Good morning, and welcome to the F.N.B. Corporation Third Quarter 2024 Earnings Call. All participants’ will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to 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 that filed with the Securities and Exchange Commission also 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 Friday, October 25, 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 Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. FNB reported third quarter operating net income available to common shareholders of $122 million, or $0.34 per diluted common share after adjusting for $15 million of significant items impacting earnings. The third quarter's results demonstrate our ability to produce quality loans and significant deposits throughout our footprint, while maintaining stable, non-interest-bearing deposit balances at approximately $10 billion. We generated linked quarter revenue growth, strengthened our balance sheet with the record CET1 ratio of 10.4% and drove shareholder value with tangible book value growth of 15% year-over-year and an operating return on average tangible common equity of 14%. We are also particularly proud of our ability to gain market share in a number of MSAs across our footprint and achieved a number two traditional retail deposit share position in Pittsburgh, despite competition from some of the nation's largest banks. In this environment, it is important we continue to manage our capital and liquidity position. During the quarter, FNB completed a $431 million indirect auto loan sale, allowing us to remove lower yielding assets from our balance sheet with minimal impact to forward earnings, while improving capital and loan to deposit ratio. Vince Calabrese will provide the details about the sale during his remarks. Total loans ended the quarter at nearly $33.7 billion, a 4.6% annualized linked quarter increase when excluding the loan sale. FMBs loan growth has once again exceeded the published H8 data as we continue to gain market share, which can be attributed to our business model and its emphasis on a diverse and attractive footprint, as well as ample capital and liquidity to support our clients. Total deposits ended the quarter…

Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at stable levels. Total delinquency finished the quarter, up slightly at 79 basis points or 15 bps from the prior quarter with NPLs and OREO ending at 39 basis points, up 6 bps. Net charge-offs totaled 25 basis points and 17 basis points on a year-to-date basis, reflecting solid performance in the current economic environment. Criticized loans were down 22 basis points on a linked quarter basis reflecting improvement across the portfolio. Total funded provision expense for the quarter stood at $22.9 million and covered charge-off. Our ending funded reserve stands at $420 million, an increase of $1.4 million, ending at 1.25%, up 1 basis point from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.34% and our NPL coverage position remains strong at 352% inclusive of the discounts. The non-owner CRE portfolio credit metrics continued to remain at satisfactory levels with delinquency and NPLs up slightly at 69 basis points and 31 basis points respectively. The early stage delinquency increase was primarily related to several performing credits that had matured and were in documentation, a number of which were renewed in the normal course of business after quarter end and are now current. The NPL increase was driven by one credit that was placed on non-accrual status. We remain committed to our strategy of proactively managing and reducing the non-owner CRE exposure as reflected on page 11 of the earnings slide deck. On a monthly basis, we'll review upcoming and previously resolved maturities, largest exposures, and market conditions for the various property types across our footprint as we have communicated in the past. As Vince mentioned, we believe our proactive approach to credit risk management allows us to quickly engage our experienced special assets team when necessary, working with our customers to minimize any potential losses. On a quarterly basis we perform targeted reviews of various portfolios along with a full portfolio stress test. Our stress testing results for this quarter have once again shown lower net charge-offs and stable provision, compared to the prior quarter's results, with our current ACL covering approximately 90% of our projected charge-offs in a severe economic downturn, again confirming that our well-balanced loan portfolio enables us to withstand various stressed economic scenarios. In closing, our credit metrics ended the quarter at solid levels, and our loan portfolio continues to remain stable. We continue to invest in credit risk management systems and staff that align with our consistent underwriting and core credit philosophy. Our tenured leadership strives to maintain experienced banking teams to enable the company to attain prudent loan growth, while proactively managing credit risk through various economic cycles. 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 third quarter's financial results, including details on the indirect auto loan sale, and walk through our guidance for the fourth quarter. Third quarter operating net income totaled $122 million to $0.34 per share excluding the $11.6 million loss on the indirect auto loan sale and $3.7 million software impairment. $431 million of performing lower yielding indirect auto loans were sold as part of our ongoing balance sheet management strategies. Loan sale positively impacted the loan-to-deposit ratio by approximately 120 basis points and the CET1 capital ratio by approximately 10 basis points. Excluding the loan sale, total loans and leases increased $391.4 million or 1.2% linked quarter, with a period-end balance of $33.7 billion. Consumer loan growth of $299 million, excluding the loan sale, was led by residential mortgage originations. This volumes remained elevated given the pullback and mortgage rates during the third quarter. Commercial loans and leases grew $93 million linked quarter in line with our expectations given the significant level of commercial loan closings in the second quarter and reflective of lower revolver balance. Total deposits ended September at $36.8 billion, a robust increase of $1.8 billion or 5% linked quarter, benefiting from our successful deposit initiatives to demonstrate the value of our granular deposit base across a very attractive geographic footprint. Third quarter deposit growth was led by a $1.3 billion increase in interest-bearing demand deposits and $783 million increase in time deposits. The mix of non-interest bearing deposits to total deposits totaled 27% at quarter-end, compared to 29% last quarter, reflecting the strong interest-bearing deposit growth and non-interest bearing deposit balance is remaining fairly stable around $10 billion. Last quarter I discussed our goal to reduce our loan-to-deposit ratio organically through slower loan growth and deposit…

