Q3 2020 F.N.B. Corp Earnings Call

With that. I'll turn the call over to Gary for more detail on asset quality.

Thank You Vince and good morning everyone during the third quarter our credit portfolio continue to perform in a satisfactory manner as we continue to work through this challenging economic environment our key credit metrics have held up well with some slight increases noted during the quarter related to the covert environment that is largely tied to bargain as in the hardest-hit industries, which we have built on loss reserves for accordingly.

I will not walk you through our results for the third quarter followed by an update on our loan deferrals and some of the proactive steps. We are taking to manage the book Let's now discuss some key highlights during the third quarter delinquency came in at a good level of 1.07% an increase of $15 over the prior order that was predominantly COVID-19 and tied to mortgage forbearance has all the commercial portfolio remained relatively level with the prior quarter.

when excluding

Triple P loan volume delinquency would have ended the quarter at 1.18% the level of npls noria total of 76 basis points afford box this point increase linked quarter while the non-gaap level excluding triple P Lounge stands at 85 bits.

This slight vibration is attributable to some coveted pacted credits that were placed on non-accrual during the quarter, which is in line with our proactive risk-management measures that we had in place to help identify potential pockets of softness.

Of our total non-performing loans at September 30th 50% continued to pay on a current basis.

That charge-offs came in at 19.3 million for the quarter or 29 days is points and realized with the increased largely due to write Downs taken against a few COVID-19 pack credits that were already showing weakness entering the pandemic on a year-to-date basis our gaap net charge of student eighteen basis points through the end of the third quarter of provision expense total $27 million, which includes additional bill for COVID-19 credit migration driven by the hotel and restaurant portfolios. Bring our total ending Reserve to 1.45%

when excluding triple P low-volume the non-gaap ACL stands at 1.61% 87 basis-point linked quarter increase

our npl coverage remains favorable at 210% at quarter-end which reflects the reserve billed for the COVID-19 credit migration during the quarter back on including the acquired on amortized loan discounts are reserved position excluding triple feel on volume is 1.87%

We continue to conduct a series of scenario analyses and stress test models under our existing allowance and defense Frameworks as we work through this COVID-19 pact that ended up under the final twenty20 severely Edwards defense scenario, the current Reserve position inclusive of an amortized loan discounts would offer 77% of stressed losses, which does not include losses already incurred year today.

As it relates to our bar was requesting payment deferral 3.4% of our total loan portfolio, excluding PPP balance is we're under a COVID-19 a plan at quarter-end with remaining first requests representing 1.4% of the portfolio and 2% being second to photos.

As of October 16th total before Ferraro's have the further decline by approximately a hundred million dollars to stand at 2.9%

Attended a carefully monitor to the credit portfolio as the pandemic evolves and borrowers work to overcome the uncertainty and challenging conditions that many currently face.

Our exposure to highly sensitive Industries remains low at 3.5% of the total portfolio, which includes all borrowers operating in the travel and Leisure pack Food Services and energy space with deferrals granted to these borrowers, totaling 29% driven primarily by the hotel portfolio as we continue to work through these hardest hit sectors.

During the quarter. We conducted another thorough deep. Credit review of our commercial borrowers operating in these economically sensitive Industries, which was led by seasoned and experienced credit officer team our portfolio review covered over 80% of our existing credit exposure in Covent sensitive portfolios, including travel and Leisure Food Services and Retail related C. And I and I R E

As part of our review process we assess the adequacy of cash flow strength of the sponsors backing the deals the collateral position and direct feedback from borrowers about their expected short and long-term outlooks. This level of review has helped us to quickly identify potential credit deterioration and take appropriate action as we did during Q3 to better position us for the quarters ahead. Should this challenging economic environment continue?

In closing we are pleased with the position of our portfolio entering the final quarter of 2020 relative to where we are in this Cove and impacted economic environment off. Our credit metrics have held up well and continued to Trend at satisfactory levels as we remain focused on proactively identifying risk in the portfolio and aggressively working through it the experience and depth of our credit and lending teams have been Paramount to our success and I would like to recognize these groups for their tireless efforts Cheech and every day as we work through these challenging conditions. I will now turn the call over to Vince Calabrese our Chief Financial Officer for his remarks.

Scary good morning, everyone. Now, we'll discuss our financial results and review the recent actions taken that have been hannstar overall balance sheet positioning reduced interest rate of boosted Capital levels.

As noted on slide for third-quarter operating EPS total twenty-six cents consistent with the prior quarter level of ppnr remains solid. We continue to proactively manage. Our overall Reserve position is provision expense totaling 27 million.

feel good about

Was trying to the balance sheet and our current level of reserves based on what we know today after a comprehensive review of our loan portfolio.

Additionally, the quarter's results reflect the continued execution of our strategies focused on prudent risk-management supported by a recent actions.

For example during the third quarter. We took proactive measures to strengthen capital and reduce credit risk. We signed an agreement to sell $500 million of lower FICO indirect jobs closing for the proceeds being used to pay down a similar amount of high-cost federal Home Loan Bank borrowings of which 415 million your rate of 6.59% was prepaid this quarter for breakage fee of 13.5 million.

We also sell Visa class B shares and a thirteen point eight million dollar game to fully mitigate the capital impact of the fhlb breakage cost money resulting transactions should add roughly 17 basis points to CET one group credit risk and be neutral to run rate earnings.

Continue to strengthen risk-based Capital levels are cet1 ratio increasing to 9.6% at the end of the quarter as I just noted the pro forma ct1 ratio would increase by another 17 basis points after considering the impact of the upcoming flown sale the pro formas tt1 ratio marks the highest level in our history would be in line a peer median levels from the most recent filings.

