Good morning, and welcome to the F.N.B. Corporation Third Quarter 2024 Earnings Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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 FNB Corporation and the reports that filed with the Securities and Exchange Commission also contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Friday, October 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 Vince Delie, Chairman, President and CEO.

Thank you and welcome to our third quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. FNB reported third quarter operating net income available to common shareholders of $122 million, or $0.34 per diluted common share after adjusting for $15 million of significant items impacting earnings. The third quarter's results demonstrate our ability to produce quality loans and significant deposits throughout our footprint, while maintaining stable, non-interest-bearing deposit balances at approximately $10 billion. We generated linked quarter revenue growth, strengthened our balance sheet with the record CET1 ratio of 10.4% and drove shareholder value with tangible book value growth of 15% year-over-year and an operating return on average tangible common equity of 14%. We are also particularly proud of our ability to gain market share in a number of MSAs across our footprint and achieved a number two traditional retail deposit share position in Pittsburgh, despite competition from some of the nation's largest banks. In this environment, it is important we continue to manage our capital and liquidity position. During the quarter, FNB completed a $431 million indirect auto loan sale, allowing us to remove lower yielding assets from our balance sheet with minimal impact to forward earnings, while improving capital and loan to deposit ratio. Vince Calabrese will provide the details about the sale during his remarks. Total loans ended the quarter at nearly $33.7 billion, a 4.6% annualized linked quarter increase when excluding the loan sale. FNB's loan growth has once again exceeded the published H8 data as we continue to gain market share, which can be attributed to our business model and its emphasis on a diverse and attractive footprint, as well as ample capital and liquidity to support our clients. Total deposits ended the quarter at $36.8 billion, an increase of 5.1% or $1.8 billion from the second quarter, benefiting from new production that was generated through successful deposit initiatives, as well as seasonal deposit inflows. Our strong sequential deposit growth highlights the successful efforts of our commercial and business bankers to establish and deepen client relationships. We also have leveraged our digital and data analytics capabilities to effectively market and capture deposits from new and existing retail households through data-driven lead generation. We made strides in consumer and small business deposits through our omnichannel clicks-to-bricks environment, leveraging our diversified geographic branch footprint, and award-winning eStore Common App. Our loan-to-deposit ratio improved significantly to 91.7%, a decrease of nearly 5 percentage points from the last quarter. This linked quarter change demonstrates our ability to execute strategies to manage the loan-to-deposit ratio when needed. In the third quarter alone, FNB generated nearly $1.8 billion of deposits, completed a loan sale and supported $391 million of loan growth. We will continue to manage the loan-to-deposit ratio through our long-term strategy of being our customer's primary operating bank across both the consumer and commercial portfolios, aided by our advanced digital tools, clicks-to-bricks strategy, and product bundling capabilities. This quarter's total revenue growth of 2.3% was driven by an all-time high non-interest income of $90 million and stronger net interest income levels. We will further advance our strategy of diversifying revenue streams and leveraging ongoing investments, including a focus on expanding business lines in our capital market segment. Operating non-interest expense totaled $234 million, driven by higher salaries and benefits partially associated with strategic hiring necessary to grow market share and our continued investment in our risk management infrastructure. We strategically increased marketing expenses $2 million to support deposit initiatives that led to our robust deposit growth. Expense management remains a high priority, but we expect fourth quarter expenses to be down sequentially. Our ongoing expense management in growing diverse revenue streams led to a peer-leading efficiency ratio of 55.2% in the third quarter. Another area of ongoing focus is maintaining consistent and conservative underwriting guidelines, enabling us to continuously serve our customers. Over the last decade, our credit team has built a comprehensive framework to effectively and proactively manage credit risk in concentrations through various economic cycles. This longstanding approach to credit risk management continues to serve us well. With that, I will now pass the call to Gary to review the overall credit performance. Gary?

Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at stable levels. Total delinquency finished the quarter up slightly at 79 basis points, or 15 basis points from the prior quarter, with NPLs and OREO ending at 39 basis points, up 6 basis points. Net charge-offs totaled 25 basis points and 17 basis points on a year-to-date basis, reflecting solid performance in the current economic environment. Criticized loans were down 22 basis points on a linked quarter basis reflecting improvement across the portfolio. Total funded provision expense for the quarter stood at $22.9 million and covered charge-off. Our ending funded reserve stands at $420 million, an increase of $1.4 million, ending at 1.25%, up 1 basis point from the prior quarter. When including acquired unamortized loan discounts, our reserve stands at 1.34% and our NPL coverage position remains strong at 352% inclusive of the discounts. The non-owner CRE portfolio credit metrics continued to remain at satisfactory levels with delinquency and NPLs up slightly at 69 basis points and 31 basis points respectively. The early stage delinquency increase was primarily related to several performing credits that had matured and were in documentation, a number of which were renewed in the normal course of business after quarter end and are now current. The NPL increase was driven by one credit that was placed on non-accrual status. We remain committed to our strategy of proactively managing and reducing the non-owner CRE exposure as reflected on page 11 of the earnings slide deck. On a monthly basis, we'll review upcoming and previously resolved maturities, largest exposures, and market conditions for the various property types across our footprint as we have communicated in the past. As Vince mentioned, we believe our proactive approach to credit risk management allows us to quickly engage our experienced special assets team when necessary, working with our customers to minimize any potential losses. On a quarterly basis we perform targeted reviews of various portfolios along with a full portfolio stress test. Our stress testing results for this quarter have once again shown lower net charge-offs and stable provision compared to the prior quarter's results, with our current ACL covering approximately 90% of our projected charge-offs in a severe economic downturn, again confirming that our well-balanced loan portfolio enables us to withstand various stressed economic scenarios. In closing, our credit metrics ended the quarter at solid levels, and our loan portfolio continues to remain stable. We continue to invest in credit risk management systems and staff that align with our consistent underwriting and core credit philosophy. Our tenured leadership strives to maintain experienced banking teams to enable the company to attain prudent loan growth, while proactively managing credit risk through various economic cycles. 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 focus on the third quarter's financial results, including details on the indirect auto loan sale, and walk through our guidance for the fourth quarter. Third quarter operating net income totaled $122 million or $0.34 per share excluding the $11.6 million loss on the indirect auto loan sale and $3.7 million software impairment. $431 million of performing lower yielding indirect auto loans were sold as part of our ongoing balance sheet management strategies. Loan sale positively impacted the loan-to-deposit ratio by approximately 120 basis points and the CET1 capital ratio by approximately 10 basis points. Excluding the loan sale, total loans and leases increased $391.4 million or 1.2% linked quarter, with a period-end balance of $33.7 billion. Consumer loan growth of $299 million, excluding the loan sale, was led by residential mortgage originations. This volume remained elevated given the pullback in mortgage rates during the third quarter. Commercial loans and leases grew $93 million linked quarter in line with our expectations given the significant level of commercial loan closings in the second quarter and reflective of lower revolver balances. Total deposits ended September at $36.8 billion, a robust increase of $1.8 billion or 5% linked quarter, benefiting from our successful deposit initiatives to demonstrate the value of our granular deposit base across a very attractive geographic footprint. Third quarter deposit growth was led by a $1.3 billion increase in interest-bearing demand deposits and a $783 million increase in time deposits. The mix of non-interest bearing deposits to total deposits totaled 27% at quarter-end, compared to 29% last quarter, reflecting the strong interest-bearing deposit growth; the non-interest bearing deposit balance is remaining fairly stable around $10 billion. Last quarter I discussed our goal to reduce our loan-to-deposit ratio organically through slower loan growth and deposit seasonality alongside several loan and deposit initiatives our team has implemented. The success of our ongoing balance sheet management and deposit gathering initiatives led to a loan-to-deposit ratio of 91.7% at September 30, nearly a 5 percentage point improvement from 96.5% at June 30. We expect the loan-to-deposit ratio to be relatively stable in the fourth quarter as deposit growth continues to be a strategic focus. Net interest income totaled $323.3 million, an increase of $7.4 million, or 2.4% from the prior quarter, primarily due to earning asset yields increasing 8 basis points to 5.51% and higher loan balances, as well as a favorable mix-shift in interest bearing liabilities as total borrowings decreased $1.6 billion or 28% linked quarter. This was partially offset by the cost of interest bearing deposits increasing 15 basis points to 3.08%, continued growth and higher yielding deposit product balances. Third quarter's resulting net interest margin was 3.08%, stable from the second quarter margin. Since the Fed began raising interest rates in March of 2022, our total cumulative spot deposit beta equaled 40% on August 31, 2024, outperforming our peers through the rate hiking cycle. We continue to manage our balance sheet towards a more neutral position as interest rates are lowered. Since the Fed's decision to reduce the federal funds rate by 50 basis points in September, we have strategically lowered deposit pricing on several deposit products, including our current CD and money market promotional offerings. At quarter end, we have nearly $7 billion of non-maturity deposits that are currently priced at or above 4.25%, and a $7.7 billion CD portfolio with a nine-month duration and $2.9 billion maturing in the fourth quarter of 2024 at a weighted average rate of 4.75%. Additionally, we have $2.8 billion of short-term or floating rate borrowings with an average rate of 5.15% and around $1 billion of swaps that mature beginning in January of 2025 with rates between 75 basis points and 100 basis points. Turning to non-interest income and expense, non-interest income reached an all-time high of $89.7 million, a 2% increase from the prior quarter. Capital markets income increased $1.1 million with broad-based contributions from syndications, net capital markets, customer swap activity, and international banking. Mortgage banking operations income decreased $1.4 million from the strong levels in the prior quarter driven by net MSR impairment of $2.8 million in the third quarter of 2024, due to accelerating prepayment speed assumptions given recent declines in mortgage rates, offsetting the increase in saleable production volumes. Total income increased $3.1 million reflecting higher life insurance claims. Operating non-interest expense totaled $234.2 million, an $8.4 million increase from the prior quarter after adjusting for the significant items. The largest driver for operating expense was a $5.1 million increase in salaries and employee benefits, due to production-related variable compensation and lower salary deferrals given reduced on-balance sheet mortgage production, as well as strategic hiring associated with our focus to grow market share and continued investments in our risk management infrastructure. Marketing expense increased $2 million, tied to the timing of opportunistic marketing campaigns for successful deposit initiatives. We continue to manage our expense base in a disciplined manner, and as we prepare our 2025 budget, we are working on a number of cost saving initiatives to bring revenue and expense growth into better balance. With some of the incremental expense growth tied to revenue growth, the efficiency ratio remains at a peer-leading level of 55.2% in the third quarter, up slightly from 54.4% last quarter. FNB's capital levels reached all-time highs with a tangible common equity ratio at 8.2% and CET1 ratio at 10.4%, providing flexibility to deploy capital to increase shareholder value. On a year-over-year basis, tangible book value per common share increased to $1.31 or 15% to $10.33, demonstrating our commitment to internal capital generation. Let's now look at the guidance for the fourth quarter of 2024. Loans are expected to grow mid-single-digits on a full-year basis inclusive of the loan sale. Total projected deposit balances are expected to grow mid-single-digits on a year-over-year basis, up from the previous expectation of low-single-digits. Our projected fourth quarter non-interest income is expected to be between $310 million and $320 million, with a 25 basis point rate cut in November and another 25 basis point rate cut in December. Given the continued strength of our non-interest income generation, the fourth quarter expectation is between $85 million and $90 million. We anticipate fourth quarter non-interest expense to be lower than the third quarter level, and we're guiding to a range of $225 million to $235 million. Fourth quarter provision is expected to be between $20 million and $30 million, dependent on net loan growth and charge-off activity. Lastly, the full-year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur. As we have previously mentioned, renewable energy financing transactions are part of our leasing company business model, which deals in various stages and sizes in the pipeline with uncertainty on the recognition of the investment tax credit flow curve. With that, I will turn the call back to Vince.

