Q2 2023 FNB Corp Earnings Call
Participants
Gary Lee Guerrieri; Chief Credit Officer; F.N.B. Corporation
Lisa Constantine
Scott Free
Vincent J. Calabrese; CFO; F.N.B. Corporation
Vincent J. Delie; Chairman, President & CEO; F.N.B. Corporation
Brian Joseph Martin; Director of Banks and Thrifts; Janney Montgomery Scott LLC, Research Division
Daniel Tamayo; Research Analyst; Raymond James & Associates, Inc., Research Division
Frank Joseph Schiraldi; MD & Senior Research Analyst; Piper Sandler & Co., Research Division
Manuel Antonio Navas; VP & Research Analyst; D.A. Davidson & Co., Research Division
Michael Anthony Perito; MD; Keefe, Bruyette, & Woods, Inc., Research Division
Russell Elliott Teasdale Gunther; MD & Analyst; Stephens Inc., Research Division
Timur Felixovich Braziler; Associate Analyst; Wells Fargo Securities, LLC, Research Division
Presentation
Operator
Good morning, and welcome to the FNB Second Quarter 2023 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Lisa Hajdu, Manager of Investor Relations. Please go ahead.
Lisa Constantine
Thank you. Good morning, and welcome to our earnings call. This conference call of FNB Corporation and the reports that filed with the Securities and Exchange Commission 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 Thursday, July 27, and the webcast link will be posted to be about us Investor Relations section of our corporate website.
I will now turn the call over to Vince Delie, Chairman, President and CEO.
Vincent J. Delie
Thank you, and welcome to our second quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer.
FNB reported second quarter net income available to common stockholders of $140.4 million or $0.39 per diluted common share on an operating and reported basis. This brings the total year-to-date operating earnings per share to $0.79, a 39% increase over the same period in 2022. Operating pre-provision net revenue increased 51% year-to-date, resulting in an improvement in the efficiency ratio to 50% and an increase in operating return on tangible common equity to 19.1%.
Average total loans increased 2.1% linked quarter to over $31 billion. Commercial loan balances benefited from solid production, primarily in the Pittsburgh, Harrisburg and North and South Carolina markets. Average deposits totaled over $34 billion, a 1.3% decrease from the first quarter, largely due to seasonal deposit outflows caused by tax-related payments and the impact of the inflationary macroeconomic environment on our clients.
Despite the acceleration of deposit competition caused by the recent banking disruption, the mix of noninterest-bearing deposits to total deposits at June 30 remained relatively stable at 32%. The loan-to-deposit ratio was 92.7% at quarter end. Our strong deposit mix was a result of a focus on fostering relationships with our customers and serving as their primary bank.
Over the past several years, we've enhanced our product suite and digital capabilities, growing our exceptional team of bankers and strategically expanded our market presence to offer best-in-class experiences for our customers that build convenience, trust and a stable deposit base. For example, we recently launched the Common App -- Common Account application in our award-winning eStore, where we intend to be the first bank to offer a single universal application for the majority of our products and services, enabling customers with the ability to apply for multiple products simultaneously, utilizing advanced technology, including artificial intelligence and machine learning.
The eStore common app delivers a more efficient and secure application process with sophisticated data capabilities to offer customized product recommendations that cater to specific customer needs. By prefilling numerous fields, the common application minimizes customer [eStroke] and significantly reduces the amount of time needed to complete an application for multiple products. The first phase of the common application, which we launched last month, includes all consumer loan products. Consumer deposit products will be added by the end of 2023 and business products will follow shortly after in the first half of 2024.
The streamlined process has led to an increase of over 170% in online applications for the month of June compared to a year ago, and we expect this number to continue to increase as we actively promote the capability. Outside of digital, we have continued to invest in our fee-based services offering. We are now expanding our award-winning treasury management platform with strategic priorities to drive organic growth, increase revenue and generate low-cost deposits.
This quarter alone, clients of our new integrated payable solutions product executed nearly $1 billion of payments while simultaneously benefiting from check outsourcing and reduced broad risk. We have also leveraged integrated payables to continue to grow our commercial card rep, which has a 19% compounded annual growth rate over the past 3 years and continues to expand through deeper penetration with commercial and small business clients.
These investments in our comprehensive set of products and services continued to help FNB grow noninterest-bearing deposit accounts and further diversify our fee-based income streams, providing customers with high-value services. FNB continues to steadily increase market share. This quarter's 12% spot loan growth year-over-year has been achieved while adhering to our consistent and conservative underwriting guidance. Risk management remains an integral part of our culture.
I will now turn the call over to Gary to comment in more detail on our asset quality and credit risk. Gary?
Gary Lee Guerrieri
Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining near historically low levels. Our performance for the period reflects total delinquency that ended the quarter at 75 basis points. NPLs and OREO at 47 basis points, and net charge-offs at 11 basis points. Criticized loans were down 1 basis point quarter-over-quarter and classified assets were down 16 basis points. I will cover these asset quality highlights for the quarter in more detail, followed by an update on our office portfolio.
Let's now walk through our credit results. Total delinquency increased 15 basis points in the quarter, An NPLs and OREO as a percent of total loans were up 9 basis points compared to the prior quarter. The increase in NPLs and OREO was primarily attributed to a single $32 million C&I loan based on nonperforming status. At quarter end, we reserved for approximately 40% of our exposure. This credit surfaced right at the end of the quarter from an emerging issue between our borrower and their primary business partner.
