F.N.B. - Q2 2024
July 18, 2024
Transcript
Operator (participant)
Good morning, and Welcome to the F.N.B. Corporation Second Quarter 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Lisa Haid, Manager of Investor Relations. Please go ahead.
Lisa Constantine Hajdu (Head of Investor Relations)
Welcome to our earnings call. This conference call of F.N.B. Corporation and the report that 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 an alternative for, our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP and forward-looking statement 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 Thursday, July 25, and the webcast link will be posted to the About Us Investor Relations section of our corporate website.
I will now turn the call over to Vince Delie, Chairman, President, and CEO.
Vincent J. Delie (Chairman, President, and CEO)
Thank you, and welcome to our second quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer. FNB reported solid second quarter results, with net income available to common shareholders of $123 million, or $0.34 per diluted common share. Pre-provision net revenue increased over 4% linked quarter, supported by our well-managed expenses and continued strong non-interest income levels. Tangible book value per share grew 12% year-over-year to reach a record high at $9.88. The second quarter's performance was driven by our long-term strategic goals to gain market share through loan and deposit growth, diversify revenue streams, and manage risk.
As we have previously mentioned, FNB is well positioned to steadily increase market share in this volatile environment, given the strength of our capital and liquidity position and adherence to our consistent and conservative underwriting guidance. FNB reported linked-quarter loan and deposit growth of 3.6% and 1%, respectively, demonstrating our ability to execute on this strategy. Both of these results exceeded the published H.8 data this quarter for both large and small institutions. The loan and deposit growth benefited from our investments in our digital eStore, with total interactions increasing 22% year-over-year. The increase in commercial loans was driven by activity across the footprint, highlighted by double-digit year-over-year growth across the Carolinas. Our Pittsburgh and Cleveland regions and commercial equipment finance business also posted strong contributions. An increase in FNB's commercial real estate portfolio included fundings on previously originated projects.
On a spot basis, consumer loans grew 5% linked quarter, led by growth in residential mortgages. While growth in this portfolio is seasonally higher in the second quarter, our results also reflect the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market. This activity ultimately leads to increased households and deposit share growth. Deposits benefited from seasonal inflows as well as new production that was generated through targeted deposit initiatives and promotions. Non-interest-bearing deposits ended the quarter over $10 billion, an annualized increase of 3.2% from the prior quarter. The mix of non-interest-bearing deposits to total deposits ended the quarter at 29%, a consistent level since December of 2023.
As we have frequently discussed, our strategy has been to price our deposits to protect our peer-leading deposit data while supporting our client base. Our loan-to-deposit ratio currently equals 96%. We are expecting lower loan origination and implementing a number of deposit initiatives in the second half of the year that will bring our loan-to-deposit ratio back toward historical levels. Another longer-term strategic focus has been diversifying our revenue streams. Achieving stable, non-interest income at near record levels of $88 million in both the first and second quarters highlights the strength and range of our business model and FNB's robust suite of products and services. For the first half of the year, non-interest income totaled $176 million, a 10% increase over the same period in 2023.
The income growth was led by our mortgage banking operations, growing over 50%, strong wealth management revenue, and treasury management fee income growth. Our success growing non-interest income is expected to continue as we enter the second half of the year. FNB's balancing strategy is part of our proactive approach to risk management. As we draw closer to a reduction in interest rates, we continue to move towards a neutral interest rate position to provide stability and potential improvement in margin in a falling rate environment. Beyond interest rate risk, FNB's comprehensive approach to credit risk management has led to strong and stable asset quality and consistent outperformance versus peers. Our credit team proactively monitors each loan portfolio and overall concentrations at a granular level, which has served us well through many economic cycles.
I will now pass the call over to Gary to provide further detail on the overall asset quality. Gary?
