Good morning, everyone, and welcome to the F.N.B. Second Quarter 2025 Earnings Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Lisa Hajdu, Manager of Investor Relations. Ma'am, please go ahead.

Good morning, and welcome to our earnings call. This conference call of F.N.B. Corporation and the reports and files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials in our earnings release. Please refer to these non-GAAP and forward-looking statements disclosed within 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, 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 Vince Delie, Chairman of President and CEO.

Thank you, and welcome to our second quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. The second quarter's strong financial performance led to net income available to common shareholders of $130.7 million, or $0.36 per share. F.N.B. achieved linked-quarter revenue growth of 6.5%, driven by net interest income of $347 million and noninterest income of $91 million, all at record levels. Pre-provision net revenue rose 16% from the prior quarter to $192 million. Because of our sustained strong profitability, we continue to grow capital and have achieved record levels with the CET1 ratio approaching 11%, tangible common equity at 8.5%, and tangible book value per share of $11.14, up 13% year-over-year. The expansion of our capital base provides flexibility as F.N.B. repurchased 725,000 shares this quarter at a weighted average price of $13.85. Even with strong growth in capital, we continue to produce solid returns with a return on average tangible common equity at 14%. There was significant margin expansion of 16 basis points linked-quarter resulting in a net interest margin of 3.19%. F.N.B. benefited from continued organic growth throughout our diverse geographic footprint as spreads on new commercial originations in the second quarter remained relatively stable, and average annualized loan growth totaled 5.3%. Additionally, our aggregate funding cost declined linked-quarter, while overall deposit balances and other funding sources grew nearly $600 million. Average total deposits grew to over $37 billion, while we continue to maintain a noninterest-bearing demand deposit level of 26%. Our success in growing deposits and maintaining a favorable deposit mix is a key part of our strategy to grow profitably. The loan-to-deposit ratio ended the quarter at 91.9%, down slightly from the last quarter and down 450 basis points since June 2024. These results were driven by our focus on deepening customer relationships by growing deposits and serving as their primary bank. F.N.B. continues to invest in capabilities to gain market share and further outpace our competitors, particularly around noninterest income and initiatives to diversify our revenue streams. Adding to a series of records, we reported the highest level of noninterest income in the company's history, more than doubling our noninterest income over the last 10 years. Debt capital markets and treasury management reached record levels this quarter and are examples of how F.N.B. has established, or significantly expanded, eight business lines that are now multimillion dollar revenue generators. The returns produced are significantly greater than our cost of capital, creating value for our shareholders. We continue to deploy this strategy with additional high-value businesses, including our recent expansion into public finance and corporate investment banking services. We have fulfilled an important milestone in our Clicks-to-Bricks strategy by integrating the eStore common application into our in-branch origination platform across our physical delivery chain. This is a major milestone as we've completed our industry-leading omnichannel approach to onboarding customers with the eStore common app now aligning originations across online, mobile, and in-branch channels. This aids in quicker processing times for our retail team, stronger risk and fraud controls, and provides a better experience for our clients. Common App submissions increased 108% linked-quarter with our full branch network originating applications on this platform starting in June. Through the use of the common application, multiproduct purchasing is expected to grow as our bankers will now be able to leverage AI to identify the next best products and services tailored for our customers within the same streamlined application process. In addition, business deposit account origination was launched this week, providing small business owners with the opportunity to open a business checking account and apply for a loan product simultaneously with the common app. The increasing utilization of the common app provides additional data that our data science team leverages for personalization and better customer experiences. AI, data science, and digital technology play such an integral role in our operations and ongoing success that we realigned our organizational structure. F.N.B.'s digital channels, e-commerce, data science, data management and governance, corporate strategy, and a new vertical of AI and innovation will now report to our Chief Strategy Officer. This organizational structure further expands the utilization of our digital tools, data-driven analysis, predictive modeling, and artificial intelligence to position the company for ongoing success. Our organizational alignment is necessary as we continuously invest in our digital and data capabilities to efficiently scale development, data consumption, business insights, lead generation, and client personalization across F.N.B.'s digital ecosystem. From Clicks-to-Bricks to our proprietary eStore and Opportunity IQ, F.N.B. has been an innovation leader in banking. Our team is working to further expand our use of AI and evaluate other emerging technologies such as stablecoin and tokenization. We have created a Generative AI Task Force to monitor our existing applications, intake and source new use cases across the enterprise, and ensure that we are upholding responsible risk management frameworks and controls around our growing AI usage. This past year, our credit team developed an internal performance monitoring tool that provides a 360-degree view of our commercial clients. By using internal and external data aggregation through our enterprise data warehouse, we are able to evaluate the real-time risk profile of our customers and monitor changes. Our team continues to assess the impact from tariffs and geopolitical events, as we monitor our loan portfolio and manage our strong liquidity and capital position. Gary and his team remain steadfast in our consistent underwriting standards and credit management program, with aggressive and proactive actions, which led to continued strong credit results for the quarter. I will now pass the call over to Gary to provide further detail on the overall asset quality.

