Q4 2023 FNB Corp Earnings Call
Participants
Gary Lee Guerrieri; Chief Credit Officer; F.N.B. Corporation
Lisa Hajdu
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
Casey Haire; VP & Equity Analyst; Jefferies 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, everyone, and welcome to the F.N.B. Corporation Fourth Quarter 2023 Earnings Conference Call. (Operator Instructions) Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Lisa Hajdu, Manager of Investor Relations. Ma'am? Please go ahead.
Lisa Hajdu
Thank you. Good morning, and welcome to our earnings call. This conference call of F.N.B. Corporation and the reported files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures are often viewed in addition to and not as an alternative for, our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP reporting measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release.
Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Friday, January 26, and the webcast link will be posted to the webcast link will be posted to the about Us, Investor Relations section of our corporate website. I will now turn the call over to Vince Delie, Chairman, President and CEO.
Vincent J. Delie
Thank you, and welcome to our fourth quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer and Gary Guerrieri, our Chief Credit Officer. F.N.B's fourth quarter net income available to common shareholders was $49 million on a reported basis and $139 million on an operating basis. Full year 2023's operating performance was highlighted by record revenue of $1.6 billion, record net income available to common shareholders of $569 million and record earnings per diluted common share of $1.57.
Tangible book value per share has increased 15% year-over-year to a record high of $9.47 per share, steadily approaching a $10 milestone. Since 2009, F.N.B's internal capital generation, representing tangible book value and dividends has been strong with 10% compounded annual growth. With this strong profitability, full year positive operating leverage totaled 1.5% and is expected to remain in the upper quartile on a peer-relative basis. F.N.B's exceptional financial performance in 2023 was a direct result of the consistent execution of our strategic initiatives.
The banking disruption in the first quarter of the year placed a spotlight on the importance of balance sheet resilience including our deposit base, strong capital and liquidity position and prudent underwriting fees. It also reinforced the value of our quality customer relationships and comprehensive delivery teams. These attributes have always been integrated to F.N.B's long-term strategy, which has been proven through multiple cycles over the last decade and are ingrained in the foundation upon which F.N.B operates.
Our commitment to maintain a stable deposit base is evidenced in our total deposits, which ended the year to $34.7 billion, unchanged from the prior year, even with the elevated competition for customer deposits. The noninterest-bearing deposits to total deposit mix ended the year at 29.4%. While we have seen customer migration away from noninterest-bearing deposits, we continue to substantially outperform our peers in the industry and our total deposit cost and overall cost of funds.
Our spot deposit costs ended the year below 2% and was over 50 basis points better than our peers in the third quarter. Our better-than-peer funding costs and strong liquidity provide balance sheet optionality. Our tangible common equity to tangible assets of 7.8% with the highest level in the company history and exceeds the peer medians. F.N.B remains committed to optimally deploy capital in a manner that is fully aligned with our shareholders' interest and best position F.N.B. for future success. As part of that commitment, F.N.B. recently completed the sale of approximately $650 million of available for sale securities announced the redemption of $110 million of preferred stock and transferred $355 million of indirect auto loans to held for sale with the sale expected to close in the first quarter.
Together, these actions resulted in a capital neutral transaction that improves forward returns and earnings with expected EPS accretion in the low single digits. Our continued ability to meet our clients' needs is critical to our performance. F.N.B. has continued to make strategic investments in our delivery team to deepen customer relationships, gain market share and further outpace our competitors. In June 2023, we introduced the eStore common application in the majority of our consumer willing products and recently introduced deposit products in December, allowing customers to apply we're up to 18 consumer deposit and loan products simultaneous.
Our goal for 2024 is to bring small businesses into the fold with business loans, deposits and payments included in the common application in the eStore. These additional features further enhance the customer experience and deepen product penetration as customers can apply for multiple loan and deposit products simultaneously in a very streamlined manner, eliminating key strokes, providing a portal to upload supporting documents and automating account fund. We also made significant enhancements in our physical delivery channel in 2023.
In addition to expanding our footprint with 4 de novo locations, we entered into a partnership with the Washington Metropolitan Area Transit that establishes F.N.B as the sole ATM provider for the third largest heavy rail system in the United States. With ATM banking services in every metro station, the partnership will add more than 120 machines to F.N.B. network in 2024. Our physical delivery channel is approaching 2,000 combined branches, ATM and interactive television. Bearing with our digital Easter, F.N.B. has significant advanced access for our current and future customers while augmenting brand awareness across our foot.
With the success of our eStore and our exceptional bankers, total loans and leases ended the year at a record $32.3 billion, an increase of $2.4 billion since year-end 2022. We are beginning the year from a strong position and will continue to closely monitor the macroeconomic environment, or market-specific trends to manage risk proactively as part of our core credit philosophy. We will remain steadfast in our approach to consistent underwriting and risk management to maintain a balanced, well-positioned portfolio throughout economic sites.
I will now turn the call over to Gary to provide additional information on the fourth quarter's credit performance. Gary?
Gary Lee Guerrieri
Thank you, Vince. And good morning, everyone. We ended the quarter and year-end period with our asset quality metrics remaining at solid levels. Total delinquency finished the year at 70 basis points, seasonally up 7 basis points from the end of September and down 1 basis point from the prior year-end period. NPLs and OREO decreased 2 basis points from the prior quarter and 5 bps from the 1 year ago period to end at a very good level at 34 bps.
Criticized loans were down 13 basis points compared to both the prior quarter and year-end with net charge-offs for the quarter and full year at 10 and 22 basis points, respectively. I'll conclude my remarks with an update on our credit risk management strategies and CRE portfolio. Total provision expense for the quarter stood at $13.2 million, providing for loan growth and charge-offs. Additionally, provision expense had a positive benefit from a reduction in criticized loans and NPLs. Our ending funded reserve increased $4.9 million in the quarter and stands at $406 million or a solid 1.25% of loans reflecting our strong position relative to our peers.
When including acquired unamortized loan discounts, our reserve stands at 1.39% and our NPL coverage position remained strong at 418% inclusive of the unamortized loan discounts. We remain committed to consistent underwriting and credit risk management to maintain a balanced well-positioned portfolio throughout economic cycles. Each quarter, we performed specific in-depth reviews of our portfolios in addition to ongoing full portfolio stress test.