Thank you, Vince. FNB success includes the deep relationships we build within our communities. On behalf of FNB, I want to offer our support to those impacted by Hurricane Helene and Milton, including our fellow team members, customers, and neighbors. FNB continues to work with partners in the affected areas to support recovery and healing in the coming days, weeks, and months. We encourage our customers, who are directly impacted by the hurricanes to reach out if they require assistance. FNB's strong reputation is evident in the top deposit share we hold in the markets throughout our footprint. We deepened our penetration as we grew or maintained deposits in nearly 90% of our MSAs over the past year, with FNB now ranking in the top five in nearly 50% of the MSAs we operate in across seven states. Our performance once again garnered recognition with additional national and regional awards this quarter for our workplace culture, diversity and inclusion, and client experience. Notably, we received global recognition as one of Times World's Best Companies, Newsweek's designation as one of America's Most Admired Workplaces, and Global Finance Magazine's best bank for small and medium-sized enterprises in the mid-Atlantic. Our performance also conveys the quality of our workforce. We focus on hiring and retaining the most talented and experienced individuals. Our investment in our workforce enables us to scale effectively. In fact 90% of our senior management team has larger institution and/or public accounting experience and bring a wealth of knowledge to our risk management, operations, and revenue generating areas. As I have often stated on these calls, the high caliber of our employees translates directly to stakeholder value. FNB's successful navigation through various economic cycles is directly portal to our diverse and experienced team. Their ability to effectively grow revenue, mitigate risk, optimize our balance sheet, and execute on our proven strategies results in our ongoing success. I thank our teams for their dedication and our shareholders for their support. Thank you. And we will now open the call up for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.

Thanks. Good morning.

Hi, good morning.

You know, obviously always a good time to be bringing in core deposits, but could you just talk about the average rate you're seeing on these inflows and Vince you mentioned moving towards a neutral -- a more neutral interest rate position. Wouldn't all this growth on the deposit side work against that a bit at least in the near-term?

Yes, I would say a couple of things. You know, as we said last quarter, we had significant growth in short-term borrowings to fund this very strong loan growth that we had in the second quarter. So the goal was to bring in meaningful deposits. And we did. I mean, we brought in $1 billion of new money. In total, it was a $1.8 billion, a $1 billion of new money around 4.25% rate. And nature of those deposits are very short-term, combination of money market and very short-term CDs, five month CDs. So we have a lot of flexibility as we move forward to reduce the rates. I'm a liability to be brought in. I think it positions us well from a loan-to-deposit ratio. You know, we were in the 96%s. Our goal was to bring it down and we brought it down meaningfully to 91.7%. And if you look at kind of the balance sheet as a whole as we sit here at the end of the quarter, we have $11 billion of liabilities that are repricable today, subject to market forces of course, about $11 billion. We have another $5.4 billion in CDs that mature in the next six months, $2.9 billion of that in the next three months that are forced $4.75 billion rate. And then we have a $1 billion in cash flows from the investment portfolio that kind of rolls off around $2.91 billion and today we're investing between $4.25 billion and $4.50 billion. So there's a lot of levers obviously there that help us reprice. With the Fed moving 50 basis points in September, kind of bigger than maybe what was expected, that has an impact on our loan portfolio over a three-month period. So we'll be kind of playing some cash up there. But we have the levers here that can kind of offset that. And our team is very well positioned. And we've already started to bring interest rates down. We brought rates down 50 basis points on our CD offer and a variety of different deposit categories, we've started to bring rates down and kind of ready to continue to bring rates down. So I said a lot there, but we have a feel that we have the levers positioned well to move forward so that we can kind of adjust as rates move down.

Great. Okay. And then, you know, you were, I think, FNB was a bank that was pretty conservative in your expectations of deposit beta on the way down, at least in the first few rate cuts. I'm just wondering now that we've seen that 50 basis points, you mentioned you've already cut some deposit rates. Any updated thoughts on what a sort of early deposit data could look like for these first few cuts through the end of the year?

Yes, I would say our guidance has obviously the 50-plus two more 25 basis point cuts kind of baked into that. What our guidance implies is like a 15% beta by the end of this year. You know, I'd like to think we can do better than that. So we're all everybody's geared up to be able to adjust prices a lot of our competitors have been lowering rates, so that there's you know, there's an ability to do that. So kind of what's baked in is 15% and our goal would be to do better than that by the end of the year.