Net charge-offs for the quarter totaled $8.7 million or 11 basis points on an annualized basis with 8 basis points reflecting the use of previously established specific reserves. Total provision expense for the quarter stood at $18.5 million, providing for loan growth and the previously mentioned specific reserve, offset by releases from the reduction in classified loans.
Our ending funded reserve increased $9.3 million in the quarter and stands at $413 million or a solid 1.32% of loans, reflecting our strong position relative to our peers. When including acquired unamortized loan discounts, our reserve stands at 1.48% and our NPL coverage position remained strong at 325%, inclusive of the unamortized loan discounts. We remain committed to consistent underwriting and strong credit risk management to maintain a balanced well-positioned portfolio throughout economic cycles.
We proactively review and stress test portfolios on an ongoing basis. including in the current quarter, where we performed a full company-wide stress test, consistent with prior years. We were pleased with the outcome of the results as it confirms that our diversified portfolio and proactive credit risk management enables us to expand various economic downturn scenarios.
Regarding the office portfolio, delinquency remains very low at 26 basis points and criticized loans remained below 10% with no negative migration in the quarter. We renewed all commercial real estate loans secured by office properties that matured in the quarter with no downgrades required. We have and will continue to proactively manage this portfolio on a loan-by-loan basis as part of the in-depth reviews we regularly perform.
In closing, asset quality metrics remain near historical lows and we continue to generate diversified loan growth in attractive markets. We closely monitor macroeconomic trends and the individual markets in our footprint and we'll continue to manage risk proactively and aggressively as part of our core credit philosophy, which has served us well throughout various economic cycles.
I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
Vincent J. Calabrese
Thanks, Gary, and good morning. Today, I will focus on the second quarter's financial results and offer guidance updates for the remainder of 2023. Second quarter net income available to common shareholders totaled $140.4 million to $0.39 per diluted common share on both an operating and reported basis, bringing total year-to-date operating earnings to $0.79 per share.
On a spot basis, loans and leases ended the quarter at $31 billion, growing $681 million or 2.2% linked quarter. Consumer loans increased $517 million with strong seasonal contributions from the physicians first mortgage program. Commercial loans and leases grew $164 million or 0.8% and with loan spreads improving from the first quarter levels.
Investment portfolio decreased slightly to $7.2 billion as we redeployed cash to support loan growth. The total securities portfolio remains at a fairly even split between AFS and HTM with 47% in available for sale and a duration of 4.5 years at quarter end. Total deposits ended the quarter at $33.8 billion, a decrease of $365 million linked quarter or 1.1%, primarily due to seasonal deposit outflows and tax-related payments and the impact of the inflationary macroeconomic environment.
The deposit mix continued to shift this quarter as customers moved $586 million into time deposits, partially offsetting the decline of $273 million of interest-bearing demand deposits and $383 million in noninterest-bearing demand deposits. As of June 30, noninterest-bearing demand deposits comprised 32% of total deposits compared to 33% at March 31. While the banking industry disruptions clearly accelerated deposit competition, we still expect the mix of noninterest-bearing demand to total deposits to remain above pre-COVID levels.
The loan-to-deposit ratio increased to 92.7% during the quarter, reflecting strong loan growth and the seasonal effect of tax payments on our deposits. Revenue totaled $410 million driven by net interest income of $329 million and stable noninterest income benefiting from our diversified fee businesses. Second quarter's net interest margin was 3.37% with the quarterly decline expected to slow as the month of June was 3.34%.
The yield on earning assets increased 26 basis points to $4.94 due to higher yields on loans, investment securities and interest-bearing deposits with banks. While the cost of funds increased 46 basis points to 164 as the cost of interest-bearing deposits increased 47 basis points to 197. We continue to actively manage our total deposit costs which ended the quarter at 147, bringing the total cumulative deposit beta to 27%. We expect to end 2023 in the mid-30s.
Turning to noninterest income and expense. Noninterest income totaled $80.3 million, a 1% increase from a solid first quarter level. Service charges increased $1.4 million or 4%, reflecting strong treasury management services and interchange fees offsetting the overdraft practice changes that FNB implemented in the first quarter of 2023. Dividends on nonmarketable securities increased $1.4 million or 33%, reflecting higher FHLB dividends due to additional borrowings.
Insurance commissions and fees decreased $1.8 million or 23% due to normal seasonality and strong overall production in the first quarter. Our wealth management business continued to generate strong contributions with combined revenue of $17.7 million, up 12% on a year-over-year basis. Noninterest expense totaled $212 million, a decrease of $8 million or nearly 4% from last quarter.
Salaries and employee benefits decreased $6.3 million primarily from seasonal compensation that occurred in the first quarter, partially offset by normal annual merit increases in the second quarter and higher commissions driven by better-than-expected contributions from our mortgage banking and fee-based businesses. Efficiency ratio equaled 50.0% given the strong revenue and well-managed expenses.