Our stress testing results for this quarter have shown lower forecasted net charge-offs and stable provision compared to the prior quarter's results, again confirming that our diversified loan portfolio enables us to withstand various economic downturn scenarios. Regarding the nonowner-occupied CRE portfolio, in 2023, we were successful in addressing maturities and the impact of the rising rate environment on the portfolio. In 2024, we will continue with the same strategy, monitoring the rate environment and proactively addressing upcoming maturities.
At year-end, delinquency and NPLs for the nonowner-occupied CRE portfolio continued to remain very low at 32 and 18 basis points respectively, which confirms our consistent underwriting and strong sponsorship. In closing, asset quality metrics ended the year at very good levels and we are well positioned going into 2024. We continue to generate diversified loan growth in attractive markets in a competitive environment for high-quality borrowers while maintaining our consistent underwriting standards.
We closely monitor macroeconomic trends and the individual markets in our footprint and we'll continue to manage risk aggressively while maintaining a consistent credit profile across all of our portfolios. 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 fourth quarter's financial results. Provide additional detail on the recent actions taken to further optimize our balance sheet and offer guidance for 2024. Fourth quarter operating net income available to common shareholders totaled $139 million or $0.38 per share, excluding $114 million of significant items impacting earnings.
On a full year basis, operating earnings totaled a record $1.57 per share. Tangible book value totaled $9.47, 15% increase from December 2022. Part of our ongoing proactive balance sheet management strategy, we took several actions to enhance future profitability and capital positioning. Late in the fourth quarter, we sold approximately $650 million of available-for-sale investment securities, transferred $355 million of indirect auto loans to held for sale and announced a redemption of $110 million of the Series T preferred stock that was issued 10 years ago.
The cumulative impact of these balance sheet actions generate incremental earnings has a tangible book value earn-back period of less than 1 year versus an earn-back of 5 years for stock buyback, while retaining capital flexibility in 2024. The sale of investment securities resulted in a realized loss of $67.4 million in the fourth quarter as we sold securities yielding 108 on average, and reinvested the proceeds into securities with yields approximately 350 basis points higher with similar duration and convexity profiles.
We recorded a $16.7 million negative fair value mark and other noninterest expense on the indirect auto loans classified as held for sale at December 31, reflecting changes in interest rates from the time of origination. The sale of these loans is expected to close during the first quarter with the proceeds being used to repay borrowings to have a similar yield to the sold loans. Our year-end loan-to-deposit ratio benefited by approximately 100 basis points.
Excluding the $355 million of held-for-sale indirect auto loans, underlying period-end loan growth was 8% since year-end 2022. Fourth quarter loan production reflected high-quality loans across our diverse footprint with quarterly commercial loan growth of $351 million and consumer loan growth of $178 million. Investment portfolio remained essentially flat linked quarter at $7.2 billion inclusive of the securities portfolio restructuring. There remains a fairly even split between AFS and HTM with 45% in available for sale at the end of the year. The duration of our securities portfolio at December 31 is 4.2 years similar to last quarter.
Total deposits ended the year at $34.7 billion, slight increase of $96 million linked quarter. As of December 31, noninterest-bearing deposits comprised 29.4% of total deposits compared to 30.9% at September 30. Given our granular stable deposit base, we believe we will continue to outperform the industry with a favorable mix of noninterest-bearing deposits to total deposits and lower deposit costs, which meaningfully outperformed the peers as our team remains actively focused on managing deposit mix.
With our spot deposit costs ending the year at [193], our cumulative deposit beta totaled 34.3%, in line with our expectations discussed last quarter. Fourth quarter's net interest margin was 3.21% with decline of only 5 basis points, which is better than our expectations discussed last quarter. The yield on earning assets increased 14 basis points to 5.25% due to higher yields on both loans and investment securities. Total cost of funds increased 21 basis points to 2.14% as the cost of interest-bearing deposits increased 29 basis points to 2.65%. Net interest income totaled $324 million, a slight decrease of $2.6 million from the prior quarter.
Turning to noninterest income and expense. Operating noninterest income totaled $80.4 million and adjusting for the $67.4 million realized loss on the investment securities restructuring. Mortgage banking operations income increased $3.1 million linked quarter due to improved gain on sale margins aided by the decline in mortgage rates in the fourth quarter. Other noninterest income declined $2.4 million and small business investment company funds came from decreased reflecting normal fluctuations based on the performance of the underlying portfolio of companies.
Additionally, we broke out our service charge fee income line on the income statement into service charges and a new line item for interchange and card transaction foods, which was previously captured in the service charge line. This will create better transparency into our various revenue streams in noninterest income. Operating noninterest expense, $218.9 million was relatively stable compared to the prior quarter when adjusting for the fair value mark on the held for sale in direct auto loans of $16.7 million and the $29.9 million FDIC special assessment related to replenishment of the deposit insurance fund for the bank failures.
The linked quarter increase in outside services of $2.4 million reflects higher third-party costs. Bank shares and franchise taxes defined $2.3 million, reflecting charitable contributions that qualifies the Pennsylvania bank shares tax credits and marketing expenses decreased $1.2 million due to the timing of digital marketing campaigns in the third quarter. The fourth quarter efficiency ratio of 52.5% continues to be in the top quartile of our peers. Efficiency ratio of 51.2% on a full year basis demonstrates our commitment to effectively managing costs while growing our diverse revenue streams.
We ended the year with our capital ratios, some of the strongest levels in recent history. Our CET1 ratio of 10.1%, which includes the impact of the previously discussed balance sheet management items and the FDIC special assessment remains above our stated operating target. Tangible common equity totaled 7.8% when excluding the 54 basis point impact of AOCI, will equal 8.3%. Tangible book value per common share was $9.47 at December 31, an increase of $0.45 per share from September 30. AOCI reduced the tangible book value per common share by $0.65 as of year-end compared to $1.06 last quarter, primarily due to the impact of interest rates on the fair value of available-for-sale securities.