Okay. And then just lastly on the indirect auto sale, just kind of thoughts on additional opportunities on the balance sheet here. Was any of this, you know, kind of move in the credit box a little bit or and you know, at this point you're looking to just exit this business given the yield?

We're not looking to exit the business. We saw an opportunity for us to move some low yielding assets off the balance sheet. It was not a credit play. It was more about managing the overall balance sheet and particularly, in particular, our loan-to-deposit ratio. We looked at it you know basically with our deposit with our ability to generate deposits and coupled with the sale of those loans, you know, we were able to bring it down fairly substantially and there were some questions in the last earnings call about our ability to do that and our ability to grow deposits in this competitive environment. I think we proved that we're capable of doing those two things. I would say that you know in the normal course of business in that indirect auto portfolio there will be loan sales from time-to-time. We've always used it as kind of a way to manage the balance sheet and manage our loan-to-deposit ratio. You know we've done it a number of times. But we retain the servicing. So we're still maintaining the clients. We do use the information on those clients to try to cross-sell other services to them. So that works pretty well for us. But it's not -- it was not a credit play.

It's a very short-term asset. I mean, two-year life to it. So, from an income statement standpoint, given the borrowings we paid off, really no impact on the earnings on a go forward basis. And it added capital. CET1 ratio, we picked up 10 basis points and just that alone added 100 or reduced the loan deposit ratio by 120 basis points. So [Technical Difficulty]

It’s an attractive transaction and it helps with capital and essentially puts us in a much better position to support our clients. I think loan demand will pick up. It's just based on the earnings calls that I've listened to and read about. It seems that credit is more benign than folks would have thought. And the economic environment's a little better. I think there's a lot of wait and see right now. Once we get past the election, I do think irrespective of who wins there'll be demand in the C&I book in particular. So we want to be positioned to take advantage of that. And I think Frank the other thing is, you know, on display here, you know, over the course of the past year and during this last quarter, great financial institutions are able to fund themselves and they're able to generate deposit balances. We've talked about our business model, we've talked about leveraging data analytics and how we're positioned in the markets and the prominence that we have in the markets, our share in the markets. There's been a lot of talk among some of the larger bank CEOs about the inability for mid-size and regional banks to gain share. We've proven that wrong. So our business model works. We've grown share. If you look at Pittsburgh, I mentioned it. We passed up the legacy Mellon Bank franchise here with deposits here. So just in the last turn. And that’s -- those are real customer deposits. So you know, we're doing very well in regard to acquiring names. We're doing well at becoming the primary client, which is why our demand deposit balances have been sustained at around $10 billion dollars. You know, others have seen migration at a much faster pace. All the things we've said that are embedded in our business model have proved out in this quarter. So I just want to emphasize that and, you know, I know we've said it over and over again. I think the proof is in the results.

All right. Great, I appreciate all the color. Thank you.

Thank you, Frank.

Thanks, Frank.

The next question comes from Russell Gunther with Stephens. Please go ahead.

Hey, good morning, guys. I was hoping to start on -- good morning, guys. On expenses, if you could just revisit 3Q key results for a minute, what the drivers were that took you guys through the high-end of the prior guide? And then provide some color around the bracket for 4Q. Is that simply tethered to fees or what could keep you towards the higher end of that range?

Sure. Expenses on an operating basis for the quarters came in at $234 million. The guidance range we provided in July was $220 million to $230 million. The key drivers to that were a couple of things $2 million increase in marketing, which we decided to do to grow the $1.8 billion in deposit. So that was something that we, obviously was a strategic decision, spend some more money on marketing, bring in the deposits and it worked very well. And then $5 million increase in cost benefits. That was driven by a few things. You know, higher production related incentives, the success we've been having on the non-interest income side, you know, there's conditions related to that, the deposit raising and the fee income. You know, we mentioned in the release opportunistically hiring some producers in some key markets for us, and investing in risk management staff just to support our continued growth. And then just for fun, we had an extra workday in the third quarter. It was $1 million. So those were kind of the drivers kind of to get us a little bit above the range. But if you look at the efficiency ratio, you know, we continue to post top quartile results. I mean last quarter we were $54.4 million, which we were the third best among our 21 bank peer group. You know, this quarter is $55.2 million. I think we'll compare well again. And then as you go ahead to the fourth quarter, so we're using a range of $225 million to $235 million, up $5 million from the prior guidance. But -- and it's a few things, continued variable compensation, support of the strong non-interest income. Seasonally slower loan production, it affects the plus 91, cost of borrows would be lower. FDIC insurance levels kind of staying at a higher level and then the impact of the hiring. But you step back overall, the absolute level, in fourth quarter we expect it to be down from the third quarter, which is key.