Gary L. Guerrieri (Chief Credit Officer)
Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at solid levels. Total delinquency finished the quarter at 63 basis points, down 1 bip from the prior quarter. NPLs and OREO remained unchanged, ending at 33 basis points, a multi-year low, with net charge-offs at 9 basis points, reflecting solid performance in the current economic environment. Total provision expense for the quarter stood at $20.2 million, with $12.8 million utilized to support loan growth and the remainder providing for charge-offs. Our ended funding reserve stands at $419 million, up $12.5 million in the quarter, ending at 1.24%.
When including acquired unamortized loan discounts, our reserve stands at 1.35%, and our NPL coverage position remains strong at 421%, inclusive of the discounts. We continue to successfully execute on our strategy to monitor the non-owner CRE portfolio. Monthly, we analyze and segment upcoming and previously resolved maturities, largest exposures, and market conditions for the various property types across our footprint. At quarter end, delinquency and NPLs for the non-owner occupied CRE portfolio improved slightly and continued to remain very low at 16 and 12 basis points, respectively. Net charge-offs reflected solid performance for the quarter at 4 basis points, again, confirming our consistent underwriting and strong sponsorship. The non-owner occupied office portfolio delinquency totaled 4 basis points, with no NPLs, largely in line with the prior quarter.
We maintain a strong focus on credit risk management, and our portfolio continues to perform well throughout numerous economic cycles. Quarterly, we perform specific in-depth reviews of our portfolios, along with a full portfolio stress test. Our stress testing results for this quarter have again shown lower net charge-offs and stable provision compared to the prior quarter's results, with our current 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 asset quality metrics ended the quarter at good levels, and our loan portfolio continues to remain stable. Our continuous investments in credit risk management systems and corresponding staff complements our consistent underwriting and core credit philosophy.
Our experienced banking teams and tenured leadership have positioned the company well to continue to achieve prudent loan growth while proactively managing credit risk through many economic cycles. I'll now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
Vincent J. Calabrese (CFO)
Thanks, Gary, and good morning. Today, I will focus on the second quarter's financial results and walk through our third quarter and full year guidance. As Vince mentioned, total loans and leases ended the quarter $33.8 billion, a linked quarter increase of $1.2 billion, or 3.6%. This growth included $633 million in consumer loans, driven by the seasonal peak for residential mortgage originations, and $540 million in commercial loans and leases, reflecting healthy activity in C&I and equipment finance, as well as additional growth from fundings on previously committed commercial real estate projects.
Total deposits ended the quarter at $35 billion, an increase of $259 million linked quarter, including growth in certificates of deposit of $202 million and non-interest bearing deposits of $80 million, as the seasonal build in public funds deposits has begun. The loan-to-deposit ratio increased to 96% at June 30, compared to 94% at March 31. We expect this ratio to decline in the medium term, both organically and with several initiatives our team has implemented. Starting on the loan side of the equation, the second quarter's robust loan growth was higher than forecasted due to the seasonality of our mortgage business and stronger commercial client acquisition across the footprint.
We expect loan growth to return to historical levels for the remainder of the year, as pipelines have declined somewhat, given the strong production in the quarter and the typical pause in client activity leading up to the presidential election. Looking at deposits, we currently have several deposit gathering initiatives targeting both commercial and consumer balances, including a strong treasury management pipeline and a new five-month CD and consumer money market promotion. Given the short duration of these promotions, we should be able to quickly reprice them lower when rates fall. Over the past year, our deposit growth and mix has outperformed the industry, and we believe that will continue. This past quarter, we largely utilized short-term borrowings to fund the robust loan growth, with total borrowings increasing $1.4 billion. When rates start to decrease, the cost of these borrowings will move down quickly.
As Vince mentioned, over the last several quarters, we have been strategically positioning our balance sheet to be more neutral to benefit from lower interest rates. We have $4.5 billion of short-term or floating rate borrowings, around $4 billion of non-maturity deposits that are currently priced at or above 4.75%, a $6.9 billion CD portfolio with a 9-month duration. And lastly, as I mentioned on last quarter's earnings call, we have around $1 billion of swaps that mature beginning in 2025, with rates between 75 and 100 basis points.