Because the investment securities that were sold in December were in available for sale, the realized loss did not incrementally impact TCE or tangible book value since the market value is already reflected in AOCI. Let's now look at the 2024 guidance for both the first quarter and the full year, starting with the balance sheet. On a full year spot basis, we expect loans to grow mid-single digits as we continue to increase our market share across our diverse geographic footprint. Total projected deposit balances are expected to grow low single digits on a year-over-year spot basis.
Full year net interest income is expected to be between $1.295 billion and $1.345 billion with the first quarter of 2024 between $318 million and $328 million. Our guidance assumes 325 basis point rate cuts aligning with the (inaudible) , which we are projecting to occur in May, July and November 2024. Noninterest income is expected to continue to benefit from our diversified fee-based income strategy with the full year results between $325 million to $345 million and the first quarter between $80 million and $85 million.
Full year guidance for noninterest expense is expected to be between $895 million and $915 million, which includes the impact of approximately $6 million of rent expense during the build-out phase of our new headquarters, while we still occupy our current office space.
Adjusting for this impact, the midpoint of our expense guidance results in a 3.7% increase from 2023 operating expense levels. The first quarter noninterest expense is expected to be between $225 million and $230 million as the compensation expense is higher in the first quarter largely due to normal seasonal long-term stock compensation and higher payroll taxes at the start of the new year. Full year provision guidance is $80 million to $100 million, and is dependent on net loan growth and charge-off activity.
Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince.
Vincent J. Delie
During 2023, F.N.B. completed a number of initiatives that align with our strategic priorities including introducing the eStore common applications for consumer loans and deposit products expanding our physical delivery channel and investing in systems and processes that enable us to streamline operations. We continue to expand our data analytics capability and the use of AI to improve performance.
These strategic initiatives have directly contributed to our peer relative outperformance in 2023 amidst the banking industry disruption with the company generating record operating EPS of $1.57 and strong organic loan growth of $2.4 billion. Deposit balances remained flat with noninterest-bearing deposits comprising 29% to 34% of total deposits and a top quartile cost of products. We have completed over $75 million in cost savings over the last 5 years, excluding the acquisition synergies, leading to positive operating leverage and an efficiency ratio in the top quartile relative to peers at 51.2%.
Operating return on average tangible common equity totaled 18%, intangible book value grew 15% to a record $9.37. Our asset quality continues to be a strength as we ended the year at or near historically low levels. This year's exceptional performance was made possible by our employees. Their commitment to F.N.B's mission and values drive success for all of our stakeholders. In 2023, our team's efforts were evident as F.N.B. received more than 30 prestigious awards. Multiple independent organizations recognized F.N.B's financial performance, outstanding culture and innovative technology with eStore earnings international.
We believe that these honors and our performance are a direct result of our engaging and rewarding workplace environment. I am proud of what we've built together. Thank you.
Question and Answer Session
Operator
(Operator Instructions) And our first question today comes from Daniel Tamayo from Raymond James.
Daniel Tamayo
Maybe we start on the impact of the balance or restructuring on the margin. I appreciate the guidance for 2024. But just as we think about the impact on -- in the first quarter, curious if you can walk through how you're thinking about the impact of the restructuring, looking at it as a 5 or 6 basis point impact relative to kind of just continued deposit pressure and then how that the path of the margin moves throughout the year in your assumptions?
Vincent J. Calabrese
Yes, I would say a couple of things. First of all, if we look at the fourth quarter, to go forward, net interest income only declined $2.6 million linked quarter, which was the same as the prior quarter. The NIM compression for the quarter was only 5 basis points. Last quarter was 11. In fact, November and December, we're at (inaudible). So the level kind of stabilized there, at least for those 2 months. The restructuring is fully baked into our guidance that we provided.
As far as the past with the margin here, I would still say what we said last quarter that probably bottomed somewhere in the first half of the year and then some slight improvement from there as far as when you get into the second half of the year. But there's a lot to happen right, with the Fed cut. And we have 3 Fed cuts in ours, there's 3, 4 or 5. The 3 felt most reasonable to us. That's what's baked into our guidance with the benefit of the restructuring. And as we have over time, we'll continue to actively go after demand deposits, we're going to focus here.
I think our percentage of total deposits has performed very well relative to the peers and the changes in that bucket have also kind of stacked up very well. So the NII guide kind of has everything baked into it, Dan.
Daniel Tamayo
No, I understand and I appreciate that. I guess another way of asking, maybe do you think the deposit pressure in the first quarter offsets the -- I mean, it sounds like you're saying we still maybe get more compression in the first quarter on an overall basis. So you think that offsets more than offset the balance sheet restructuring and that just continues in the first half in the first quarter?
Vincent J. Calabrese
Well, we're not going to specifically comment on margins for the quarter, right? The net interest income as all of that baked in. The mix shift that has happened during the quarter, we've continued to see customers going after higher rate products and just natural. People are sitting here feeling like, okay, the Fed is at the top, average rate since July when are they going to start to cut. So there's definitely been some of that mix shift still occurring.
In the first quarter, our demand deposit, that's usually our weakest quarter seasonally because of municipal deposits to kind of bottom and then build up. So all of that does put some pressure on the margin and then the restructuring helps to offset some of those impacts in the first quarter, probably one way that I could comment on that.
Daniel Tamayo
Got it. Okay. I guess just lastly, just digging on the balance sheet sensitivity side. Just curious how we should be thinking about you mentioned bottoming in the middle of the year. I think in the past, we've talked about maybe being liability sensitive in the medium term but maybe asset sensitive in the near term with rate cuts.
That still how we should be thinking about it, perhaps some negative impact early on? And then maybe after a few quarters, that's when you start to benefit more from rate cuts?
Vincent J. Calabrese
Yes. So that's definitely the right way to think about it. The sensitivity, whether we get additional cuts beyond the 3 as you know, there's a lot of moving parts to this question. And there are actions we may take depending on the economic environment. So but as you described the time frame is key, right? In the short run, you have a negative impact particularly from the cluster and an additional cut and then I think the deposit lags will catch up over time.
