Q2 2024 FNB Corp Earnings Call

Participants

Lisa Hajdu; Manager of Investor Relations; FNB Corp Florida (Pre-Reincorporation)

Vincent Delie; Chairman, President & CEO; FNB Corp Florida (Pre-Reincorporation)

Gary Lee Guerrieri; Chief Credit Officer; FNB Corp Florida (Pre-Reincorporation)

Vincent Calabrese; Chief Financial Officer; FNB Corp Florida (Pre-Reincorporation)

Jim Dutey; Senior Vice President & Corporate Controller; FNB Corp Florida (Pre-Reincorporation)

Daniel Tamayo; Analyst; Raymond James & Associates

Frank Joseph Schiraldi; Analyst; Piper Sandler & Co

Casey Haire; Analyst; Jefferies LLC

Russell Elliott Teasdale Gunther; Analyst; Stephens Inc

Manuel Navas; Analyst; D.A. Davidson

Kelly Ann Motta; Analyst; Keefe Bruyette & Woods

Brian Joseph Martin; Analyst; Janney Montgomery Scott LLC

Presentation

Operator

Good morning and welcome to the F.N.B. corporation second quarter 2024 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.

Lisa Hajdu

Welcome to our earnings call. This conference call of F.N.B. Corporation and our partner buyout opportunities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures are non-GAAP financial measures can be viewed in addition to and not an alternative or other audited results prepared in accordance with GAAP.
Reconciliation of GAAP to non-GAAP operating measures to the most directly comparable financial measures are included in our presentation materials and in our earnings release.
Please refer to these non-GAAP and forward-looking statement disclosure contained in our related materials reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website.
A replay of this call will be available until Thursday, July 25, 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.

Vincent Delie

Thank you, and welcome to our second-quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer. That wouldn't be reported solid second quarter results, with net income available to common shareholders of $123 million for $0.34 per diluted common share. Pre-provision net revenue increased over 4% linked quarter, supported by our well-managed expenses, continued strong non-interest income levels.
Tangible book value per share grew 12% year-over-year to reach a record high at $9.88. The second quarter's performance was driven by our long-term strategic goals to gain market share through loan and deposit growth, diversify revenue streams and manage risk.
We had previously mentioned that there is well positioned to steadily increase market share in this volatile environment. Given the strength of our capital and liquidity position and adherence to our consistent and conservative underwriting guidelines that will be reported linked quarter loan and deposit growth is frequently 6% and 1%, respectively, demonstrating our ability to execute on this strategy. Both of these results exceeded the published H8 data this quarter for both large and small institutions.
The loan and deposit growth benefited from our investments in our digital e-store total interactions increasing 22% year-over-year. The increase in commercial loans was driven by activity across the footprint, highlighted by double-digit year-over-year growth across the Carolinas. Our Pittsburgh and Cleveland regions being commercial equipment finance business also posted strong contributions from the increase in SMBs, commercial real estate portfolio, including fundings on previously originated budget.
On a spot basis, consumer loans grew 5% linked quarter, led by growth in residential mortgages, while growth in this portfolio is seasonally higher in the second quarter, our results also reflect the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market. This activity ultimately leads to increased households and deposit share growth.
Deposits benefited from seasonal inflows as well as new production that was generated through targeted deposit initiatives and promotions. Non-interest-bearing deposits ended the quarter over $10 billion in annualized increase of 3.2% in the prior quarter. The mix of non-interest-bearing deposits to total deposits ended the quarter at 29%, a consistent level since December of 2023.
As we have frequently discussed, our strategy has been to price our deposits to protect our pure leading to positive data while supporting our client base. Our loan to deposit ratio currently equals 96%. We are expecting lower loan origination in the second half of the year that will bring our loan to deposit ratio back towards historical levels.
Another longer-term strategic focus has been diversifying our revenue streams, achieving stable non-interest income at near record levels, $88 million in both the first and second quarter's highlight the strength in range of our business model and SMBs, robust suite of products and services.
For the first half of the year, non-interest income totaled $176 million, a 10% increase over the same period in 2023. Fee income growth was led by our mortgage banking operations, growing over 50%. Strong wealth management revenue and treasury management fee income growth.
Our success growing non-interest income is expected to continue as we enter the second half of the year. FNB balance sheet strategy is part of our proactive approach to risk management. As we draw closer to a reduction in interest rates, we continued to move towards a neutral interest rate position to provide stability and potential improvement in margin in a falling rate.
And beyond interest rate risk. SMBS, comprehensive approach to credit risk management has led to strong and stable asset quality and consistent outperformance versus peers. Our credit team proactively monitors each loan portfolio and overall concentrations at a granular level, which has served us well through many economic cycles. I will now pass the call over to Gary to provide further detail on the overall asset quality. Gary?

