F.N.B. Corporation (FNB) Earnings Call Transcript

Good morning, and welcome to the F.N.B. Corporation Second Quarter 2026 Earnings 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.

Good morning, and welcome to our earnings call. This conference call of F.N.B. Corporation and the report 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. A Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. . Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Friday before, and the webcast link will be posted to the -- about Us, Investor Relations section of our corporate website. I will now turn the call over to Vincent Delie. Chairman, President and CEO.

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. F.N.B. second quarter earnings per share grew 17% year-over-year to $0.42, with net income of $149 million. Our results included another quarter of record totaling $463 million, driven by net interest income of $366 million and solid noninterest income of $97 million. The solid quarterly performance contributed to pre-provision net revenue increasing 9% from the year ago quarter and positive operating leverage. On a year-over-year basis, tangible book value per common share increased 10% to $12.24, demonstrating our strong profitability levels and commitment to peer-leading internal capital generation. F.N.B. repurchased $47 million or 2.7 million shares of common stock at a weighted average share price of $17.46. F.N.B. capital levels remained strong with TC at nearly 9% and with a solid return on average tangible common equity at 14%. Period-end loans increased 7.5% on an annualized linked quarter basis. with growth led by commercial and industrial, consumer lending and seasonal residential mortgage production. DNI's 8% annualized linked quarter growth was driven by lower risk rated high-quality commercial borrowers. By leveraging our deep product set in capital markets, we were able to produce double-digit returns for the overall relationship while maintaining our strict credit discipline and originating lower risk assets in a volatile geopolitical and economic environment. Our commitment to deepening customer relationships and serving as their primary operating bank was a key driver for 3% annualized growth in total average deposits, with average noninterest-bearing deposit balances growing nearly 5% annualized despite the competitive environment. At quarter end, noninterest-bearing deposit balances were over $10 billion for the second consecutive quarter, allowing us to maintain a 26% mix of noninterest-bearing to total deposits for the seventh consecutive quarter. Our data analytics team has been able to leverage the success of our proprietary eStore and common application to gather additional data points for meaningfully improved insights on customers' preferences and competitive pricing. This ability enables us to use our significant investments in our data hub machine learning to analyze the relationships holistically to strategically price deposits. Our ability to utilize insights to drive pricing decisions contributed to the total cost of deposits decreasing 3 basis points linked quarter and 21 basis points from the year ago quarter. Our wealth management revenue is up 8% year-over-year, aided by the utilization of new tools to improve client engagement with advanced financial planning, better portfolio analysis and increased efficiencies. For example, our brokerage advisers have been able to quickly translate complex financial data into intuitive visuals for our clients. These tools paired with the key strategic financial advisory hires across our footprint, helped to expand client relationships and produce record brokerage fee income this quarter. We have also achieved solid progress on the development of our new AI-enabled customer aggregation and insight tool Insight 360. The ultimate goal will provide our clients and bankers with the ability to optimize their banking relations and improve product penetration. Our Insight 360 tool is expected to go live by the end of the year with additional enhancements to be introduced over time. In combination with the common app, Insight 360 will enable F.N.B. to continue to grow our share of wallet and customer primacy based upon positive outcomes for our clients. As we've demonstrated over the past decade, we can successfully introduce innovative digital and data solutions, while also achieving a top quartile efficiency ratio. We will maintain the same disciplined approach towards managing expenses to implement AI through the reallocation of resources, leveraging our current technology investments and analyzing the efficiency gained over the long term. We believe F.N.B. is one of the best positioned financial institutions to strategically expand AI and data analytics usage to drive efficiency and accelerate revenue growth. Our value proposition is being a trusted and regulated financial institution with fintech capabilities. These attributes will serve us well as we continue to adapt to a changing competitive landscape. With that, I will now turn the call over to Gary to discuss our credit results for the quarter. Gary?