I mean, historically, if you look at our beta today, right, we're around 34%. In the last upgrade cycle, we kind of maxed out at 35%. It seems reasonable to assume that. But that would take kind of more in the medium term, longer term to catch back probably the medium term on the deposit rate lags to catch up and have that benefit. And as you know, we've taken a lot of actions. I mean the CD book has been growing in the shorter term 7- and 13-month type area. Our total average maturity of the CD portfolio right now is 10 months.
So there's opportunity there to reprice that as we go forward. Think of with the timing of when the Fed would move but yes, I think that's -- we're still slightly asset sensitive and really philosophically managing to neutral and then we think that -- if you look at our margin path for the year, it kind of more neutral with the expected 3 cuts that we have baked in.
Daniel Tamayo
Okay. Great. Appreciate it.
Operator
Our next question comes from Frank Schiraldi from Piper Sandler.
Frank Joseph Schiraldi
Just wondering if you could talk a little bit about the dynamics of loan growth versus deposit growth here. And you obviously your guide as you getting closer to 100% loan to deposit over time. Just trying to think through what might be the main governor on loan growth here and how you're bringing deposit dollars in the door. In what continues to be a pretty competitive environment.
Vincent J. Delie
Yes. I think let me start out and then I can turn it over to Vince Calabrese. First of all, I think some of the things that we talked about in the prepared comments relative to acquiring appliance is a way for us to drive deposit balances. I mean adding the ability to simultaneously open a deposit account with a loan application without additional key strokes. That's huge for us.
So I think that will help once the field starts utilizing these tools and customers start engaging online and realize that they can do that, it will increase our probability of capturing more of the client relationship, particularly the deposit side. So when the loan request comes in, we'll be able to act a little more quickly on opening the deposit accounts. So that's one thing that we planned for and we think will help us as we move forward.
If you look at engagement with the eStore, we looked at -- we've rolled that out about midyear. So if you look at the 6 months in '22 versus the 6 months in '23 in the same period. When you compare the number of applications that we were able to obtain online, they doubled -- we doubled the number of consumer loan applications. That's without the deposit account opening capability by the way. And 30% of those clients -- 30% of those applications were with non-F.N.B customers. So that's one piece of it. The enhancement of the digital strategy.
The second opportunity for us is really in small business and middle market banking on the TM side. We've invested pretty heavily in our treasury management capabilities. We have some product capabilities coming online. We mentioned that we're going to bundle products in the small business space in '24, probably towards the latter half of the year, we'll be rolling that out. That will also help us grow deposit balances. And if you look at what we've done historically, we've historically grown deposit balances around the 10% -- 8% to 10% range organically.
So I think we've kept pace with the organic loan growth that we've achieved, which is similar right, over a long period of time. And I think some of the things that we've done strategically and entering into new markets that have more opportunities because of population growth and business formation. We're going to be able to continue to keep our objective, which is to fund our loan growth with the deposit balances that for new customers. I don't know, Vince, do you want to add anything numeric?
Vincent J. Calabrese
Yes. No, all I would add, Frank, is that we don't get all the way to 100% within our guidance. We're in that 95%, 96%, 97% kind of area as you kind of forecast it out. But as we've done in the past, historically, when we got to 97%, going back a bunch of years, we took action this quarter selling the indirect auto loans creates more shelf space for us.
I mean, that gave us a 1% in the loan deposit ratio. So we will manage that level. We won't go all the way to 100%. We're in the mid-90s what's baked into the guidance, as I mentioned, we'll start to manage. We get to 95%. We'll look at what's the environment? How fast are loans growing and what things action as we always have, just kind of manage.
Vincent J. Delie
For us, it's not a function -- it's not a question as to whether or not we can fund our balance sheet with deposit growth. We can do that. And we have the capability of doing it, it would just be a margin or over, right? So we're trying to balance it all out right. We very confident to growth to price up. We want to compete with everybody else out there, prices up our CDs and our money market rates, we could bring a lot of money in it.
We brought in $1.3 billion in new money. I mean, we -- back half of the year, it's a function of trying to manage it all so that we maintain relative profitability. Our goal is to outperform. So we're -- we're not trying to give everything away for balloon our balance sheet. We understand what our funding constraints could potentially be. And the trade-off is margin. So we have to be getting it on the other side with the loan originations to justify it. That's how we look at it.
Frank Joseph Schiraldi
Sure. No. Understood. That's great color. And then I guess just a follow-up there, Vince, you mentioned the making some room with the small sale of the loans. Obviously, you're always thinking about balance sheet optimization, but that being said, just wonder if this is -- if you see more opportunities here in the near term to do just that, maybe Jed assumes some smaller pieces that, for whatever reason, the total returns not there.
Is that a way in the near term to continue to hold the loan-to-deposit ratio where it is? Or is it -- or do you see this as more of like a one and done in the near term?
Vincent J. Calabrese
Yes. We spent a lot of time during the fourth quarter, sizing what we wanted to do as far as the amount of securities and the amount of the loans that we felt. So we don't have any plans to do any additional sales as we're sitting here today. I think we refine like Vince said, we have the ability to fund and grow the deposits we've done it forever. So at this point, I wouldn't say one and done forever, right, because we're always studying the balance sheet. And if there's opportunities, we'll look at it, but there were no plans right now. Like I said, we spent a lot of time sizing it and came up with what we executed on.
Vincent J. Delie
If the rate environment enables us to unload loan-yielding assets, and we get a gain, and we can roll that into something else. Sure. We've done that historically. We've sold over $1 billion over the years. So we'll look selectively, Frank. And we constantly look at the balance sheet. Our objective is to produce the highest returns possible. And we'll look at opportunities to get out, particularly with indirect auto, the limited relationship, right?
I mean, we'll look at that and we'll trade out of it or we'll pare it back, right? We used pricing mechanisms to move the portfolio around, right? And we'll see. It's all a function of what the interest rate environment is, what demand looks like in higher-yielding categories. What the risk profile of the balance sheet looks like. We take all of that into consideration and make decisions based on that. But our plan is to manage in the range from a loan-to-deposit perspective that we have historically. We're not looking to move outside of that.