Gary Lee Guerrieri

Thank you, Vincent, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at solid levels of delinquency finished the quarter at 63 basis points and one that from the prior quarter, NPLs and OREO remained unchanged, ending at 33 basis points, a multiyear low net charge-offs at 9 basis points, reflecting solid performance in the current economic environment.
Total provision expense for the quarter stood at $20.2 million, with $12.8 million utilized to support loan growth and the remainder providing for charge-offs are ended. Funding reserve stands at $419 million, up $12.5 million in the quarter, ending at 1.24% when including acquired on amortized loan discounts. Our reserve stands at 1.35%, and our NPL coverage position remains strong at 421% in place inclusive discounts.
We continue to successfully execute on our strategy to monitor the non-owner CRE portfolio monthly. We analyze them segment upcoming and previously resolve maturities, largest exposures and market conditions for the various property types across our footprint.
At quarter end, the delinquency and NPLs for the non-owner occupied CRE portfolio improved slightly and continue to remain very low at 16 basis points and 12 basis points, respectively. Net charge offs reflected solid performance for the quarter at four basis points, again, confirming our consistent underwriting and strong sponsorship.
The non-owner occupied office portfolio delinquencies totaled four basis points, with no NPLs, largely in line with the prior quarter. We maintain a strong focus on credit risk management, and our portfolio continues to perform well throughout numerous economic cycles.
Quarterly, we perform specific in-depth reviews of our portfolios along with a full portfolio of stress test. Our stress testing results for this quarter have again shown lower net charge offs and stable provision compared to the prior quarter's results. With our current ACO, covering approximately 90% of our project and charge offs in the severe economic downturn. Again, confirming that our well-balanced loan portfolio enables us to withstand very stressed economic scenarios.
In closing, our asset quality metrics ended the quarter at good levels in our loan portfolio continues to remain stable. Our continuous investments in credit risk management systems and corresponding staff complements our consistent underwriting and core credit philosophy.
Our experienced banking teams and tenured leadership position the company well to continue to achieve improved loan growth while proactively managing credit risk through many economic cycles.
I'll now turn the call over to Vincent Calabrese, our Chief Financial Officer, for his remarks.

Vincent Calabrese

Thanks, Gary, and good morning. Today, I will focus on the second quarter financial results and walk through our third quarter and full year guidance. As Vince mentioned, total loans and leases ended the quarter $33.8 billion linked quarter increase of $1.2 billion or 3.6%. This growth included $633 million in consumer loans secured by the seasonal peak for residential mortgage originations and $540 million in commercial loans and leases, reflecting healthy activity in C&I and equipment finance, as well as additional growth from fundings on previously committed commercial real estate projects.
Total deposits ended the quarter at $35 billion, an increase of $259 million linked quarter, including growth in certificates of deposits of $202 million in non-interest-bearing deposits of $80 million in the seasonal build and public funds deposits has begun.
The loan-to-deposit ratio increased to 96% at June 30 compared to 94% at March 31. We expect this ratio to decline in the medium term, both organically and with several initiatives our team has implemented. Starting on the loan side of the equation.
The second quarter of robust loan growth was higher than forecasted the seasonality of our mortgage business and stronger commercial client acquisition across the footprint. We expect loan growth to return to historical levels for the remainder of the year is pipelines have declined somewhat given the strong production in the quarter and the typical pause and client activity leading up to the presidential election.
Looking at deposits, we currently have several deposit gathering initiatives targeting both commercial and consumer balances, including a strong treasury management pipeline and a new might a new five months and consumer money-market promotion.
Given the short duration of these promotions, we should be able to quickly and reprice them lower when rates fall over the past year, our deposit growth and mix and outperform the industry. We believe that we'll continue to see this past quarter. We've largely utilized short term borrowings to fund the robust loan growth, with total borrowings increasing $1.4 billion when rates start to decrease. The cost of these borrowings move down quickly.
As Vince mentioned, over the last several quarters, we have strategically positioning our balance sheet, more neutral benefit from lower interest rates or filings around $4.5 billion of short-term or floating rate borrowings from $4 billion non-maturity deposits. There currently priced at or above 4.75%, a $6.9 billion CDO portfolio with a nine-month duration. And lastly, as I mentioned on last quarter's earnings call, we have around $1 billion of swaps mature beginning in 2025, with rates between 75 and 100 basis points.
Additionally, the investment portfolio has an annual cash flow of $850 million at a current roll-off yield of $250 million, and we have approximately $2.6 billion of fixed rate loan repayments at an average rate of 4.5% in the next 12 months until we have over $16 billion of liabilities and swaps, nearly $3.5 billion of securities. Cash flows and fixed rate loan repayments should provide significant benefit and protection in a falling rate environment compared to the $16 billion of loans that reprice within three months.
The second quarter's net interest margin was 3.09% basis point decrease, largely due to the increased short-term borrowings, driving a 13-basis point increase in the total cost of funds to 46. This was partially offset by three basis point increase in the total yield on earning assets for 5.43% Our spot deposit costs ended the quarter at 213, leading to a total cumulative spot deposit beta of 38% since the current interest rate increases began in March 2022, positioning us well against our competitors.
Net interest income totaled $315.9 million. $3.1 million decrease from the prior quarter at a higher cost of funds was partially offset by higher loan balances with new origination yields for the quarter around 7% consistent level since the third quarter of 2023.
We expect the second quarter's net interest income to be the trough for the year. You should see modest sequential improvement in the third and fourth quarter. Turning to non-interest income and expense. Non-interest income totaled $87.9 million, consistent with the prior quarter's strong results for the largest quarterly increase was $2.8 million in service charges driven by Treasury Management revenues continuing to gain momentum and seasonally higher consumer transaction levels.
Offsetting this growth were declines in capital markets given lower commercial customer transaction activity and lower mortgage banking operations income, driven by a slight decline in sold loan volume and net fair value adjustments on pipeline hedging activity.
Operating non-interest expenses were well-managed and totaled $225.8 million and $8.3 million decrease from the prior quarter after adjusting for $0.8 million of significant items in the current quarter and $3 million last quarter. The largest driver for the decline in salaries and employee benefits, which decreased $8.2 million, primarily due to normal seasonal long-term compensation expense, $6.9 million and seasonally higher employer payroll taxes in the prior quarter.
The efficiency ratio remained at a peer-leading level coming in at 54.4%. Second quarter. FNB capital position remained strong as we were able to support robust loan growth and maintain the tangible common equity ratio near 8% and CET1 ratio at 10.2%, both of which remain above our stated operating levels. Tangible book value per common share was 988 at June 30, an increase of $1.9 or 12.4% compared to June 30 of 2023 AOCI. Reduced tangible book value per common share by $0.67 as of quarter-end, compared to $0.99. We ended the second quarter of last year.
Let's now look at guidance for the third quarter and full year of 2024. We are maintaining our full year balance sheet guidance module expected to grow mid-single digits on a full-year basis, total deposits are expected to grow low single digits on a year-over-year basis.
Our mix of non-interest-bearing deposits. Total deposits is anticipated to remain superior to peers. Our projected full year net interest income expectation is revised to be between $1.27 billion and $1.29 billion, assuming 125 basis point rate cut in September. This revision reflects our interest-bearing liability mix as we enter the second half of the year.
Net interest income for the third quarter is expected to be between $315 million and $325 million. Given the strength of our non-interest income generation in the first half of the year, we have increased our full year guide to be between $350 million and $355 million. Third quarter non-interest income is expected to be between $85 million $90 million now anticipate the full year guidance for non-interest expense to be between $900 million and $915 million due to production related compensation.
Given the strong fee income results, third-quarter noninterest expense is expected to be between $220 million and $230 million for full year provision guidance range is lowered to $75 million to $95 million and remains dependent on net loan growth in charge-off activity in the second half of the year. Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credits activity that may occur. With that, I will turn the call back to Vince.

