Prepared remarks
Welcome to the F.N.B. Corporation second quarter 2026 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw the question, please press star then two. 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. Welcome to our earnings call. This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials 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, July 24th, and the webcast link will be posted to the About Us, Investor Relations section of our corporate website. I will now turn the call over to Vince Delie, Chairman, President, and CEO.
Thank you. Welcome to our second quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer. F.N.B.'s second quarter earnings per share grew 17% year-over-year to $0.42, with net income of $149 million. Our results included another quarter of record revenue totaling $463 million, driven by net interest income of $366 million and solid non-interest income of $97 million. The solid quarterly performance contributed to pre-provision net revenue increasing 9% from the year-ago quarter and positive operating leverage. On a year-over-year basis, tangible book value per common share increased 10% to $12.24, demonstrating our strong profitability levels and commitment to peer-leading internal capital generation. F.N.B. repurchased $47 million, or 2.7 million shares of common stock at a weighted average share price of $17.46. F.N.B.'s capital levels remain strong, with TCE at nearly 9% and with a solid return on average tangible common equity at 14%. Period end loans increased 7.5% on an annualized linked quarter basis, with growth led by C&I, consumer lending, and seasonal residential mortgage production. C&I's 8% annualized linked quarter growth was driven by lower risk-rated, high-quality commercial borrowers. By leveraging our deep product set in capital markets, we were able to produce double-digit returns for the overall relationship while maintaining our strict credit discipline and originating lower risk assets in a volatile geopolitical and economic environment. Our commitment to deepening customer relationships and serving as their primary operating bank was a key driver for 3% annualized growth in total average deposits, with average non-interest-bearing deposit balances growing nearly 5% annualized despite the competitive environment. At quarter end, non-interest-bearing deposit balances were over $10 billion for the second consecutive quarter, allowing us to maintain a 26% mix of non-interest-bearing to total deposits for the seventh consecutive quarter. Our data analytics team has been able to leverage the success of our proprietary eStore and Common App to gather additional data points for meaningfully improved insights on customers' preferences and competitive pricing. This ability enables us to use our significant investments in our data hub and machine learning to analyze the relationships holistically to strategically price deposits. Our ability to utilize insights to drive pricing decisions contributed to the total cost of deposits decreasing three basis points linked quarter and 21 basis points from the year-ago quarter. Our wealth management revenue is up 8% year-over-year, aided by the utilization of new tools to improve client engagement with advanced financial planning, better portfolio analysis, and increased efficiencies. For example, our brokerage advisors have been able to quickly translate complex financial data into intuitive visuals for our clients. These tools, paired with the key strategic financial advisory hires across our footprint, helped expand client relationships and produce record brokerage fee income this quarter. We have also achieved solid progress on the development of our new AI-enabled customer aggregation and insight tool, Insight 360. The ultimate goal will provide our clients and bankers with the ability to optimize their banking relations and improve product penetration. Our Insight 360 tool is expected to go live by the end of the year, with additional enhancements to be introduced over time. In combination with the Common App, Insight 360 will enable F.N.B. to continue to grow our share of wallet and customer primacy based upon positive outcomes for our clients. As we've demonstrated over the past decade, we can successfully introduce innovative digital and data solutions while also achieving a top quartile efficiency ratio. We will maintain the same disciplined approach towards managing expenses to implement AI through the reallocation of resources, leveraging our current technology investments, and analyzing the efficiency gained over the long term. We believe F.N.B. is one of the best-positioned financial institutions to strategically expand AI and data analytics usage to drive efficiency and accelerate revenue growth. Our value proposition is being a trusted and regulated financial institution with fintech capabilities. These attributes will serve us well as we continue to adapt to a changing competitive landscape. With that, I will now turn the call over to Gary to discuss our credit results for the quarter. Gary?