Vincent J. Calabrese
Yes. I would just say, too, Frank. We're not -- we don't feel constrained as far as loan growth that we would want to go after. I mean mid-high single digits that we've done -- we can do that -- we've done things like Vince is describing. And then like in the mortgage business, we've adjusted our pricing a little bit there to make more saleable products. So we're kind of reducing the amount of growth that's going on to the balance sheet, which is kind of part of how we manage the balance sheet. So there is a lot of different levers there.
Frank Joseph Schiraldi
Great.
Operator
Our next question comes from Timur Braziler from Wells Fargo.
Timur Felixovich Braziler
Maybe starting Vince Delie, you had made a comment positive operating leverage in '23 look to be in the top quartile in operating leverage going forward. Does that put positive operating leverage on the table for '24? Or is the revenue backdrop challenging enough or that's more likely not going to happen next year?
Vincent J. Delie
Yes. I think as we move through this interest rate cycle, it becomes more challenging, obviously, right, because you're seeing declining revenue and your expense base is pretty much fixed. So we've taken expense out, but it's hard to do. I think the second half of the year, I certainly would expect us to go produce positive operating leverage.
So as we move through that inflection point that Vince spoke about earlier, right, the margin compression with the rate cuts, we should be able to move through that and into the second half of the year, experience positive operating leverage. If you look at F.N.B. on a full year basis in 2023, we outperformed others, right, because we produced full year operating leverage. There was negative operating leverage all over the place, at least based on what I saw. So I think I would expect us to do everything we can to be in a similar position in '24.
Timur Felixovich Braziler
Yes, that's helpful. And then one for Gary. Just looking at the office maturities in '24, it looks like 20% of that book is maturing I'm just wondering how much of that maturation is or loans kind of vintage 2019 and earlier and then as you look at your CRE portfolio, again, looking at the vintages 2019 and earlier, how different are those loans from a credit quality standpoint just given how different the world is today versus pre-pandemic.
Gary Lee Guerrieri
Yes. Generally speaking, we're going to underwrite those things from the origination date in the low to high 60s range. So when you look at those maturities in addition to that LTV level, which has been very helpful through this cycle so far. They're also underwritten very short.
So with maturities inside of 5 years or slightly less in some cases. So a number of those transactions have been renewed over the last year or few, many of those borrowers rightsized those transactions. It has been our intent to keep those maturities very short and we'll continue to do that during these times. That all said, we feel as focused as we are on that office space as is everyone we feel quite good about the portfolio at this point. We've only had a couple of credits over the last number of years when since this space has taken a tough go of it from all of the pandemic issues that we've seen.
And we've only had a couple of credits that we've had to deal with from a loss standpoint. So we feel good about the position of it. There is a 20% roll rate in the coming year and we expect to move through that with our sponsors, which have shown the ability to rightsize the post additional to reserves to pay down debt and bring it back to a 120 type of debt service coverage. So we'll continue to do the same thing in '24 that we did in '23.
Vincent J. Delie
I'll add on to what Gary said. I think from a prudent underwriting perspective, most of the transactions that we would have underwritten in 2019 would have had long-term leases that go out longer than the maturity that Gary mentioned, having a shorter maturity date. What that means is that while cap rates may change and the valuation may change with a lower LTV and a longer lease term that the debt service coverage remains intact.
So it's a lot easier to deal with a devaluation because of the rising cap rate if you have substantial liquidity and a long-term tenant locked up. So I think that in almost every case, that's what we would look at when we would underwrite these transactions, which gives us a great degree of confidence. I also can tell you most of the portfolio, the vast majority of the portfolio sits outside of the urban office scenario. So I think that we have quite a bit of protection in that suburban office in higher-growth areas is not as subject to vacancy like you see in the large cities.
The other add to the size of the annulars, 40% of the portfolio is less than $5 million in terms of loan size. You move that up to $5 million to $10 million, it's another $17 million. So you're pushing 60% of the portfolio is less than almost 60%. It's less than $10 million and you move that up one more level to $15 million, and you're at 70% of the book of business. And in total, the top 25 credits average right now, just a touch above $30 million, I think it's right at $31 million.
So the portfolio is very granular. I think we've been very prudent in taking granular hold positions across that space. And it's really shown in the performance grew, what's been a difficult time. It's geographically diverse, too. It's the other right across 7 states, concentrated in one city or one specific area. That we -- obviously, it's something we watch. It's -- there's definitely a weakness in urban office. So it's a good question. Does that help?
Operator
Our next question comes from Casey Haire from Jefferies.
Casey Haire
I want to follow up on the NII guide. So Vince, if -- it sounds like deposit beta is going to peak at around human deposit beta peaks around 35%. Just wondering when does that take place relative to your first Fed cut? And then what is your guide assume for deposit beta on the way down for '24?
Vincent J. Calabrese
Yes. I would say we would drift a little higher we ended the year at 34.3%, I think it says in the slide. We'll just a little bit higher here, another point or 2 is what we're thinking. And then when that happens for second quarter of consistent with the margin kind of bottoming in the first half of the year. And then what we were thinking -- I mentioned the update, it's been 35% now twice on the upside. I think as we look to the point when the Fed pivots and starts to reduce rate using a similar over the medium term, right, 35% makes sense to us.
But within '24, depending on the timing of the Fed cuts, right, and we get some portion of that probably get more than half of it, but you wouldn't get 35% off in calendar '24. So as we have been, we will actively be managing our deposit book on the pricing and in our weekly pricing committee meetings, we already started to talk about, okay, when to be lower rates. Some of our competitors have. So we're going to monitor very closely discuss it constantly and we'll take the right action at the right time. But somewhere in that half or so of that 35%, it might get this year.
Casey Haire
Understood. Understood. And then just switching to credit. Gary, if I'm interpreting your remarks correctly, it sounds like you expect net charge-offs to go to decline this year. I'm just wondering what kind of loss rate your provision guide contemplates.
Gary Lee Guerrieri
Yes. I mean in terms of the provision guide at the $80 million to $100 million, naturally, that supports loan growth as well as charge-offs, the specific charge-off level that we've got baked into our plans. I mean, that's a number we don't disclose but I would compare with your thoughts. I mean, we do expect performance to be stable to slightly improve every priority.