Vincent Delie

Thank you, Vince. This year celebrates our 160th anniversary as a nationally chartered being obtained to the national banking that in 1864 and the execution of our growth strategy, F&B has continued to prosper to develop into a diversified $48 billion regional financial institutions. This quarter's results continued to reflect those efforts, proved resilient balance sheet, strong capital generation, ample liquidity to linked quarter growth in pre-provision net revenue.
We considerably received national recognition that of firms are competitive advantages with prominent publications such as Forbes ranking, get them to be one of America's best offense in naming us to its global 2000 listed companies based on sales, profit assets and market dealt with our strategic emphasis on an innovation is integral to our success, and we continue to earn national attention for digital engagement and leadership.
Most recently, nothing beats e-store one best digital initiative at the 2020 for banking tech awards USA. These awards highlight outstanding achievements and success in the US banking and fintech industry. In addition to winning best digital initiatives, F&B was honored among the nation's top five largest financial institutions as a finalist for Best Use of Technology and consumer banking, best user or customer experience initiative. In top innovation.
We also continued to groups for our commitment to our employees who enable our success. During the second quarter, we extended the long list of Top Workplace monitors. We received national in the financial services industries and throughout our footprint with specific awards for culture, excellence and leadership.
As we reflect on a solid quarter, I want to thank our team for their many contributions. We appreciate your dedication by maintaining our focus on our shared principles and rules. We are poised to navigate the ever-changing macro economic lens, communities and shareholders.

Question and Answer Session

Operator

We will now begin the question and answer session. (Operator Instructions).
The first question comes from Daniel Tamayo with Raymond James.

Daniel Tamayo

Good morning, guys. Thank you for taking my questions. Maybe starting on the on the balance sheet side, you talked about a slowing of loan growth in the back half of the year relative to what's been a or what was a pretty strong quarter in the second quarter? You obviously had a lot of residential mortgage growth. You had some commercial real estate growth and some commercial growth as well?
Maybe you can talk about just the mix that you're expecting in the back half, if you expect from that slowing to come from the residential side, obviously some seasonality in the second quarter here. But if that's part of it, if you're also seeing expecting slowing on the commercial real estate side with the construction fundings slowing, curious on the mix, we expect?

Vincent Delie

I think a couple of things. First of all, the mortgage growth is seasonal. So we've already started to see as we move into the third for the period started to see a lower locks pipeline. So we expect that to come down fairly substantially, so less fixed. But on the balance sheet as we move forward there to the second half of the year from the construction fundings were on committed, feel from a primarily committed obligations. We do quite a bit where we do the construction financing, and it's taken out by some problem down the road. So those funds UPS occurred natural funding as we move through the construction period.
So that presented growth this quarter and then we had some pretty robust growth in equipment finance. We've been doing pretty well. There are some with leases pretty much across the footprint. There were some renewable energy deals that closed I think, in the last quarter of last year and the balances there. I think we'll see $1 billion in balances in that book of business. So it's grown nicely over time and continues to grow. C&I has contributed.
There was some significant growth in the Carolinas, Pittsburgh, Cleveland contributed. So it's really coming from a bunch of areas. It's from still fairly robust in certain areas. It appears, you know, we've been taking share from others. So I think the disruption that occurred really kind of mixed it up with the customer base and gave us an opportunity to get up and Fitch new transactions, which I think is very positive. The growth was higher than I expected. But I think it's okay because it positions us well moving into 25 point, given how we're shifting liability sensitive balance sheet and putting those assets are really sets us up for 25 from an earnings perspective if we can continue to generate deposits.
So I think that one on the loan side, that's why we're guiding our guidance hasn't changed. So we're expecting to produce the same level that we forecasted in the year. But it's a little lumpy. And I'll tell you, pipelines are down. We booked quite a bit this quarter. So we're moving into the next quarter down about 10% in the commercial pipelines, and it's still a little sluggish on the consumer side.
So we haven't seen as much -- what we've seen more mortgage -- first mortgage volume, there was much less home equity [HELOC] volume. So they kind of offset each other. And we're not expecting that to come back this year. So that's how the book just performs. The only other category, I think, I didn't speak about was indirect auto. I don't know Gary what your thoughts are there, right?