Thank you, Vince. FNB's success includes the deep relationships we build within our communities. On behalf of FNB, I want to offer our support to those impacted by Hurricane Helene and Milton, including our fellow team members, customers, and neighbors. FNB continues to work with partners in the affected areas to support recovery and healing in the coming days, weeks, and months. We encourage our customers who are directly impacted by the hurricanes to reach out if they require assistance. FNB's strong reputation is evident in the top deposit share we hold in the markets throughout our footprint. We deepened our penetration as we grew or maintained deposits in nearly 90% of our MSAs over the past year, with FNB now ranking in the top five in nearly 50% of the MSAs we operate in across seven states. Our performance once again garnered recognition with additional national and regional awards this quarter for our workplace culture, diversity and inclusion, and client experience. Notably, we received global recognition as one of Times World's Best Companies, Newsweek's designation as one of America's Most Admired Workplaces, and Global Finance Magazine's best bank for small and medium-sized enterprises in the mid-Atlantic. Our performance also conveys the quality of our workforce. We focus on hiring and retaining the most talented and experienced individuals. Our investment in our workforce enables us to scale effectively. In fact, 90% of our senior management team has larger institution and/or public accounting experience and bring a wealth of knowledge to our risk management, operations, and revenue generating areas. As I have often stated on these calls, the high caliber of our employees translates directly to stakeholder value. FNB's successful navigation through various economic cycles is directly attributable to our diverse and experienced team. Their ability to effectively grow revenue, mitigate risk, optimize our balance sheet, and execute on our proven strategies results in our ongoing success. I thank our teams for their dedication and our shareholders for their support. Thank you. And we will now open the call up for questions.