Yes. Okay, that's a great color, Vince, I appreciate it. And then maybe just looking forward, taking that conversation forward, you guys remarked about bringing revenue and expense growth into balance. So as we look to ‘25, is positive operating leverage something you guys expect to be able to deliver, or do we really need to see a Fed easing cycle end and deposit cost catch up to drive the efficiency more meaningfully lower and deliver positive operating leverage for ’25?

I would say obviously getting to a more positive slope yield curve later next year would make a difference. So I think having it for some portion of ‘25 versus ‘24 is definitely achievable, but I think having that yield curve will be kind of a key driver to getting us there.

Having an appropriate slope in the curve drives, if you look at our balance sheet and how we're positioned, we perform extraordinarily well in that environment. So that is key to our success, obviously. We're no different than other banks. But if you look, that's the ultimate scenario for us in terms of profitability. So hopefully we see some adjustments on the short end of the curve gets the slope of the curve in the appropriate position for us to benefit.

Yes, and that'll drive meaningfully higher net interest income and net interest margin as you move forward and get to that point.

Got it. Okay. Understood. And then just last one for me, you guys reiterated a mid-single-digit growth guide for the year. You know, as you guys look forward, is there any optimism for being able to accelerate that pace, or are we -- should we be thinking about headwinds like paydowns or potential additional portfolio exits that would keep you guys at a mid-single-digit clip?

I don't think we're in a position right now. We haven't given guidance for next year. But I would look back historically, I think we've done a very good job over a long period of time. I've been here for almost 14-years in this seat, 19-years overall. I think we've grown loans and deposits just about every year. I've been here maybe the pandemic maybe there was a time when loans didn't grow one quarter. But you know we put up pretty consistent organic loan growth. You know it's in the mid to high-single-digits irrespective of the size of the balance sheet over time. And as we've grown the balance sheet, we've shifted our strategy to move into markets that would provide us with opportunities, right? So we could sustain our growth trajectory irrespective of the size of the balance sheet. So I think that's played out over time. So I'm -- you know, I can't say I'm optimistic because there's so much uncertainty about next year. But I do believe that we're in the best position of anyone to generate that loan growth once the market comes back. Demand picks up. In a way that is a growth scenario, let's put it that way.

Yes. No, understood. Guys, thank you very much for taking my question.

Thank you.

Thank you.

The next question comes from Timur Braziler with Wells Fargo. Please go ahead.

Hi. Good morning. Circling back on the deposit acquisition strategy, just looking at the new money cost this quarter at $4.25, I mean, that's still dilutive to the overall rate. I'm just wondering as we look into 4Q and ahead just the composition of the deposit growth and you know the 50 basis point reduction in CDs is that off of that $4.25 level or is new money acquisition still north of 4% here?

Yes, I don't think we're going to get into specific strategies around how we price, so that our competitors don't, you know, listen in. But I will tell you a bit, you know, you've got to look at it in total while that, the new money rate coming in, that's basically on the money market.

That’s money market in five month CDs. So yes, sure.

CDs in the money markets that are driving that. There is a component of demand deposit. You know, there's runoff now or shift and mix, but we are bringing in primary clients. So we do have operating accounts as well that have the free balances. So, you know, I would expect us to be able to benefit as we move along. And then I also would note based upon your comment that it's not a accretive, it actually, we replaced short-term borrowings that were at a much higher rate. They were 5%, so it actually was beneficial. So the way I look at it, Scott and I go back and forth depending on the interest rate environment. Scott's our treasurer. You know, I basically say, hey, I'd rather have clients, right, new clients, than rely on wholesale funding or some other source of funding that's institutional in nature. So this trade was actually a very good trade for our shareholders.

Yes, bringing loan-to-deposit ratio down as much as it did gives us the flexibility to be able to actively reprice the rest of the portfolio, so there’s…

And I'm going to say it again, because in the context of the competitive environment we're in, we are not outsized from a pricing standpoint relative to our competitors. So our business model is working and we are driving share in the market in a way that is accretive to our margin and our profitability. So and over time, you know, having new clients, we have the flexibility to price according to changes in the market. So, you know, it ultimately leads to higher profitability on a per client basis as well. Anyway, that's the strategy behind what we accomplished.

Yes, I would just add one last thing too, is we have a meaningful pipeline on the commercial side of additional deposit accounts that we're going after pursuing. And you know, we've had great success in the past quarter and there's still a very meaningful amount that we're going after to bring in relationships.

Okay, thank you. That's great color there. And then just maybe again circling back to the auto sale or indirect auto loan sale, just any kind of underlying characteristics of the loans sold, I guess, how did you choose which portions of that portfolio were divested this quarter?

I'll let Gary answer that question because that actually reports up through Gary.

Yes, Timur, it is just a across-the-board sample of current transactions in the portfolio. That portfolio sale did not include any account that was past due. So it was high FICO, high quality paper with an average life of two years.