Gary Lee Guerrieri

We had a solid growth quarter in Q2 who would use again, seasonals, very similar to the mortgage. We're bidding really high-quality paper there with focus on profitability. So is it improving margins and playing at the high end of the phaco band is really working well for us. But again, that's seasonal. We're going to pick our spots and manage that in all of those seasonal periods. So we expect that to come down. Those would move towards the latter half of the year as well.

Vincent Delie

And then from a funding perspective, if we're able to execute our plan, we have seen growth in our treasury management pipeline. So we're seeing some very large good opportunities where we're the principal bank that should bring in demand deposits as we move forward.
I think the bright spot here while we had to fund that growth with borrowings temporarily, the upside for us in the long run is to replace that with lower cost funding. And I think we've proven what we can do that. So the upside into '25 is us replacing those borrowings with deposits. And if you look at the demand deposit base, it's been stable.
We've been at 29% for several quarters. We had growth in demand deposits which you're not seeing across some pretty decent growth in certain categories we've priced up to bring the targets on. We have not been as aggressive as others throughout the cycle. We're starting to look at pockets for us to price up to bring in deposits which also leads low-cost deposits in the fourth-store strategies kind of in the whole book, attracting those demand deposits as well.

Vincent Calabrese

Our beta performance goes to that point too, right? It's up very gradually from last quarter 36.5% to 38%. So that again is thus protecting the overall profitability.

Vincent Delie

Yes. As you can imagine, it's a challenging time to navigate. We don't want to pull back. I think a lot of competitors have shrunk their balance sheet or pulled back. I think this is an opportunity for us to go after some share bring in households and do what we do well, which is convert them to primary clients. So I hope that helps.

Daniel Tamayo

Yes. No, that's terrific. I really appreciate all that color. Maybe a quick follow-up. Just you touched on it at the end there on the funding side, but you also mentioned in the prepared comments about deposit initiatives in the back half of the year to kind of right size the loan deposit ratio. So just curious if you go into a little more detail about what you were thinking and how that could impact kind of funding costs.

Vincent Delie

Sure. We've modified the incentive plans for the consumer Bank. We have kind of a kicker for deposit growth. So you're shifting some of the loan growth is pretty pretty minuscule. That segments. We have a number of calling initiatives across the company on larger treasury management opportunities.
We've won a bunch of transactions that have been funded yet, which are fairly sizable. It seems like clients are willing to talk to us given our performance over this past cycle. So no, we we've proven that we're capable of handling those relationships throughout a cycle when you bought any issues.
I think that the people are very focused on at our teams are focused on it and for as long as we manage them in one direction and focus mainly on them, that's going to still pay off. And then the other thing is the e-store, the investment in digital and additional technologies, the interactions are up 22%.
We're starting to get some traction there on the consumer side. And then I don't want to get into excruciating detail, but there are things that we do from an incentive compensation perspective, kind of across the board to send deposit growth then we've done some things on the mortgage side where we've used data analytics to cross-sell customers that we bring in, particularly in the physician's grow up and the jumbo mortgage segment. And we're partnering with wealth to do some things. And brokerage, we're working on a money market product that we'll work in and hand with our brokerage sales, which should help.
So there's a bunch of things going on. And I think that it's going to take a little bit of time to get some lift out of it. But certainly, as we move into the second half of this year and into '25 we should see the benefits and everything from a funding perspective.

Daniel Tamayo

All right. Thanks for taking my questions.

Vincent Delie

Okay, thank you.

Operator

Frank Schiraldi with Piper Sandler.

Frank Joseph Schiraldi

Good morning, guys. Another strong fee income quarter and guide for continued strengths. Just curious, a bigger picture if you could share, your thoughts as you continue to grow out these businesses where you think you can grow the fee income side of the picture of two as a percentage of the total revenue pie. And maybe do you see any fee businesses in particular that you want to ramp up or you need to ramp up to get there?