We will now begin the question-and-answer session. The first question comes from Frank Schiraldi with Piper Sandler. Please go ahead.

Thanks. Good morning.

Hi, good morning.

You know, obviously always a good time to be bringing in core deposits, but could you just talk about the average rate you're seeing on these inflows and Vince you mentioned moving towards a neutral interest rate position. Wouldn't all this growth on the deposit side work against that a bit at least in the near-term?

Yes, I would say a couple of things. As we said last quarter, we had significant growth in short-term borrowings to fund this very strong loan growth that we had in the second quarter. So the goal was to bring in meaningful deposits. And we did. We brought in $1 billion of new money. In total, it was $1.8 billion, with about $1 billion of new money around a 4.25% rate. The nature of those deposits are very short-term, a combination of money market and very short-term CDs, five-month CDs. So we have a lot of flexibility as we move forward to reduce the rates. I think it positions us well from a loan-to-deposit ratio standpoint. We were in the 96% range. Our goal was to bring it down and we brought it down meaningfully to 91.7%. If you look at the balance sheet as a whole as we sit here at the end of the quarter, we have $11 billion of liabilities that are repricable today, subject to market forces of course. We have another $5.4 billion in CDs that mature in the next six months, $2.9 billion of that in the next three months that are currently priced at a 4.75% rate. And then we have about $1 billion in cash flows from the investment portfolio that roll off; today we're investing between 4.25% and 4.50%. So there are a lot of levers that help us reprice. With the Fed moving 50 basis points in September, kind of bigger than maybe what was expected, that has an impact on our loan portfolio over a three-month period. So we'll be kind of managing cash. But we have the levers here that can offset that. Our team is very well positioned. We've already started to bring interest rates down. We lowered rates 50 basis points on our CD offer and across a variety of deposit categories we've started to reduce rates and we are ready to continue to do so. So I said a lot there, but we feel that we have the levers positioned well to move forward so that we can adjust as rates move down.

Great. Okay. And then, you know, you were, I think, FNB was a bank that was pretty conservative in your expectations of deposit beta on the way down, at least in the first few rate cuts. I'm just wondering now that we've seen that 50 basis points, you mentioned you've already cut some deposit rates. Any updated thoughts on what sort of early deposit beta data could look like for these first few cuts through the end of the year?

Yes, our guidance has the 50 plus two more 25 basis point cuts baked into that. What our guidance implies is like a 15% beta by the end of this year. I'd like to think we can do better than that. So we're all geared up to be able to adjust prices; a lot of our competitors have been lowering rates, so there is an ability to do that. So what's baked in is 15% and our goal would be to do better than that by the end of the year.

Okay. And then just lastly on the indirect auto sale, just kind of thoughts on additional opportunities on the balance sheet here. Was any of this move in the credit box a little bit or at this point you're looking to just exit this business given the yield?

We're not looking to exit the business. We saw an opportunity for us to move some low-yielding assets off the balance sheet. It was not a credit play. It was more about managing the overall balance sheet and particularly our loan-to-deposit ratio. We looked at it basically with our ability to generate deposits and coupled with the sale of those loans, we were able to bring it down fairly substantially. There were some questions in the last earnings call about our ability to do that and our ability to grow deposits in this competitive environment. I think we proved that we're capable of doing those two things. In the normal course of business in that indirect auto portfolio there will be loan sales from time to time. We've always used it as a way to manage the balance sheet and manage our loan-to-deposit ratio. We've done it a number of times. We retain the servicing, so we're still maintaining the clients. We do use the information on those clients to try to cross-sell other services to them. So that works pretty well for us. But it was not a credit play.