Thank you, Vince, and good morning everyone. We ended the quarter with our asset quality metrics showing notable improvement. Total delinquency ended the quarter at 62 basis points, down 13 bps from the prior quarter, with NPLs and OREO down 14 bps, ending at a very solid 34 basis points. Net charge-offs totaled 25 bps, bringing the year-to-date results to 20 basis points, reflecting good performance despite the somewhat volatile economic environment. Criticized loans were down 4.5% on a linked-quarter basis, driven by a 20% decline in classified loans. We were pleased with the improvements we saw across these categories during the quarter. Total funded provision expense for the quarter stood at $24.9 million, supporting loan growth and charge-offs, as we were successful in removing some risk from the loan portfolio. Our ending funded reserve stands at $432 million, an increase of $3.2 million, ending at 1.25%, unchanged from the prior quarter. When including acquired unamortized loan discounts, our reserves stands at 1.32%, and our NPL coverage position improved significantly to 393%, inclusive of the discounts. As mentioned in the previous quarter, we continue to closely review the loan portfolio for tariff impacts, which remains a fluid situation. This includes very granular monitoring of line utilization and industry concentrations by portfolio and country, which we highlighted during the Q1 survey. Of note, our C&I line utilization was down in the quarter as we are not experiencing significant tariff-related draw activity. Each quarter, we continue to run allowance sensitivities in a full portfolio stress test. The stress test results reflected further improvement with our current ACL more than covering our projected charge-offs in a severe economic downturn. Regarding the non-owner CRE portfolio, credit metrics also improved, contributing to the decline in rated credits that I mentioned earlier, with delinquency and NPLs at 64 and 62 basis points, respectively. This reflects an improvement from 82 and 77 bps at the prior quarter end. We continue to aggressively manage this portfolio as we have throughout this interest rate cycle with a non-owner exposure declining by another $137 million in the quarter, bringing the year-to-date decline to $420 million, ending at 223% of capital. In closing, our active credit risk management further strengthened the position of our portfolio as shown in this quarter's results. I would like to thank our banking teams for managing risk in their portfolios throughout a challenging economic environment. With more clarity now around fiscal policy, and a somewhat stabilizing economy, we look forward to increasing opportunities to achieve prudent loan growth through the remainder of the year. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary, and good morning. Today, I will review the second quarter's financial results and walk through our third quarter and full year guidance. Second quarter operating net income totaled $130.7 million, or $0.36 per share. Total revenues were a quarterly record at $438 million with both net interest income and noninterest income exceeding the high end of our prior quarterly guidance ranges. As a result, second quarter operating pre-provision net revenues grew 7.9% from the year-ago period. Second quarter average loans and leases totaled $34.5 billion, a 5.3% annualized linked-quarter increase, driven by growth of $365 million in consumer loans and $86 million in commercial loans and leases. Seasonal growth in residential mortgage loans was the primary driver of the consumer loan increase. Owner-occupied commercial real estate advances and commercial leases were the primary growth drivers on the commercial side. While C&I loan production was solid in the second quarter, it was largely offset by a decrease in line utilization that Gary mentioned. Looking ahead, we are optimistic for a pickup in commercial loan growth in the second half of 2025, given the strong increase in the short-term commercial loan pipeline we saw during the second quarter. Average deposits totaled $37.1 billion, a 1.7% annualized linked-quarter increase, reflecting organic growth in new and existing customer relationships. Average noninterest-bearing demand and interest-bearing demand balances grew linked-quarter while time deposits were relatively stable and savings deposits declined. Spot noninterest-bearing demand deposits were up slightly for the last 2 quarters and stable at 26% of total deposits, and the loan-to-deposit ratio held steady at 91.9%. The cumulative total deposit beta since the interest rate cuts began in September of last year was 28% at quarter end. Net interest income of $347.2 million was more than $12 million above the high end of the quarterly guide and grew nearly 10% from the year-ago period. The quarter's net interest margin of 3.19% was up 16 basis points sequentially, and 10 basis points from last year, to the highest level since the fourth quarter of 2023. Earning asset yields increased 10 basis points linked-quarter to 5.33% driven by increased yields for both loans and investment securities. The second quarter average loan origination yield was more than 50 basis points above the total loan portfolio yield and cash flows from the investment portfolio were reinvested 165 basis points higher than the roll-off rate. Purchase accounting accretion from payoffs of previously acquired loans added 2 basis points to the margin for the quarter. On the funding side, interest-bearing deposit costs fell 10 basis points linked quarter on lower average rates paid across the deposit franchise. Turning to noninterest income and expense. Noninterest income totaled a record $91 million. Capital markets income grew strongly from the year-ago period due to record debt capital markets income, and contributions from international banking and customer swap activity. Wealth management revenues increased 5.2% year-over-year, with contributions across the geographic footprint, and other income included higher-than-normal gains from our leasing business. Operating noninterest expense totaled $246.2 million. Salaries and employee benefits increased $8.9 million from the year-ago period, primarily reflecting strategic hiring associated with our efforts to grow market share, and continued investments in our risk management infrastructure, as well as higher production-related compensation. Net occupancy and equipment increased 10% year-over-year, largely from technology investments and de novo branch expansion. Other noninterest expense increased $4.3 million from the year-ago period, primarily due to the impact of community uplift, our mortgage down payment assistance program that was enhanced and expanded in conjunction with our previously announced settlement agreement with the Department of Justice. The second quarter efficiency ratio remained favorable at 54.8%, as we continue to manage our expense base in a disciplined manner, and expect positive operating leverage for the second half and full year of 2025. F.N.B. continues to actively manage our capital position for ample flexibility to support balance sheet growth and optimize shareholder returns, while appropriately managing risk. Our financial performance and capital management strategies resulted in our CET1 ratio reaching 10.8%, and our TCE ratio reaching 8.5%. Tangible book value was $11.14 per share at quarter end, an increase of $1.26 or 12.8% compared to last year. Let's now look at guidance for the third quarter and full year of 2025. All guidance is based on current expectations, while remaining cognizant of risks in an uncertain economic environment. We are maintaining our balance sheet guidance for spot balances, projecting period-end loans and deposits to grow mid-single digits on a full-year basis, as we increased our market share across our diverse geographic footprint. We are raising our 2025 net interest income guidance to incorporate the strong performance in the second quarter. Our revised full year guidance range is $1.37 billion to $1.39 billion. This guidance includes an expectation for 25 basis point rate cuts in both September and December, compared to our previous expectation for cuts in June and September. For the third quarter, we expect to be in the upper half of our $345 million to $355 million guidance range. The noninterest income full year guidance range has been revised to $355 million to $365 million, with third quarter levels expected between $87.5 million and $92.5 million, building off the record levels in the second quarter. Full year guidance for noninterest expense has been revised to $975 million to $985 million, a $10 million increase to the low end of the prior guidance range, with the high end of the range left unchanged. This guidance reflects results through the first half of the year and the down payment assistance program costs referenced earlier. Third quarter noninterest expense is expected to be between $240 million and $250 million. The revised full year provision guidance range of $85 million to $100 million reflects a $5 million decrease on the high end, given our first half performance and the improvement in asset quality metrics during the second quarter. As always, provision will be dependent on net loan growth and charge-off activity, and we continue to monitor risks posed by the current economic environment. Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince.