Whose capital levels give us additional flexibility that it's important at this stage of the economic cycle looking at RTC ratio. We ended September comfortably above 7% off increasing to 7.2% translates into 7.7 when excluding Triple-T loans

An expense front we are progressing well toward achieving our twenty-twenty cost savings goal reducing run-rate expenses via optimizing our Branch Network and reducing operational costs wage ongoing vendor contract renegotiations.

On the revenue front. We are leveraging our new geographies to drive market share gains and see based businesses. Notably Mortgage Banking Capital markets wealth and insurance offset next margin pressure in current low-rate environment.

Now shift to the balance sheet.

Feminist balance has total loan for relatively flat compared to the prior quarter, excluding the transfer of $500 million of indirect auto loans to help for sale.

Looking ahead. It's important to focus on the position of the balance sheet after the loan sale and excluding Triple-T my main focus on driving organic growth. It's a 2.5 billion auto loans enter the Forgiveness process and those balances wind down in the future.

Yes.

The second quarter average deposits increased 4% primarily do the 6% growth in interest bearing deposits and 7% growth in non-interest bearing deposits. Cause partially offset by 6% plan decrease in time deposits. It's been snowed in Port Deposit growth generated by building on our commercial and consumer relationships remains of focus for us eliminated are overnight park position and have ample liquidity on future growth objectives.

It's not looking not interested income and expense not interested income reached a record $80 increasing 3% linked quarter primarily due to significant growth in Mortgage Banking month as well as strong contributions from wealth insurance and capital markets.

Were you thinking income increased 2.3 million as sold production increased 9% in Prior quarter with sizeable contribution from the Mid-Atlantic Pittsburgh Region's and a meaningful impact and gain-on-sale margins.

Wealth management and insurance revenues each increase 10% these segments benefiting from increased organic commercial growth greater activity in the Mid-Atlantic and Carolina Regions.

Capital markets Revenue while down from a record level last quarter was again at a very good level eight point two million these products continuing to remain an attractive option for borrowers. Give a government.

termination of $450 million of higher rate Federal Home Loan Bank borrowings resulted in a loss on debt extinguishment and related hedge termination cost of 13.3 million pack it in other non interesting comes

while setting these charges was the Thirteen point eight million gain on the sale of the bank's Holdings a Visa class B shares also reported in other non-interest income.

I need to slide nine nine interest expense total of 180.2 million an increase of four point three million or 2.4% which included two point seven million of COVID-19. Spence's in the third quarter compared to two million in the second quarter.

Excluding these COVID-19 related expenses non-interest expense increased 3.6 million or 1.9% primarily related to higher salaries and employee benefits package and higher production-related commissions lower loan origination. Salary deferrals given the significant Triple-T Loan originations in the prior quarter and an extra a day in the third quarter FDIC Insurance decreased 1.3 million due primarily to a lower FDIC assessment rate from improved liquidity metrics.

Efficiency ratio equal 55.3% compared to 53.7 which is reflective of the higher production related expenses noted previously.

Looking at Revenue that interesting come total $227 million stable compared to the second quarter as loan and deposit growth mostly offset lower asset you on birth rate loans patch of the short end of the Curve.

And it's just margin decreased 9 basis points to 2.79% is the total yield Bond earning assets to find twenty basis points with 334 reflecting lower yield on faith loans originated at lower rates given the interest rate environment and the impact of a 19 basis-point decline in 1-month Libor.

The benefit of our efforts to optimize funding costs was evident in a 17 basis-point reduction in the cost of interest bearing deposits help to reduce our total cost of funds 256 page down from 67 basis points.

I'm very pleased with the performance of our fee-based businesses is they have supported Revenue growth amidst the current low-interest-rate environment demonstrating the importance of having diversification.

Turning to our fourth quarter album. We expect. And Loans to be generally flat in September 30th zooming. No forgiveness of triple P loans given the current timing expectations for the same process requests.

Calling expect deposits to decline the third quarter levels based on an expectation of customers increase their deployment of funds received through the government programs. If you expect to see continued organ transaction deposit,

I'll note that our assumptions do not include any further government stimulus programs for actions.

We expect fourth quarter net interesting comes to be down slightly from third-quarter inclusive of the impact of the loan sale. We are not assuming any triple P forgiveness in the fourth quarter a pack a long tail. We would have expected that interesting, in the fourth quarter to be flattish. We expect continued strong contributions from see based businesses with a similar level and capital markets some reduction from record levels of Mortgage Banking.

Reset the service charges to increase continue to rebound given recent transaction volume trends.

Looking at seeing some overall we expect total non-interest income to be in the mid-to-high seventy million dollar range.

Expect expenses to be stable to up slightly from the third quarter excluding COVID-19 expenses of 2.7 million.

We expect the effective tax rate to be around 17% full year twenty-twenty.

Lastly we are in we are currently in the early stages of budgeting for 20 21 similar to 2019 and 2020. We will again seek to have meaningful cost-saving initiatives office building on consecutive years have taken twenty million dollars out of our overall cost structure to support strategic Investments and manage the impact of the low interest rate environment with considerable effort to bring our efficiency ratio down from over 60% in the past to the low-to-mid fifty percent levels. We have been operating at currently.

in addition

To the scale gained from prior Acquisitions. We have Consolidated close to ninety-five branches in the past five years, which is about 25% our current Branch Network.

If always been disciplined managers of costs will be an important driver to return us to position of generating positive operating leverage and mitigate growth and expenses and twenty twenty one month. We will share more details when we provide twenty Twenty-One detailed guidance in January.

Overall, we are pleased to perform into the quarter in a very challenging environment.

Next sense will give an update on some of our initiatives in 2020.

Thanks dance now I'd like to focus on our progress regarding key strategic initiatives since our last call.