Thank you, Vince, and good morning, everyone. We saw improvement in our continued solid asset quality metrics this quarter with both delinquency and NPLs and OREO decreasing three basis points compared to the prior quarter, totaling 71 and 31 basis points respectively. Net charge-offs continued to show solid performance, totaling 19 basis points, up one basis point compared to the prior quarter. Criticized loans declined slightly in the quarter with a 68 basis point reduction compared to the prior year. Total funded provision expense for the quarter stood at $21.3 million, again, supporting strong loan growth. Our ending funded reserve now stands at $447 million, an increase of $4.3 million, ending at 1.25%. When including acquired unamortized loan discounts, our reserve stands at 1.3% and our NPL coverage position remains strong at 420%, inclusive of the discounts. We continue to maintain qualitative overlays for potential supply chain impacts due to the events in the Middle East and ongoing tariff uncertainty. Our consistent underwriting and strong credit risk curriculum allow us to grow high-quality earning assets throughout various economic cycles, as shown in our results. With our focus on less volatile industries and asset classes, we remain optimistic that our diversified customer base will continue to show resilience as it has in the past. Our consumer portfolio is very strong despite continued inflationary pressures. Average origination FICO scores were 784 in the quarter, with delinquency of 66 basis points and charge-offs of six basis points, both remaining at multiyear lows. During the quarter, we saw solid C&I loan growth, including a slight uptick in line utilization, along with higher CRE production. Our overall CRE exposure declined in the quarter due to planned secondary market activity, ending at 187% of Tier 1 capital plus allowance. We are continuing to see increasing levels of CRE activity in our desired asset classes throughout our markets. In closing, despite the continued volatility in the markets, we saw solid loan growth across the portfolios. Our loan book is strong and well-diversified, and pipelines continue to remain at solid levels, positioning us to achieve our growth targets as we move into the second half of the year. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
Thanks, Gary, and good morning. Today, I'll review the second quarter's financial results and walk through our third quarter and full-year guidance. Second quarter net income totaled $148.7 million, or $0.42 per share, a 17% year-over-year increase driven by total revenues up 5.6% and prudent management of operating expenses generating a 9% PPNR increase. Turning to the balance sheet, loan activity was robust, with spot total loans and leases ending the quarter at $35.8 billion, a 7.5% annualized linked-quarter increase. Growth of $547 million in consumer loans and $111 million in commercial loans and leases drove the increase. Spot C&I loans and commercial leases were up over 8% linked-quarter annualized, or $186 million, driven primarily by growth in the Mid-Atlantic and Pittsburgh markets. CRE balances continued to be impacted by payoffs as expected and were down $129 million linked quarter. Seasonal strength in residential mortgages and HELOC growth fueled the rise in consumer loans. Average total deposits grew at a 3% annualized rate in the first quarter, driven by growth in non-interest bearing balances, low cost transaction deposits, and time deposits. Of note, spot non-interest bearing deposits increased $53 million, exceeding $10 billion for the second consecutive quarter and remaining stable at 26% of total deposits. Looking forward, public funds deposits typically build in the second half of the year, and the treasury management deposit pipeline was strong at quarter end. The loan to deposit ratio ended the quarter at a healthy level of 92.5%. While the second quarter's net interest margin of 325 was equal to last quarter's NIM, net interest income increased more than 7% on a linked quarter annualized basis. Total yield on earning assets declined only one basis point linked quarter to 513, with a four basis point decline in loan yields offset by a seven basis point increase in investment securities yields. The decline in loan yields reflects the impact of lower one-month SOFR on adjustable rate loans and tighter spreads on new originations. Reinvestment rates on investment securities remained well above the overall portfolio yield. Interest bearing deposit costs declined four basis points, driven by lower rates on money market and CD balances, while total borrowing costs improved by one basis point. As a result, the total cost of funds decreased two basis points to 199. On a year-over-year basis, net interest income increased 5.3% from the year ago quarter as the NIM expanded six basis points and earning assets grew 3%. Turning to non-interest income and expense. Non-interest income totaled $97 million, up 6.5% from the second quarter of 2025. Capital markets income increased 16% to $8 million on solid contributions from debt capital markets, interest rate derivatives, and international banking, as well as early contributions from our newer businesses of investment banking and public finance. Wealth management revenues increased nearly 8% year-over-year to $22 million, with contributions across the geographic footprint. Non-interest expense totaled $253 million, a 2.9% increase from the year ago quarter. Salaries and employee benefits increased 4.4%, reflecting strategic hiring and normal merit increases. Occupancy and equipment increased 5.1%, primarily due to technology related investments and higher occupancy costs. Outside services increased 11.6%, driven by higher third-party legal and consulting costs. Even with these increases, the second quarter efficiency ratio remained solid at 53.7%, down more than 100 basis points from the year ago quarter. We continue to manage our expense base in a disciplined manner. F.N.B. continues to actively manage our capital position to support balance sheet growth and optimize shareholder returns while appropriately managing risk. Share repurchases totaled $47 million in the second quarter, more than $80 million for the first half of the year, more than 300% increase from the dollar amount repurchased during the first half of 2025. Over $250 million in share repurchase authorization remained at quarter end. The stepped up repurchase pace and our recent quarterly common dividend increase reflect our strong financial performance and capital levels, as evidenced by the TC ratio of nearly 9% and a stable CET1 ratio of 11.4% in the quarter. Let's now look at guidance for the third quarter and full year of 2026. All guidance is based on current expectations while remaining cognizant of the highly uncertain macroeconomic and geopolitical environments. We are maintaining our full year balance sheet guidance for spot balances, projecting period end loans and deposits to grow mid-single digits on a full year basis. Full year net interest income guidance has been revised to a range of $1.485 billion-$1.515 billion due to a combination of our first half results and our expectation for a continuation of heightened deposit competition within the industry. We are assuming no Fed interest rate actions for 2026. Third quarter net interest income is projected between $375 million-$385 million. Non-interest income full year guide remains $370 million-$390 million, with third quarter levels expected between $93 million-$98 million. The full year guidance range for non-interest expense has been tightened to $1.01 billion-$1.02 billion. We expect to be toward the high end of the range. Third quarter non-interest expense is expected to be between $255 million-$260 million. We continue to expect strong positive operating leverage for full year 2026. Full year provision guidance has been revised to a range of $80 million-$95 million, down from $85 million-$105 million previously, given our favorable credit performance during the first half of the year. It will be dependent on net loan growth and charge off activity for the rest of the year. Lastly, the full year effective tax rate should be between 21%-22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince.