Okay, great. And then just lastly for me, there's been some growing speculation of mid-Atlantic, M&A, your name kind of into the mix. Just would love to get an update as to what your thoughts are around capital deployment going forward and where M&A might fit into that mix?

We haven't changed our position. We've indicated in the past that we are not looking to dilute tangible book value in a material way. I don't think that, you know, I don't want to comment on specific transactions, but you know, we're still focused on doing deals in market, you know, smaller in size. If that was even available to us, we're being opportunistic in terms of what's out there. So in market acquisitions with cost saves are on the list. The deals would have to be immediately accretive to earnings with limited tangible book value dilution, as I've said. And then the return has to be well above our cost of capital. So I don't think we've deviated at all. And there are a lot of rumblings out there, but we're going to stay true to our strategy. I think we've done well over the last few years focusing on tangible book value accretion and returns and, you know, that's going to be our focus as we move forward.

Great. Thanks for all the color.

Yes, thank you.

Thanks, Timur.

The next question comes from Daniel Tamayo with Raymond James. Please go ahead.

Thank you. Good morning, guys.

Good morning, Dan.

Good morning, Dan.

Maybe just starting on the 4Q guidance for NII for net interest income. Just some clarification, trying to get a sense for what the margin compression could look like to fit into your guidance? Is there on the balance sheet side, is there something that was in the third quarter in terms of the pace of growth that would impact the average balances in the fourth quarter? Is that something where you could see that number come down? Just trying to think about right sizing, how to get to the margin number?

I think it goes back to what I said earlier, Danny, about the implied beta that's in there, right? So the Fed moved 50 in September. We only had a partial month impact of that. So you'll have the full quarter's impact of that. And then there's two more 25. So, you know, I think there's some conservatism in our NII guide, but we're using a 15% beta by the end of the year. We can do better than that. And then there's upside to that. We don't have any other portfolio exits or anything like that teed up as we sit here today. So it'll just be kind of normal activity. But fourth quarter, like Vince said earlier, is there's some seasonality to some slower activity, and then you have the uncertainty with the election and everything. So no, there's still some level. Our mid-single-digit guidance on the loan side is still the same guidance that you can give them. So there's nothing unusual. It's just us managing the raged out. You get between now and the end of the year.

Okay, understood. So the average earning assets likely increase in the fourth quarter and it's a margin issue in the fourth quarter before we start to see that stabilize at some point next year. Is that fair?

Yes, and I would just say that I would characterize the margin as flattish. I mean, if it's down and down a few basis points, not a lot, so just a starting comment.

Okay, all right, that's helpful, thanks. And then maybe one for Gary on the credit environment, specifically just net charge-off environment. Obviously, you've got volatility a little bit higher in the third quarter, but just interested in your current thoughts around how you think about what might be a good run rate for net charge-offs for the bank as you think about the next, the near-term?

You know, Daniel, I think that we're very aggressive from a risk management standpoint and staying ahead of our clients with information flow and understanding their position and the risks in the portfolio. We've continued to perform exceptionally well from a risk management and a charge-off perspective and all the credit metrics have been at or near record low levels for quite some time now. This quarter we worked 25 bps on a year-to-date basis, 17 basis points, which is you know really, really strong result in this environment, which continues to be a bit uncertain and as we all know the CRE environment is surely continuing to see some stress here and now. So, you know, I would expect continued performance as we have put up over the last number of years. And is it going to edge up a touch? I mean, it may normalize, but I feel very good about where we sit. And as we look ahead, continuing to outperform from the industry's perspective.

You know, Gary and his team have done a fantastic of job making sure that the risk ratings are correct. He mentioned gathering the information. I think that where we stand today is where we're going to stand tomorrow, basically, with the exception of any major ships in the global economic environment. So we're not going to be sitting here with surprises, let's put it that way. We do a pretty thorough job of underwriting and assessing risk ratings on a frequent basis, stress testing and evaluating risk. So what you see is what you get. And I think that's been true for a very long time for us and Gary has done a fantastic job. So keeping us there.

All right, terrific. Well, thanks for all that color.

The next question comes from Kelly Motta with KBW. Please go ahead.

Good morning. Thank you so much for the question. I hate to beat a dead horse, but I just want to button up a few more things on the margin. On the prepared commentary about the 15% data by the end of the year. Just a point of clarification, wondering if that's interest-bearing or total deposit data, one. And then two, I know you haven't done the budget for next year, but just from a high level, wondering how you anticipate deposit data is on the way down more broadly as we look ahead past this next quarter?

Yes, that’s the 15% Kelly is total deposit data by the end of the year. And we've talked about historically kind of a mid-30s level on the down, kind of, you know, we have some statistics we've looked at from the past cycle. So that's kind of what's in our heads. So I don't know, by the end of next year, it could be around 30-ish, I would say, kind of, as a level total. Again, total deposit data by the end of next year is kind of what's within our heads at this point.