Vincent J. Calabrese
But I think, Casey, if you go to Page 9 in our presentation, you can see net charge-offs to average loans, the third quarter of '23 has we have that one-time event that occurs. So I mean we're.
Casey Haire
Yes, fair enough. That was right.
Vincent J. Delie
What you're seeing in your charge-off.
Gary Lee Guerrieri
Yes. If you look over the last 3 years, Casey, last 3 years would have been 6 basis points -- 6 basis points and '23 would have been 10 basis points excluding that one item. So you've got really solid, steady performance there over a very pretty sizable, extended and somewhat tumultuous period. And like I said, we like the position of the portfolio. We felt quite good about it going into 2024. Naturally, we're all concerned a bit about where is this economy going and what will that all mean and that has to play out as we all know. But we're good, steady performance and stable up of the portfolio.
Casey Haire
Okay. Great. And just last one for me. Vince Delie, you mentioned your TC is at the highest level. I think, in your history in the CET1 above 10%. How are you guys thinking about what's the share buyback appetite with your capital ratios at current levels?
Vincent J. Delie
We still have, we have authorization to repurchase shares from the Board. We plan on evaluating that as we move along. If we see opportunities to buy shares back, we're certainly going to do it if the earnback is reasonable, right? I mean because we're trying to manage tangible book value levels as well. So I think we're going to continue to look at it and evaluate it and opportunistically execute transactions if they make sense.
The deployment of capital as we move forward, really, we're looking at the potential for changes in the economy and loan growth as well because we want to deploy that capital in the most meaningful way. But if we see slowness, we're not just going to sit here and continue to build capital and what we have to do to make sure the returns are -- I don't know if that answers your question or not. In other words, still on the table and we're still going to consider it as we move on.
Operator
Our next question comes from Michael Perito from KPW.
Michael Anthony Perito
I really just have one last question. I wanted to hit on for Gary on the credit piece. Just yesterday, discover reported earnings and had some uptick on the consumer side and their prime book lines of credit, autos and things of that nature. Just curious what you guys are seeing on the consumer side and from a credit health perspective, most of those portfolios outside the mortgage book, I think, shrunk this year. Just what type of growth is baked into 2024? And what are some of the -- maybe the key things that could drive some better growth performance on the consumer side? Is it just kind of a macro health environment? Is it pricing, competitive dynamics? Just would love some color around all those topics, that would be great.
Gary Lee Guerrieri
Yes, total delinquency across that all-inclusive portfolio, which is right at about $12 billion is 89 basis points. So that's all in consumer. The fourth quarter, it's always up a little bit seasonally at the end of the year with the holidays and whatnot. But if you look over rolling 13 months time frame, it's been from 70 basis points to the (inaudible).
So we've seen very consistent performance across that portfolio. The underwriting that we do there, I feel very good about. I think it's very prudent and very stable. We're able to generate good loan growth through those portfolios. And when you look at the investment that we've made and the teams there, it's an important part of our business. So as we look forward, we continue to expect good solid growth there in that mid to slightly higher range in this environment in the high single-digit range in this environment and expect that portfolio to continue to perform well through the cycle that we.
Michael Anthony Perito
That's helpful. So it sounds like in the mid-single-digit growth guidance, there's some consumer growth baked into that for '24. That's the expectation as you stand today.
Vincent J. Delie
Yes including mortgage. But if you stripped out more, we're still expecting growth and again, I think some of the investments we've made in the digital tool the fact that we're spread across the (inaudible) 60 million consumers in our footprint. Some of the build-out with the ATM delivery channel that heightens provides consumers with accessibility of cash and our brand. I think all of that gives us a little bit of confidence, even though I would say the consumer with inflation and some of the changes economically that are going on are going to be a little challenged. I think we're in a pretty good spot that is continue to grow the book, not as robustly as we have in the past.
I know it's been -- last year was tough but things are going to stabilize, and we should see in a lower rate environment, some opportunities to grow that portfolio. But that's baked into the guide.
Michael Anthony Perito
Great. Very helpful.
Operator
Our next question comes from Russell Gunther from Stephens.
Russell Elliott Teasdale Gunther
I just wanted to follow up on the balance sheet repositioning around the tangible book value earn-back math. So I get the securities repositioning. I just wanted to confirm that the preferred stock dividend saving is included in that calculation? And then just ask for some additional color on the indirect auto piece. What rate borrowings would be paid down, whether there's any reserve release associated with those loans included in that math? Just trying to get the puts and takes.
Vincent J. Delie
Yes. So Russell. So as you know, the securities repositioning was done on the available-for-sale portfolio. So that was already baked into the tangible book value. So there's no incremental hit from that. There's very slight hit from the loan sale. But just given the overall strong earnings accretion from the combined transaction, that earn-back is less than a year. When you add in the preferred dividend, it still stays obviously because that's accretive to that would be less than a year. So pretty strong earn-back metric. Anything -- sorry, did I address all your questions there?
Russell Elliott Teasdale Gunther
The auto piece and what the discount of puts and takes on the savings were there, just the rate of borrowings you'd expect to pay down and whether there's any reserve release associated with those loans that's included in that calculation.
Vincent J. Delie
Got you. Yes. No. So the borrowings, we talked about paying off at a similar rate as the yield on the loans. So we're talking roughly 5% to 5.5% type yield on those loans. So net pay down borrowings at a similar rate. And just as a reminder, that loan sale hasn't closed yet. So we actually haven't seen the capital benefits from that full transaction. So just on a pro forma basis, when the loans do go off the balance sheet, we'd expect CET1 to increase unestimated 10 basis points and (inaudible) increase roughly 6 basis points as well on top of that.
Vincent J. Calabrese
And there's no additional income statement at tax, Russell, in the first quarter because with us marking it to the market that captures everything in the fourth quarter. So really, it's just actually executing the sale itself.
Russell Elliott Teasdale Gunther
And then I guess just the last follow-up then would be back to the CET1 discussion, the pro forma still north of that 10%. You guys addressed the repurchases, but also sensitivity around earn-back. So not willing to let capital increase or additional securities repositioning on the table? Or how are you thinking about that?