Thank you, Vince. Our results are a testament to the talent, dedication, and hard work of our employees, supported by our ongoing investments in AI and data analytics. The culture at F.N.B. is rooted in teamwork and collaboration, where we strive to collectively win together. F.N.B. continues to earn independent recognition for our client service, financial performance, and culture. This quarter, we were proud to be named as the Lender of the Year by the Export-Import Bank of the United States and a top workplace by Newsweek, as well as earning the Top Financial Innovations in North America award by Global Finance. These select examples of F.N.B.'s third-party recognition highlight the strength of our business model, financial achievements, and quality of our team. We've been able to recruit a number of highly talented executives in recent months, which adds to the depth of our leadership team and bankers. Earlier this month, Bryan Mitchell retired as Chief Wholesale Banking Officer. Since joining F.N.B. in 2018, he has played a significant role in executing our strategy and was particularly instrumental in the early build-out of our capital markets capabilities. I would like to thank Bryan and convey our appreciation for his contributions over the past nine years as F.N.B. continues to evolve into an elite commercial bank and a formidable competitor in our markets. I wish him all the best in his retirement. With that, I will now turn the call over to the operator for questions.
Questions and answers
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Daniel Tamayo with Raymond James. Please go ahead.
Thank you. Good morning, everyone.
Good morning.
Maybe starting just on the reduction in the net interest income guidance. Just curious where you think the biggest change that occurred in the second quarter that drove that was. Assuming it's on the competition side, I know you talked a little bit about tighter loan spreads, but as well as on the deposit side, just curious if you think we are nearing kind of the end of the improvement on the deposit cost side.
Yeah, I would say a couple of things, Danny. If you look at where we came in, $366 million, slightly below the guidance range. The two factors you just mentioned are part of it for sure that we commented on in the prepared remarks. The decline in one-month SOFR, from peak to trough, was nine basis points during the quarter, bottoming right at the end of May. That has a significant impact. We have $13 billion worth of loans that are tied to one-month SOFR. That really coming from peak to trough down nine basis points during the quarter. The expectation is with the futures market saying that kind of nine comes back and gets to like 373 on average in the third quarter. That clearly affected the second quarter quite a bit. The competitive environment for deposits is there for everybody. We still had an ability. We reduced our interest-bearing deposit cost by four basis points. That was an accomplishment given the environment that we were in during the quarter. The spreads on higher quality, lower risk loans that are tighter than other loans was definitely a factor too. If you go forward to the next quarter, the SOFR bounced back, as I mentioned. The normal seasonality in deposits that occurs from July through October and November on the municipal side, we do expect that to come through, and that replaces short-term borrowings. It helps to pay and fund for the loans. The higher short-term borrowings in the second quarter alone was like an extra $4 million interest expense or reduction in net interest income. That seasonality comes through. We continue to have a very strong treasury management deposit pipeline on the commercial side of the house, kind of over $1 billion that we're going after. Some of those are larger. There's a longer lead time, but that's still very active and continues to be work. The CRE headwind from payoffs, we expect another quarter of that in the third quarter and then expect that to dissipate some as you get into the fourth quarter. Those are loans that are probably 25 basis points or so higher than other loans. As those pay down, it definitely has an impact on the overall margin. The reinvestment rates on the security side, we're reinvesting 125-150 basis points above the roll-off rate. For the next 12 months, it's $100 million in monthly cash flow, kind of 309 on average rolling off and picking up 125-150 basis points on that. The last thing I'll pause on is just the exit margin. For the month of June it was at 327, a couple basis points higher than where the full quarter came in. There's fees and things that fluctuate from month to month, but that's kind of our exit point into the third quarter.