It's a very short-term asset, about a two-year life. From an income statement standpoint, given the borrowings we paid off, there's really no impact on earnings on a go-forward basis. And it added capital. The CET1 ratio picked up 10 basis points and it reduced the loan-to-deposit ratio by approximately 120 basis points.

It’s an attractive transaction and it helps with capital and essentially puts us in a much better position to support our clients. I think loan demand will pick up. Based on the earnings calls that I've listened to and read about, it seems that credit is more benign than folks would have thought and the economic environment is a little better. I think there's a lot of wait and see right now. Once we get past the election, I do think irrespective of who wins there will be demand in the C&I book in particular. So we want to be positioned to take advantage of that. I think the other thing is, over the past year and during this last quarter, great financial institutions are able to fund themselves and generate deposit balances. We've talked about our business model, leveraging data analytics and how we're positioned in the markets and the prominence we have in the markets, our share in the markets. There's been a lot of talk among some of the larger bank CEOs about the inability for mid-size and regional banks to gain share. We've proven that wrong. Our business model works. We've grown share. If you look at Pittsburgh, I mentioned it. We passed up the legacy Mellon Bank franchise here with deposits. Those are real customer deposits. We're doing very well in acquiring names and becoming the primary client, which is why our demand deposit balances have been sustained at around $10 billion. Others have seen migration at a much faster pace. All the things we've said that are embedded in our business model have proved out in this quarter. The proof is in the results.

All right. Great, I appreciate all the color. Thank you.

Thank you, Frank.

Thanks, Frank.

The next question comes from Russell Gunther with Stephens. Please go ahead.

Hey, good morning, guys. I was hoping to start on expenses. If you could just revisit third quarter key results for a minute, what the drivers were that took you guys through the high-end of the prior guide? And then provide some color around the bracket for fourth quarter. Is that simply tethered to fees or what could keep you towards the higher end of that range?

Sure. Operating expenses for the quarter came in at $234 million. The guidance range we provided in July was $220 million to $230 million. The key drivers were a couple of things: a $2 million increase in marketing, which we decided to do to grow the $1.8 billion in deposits. That was a strategic decision: spend some more money on marketing to bring in the deposits and it worked very well. Then a $5 million increase in salaries and benefits, driven by a few things: higher production-related incentives tied to the success we've been having on the non-interest income side, lower salary deferrals given reduced on-balance sheet mortgage production, opportunistic hiring of producers in key markets, and investing in risk management staff to support continued growth. We also had an extra workday in the third quarter that added about $1 million. Those were the drivers to get us a little bit above the range. If you look at the efficiency ratio, we continue to post top quartile results — last quarter we were 54.4% and this quarter is 55.2%, which should compare well among peers. For the fourth quarter, we're using a range of $225 million to $235 million, up $5 million from the prior guidance. It's a few things: continued variable compensation, support of the strong non-interest income, seasonally slower loan production, lower cost of borrowings, FDIC insurance levels staying at a higher level and the impact of hiring. Overall, we expect the absolute level in the fourth quarter to be down from the third quarter, which is key.

Okay, that's great color. And then looking forward, taking that conversation forward, you guys remarked about bringing revenue and expense growth into balance. So as we look to 2025, is positive operating leverage something you guys expect to be able to deliver, or do we really need to see a Fed easing cycle and deposit cost catch up to drive the efficiency more meaningfully lower and deliver positive operating leverage for 2025?

I would say getting to a more positively sloped yield curve later next year would make a difference. Having that for some portion of 2025 versus 2024 is definitely achievable, but the yield curve slope will be a key driver to getting us there.

Having an appropriate slope in the curve drives outcomes for our balance sheet. We perform extraordinarily well in that environment, so that's key to our success. We're no different than other banks, but that's the ultimate scenario for us in terms of profitability.

Yes, that'll drive meaningfully higher net interest income and net interest margin as you move forward and get to that point.

Got it. And then just last one: you guys reiterated a mid-single-digit growth guide for the year. As you look forward, is there any optimism for being able to accelerate that pace, or are we facing headwinds like paydowns or potential additional portfolio exits that would keep you guys at a mid-single-digit clip?