In our consumer bang we continue to focus on optimizing our delivery channels the deployment of our new website has translated into higher digital adoption through increased website traffic increased Mobile deposit and exponential growth in the number of online appointments.

And the current environment customer activity Trends continue to shift towards digital channels with multiple enrollment up 40% compared to 2019 averages. In fact, we have seen both monthly average mobile and online users increased by $50,000 each compared with the 2019 average level.

Regarding website traffic monthly visitors are up nearly 70% looking at our physical delivery Channel continue to execute our establish ready program to optimize our brunch Network which included more than 60 consolidation since May of 2018 making FM be one of the more active banks for branch consolidation.

We will continue to thoroughly evaluate additional consolidation opportunity as well as select denovo expansion across our footprint as consumer behaviors of all month. We recently announced plans to develop additional de-novo locations, which will enhance our retail strategy and support our corporate banking efforts in these attractive New Market wage example are Charleston branches are performing exceptionally well with nearly fifty million of deposit growth compared to 2019 in these branches are currently ranked among the upper quartile for performance compared to fnb's entire retail Network.

This consumer growth Works in tandem with our successful corporate banking efforts as the Charleston region has grown nicely with our South Carolina commercial loan balance off approaching two hundred million at the end of September.

We recently brought the wholesale bang and respective credit teams back into the offices on a rotational basis as we remain steadfast in supporting our customers while building momentum to carry into the next year in the impact from the government stimulus programs customers have increased liquidity with lower commercial line utilization rate a more General environment offers upside moving into 2021.

our model is

Built on local decision-making and high-touch relationship based approach coupled with consistent investment in technology.

This is served as well during the pandemic where a local Bankers are in the market and working closely with our customers as we built out certain high-value be based businesses. Such a Century Management in capital market. We've been vetted local Specialists across all markets to support our commercial Bankers effort during this pandemic. We're travel pass and face-to-face interaction is limited having well-informed decision makers directly located in our Market enables FMB to best support our customers home together with our efforts in in the wholesale Bank FNB has also benefited from our long term consumer strategy next to Brixx by investing heavily in our digital platform.

One key element necessary for FMB to continue to deliver attractive returns for our shareholders Is our commitment to our employees. I am pleased to share that thought. He was included for a 10th consecutive year as a Greater Pittsburgh area top workplace by the Pittsburgh Post-Gazette signifying the strength of our Culture Club decade of excellence and consistency.

These results benefit our shareholders, and we would like to recognize the hard work and dedication of all of our employees who have made these results possible with that. I'll turn the call over to the Operator Operator. Yes. Thank you off than one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We are off early to assemble the roster.

And the first question comes from Frank's Rowdy with Piper Sandler.

Thanks, just first on the mechanics. Just Vince you talked about a flattish name next quarter, you know, obviously sounds like no triple give me so I guess triple P will still be there and and and negatively impacting the margin I guess but um, just trying to think through the moving Parts think about, you know, reinvestment rates for Charities going lower. Is there more room on the deposit side and and then, you know just purchase accounting accretion. Does that how does that play into the quarterly progression?

Sure, I would say a few things is actually slightly additive to the margin a few basis points when you include the fees that are being created in so that as far as the kind of look forward to the fourth quarter. I mean, I'm looking at at the third quarter kind of being a bottom here. So kind of flattish from there, you know Libor it's been stable 15 16 basis points off the spot beginning and end of the quarters within the basis point to each other. So I think live or you know being stable from here helps there's still more room on the interest-bearing deposit plus side off know as we had in the slide. We brought it down 17 basis points 55 and 5 at the end of the quarter was fifty-one. So you're kind of four basis points ahead as a starting point and then we could expect kind of another three basis points a month Improvement in the fourth quarter. So kind of nine to ten additional reduction in cost of interest-bearing deposit, you know in the in the fourth quarter over dead.

all kind of supporting the margin and

The other Dynamic is just you have phones coming on at new loans coming out of lower rates. Just getting more rates are so kind of you run it all together and get you to the flattest wage, that we had inherited marks there.

Gotcha. Okay, and then just in terms of the balance sheet actions, you know, I get if you can a creek capital and it's really no impact to earnings. It seems like a win in terms of providing more flexibility, but I'm wondering if we should read anything more into the increase the increase in capital levels. I mean you guys have always sought to operate with pretty streamlined a capital. So is there any change to where you think or or any pressures, you know General pressures on the industry to where you think ratios need to go to and could there be additional acts to get there?

No, there's no change. You know we've been saying for at least the last year that we've been more actively looking at the asset side of the balance sheet and considering different options to kind of just Optimum position the capital position. So another underlying that other than we've been looking at indirect for a while and securitizing or her selling the portion of the portfolio, you know, we're remaining in that business would continue to generate new assets as we go forward. But this is just kind of planets aligning there was a good opportunity to sell that at basically a slight game and then to boost Capital ratios, you know, Seventeen basis points to ct1 about 11 basis points to the TC ratio and a non-dilutive manner, which is felt like a good smart thing to do right now and then I'm kind of come through and get more certainty about the economic environment and where you know where everybody's going there's opportunity for us to restart this year buyback program and in this business and powder to do that, so it's really dead.

Looking at the opportunity that presented itself and then we also had had the game to be the class B shares that you know, we've been monitoring for a while. It seemed very attractive so we can fill those pay off some phones that were at 2:59 rate kind of helping you run radar and it's going forward. So it just kind of made sense economically to do that. And again, like I said create some more powder for share BuyBacks.

Okay, great. And then just really quick if I could just ask Gary. Do you do you provide or would you provide we're criticized and classified the trend from Thursday to three Q.