Our capital ratios remained solid throughout the quarter with the CET1 ratio at our 10% targeted level. Our TCE ended the quarter at 747 and when adjusting for our held-to-maturity investment marks equaled 6.8%, which we expect to remain higher than peer median levels. We also repurchased 2.3 million shares during the quarter at a weighted average price of $10.80. Tangible book value per common share was $8.79 at June 30, an increase of $0.13 per share from March 31, largely from the higher level of earnings offsetting the increased impact of AOCI which reduced tangible book value by $0.99 per share compared to $0.87 at the end of the prior quarter.
Let's now look at the 2023 financial objectives, starting with the balance sheet. On a full year spot basis, we maintained our previous guide for loans to increase mid-single digits year-over-year. Total deposit balances are revised to end 2023 and down low single digits relative to the December 31, 2022 spot balances. We expect year-end levels to be flattish to the June 30 level of $33.8 billion as seasonality should become a tailwind in the second half of 2023.
Full year net interest income is expected to be between $1.28 billion and $1.32 billion with the third quarter of 2023 between $313 million to $323 million. Our guidance currently assumes a 25 basis point rate hike next week than flat for the remainder of the year. The decrease in guidance from last quarter is largely related to our expectation of higher deposit betas driven by strong competition for deposits and continued mix shift into time deposits. We still expect the ratio of noninterest-bearing demand to total deposits to remain above pre-COVID levels.
Full year noninterest income is expected to be between $315 million and $325 million with the third quarter expected to be around $80 million. This upward revision incorporates the benefit of our diversified fee-based income strategy. Full year guidance for noninterest expense on an operating basis is expected to be at the high end of our prior guidance of $835 million to $855 million, largely due to higher commissions due to better-than-expected fee income. The third quarter noninterest expense is expected to be between $210 million to $215 million.
Full year provision guidance remains $65 million to $85 million and is dependent on net loan growth and potential CECL model-related builds from a softer macroeconomic environment. Lastly, the effective tax rate should be between 20% and 21% for the full year which does not include any investment tax credit activity that may occur.
With that, I will turn the call back to Vince.
Vincent J. Delie
Thank you, Vince. FNB achieved another solid quarter. Our financial performance stands out because of our innovative suite of products and services. Conservative balance sheet management and our culture rooted in risk management. All of this is made possible by our talented and dedicated employees. Our philosophy enables us to serve our customers through business cycles in ways other competitors cannot. We were currently recognized in Forbes 2023 Global 2000 and America's best in-state banks with the latter award based on customer feedback, showcasing the impact or employees have on our performance.
Our capital position remains strong with CET1 at our targeted operating level of 10%, while supporting loan growth and share repurchase activity in the quarter. The tangible book value per share continues to grow, totaling $8.79 this quarter up 8.6% year-over-year. As we look to the second half of the year, we remain uniquely positioned to capitalize on disruption and are poised to continue to drive shareholder value.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Daniel Tamayo from Raymond James.
Daniel Tamayo
I guess first just on the net interest -- sorry, noninterest-bearing deposit balances. I'm not sure if I heard you, did you have an explicit assumption baked into your guidance for where those end up at the end of the year? And I know you mentioned they would end up above pre-COVID, I was just wondering if you had a little more detail on where about you're kind of thinking that, that could land? And then also just kind of within the quarter, if you had any comments on the cadence of the mix shift, if it slowed throughout the quarter, if there was any kind of pattern we might pick up on that?
Vincent J. Calabrese
I would say the noninterest-bearing deposits, we did not have a specific target. As a percent of deposits, we mentioned we were 32%, down from [42%]. Pre-COVID, we were at kind of 26% or so and not looking for us to migrate down to that (inaudible) we expect to remain higher than that. In my mind, the target would be (inaudible) as we move forward. We do have seasonal municipal deposits to kind of build from here through October, November period that would affect that noninterest-bearing line item. And it's a big focus in the company. It's been for 15, 16 years with cars growing noninterest-bearing deposits, retail, commercial, municipal as well as small business...
Vincent J. Delie
And the shift has changed, right? The second part of that question was about the -- what's happening as we move forward with the deposit mix.
Vincent J. Calabrese
Yes, the mix shift into CDs, I mean it's still been pretty heavy, but it definitely has slowed. I would say on the retail side, the requests for matching others rates has definitely slowed significantly from where it was a few quarters ago. On the commercial side, there's still very active as you would expect with every bank, calling every other bank's customers. But I think we've done a very nice job retaining our customers and adding others in the disruption in the marketplace.
Vincent J. Delie
And I know we keep mentioning this, but part of the reason I think our performance is going to show very well relative to others when you look at the noninterest-bearing category, in particular, because, as I've said, on numerous calls, our strategy has been to focus on client primacy to be the primary bank for our customers. The deposit base, particularly the noninterest-bearing deposit base is supported by compensating balances that are paying for treasury management services and embedded balances that exist with the float and consumer and small business accounts.
So we -- I think our people have done a pretty good job of continuing that, and that's what's really helping us support our noninterest-bearing deposit base.
Vincent J. Calabrese
The other thing I would add too, as far as kind of a proof point for the mix shift happening during the quarter, definitely small as we went through the quarter. If we look at the margin, the margin with everything that all the banks just for liquidity purposes in March from March to April, our margin went down 9 basis points to the pre-COVID level. And then we were down 3 basis points from April to May and 3 from May to June. So clearly, there's been a slowing impact to the margin statistics that also runs through the net interest income.