Thank you, Vince, and good morning, everyone. We saw improvement in our continued solid asset quality metrics this quarter with both delinquency and NPL an Oreo decreasing 3 bps compared to the prior quarter. totaling 71 and 31 basis points, respectively. Net charge-offs continued to show solid performance, totaling 19 basis points, up 1 bp compared to the prior quarter. Criticized loans declined slightly in the quarter with a 68 basis point reduction compared to the prior year. . Total funded provision expense for the quarter stood at $21.3 million, again supporting strong loan growth. Our ending funded reserve now stands at $447 million, an increase of $4.3 million, ending at 1.25%. When including acquired unamortized loan discounts, our reserve stands at 1.3%, and our NPL coverage position remains strong at 420%, inclusive of the discounts. We continue to maintain qualitative overlays for potential supply chain impacts due to the events in the Middle East and ongoing tariff unserved. Our consistent underwriting and strong credit risk curriculum allow us to grow high-quality earning assets throughout various economic cycles, as shown in our results. With our focus on less volatile industries and asset classes, we remain optimistic that our diversified customer base will continue to show resilience as it has in the past. Our consumer portfolio is very strong despite continued inflationary pressures. Average origination FICO scores were 784 in the quarter with delinquency of 66 basis points and charge-offs of 6 bps, both remaining at multiyear lows. During the quarter, we saw solid C&I loan growth, including a slight uptick in line utilization, along with higher CRE production. However, our overall CRE exposure declined in the quarter due to planned secondary market activity. ending at 187% of Tier 1 capital plus allowance. We are continuing to see increasing levels of CRE activity in our desired asset classes throughout our markets. In closing, despite the continued volatility in the markets, we saw a solid loan growth across the portfolios. Our loan book is strong and well diversified and pipelines continue to remain at solid levels, positioning us to achieve our growth targets as we move into the second half of the year. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary, and good morning. Today, I will review the second quarter's financial results. and walk through our third quarter and full year guidance. Second quarter net income totaled $148.7 million or $0.42 per share, a 17% year-over-year increase driven by total revenues up 5.6% and prudent management of operating expenses, generating a 9% PPNR increase. . Turning to the balance sheet. Loan activity was robust. Spot total loans and leases ending the quarter at $35.8 billion, a 7.5% annualized linked quarter increase. Growth of $547 million in consumer loans and $111 million in commercial loans and leases drove the increase. Spot C&I loans and commercial leases were up over 8% linked quarter annualized and were $186 million, driven primarily by growth in the Mid-Atlantic and Pittsburgh markets. CRE balances continued to be impacted by payoffs as expected and were down $129 million linked quarter. Seasonal strength in residential mortgages and HELOC growth fueled the rise in consumer loans. Average total deposits grew at a 3% annualized rate for the first quarter driven by growth in noninterest-bearing balances, low-cost transaction deposits and time deposits. Of note, spot noninterest-bearing deposits increased $53 million, exceeding $10 billion for the second consecutive quarter and remain stable at 26% of total deposits. Looking forward, public funds deposits typically build in the second half of the year and the treasury management deposit pipeline was strong at quarter end. The loan-to-deposit ratio ended the quarter at a healthy level of 92.5%. While the second quarter's net interest margin of [ 3.25% ] was equal to last quarter's NIM and Net interest income increased more than 7% on a linked-quarter annualized basis. Total yield on earning assets declined only 1 basis point linked quarter [indiscernible] with a 4 basis point decline in loan yields, offset by a 7 basis point increase in investment securities yields. The decline in loan yields reflects the impact of lower 1-month sulfur on adjustable rate loans and tighter spreads on new originations. Reinvestment rates on investment securities remained well above the overall portfolio yields. Interest-bearing deposit costs declined 4 basis points driven by lower rates on money market and CD balances, while total borrowing costs improved by 1 basis point. As a result, the total cost of funds decreased 2 basis points to [indiscernible] . On a year-over-year basis, net interest income increased 5.3% from the year ago quarter as the NIM expanded 6 basis points and earning assets grew 3%. Turning to noninterest income and expense. Noninterest income totaled $97 million, up 6.5% from the second quarter of 2025. Capital markets income increased 16% to $8 million on solid contributions from debt capital markets interest rate derivatives and International Banking as well as early contributions from our newer businesses of investment banking and public finance. Wealth management revenues increased nearly 8% year-over-year the $22 million with contributions across the geographic footprint. Noninterest expense totaled $253 million, a 2.9% increase from the year ago quarter. Salaries and employee benefits increased 4.4%, reflecting strategic hiring and normal merit increases. Occupancy and equipment increased 5.1%, primarily due to technology-related investments and higher occupancy costs. Outside services increased 11.6%, driven by higher third-party legal and consulting costs. Even with these increases, the second quarter efficiency ratio remains solid at 53.7%, down more than 100 basis points from the year ago quarter, and we continue to manage our expense base in a disciplined manner. F.N.B. continues to actively manage our capital position to support balance sheet growth and optimize shareholder returns while appropriately managing risk. Share repurchases totaled $47 million in the second quarter, more than $80 million for the first half of the year more than 300% increase from the dollar amount repurchased during the first half of 2025. Over $250 million in share repurchase authorization remained at quarter end. Stepped up repurchase pace and our recent quarterly common dividend increase reflects our strong financial performance and capital levels as evidenced by the TCE ratio of nearly 9% and a stable CET1 ratio of 11.4% in the quarter. Let's now look at guidance for the third quarter and full year of 2026. Our guidance is based on current expectations while remaining cognizant of the highly uncertain macroeconomic geopolitical environments. We are maintaining our full year balance sheet guidance for spot balances projecting period-end loans and deposits to grow mid-single digits on a full year basis. Full year net interest income guidance has been revised to a range of $1.485 billion, $1.515 billion due to a combination of our first half results and our expectation for a continuation of heightened deposit competition within the industry. We are assuming no Fed interest rate actions for 2026. Third quarter net interest income is projected between $375 million to $385 million. Noninterest income full year guide remains $370 million to $390 million, The third quarter level is expected between $93 million and $98 million. The full year guidance range for noninterest expense has been tightened $1.01 billion -- $1.02 billion we expect to be toward the high end of the range. Third quarter noninterest expense is expected to be between $255 million and $260 million. continue to expect strong positive operating leverage for full year 2026. Full year provision guidance has been revised to a range of $80 million to $95 million down from $85 million to $105 million previously, given our favorable credit performance during the first half of the year and will be dependent on net loan growth and charge-off activity for the rest of the year. Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince.