Really helpful. Thanks, Vince, for all that color. You hit on this a little bit on my next question on the CRE payoffs remaining elevated in the second quarter. Just kind of taking a step back a little bit here. Certainly impacted by the payoffs, but the CRE has really the percentage of the book has shrunk over the last several quarters, going back for a while now, and mostly replaced by an increase in residential mortgage. I think you guys talked about coming into the year that was expected to grow at a similar pace to the book. It has outpaced so far. You've got some seasonality in the second quarter, certainly that impacts that. Just curious how you think about that mix going forward. If you have a reduction in payoffs and the CRE starts to pick up, do you think you portfolio fewer residential mortgage loans and that mix starts to get back to where it was, or you're still willing to grow the balance sheet with the resi side, even as the CRE starts to pick up?
I think the residential contributions to growth from the resi portfolio are largely physicians' loans — very high quality, larger mortgage loans coming on the book. We're not trying to rely on that to drive net interest income. That's not the case. We've actually sold portfolios. We've sold some of the stuff that we've originated that doesn't contribute deposits and other things. It sits outside of markets. We packaged up a portfolio and sold it. The impact of that's going to be in this quarter, too, because some of those assets had higher yields on them. I think our goal is to try to drive growth across the portfolio, not to be reliant on one particular asset class. I think the CRE runoff is a train that you can't stop easily. We're financing construction; this stuff's going to the permanent market. Quite frankly, there aren't enough projects driving loan demand in that space. That's starting to change. I think—
During the quarter, Danny, the CRE growth was right at about $284 million. That compared to $190 million in Q1. We are seeing a lot of very solid opportunities in that space. It is competitive, as I think everyone is aware. The industry is really focused on CRE at this point; there are some nice opportunities that have come through the organization. We do expect that to continue to ramp up in the asset classes that we want to play in. In reference to the mortgage that you had mentioned and Vince referenced, the second quarter is an extremely high seasonal quarter for us because the doctors come out of school in March, they move into their new roles at the hospital organizations that they're joining, they go right into purchasing a home. The second quarter is our seasonal peak there. Third quarter, the volume is still good, but generally lower around that doctor's program. It really tails off in Q4 and Q1 from that part of the program.
I'll add to that. Gary and I were talking earlier. The pipeline is at a record. The total pipeline, which includes CRE, is at a record level for us at this point. If you remember, it lagged for a little bit. Historically, it had been growing, we flattened out, and it actually declined for a period or two. Now it's back up above the all-time highs. The short-term pipeline has contracted because we pushed a lot of volume through. Historically, we closed a lot of deals this quarter. We should see that pick up again because it'll pull through from the larger pipeline. It's up nearly 10% over where it was last quarter. We expect the second half of the year, particularly this quarter coming up, to see some good activity in C&I and CRE fundings. That'll make up the fall off of the resi mortgage and the consumer growth that we've seen. We're expecting to have a pretty decent second half of the year from a commercial perspective. There are a bunch of deposit clients, treasury management clients that we have in the pipeline that we're pulling through. Some of the largest clients in our history. We were able to win business at some sizable entities, and it's going to help us in the second half of the year with deposit growth, in addition to the seasonal inflows that we should see.
Yeah. It continues to remain competitive. I think what we've had great success with is driving engagement with our existing and new clients. Particularly in the mortgage space, that often comes with low cost DDA accounts. We're being strategic about how we price deposits in some areas. We have opportunities to reduce deposit costs in some areas. We want to be competitive, particularly in some of our new markets.
While I'm never pleased with our cost of funds, I'm always critical of every move that our people make. I think it's part of my job. Alfred, you made a comment earlier — we're monitoring the reporting that's occurred to date. How do we compare from a deposit perspective?
To that point, we're obviously managing to the dual mandates of lowering our deposit costs and growing the balance sheet.