Vincent Delie

Yes, we I think on long term versus long term, we've talked about this in the past and the split information in our deck. We targeted 30% of total revenue. We almost got there. But then of the world changed in terms of net interest income, So it diluted that effort. But I think that's really the long-term target. We want to continue to build out those fee-based businesses and make sure that it starts to consume more of the total revenue. That 30% target is kind of our target.
Again, it's not something we're going to get to immediately, but we strive to get there. I think we've had great success in capital markets. We've done well building out our derivatives platform, our syndications platform.
We have debt capital markets group that we've formed. It's a bond record for debt offerings. We I think there's opportunity for us to do things from an advisory perspective. I think there's opportunity for us to continue to focus on building out public finance. There are things that I think in the future businesses that are bolt-on businesses that will contribute and help continue to diversify that the income base given our size in our span of the company, the markets that we compete, and I think we have a terrific opportunity not to capitalize on those segments.
And I think once we move into our building, we built a trading floor so we can bring all those capital markets groups together. It's fairly impressive, I think bringing clients in and showing them that we have these capabilities will lead to additional opportunities for us.
And then on the wealth side, we have opportunities there. I think we've all scratched the surface in terms of building out our teams in the markets that we moved into than they were contributing nicely on the wealth has grown 10% annually every year. I think there's tremendous upside. We've had record sales year-over-year.
So, building out the wealth platform continues and building out those capabilities continues. TM, there's tremendous upside in treasury management fee income. Again, given the growth of the company and we bought banks and the use their robust trading management offerings. So, as we build out that client base on the commercial side, we will see opportunities to grow EM.
And then the other units mortgage is going to be cyclical and seasonal and then you have but I still expect mortgage to grow gradually over time as we continue to increase market share. Our team, they've done a terrific job. Joe Cartellone has done a phenomenal job building out the teams and growing share. And if you look at the amount of production that we've had even in this off cycle, we've outperformed others in the markets that we compete in, so we gained market share.
I would expect us to continue to do that and then, the last piece is insurance. We have a decent insurance offering, and we have good leadership there and we've started to focus on integrating that even further into our product offering with our commercial bankers. That seems to be going pretty well. So, I think there's upside there. It's been a little stagnant, but I think the insurance market is firming and premiums are increasing and we're starting to pick up larger and larger clients. So, in that space there's upside.
So we're pretty optimistic about those fee income categories. And I think it shows in the performance. We've consistently touted the capability and discussed what we were building out. And I think performance over the last five or six years really illustrates the success we've had.

Gary Lee Guerrieri

In fact, I would just comment that the percent of revenue is a function of the industry environment. So, growing that absolute level given all the initiatives Vince talked about has been to keep focus and that just keeps building?

Frank Joseph Schiraldi

And then just maybe a quick follow-up just with some slower long growth relatively speaking to the second quarter, some slow growth in the back half of the year. And with you guys already above your target capital levels, just wondering and I know you bought back a little bit in the second quarter, but would you expect buyback activity to maybe ramp up here. Or are you more price sensitive? Obviously, we've seen a reasonable alley in bank stocks. So just wondering how we should think about buyback activity maybe as you see it today.

Vincent Calabrese

Yeah, I would say the level of activity we had in the second quarter, we really just to kind of buyback some of the incentive shares that were issued earlier in the year. So $250,000 that we bought as we sit here today the focus on capital kind of building from here.
At this point, we don't have any plans to repurchase shares looking at the second half of the year. I mean, I can change the environment changes, but right now, using the capital to support the loan growth, I think the fact that you were able to support the robust loan growth that we had this quarter at capital ratio CET1 hold at 10.2% and TCE ratio.
So, holding those levels of capital and supporting the loan growth, I think is kind of the best use of the capital at this point. And the buyback will be part of our operation every year as we go forward. But as we sit here today, I think the best use is still letting that gradually build a little bit of diversity.

Frank Joseph Schiraldi

Great. Thanks for the color, guys.

Operator

Casey Haire with Jefferies.

Casey Haire

Great thanks. Good morning, everyone. A couple follow-up questions on the funding strategy. So I'm just wondering what does the guide assume in terms of the borrowings that I'm assuming that that stays there? Or is there an opportunity with these deposit initiatives to pay some of that down?

Vincent Calabrese

I would say that the guide basically has the increased liability position that we're entering the third quarter that's baked into that. So the better we do on the initiatives that are described, there's obviously opportunity, additional loan growth, as well as replace some of those short-term borrowings.
And I should comment too, the short-term borrowings are that short-term. So when the Fed does cut, the rate on those is going to come down in tandem with the rate coming down. So we made a decision during the quarter, given the loan growth to kind of forego a little bit of earnings in the short run in the second quarter, but position us so that we can benefit from the down rates as we go forward.

Casey Haire

No, understood. Okay. And it sounds like these deposit initiatives are it doesn't sound like they're CDs. So just wondering to the extent that they're successful, what is the new money rate on these on these deposits? Are the two you hope to bring in versus the 5% borrowing yield?

Vincent Calabrese

Yes. I mean, it'll be a mix, Casey. I mean, we still have some level of CDs coming in. I mean, it's definitely slow. So the kind of remixing of what it was last year -- we looked at the second quarter, literally, we -- these CDs, $36 million on average a month. So where we had a high of $164 million last July. So the shifting there is definitely slow, but there's still -- customers are still grabbing those rates, right?

Vincent Delie

Yes. Our people aren't incentive to originally CD.

Vincent Calabrese

Right. That's a key point. And I think the operating account initiatives have been talking about calling on companies, new customers to come in, bringing in their operating accounts, non-interest bearing is obviously the key focus. So it's hard to predict any certainty of the mix, but it'll be a little bit of both. And the CD that's their customers want to drive or rates start to come down. So you have some attractive off ones there. I think that the importance as we move forward is just growing the total deposits.

Casey Haire

Okay. And then just last one for me. Slide 16, the balance sheet repricing. Thanks for sharing that. So the new money bond yield on the roll-off rate of 250, just curious what yield you're getting on reinvestment. And then that swap with an 87 bps average received rate is that $1 billion, does that mature? Is that ratable throughout '25? Just looking for the maturity date on that?

Vincent Calabrese

Yeah, that's a couple of comments on that. I think we added this content just to give everybody a little more understanding of what kind of what's underneath. So if you kind of roll through the pieces Now the cash flow the $50 million annual cash flow coming off of $250 million. I mean today, we're investing $4.5 billion to $4.75 billion. During the second quarter, our guys did a great job opportunistically investing earlier in the quarter, kind of south I mean, north of 5%.