Daniel Tamayo
That's great color. I appreciate all that. And then maybe changing gears here for my second question, just on expenses. Just curious, assuming we get through the year, it's kind of the top of the guidance that implies the quarterly run rate, maybe -- and just correct me if I'm wrong here, around the 213 mark or so. But wondering if you see any kind of opportunities to reduce expenses going forward, given the pressure on the top line?
Vincent J. Calabrese
I mean, we've had a cost savings target every year at the -- fourth or fifth year of having meaningful cost savings targets for this year, $9 million, and we will feed that as we go through the year. I mean we run -- we have a 50% efficiency ratio. So it's not like there's excess cost to take out -- but we continue every day to manage expenses, whether it's renegotiating contracts, particularly one of the things rolling through expenses is just inflationary impacts.
Contracts have CPI clauses that have kind of kicked in over previous quarters, we're actively going out to those vendors to look at renegotiating those contracts and get something back for us with CPI where it's been at times we've had some significant increases there. Process improvement is a big focus in the company throughout. So there continues to be opportunity there.
So it's every day, Danny, we're managing the expense side of it. We're disciplined and we're continuing to pursue ways to kind of optimize our facilities, space optimization, but it's just a constant quote. So it's not something extra kind of baked into what we do every day.
Operator
Our next question comes from Jared Shaw from Wells Fargo.
Timur Felixovich Braziler
This is Timur Braziler filling in for Jared. Maybe just following up on that line of commentary for deposits with the prepared remarks of kind of mid-30s beta by year-end. I mean, that seems like a pretty conservative number. I mean data increased 5 percentage points this quarter. You're assuming one more hike here. Is there an expectation that just given how well your deposits have performed so far that there's going to be some element of the lag following the last rate hike? Or should we assume that kind of once the Fed is done, barring any kind of additional mix shift to the cost that's going to kind of slow as well?
Vincent J. Calabrese
Yes. I would say, I mean, I think our teams continues to strategically managing deposit costs and an especially challenging environment. The balancing act there is post failure has been quite an effort throughout our company on the commercial side and the retail side with the Fed continuing to raise rates. I think that the one more move that everybody expects to happen in February, I mean February next week, I don't think it just stops.
I think there's -- as I mentioned a little bit earlier, there continues to be a lot of competition on the commercial deposit side, and we've done a great job retaining our customers for sure and retaining deposits. So but I think there's some probably carry on that happens as you go through there for some period of time. But I mean we -- the beta at 27, we originally guided in April to mid-20s. So it was a couple of points higher than 25% kind of use the midpoint of that.
So based on what we know now and our forecast and how we're managing it, the mid-30s, higher than the low 30s that we kind of guesstimated, I would say, in April. But I think that's a figure that feels reasonable to us, and if we can do better. That would be great.
Timur Felixovich Braziler
Okay. Great. And then maybe switching gears to the loan growth. I guess 2 questions. Number one, the resi growth and the physicians first program just continues to fire on all cylinders. Resi is now approaching almost 20% of the loan book. I guess, a, who's taking on mortgages right now? Is this purchase? Is this kind of refi activity? How much more room is there to run in resi? And then as we look ahead, what's kind of the mix shift or the mix of loan growth going forward that you're expecting?
Vincent J. Delie
First of all, the borrowers in the physician's first program are some of our best credit profiles, right? So they -- it tends to be physicians that are well established upgrading their home. Most of the business that we do is purchase money. So the vast majority, not just Physicians First, but across our entire footprint has been historically skewed towards purchase money. That's been our strategy.
I would expect, as we move forward, we've kind of changed the focus a little bit so that we're producing more salable product, the Physicians First loans tend to be balance sheet oriented. So the rest of the book has been moving, we've been moving more in the direction producing salable product, which should help us manage the balance sheet. As we move forward and the comment about the concentrations. We're perfectly -- we're aware and capable of adjusting could include sales and other avenues. But we also monitor concentrations.
But I think overall, very high-quality borrowers particularly purchase money. And the game here is to make sure that we circle back on the front end of origination. That's why we developed the eStore is to offer multiple products and services to that group, particularly wealth management, brokerage, insurance fee-based -- high-quality fee-based businesses. And then we look at -- we end up also getting opportunities on the business side with the practices and offering treasury management services and loan products to help facilitate the build-out or acquisition practice. (inaudible) over time as well. So given that's much our strategy with the mortgage book. I will say our goal has been to find originators to really do focus and our network into the new home purchase market versus relying on refinance activity for production. So that's been how we've looked at it for a long time.
Vincent J. Calabrese
I mean, 97% of the originations were purchased. So I mean there's very little refi. That will pick up again when rates come down. But as we sit here today, it's virtually all purchased.
Timur Felixovich Braziler
Okay. And then just last for me, maybe one for Gary. We're in this period right now where everybody is expecting some sort of credit event in the back end of this year or '24, I guess, as you're going through your kind of everyday review of the loan book, does anything change with this expectation for some sort of credit event? Or is it kind of business as usual as you're reviewing those loans? Are you trying to be more proactive? Are you -- I know you're reviewing all the loans, all the CRE loans that are coming due this year and next. But is there an element of wanting to be more proactive and maybe putting aside additional allowance kind of with this broader sentiment out there? Or does nothing really change?