Got it. That's very helpful. And then on the loan side of things, just wondering what you're seeing in your markets in terms of how spreads might be holding up for commercial loans? And if you're seeing any differences between how that's performing in the Carolina markets versus your more legacy mid-Atlantic markets?

Yes, surprisingly, it's fairly consistent across the board. And you would expect it to be different regionally, as your question implies. But it has been fairly consistent. I think with capital exiting the CRE space, there's a little more pricing flexibility in that bucket. If you find a high quality CRE opportunity, you're able to get a little more margin out of it today. That's a function of banks pulling back and financial non-banks pulling back as well. So I would say there's not a lot of demand from a C&I perspective kind of across the board right now. Everything's on hold. I would expect that to change as we move into next year. I don't have a crystal ball, but my gut and 30-years of experience tells me that there's quite a bit being held back. So I would suspect that moving into next year we'll be able to see a higher level of demand, particularly for C&I. You know, I expect that to happen. And then on the consumer side, you know, consumer home equity and direct installments have been pretty benign. You know, I would expect that to pick up a little bit as well. And our mortgage company has done a remarkable job of gaining share pretty much across the board. So we would continue to, I hope, continue to succeed there. I don't know if that answers your question, but it's pretty much the same margins are the same based upon the risk profile, pretty much across the board.

That's interesting. Thank you. That's very helpful. And then on the expense side, again, I know it's too early to start talking about next year, but one thing you have talked about is the double carry of the rent expense with the buildout of the new headquarters. Just wondering the timing of that, if that's still kind of on track to, if it was about $7 million come out of next year as you move over to the new space?

Yes, I don't know that it's actually $7 million, but it, you know, the buildings on track we’re scheduled to move in on November 25, I think is the date. I think we picked the worst possible week, you know, Thanksgiving. I don't know what it is, but that's when we'll all be moving over there. We have nearly 800 employees moving into one location. We're in seven buildings here on the north side of Pittsburgh. We're scattered all over the place. I think we'll eke out efficiency just by being together in productivity. Our people are in the office pretty much. So I think that will help us immensely. You know, that rent that we talked about, you know, that's basically because we had a year of free rent, right? So that gets built -- baked into the total length of the lease, gets carried out of the lease, according to GAAP Accounting. And we still have rent expense in this building. So that's why that's occurring if you've forgotten. So I would expect that to come back. A portion of that $7 million, it's not the total amount, but a portion of it will be coming back next year. Now, there might be demand for additional space. It's going to be hard to see. You can't lay that out apples-to-apples, but theoretically, yes, we should be receiving a benefit from a GAAP Accounting perspective. The other rent is non-cash.

Got it. Okay, that's helpful. That's helpful, I appreciate all the color. I'll step back.

Thank you. Thank you, Kelly.

Thanks, Kelly.

The next question comes from Manuel Navas with D.A. Davidson & Company. Please go ahead. Excuse me, Mr. Navas, your line is open. Is your phone muted accidentally? Okay, we'll go to the next questioner then. The next questioner is Brian Martin with Janney Montgomery. Please go ahead.

Hey, good morning, guys.

Hey, Brian.

Hey, Brian.

Hey, just one question, you know, just on the -- going back to the deposits from Vince in the success this quarter. You know, the DDA did come down a bit, and I know you guys have talked about, kind of, being the primary and bank for your customers, and then also the new commercial, Vince you talked about that you see opportunities on. I mean, does that, I guess, is your expectation that, that stabilization in that level is still kind of a way to think about the DDA as you kind of look at the next couple quarters here, that 27% level, or do you see it drifting lower from where it's at today?

Well, yes, the mix moved down. Obviously, we're in a period where you see some outflows in the demand deposit category. Plus, we've brought on a lot of money. [Multiple Speakers] It's going to shift. But we've been running at around $10 billion, pretty consistently. So you saw it as rates went up. We were able to maintain that. I believe as rates come down, you know, we should be able to maintain it and grow it over time. So I can't speak to the overall, if you look at the total deposits and you look at demand deposits as a percentage of the total, sure, it's going to be smaller. But that $10 billion in non-interest bearing deposits has really been beneficial to us. And if you look at our cost of funds overall and compare it to peers, we can match up pretty well. But that's the main reason. So I would say we have opportunities to grow the non-interest bearing category, because if customers grow and we've brought new clients on and we're able to stand up all the treasury management services and the use balances to pay for services for their dispersing funds out of operating accounts that we have will have a pickup in demand deposits over time. But there's still, it's a very difficult environment to maintain demand deposits, because anybody that has excess balances is looking to get a higher yield, right? Because of what they can get versus where we were during the pandemic when everything's close to zero, right, there's nowhere to go. So, but I think we've done well and I would expect us to continue to do well in that category.

