portfolio and kind of selling their stuff and then buying the stuff that we would buy. But I would look at it being kind within that range. I wouldn't look for kind of additional growth there. And that's always a lever depending on the loan growth that you could do a little bit more but I would use that kind of 18% to 20% as really the range that we manage to.

Okay. Great. Very good. Thanks for the help.

Thank you.

Thank you.

Thank you. The next question comes from Collyn Gilbert with KBW.

Thanks guys.. Just really quickly and I apologize. I know the call is running long. But just on a pro forma basis, do you have to split between what the commercial and retail deposit compositions are? Or not pro forma, but now obviously with Yadkin?

I don't understand your question.

Of your deposit base, how much is tied to commercial version how much is tied to retail?

Okay. I have that in the report here somewhere. Yes. I don't have it.

Okay. While you are looking, on the commercial pipeline, Vince in your opening comments, I think you had said that the pipeline was $2.7 billion at the end of this quarter up obviously sizably year-over-year. What was the pipeline at the end of the first quarter, commercial pipeline? Do you happen to have that number?

It was pretty similar. It was a little lower but it was pretty similar, $2.4 billion.

Okay. And then just one final question. Given your outlook for growth and where this franchise can go, does it change at all your outlook for capital and how you see your capital levels evolving?

I think as Vince indicated on the last quarterly call, we feel pretty comfortable with our capital ratios because we are able to generate, we are very profitable. So we are generating enough in retained earnings to fund the need to grow our portfolio at the guidance levels that we have given you. So I don't see us changing course on capital. I think if things begin to accelerate and we are growing faster than that, then we always have a chance to re-examine where we are. But we are not looking to do anything that would be dilutive just for the sake of having a higher capital ratio. That's not necessary at this point.

And there's things we could to manage the size of the balance sheet too that we really haven't done.

Yes.

But Collyn, to your question, it's about 40% of the deposit are business related.

Okay. For the whole bank? Yadkin and -- yes, okay, perfect. All right. Thanks very much.

Thank you.

Thanks.

Thank you. [Operator Instructions]. The next question comes from Brian Martin with FIG Partners.

Good morning.

Good morning.

Hi Brian.

Most have been covered here but just a couple of things. On the fee income, I guess like you said, you talked about the opportunity here. I am just kind of wondering, in this quarter was Yadkin less than you guys thought contribution-wise this quarter? Or is it more just the opportunity for revenue synergies that you guys haven't kind of factored in when you announced the transaction?

Yes. I would say, in certain areas it was probably a little lighter like I mentioned SBA. We have totally reinvented that business. So that's starting to take off. So that's a little delayed. The mortgage business is delayed, as I mentioned, because we are rebuilding the staff in the Carolina. We are having good success. We have actually brought nearly all the people onboard there. So we will start to see benefits there as we move forward. So I would say those two business units have been lagging. The rest of them, it's to come. So we are, like I said, excited about the opportunities that are starting to surface for capital markets, insurance, wealth, it's really starting to percolate. So we are excited about that. So I think it's probably, the answer to your questions is, it is probably a combination of both. But again thinking we are in a pretty good spot moving into the next few quarters.

And both of those units by June were contributing. So they have started contributing in June and then that launched into the third quarter.

Okay. And then just in general, I mean, how quickly do you expect some of the synergies to materialize? I guess just it's gradual, I guess maybe more so evident in 2018?

Yes. I think you will really start to see it in 2018. It should accelerate. And in the fourth quarter of this year, I would expect us to see some benefit given the size of the pipeline. So that typically lags the booking of the credit by a little bit, but usually those arrangements are made while you are bringing a client over. So I think you will see. It will start to show and it should accelerate as we move into 2018.

Okay. That's helpful. And just one specific question. Within the fee income presentation and the release, the other line item in there, there was a fairly significant increase from first quarter to second quarter, $2.5 million to $3 million. was there anything unusual in that item? Or was this just reflective of Yadkin and pretty core as you look going forward?

Yes. I would say most of it is Yadkin. The SBA contributions in there. We had higher home loan dividends because we have a bigger balance sheet and some additional borrowings and stuff and kind of a variety of other smaller items. So a good portion of it would be Yadkin related.