F.N.B. consistently achieves great results through superior execution from the hard work and dedication of our employees. We remain keenly focused on driving long-term shareholder value, benefiting from our strong balance sheet with record capital levels and ample liquidity, organic loan and deposit growth across our dynamic geographic footprint, investments in our eStore initiatives, diversified fee income streams, and exceptional credit risk management. Thank you, and we will now open the call up for questions.

Our first question today comes from Daniel Tamayo from Raymond James.

Maybe one for Vince on the margin guidance to start. It looks like the third quarter number, I mean, you had a significantly wider margin in the second quarter, including some benefit from payoffs. But is there an assumption of a little bit of a contraction in the third quarter to get to that guidance you're talking about before it starts to expand again in the fourth quarter? Is that the way to think about it?

No, the margin, I would say, flattish to up a tick as we go through the next two quarters of the year. I mean just to comment on results for the second quarter too. I mean, you saw the dollar increase, net interest income up $23 million. Really a combination of a few things kind of hitting very well. We had growth in earning assets. We had higher yields on earning assets. We had a lower cost of funds as we had some good success bringing down interest-bearing deposit costs during the quarter, as well as benefit from $250 million a quarter in swaps that rolled off. So that all contributed to that big jump in the margin moving up 16 basis points. And when you look at the underlying activity, I mean we were putting new loans on 56 basis points above the portfolio rate. We are reinvesting securities, 165 basis points above the roll-off rate, and then the interest-bearing deposit costs that I mentioned. So what's baked into our guidance is kind of flattish to up a little bit and net interest income moving forward. And we have a September rate cut and a December rate cut baked in there. So right, none of us really know what the Fed is going to do, but that's what's baked into our numbers.

Okay. So flat to up on the margin, so probably not much average earning asset growth, I suppose to get to that upper end of the...