Thank you, Vince. Our results are a testament to the talent, dedication and hard work of our employees, supported by our ongoing investments in AI and data analytics. The culture of F.N.B. is rooted in teamwork and collaboration, where we strive to collectively win together. F.N.B. continues to earn independent recognition for our client service financial performance and culture. This quarter, we were proud to be named as the Lender of the Year by the Export-Import Bank of the United States and a top workplace by Newsweek as well as earning the top financial innovations in North America award by Global Finance. These select examples of F.N.B. third-party recognition, highlight the strength of our business model financial achievements and quality of our team. We've been able to recruit a number of highly talented executives in recent months, which adds to the depth of our leadership team and bankers. Earlier this month, Brian Mitchell, retired as Chief Fullsale Banking Officer. Since joining FNB in 2018, he has played a significant role in executing our strategy and was particularly instrumental in the early build-out of our capital markets capabilities. I would like to thank Brian and convey our appreciation for his contributions over the past 9 years as F.N.B. continues to evolve into an elite commercial bank and a formidable competitor in our markets. I wish him all the best in his retirement. With that, I will now turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Daniel Tamayo with Raymond James.

Thank you. Good morning, everyone. -- maybe starting just on the reduction in the net interest income guidance. Just curious where you think the biggest change that occurred in the second quarter that drove that was and then assuming it's on the competition side, I know you talked a little bit about tighter loan spreads but as well as on the deposit side. Just curious if you think we are nearing kind of the end of the improvement on the deposit cost side?