Gary Lee Guerrieri
Yes. Timur, I mean, for us, I would tell you that nothing really changes. We're very aggressive risk managers and our program doesn't change from a move in the economy. So we're going to continue to manage the book portfolio by portfolio loan by loan in some cases, as we've talked about in the office book with the issues going on in that space at this point. But no, no real change as far as our risk management practices are concerned, just continue to stay ahead of it, which is important from our perspective.
Operator
The next question comes from Frank Schiraldi from Piper Sandler.
Frank Joseph Schiraldi
Just a couple for me on capital. Vince, I think you noted you're kind of right at your CET1 target ratio. Just wondering, I would assume, including the AFS book, given the size of the bank, that's kind of less of a concern for you guys and maybe some of the larger banks out there that might see changes in capital rules. But just wondering about your priorities here, if we could see those that CET1 ratio dipped down a little bit through growth. And you guys were a little bit more aggressive in share buybacks than I had in my model. Just wondering how you think about it here. Is it just more opportunistic at this point on buybacks?
Vincent J. Calabrese
Yes, I would say so, Frank, I mean, we've established that 10% is an operating target for us. we're right at 10.0%. We're not going to manage it to 10.0% every quarter. But given the strong earnings for the quarter as well as where the stock was trading, we opportunistic, as you mentioned, that's kind of the key word. So we were opportunistic, we'll continue to be opportunistic as we go through the year. If you look at -- we have a slide we added in here looking at the CET1 ratio and TCE ratio kind of as reported and then with the marks and I think you can see the CET1 ratio at least at March, right, we were 10.0%, 10.1% for the peers. When you add in AFS, we're 9.3% versus 8.9% and then we added AFS and HTM or 8.6% versus 8.3%.
So those are all comfortable levels and better than peers and similarly on the TCE ratio, on Slide 7, you can see the impact there. So I mean given the risk profile of the balance sheet, we feel very comfortable with that 10%. The strong earnings generation supported our asset growth and did enable us to be opportunistic. We expect to kind of gradually build CET1 in the second half of the year based on our current forecast and we're going to put the money to support loan growth first, as we always do. And then where there's opportunities or if the loan growth is a little bit slower than what's in our model, we'll be more active.
Frank Joseph Schiraldi
Okay. All right. Great. And then, Vince, just a follow-up on the deposits. You mentioned the seasonality of the muni deposit dollars. Just wondering, just for modeling purposes, if you can help with remind us the size in the past of those kind of flows and the expected costs maybe of those relative to the rest of the book?
Vincent J. Calabrese
Yes. I mean for peak to trough, we usually use $300 million to $500 million is kind of a normal flow from down in the first quarter and then up to kind of the October, November time frame. We haven't disclosed cost specifically on those. I mean, we've talked about where we're pricing. We have some promotional CD rates that we've instituted in May that are out there kind of 5% for a 13-month CD and 4.75% for 7-month CD. And so far, we generated about $400 million in CDs since the beginning of May with about 2/3 of that being brand new money to the company. So -- and some of the municipal customers will take advantage of that, too.
Vincent J. Delie
In almost every -- right, we're the primary treasury management provider. We're not just remitting them to raise hot money with us. So it's less likely that they'll migrate into those higher cost products. And if there's seasonality, particularly with Ad valorem tax collection and other activities that go on that are seasonal, the amount of treasury management fees increase at this point in time. So they tend to leave more demand deposits to cover the cost of that increase in operations. So that -- so there's a lot of things going on with that portfolio. It's not just money flowing in and out in the high yield.
Frank Joseph Schiraldi
Okay. So I guess some of that will come in as noninterest-bearing. Just kind of curious if it's going to -- if it's going to really impact that kind of noninterest-bearing trend in a big enough way for us to kind of see it next quarter, but maybe not?
Vincent J. Delie
I don't think it's going to have a dramatic impact, it's hard to say, though, based upon earnings credit rates and what type of investment rate they can get, whether the folks managing those balances at those entities decide to use rebalances or benefit from investing. So that's all part of it. But I just wanted to make clear that we're not just basically taking deposit -- high-yielding deposit, it's not what we do.
Vincent J. Calabrese
No, the bulk of the money I referenced will really come through DDA side -- because they collect taxes (inaudible) taxes. So that will flow through the noninterest-bearing line side, just to clarify that.
Frank Joseph Schiraldi
Okay. Great. That's what I was curious on.
Operator
Our next question comes from Michael Perito from KBW.
Michael Anthony Perito
I wanted to start, and this question admittedly might be a quarter or so early here. But I was wondering if you could give us a little color -- a little more color on like the incremental CD growth, the type of duration. And as you guys think about that moving forward, at what point does that turn from kind of headwind to tailwind? And what's your experience kind of in uncharted territories here, but is that something you would hope if your rate forecast proves to be accurate, that if the environment cools off, you would be able to kind of roll some of that forward lower? Obviously, competitively, the CD rates right now are probably the most competitive it's been in memory, recent memory. But just curious how you guys think about that dynamic and the margin as we look ahead to next year at this point?
Vincent J. Calabrese
Yes. No, that's exactly how to think about it, Mike. So the average term of the CD portfolio is 10 months right now, the 2 specials that I mentioned that we have or 13-month and 7-month CD. So very short, the idea being there that like you said, it's very competitive now. But if rates start to come down midyear, second half of next year, we have an opportunity to reprice those lower. So that's exactly the strategy.