Additionally, the investment portfolio has an annual cash flow of $850 million at a current roll-off yield of 2.50, and we have approximately $2.6 billion of fixed rate loan repayments at an average rate of 4.5% in the next twelve months. In total, we have over $16 billion of liabilities and swaps and nearly $3.5 billion of securities cash flows and fixed rate loan repayments that should provide significant benefit and protection in a falling rate environment compared to the $16 billion of loans repriced within three months. The second quarter's net interest margin was 3.09, a 9 basis point decrease, largely due to the increased short-term borrowings, driving a 13 basis point increase in the total cost of funds to 2.46.
This was partially offset by a 3 basis point increase in the total yield on earning assets to 5.43. Our spot deposit cost ended the quarter at 2.13, leading to a total cumulative spot deposit beta of 38% since the current interest rate increases began in March 2022, positioning us well against our competitors. Net interest income totaled $315.9 million, a $3.1 million dollar decrease from the prior quarter, as the higher cost of funds was partially offset by higher loan balances, with new origination yields for the quarter around 7%, consistent level since the third quarter of 2023. We expect the second quarter's net interest income to be the trough for the year and should see modest sequential improvement in the third and fourth quarter. Turning to non-interest income and expense.
Non-interest income totaled $87.9 million, consistent with the prior quarter's strong result. The largest quarterly increase was $2.8 million in service charges, driven by treasury management revenues continuing to gain momentum and seasonally higher consumer transaction levels. Offsetting this growth were declines in capital markets, given lower commercial customer transaction activity and lower mortgage banking operations income, driven by a slight decline in sold loan volume and net fair value adjustments from pipeline hedging activity. Operating non-interest expenses were well managed and totaled $225.8 million, an $8.3 million decrease from the prior quarter after adjusting for $0.8 million of significant items in the current quarter and $3 million last quarter.
The largest driver for the decline was salaries and employee benefits, which decreased $8.2 million, primarily due to normal seasonal long-term compensation expense of $6.9 million and seasonally higher employer-paid payroll taxes in the prior quarter. The efficiency ratio remained at a peer-leading level, coming in at 54.4% second quarter. FNB's capital position remained strong as we were able to support robust loan growth and maintain the tangible common equity ratio near 8% and CET1 ratio at 10.2%, both of which remain above our stated operating levels. Tangible book value per common share was $9.88 at June 30, an increase of $1.09 or 12.4% compared to June 30 of 2023.
AOCI reduced tangible book value per common share by $0.67 as of quarter end, compared to $0.99 at the end of the second quarter of last year. Let's now look at guidance for the third quarter and full year of 2024. We are maintaining our full-year balance sheet guidance. Loans are expected to grow mid-single digits on a full year basis. Total deposits are expected to grow low single digits on a year-over-year basis. Our mix of non-interest bearing deposits to total deposits is anticipated to remain superior to peers. Our projected full-year net interest income expectation is revised to be between $1.27 billion and $1.29 billion, assuming 125 basis point rate cut in September. This revision reflects our interest-bearing liability mix as we enter the second half of the year.
Net interest income for the third quarter is expected to be between $315 million and $325 million. Given the strength of our non-interest income generation in the first half of the year, we have increased our full-year guide to be between $350 million and $355 million. Third quarter non-interest income is expected to be between $85 million and $90 million. We now anticipate the full-year guidance for non-interest expense to be between $900 million and $915 million, due to production-related compensation, given the strong fee income results. Third quarter non-interest expense is expected to be between $220 million and $230 million. The full year provision guidance range is lowered to $75 million-$95 million, and remains dependent on net loan growth and charge-off activity in the second half of the year.
Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince.
Vincent J. Delie (Chairman, President, and CEO)
Thank you, Vince. This year celebrates our 160th anniversary as a nationally chartered bank, obtained through the National Banking Act in 1864. Through the execution of our growth strategy, FNB has continued to prosper and develop into a diversified $48 billion regional financial institution. This quarter's results continue to reflect those efforts with a resilient balance sheet, strong capital generation, ample liquidity, and linked-quarter growth in pre-provision net revenue. We consistently receive national recognition that affirms our competitive advantage, with prominent publications such as Forbes ranking FNB one of America's best banks and naming us to its Global 2000 list of companies based on sales, profit, assets, and market value. Our strategic emphasis on innovation is integral to our success, and we continue to earn national attention for digital engagement and leadership.