The average growth of earning assets is expected to remain. In the second half of the year, we anticipate reaching mid-single digits. Additionally, we experienced a positive change in our short-term pipeline, particularly in commercial. If commercial activity significantly increases, we could see our growth surpass the mid-single-digit level.

Okay. All right. I'll follow up with you offline if I have additional questions on the margin. And then I think you guys kind of addressed what was going to be my second question on the expenses. It sounds like most of the increase in the guide was due to the payment assistance program. Anything else on that? Is there any kind of additional investment that you're looking to make now that you're expecting the NII side to be stronger than three months ago in the credit environment looking to be more clear?

Yes, I would say, I mean, the down payment assistance program you mentioned, which was $3.1 million for the quarter, probably at that same kind of level is what's baked into the guidance for the rest of the year, and then that should start to come down next year as we've kind of fulfilled the commitments that we had from that settlement. So the higher commissions are always a swing item. Those are tied to revenue. So that was high this quarter. A lot of it tied to the mortgage volume, and depending on how well we do on the revenue side, you always have that higher commission level that would come through in accordance with that. As far as investments, I mean, we mentioned last quarter about a couple of the new things that will drive fee revenue going forward. The commodities hedging that we added, as well as adding public finance and the investment banking firm that joined the team. So those are items that are on board, and we expect to start to contribute revenue in the second half of the year. So those are our newest investments as far as driving fee revenue.

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

Russell Gunther, Stephens. I wanted to follow up on the margin conversation we just had. What are you guys expecting from a deposit cost perspective? We've heard some kind of increased competition in the Mid-Atlantic Southeast this quarter. I know you guys are trying to continue to match loan growth like you've done successfully. So really just trying to get a sense for how that incremental margin, or spread, would be with a focus on deposit costs? And then in the past, I think you've shared sort of where that deposit rate ended the quarter even end of the month NIM. So all of those puts would be helpful.

Yes, I would say, I mean, the total interest-bearing deposit cost is between now and the end of the year, probably kind of around the level that it's at until you get the Fed move. So I think we've reduced rates where it's made sense strategically for us to do that, and we got the benefit of that in the second quarter. I think as far as any meaningful move down going forward, it's really going to be more tied to a Fed cut, and our team has tactics and strategies kind of in place to how we're going to try to capture as much of that as possible once there is movement down there.

Russell, we feel pretty confident about our ability to gather deposits given the diverse geographic footprint. I had our folks go back and calculate organic growth rates in loans and deposits over the last 15 years. We've averaged 9%, roughly 9% in both loans and deposits in organic growth, not including any acquired loans or deposits. So I think we're pretty well situated, and we've invested in the right tools to help our team gather deposits as we move forward. You can see that we had a decent pickup in margin, and we still grew our deposits, and the demand deposit mix remained at 26%. So some of the things we've been talking about are playing out in the numbers here, which is very positive for us.

Our total spot deposit cost at the end of the quarter was 1.96%. I also want to highlight that we have a strong pipeline of commercial deposit prospects that we're pursuing, and we've been successful in establishing new relationships, which supports the growth of noninterest-bearing deposits. The team is actively working on this pipeline as we speak.

So our goal internally, whether we achieve it or not is a question given the competitive environment, but we would like to grow earning assets and get the loan-to-deposit ratio down if we can, continue to drive it down. So it gives us the capacity to scale when things start to really turn. So that's the internal strategy. And it's not a huge pipeline.

That's all very helpful color, guys. I appreciate it. And then just going through, yes, the NII side. I hear you on 3Q and the upper half of that. I'm just trying to get a sense for the puts and takes that would potentially get you to the high end. It sounds like commercial loans could pick up again in the absence of any Fed cuts, could we see you guys through the high end? It just seems like you're in a good position relative to guide, and it would be helpful to get a sense for the drivers behind the high end or potentially exceeding?

I would say that the potential Fed cut in September is a significant factor. If it doesn't happen, we still benefit slightly as we're asset sensitive. We've managed our balance sheet and interest rate risk well, and we are currently around 1%. If we see a decline of 100 basis points, that moves up to about 1.2%, which indicates we're nearing a neutral position. However, without the September cut, we could see that percentage increase again. Additionally, the types of loans we are originating are solid, with mortgage loans in the mid- to high 6s during the second quarter contributing positively. We're also seeing $1.1 billion in cash flows rolling off over the next 12 months at around 3.22%, and we are reinvesting at rates in the mid- to high 4s. So, how we reinvest could also add to our position. Moreover, our efforts to attract noninterest-bearing deposits should enhance net interest income and margin, so better performance there will support our goals.

And our next question comes from Casey Haire from Autonomous Research.