Vincent Delie

So we're speaking to Page 16 in the deck. It's still over nine months. Absolutely.

Vincent Calabrese

No, not a good point because I do want to talk through that. And then these other pieces here give us some flexibility as we move forward. I mean, $6.9 billion of time deposits, weighted average maturity in 9 months. And the CD promotions we've had over the last year seven months, 13 months, today, our best rate is on a 5 month. So the idea is that when the Fed does start to move, we have the ability to maturing and we can kind of reprice those. So that's an important point.
We have another $4 billion in non-maturity deposits with rates above $4.75 billion. Those are very repriceable. Again, once the Fed moves and basically if the Fed is expected to continue to move after that first move. So that gives us some flexibility the $4.5 billion of short-term or floating rate borrowings, again, those will just reprice down. So that's another lever for us.
And then the $1 billion of swaps at the bottom there, Casey, is really -- they're going to mature $250 million a quarter next year. The 87 basis points is what we're receiving today. I mean that's a negative carry today of $10 million to $11 million a quarter. And that's going to start to go away in January.

Russell Elliott Teasdale Gunther

Great, Thanks guys.

Operator

Russell Gunther with Stevens.

Russell Elliott Teasdale Gunther

Hey, good morning, guys maybe just a follow-up on the discussion we were just having. Given your move towards neutral and some of the balance sheet repricing we just discussed, is an initial Fed cut still a negative to the NIM as deposit costs lag or can some of that fixed repricing dynamic overcome a headwind from an initial step down?

Vincent Calabrese

Yes. I think it depends on kind of what the expectation is for cut kind of after that first cut, as Vince kind of talked about. If that down rates are expected to continue. That gives us a lot more cover to be aggressive on the deposit pricing side. I'd say if it's one and done, like -- we kind of have in our guidance there probably is some short-term timing issues where it probably is a near-term negative and then there's some timing constraints with how fast we can reprice deposits.
But if there is several more cuts baked into the curve, and that's kind of expected on the client side that gives us a lot more cover to act more aggressively and hopefully, we can capture some of that downside beta a little bit quicker than we think here.

Russell Elliott Teasdale Gunther

Okay. Got it. Thanks, Chris. And then just could you just talk about deposit pricing competition in your markets? Just broadly on getting some mixed messages early and earning season, particularly out of the Southeast, where some peers are talking about accelerated competition? Others talking about successfully walking down promo rates, just your overall thoughts would be helpful in terms of where you think that by the costs are headed over the next couple of quarters?

Vincent Delie

I think that many of our competitors have kind of shifted once they connect and priced up deposits to basically -- they have backed off. So I think a lot of the larger competitors have backed off a little bit. So if you look at the promotional pricing that's out there, you're going to see 25 to 50 basis point reduction versus what was running in the heat of I call it the micro liquidity crisis.
But I think that's why you're getting mixed signals. I think it's different at each institution. And then all of a sudden, you'll see somebody emerge and they'll have a really aggressive rate. So I think they've moved -- people generally move companies that generally move into a strategy that we had where they were selective repricing our products and maybe doing a more quiet promotional pricing versus what's on their website.
So you're going to hear a mix bag. I mean, it's going to be all of so I would say it's less competitive than it was other than spots. There's still some irrational pricing out there. So depending on who's calling on your client you need to react to that, right.
So that's where I think we are but I do just in the surveys that we do, we do a lot of work on monitoring whose pricing what we've seen a pullback in the stated pricing, the promotional pricing that's out there that we can see from many of our competitors. So it's come down. But then, like I said, every once in a while somebody emerges with a really aggressive brand.
But if the term has come in. A lot of the competitors are doing what we are doing, they're shortening the duration of the time deposit portfolio by putting out a more aggressive CD that's priced shorter by months, three months, six months. We see it all over the place, the pricing has moved in anyway. That's what we're seeing.

Vincent Calabrese

I would just add there, too, it depends on if the bank is from in loans or not, right? So depending on who you're talking to the banks that aren't growing loans at all, they're just managing the rates down more because they're not trying to generate deposits with our growth and bringing in all those new customers it's a different environment that you want to deposit. So it really depends on the market and the bank.

Vincent Delie

As you read through the as I read through the earnings release is, I can see that. I can see we're -- our margin contracted because we were lending improve their margin, right? We've seen inflows of deposits and given the pricing is all over the board. So it's choppy. It's still competitive. And I think people are just retrenching the situation on an individual basis.

Vincent Calabrese

I would just add, too, to the margin compression as we said, it was down 9 basis points for the quarter. But if you look at the dollars of net interest income, right, which is most critical from a online profitability standpoint. We were down $3.1 million this quarter, $5 million decline last quarter or $6 million the quarter before.
So kind of in line with that. So -- and then to go forward, as I mentioned earlier, more success we have with the deposit initiatives and then rates come down, we can replace always, 16 that I talked about, that gives you that kind of positive momentum if you go forward.

Russell Elliott Teasdale Gunther

Got it. Guys. I appreciate that. But your thoughts on the question, I guess the last one for me and understanding it sounds like we are poised to be flat to up on NII going forward, but adding a little incremental pressure overall to the guide, would you guys consider another securities portfolio repositioning or how does that currently sits near opportunity set?