This quarter, we were one of the few banks reporting. I think we're one of three that actually had a lower cost of deposit from the prior quarter. Despite the fact that the rate environment meaningfully changed from the beginning of the quarter to now, it kind of highlights the discipline we've had in how we price these things. It's actually two things. It's discipline from a pricing perspective and strategy in the pricing, using the insights that we have to try to maintain our margin. Plus, the investments that we've made to maintain primacy and some of the initiatives that Alfred and his team have launched, particularly the mortgage company with Wingspan, which is a bundling of services that we do. You'll see more of that. Our Insight 360 tool that we mentioned is going to be right in the sweet spot of driving better outcomes from a cost to deposit perspective, gaining share and primacy. I'm very excited about that, and I can't wait until you guys get to see it. Really cool. Anyway, hope that was helpful.
Very helpful, Vince. I appreciate the color. Vince, Gary, and Alfred as well. I'll step back. Thanks, guys.
Thank you.
Thanks, Daniel.
Thanks, Daniel.
Our next question comes from David Smith with Truist. Please go ahead.
Hey, good morning.
Good morning, David.
Could you help us size the impact of the public funds deposit seasonality? Just deposits are down a little bit year-to-date right now, and you're still calling for mid-single digit growth, and it sounds like it's going to be another solid quarter of loan growth per your commentary. Just thinking about the impact here and how much of the deposit cost decrease this quarter might have to come back amid the continued competitive backdrop for deposits you cite, particularly if we do end up getting Fed hikes.
Before Vince answers that, I just wanted to make a comment. The municipal business that we have — we're the primary operating bank for the municipalities. We don't just go out and accept deposits to replace PLGIT or one of the high yielding money market options that they have. That's not our strategy. Our strategy is to go in, provide the operating accounts, provide the treasury management services for those entities, disbursements and collections, and then benefit from the excess balances as they flow in. While there will be a surge in the deposit balances, it doesn't significantly change the mix because we should see a lift in demand deposits as well, because they use those deposits to cover the cost of services, which is accelerating when the taxing activity happens. Why don't you answer directly his question?
The volume side of it's historically been about a half a billion dollars, plus or minus a couple of hundred million dollars from peak to trough. It used to be the three to $500 million, and as we've grown and have larger relationships, it's a little bit bigger. Half a billion or so we would expect to surge through as we go through the end of the second quarter through that October, November time frame. To Vince's point, it's a mix. It's clearly a mix of the different deposit categories.
The public funds are a little bit of the implied increase in deposits for the second half, but it's not the majority or anything. On expenses, we just take kind of the midpoints of the three Q and full year guidance implies a decent step down in non-interest expenses in the fourth quarter. Your seasonality has typically been for a small increase quarter-on-quarter in the fourth quarter. Just looking at adjusted expense trends the past few years. I was wondering if you could help us unpack that a little bit, if there's anything unusual either in the third quarter or fourth quarter that's driving that abnormal seasonality.
The fourth quarter typically doesn't have additional expense associated with the tax credit deals with MU. The way we book them which is important to GAAP, we end up with this big expense up front. That's reflected in the fourth quarter number for at least the last three, four quarters. There's going to be a little bit of distortion there. Vince, I don't know if you want to comment generally on the total expenses and seasonality in the expense base in the last two quarters of the year.
A couple of things. For the quarter, we came in right in the middle of our range. Efficiency ratio down to 53.7, over 100 basis points year-over-year. As we go forward, there are items that in the first couple of quarters that have occurred. We had higher fraud losses. We brought that down significantly. We have a down payment assistance program that's come down meaningfully in dollars from second to third quarter. We expect a nice step down second to third quarter and then again into the fourth quarter. That should reduce by $1 million to $1.5 million per quarter. There's a commission component that's tied to revenue largely on the mortgage origination side. That fluctuates as the activity fluctuates. On the marketing side, there's some seasonality in marketing. There's more timing of it when we choose to do that. We expect to see some increase in marketing dollars as you go from the second to the third quarter. There's a lot of moving parts. With all those normal bank operation items, we continue to invest in our tech investments between the digital initiatives we have and the AI initiatives. We're being very disciplined in how we fund that.
It's also lumpy on the de novo branch expansion too, because we announced we were opening branches over a five-year period, and the timing of when those branches open isn't scheduled out month by month. It's lumpy. You'll see some lumpiness in the expense base, particularly in the first half of this year. We opened two branches, one online in Charleston, South Carolina. It brought some expense online as well. We also have the investments in Insight 360, the tool that I mentioned. That's reflected in the first half of the year and will continue to be an expense into the second half until development's completed and it's launched. There are some impacts. I think the important points here are we have positive operating leverage, and we're forecasting positive operating leverage.
Efficiency ratio below fifties by the end of the year is the goal. Full year to full year we expect to see improvement.