Yes, of course we brought in a lot of…

Well, I was going to say, Brian, we also saw about a 1% reduction in revolver balances, which also is going to impact DDA balance, right. Moving from the DDA to pay down some debt as customers being cautious during these times with everything that's going on in the election on top of us did make some decisions to pay down some revolver balances. So there's a slight impact there as well.

Good point here.

Yes. And I was just going to add, we've added a lot of new names, Brian, too on the retail side with new households plus new commercial clients that once we have them, there's an opportunity to broaden those relationships and that's been a focus over time really to be the full bank for our customers.

Yes, got it. Okay, all makes sense. And then just in terms of Vince, I think you came optimistic, at least on the loan growth next year. I guess just nothing immediate from the first rate cut that we saw, which is, like you said, a bit more than maybe people thought. Any pickup in just dialogue with your customers kind of getting the sense that there is that optimism for next year on the loan growth side and I know you guys will give more color next quarter, but it seems like a handful of people, other banks have said that first rate cut really dispersed some new interest from their customers and I didn't sound like you were getting that sense yet, maybe the election and getting past a few things…

Yes, I'm not as close to the customers as I used to be, but I'm interacting with the bankers and talking to some of the clients. I'm not seeing that yet to be honest. I think it's still kind of let's wait and see and they're expecting additional cuts so there may be dialogue but they're thinking, hey I'm going to get a much better opportunity down the road here, because everybody's signaling that there will be additional rate cuts, right? So I'm not seeing everyone leaping forward and saying, I'm going to take advantage of this 50 basis point production. I think they're kind of sitting back and saying, hey, let's see how the election plays out. But you know, a lot of things can happen. Post-election corporate taxes are on the table, all kinds of things that impact our clients are on the table. So they're going to sit back and say, hey, I want to wait and see what's happening. And that's kind of what I'm hearing and seeing. And again, I don't have as much insight as maybe, I don't know, Gary?

Yes, I would agree with everything that you said. That's kind of the way it feels right at the moment. I would expect based on this period where we are here pre-election, that once we get into 2025 and the middle part of the year when things start getting quite active, that we'll see some stronger demand.

And I've been out the last few months, Brian. I mean, I've been in Winston-Salem, I've been all over the place. Winston-Salem, I've been in Ohio, around Pennsylvania. So I'm hearing the same thing. I'm not hearing anything different. But again, I don't have the picture. I mean, I might be getting biased information on them.

Yes, and maybe just one on the margin. It sounds like maybe just, Vince can remind us what the immediate, I think you went through some of the stuff to reprices, but the immediate on the loan side, what reprices, and then it just sounds as though secondarily, I guess if you, maybe the expectation is to see a little bit of pressure here on the margin, modest in the fourth quarter. And then if you are neutral, I guess the expectation is you can kind of keep the margin relatively stable as you get into next year? And if you get the yield curve steepening you get some pickup later in the year. Is that just in general how to think about that?

Yes, I think you said it perfectly Brian, we just covered that.

But it's your initial question, slide 15 does a good job laying out the removing parts. Just to remind everybody, there's 47.5% you could see in the chart there of the $33.7 billion that reprices on the loan side over a three-month period. And as I mentioned earlier, if you look at the levers that we have, we have $11 billion in liabilities that are re-priceable today. We have another $5.4 billion in CDs that will mature in the next six months. $2.9 billion in the next three months at a $4.75 billion rate and then $1 billion in cash flows from investment portfolio that it's coming off at $2.91 billion and be reinvested today at least $4.25 billion and $4.50 billion, so that kind of gives you that the key moving parts that are there.

Got it. Okay yes, and then I think you mentioned Vince or somebody mentioned on the call some hiring that you guys had done on the -- maybe on the fee income side. Maybe just -- if you can just point us to what you're doing there. And then just one -- just modeling question. It sounds like the fee income this quarter, the bullies maybe, you know, kind of an, I don't want to call it non-recurring or -- and then, you know, the -- there was also a negative you said on impairment on the mortgage that…

That kind of neutralizes.

Yes, there's an MSR impairment at $2.8 million.

So they offset each other. If you look at the income Brian.

Yes, yes, so offset. Okay…

No it’s not.

Okay, and then just the hiring that you've done, I guess there's an area you're focused on, was it capital markets, Vince, that you talked about as far as, I think there's some comment about hiring and just trying to understand where there we might added more…

We've added folks, yes we replace people you know in certain markets we've up here with the replacements you know we had that's one area that that's driving a little bit of the increase in the salary expense. So we've been able to bring some really talented people and then you know we've been building out our risk management framework and you know we stood up an operating efficiency group for our operations area, because we felt that with the changes that are going on with AI and our investment in our data hub, we're going to be able to drive efficiency in operations. So we hired, we made some changes. There was a press release that was put out, but we brought in some very talented people, some process engineers to help us drive efficiency and improve customer satisfaction and deal with risk in the back office. So while that's not a front-end hire that should benefit us over the long haul. I mean, that's really what's embedded in the increase in the run rate of expenses, salary expenses. It's not as large as the total amount that we're recording, because there's all kinds of pieces in there. Some of it's -- directly related to production, right? Higher production in those fee income areas. We're paying out commission. But I think we're putting ourselves in a pretty good position moving into next year both with funding, right? So if there is a pickup in demand, keeping that funding, short, short duration in our strategy, so we can reprice down, take advantage of the changes in interest rates that occur, and then investing in areas that produce revenue and create efficiencies. So those are the factors that drove all of our decisions.