Vincent Calabrese

Yes. I would just say that the net interest income, I mean, we expect the second quarter to be the trough in net interest income dollars. So we do expect it to move up the next couple of quarters just on all the things that we described. And then we evaluate the whole balance sheet on a regular basis.
So as we said, with what we did in the fourth quarter, we were very thoughtful about the size of that and the nature of the overall optimization strategy we deployed. So we look at everything. So everything is kind of on the table from a recess standpoint. But I think we're focused primarily on the organic growth in the loans and then all the deposit initiatives really fund the loan growth.

Vincent Delie

It really helps us to bring those households on. I mean that helps us in the future helps us generate additional business. I think we've done a pretty good job of selling to that customer base.

Operator

Manuel Navas with D.A. Davidson.

Manuel Navas

Hey, good morning, Scott. If the Fed points to kind of a continued down rate cycle, could you have upside to the high end of your NII range? Or would it actually maybe exceed it? Just kind of some thoughts on that kind of variability that you kind of touched on briefly before?

Gary Lee Guerrieri

Yes. Manuel, I think -- like I said, our guide has one cut in it right now and that's it for the year. If there were more kind of cuts baked into the curve. I think the upside really would show up at '25. I think that sets us up really well for what '25 could look like, especially if the curve uninverted after, I don't know how long it's been two years now of inversion. So I think that would be more of a '25 impact. I'm sure it would be helpful.
But like I said, there's some mechanics on the timing of when CDs mature, some of that's locked in. So with five months CDs that are coming on now, a lot of the repricing happens at the end of the year. I think that really sets us up for 2025.

Vincent Calabrese

And our brand is pretty tight. As you know, if you look at the guide for that interest income. It's a pretty tight band there.

Manuel Navas

In the last three years, this third quarter has certainly been pretty good deposit growth quarter. I think you have some seasonality that you touched on in meeting flows. Can you just kind of touch on that kind of just organic better deposit trends this quarter potential?

Vincent Delie

Yes, go ahead.

Vincent Calabrese

I was going to say, yes, the normal seasonal surge that we see in deposits, particularly on the municipal side, happens kind of now through October, November time frame, and that can be $600 million to $800 million kind of peak to trough and usually we got them in the first quarter and then. So that seasonality we expect, and that will be supplemented by the initiative Vince talked about earlier as far as the commercial and consumer deposits.

Manuel Navas

Can you at least where your NIM kind of ended the quarter? Sometimes you show where it's progressed monthly basis?

Vincent Calabrese

Yes. The monthly I mean, the monthly margin there was some move in the last month of the quarter, it was within a basis point or two of the quarterly average.

Manuel Navas

Great, Thank you

Vincent Calabrese

Thank you.

Operator

Kelly Motta with KBW.

Kelly Ann Motta

Hey, good morning. Thanks for the question. I think you've touched on it a bit, but clearly, loan growth was incredibly strong, and it's a great operating need to win new households and clients to the firm. Just wondering where you're seeing the greatest opportunity to take share, whether it's a certain region or segment of the business?

Vincent Delie

Thanks. Yes, and we've seen some pretty decent growth coming out of the Carolinas. I think that continues to be scenario with upside for us. No, I think that we only started to scratch the surface in terms of calling activity there. So there's quite a bit on the table. And you know, as we moved into South Carolina and we've built out building out of Greenville and South Charleston for a lot of opportunity there for us, flowed through well, well Private Banking and commercial Bank.
So we continue to see good growth in those areas. In Charlotte, we've had some good success. We've had success perspective, great success in Wilmington, Greensboro. So we're pretty optimistic about the Southeast and then Pittsburgh then stop this for continues to perform very well. We have a lot of upside there. We have significant share here in Pittsburgh market.
So I think in certain business lines were undersized. Mortgage, I don't think we're sized appropriately given the deposit share that we have here. So there's some opportunity there for us to continue to grow in the Pittsburgh market from the consumer lending perspective. And basically, from a C&I perspective, we're not penetrated in this market. So there's quite a bit to do.
Cleveland was sluggish over the last few years, but I think there's upside in the Cleveland market for us in C&I. And then I mentioned equipment finance, I think, equipment finances has done very well and should continue to do well as we move through this period, get through the election because there's been kind of a hold up on some small ticket capital spending from the C&I base.
We'll see that release as we move past November when there's more clarity on what's going to happen. I think those are the areas that I think have the most upside for us. And then on the flip side of that, there's less activity going on in CRE, obviously, right? Business it's happening.

Kelly Ann Motta

And then understanding these things take time. Just wondering if we could get your updated thoughts on M&A, clearly, valuations across the board have improved and especially in light of potentially more accommodating regulatory environment potentially on the horizon. Just wondering, updated thoughts, any thoughts on potentially where would be looking to add density or fill in.

Vincent Delie

Yes, I think it's going to be the same answer we've given in the last few quarters. We're going to be opportunistic we are focused internally. We have a number of major initiatives going on right now and building out heightened standards capabilities were focusing on building out the digital platform.
You remember when you came and met with us, we had quite a bit that we were tackling. That doesn't mean M&A is off the table. It's just that we've been focused internally to strengthen the platform, right, so that we can grow and expand and benefit from the scale that we put on two. So I would say it's the same. We'll be opportunistic and look for opportunities in market. We've been building out Virginia on a de novo basis. So we've seen a lot of branch announcements in Northern Virginia. I think we are open to two more coming online in the near term.
And then Richmond, we've been focusing on. So that's kind of happening organically. And then in the Carolinas, we're building out the Charlotte market, the intercity Charlotte market, largely outside of the city of Charlotte. So that we're looking at opportunities to go in there.
So you'll see some de novo expansion in those markets, which I think Charlotte, in particular, should bring us some good opportunities from a consumer and a small business perspective. We build out that channel.