We're focusing more on revenue opportunities right now than expense takeouts. There's a combination of both, but we're more heavily weighted towards generating revenue with our AI investment, which also requires a much more complex data governance framework. I believe we're in a really good position to benefit from this, and it should not materially impact our long-term expense run-rate as we move forward.
All right. Thank you.
Our next question comes from Casey Haire with Autonomous. Please go ahead.
Great. Thanks. Good morning, guys. Vince, the question for you following up on the NIM. The guide does not assume any Fed action, but it sounds like you do expect SOFR to bounce back to 373. That's 11 basis points higher than where it is today. Just wondering, assuming SOFR holds this level, where does NII track versus within this guide?
What I was referring to was what happened during the quarter: it went from a peak of 367 on April 15th down to 358 on May 20th. We have a lot of loans that reset at the end of the month. I think today we're at 367. What the futures market is saying is another six basis points of pickup. On the $13 billion, that's the math you would do. It may or may not occur. There's a lot of volatility with interest rates. Just based on what we know today, if six basis points up from where we are today on that $13 billion is what you would expect.
Okay. Then just switching to capital. Any updated thoughts on what the Basel III proposal does for you guys? I think you didn't quantify it last quarter. You said it was meaningful. Then, do you lean into that in terms of buyback? The buyback was very strong this quarter. How do we think about that appetite going forward? Are we going to hold this 11.4 level? Or is there room to even push the payout ratio? Just trying to think about how you guys think about the buyback.
For the Basel III proposal, based on what we know, you need final rules before you can say with certainty. It's an 80-100 basis point pickup to the capital ratios. If that happens, we'll step back and take a fresh look at the overall capital allocation approach. I'll turn it to Frank for a comment on our buyback philosophy today.
Hey, Casey. We think buybacks continue to be attractive here. We transacted them at around $17.50 on average in the quarter. As we talked about, that was sort of a three-year earn back. Markets have moved higher, but even at these levels, we're still talking about a four-and-change year earn back. For buybacks where you don't have deal integration risk, you can be pretty confident in that earn back. We still think that's a pretty good return and a good capital management tool. Over the last few quarters, we've reported a flattish CET1 ratio at 11.4. We're obviously comfortable at those levels. While we don't give quarterly guide on repurchases, I think holding capital around those current levels is a reasonable expectation.
Great. Thank you.
Thanks.
Thank you, Casey.
Our next question comes from Russell Gunther with D.A. Davidson. Please go ahead.
Hey, guys.
Hey, Russell.
I was hoping to unpack some of the assumptions around the June 327 NIM, and really focus on the loan yield. The 552, maybe just give us a sense for where overall new loan production is coming on, where pipeline loan yield stands and perhaps the spot loan yield as of June.
The new loans in the second quarter came on at 554 for the second quarter. For reference, that was 557 in the first quarter, so a few basis points lower. On a spot basis, the overall portfolio yield was down eight basis points to 553, with no Fed actions, impacted by one-month SOFR. The portfolio came down eight basis points. The new production is coming on at 554.
Got it. Thank you. On the deposit front, could you give us help in terms of where spot deposit costs were for the quarter or for June?
On the loan to deposit ratio, we've been higher than 92% historically. I'd prefer to be below 90%, of course, but Alfred can't produce deposits without pricing. There's a trade-off between margin preservation and that strategy. As we move into the second half of the year, we do see seasonal inflows, and we do get back to a comfortable spot. It was somewhat intentional for us to be where we are. We're not uncomfortable where we are. Go ahead.
That strategy was important to get down to around 90% so that if loans grow faster than deposits, we have buffer. Being at 92.5% is fine. For the month of June, total deposits were at $174 billion across the bank and total interest bearing deposits were at $233 billion for that month. Those are the monthly figures.
No, that's very helpful. Thank you.
Thank you.
Just one more on fee income. As you look at the back half of the year, what verticals are key drivers of growth in 3Q and 4Q? If you were to come in at the high end, what operating environment and fee verticals get you there?
There's opportunity in our investment banking segment. We have a number of public finance and corporate finance transactions in the pipeline. That should benefit us. We're optimistic about derivatives. Our derivatives business has been down because of the interest rate environment, but we think things are starting to break because of CapEx spend, which requires fixing rates. We use derivatives and prefer to manage rate risk off-balance sheet. Those businesses should do well. We also have upside in merchant as we move into the second half with interchange and initiatives in wealth and brokerage. We're growing those teams and building in the Carolinas, which helps. These are the areas that should be favorable. If rates decline, mortgage would accelerate, but given current expectations, mortgage should be pretty stable in the second half. Purchase mortgage activity tends to be stronger through September, so we'll see that coming through next quarter.