Got it. Okay, that should be it for me. I guess just remind me, from a sensitivity standpoint, are you guys -- you're pretty neutral, is that what I heard? I guess nothing's changed on sensitivity where you guys are at today?

No, I would say, I mean, we're still asset sensitive, but we're clearly moving towards neutral. I mean, all the different levers I've talked about, Brian.

Yes.

But if you looked at our 10-Q, it still shows asset sensitivity, but I would say we're more neutral than what the straight calculations show and reports out, yes.

Yes. Okay, perfect thanks for taking the questions guys.

Thank you, Brian.

All right. Thanks, Brian.

And we have a question from Manuel Navas from D.A. Davidson. Please go ahead.

Hey, can you guys hear me now?

Yes, we can please go ahead.

So a lot of my questions have been answered. But could you just dial a bit more into where you're seeing the markets are gained in deposits? What geographies are driving at best and kind of work where you expect continued momentum?

Yes, we saw some fairly [Technical Difficulty] Carolinas is double-digit and I think that's one area where we've had great success. Pittsburgh, we continue to have success. I think because we have such a huge market share here, it feeds on itself. I mean, we now have the scale to be able to compete effectively here and bring new clients on in bigger relationships and that's still happening. So that we're benefiting there. In the central part of Pennsylvania, we've done extraordinarily well so we brought in [Technical Difficulty] there. And then as you move into the mid-Atlantic region, we've had some success in the markets that we're expanding into, and then also Charleston, South Carolina, and the South Carolina market [Technical Difficulty] good results for us. Those are -- it's pretty much -- I guess it's pretty much everywhere, right? I think we've done well in a bunch of markets. But I would say the Carolinas and the central part of Pennsylvania is probably leading the charge right, and then Pittsburgh.

Yes, we had growth in 35 of the 57 MSAs that we operate in and from a -- either increased share or maintain, it was 91% of the MSAs that we're in. So I think very good result. And in Carolinas, we had increases in six of the markets that we're in there, so…

I was just referring to the increase quarter-over-quarter. I wasn't referring to the market share [Multiple Speakers] market share data. But it's pretty consistent. It's pretty similar, similar story.

To shift for a second, if we do get significant rate cuts by middle of next year, what kind of the fee upside do you see? You're gaining new relationships in the Carolinas. Could that convert quickly to improved mortgage business? Can you just kind of talk about that fee upside with lower rates?

Yes, the mortgage business really hinges on -- for us, it hinges on demand because we're big purchase money lenders so hopefully, there's more housing supply, after more people decide to sell. But I think that will be good. I think the swap income that we get from commercial customers, somebody else asked the question, I think it was Brian what are you seeing out there? Well, the one thing that I can tell you is that the customers that are looking to go to a fixed-rate swap, they're watching what's going on and they're not moving at. Because they're hearing repeatedly in the media that there's additional cuts coming. So that's -- when you dialogue with them, they say, well, it's not going to do anything yet. But I think that business has an opportunity to grow. I think our syndications business over time will have opportunities because there'll be more M&A, particularly in the middle market and lower-end of the middle market, which plays favorably for us. We've also -- we're also expanding several areas. We're getting into the advisory business. We're building out our public finance capability. So there are things that will lead to fee generation in '25 that we don't even have today. So I think -- and they won't be -- it won't be gigantic, but it will have an impact, anyway, those are the things we're thinking about as we look forward.

And then debt capital markets had record year this year.

Yes, debt capital markets obviously has been good and that should continue, right, because and the numbers Gary mentioned online utilization, we looked at the larger clients and really have very few capital markets events driving reduction in revolver balance, which is why he said -- Gary said, hey, that's going to zap your demand deposits, right. Our clients are using their cash balances to paydown debt moving into this next quarter. So that's what we've seen. And there's probably a little bit of reset going on within the customer base and their balance sheets, they're preparing themselves too for what's coming anyway. That's -- for those areas...

Thank you. I appreciate all the color.

Yes, thanks, Manuel.

Thanks.

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

Okay. Thank you, everybody. Thank you for the questions. I appreciate the time you've invested with us and we're really looking forward to next quarter and delivering and I appreciate everything the employees have done and continue to do to keep us moving in the right direction. So thank you. Thank you, everyone. Take care.

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