Most recently, FNB's eStore won Best Digital Initiative at the 2024 Banking Tech Awards USA. These awards highlight outstanding achievements and success in the U.S. banking and fintech industry. In addition to winning Best Digital Initiative, FNB was honored among the nation's top five largest financial institutions as a finalist for Best Use of Technology in Consumer Banking, Best User or Customer Experience Initiative, and Top Innovation. We also continue to earn awards for our commitment to our employees, who enable our success. During the second quarter, we extended the long list of top workplace honors we received nationally in the financial services industry and throughout our footprint, with specific awards for culture, excellence, and leadership. As we reflect on a solid quarter, I want to thank our team for their many contributions. We appreciate your dedication.
By maintaining our focus on our shared principles and goals, we are poised to navigate the ever-changing macroeconomic landscape and deliver for our customers, communities, and shareholders.
Operator (participant)
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo (Vice President and Senior Research Analyst)
Good morning, guys. Thank you for taking my questions. Maybe starting on the, on the balance sheet side, you, you talked about a slowing of loan growth in the back half of the year relative to, to what's been a, or what was a pretty strong quarter in the second quarter. You know, obviously, you had a lot of residential mortgage growth. You had some commercial real estate growth and some commercial growth as well. Maybe you can talk about just the, the mix that you're expecting in the, in the back half, if, if you expect that slowing to come from the residential side. Obviously, some seasonality in the second quarter here, but, if that's part of it, if you're also seeing expecting a slowing on the commercial real estate side with construction fundings slowing.
Just curious on the mix you expect?
Vincent J. Delie (Chairman, President, and CEO)
Daniel, do you want to do this? Basically, I was going to turn it over to Vince Calabrese, but I can answer. I think a couple of things. First of all, the mortgage growth is seasonal, so we've already started to see, you know, as we move into the third quarter here, lower locks in our pipeline. So, you know, we expect that to come down fairly substantially. So less big footprint on the balance sheet as we move forward there through the second half of the year. The construction fundings were on committed, primarily committed obligations. You know, we do quite a bit where we do the construction financing and it's taken out by some form down the road.
So those, those fund ups occur, you know, just natural funding as we move through the construction period. So that presented growth this quarter. And then we had some pretty robust growth in equipment finance. We've been doing pretty well there with leases pretty much across the footprint. And there were some renewable energy deals that closed, I think, in the last quarter of last year. And, you know, the balances there, I think, we've exceeded $1 billion in balances in that book of business, so it's grown nicely over time and continues to grow. C&I has contributed. There was some significant growth in the Carolinas. Pittsburgh, Cleveland contributed, so, you know, it was really, you know, coming from a bunch of areas, you know, fairly robust. You know, in certain areas, it, it appears, you know, we've been taking share from others.
So I think the disruption that occurred really kind of mixed it up with the customer base and gave us an opportunity to get out and pitch new transactions, which I think is very positive. You know, the growth was higher than I expected, but, you know, I think it's okay because it positions us well moving into 2025. From, you know, given how we're shifting to a more liability-sensitive balance sheet, then putting those assets on really sets us up for 2025, from an earnings perspective, if we can continue to generate deposits. So I think that, you know, on the loan side, that's why we're guiding. Our guidance hasn't changed. You know, we're expecting to produce the same level that we forecasted at the beginning of the year, but it's a little lumpy.