Yeah, let me let me walk you through that Frank. I mean as I mentioned in my remarks, we conducted another really deep dive review of The Borrowers operating in the hardest part. So sensitive Industries, and we really looked at about three billion dollars of the total portfolio pulling in a few other credits that you know, maybe slightly infected. We want you to be proactive in building reserves where appropriate against these hardest-hit borrowers under the current economic environment and and you know, this review was was important job, you know from the banks perspective really a handful of our senior group reviewed these relationships with our Regional Credit officers one by one over a four-month period to to Really assess these up-to-date positions on each borrower and we took aggressive risk rating actions against the government impacted portfolios. Primarily the hotel.

Restaurant portfolio and we moved about three hundred.

Fifty million of that into classified and about $79 billion into special mention where he essentially migrating about ninety percent of the hotel Palm and about 25% of the restaurant portfolio to prudently build reserves, you know against these pieces of business that are impacted by by the COVID-19 just finishing up here in total. We also included some retail. I re we we built during that quarter by 22 and 1/2 million dollars off of the total $27 billion dollar provision against these portfolios. So it was pretty meaningful peace which which we felt was The Prudent thing to do with overall, you know, when we look at when we look at these industries and building these reserves and reviewed these credits. We were really pleased with the position wage.

For the majority of the borrowers across the space and we remain confident, you know, they'll weather the storm finally on deferrals. The deferrals are heaviest in the hotel spam as you would expect right at about 53% restaurants are very low at this point only 12% in retail. I re only 5.6% off overall pleased with with that review and and the reserve of positioning that we were able to accomplish during the, Florida.

Great. Thanks for all the details.

Thank you. And the next question comes from KC hair with Jeffries. Yeah, thanks gud morning guys a couple of questions on the on the front first off housekeeping the purchase accounting adjustment in the quarter. How much how much was that?

Yes, the PCD chretien was eleven million in the third quarter just for reference. It's 13 two in the second quarter.

Okay, excellent. And then so the four Q Outlook looks like you know revenues you're calling for revenues to be down. Obviously, you know Mortgage Banking wage. What was very strong and and you know normalization is is is to be expected but I'm just curious why why wouldn't expense it what's keeping the expense is stable to slightly higher wage. Wouldn't we see leverage in the fourth quarter?

I think in the fourth quarter, you typically have certain things at the end of the year you have. First of all mortgage is still going to be strong in the fourth quarter. So we're going to have commissioned related expense that will be heavy level again corresponding with the revenue Source you have incentives at the end of the year depending on all the different business units and how they close out the year. So kind of that's a that's a component package. Let me see in the fourth quarter. So I mean it's nothing unusual there. I mean we're we're managing costs, you know as we've talked about earlier in the year, you know, we've basically removed forty million dollars more overall cost structure the last two years, you know with the goal to reach a 3-year level of sixty million dollars. So, you know, we took 20 out last year. We're going to take 20 out this year and that's kind of birth process throughout the year, you know through a combination of Branch optimization continued. We negotiate the contract process Improvement and everything that we do every day. So

You know those those efforts are continuing and helping to pay for kind of something investments in the teaching initiatives. So really just kind of normal.

No activity CC.

Okay, very good. And just so the the hotel booked the Hotel & lodging book specifically the hotel book The apologies if I miss this much did of the charge-offs were driven by the hotel book. And then what is the what what do we expect in terms of loss trajectory going forward from from the from the current level in the third quarter here and as well as deferral strategy specifically for the hotel booked just given half of it is instill in the world.

Yeah, in terms of in terms of the charge of Casey the the charge-offs were just a little over 3 million dollars in that portfolio and Thursday as we as we look forward. I mean, we'll we're going to continue to work with those borrowers. We were pleased with the review of that of that book of business as I'm you know, some of them some of those some of those borrowers, you know are going to have a tougher time than others, you know, and we'll work through those particular accounts. That's why we bought some Reserve against that portfolio. I mean, it's it's the hardest hit industry, you know under this Covenant Khana me that that you know, we have seen so, you know, it's just take appropriate actions as we as we move through the the fourth quarter and you know manage it accordingly. There's only there's only one, New Jersey

Improve on during the quarter in that movie business and we reviewed every credit over 2 million dollars. So, you know that gives you a feel for where we sit at the moment and we'll continue to you know, stay stay ahead of that portfolio as we move forward.

Okay, very good and just just last one I think you mentioned or maybe it was the the the indirect Auto portfolio that you're selling you do expect to sell that at a gain and so there's you know, there's no point in a loss or there's no reserves built on on that portfolio.

No, it it actually came in were able to sell a little bit better than what we expected dealer reserves and all kinds of things on the books are so we were able to sell it kind of a slight premium too far off and then you have those the reserve component of it also.

No, it was execution was better than what we were going in with.

Okay, so I'm sorry. So was that that that portfolio is already been sold, or I thought it was due to be closed in November. Yes and help for sale. You're right off as of yesterday. It'll it'll close and forth border, but it's in the help for sale bucket on the balance sheet at 9:30.

Understood. Thank you.

Thank you. And the next question comes from Michael Young with trust securities.

Hey, thanks for taking the question one of the start on kind of expenses as a follow-up. It was kind of mentioned the twenty million of additional cost savings that were kind of already targeted wage for twenty Twenty-One, you know, obviously the revenue environment is going to be you know, challenging and some headwinds still on the kind of year-over-year basis. So you expect more of those cost savings to drop to the bottom line next year or is it better to think about it in terms of you know efficiency ratio next year and you guys just maintaining that positive operating leverage. So efficiency ratio should be stable to better.