We haven't given guidance for next year, but historically we've done a good job over a long period growing loans and deposits nearly every year. We've put up consistent organic loan growth in the mid- to high-single-digits irrespective of the size of the balance sheet, and as we've grown we've shifted our strategy into markets that provide opportunities to sustain growth. I can't say I'm optimistic given the uncertainty about next year, but I do believe we're in the best position to generate that loan growth once the market comes back and demand picks up.

Understood. Thanks very much for taking my question.

Thank you.

Thank you.

The next question comes from Timur Braziler with Wells Fargo. Please go ahead.

Hi. Good morning. Circling back on the deposit acquisition strategy, just looking at the new money cost this quarter at 4.25%, that's still dilutive to the overall rate. As we look into fourth quarter and ahead, what's the composition of the deposit growth and the 50 basis point reduction in CDs: is that off of that 4.25% level or is new money acquisition still north of 4%?

I don't think we're going to get into specific strategies around how we price so competitors don't listen in. But you have to look at it in total. The new money rate coming in is basically on the money market.

That's money market and five-month CDs, yes.

There is a component of demand deposits, a shift and mix, but we are bringing in primary clients, so we do have operating accounts with free balances. I would expect us to benefit as we move along. Also, we replaced short-term borrowings that were at a much higher rate — they were around 5% — so it actually was beneficial. I prefer clients over wholesale funding or institutional funding. This trade was a very good trade for our shareholders.

Bringing the loan-to-deposit ratio down as much as it did gives us flexibility to actively reprice the rest of the portfolio.

And to reiterate, in the context of the competitive environment, we are not outsized from a pricing standpoint relative to competitors. Our business model is working and we are driving share in the market in a way that is accretive to margin and profitability. Over time, having new clients gives us the flexibility to price according to market changes, which ultimately leads to higher profitability on a per-client basis.

We also have a meaningful pipeline on the commercial side of additional deposit accounts that we're pursuing. We've had great success in the past quarter and there's still a very meaningful amount that we're going after to bring in relationships.

Okay, thank you. And then circling back to the indirect auto loan sale, any underlying characteristics of the loans sold? How did you choose which portions were divested this quarter?

Timur, it was an across-the-board sample of current transactions in the portfolio. The portfolio sale did not include any account that was past due. It was high-FICO, high-quality paper with an average life of about two years.

Okay, great. And then lastly, there's been some growing speculation of mid-Atlantic M&A, with your name in the mix. Would love to get an update on thoughts around capital deployment going forward and where M&A might fit into that mix?

We haven't changed our position. We're not looking to dilute tangible book value in a material way. We're focused on doing deals in-market, smaller in size, if available. We're being opportunistic. In-market acquisitions with cost saves are on the list. Deals would have to be immediately accretive to earnings with limited tangible book value dilution. The return has to be well above our cost of capital. We haven't deviated from that strategy and will stay true to it.

Great. Thanks for all the color.

Yes, thank you.

Thanks, Timur.

The next question comes from Daniel Tamayo with Raymond James. Please go ahead.

Thank you. Good morning, guys.

Good morning, Dan.

Good morning, Dan.

Maybe just starting on the fourth quarter guidance for net interest income. Some clarification: trying to get a sense for what the margin compression could look like to fit into your guidance? On the balance sheet side, was there something in the third quarter in terms of the pace of growth that would impact the average balances in the fourth quarter? Is that something where you could see that number come down? Just trying to think about right-sizing how to get to the margin number.

It goes back to the implied beta in our guidance. The Fed moved 50 basis points in September and we only had a partial month impact of that, so you'll have the full quarter's impact in the fourth quarter. Then there are two more 25 basis point cuts. There's some conservatism in our NII guidance, but we're using a 15% beta by the end of the year and we think we can do better than that. We don't have other portfolio exits teed up as of today, so it will be normal activity. Fourth quarter has some seasonality of slower activity and uncertainty with the election. Our mid-single-digit guidance on the loan side remains the same. So no unusual items, just managing through the rest of the year.

Understood. So average earning assets likely increase in the fourth quarter and it's a margin issue in the fourth quarter before we start to see that stabilize next year. Is that fair?