Yes, I would say a couple of things, Danny. If you look at where we came in, $366 million, slightly below the guidance range. The 2 factors you just mentioned are part of it, for sure, that we commented on in the prepared remarks. And the decline in 1-month SOFR, like from peak to trough was 9 basis points during the quarter, kind of bottomed right at the end of May, so that has a significant impact. We have $13 billion worth of loans that are tied to 1 month over. So that really coming from peak to trough down 9 basis points during the quarter the expectation is with the futures market is saying that, that kind of comes back and gets to like [ $3.73 ] on average in the third quarter. So that clearly affected the second quarter quite a bit. The competitive environment for deposits is there for everybody. We still had an ability to produce our interest-bearing deposit costs by 4 basis points. So that was an accomplishment given the kind of the environment that we were in during the quarter. And then the spreads on kind of higher quality, lower risk loans that are tighter than other loans is definitely a factor 2. But if you kind of go forward to the next quarter, I mean, so the SOFR bounce back, as I mentioned, the normal seasonality in deposits that occurs from July through kind of October, November on the municipal side. We do expect that to come through and that replaces short-term borrowings, it helps to pay and fund for the loans. I mean the higher short-term borrowings in the second quarter loan was like an extra $4 million interest expense or a reduction in net interest income. So that seasonality comes through, continue to have a very strong treasury management deposit pipeline on the commercial side of the house kind of over $1 billion that we're going after. So those are larger, there's more a longer lead time, but that's still very active and continues to be worked. And then the CRE headwind from payoffs, we expect another quarter of that, the third quarter and then expect that to dissipate some as you get into the fourth quarter. And those are loans that are probably 25 basis points or so higher than other loans. So as those pay down, it definitely has an impact on the overall margin. And then the reinvestment rates on the security side we're reinvesting 125 to 150 basis points above kind of the roll-off rate. And for the next 12 months, it's $100 million in monthly cash flow, kind of $309 million on average rolling off. picking up 125 to 150 basis points on that. And I guess the last thing I'll pause on is just kind of the exit margin. So for the month of June was at 3.27%, a couple of basis points higher than where the full quarter came in and there's fees and stuff that fluctuate from month to month, but that's kind of our exit point into the third quarter.

Really helpful. And you hit on this a little bit on my next question on the CRE payoffs remaining elevated in the second quarter, but just kind of taking a step back a little bit here, certainly impacted by the payoffs, but the CRE has really the concentration ratio, but also just the percentage of the book has shrunk over the last several quarters going back for a while now. And mostly replaced by an increase in resi mortgage. I think you guys talked about coming into the year that was expected to grow at a similar pace to the book has outpaced so far. You've got some seasonality in the second quarter certainly that impacts that. But just curious how you think about that mix going forward, if you have a reduction in payoffs in the CRE starts to pick up, do you think you portfolio fewer residential mortgage loans and that mix starts to get back to where it was? Or you're still willing to grow the balance sheet with the resi side even as the CRE starts to pick up?

Yes. I think the residential -- the contributions to growth from the resi portfolio. And that's largely physicians loans, very, very, very high-quality, larger mortgage loans coming on the book our -- we're not trying to rely on that to drive net interest income. That's not the case. And we've actually sold the portfolio. So we've actually sold some of the stuff that we've originated as it doesn't contribute deposits and other things that sits outside of markets we packaged up our portfolio and sold it actually. I don't know when it closed First quarter Yes. So the impact of that is going to be in this quarter to some of those assets had higher yields on. But I think our goal is to try to drive growth across the portfolio, not to be reliant on one particular asset class. I think the CRE runoff, that's a train that you can't stop easily. We're financing construction and the stuff go into the permanent market. And quite frankly, there just wasn't enough -- there aren't enough projects driving on demand in that space. And that's starting to change. So I think -- I don't know, Gary, you could comment on...