Yeah, I would say I mean we continue to have some strategic initiatives that we've been working on during the year, you know upgrading our platform in the system in the branches are fixing an issue. So am I think that the kind of cost savings goal for next year would be to mitigate any increase in expensive. What's it called getting back to generating positive operating leverage? Like you said, I think that's that's all she has been in the past and it was always to return to that. So I mean it clearly goes to the bottom line like it's going to offset other cost increases. So, you know, there's there's barely a month. Yes benefits of that and you know, like we're we're in the early stages of our budgeting process. So it's you know, we're going to be talking about it in detail and you know kind of list of the items haven't passed so, you know, we'll in January what would freshen up? I guess the outlook for next year once we finish that process but you know, there's there's do the goals of like I said get a 3-year level of six month.

And then we'll finish the process and and share any more information we have in January and I think it's you know, it's important to that. You know, we've mentioned in my prepared remarks and we close 95 branches over the past five years 25% of the network and will continue to look at optimizing the network and you know customer behaviors have changed as we're in this pandemic and you know, some of that will be permanent some of it may not know we don't know yet, but we'll continue to look so a lot of branches continue to look as well.

They're kind of optimize the overall Network and see how customer behaviors come out of the pandemic.

That's helpful. Maybe this is more question for Vince T. But you know, I guess over the last year or two. You guys have done a good bit of reinvestment, you know in some of the digital initiatives New Branch, you know openings at cetera. So, you know, it seems like you know, maybe a lot of that's behind you. So there would be more of an opportunity for you know, some cost savings dropped to the bottom line, but I guess I juxtaposed that again, you know, the the new branches in Charleston Etc that have obviously been doing well and so just kind of generally trying to think about your thoughts there on reinvestment and New Jersey vs. Um, you know, maybe just taking a pause or breather on some of that stuff.

Yeah, I think you know, we we developed a a longer-term view.

So we're in the second cycle of our three-year strategic planning process. We we map out our capex investment in technology. So we sit together and discuss where we want to be at a future point. Then we devised budgets, you know our capex budget and then we layer it into our forecast. So we what that does. Is it off wires us to cover those Investments on an ongoing basis which we have and that's what you're pointing out and your and your statement. I think that we're in really good position as we move forward to ech continue executing our plan. We're going to continue to add elements to our digital offering soon. We'll be able to originate a whole variety of loans on our website, you know, we pretty much completed the depository side. We're moving on to the loan side and then the third piece of birth

Are the fee based businesses that will also be integrated into that digital platform. What that does for us is it gives us the ability to Market our banking services products and services globally without a physical presence and open accounts and to end on our platform. And if you if you've looked at our website to see that we've changed the format of the website. It's a very unique experience where you can put multiple products into a shopping cart and then purchase multiple products at one time. Our goal is to continue to streamline that process for the consumer so that they only need to fill out one application and they can open both phones and depository products or other products in a very streamlined fashion the interactions with the customer base relative to the PPP has significantly Amplified the exposure to our website so dead.

I'm real quick on our website has gone up as I said exponentially that's very helpful for us because we've invented digital content into our website about those products and services. So dead people can shop around use the help you decide tools by other products other than just depository products or schedule appointments. We mentioned appointment scheduling that was all done prior to the pandemic. So, you know as we move through this and we started to everyone was kind of forced into using a digital environment that played very well for us. That's why the deposit balances are up our market shares up in a number of markets. We've had really great success with appointment setting throughout the pandemic. We received numerous Awards about our response to the pandemic and and we significantly outperformed larger Banks just about anything in the first round of PPP with an eighty 3% capture rate. We set up dead.

everything on our

You know with the digital with our digital channel with a portal and you know, basically it was an end and process that was fully digital very few Banks were able to do that. So I think we're in a position where we can start to leverage that as we get through the pandemic and deal with the pandemic. I would not read into our decisions to bolster capital. I think that's been something we've staged even prior to the pandemic, you know, we we felt that particularly cet1 we could improve that, you know, increase our our levels relative to peers now worth of your media and I think a performer basis so we've come a long way the actions that we took with the portfolio made complete sense. It was a it was a a very good move for us because it bolstered capital. We we did not impair earnings capacity moving in the next year and it gives us flexibility from a capital perspective to to buy back shares.

To do whatever so it opens the door for us and you know, that's been a stated objective. So I would not read into it we have you know, no pressure at all to you know, change our life our operating strategies this point. Anyway, I I think there is an opportunity. I think if you look at the FDIC data, there were we were moving in the right direction even before the influx deposit on our non-interest bearing deposits are up substantially, you know, the industry has experienced and blow but you know, we've consistently built our low-cost deposit base over small. So you'll we're approaching the upper twenty, you know, 20% range in terms of low-cost deposits relative to the total, you know, we're 26.7% off. So I think you know all of those things continue to move in the right direction and the markets that we moved in.

You know, I was just down in the Carolinas. There's a lot more activity in the Carolinas in general with hospitality with restaurants. Even the wage industries that are being impact impacted. There's there's much more activity than there is in the midwest or the Northeast. Anyway, that's the the answer. Sorry wrong answer.

No, that's okay. That's a good overview. And and maybe just one last one for me for Gary. Just I think it was asked before kind of about the maybe the timing of of charge-offs or resolution of some of these credits. Is there any sort of update or thoughts in in your mind on when some of these May kind of come to resolution is that you know first half of 21 or you know, will there be extensions and and restructurings that you know might kind of draw it out over a longer period next year I would say Michael as you know, we're very proactive in not kicking the can down the road. I mean, we we aggressively address problem credits and and and manage them and and you know try to try to move them if possible, you know in terms of in terms of expected losses. I think we've we've talked in the past a little bit about you know industry losses, you know moving upwards As you move into twenty Twenty-One wage.

through 2021

So I would expect that to a curve, you know, I would I would you know looking at looking at the industry in Q4 as well state that you know, you'll probably you'll probably see wage increase at that point, you know based on the environment that we're in but I think you'll see those accumulate through 2021.