Yes, and I'd characterize the margin as flattish — if it moves down it would be by a few basis points, not a lot.

Okay, that's helpful. And then one for Gary on the credit environment, specifically net charge-offs. You've had volatility a bit higher in the third quarter; what might be a good run rate for net charge-offs in the near-term?

Daniel, we're very aggressive from a risk management standpoint and stay ahead of our clients with information flow and understanding their positions and risks in the portfolio. We've continued to perform exceptionally well from a charge-off perspective; credit metrics have been at or near record-low levels for quite some time. This quarter net charge-offs were 25 basis points and 17 basis points year-to-date, which is a strong result given the uncertain environment and stress in CRE. I would expect continued strong performance and possibly normalization, but I feel very good about where we stand and expect to continue to outperform the industry.

Gary and his team have done a fantastic job ensuring risk ratings are correct. We gather information and proactively assess portfolios; where we stand today is where we'll stand tomorrow absent major shifts in the global economic environment. We perform thorough underwriting, stress testing and portfolio reviews frequently, so what you see is what you get.

All right, terrific. Thanks for all that color.

The next question comes from Kelly Motta with KBW. Please go ahead.

Good morning. Thank you. On the prepared commentary about the 15% beta, just a point of clarification: is that interest-bearing deposit beta or total deposit beta? And second, I know you haven't done the budget for next year, but from a high level, how do you anticipate deposit beta to behave as we look past this next quarter?

That's total deposit beta by the end of the year. Historically, we think about a mid-30s level on the way down in a full cycle, so by the end of next year you could be in the low 30% range as a general concept.

Got it, that's helpful. On the loan side, what are you seeing in your markets in terms of how spreads are holding up for commercial loans? Any differences between the Carolina markets versus your more legacy mid-Atlantic markets?

Surprisingly, it's fairly consistent across the board. With capital exiting the CRE space, there's a bit more pricing flexibility in that bucket and if you find a high-quality CRE opportunity you're able to get more margin. There's not a lot of demand from a C&I perspective currently; everything is on hold and waiting. I would expect that to change next year with higher demand, particularly for C&I. On the consumer side, home equity and direct installment loans have been benign and I expect some pickup. Our mortgage company has done a remarkable job of gaining share across the board and we hope to continue to succeed there.

Thanks. On expenses, you noted the double carry of rent expense with the buildout of the new headquarters. Is that still on track, and is the roughly $7 million impact expected to come in as you move into the new space?

I don't know that it's exactly $7 million, but the building is on track and we are scheduled to move in November 25. We have nearly 800 employees moving into one location from seven buildings. We expect efficiency by being together. The rent increase we discussed earlier was because we had a year of free rent previously, so GAAP accounting spreads that out and you see some timing impacts. A portion of that $7 million will come back next year; it's not entirely apples-to-apples, but we should receive a benefit from a GAAP accounting perspective. Some of the rent is non-cash.

Got it. That's helpful, I appreciate the color. I'll step back.

Thank you, Kelly.

Thanks, Kelly.

The next question comes from Manuel Navas with D.A. Davidson & Company. Please go ahead. Excuse me, Mr. Navas, your line is open. Is your phone muted accidentally? Okay, we'll go to the next questioner then. The next questioner is Brian Martin with Janney Montgomery. Please go ahead.

Hey, good morning, guys.

Hey, Brian.

Hey, Brian.

Just one question on the deposits from Vince and the success this quarter. The DDA did come down a bit. I know you guys have talked about being the primary bank for your customers and the new commercial opportunities you see. Is the expectation that DDA stabilization around the 27% level is how to think about DDA in the next couple quarters, or do you see it drifting lower from where it is today?

The mix moved down due to bringing in a lot of money. We've been running at about $10 billion in non-interest-bearing deposits pretty consistently. As rates come down, we should be able to maintain and grow it over time. The percentage of DDA to total deposits may be smaller, but that $10 billion has been beneficial. We have opportunities to grow non-interest-bearing balances as clients deepen relationships and we provide treasury management services. It's difficult to maintain demand deposits broadly because customers will seek higher yields, but we have done well and expect to continue to do so.

Got it. We brought in a lot of new names. Gary, you mentioned about revolver balances. Could you comment on that impact?