Michael Anthony Perito
Got it. And then just as you guys think about all the disruption in the industry. I think one of the reasons, at least in my opinion, that you guys have weathered the storm so well is just the diversity of the franchise, both line of business, geographic. You had some really large, well-respected players that are no longer around strategically, is there anything on your road map that might be new or pulled forward where there's opportunities maybe like on the private banking side or in some of these other small business niche businesses that these banks had large market share and that you guys are looking at that we should be mindful of as we think about '24 and '25 growth opportunities?
Vincent J. Delie
I don't think there's a specific business line from other banks that we would be interested in, I mean, we would have pursued that long ago. We've always said that we were different. We had been compared to those banks, they're in our relative size range, right, at least a couple of years ago. So they were -- in our peer group. They were benchmarked against them by analysts.
I think their model was vastly different than what we do. We've said that over time, if you go back and look at the old earnings called transcripts, I've said it over and over again. We tend to focus on building relationships in the middle market, handling consumers kind of midstream consumers. We do have a private banking effort. We do have the Physicians First program, which is focused on high-income consumers. But we cater to the broad spectrum of consumer and small business.
And that's really -- that's been our focus. We focused on investing in product capabilities to help us broaden the returns on capital that we deploy with consumers and businesses. That doesn't sound like a very sexy model, but we've tried to manage risk by diversifying geographically. We said that repeatedly. Gary spends lots of time, this team, Tom Fisher, Gary, the whole team, analyzing concentrations of risk so that there's granularity within the portfolio.
And then I think if you go back and look at the earnings transcripts even before all this happened, I said we are a very strong consumer franchise with a granular deposit base. Our deposit mix was very favorable. And quite frankly, I think that is really paramount to the valuation of a bank. I think if you're going to evaluate the value of a financial institution, you want to look at their deposit base.
So I think I don't see us really changing. I do think with the exit, they are in our businesses as well, right? So the exit of those players from a competitive perspective will help us. And I think from a wealth perspective, doing loans to high net worth individuals, commercial lending in certain markets, able to benefit from the disruption.
Vincent J. Calabrese
Most opportunity is to pick up bankers, too.
Vincent J. Delie
Absolutely. Hiring people. We've had no issue attracting talent. So actually, people reach out to us all the time, and that's not the way it was historically. So I think our staying power and conservatism really puts us in a strong position. That's why I've said in my comments, as we move through the cycle to compete more of that, we have liquidity capital capacity, a great product set.
And I think from a -- I said it before and I'll say it again, I think that our investment in technology, what we're focusing on for us is spot on. It's improving the ability for clients to purchase multiple products and services through us in a very efficient way. So we continue to focus on the eStore. And that's why the consumer applications are up as much as they are. I think as we add deposits in November to that platform, that's really going to help us getting new consumers to be really easy to purchase multiple products and services and open depository accounts on one platform with one application.
So that's the most exciting part. I think as we move forward that's using AI and the digital tools that we put in place to make a better experience for the clients. Anyway, that's...
Michael Anthony Perito
No, that's really helpful color. And then just last question for me. I was just curious if you were willing to maybe share or find some thoughts about the kind of the next phase of bank M&A here, Vince. I mean, it's pretty apparent that there's going to be some more consolidation on the heels of this event. Just curious what you're seeing out there? It seems very slow and kind of regulatory headwinds at this current juncture, but just also maybe a comment on what you think that next iteration of consolidation could mean for FNB from an opportunity standpoint, if at all?
Vincent J. Delie
Well, I said -- I made a comment on one of the calls that I wouldn't want to be an investment banker and everybody went crazy with that. At this point -- so I'm not going to make any sarcastic comment. But I will say it might be a good time in the future to be an investment banker because there are a lot of banks that are struggling for a variety of reasons. As we move through this cycle, I think when we come out on the other end, there will be things to look at. I don't think we're there yet.
I think if we were to be active in M&A, and I'm not suggesting that we are, we're kind of internally focused right now. We stick to the, the tried and true strategy of focusing on in-market deals where we could get cost saves that are immediately accretive to earnings and have very limited tangible book value dilution and returns on capital that are well above our cost of capital. That's our -- we've said that forever. That's what the Board expects, we're very disciplined around that. And I think it shows in our performance that we've stayed true to that strategy.
I think the current M&A market is very challenging still. There's a lot of banks that probably would like to sell themselves, but I don't know that the deal works from a mathematical perspective, a financial perspective. So we've been focusing principally on building out our e-delivery channel, the eStore that I mentioned, and then augmenting that channel across our 7-state footprint with the deployment of ATMs and ITMs.
So we feel that that's a better way for us to go in very cost effectively bridge our physical delivery channel with the ATMs, branded ATMs and then push our digital products to that customer base. And we've had some good success doing that. So we're going to stay focused on that de novo strategy and the deployment of ATMs and continue to drive consumers in small businesses. Anyway, that's my view on M&A. No sarcastic headlines.
Michael Anthony Perito
No, I appreciate it. It's an interesting time. So your thoughts are helpful.
Operator
Our next question comes from Russell Gunther from Stephens.