Okay. Thanks.

Thank you. And the next question comes on Russell gone through with d a Davidson.

Hey, good morning guys. Just wanted to follow up on the auto sale so makes a ton of sense and there's a culture of risking at FNB wondering if there's opportunity for continued optimization without sacrificing much in the way of earnings power or was the Deep dive review that you've stated the portfolio this quarter, you know, really ring-fence this opportunity and and we should consider this more of a of a of a one-off move.

I would say, you know, we're always evaluating also, as you know, opportunities, there's things that come to light that makes sense to us that are in the best interest of the shareholders and you know, make good Financial sense, you know how to do it. So we're always looking at all the different elements of the balance sheet and here this this quarter we had an opportunity to decide what kind of planets lining up to pull some things together and bought a smart decision that helps push Capital give you some bumper going forward and like I said creates the ability to find that chair. So so, you know what continue to look and and there may be other opportunities we go down the road. So kind of a quarter-by-quarter thing.

Any portfolios in particular where you think you might have a better opportunity as you continue to analyze that?

No, but I Russell I think we're going to look from a risk perspective as well as the commercial book, you know, we've sold mortgage loans in the past. We sold Regency. So we got out of Consumer Finance at the right time. You know, I think we're going to continue to evaluate what we have in our portfolio. We're going to look at Returns on those assets and we're going to look at the risk profile associated with holding those assets long-term and we get together and we make decisions about you know, moving certain assets off the balance sheet. I think we've done it very effective and you know, I think Gary and his team have done a great job Tom and Jerry and and the whole credit team has done a great job of addressing future risk.

I would appreciate you accepting it to process that on a quarterly basis as we always do our goal is to get through this so that we're in a really strong position on the other side of it. So, you know understand that we're we're here managing through this situation. We understand with the great degree of clarity what we Face Off. I think we've addressed various elements of it very successfully and we're going to continue to position the company so that we're in a position of strength post-pandemic crisis the economic side of the pandemic prices.

Thanks very much.

Guys, I appreciate it. Thank you. Thank you and the next question comes from calling Gilbert with

Thanks gud morning guys. Maybe if you could just start with a little bit of discussion around kind of the loan Pipeline and what the sentiment is of your birth right now kind of how they're thinking about their businesses. When you think you know, maybe they they start to reinvest in the business and then also to just some color from a geographic perspective. If you're seeing wide variance from you know, you're Carolina's franchises versus what you're seeing kind of in the Pennsylvania, Ohio markets. I I think the commercial borrowers in Aries and Cancer as well the commercial borrowers home a little more conservative, you know, we're in an election year. There's a lot of things that can potentially change relative to their businesses. We've just gone through, you know, we're still going through the pandemic so we're that's not over yet. So I I think there's been a little bit of caution in terms of capital investment. We were just talking about that before the pulse started so that you know puts a little bit of damper on phone.

Demand, but you know, there's still a lot of conversation. I would say that you know, most of the industries that have not been directly impacted by COVID-19 forming. Okay, or pretty well. So, you know remarkably the economy outside of those industries that are obviously directly impacted to carry mentioned Hospitality off the restaurant. Businesses, you know, they they were impacted pretty heavily. But I think that as you look at the book there's a certain degree of optimism within that customer base that you know, we're going to get through this and things aren't so bad. When you look at utilization rates online utilization rate for US is down now, we you know, we have a more middle-market to agent business customer base. So they've benefited from funding and other

Other subsidies or other opportunities to reduce their working capital facilities because they're not investing as heavily in inventory for other cash consumer asset, but I think that you know, when you look at it, we're we're running at a point where there's some upside as the economy starts to turn around I think in geographically, you know, the the manufacturing sector is kind of flattish, you know, they're starting to see Improvement. So the Midwest and the Northeast Georgia probably lagging a little bit the South, you know, as we look into the Carolinas, you know, Raleigh has a very strong pipeline Charlotte is starting to see more activities Charleston. I mentioned in my prepared comments has done exceptionally well continues to see opportunities there continues to be a migration of people into the Charleston MSA. I mean they're dead.

32 people a day mostly

From the Northeast so there's opportunities there from a mortgage perspective or retail banking perspective and with you know businesses, there's business formation and that markets it seems to be pretty active. We've expanded our commercial activities in Asheville, North Carolina and Greenville. So we're starting to see some good activity their wage has are are really doing well and I'd say the Midwest and the Northeast has been relatively stable for us both from a credit perspective than a growth perspective. I don't hear you want to add any yeah calling has been mentioned. I mean the the borrowers are facing a lot of uncertainty in the moment. The election naturally has them has I'm thinking and how long they've been on hold with it for a little while in many cases. The pandemic still continuing also is is on there on the top of their minds. So, you know those two those two majors.

Uncertainties are are critical to their Investments going forward that being said, you know has been mentioned. Also some of the borrowers are doing extremely well, even in this environment and faith in our investing today some somewhere on hold, you know, the the commercial line utilization rate has reached an all-time low. We're now at 32% so that I can use to to reflect, you know, the borrowers decisions to to you know, pay that pay down debt go to cash and and you know handle some of this on Thursday. Thanks so much, you know conservative standpoint. So I think you know, they're approaching it directly. But what it tells me is on the backside of this there's a lot of opportunity for how long for the industry going forward from a loan demand and a in a in a growth perspective. So we're you know, we're looking forward to getting on the back side of it. Okay, that's helpful.