Kelly Ann Motta

Understood. You guys certainly have plenty of green shoots internally. Maybe last question for me, just a model refresher here. On the expense side, you have about a $7 million double carry from the excess lease expense while you're still leasing. can you remind us, does that doesn't carry through to 2025? Is that correct? Or is there any kind of change in plans or timing with the move to the new building?

Jim Dutey

Yes, Kelly, it's Jim Dutey. That's exactly right. Yes Once we move in, in fourth quarter is our planned movement data of about '24 that double carry on the current leases that we have pull in. So it's not a carry forward in '25.
So you'll see some de novo expansion in those markets, which I think Charlie, in particular, should bring us some good opportunities from a consumer and small business perspective when we build out the two. I understand you guys certainly have plenty of green shoots internally.
Thanks, Kelly, and thank you, Kelly.

Operator

Brian Martin with Janney.

Brian Joseph Martin

Hey, good morning, guys.

Vincent Delie

Good morning.

Brian Joseph Martin

That net expense reduction, can you remind us what that is on the building and on the property?

Vincent Delie

It's basically the timing of our move, we lease a number of locations here because we have a lot of people spread across lab locations here in North Shore. So it was the timing, if the rent expense that started on the building. We're paying rent on all these other locations until we can shift into the building, which we're scheduled to do in November, early December this year.
So the question was, what happens with that additional rent expense that goes away. So we're double (inaudible) right now, we have double expenses.

Vincent Calabrese

Brian, there's a footnote on the Slide 20, the guidance slide, which just report $7 million of renting expense. Yes. And we're not actually paying double it's we got free rent for the move, but from a GAAP accounting we indirect you.

Brian Joseph Martin

Okay and then just on the funding cost, can you talk up I mean, can you give any sense on. I know you talked about the margin inflecting as far as the cost of deposits kind of do those begin to plateau here? I guess they've been the rate of increase has obviously been narrowing. But just, I guess, when do you expect the deposit cost to kind of plateau?

Vincent Calabrese

I mean it's hard to say. I mean, it's still moving up a little bit. I mentioned the CD mix shift has definitely slowed quite a bit. So if you look at the total deposit costs at the end of on a spot basis in with 204 in the first quarter. And if you went back, it's definitely an increase has slowed.
I guess it becomes a function of what Chris was talking about earlier is if the Fed does cut and there's a expectation they're going to keep cutting obviously, that's giving more ability to raise that down. All the pieces on Slide 16 that I went through, there's a lot of levers there and flexibility that, again, if the expectation is that that's going to continue to cut after hopefully running in September, then a lot of those pieces are in play and have ability.

Vincent Delie

But I would say if you look at the makeup of the deposit base, it's not going to be I don't see pricing increasing draw in deposits. Like I said, we've seen a number of competitors reduced their promotional pricing. So I think it's more a function of shift. So are we able to hold the demand deposits to be able to hold the low-cost interest checking and we're able to hold that right without migration. I think the outflows have slowed dramatically. So we should be seeing initiatives that we're in right? New initiatives are focused more on lower cost deposit categories. So I think it would help us, but it's all a function of mix at this point.

Vincent Calabrese

And Brian, from a beta standpoint, I guess our beta has been very strong. The 38% versus the peers. We've been a good bit better than peers and we would expect that just too gradually go up a little bit more from here, probably similar to what it did kind of first to second quarter. So just as another indicator.

Brian Joseph Martin

Yes. Okay. That's helpful. And then maybe just one for Gary. On the credit side, the stress testing, Gary, anything I mean, anything you're seeing from a sign of weakness or potential concerns given things sound very good and just the granularity and all the credit performance. But as you kind of do the stress test every quarter, is there anything coming up that's got you maybe more alerted to it, just paying closer attention to it?

Gary Lee Guerrieri

Brian, I think over the last 3 quarters now, and we stress test, as you know, every quarter. Over the last 3 quarters, we've seen improvements from a potential charge-off and loss perspective. So those updates and those reviews around the severe economy continued to show improvement we're very, very aggressive in managing the [book,] as you all know. And that test that our team goes through each and every quarter is really showing positive results for us as we continue to migrate through the current economy.

Brian Joseph Martin

That's, okay. I think that's really it for me. I guess maybe one last just modeling question. I think did you guys mention that there was some impairment on the mortgage this quarter? Or was that -- did I not hear that right?

Vincent Calabrese

No, it's normal fair value marks on the overall portfolio. Brian, that's all. And I mean, acting any quarter-to-quarter, anywhere from $1 million one way to $1 million or $2 million one way to $1 million or $2 million the other way. So it was just kind of hedging the pipeline.

Brian Joseph Martin

Yeah. Okay. I can make sure that. Okay. Thank you, guys, for taking the question. And everything else was answered.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Vincent Delie, for any closing remarks.

Vincent Delie

Thank you. Thank you, everybody. I appreciate your interest and great questions. I hope we've answered everybody's questions. We're very optimistic as we move forward. I think we had a great opportunity.
As we said in the previous call, we will go after market share because we were in a position to do that. I think we have a great opportunity to up-- you know, we had some pretty positive financial outcomes as we move forward and execute our plans to drive deposit growth in the second half of the year. So really appreciate it and appreciate your interest.
And thank you again and thank you to all of our employees for their hard work and a lot of you listening. I know we all appreciate it. So, thank you. Take care.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.