Third quarter mortgage banking should step up nicely from the second quarter.
We've also seen increasing opportunities in the FX space with the international group. They've continued to ramp those opportunities up, and we're seeing some benefit.
With CapEx spend for larger entities, you'll see more cross-border activity, and our foreign exchange area did particularly well and should continue to do well. Our debt capital markets piece has been performing at a high level consistently. Treasury management has been key and is at record level. We have large treasury management customers in the pipeline that are coming online in the second half, which will contribute to fee income. Combined, these provide a good base for the back half of the year.
The debt capital markets piece has been performing at a really high level consistently this quarter.
The building out and diversity of these fee income business lines is providing a good source of fee income that is diverse across the company.
All of that combined gives a pretty good base moving into the second half. Thanks, Russell.
That's great, guys. I appreciate all your thoughts, and thank you for taking my question.
Thank you.
Thanks, Russell.
Our next question comes from Manuel Navas with Piper Sandler. Please go ahead.
Hey, good morning. Can we go back to some of the deposit pipelines? You have those in the treasury management area. You talk about the seasonality in munis. How are retail deposits flowing as well? As you look at those pipelines, are they coming in above current deposit costs? What is the pipeline rate on the deposits?
Our deposit activity within the consumer bank has been pretty favorable. We've begun to grow households at a faster clip. We have the Penn State initiative that we haven't even fully launched yet; it's in its infancy and should contribute. Wingspan in the mortgage business is starting to contribute. When we bring on a consumer depositor, a consumer depositor is coming on with very low cost because we typically strive to be the disbursement bank for the consumer — their operating bank. They keep balances there, and then we get the benefit of excess balances moved into money market products. We've priced our money market product to be attractive enough to retain those deposit balances. Those accounts average around $4,000. The business side is a little different; deposit balances are a bit higher and remain granular. When we're bringing on any client, it's a holistic onboarding process — not a single service. Our focus is to drive primacy across multiple product sets, both on the deposit side and on lending. On the treasury management side, there's the free balance piece which we forecast, the fee income piece, and the forecasting that goes on with rebalances to compensate for services. We're feeling pretty good about both, the fee income piece and our ability to drive compensating balances by bringing in new clients because we have a strong pipeline. I don't know if I answered your question; if you look at our cost to deposit, we've done a good job bringing clients over and picking up non-interest bearing deposits, which has helped. We price to retain our existing customer base and are more aggressive on new opportunities where appropriate, positioning those opportunities to benefit from free balances or compensating balances.
The new relationship surge is designed to go after the whole relationship: lending, deposits, wealth, capital markets.
You can't just look at one pipeline to draw a conclusion about the direction of deposits — it varies. In the second half of the year, we're expecting contributions from both consumer and the treasury management pipeline. That's why we're optimistic about the guide.
That's really helpful. Are loan yields also structurally going to benefit? I understand the SOFR side. Are loan yields also going to benefit from residential real estate originations falling off seasonally and more commercial originations? Is that part of the go forward on loan yields?
If you look at originations this quarter, we saw higher yielding growth in commercial finance. Our leasing and financing arm is seeing decent margins. C&I loans are large middle market transactions where we've seen CapEx spend. They are higher quality but sometimes lower yielding. A lot of the originations this quarter were larger syndicated or large middle-market single names where yields are lower but quality is higher. As we move into the second half of the year, real estate originations typically price higher; there's a big differential, probably 75-100 basis points in spread on those CRE opportunities. As we gain traction in middle market C&I, we should see better yields coming in, although still under competitive pressure. We have models that evaluate overall relationship profitability; we won't pursue loans that don't meet return thresholds without ancillary business that improves the relationship return.
The CRE payoffs diminish as we go through the year, which removes a headwind.
You're seeing assets go out that were 225-275 over SOFR, and we're originating at around 150. That's not a great sustainable environment. We had a tailwind from large deals coming in and a headwind from higher margin CRE running off. We see that turning as CRE runoff abates and CRE pipelines pick up in the second half.
Thank you for the commentary.
Does that help?
It helps. Thank you.
Thanks.
Our next question comes from Brian Martin with Brean Capital. Please go ahead.
Hey, good morning, guys. Thanks for all the color so far.
Good morning.
Most of it was covered, but on the loan pipeline, you commented that the short term is a little down, but the long term is strongest. If you could frame up geographically and by segment where that long-term pipeline strength is?