Another margin question for you guys. So I guess number one, like the guide for NII feels a little conservative. Just wondering if you're doing that on purpose? And then two, just color on the loan yields and the bond yields, which were obviously a positive swing factor for you guys in the second quarter. How are they trending, or looking ahead?

No, I would say we're guiding to the upper half. Regarding Russell's question about what moved us to the higher end, I think it's reasonable to mention the September cut. Who knows what will happen with that. Again, that's probably the biggest variable; if that doesn't occur, then...

I think it's too early to really determine. There's still a lot of uncertainty out there. Who knows what could happen? There are geopolitical issues, and the interest rate scenario is changing. That's why our guidance is what it is. I don't think it's overly conservative; I believe it's realistic. Vince, what are your thoughts?

Yes. And there's still a lot of uncertainty. So...

If we had more clarity, Casey, we would be more optimistic, but there's still a lot of fog. So it's...

So we're guiding to the upper half?

Yes, the upper half. So I don't know if that helps.

Okay, Vince Delie, I have a question for you. As we might enter a new phase of M&A activity, your company has been quite active in the past. The Yadkin deal has certainly contributed to the organic growth opportunities you're experiencing now. However, it wasn't without challenges, particularly regarding the dilution of tangible book value at that time. I'm curious, do you feel a need to be as aggressive moving forward, or do you believe you can sustain the current growth with your existing operations without taking on new acquisitions?

We haven't made significant changes in the last decade, and that's now seen as a long time ago. This aspect of our company has served us well, and we're optimistic about our current markets. We're investing heavily in technology, which is starting to yield returns. As I mentioned earlier, we are integrating the eStore Common App into our branch delivery process, enabling clients to begin applications online and complete them in-store. This integration will also allow our salespeople to access AI tools to identify sales opportunities while assisting customers, which should help boost our sales of relevant products and services. We're excited about our recent market entries and the growth in market share we've observed. Looking back over the past decade, our tangible book value has grown, particularly accelerating in the last five years at a rate of 12% over the last two years, indicating high single-digit growth. This performance keeps me motivated. I recognize the landscape constantly evolves, including mergers and acquisitions, and I believe we are well-positioned where we are right now.

And 9% organic growth too, the growth...

Yes, the organic growth. Looking back over the last 15 years, our loan and deposit growth organically was 9%. This figure excludes the assets we acquired. Our business model, from an origination perspective, is functioning well, and there are opportunities for continued growth. With the capital we are accumulating and deploying, we are in a much better position to achieve loan growth since the returns from that capital are significantly higher. We are seeing returns in the high teens to low 20s on the capital used for loan and deposit growth, particularly in the commercial segment. That’s why we are shifting our focus, and I believe we have a strong franchise that we will leverage.

Plus, the new businesses we've entered that I mentioned earlier.

Yes, we have also made investments. You can refer to that chart in our presentation. We mentioned a long time ago that this would help us boost our noninterest income, which has more than doubled from $160 million to $350 million last year and continues to grow. I believe there are opportunities for us to keep expanding those businesses, which were grown organically. Apart from the small boutique we acquired in the investment banking sector and a very small mortgage business, all other businesses were developed internally, generating returns well above our cost of capital and significantly benefiting our shareholders. I think maintaining focus on this, along with emphasizing the deployment of AI and the internal tools we have created, is why we restructured and realigned the company's organizational structure. This aspect excites me more than mergers and acquisitions. Of course, we might consider high-quality opportunities if they arise, but they need to provide us with valuable resources such as a strong deposit mix or additional clients to apply our model effectively.

All I would add too is our de novo expansion strategy has been a key part of us expanding. And we've continued to be active into Northern Virginia and D.C. and other key markets for us, Charleston. So that's been kind of quietly a way for us to expand geographically and get more customer opportunity.

We basically either plan to open or have opened 30 branches, in these high-growth areas over the last few years. So some of the expense build is related to the expansion of those de novo operations. But if you look at the markets that we went into, they're performing very well. Charleston's purely de novo, purely organic and is doing extraordinarily well. So that's an example of the market we went into. And we didn't buy anything. So I think given our model and what we have, what we've invested in, we're positioning the company to grow without capital dilutive acquisitions.

Hoping to get some color on what you guys think the composition of future loan growth is going to look like. Obviously, it's been led by mortgage more recently, some constructive comments around the C&I pipeline. I guess as commercial loan growth becomes a more meaningful part of the story, does that lessen your appetite on the resi side? Or is that additive? And I guess, where do you think loan growth could ultimately end up once commercial starts to manifest in a more meaningful capacity?