Yes. During the quarter, Danny, the CRE growth was right at about $284 million that compared to $190 million in Q1. We are seeing a lot of very solid opportunities in that space. It is competitive as I think everyone is aware, the industry is really focused on CRE at this point. And there are some nice opportunities that have come through the organization. So we do expect that to continue to ramp up in the asset classes that we want to play in. In reference to the mortgage that you had mentioned and Vince referenced -- the second quarter is an extremely high seasonal quarter for us because the doctors come out of school in March and they move into their new roles at the hospital organizations that they're joining and they go right into purchasing home -- so the second quarter is our seasonal peak there. Third quarter is -- the volume is still good, but generally lower around that doctor's program, and then it really tails off in Q4 and Q1 from that part of the program.

I'll add to that, too. We were talking about this a little earlier, Gary, and the pipeline is at a record in total pipeline, which includes CRE is at a record level for us at this point. So again, remember, it lagged for a little bit. Historically, has been growing and then we flattened out and it actually declined for a period or 2, but now it's back up above the all-time highs. So the short-term pipeline has contracted because we pushed a lot of volume through we closed a lot of deals this quarter. So we should see that pick up again because it will pull through, right, from the larger pipeline. It's at least nearly 10% over where it was last quarter. So we expect the second half of the year, particularly this quarter coming up, just to see some good activity in C&I and CRE fundings, right, Gary? And then that will make up the fall off of the resi mortgage and the consumer growth that we've seen. So we're expecting to have a decent second half of the year from a commercial perspective. With that, there are a bunch of deposit clients, treasury management clients that we have in the pipeline that we're pulling through. Again, some largest clients in our history. So we were able to win business at some pretty sizable entities. And it's going to help us in the second half of the year with deposit growth in addition to the seasonal inflows that we should see. I don't know if you want to comment, [indiscernible], on the deposits in general and what's happening in the consumer bank and...

Yes. I mean it continues to remain competitive. I think what we're had great success with is driving engagement with our existing and new clients. And oftentimes, particularly in the mortgage space, oftentimes that comes with low-cost DDA accounts. And we're being strategic about how we price the post some areas, we have opportunities to reduce deposit costs in some areas. We want to be competitive, particularly in some of our new markets. While I'm never pleased with their caustic months and I'm always critical of memory that our people make. I think it's part of my job. Alfred, you made a comment earlier, or monitoring the reporting that's occurred to date. So how do we compare Yes. I mean deposit perspective, I -- and to that point, we're obviously managing to the dual mandates of lowering our deposit cost and providing debt as balance as to the impossible sure. But this quarter, we were 1 of the few banks, I think, we're tracking something like 15 banks that have reported so far. I think we're 1 of 3 that actually had a lower cost to deposit from the prior quarter. So despite the fact that the rate environment meaningfully changed from the beginning of the quarter to now, it kind of highlights the discipline that we've had and how we price these things.

Yes. It's actually 2 things. It's disciplined from a pricing perspective and strategy in the pricing using the insights that we have to maintain or try to maintain our margins, plus the investments that we've made to maintain primacy and some of the initiatives that Alfred and his team have launched, particularly the mortgage company with Wingspan, which is a bundling of services. that we do. So you'll see more of that in our Insight 360 tool that we mentioned is going to be right in the sweet spot of driving better outcomes from a cost of deposit perspective, so -- and gaining share in primacy. So I'm very excited about that. I can't wait until you guys get to see it really cool. -- anyway Hope that was helpful.

Very, very helpful, Vince. I appreciate the color, Vince carrying out for as well. I'll step back...

Our next question comes from David Smith with Truist.

Could you help us size the impact of the public funds deposit seasonality? Just deposits are down a little bit year-to-date right now and you're still calling for mid-single-digit growth. And it sounds like it's going to be another solid quarter of loan growth for your commentary. So -- just thinking about the impact here? And how much of the deposit cost decrease this quarter might have to come back and in the continued competitive backdrop for deposits you site, particularly if we do end up getting fed hikes?

The format's answers that, I just want to make a comment. The municipal business that we have is we're the primary operating bank for the municipalities. We don't just go out and accept deposits replaced plugged from one of the high-yielding money market options that they have. So that's not our strategy. Our strategy is to go in, provide the operating accounts provide the treasury management services for those entities disbursements and collections and then benefit from the excess balances as they flow in. So while there will be a surge in the deposit balances, there is -- it doesn't significantly change the mix because we'll see -- should see a lift in demand deposits as well. because they use those deposits to cover the cost of services, which is accelerating when the activity, the taxing activity there's cost associated with that, that they offset with demand deposits. But why don't you answer directly the question...