You know, I'll tell you, pipelines are down. You know, we booked quite a bit this quarter, so we're moving into the next quarter down about 10% with commercial pipelines. It's still a little sluggish on the consumer side. You know, we haven't seen as much. While we've seen more mortgage, first mortgage volume, there was much less, you know, home equity, HELOC, volume. Kind of, they kind of offset each other. We're not expecting that to come back this year. That's how, you know, that's how the book has performed. The only other category I think I didn't speak about was indirect auto. I don't know, Gary, what your thoughts are there, or I-
Gary L. Guerrieri (Chief Credit Officer)
Yeah. But we had a solid, we had a solid growth quarter in Q2, which is again seasonal. It's very similar to the mortgage. We're getting really high-quality paper there with focus on profitability. So improving margins and playing at the high end of the FICO band is really working well for us. But again, that's seasonal. We're going to pick our spots and manage that, you know, through those seasonal periods. So we expect that to come down as we move toward the latter half of the year as well.
Vincent J. Delie (Chairman, President, and CEO)
And then from a funding perspective, if we're able to execute our plan, we have seen growth in our treasury management pipeline, so we're seeing some very large, you know, good opportunities where we're the principal bank, that should bring in demand deposits as we move forward. I think the bright spot here, while we had to fund that growth with borrowings temporarily, the upside for us in the long run is to replace that with lower-cost funding, and I think we've proven that we, you know, can do that. So, you know, the upside into 25 is us replacing those borrowings with deposits. And, you know, if you look at the demand deposit base, it's been stable. You know, we've been at 29% for several quarters.
We had growth in demand deposits, you know, which you're not seeing across, you know, some pretty decent growth in certain categories where we priced out to bring deposits on. We have not been as aggressive as others throughout this cycle, and, you know, we're starting to look at pockets for us to price out, to bring in deposits, which also means low-cost deposits in the... So our strategy is kind of an overall, you know, attracting those demand deposits as well.
Jim Dutey (Corporate Controller)
Our beta performance goes to that point, too, right? It's very, up very gradually from last quarter, 36.5-38. So that, again, is us protecting the overall profitability.
Vincent J. Delie (Chairman, President, and CEO)
Yeah. As you can imagine, you know, it's a challenging time to navigate. We don't want to pull back. I think, you know, a lot of competitors have shrunk their balance sheet or pulled back. I think this is an opportunity for us to go after some share, bring in households, and do what we do well, which is convert them to primary clients. So I hope that helps. I-
Daniel Tamayo (Vice President and Senior Research Analyst)
Yeah. No, that's terrific. I really appreciate all that color. You know, maybe a quick follow-up, just you touched on it at the end there on the funding side, but you know, you also mentioned in the prepared comments about deposit initiatives in the back half of the year to kind of rightsize the loan-to-deposit ratio. Just curious if you could go into a little more detail about what you were thinking and how that could impact kind of funding costs in the-
Vincent J. Delie (Chairman, President, and CEO)
Yeah. Sure. We've modified the incentive plans for the consumer bank. We have, you know, kind of a kicker for deposit growth. So, you know, loan growth is pretty minuscule in that segment. So we thought, "Hey, we'll incent them to go after deposits." We have a number of calling initiatives across the company on larger treasury management opportunities. We've won a bunch of transactions that haven't funded yet, which are fairly sizable. It seems like clients are willing to talk to us, given our performance over this past cycle. So, you know, we've kind of proven that we're capable of handling those relationships throughout a cycle and, you know, without any issues. You know, I think that the people are very focused on it.
You know, our teams are focused on it, and, you know, as long as we manage them in that direction and focus mainly on funding, that's, you know, going to pay off. And, you know, the other thing is the eStore, the investment in digital and the digital technology. You know, the interactions are up 22%. We're starting to get some traction there on the consumer side. Then, you know, I don't want to get into excruciating detail, but, you know, there are things that we do from an incentive compensation perspective, kind of across the board to incent deposit growth. And then we've done some things on the mortgage side, where we've used data analytics to cross-sell customers that we bring in, particularly in the physicians book and, you know, the jumbo mortgage segment.
You know, we're partnering with wealth to do some things. And brokerage, we're working on a money market product that will work hand in hand with our brokerage sales, which should help. So there's a bunch of things going on. And, you know, I think that it's going to take a little bit of time to get some lift out of it, but certainly as we move into the second half of this year and into 25, we should see the benefits of everything we're doing from a funding perspective.