And just carry a question for you. I appreciate all the the color that you're giving us on kind of net charge-offs. Unfortunately. It's it's a component of our models that we have to be, you know model to a lot more Precision now obviously off so which is probably why we're asking a lot of questions on net charge-offs, but just in terms of so, let me let me ask so the as you look out in terms of you know, potential losses is it safe to say that you do see greater near-term pressure mostly just on the on the COVID-19. Segments that you not seeing cracks or you not anticipating, you know wage of outsize losses maybe in the other segments of the book. I would I would tell you if all of that the the book is holding up very nicely. We're very pleased with the performance of it the softness as we as we've discussed today is really in that COVID-19 sensitive area, you know the hotels the restaurant job

and as I mentioned

I mean the the restaurants were pleasant surprise to me. I mean I sat down with the team over that four-day period and went through these accounts one-by-one and and you know that total review looked at 3 billion dollars worth of impacted and potentially impacted credits. I walked away from that building very good and you know, the the reserve build that we talked about earlier was was in the areas where it needed to be. So I think you'll see you know, what what law system through. I think you'll see it in those codes sensitive areas without a doubt and again, you know, we think a lot of that book has a lot of positive things happening it already occupancy levels are up very improving, you know, a heavy dose of that is in the Carolinas. We got it through the acquired a book club.

As we've talked those areas are more active. So, you know, we're seeing we're seeing some some positive occupancy levels start to start to make some some Headway there. So, hopefully that helps answer your question, but you know, it's it's kind of really concentrated in that that coping impacted sector. Okay, that is and then just one final question on that front. Do you happen to have with the LTV kind of the average ltvs? LTV is on the on your hotel & lodging book kind of the 360 some-odd million. I guess your life 65% going. Okay, great. All right. I will leave it there. Thanks everybody. Thank you. And the next question comes from Matthew Stevenson wage.

Good morning, guys. Hey, just a few first. What was the average balance of loans for the quarter? And then do you have the total PPP related income?

The average balance 2.5 billion for the third quarter and kind of the total net interest income. It's runs about $21 a quarter including the coupon if it off plus fees come in.

Okay.

And then the the $500 million of indirect auto loans. What was the yield on that?

Proshield was about 5%

Okay.

And then you mentioned you mentioned potentially selling more of this product. Could you just give us a sense for the overall origination activity over the course of of the last year and if you were to repeat this, you know, how much of that would you like to sell versus retain?

Yeah, I know just to clarify I was saying it in the past we've been looking at this at the class for a while as far as potentially securitizing or selling it. So at this point we don't have any plans to sell any additional luggage. This was just a result of that review. We've been doing for the last year or two, so it's clarified that

Got it, okay.

Well, and I I know you yeah what it does for us is if you know, we we built out the infrastructure to service. So it provides us with an opportunity to sell off that's got a probation section flow basis and we're going to look at it from an economic perspective. And what's best for the shareholders from return-on-capital standpoint. That's help we managed. Well, that's a good point. You have any kind of a boat fail, but this is right. I don't think you know, I'm not going to suggest it in this environment. You know, we're going to start ramping up that business phone not we're just we just wanted to have the capability to move those assets off the balance sheet efficiently when the pricing is right and you know the stars align and that's off going through this exercise was, you know, the completing the ability to to do that, you know gives us another option in terms of Apple management.

Okay, makes sense. Yep. No, that makes perfect sense. And and I know you provided some some broader fee income guidance and you do expect mortgage to normalize. But could you talk a little bit about the the capital markets line of of business and and what the the pipeline and activity there looks how repeatable is what you saw this quarter.

Yeah, I think this quarter was, you know a little more normal than the previous quarter's I mean they were just outrageously good because of the Steep decline in interest rates, you know, really that sucks in hinges on our ability to originate new volumes. So as we see the pipeline start to pick up there's opportunity for us to to sell derivative products to customers are syndication pipeline looks very solid. So, you know that's been generating a decent amount of income recently. And as we continue to elevate our Neymar backpack and and the new markets that were in we're seeing more and more opportunities to lead transactions, so we would expect that business to continue to grow as we move through the cycle and you know, we've as I've said, we've got some great success there recently and we expect that to continue then there's other areas that you know, we're part of our three year strategic plan change.

Yeah, we're we're essentially building out today. So, you know, eventually we may provide advisory Services both Municipal finance and corporate finance advisory Services. We were establishing a broker-dealer to benefit from the income for our larger clients that access debt through the capital markets. So there are certain things that we're doing that that will enhance being coming future. So it'll augment the the derivative being from the week. We Garner.

That's helpful.

Yes, very helpful. I appreciate it. That's all I had. I appreciate taking my questions. Thank you.

Q and the next question comes from Jared Shaw with Wells Fargo.

Hi, good morning. This is actually team or Brazil or filling in for Jared just a couple of follow-ups For Me Maybe starting with with Gary the 65% loan-to-value on the Hotel & lodging portfolio. I guess how was that derived? I'm assuming it's pretty challenging to do appraisals right now given that cash flows are still impacted. So looking at that book, I guess how comfortable are you with that 65% loan-to-value and maybe expanding that to the current allowance level as we start seeing some incremental losses flow through in the next few quarters is the expectation that the reserves already established will offset those losses or do you think you're going to have to backfill the allowance account for the new losses coming in over the next couple of quarters? We built reserves based on the birth.

Performance of each Credit in the position of each Credit in that portfolio during the quarter. So we essentially went through that entire book to more and and position appropriately for where it says today as mentioned earlier. We only moved one account to non-accrual status during during the quarter off, you know, so so, you know, that's that's an account that is in a problem State we're working through it right now as as we as we sit here. So so, you know, I can't speculate on on every single asset that may or may not default in that book. But at this point, you know, as I mentioned earlier, we feel good about the review and you know, there are some credits in there that are a little more challenged than others but overall off.