Brian, we saw about a 1% reduction in revolver balances, which also impacts DDA balances. Customers paid down some revolver balances as a cautious move in the current environment, which has a slight impact on DDA.

We've added a lot of new retail households and new commercial clients. Once we have them, there's an opportunity to broaden those relationships and be the full bank for our customers.

Okay, that makes sense. And then just on loan growth, it sounds like nothing immediate from the first rate cut. Any pickup in dialogue with customers that point to optimism for next year on loan growth?

I'm not as close to customers as I used to be, but talking with bankers and some clients I’m not seeing significant movement yet. Clients are often waiting for additional cuts or clarity from the election. They're generally saying let's wait and see. I expect demand to pick up next year, particularly for C&I, but I don't see everyone leaping forward immediately.

I agree with Vince. That's the current feel; once we get into 2025 and things become more active, we should see stronger demand.

One last on margin: can you remind us what reprices and the immediate impacts are, and whether the expectation is modest pressure in Q4 then relative stability as you move into next year unless the curve steepens?

Slide 15 lays out the repricing parts: 47.5% of loans reprice over a three-month period. We have $11 billion in liabilities that are repricable today, $5.4 billion in CDs maturing in six months, $2.9 billion of that in the next three months at 4.75%, and about $1 billion in investment cash flows that will be reinvested at today’s rates of 4.25% to 4.50%. Those are the key moving parts.

Got it. You mentioned hiring on the fee income side; can you point to where you're adding talent? Also a modeling question: the fee income this quarter had some items and there was an MSR impairment. Do those offset?

We've added producers in certain markets and invested in operations and risk management. We hired process engineers and people to drive efficiency in operations, improve customer satisfaction and manage back-office risk. Some hires are front-end revenue producers tied to commission; others are transformational hires to create efficiency from AI and data investments. Regarding mortgage MSR impairment, there was a $2.8 million MSR impairment that offset some of the production increases in MSR-related income.

Debt capital markets had a record year. The hiring is a mix of revenue-generating producers and operational process hires for efficiency and risk management.

Okay, that should be it for me. From a sensitivity standpoint, you’re still asset sensitive but moving toward neutral — nothing changed there?

Yes, we remain asset sensitive on the reports, but we are more neutral than the straight calculations suggest because of the levers we discussed.

Perfect. Thanks for taking the questions.

Thank you, Brian.

All right. Thanks, Brian.

And we have a question from Manuel Navas from D.A. Davidson. Please go ahead.

Hey, can you guys hear me now?

Yes, we can please go ahead.

A lot of my questions have been answered, but could you dial into where you're seeing deposit gains geographically? What geographies are driving it best and where do you expect continued momentum?

We saw good results across our footprint. The Carolinas showed double-digit growth and have had great success. Pittsburgh continues to be strong — because we have significant market share here it feeds on itself and we can compete effectively for larger relationships. Central Pennsylvania showed strong growth as well. In the mid-Atlantic markets where we're expanding, including Charleston, South Carolina, we've seen good results. Overall, growth was broad-based, but Carolinas, central Pennsylvania and Pittsburgh led the charge.

We had growth in 35 of the 57 MSAs that we operate in and either increased share or maintained it in roughly 91% of the MSAs. In the Carolinas we had increases in six of the markets we're in, so it's a very good result.

If we get significant rate cuts by mid-next year, what fee upside do you see? Could lower rates quickly convert to improved mortgage business or other fee areas?

Mortgage business hinges on purchase demand; we are a significant purchase lender and need both demand and housing supply. Swap income from commercial customers could grow as clients decide to fix rates, though many are waiting for additional cuts. Syndications and advisory work should benefit from increased M&A activity in the middle market. We're expanding our advisory and public finance capabilities, which will add fee generation in 2025 that we don't have today. These areas won't be gigantic individually but will collectively contribute to fee growth.

Debt capital markets had a record year this year.

On revolver utilization, our larger clients have made very few capital markets draws that reduced revolver balances, so we think the balance changes are modest.

Thank you. I appreciate the color.

Thanks, Manuel.

Thanks.

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

Okay. Thank you, everybody. Thank you for the questions. I appreciate the time you've invested with us and we're really looking forward to next quarter and delivering. I appreciate everything the employees have done and continue to do to keep us moving in the right direction. So thank you. Thank you, everyone. Take care.

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