Vincent J. Calabrese
No. I think we spent a lot of time in the fourth quarter sizing what we did. So we don't have any plans to do any additional security sales, which shift gears. Remember, during the last few years, I mean, we stayed short demo investment portfolio, we stayed conservative on how we manage that. So the total dollar amount that we did there was the kind of the total we're looking to do. We don't have any (inaudible) anything additionally. And then from a capital ratio perspective, within our guidance, and then our capital ratios will drift up as you go through the year, which is important. And then to Vince's point earlier, opportunistically, that will create an ability to do share buybacks if it makes sense.
Vincent J. Delie
Yes. And I like to see tangible book value above $10, right? I mean, that would be something that we could all celebrate. Because I think ultimately, that translates into a higher valuation for us given our profitability. But -- so we're going to be managing all of that. We're going to be watching all of that and making smart decisions based upon return pressure.
Timur Felixovich Braziler
Understood.
Operator
Our next question comes from Manuel Navas from D.A. Davidson & Company.
Manuel Antonio Navas
Just wanted to get a bit of your economic backdrop behind your loan growth guidance. And then behind the provisioning guidance.
Vincent J. Calabrese
In economic environment, I mean, it's kind of what the consensus economists would be saying. I mean it's slowing growth in the second half of the year. We're not making kind of cost on our own. We're kind of looking at what the expectations are from economists throughout the country. And that's kind of what's baked in the GDP, Scott and our plan goes down to like a 0 point, but it's still growth.
Vincent J. Delie
2% on average.
Vincent J. Calabrese
2% on average for the year, right.
Manuel Antonio Navas
So that expectation if it was to worsen, would the provision be above the range?
Vincent J. Calabrese
I think we're very comfortable with the range we have.
Vincent J. Delie
Yes. No, we feel very comfortable with the range at this point on where the economy is and how the portfolio looks to be.
Manuel Antonio Navas
And then loan growth, the pace has been really strong here to close the year. Is that kind of more front-end loaded as it kind of slows across the back half of the year? Or is it -- you feel pretty good about that mid-single digits kind of staying consistent across the year?
Vincent J. Delie
Yes. I mean there's seasonality within the originations depending on the portfolio. If you look at the commercial book, it tends to grow more in the second into the third quarter. If you look at mortgage banking, I mean moved that up a little bit, maybe a quarter really first and second quarter, it starts to take off. So there are differences in the portfolios. I just use those 2 as an example. But I think when we build our plan to give consensus, we look at both macro and micro scenario.
So basically, we built our plant from the ground up. We surveyed our business units. We look at our production capability historically in the markets we're in. And then we look at the macroeconomic environment, says is achievable. And what's happening. And we basically used -- that's why Vince said, we use consensus estimates by economists. We don't forecast ourselves from the else's forecast and then we apply that to our model. So it's all kind of baked in to what we give you. So we're building it from inside of our own company and then we're looking at the macroeconomic factors that would influence that.
That goes for provision expense, loan growth, commercial consumer mortgage, kind of break it down by segment and then build it from the ground up. So I think given where we are in the cycle and what we're seeing and hard to predict, but we're a little more optimistic than we were a quarter ago going into next year. And I think that's reflected in the guide on the loan growth. I'm hoping we can do better. If you look at our pipelines, we did pretty well commercially in the last quarter. It's reflected in the loan growth and the surge in the fourth quarter. That can change from year to year commercially.
But we did well last quarter. So when you look at our pipelines moving forward, we're relatively flat. So we don't have a big pipeline that we're looking at that says, hey, yes, we're going to achieve 3% or 4% or 5% or whatever the mid-single digit in that portfolio. So I would say that I feel pretty confident about what we're putting forward given what we know about the economy today. I don't know -- that's really helpful.
Manuel Antonio Navas
Can I add, is there any kind of regional takeaways from your eStore performance? You have a lot of activity, you have a lot of non-account holders using the eStore. Can you break it down regionally at all? Or is it just great trends in general?
Vincent J. Delie
Yes. That's an interesting question. I just asked our people that question. So I ask the same question internally. It's still relatively new, we're trying to figure out how to devise that gets us as granular. Gets as granular as we need to be from an origination perspective. But when they initially looked at it, it's pretty much across the board, which is interesting. It wasn't in one particular geography. It was spread across a pretty broad geography.
So I think anywhere where we have name recognition, branch locations, right? We tend to get more action. Once you move outside of that, we don't advertise a lot so you don't see as much activity, which is part of the reason why we decided to go with branded ATMs and do the ATM deployment because our theory was that the more frequently consumers see us, the more likely they are to digitally. That was part of the strategy. So it seems to be working. If you look at where our geographic locations are where we have signage and some recognition, there's more activity digital.
Manuel Antonio Navas
That is great. I appreciate that.
Vincent J. Delie
And then obviously, we're going to now that we've added the deposit products in December. We are going to start advertising. So we will try to grow that through some advertising, bring some awareness to the consumer of the capability. I know locally, I saw it during the Super Bowl, we manage (inaudible) not the Super Bowl, but the national championship for the college football (technical difficulty) dealers are already out lost. But we get some support, let's put it this way. We were in the playoff game. We ran during the Steeler Buffalo Bills game. We ran during the national championship probably locally, right, because we have customers that are in tune with those events. So we ran some advertising and some people commented on it.
And then the branding of the buildings in certain markets has helped us with visibility, particularly for, I think we've seen more activity from a prospecting perspective because of the signage on our headquarters building and that activity that's brought some people and then the sponsorships with the penguins, Wade Jersey, the patch, you've got a lot of play on that as well. Anyway, that's how we're trying to build awareness.
Operator
(Operator Instructions) Our next question comes from Brian Martin from Janney.
Brian Joseph Martin
Well, most of my questions have been answered. Just 1 question, Vince, you answered it, I think the last question was just on the cadence of the commercial growth of the commercial pipeline? It sounds like it's a little bit slower to start here, given what fourth quarter looked like, but it probably builds from there. That's just in general, what I heard. Is that fair?