Yes. I think our guide kind of directs you to what our expectations are globally. So I don't think we want to shift off of the guide, yes, right? We will update you next quarter once we see what's happening. Like I said, it's a very difficult time to forecast because it is so volatile. But I will tell you that the commercial pipeline, as Vince mentioned, the short-term pipeline. We have a 90-day pipeline. We have a long-term pipeline. And long-term pipeline is kind of flat and the 90-day pipeline is up 20%. So we've got a lot of deals moving through our pipeline head towards closure in the C&I business. CRE continues to decline. We expect that to continue to come down. I think we're what, Gary?

We currently have 223% of capital.

Yes. So our expectation is that continues to decline over time. The mortgage lending business should start to taper off because we're moving out of the peak of the mortgage lending business. And the commercial business that we have in that short-term pipeline, hopefully, lands in the next quarter. So the shift will be towards commercial, probably less emphasis on mortgage, right? And then we'll see some growth in the balance sheet in the C&I segment, offset by probably continued CRE declines. That's what we're seeing. That's what we're using in our forecast for the model. And I will tell you, like Vince said, we haven't exclusively been focusing on the asset side of the balance sheet because it's very competitive. We've been focusing our folks on the depository side with very, very significant treasury management opportunities, and we've landed some huge deals recently. So that strategy seems to be paying off. And as I mentioned earlier, I'd love to see our loan-to-deposit ratio continue to come down with high-quality deposits. And I'm very excited to see the FDIC data when it comes out because we've been monitoring our performance relative to last year's FDIC data, and we're showing some pretty strong results across the board in market share gains. So I'm going out on a limb here, I don't know what it's going to say. Maybe I'll be wrong. But we've grown ourselves in those markets, in some of those markets fairly substantially. So we've closed the gap. And we want to be in the top 5 share in most of the markets, top 10 and the ones that are dominated by some of the largest banks. But anyway, that's what we're seeing. And I think we're optimistic about deposit growth. We're optimistic about our C&I pipeline in the short run. I think real estate will taper off a little bit on the resi side and CRE commercial real estate loans should continue to decline with institutional takeouts on the construction financing that we've done.

And I would just add, too, that Vince mentioned earlier, the 9% long-term loan growth organically. I mean, while we're guiding at mid-single digits today, we've historically been in that mid- to high single digits. And for that period, we were high single digits at 9%. So I think that gives you kind of a range.

Yes, that's good. Well said, thank you Vince.

Timur actually, during the quarter, we had really strong gross C&I originations. It was a really solid quarter. As I mentioned in my remarks, the line utilization was down fairly significantly, which reduced that loan growth there. With tax policy now finalized and the 100% depreciation, clients are very excited about that. And I think there's going to be some heavy investment as we move forward. So we're very optimistic when we look at those...

So to that point, our equipment finance business has done phenomenally well also.

It has done very...

It used to be strong, good credit metrics. Good leadership there, even though I tease them all the time. Vince's done a great job. I think they're going to do well in this environment. That's another area that could potentially start to accelerate because of the bonus depreciation.

Great. That's good color. And then one for Gary. You had mentioned that you had some success in reducing some of the risk on the balance sheet this quarter. Can you just maybe provide a little bit of color around that statement?

Yes. We were successful in resolving and removing a few CRE credits from the balance sheet. We also saw a little improvement from a migration standpoint, but bringing some CRE exposure down, as I mentioned in my remarks, another significant amount there continues to be a strategy that we focus on. And in terms of the performance of the migration, we were very pleased with a 20% reduction in classified loans is a significant move in any period, let alone one quarter. And it's the work that we're doing earlier in the year and late in last year in setting those credits up to be removed from the balance sheet. So it doesn't happen overnight, I'll tell you. But we saw some resolutions, and we were really, really pleased with those results.

Great. And then just a final modeling question. The increase in down payment assistance cost this quarter, is that onetime in nature? Is that more or less a catch-up? Or is that something that sticks around with us as we go forward?

Yes. I was saying that we'd be at that same level kind of next quarter and it would start to kind of come down.

It's not a permanent situation. We made a commitment and significantly increased the grant money we provide on a per loan basis to boost our lending activity in areas where loans are needed. I believe this increase will decrease over time. Initially, it will be sustained for a little while, but eventually, we will return to our normal grant program, which is already included in the run rate. We increased it due to high search volume in certain markets for fair lending purposes. We expect it to taper off because the markets we were targeting were significantly above the peer median. However, we thought it was important to mention this so you understand the situation regarding our expenses.

Our next question comes from Kelly Motta from KBW.

Maybe we could discuss the capital base. It continues to grow impressively and is nearly at record levels. Despite the growth in the balance sheet, it seems that M&A is not a primary focus right now. Can you explain how you are managing your capital base? Having excess capital is a good problem to have, but I’m curious about your approach to managing it and whether there are any target ratios you have in mind for the balance sheet?