Russell Elliott Teasdale Gunther
I wanted to follow up on comments that Gary made earlier. Just be helpful if you're able to share some of the assumptions that went into the company-wide stress test, you performed this quarter, sounds like that's something you do this time every year would be interesting to just get some kind of broad strokes around assumptions, particularly CRE price declines? Anything you guys could elaborate on?
Gary Lee Guerrieri
Yes. It's pretty much our normal stress test review, Russell, from the assumption perspective. From a result perspective, charge-offs came in a little lower than they did the past review. And in terms of the economic forecast, a little higher provision around the forecast. In terms of the ACL, it covered those potential losses by more than 50% in the worst-case 9-quarter scenario. So just a standard review, which we do on a pretty regular basis, and it came out better than we expected and better than the prior review.
Russell Elliott Teasdale Gunther
That's helpful, Gary. And then just switching gears for my last question here. On the securities portfolio, just any appetite to restructure some of that? And if so, what type of earn-back you guys might be willing to stomach?
Vincent J. Calabrese
Yes. No, I would say, I mean, historically, we've looked at that and it's a zero-sum game. So we like this portfolio that we have, the cash flows at a pretty healthy level, almost $900 million over the next 12 months, about 12% of the portfolio that's rolling off at $241 million and today, we're reinvesting in that kind of $540 million level. So given the structure of the portfolio, I think our team, Scott and his team has done a very nice job creating a portfolio so you don't have significant extension risk or contraction risk.
And with where we are today, the opportunity is there to cash flow every month. I mean for the second quarter, we reinvested about 2/3 of the cash flows, $135 million or so into the portfolio. The portfolio did shrink a little bit and use some of the funds to fund the loan growth is there. But during the quarter, we invested at $529 (inaudible). Last quarter, first quarter was $510 million. So we'll continue to opportunistically invest there.
As we look ahead out kind of the general plan will be to hold the portfolio about the same level as it was at the end of June as we go forward. Again, being opportunistic with where we invest. So far, we've been able to put $82 million to work at $540 million with a 3-year duration. So I think the strategy of the portfolio. It's a good sound portfolio, and I think the strategy makes a lot of sense for us.
Operator
Our next question comes from Manuel Navas from D.A. Davidson.
Manuel Antonio Navas
Just to kind of follow-up on that. Can you give a little bit more color on where you stand with borrowings and kind of decision-making in the process? I know you had it laddered out a little bit, and you gave kind of an update last quarter. Just kind of want to hear where you stand with borrowings today and with the cash on the balance sheet as well?
Vincent J. Calabrese
Yes. I mean, as we sit here today, we still have about $1.2 billion of what I would call excess cash. We put that on in the March time frame, given the market disruption that occurred. Like I said, that affected our net interest margin statistic that went down from kind of that March to April time frame that I talked about, but the dollars of NII is kind of posed to a push to that. And we talk about it regularly. For now, we're going to keep $1.2 billion, right, Scott?
Scott Free
Yes.
Manuel Antonio Navas
Okay. If I jump back to loan growth for a bit, it seems like the perspective is on the consumer side as purchase comes down and you're doing more gain on sale business. The consumer growth might decline a bit across the back half of the year, also on seasonality. Just kind of what are the trends there on an outlook? And then -- what are you seeing right now commercially?
Vincent J. Delie
Yes. I think you nailed it on the mortgage book. I mean, we're expecting it to tail off a little bit towards the end of the year. But I do think commercial is up, the pipelines are up about 12% across the board. Good activity in the Carolinas, a little slower than previous years, but still good solid activity. And this is where our geographic diversification really helps us, right? Because I think the Mid-Atlantic has slowed, D.C. and Baltimore is a little slower. Pittsburgh is still -- Pittsburgh, it just chugged along, Cleveland and Pittsburgh and then the South is still experiencing we're experiencing elevated pipelines.
But like I said, I think it's a little slower than it has been in the past. But it's substantial enough to provide us the opportunities to hit our guide. And that's why we reaffirmed our guide for the year. So as we're halfway through here, so we're feeling a little better right about where we're going to end up in mid-single digit cap.
So anyway, that's kind of the look. I think from a C&I perspective, there's probably a little more activity on the C&I side. Obviously, CRE is a little slower. Yes, we're not a player in the large office space who have been large office, we're not really a player there. So what we're seeing is a little different than what others may have chased, but that's where we are.
Manuel Antonio Navas
What's the current size of the Physician First portfolio? And is there any updates possible on kind of success on cross-sell or anything like that, that you can share?
Vincent J. Delie
Yes. I don't have statistics at hand to share with you and that portfolio continues to grow. It was north of $750 million in total. I don't have the exact number in front of me, but...
Vincent J. Calabrese
Yes, it's around like $1.5 billion...
Vincent J. Delie
Yes, that's globally. That's -- I'm referencing what we originated in our program versus what we hold on our balance sheet. We hold on our balance at larger raise and the mortgage, not just physicians in the Physicians First program. So the total portfolio would be $1.5 billion. originated through our specific program will be about $750 million to $800 million. But I think the -- again, I think we're going to be focusing as we move forward on more salable product. So we should be able to bring balances down. And those customers have -- we've really just started to scratch the surface in terms of how we go after sell opportunity.
So I don't have good statistics for you? -- we're very early on, particularly with the aggregation of those products in the eStore and come November, when we add the depository products -- what's going to happen is when somebody originates a mortgage loan, even through the physician's first program, they're going to be able to purchase the insurance and depository and other consumer loan products on the same platform at one time with one application. Insurance isn't going to come until a little later. But deposits and loans will be there end-to-end by November.