It was a positive view of that book of business. Some of them will default for certain under the under the environment that we're in as far as the the TV. It's based on LTV ltvs at the original underwriting. So you would expect that to come down overtime at 65. We got a fairly Good Kush and going into those things. So, you know, when you when you look at, you know, potential defaults in that book and and you know how long they can expected reduction in valuation, you know, the Lost content on the default and ones should be should be minimal but there should be lost content on those assets that that are not able to continue

Okay, that's good color. Thank you. And then just last one for me looking at the commercial real estate growth in the quarter. I guess what industries are you seeing strength in their life? And as you look ahead is the expectation that balances climb higher or should we expect some sort of retrenchment given how impact some of the CR-V verticals remain?

Yeah, I mean we we've seen we've seen some strength in the in the commercial and industrial space, you know, multi family has held up well and warehouses, so, you know, those are kind of the the segments we're not you know, we're not seeing a lot of new activity in the multifamily space by any means but it's primarily you know, that that commercial and Industrial Warehouse where where we have seen some activity.

Thank you for the color.

Thank you. And the next question comes from Brian Martin with Janney Montgomery.

Hey, good morning, guys. Hey, just one question back to Capital from you know, what are the things stand on the buyback given, you know, the the conversation is quarter vent about you know, the the, you know the pickup on the pro forma Capital level just as you think about that.

Just looking for some more clarity about the environment trying kind of what you're you feel that there's a light at the end of the tunnel here and more comfortable with where things are going back to resume the shared by that. So, you know, it's it's in place was fully authorized. We're kind of ready to go, you know, once it feels like the right time to do it and you know, it's not trading below tangible Book value is very attractive. So, you know, it's definitely a trigger we would pull you know, once we just kind of have a little bit more certain to you about where everything's going.

Gotcha. Okay, perfect. And then how about just I know you said nothing on the PPP forgiveness this quarter just your anticipation of how that plays out or you know based on what you're what you're seeing with your customer there. I mean is it first-quarter and second-quarter is most of it get done first quarter you thinking though?

Yeah, I guess our our current thinking based on you know, the SBA process would be kind of 40% in this is just our guesstimate really 40% in the first quarter of another fifty and second course and you have a 10% tail kind of June 30th. That would just kind of kind of run down from there. But you know we have this was commenting on the process we built for the origination side. We've also offer affordable for the Forgiveness side and kind of have that kind of ready to go. Now that the FDA is put out how we want things to work. So kind of where we're going to be ready to go and expect start submitting those, you know, in November and early part of November, but practicality of it is you don't know how long it's going to take for the FDA to turn those decisions back. So that's why we're kind of assumed that first quarter to three really start that

Yeah, okay.

And then maybe just once we carry on that on the retail Ira Gary, I guess, you know the the added Reserve this quarter just where are the where are the bigger concerns and that portfolio today? I guess I kind of did your Deep dive and you talked a lot about the hotel in the restaurants, but just that retail Ira you know, what what should we be thinking about there where you guys are focused on?

Yeah, it's that that we built about seven million dollars of reserves in it. And it really Brian only moved that preserve position slightly. It's a fairly sizable book and it was just a few a few credits that you know had some some retail related exposure where the bar were the page where you know more impacted. It's a portfolio that we feel very good about, you know, we're not we're not seeing any concerns in it whatsoever. The same as feral rage is Just a Touch Above 5% on it at this point. So, you know, it's just a it's just a few one-off tenants really is is what it is and and well look at the ltvs there again, they're running right at 65% So it's a very well positioned both. We feel very very good about it at this point.

Okay, and just Gary just bigger picture. I mean, I guess the reserve build this quarter wasn't wasn't too much. I guess if you feel like it's largely done at this point based on how it seems like things in credits are doing pretty well. I guess is that kind of a big picture read as you sit there today? Well, when you're looking at the when you look at the Cecil Reserve around the economy wage starting to show some signs of improvement. I mean, we wouldn't expect any additional deal from a Cecil economic forecast in point as As you move forward. I mean actual, you know, you you may see some improvement there if the economy continues to improve and and and an opportunity to to have some benefit there. I mean, I think it's it's a little too early to start replacing reserves here as we sit today, but you know based on the reviews that we did we took we took a you know, a heavy look and an aggressive dog.

View of you know the code. In fact this environment subject to you know, it getting worse. I mean, we feel pretty good about where we are. And and as you as you look, you know, the next quarter, hopefully we can continue to you know, move that down with a little bit. Okay? All right. I appreciate it. Thanks guys. All right, Brian. Thanks. Okay. I have just one quick clarification. There was a question earlier on the indirect portfolio as far as the yield which I know was for modeling purposes. One thing. I forgot to mention is that the life on that portfolio we sold is about 20 months very short. So just to make sure for those that are modeling that you kind of have that needlepoint.

Thank you. And what's the last question? I would like to return the four to manage on Frank closing comments.

Thank you. I appreciate the call all the questions on the call. I think that there were a lot of very good questions, and hopefully we provided you with suggestions disclosure relative to your questions, and I'd like to thank the team particularly all of the employees that have stepped up during this time. I mean, it's been remarkable Jerry and Tom and the credit team. It's got a fantastic job guiding it through what was a very scary and difficult environment at least early on so, I think we're we're off through this and you know, we're feeling better about where we are, and we're very hopeful that as we move into the into, you know, the next quarter into the next year. We have more clarity on a credit perspective, and we're in a better position to uh, focus on Revenue growth again, so thank you everybody appreciate the time and look forward to the next call. Take care off.

Thank you, the conference concluded. Thank you for attending today's presentation. You notice any problem lies.