Okay. All right. And just as it relates to the margin, just if you guys can you just give a little thought on where the core margin heads with each rate increase? I guess, inclusive of Yadkin, is that two basis points benefit from potential rate increases inclusive of Yadkin? And then I guess can you comment just, you talked about maybe getting a little bit more assertive on the deposit gathering efforts. Does that factor into that margin pick up potentially from rate increases, just as you weigh how you are going to handle maybe getting more assertive on deposits?

Yes. The two to three that we have talked about for the fed moves is inclusive of Yadkin. So that's kind of all-in. I think an important point about the margin too as we go forward into the second half of the years is that when you look at the relationship of kind of rates on new loans to the overall portfolio yield, this quarter we finally actually turned the corner. So the rate on the new made loans is actually a little bit higher, a basis point higher than the overall portfolio yield. So that's obviously a positive. I mean that's been a detractor for everybody as we have been going through this kind of interest rate cycle. So that would be kind of over and above that couple of basis points that would help. And the reinvestment yields, we moved up about six basis points first to second quarter and that level will carry into the third quarter as far as the overall portfolio yield. And then the deposit side, as Vince talked about earlier, obviously the transaction deposits helped the margin. So the more success we have there, the bigger the benefit to the overall net interest income and the margin.

Perfect. Okay. And then just the last thing was, I think you said this, but just the efficiency ratio, with the cost savings factored in, the efficiency ratio or the operating leverage out to, if you execute as you expect, we should kind of be at a peak level on that efficiency ratio and some moderation in the future quarters. Is that how to think about it?

Yes. I would look for, embedded in the guidance is continued positive operating leverage. For sure, as the revenue kicks in more down in the Carolina markets and with the cost savings out of the base, clearly those two items alone generate positive operating leverage. And another thing we have been doing as we talked about this in the past is kind of vendor management focus and going back to our vendors. In other words, as Vince said, 50% larger than we were basically a little over a year, year-and-a-half ago. We are going back and pushing vendors hard on renegotiating those contracts. And at $30 billion you have more leverage than you had at $20 billion. So there is some renewed focus on that too which provides positive operating leverage too as we go forward.

Okay. Perfect. And then maybe just one last comment just on the loan pipeline. I guess it feels like the momentum really began to pick up later in the quarter. I guess as guys have said, the guidance is pretty similar to your long term record. I guess do you feel like you just need a couple more quarters to see this momentum continue to build before you potentially look at increasingly the growth rate? Or I guess is that wrong to think about it that way, I guess, just like this quarter given more updated guidance as you get more, I guess, deeper with your Yadkin presence and how that unit is performing? Is that a possibility? Or how to think about it? Fair to think about that way?

Yes. First of all, the Yadkin commercial bankers have only been onboard here with us for four months. So while we are seeing good positive results and the pipelines are building, it takes a little bit of time to work through that pipeline to make it a reality, number one. Number two, we are somewhat selective from a credit perspective. So we try to moderate our growth to reflect low to moderate risk profile in the portfolio. So that's part of our overall strategy. We mention it periodically. So we want to be positioned so that we can deliver upper single-digit growth in the loan portfolio and not take on additional risks. So we do moderate in that regard. And I think, hey, I look at it as that people who are actually out there and active, I think if I could predict the headline for us here, I would say, we have moved from defense to offense and we are starting to see good momentum. So I guess that's how it would characterize it. I am very pleased with where the pipelines are.

All right. Okay. I appreciate all the color. Thanks guys.

Thank you.

Thank you.

Thank you. And as there are no more questions, I would like to return the call to Vince Delie for any closing comments.

Well, I would like to thank everybody for participating in today's call and your continued interest in F.N.B. I think that the questions have been terrific. I know there is a lot of noise in the quarter. So I appreciate all the thoughtful questions as we sort through the acquisition and focus on moving forward. We are very optimistic as you can tell from our tone and demeanor. We are very pleased with the quarter and we are excited about the next few quarters. But before I get off the call, I do want to thank all of our employees, because I mean if you really think about all the things that have been accomplished, it's amazing. So again, you know if they on the call, thank you. And we look forward to creating additional shareholder value down the road. So with that, I will turn the call back over to you, operator. Thank you.

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