The volume side of it. I mean it's historically been about $0.5 billion kind of plus or minus a couple of hundred million dollars from kind of peak to trough. -- used to be the 300 to 500. And as we've grown and have larger, more relationships, it's a little bit bigger, about $0.5 billion or so kind of we would expect to kind of surge through as we go through the end of the second quarter through kind of the October, November time frame. And to Vince's point, it's a mix. It's clearly a mix of different deposit categories. .

Okay. So the public funds are a little bit of the implied increase in deposits through the second half, but it's not the majority or anything. And then on expenses, we just take kind of the midpoint of the 3Q and full year guidance implies a decent step down in noninterest expenses in the fourth quarter. Your seasonality has typically been for a small increase quarter-on-quarter in the fourth quarter. just looking at adjusted deposit in the last few -- excuse me, adjusted expense trends in the past few years. I was wondering if you could help us unpack that a little bit, if there's anything unusual either in the third quarter or fourth quarter that's driving that abnormal seasonality?

The fourth quarter typically doesn't have additional expense associated with the tax credit sales. So they're very -- the way we focus them, which is important to that until we end up with this big expense front. So that's reflected in the fourth quarter after for at least the last 3 4th quarters, right? So there's going to be a little bit of distortion there defense. I don't know if you want to comment generally on the total expenses seasonality in the expense base in the last 2 quarters of the year.

Yes, I would -- I think a couple of things, right? So again, for the quarter, we came in right in the middle of our range. efficiency ratio down to 53.7%, over 100 basis points kind of year-over-year, which takes out the seasonality there. As we go forward, I mean, there's things that in the first couple of quarters that have occurred. We had higher fraud losses. We brought that down significantly. We have a down payment assistance program that's come down meaningfully in dollars kind of second to third quarter and I mean we expect a nice step down second to third quarter and then again into the fourth quarter. I mean that should reduce by $1 million to $1.5 million kind of per quarter. I mean there's a commission component that's tied to revenue largely unknown. -- mortgage origination side. So that kind of fluctuates as the activity fluctuates. And then on the marketing side, there's some seasonality and more timing of it when we choose to do that. So we expect to see some increase in marketing dollars as you go from kind of the second to the third quarter. So there's a lot of moving parts in there. And with all those kind of normal bank operation items. We continue to invest, as Vince was talking about in our tech investments between the digital initiatives we have and the AI initiatives, but we're being very disciplined in how we fund that. So...

Yes, we also have -- it's also lumpy on the de novo branch expansion too because we announced we were on branches over a 5-year period and the timing of when those branches open it isn't scheduled out in a month by month. So it's -- so you'll see some lumpiness in the expense base, particularly in the first half of this year, we opened 2 branches went online in Charles and South Carolina. It brought the expense online as well. And then we also have the investments in Insite360, the tool that I mentioned. So that's reflected in the first half of the year and probably we'll continue to be an expense burden into the second half, right, to development is completed and it launched. So as there are some impacts -- but I think the important points here are we have positive operating leverage, and we're forecasting positive operating leverage. The expense base our guide was...

Well, yes, efficiency ratio...

So the expense base itself and the guide in low single digits. .

Yes, the full year to full year yes...

So we've been able to take cost out and invest in tools, AI tools, and that's a unique thing because a lot of companies are spending tremendous resources taking on capital expenditures prior to receiving any benefit from an AI investment. And we're seeing that all over the place even with ethane customer base. So it takes time to get the actual benefits. And we're focusing more on revenue opportunities right now than we are expense takeout. I mean there's a combination of both we're more heavily weighted towards generating revenue with their AI investment, which also speaks to the infrastructure that we've built because that requires a much more complex data governance framework within the company. So we're -- I believe we're in a really good position. I said that in my prepared comments to benefit from this, and it should not impact materially our expense base on a run rate basis the year forward.