Yes. I would just say that when the 10% level we've been talking about was a target, obviously, we were below that. And now that we're above that, we kind of think about that as like an operating floor. I guess, is one way to refer to it. We think it's very appropriate given the risk profile of the balance sheet, combined with the higher levels of earnings and capital that we're generating, and PAT ratio in the low 30s. So I think it talks about the overall position. And with the prospect of earnings and internal capital generation moving forward, we have flexibility. We've been active on the share repurchase. We've had some level of that each quarter. We're studying dividend as another way, something that we may do at some point. So we have that opportunity. And then to Vince's point earlier, the first thing we're going to do is fund loan growth. So I think having the capital cushion, or buffer that we have, to fund the loan growth when it does accelerate, is important. But we have the flexibility really to generate shareholder value through all those different means.

To sum it all up for you, we are committed to doing what is best for the shareholders. We will evaluate the potential benefits of share repurchases in relation to valuation. Everything is an option because we aim to be as efficient as possible.

And we feel the shares are still undervalued. So at this point, we'd still be active repurchasing.

Got it. That's helpful. And then on a high level, you've mentioned at length the de novo expansion you've done in the past couple of years, I think, 30 branches. As you look at your footprint, can you opine on any areas where you see additional need for expansion or density of the footprint? Just wondering how much of a driver that is of the growth outlook over the longer-term horizon?

Yes, that's a great question. We haven't been very optimistic about our expansion, but as those locations begin to perform better, we've also been hiring commercial bankers in these markets, such as Charleston and Richmond, and looking into Southern Virginia. There are some attractive opportunities there for both commercial and industrial lending as well as consumer services like mortgage banking and depository services. We've been concentrating our efforts in the D.C. market as well, where we have continued to expand. I believe these efforts will prove beneficial over time. It's important to note that opening a new branch takes time; this differs from mergers and acquisitions, where you can reduce costs and gain customers almost immediately. Investing in new branches requires upfront capital, and it takes time to grow the customer base. Typically, reaching breakeven and achieving the targeted returns can take around three to five years, with the maximum return on capital often being realized in about five years, while breakeven is usually reached in three years.

3 years to break even...

To reach breakeven or increase profitability, I believe we will see growth due to the locations we have established. This will be included in our guidance as we move ahead. We are performing very well in these markets, even against strong competitors. Overall, this has been a solid strategy, and I am confident it will yield benefits for us in the long term.

Our next question comes from Manuel Navas from D.A. Davidson & Company.

Can you talk about that confidence on deposit growth? Kind of touch on seasonal trends and where the current pipeline is strong? I mean you talked a little bit about commercial. CD growth was really strong. I'm just wondering how much of that was new versus old customers? Just kind of talk through that confidence on the deposit side.

It has been a primary focus for us, especially regarding noninterest-bearing deposits. Looking at our success from last year, our loan-to-deposit ratio reached the 96s, and we experienced significant deposit growth across our operations. The guidance suggesting mid-single-digit growth is comfortable for us, and the commercial prospects and pipeline I mentioned could potentially push us even higher.

If you refer to Page 13 of the presentation that includes the deposit composition, you can trace back to 2009, which is when I became President of the bank. The difference is evident. We have achieved remarkable success, with a 9% organic growth rate contributing to this deposit growth. The deposit mix has significantly improved over time, and we managed to sustain a high level of demand deposits even after the increases seen during the pandemic in 2021 and 2022, despite having nearly $38 billion in total deposits. I am optimistic about our capacity to grow deposits organically in a manner that enhances earnings. Our deposit franchise is robust, and in the banking industry, that is crucial. Being able to fund ourselves, maintain granularity, and serve as the primary bank are all vital to ensuring we can keep this growth sustainable and profitable. That summarizes my outlook. Additionally, we have restructured and refocused our team, adjusted our compensation structure slightly, reorganized our data management, and integrated the digital bank under Chris's leadership. Our corporate strategies are now aligned with the data consumption area, alongside the digital team, and we have appointed an AI lead to help drive the optimal deposit mix and growth. We have also launched the eStore Common App across all branches to generate real-time, actionable leads. This app allows clients to seamlessly add additional products without further steps.

It removes obstacles.

I believe that along with our commercial calling initiatives and enhancements in treasury management, we have made significant improvements in this area. We are currently in the process of upgrading our treasury management products and services, and that effort is underway. Our investment in payments is also taking place, and I think it's crucial for us to maintain a strong focus on this, especially with the changes brought by the GENIUS Act, stablecoins, and the adoption of blockchain technology. We are committed to this focus and will continue to drive deposit growth.

And the de novo strategy obviously feeds that.

And if you look at some of the regions, I mean, year-over-year, Carolinas are up 17% in deposits. Pittsburgh is up 7%. So I mean some of our critical market is really growing quite nicely. Did I answer your question? Or did I just go on too long? I don't know.