Cleveland is starting to come on strong. Central Pennsylvania and our Mountain Capital region are doing well — both at all-time highs. South Carolina is at or near an all-time high. Pittsburgh is also strong and up meaningfully versus recent history. Charlotte and Raleigh are up but not at all-time highs yet; there's upside as we build teams there.
C&I is carrying the day. CRE pipelines are building, but C&I is the primary driver. Small business has been building nicely. Equipment finance has been strong.
Equipment finance is part of C&I and benefits from CapEx spend under the tax environment. This quarter included larger transactions and refinancing activity, some of which moved to the bond market. We brought on many lower-yielding but high-quality assets this quarter, which is acceptable in this environment. I prefer our teams avoid competing foolishly for assets. We want higher-quality paper and to stage growth in the second half to bring higher-yielding assets in a manageable way. Our portfolio is well-positioned and diversely underwritten; our reserves are strong given the risk profile.
The portfolio is nicely positioned and we're excited for future opportunities that we have ahead.
Brian, to your question on whether CRE net growth rebounds in 2027: that's a fair view. Based on what we're seeing halfway through the year and looking into early 2027, I would expect that to be the case.
Thanks. Lastly, on funding cost, this quarter looks like a standout relative to peers. Is this the bottom on funding costs, especially given potential rate hikes?
It depends on what we bring in. New relationships where we get full relationship banking tend to include demand deposits, which help the overall rate. CDs are near a bottom. The new CDs coming in are close to maturing rates. Ultimately, it's a function of our success in bringing new relationships.
One last for me: fee income. It's at around 21% of total revenues. Do you see that trending up longer term given the momentum across businesses?
We would like it to be higher because it creates more stability versus relying solely on interest income. It's hard to put a number on it given interest rate impacts, but long term we'd like to approach 25% and maybe someday 30%. Some of these businesses are new and there's upside. We've grown fee income significantly from earlier years to near $400 million this year. Investment banking and public finance are brand new and starting to contribute, offering additional upside. Treasury management and derivatives and other businesses will add over time. Insight 360 and payment platform work will enable product recommendations and deepen relationships, which should help fee income long term.
We're building out a new portal for treasury management and other commercial enhancements that will be additive into 2027.
All these fee businesses are being brought on efficiently, so our efficiency ratio doesn't spike with these investments. We launch gradually and reallocate resources to ensure optimal returns. There's historical evidence of growth in these lines over time.
Thanks for all the help.
Good. All right. Thanks, Brian.
Our next question comes from Kelly Motta with KBW. Please go ahead.
Hey, good morning. A lot of great things have been covered today. Maybe stepping back at a high level, you have generally generated above average profitability on a ROCE basis. Peers have narrowed the gap here with you at 14%. You've made a lot of investments in platform, technology, and AI. As you look ahead and think about normalized profitability for F.N.B., is there still room for improvement as you leverage those investments to generate positive operating leverage? Or are we leveling off here as you reinvest back in the business?
Alfred and I discussed this topic recently. Our 14% return on tangible common equity has driven capital accumulation to nearly 9% TCE and 11.4% CET1. Because of our risk profile, we operate with less leverage than peers. We can drive returns two ways: continue to invest in businesses that produce higher return on capital and repatriate capital to shareholders. Both will happen; we won't accumulate capital for no reason. We'll be judicious about capital deployment to drive shareholder value. We want high relative returns adjusted for our risk profile. People often miss that we earned our capital levels rather than relying on accounting impacts. We're focused on managing the denominator and returning capital when appropriate.
That's helpful. One last question: your rate sensitivity profile — if rates cut or stay flat, how does NIM react? You mentioned being closer to neutral. If there's a cut, how sensitive is NIM?
We've brought our interest rate position down and are near neutral, slightly asset sensitive. The impact of one cut or one hike is not as large because we're near neutral. If there were an increase, that could be worth a penny or so in a quarter, potentially, but the magnitude of moves is smaller now because we intentionally moved toward neutrality. We're letting growth in loans, deposits, and investments drive net interest income.
Got it. Thank you so much for the time.
Thank you. Thanks, Kelly.
This concludes our question and answer session. I would like to turn the conference back over to Vincent J. Delie for any closing remarks.
I'd just like to thank everybody, thank the employees again for another great quarter. I know a little disappointing on the NIM, but more macroeconomic than effort. I look forward to a really strong ending to the year. A lot of momentum in a lot of areas. We're going to keep that momentum up and work really hard for the shareholders. Thank you. Thank you for the questions too. They were great questions. I'm glad we had a chance to answer. Take care, everybody. Thank you. Bye.