Vincent J. Calabrese
Yes. For physicians loans made this year, I mean, we're talking about 90% plus have multiple products...
Manuel Antonio Navas
That's great. And I guess my last question is as we see NII and given your rate assumptions that can change very quickly. But given NII and NIM guidance, do we think that NII could bottom out like early next year? What are kind of thoughts around that, given that this is a little bit of a hypothetical for next year?
Vincent J. Calabrese
Yes, I would say, I mean, the margin in NII probably bottom kind of fourth to first quarter kind of based on our current forecast and what we're thinking. And then we'll start to build there. Obviously, the earning asset growth that we have, right, is a key factor in there and helping -- but I would say over the -- kind of that fourth and first is based on what we see today, like you said, it could change quickly. So that's kind of where we would see things kind of bottoming out.
Operator
Our next question comes from Brian Martin from Janney Montgomery.
Brian Joseph Martin
Most of my stuff was just answered there with the loans and the margin, but just one more on the margin, Vince, I guess, does the pace of margin, it sounds like the funding cost pressure is slowing so that the rate impact of the -- going forward to the margin should be less and less if you are troughing in fourth quarter or first quarter, then the rate of decline in the margin should be maybe a bit more this quarter, maybe a bit less in the fourth quarter and kind of tailing off. Is that how to think about it given your outlook on rates?
Vincent J. Calabrese
Yes. I would say -- I mean I mentioned the 3 basis points a month the last couple of months. So what's baked into our guidance would probably be in that, I don't know, 3 to 4 a month, we will (inaudible) much slower pace than a 19 basis points that it was down in the first to second quarter. So that's what's kind of baked into our guidance. And then bottoming in that kind of fourth to first line and then starting to slowly build from there.
Brian Joseph Martin
Got you. Okay. And then just on the liquidity part and just deposit growth in general. I know you talked about maybe the noninterest-bearing being a bit lower. But just as far as the contraction and you talked about the seasonality this quarter on deposits. What's your outlook on deposits here? I mean if you maintain that liquidity is your expectations, those deposits seasonality grow a bit this quarter? I know you kind of gave the guidance for the full year, but just thinking about deposits in aggregate, not just noninterest-bearing bucket.
Vincent J. Calabrese
Yes. I mean what we commented on is kind of flat from June to the end of the year, just given the municipal deposits that flow through there. And I think our -- if you look at our data, I mean, all the peers aren't out yet, but our deposit decreases versus the HA data, I think, show very well. And I think that the noninterest-bearing changes from some of the stuff I've read is at the better end of things for sure in the prior quarter compared to those that are out so far.
Brian Joseph Martin
Yes. Okay. And just on the liquidity, when you actually you maybe look at using that to fund the loan growth as opposed to just holding it for a bit. What's kind of the outlook on that?
Vincent J. Calabrese
Yes. Really just for now, I mean, we're going to hold it, Brian, where it is. I mean we're earning $515 million on it right? About 25 basis points next week. So it's really not costing us to keep it and just given the environment, we don't have a set date. I ask that all the time we're going to start to deploy it. But for now, we're going to maintain that $1.2 billion. And like I said, it's from an NII standpoint, it's not hurting us.
Brian Joseph Martin
Yes. Got you. Okay. And then maybe just the last 2 was it sounds like with the loan growth, the pipelines are up a bit, but still kind of maybe a tepid on the commercial side. The buyback, I guess, is that something, I guess, this current level type of repurchases could continue for the near term, if you're -- the earnings are there and you're willing to take the capital may be a bit lower if you've got the conservative credit quality after the stress test? Is that fair how to think about the buyback going forward, certainly expecting guys to be opportunistic?
Vincent J. Calabrese
Yes, I think that's the key word. It's really opportunistic. And if the loan growth is a little slower than what's in our forecast, we could become more active. From a capacity standpoint, we still have plenty of the authorization, $140 million of capacity authorized and still could be used, Brian. So we'll continue to be opportunistic. And we manage that total alignment with shareholder interest, and we'll continue to do that.
Brian Joseph Martin
Yes. Okay. And then -- and maybe just the last one. I think, Gary, you mentioned last quarter that you might -- after you've done the stress test, you might think about doing -- making some sales on selective sales in the office side. I guess, any updates on that? I guess, as you kind of gone through things? Any changes to your outlook there still potential that, that may occur?
Gary Lee Guerrieri
We don't have anything in our queue at the moment. So really, really nothing that is teed up for a later year sale. It's always part of our quiver that we have to take action. So we'll continue to look at that as we move through the year, see if anything needs to be put into that category here before the end of the year. But nothing right now.
Operator
This concludes our question-and-answer session. I'd like to turn the conference back over to Vincent Delie for any closing remarks.
Vincent J. Delie
I'd just like to thank everybody for the questions, for the interest in FNB and thank our shareholders for their continued support. We're looking forward to the second half of the year. I think there's some great opportunities for us to execute and perform well. And I'd also like to thank our employees who are so dedicated and always get us through difficult times, good times, we've got very engaged and dedicated employees, and I wanted to thank them as well for what they've done. Well, that's all I have. Thank you, everybody.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