Our next question comes from Casey Haire with Autonomous.

Great -- so Vince, the question for you, following up on the NIM. So the guide does not assume any Fed action, but it does -- it sounds like you do expect SOFR to bounce back to $373 million -- that's 11 bps higher than where it is today. Just wondering where -- assuming SOFR holds this level, where does NII track versus within this guide?

Yes. What I was referring to, Casey, was if you look at what happened during the quarter, we went from a peak of [ 3.67, ] April 15, down to [ 3.58 ] May 20, and we have a lot of loans that we set at the end of the month. And today, we're at 3.67%. So what the future is Mark is saying, there's just another 6 basis points of pickup in that. So on the $13 billion. If that comes through, they or may not, there's as you know, there's a lot of volatility with interest rates with everything going on in the world. And whether the -- we went from an environment where the Fed was going to cut an environment where they're going to raise and it's October, it's December. I mean, it moves around quite a bit. So just based on what we know today, I mean, if 6 basis points up from where we are today on that $13 billion, is kind of the math you would do there.

Okay. .

[indiscernible] you might be part until overnight. Right.

Got you. Okay. Got you. All right. I'll take a look. Okay. And then just, I guess, switching to capital. And any updated thoughts on what the Basel III proposal does for you guys. I think you didn't quantify it last quarter, you said it was meaningful. And then do you lean into that in terms of buyback. The buyback was very strong this quarter? How do we think about that appetite going forward? Is it -- are we going to hold this 11.4% level -- or is there room to even to push the payout ratio? Just trying to think about how you guys think about the buyback?

Yes. I would say, I mean, for the Basel III and then I'll turn it over to Frank. I mean, based on what we know -- you need to get the final rules, right, where you can say with certainty. I mean it's an 80 to 100 basis point kind of pickup to the capital ratios and if that does happen at that point, and I don't know if they're talking January 1 of next year, potentially, once that will happen, we definitely step back and take a fresh look at the overall capital allocation approach that we want to use going forward. turn it to Frank for kind of comment on our buyback loss for today. .

We think buybacks continue to be attractive here. We transacted them at around 1,750 on average in the quarter. As we talked about at that point, that was sort of a 3-year earn back. Obviously, markets have moved higher. But even at these levels, we're still talking about a sort of a 4-and-change year earn back here. And for buybacks, where you don't have things like deal entrain risk, obviously, you can be pretty confident in that earn back. I still think that -- we still think that's a pretty good return. And so good return, good capital management tool. As you pointed out, over the last few quarters, -- we reported flattish CET1 ratio at 11.4%. -- obviously, very comfortable at those levels. And while we don't give quarterly guide on repurchases, I think holding capital around those current levels is a pretty good sort of application or the year.

Our next question comes from Russell Gunther with D.A. Davidson.

I appreciate all the color on the margin dynamics this quarter. I was hoping to unpack some of the assumptions or what under Ballet June 327 NIM I really focus on the loan yield. So the $552 million. Maybe just give us a sense for where overall new loan production is coming on, if possible, to share kind of where pipeline loan yield stands and perhaps the spot loan yield as of June?

Yes. The new loans, if we look at what happen in the second quarter, Russell came out at 554 for the second quarter. for reference, that was 5.57% in the first quarter. So I'm just a few basis points lower. If you look at kind of on a spot basis, the overall portfolio yield was down 8 basis points to 55 again, with no Fed actions. But with the impact of 1 month soforunning through there. So again, that obviously affects the yield bubble. So the portfolio came down at 8 bps, Harrison last quarter, it was kind of down 1 basis point. So it's the new stuff that's coming on at 5.54%.

Okay. Got it. And then just the other side of that, please, on the deposit front. So it sounds like you should have some good growth this quarter, bringing that loan-to-deposit ratio kind of back into the '90s, perhaps where you're more comfortable? But could you give us a help in terms of where spot deposit costs were for the quarter here for June?