No, that's all great. It's good to see the regional strength in the Carolinas. That area is attracting more interest, and you're succeeding there. How are you handling the competition?

How are we fending off competition? Was that the question? I'm having trouble hearing you.

Yes, the Carolinas. I'm still...

We have a dedicated team that puts in a lot of effort and stays very focused. Our monitoring of pipelines is a priority, and the team closely tracks calling activity. Our incentive compensation plans are aligned with our goals. You should check out my podcast where I discuss this in more detail. We aim to coordinate these elements to enhance our competitiveness, and I believe it is effective. It’s important to ensure that compensation reflects our expectations and that we quickly communicate performance information back to the field. It's a multifaceted approach; it’s not just about hiring talent—it's about everything we do. The banks that are thriving are employing similar strategies.

And the lead generation is getting better and better.

Our ability to generate leads and keep people focused is critical since each person has a limited amount of time. The technology we use significantly aids those who may struggle to concentrate, allowing them to focus on their tasks to succeed, earn commissions, and benefit our shareholders. I've spent considerable time with our team, and I can assure you they are very motivated and dedicated. The culture is strong; they are eager to work, and their achievements are recognized, which drives continued success.

And just to reiterate, we retain 26% of demand deposits as a result.

Shifting over to the asset side. I mean, I appreciate all that commentary. Shifting over to the asset side, the C&I pipeline increase. Is there any like one single driver that kind of increased optimism this quarter in the pipeline? Is it the tax bill? Gary touched on that. I think our pace has picked up recently due to pent-up demand, as many are waiting to see the effects of tax reform, particularly regarding bonus depreciation. This is my assumption based on informal discussions I've had with a few clients who seem to share this sentiment. Suddenly, we are seeing a change; clients are ready to move forward with plans. They are looking to finance new equipment and expand their facilities, which indicates a growing optimism about future demand. Concerns about tariffs have eased somewhat, although they still exist, and worries about supply chain disruptions have lessened. As a result, we are seeing deals that were previously on hold moving into the near term, and we hope to close them soon, which should positively affect our commercial and industrial positions.

And our next question comes from Brian Martin from Janney Montgomery.

I apologize for joining the conversation a bit late. If you have already addressed this, I can review it later, but I wanted to clarify your perspective on M&A. Considering the current opportunities available, is M&A now viewed more as a supplementary strategy rather than a way to enter new markets? Or is that not the right interpretation given the reduced emphasis on M&A at this time?

I'm less focused on mergers and acquisitions. This has been the case since we expanded our franchise and covered a broader geography. Our attention has shifted away from M&A. People continue to discuss it because early on, if you consider the total assets we've acquired since Vince and I began, it's worth noting.

2009...

In 2009, I believe it was around $15 billion. Adding $8.7 billion to that means half of the company's growth came from organic sources. Let's move past that discussion. We have a better chance to enhance our earnings through organic growth. Honestly, if you consider what acquisitions have been made, aside from Yadkin, they are all relatively small. The truth is, we are concentrated on the right strategies to promote the company’s organic growth, and we will keep prioritizing that.

Sorry. Yes, I thought that was a question. It was more about clarification because, as you mentioned, there are great opportunities with what you've already accomplished and what you're currently doing. I'm not suggesting that you need to do more; what you've achieved has been impressive, and now that you've entered those markets...

Yes. Stop pushing M&A on me, okay? All right? Stop pushing it on me all right?

I'm not pushing. I just gave the color, Vince. And then, how about just on one other question. I know you talked about a little bit earlier about M&A, but on the margin, just in terms of if we see some benefit to the yield curve kind of a more normalized level, kind of where the margin could trend over time in the out quarters, maybe as you get into '26, and you get a little bit of benefit there from the curve. I appreciate the comment that it's more static here in the near term. But just longer term, what that could look like?

We're going to let our corporate strategy guy answer this question because it's long term. So go ahead, Chris. Go ahead.

Yes. No, Brian, I think there's still a great opportunity for margin in the long term to head higher. I mean if you just look at the building blocks, clearly, loan origination, security yields will continue to move up. If you get more rate cuts, I mean that's just going to help us generate more deposits and continue to grow that base. So I mean, you can look at where the pieces can go ultimately and kind of come to your own determination as to where that level is. But this is a better rate environment that we're potentially heading to than we've had for the last 15, 20 years in the banking industry. So I think you can kind of think about it that way as well.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Vince Delie for any closing remarks.

Thank you very much. I want to express my appreciation to all our employees for their hard work. This was a fantastic quarter, and we need to maintain this momentum. Now, our focus shifts to the next quarter. Keep up the great work; you are all doing an excellent job. I also want to thank our shareholders for their ongoing support, and I believe the best is yet to come. We are very excited about the future. Thank you.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.