Vincent J. Delie
Yes. I mean we had a really strong third quarter to kind of clear out the 90-day bucket on the pipeline and that has to rebuild. Relatively flat. We had good production out of the Carolinas. There's double-digit growth in some of the Carolina portfolios, which is pretty positive. Without CRE, without a big contribution from CRE. So we're pretty excited about that.
And I think there will be opportunity in the Midwest and in the Northeast as well from a C&I perspective as we move into next year -- the latter half of next year.
Brian Joseph Martin
Got you. Okay. And then just one for Gary. Gary, the credit just -- it sounds very strong. I mean, I guess if you point to one area today that you're maybe a bit more watchful of the criticized sounds like they were down this quarter. But just in general, is there any area that you're paying a bit more attention to as you kind of head into '24, given the strength of the portfolio?
Gary Lee Guerrieri
Well, I think the CRE book, just in general. I mean, we've been all over that. And the team has done a really nice job of building out risk management practices around that. Tom Fisher and his team are all over those books of business as they are the rest of the portfolio. But the office space, naturally, and we've said it for years, that was going to be a longer-term portfolio segment in the industry. That is going to have to be dealt with over time.
I mean that change was, I would say not temporary. There's been a permanent change in that market. Fortunately, I think we chosen well there over time with good solid sponsors that have liquidity and I think that's why that portfolio has continued to perform as it has to this point. But that CRE space in that office portfolio. I think it has to wait a way to go to that, Brian. So we'll continue to be all over that.
Brian Joseph Martin
Okay. Perfect. Yes. And then maybe just last 2, just on the fee income side, just kind of looking at the pickup in mortgage and you talked a little bit about kind of a little bit of a change in strategy there. Just kind of the puts and takes on mortgage outlook for here and then just the capital markets revenue. It was pretty consistent, maybe a little bit lower level from where it was previous years just kind of wondering how to think about that or just how the pipeline looks there.
Vincent J. Calabrese
Yes. I would just say the noninterest income, again, shows the benefit of converged by revenue base, right? I mean we've had another good quarter of above 80%. We've been above 80%. 6 out of the last 7 quarters, getting their different ways, but again, the benefit of diversification. So capital markets was a solid quarter for us. I mean, it's up from the prior quarter, down from last year. I had a 10 handle to it, but there's still a lot of opportunity there. And I think when the rate environment starts to shift, we will continue to be opportunity there.
But we have really all the contributions from all the components there from a swap perspective international syndication at capital markets. So there's a lot of pieces even within that business. And then the mortgage bounce back. I mean we had a really strong '23 I mean in an environment where the market was down from an origination standpoint, the overall industry was down, we were up, and we're forecasting from an origination standpoint. Close to double-digit increase in originations in '24 versus '23.
And then my comments on pricing was more just about saleable versus portfolio, not really affecting the level of originations but kind of what we earn on the balance sheet and what we sell.
Vincent J. Delie
The other thing I would say is that in a lower rate environment, if we do get the rate decreases, we should see more activity in derivatives, more activity in debt capital markets with our large corporate customers going to market to raise capital and syndication should pick up in the second half of the year. And then the mortgage business, gain on sale should accelerate.
So like Vince said, having a portfolio. And then we've had good steady growth, I should mention our asset management and the wealth and trust shops have done extraordinarily well. So they're up in revenue, net income growing net assets. I mean we're at record levels. So we're in good markets where we should see continued growth in that book. So we have a good balanced set of fee generators that I think in the coming year, if rates play out the way some are forecasting, we should do okay with noninterest income.
Vincent J. Calabrese
And then initiatives on the small business and PM side will be additive.
Brian Joseph Martin
Yes. No, the businesses you guys have built out are really paying dividends here. And like you said, the diversification. And I guess on the mortgage, I was just trying to understand, Vince, if part of the increase this quarter was really just you selling more and if so you do have an increase in originations next year and you continue to sell at a higher rate, maybe that also contributes to a better outlook for '24.
Vincent J. Delie
Yes. The gain on sale margin is lower, though. It depends on the rate environment. But when you look at it, we may have sold but we're not making as much for unit. We're just moving it off the balance sheet is the rate environment provide us with the opportunity do that. And remember, we focus principally on purchase money. That activity has been lower, right? I mean we don't -- we're not -- in a declining rate environment, we would see more refinance activity, even though we focus more on purchase money, we would get some benefit from the refinance market. So there's trade-offs.
But I think it's a pretty balanced approach and I think that's we've been able to sustain our fee income levels through this period. Even with declining consumer fees right we've done pretty good time.
Vincent J. Calabrese
Brian, I would just add the mortgage income in the fourth quarter had a benefit from rates coming down, too. So the fair value mark on the pipeline has contributed to that in the fourth quarter.
Brian Joseph Martin
Got you. Okay. Perfect. And then just the last one was just on the margin. Vince, Vince C. Just the one question. Just remind me, I mean, from a variable rate perspective, I mean the percentage of variable rate loans and then if a 25 basis point cut on that piece. How much does that move the margin for each kind of 25 basis point cut?
Vincent J. Calabrese
We need to look at the old balance sheet, right? Our percentage is still about 47% of loans that are very judged down and I was talking about earlier, and you have all the different movement parts to see these are 10 months average maturity. So pluses and minuses there. That's kind of all baked into the market kind of bottoming in the first half of the year, Brian, and then.
Brian Joseph Martin
Yes. Okay. That helps out 47%. So all right.
Operator
And ladies and gentlemen, showing no additional questions, I'd like to turn the floor back over to Vince Delie for any closing remarks.
Vincent J. Delie
Yes. I'd like to thank everybody for the questions, great questions. Thank you for your interest. And I think given what's gone on this year F.N.B. has performed very well. And many of the key strategies that we've deployed that we've talked about over the years, really played out during the liquidity crisis earlier this year.
You got to see firsthand, what we've been talking about in terms of client primacy, the quality of our deposit portfolio and our credit underwriting. So I think it really showed itself this year and I'm very excited about moving into next year, hopefully, moving into a better economic, but we move in to '24, particularly the latter half of '24 and again, we'd like to thank our employees because they step up and get things done and did an admirable job last year. So thank you. Thank you, everybody. Take care.
Operator
Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