On the deposit ratio, we have been higher than 92% historically. I mean we -- it's not that we want to -- I would prefer to be sub-90 of course, but Alert can produce deposits without pricing. So we're being very selective in trying to maintain the margin. But there's a trade-off between that strategy of margin preservation -- and even though I want everything in the on the deposit ratio. But typically, as we move into the second half of the year, we do see those seasonal inflows, and we do get back to the area that you mentioned is a comfortable spot for us just to be candid. I mean that's -- was somewhat intentional for us to be where we are. So we're not uncomfortable where we are just going to make sure said that -- go ahead.

No. I think that strategy was important for us to get it down to 90. So that if you have quarters where loans are growing faster than deposits, we're at 92.5%, 93. So there's plenty of buffer there to levels in the past. -- where we started to take action with at 96%, 97%. So being at 90% as a reference point and grown up a few percentage points is fine. So I think that was an intentional strategy -- and I think that's working very well for us. . As far as the spot rate, so for the month of June, total deposits were at 174 total interest-bearing deposits were at $2.33.

No, that's very helpful, guys. And then just Yes. I guess last 1 for me, guys, on the fee income side. What -- as you look at the back half of the year, what verticals are kind of the key drivers of growth in 3Q, 4Q? And if you were to kind of come in at the high end, what operating environment and see verticals get you there?

Yes. I think clearly, there's opportunity in our Investment Banking segment. We have a number of deals, both public finance and corporate finance transactions that are in the pipeline. So that should benefit us moving into the second half of the year. So there's some benefit there. We're still optimistic about derivatives. Our derivatives business has been down because of the interest rate environment in but we think things are starting to grade because of the CapEx spend, right, that requires a need for fixing rates. And as you know, we fix -- we use derivatives put large extra loans on our balance sheet typically, will we prefer to push it off balance sheet. So those businesses should do particularly well. We have opportunities on the upside to merchant as we move into the second half of the year with interchange fees and some of the initiatives we pushed in wealth and brokerage should benefit us. So there's a lot of momentum there. We have record levels of record level growth and brokerage, and we continue to add to the team and continue to build out in the Carolinas, which has been very helpful for us. So those are the areas that I would view as being pretty favorable. And obviously, you want to -- you also asked about the economic backdrop. Of course, if we were in a different scenario where we were expecting rates to decline, I think you'd see an acceleration in some of those business units, particularly mortgage would continue to contribute probably at a stronger level. Given where we are, I would expect our mortgage business to be pretty stable in the second half of the year. not declining because a lot of the production that we do is purchase money production and you tend to see more activity. People buy homes between now and September, right? So we'll see that coming through. in the next quarter or so.

The third quarter mortgage banking should step up nicely second quarter at some of the -- so thank .

We've also seen, as we've talked, some increasing opportunities in the FX space with the -- I mean they've really continued to ramp those opportunities...

Yes. With fact CapEx spend for larger nPulse more cross-border activity, and we were able to benefit on our foreign exchange area in particular, while they should continue to do well every throughout the rest of the year. So all of that combined, and while individually, they're not huge numbers, but gives you a pretty good base moving into the second half of the year .

And that capital markets piece, too, has been performing at a really high level consistently this quarter...

As business to too. I mean we're back to plus there and that should continue. As I mentioned, we have a lot of very long or management customers in the pipeline that are coming online in the second half of this year, which will contribute to fee income because this they'll pay fees and not just use balances. So you'll see an increase there as well. .

Yes. I think what you're seeing a bit here, Russell, is the building out and the diversity of all these fee income business lines is really taking hold and really providing a good source of fee income that's diverse across the company.

And there's puts and takes throughout the mix. And as you've seen, we've been able on different interest rate requirements. So it's -- as Dara said, it's pretty well assembled, and there's a lot of diversification in that base. So we're very optimistic about the fee income categories and the upside there. .

That's great, guys. I appreciate all your thoughts Thanks, Ross.

Our next question comes from Manuel Navas with Piper Sandler. Please go ahead.