Daniel Tamayo (Vice President and Senior Research Analyst)
All right. Well, terrific. Thanks for taking my questions.
Vincent J. Delie (Chairman, President, and CEO)
Okay. Thank you.
Operator (participant)
The next question comes from Frank Schiraldi with Piper Sandler. Please go ahead.
Frank Schiraldi (Analyst)
Good morning, guys. On, you know, another strong fee income quarter, and guide for continued strength. Just curious, but bigger picture, if you could share, you know, your thoughts as you continue to grow out these businesses, where you think you can grow the fee income side of the picture, too, as a percentage of the total revenue pie. And maybe do you see any, you know, fee businesses in particular that you want to ramp up or you need to ramp up to get there?
Vincent J. Delie (Chairman, President, and CEO)
Yeah, you know, I think long term, you know, this is long term. We've talked about this in the past. We just put information in our deck. You know, we targeted at 30% of total revenue. We almost got there, but then, you know, the world changed in terms of, you know, net interest income, so it diluted that effort. But I think, you know, that's really the long-term target. We want to continue to build out those fee-based businesses and, you know, make sure that it starts to consume more of the total revenue. You know, that 30% target is kind of our target. You know, that's not something we're going to get to immediately, but, you know, we strive to get there. I think we've had great success in capital markets.
You know, we've done well building out our derivatives platform, our syndications platform. You know, we have a debt capital markets group that we formed that are based on bond programs for debt offerings. You know, I think there's opportunity for us to do things from an advisory perspective. I think there's opportunity for us to continue to focus on building out public finance. There are things that, you know, I think in the future, businesses that are bolt-on businesses that will contribute and help continue to diversify that fee income base. Given our size and our, our, the span of the company, the markets that we compete in, I think we have a terrific opportunity to capitalize on those segments.
I think once we move into our building, you know, we built a trading floor so that we could bring all those capital markets groups together. It's fairly impressive. I think bringing clients in and showing them that we have these capabilities will lead to additional opportunities for us. And then on the wealth side, we have opportunities there. I think, you know, we've only scratched the surface in terms of building out our teams in the markets that we moved into, and they were contributing nicely. I mean, wealth has grown 10% annually every year. I think there's tremendous upside. You know, we've had records year after year. You know, so building out the wealth platform continues and, you know, building out those capabilities continues. TM, there's tremendous upside in treasury management fee income.
You know, I again, given the growth of the company and, you know, we bought banks in the Southeast that really didn't have robust treasury management offerings. So as we build out that client base on the commercial side, we will see opportunities to grow TM. And then the other units, you know, mortgage is going to be, you know, cyclical and seasonal, and then you have... But I still expect mortgage to grow gradually over time as we continue to increase market share. You know, our team, they've done a terrific job. Joe Cortese has done a phenomenal job building out the teams and growing share. And if you look at the amount of production that we've had, even in this off cycle, you know, we've outperformed others in the markets that we compete in, so we've gained market share.
I would expect us to continue to do that. And then, you know, the last piece is insurance. You know, we have a decent insurance offering and, you know, we have good leadership there, and, you know, we've started to focus on integrating that even further into our product offering with our commercial bankers, and that seems to be going pretty well. So I think there's upside there. You know, it's, it's been a little stagnant, but I think the insurance, the insurance market is firming and premiums are increasing, and we're starting to pick up, you know, larger and larger clients. So in that space, there's upside. So we're, we're pretty optimistic about those fee income categories, and I, I think it shows in the performance.
You know, we've consistently touted the capability and you know, discussed what we were building out, and I think performance over the last five or six years really illustrates the success we've had.
Jim Dutey (Corporate Controller)
In fact, I would just comment that the percent of revenue is a function of the interest rate environment. So growing that absolute level, given all the initiatives Vince talked about, has been the key focus, and that just keeps building.
Frank Schiraldi (Analyst)
Got it. Okay. All right, I appreciate it. And then just maybe as a quick follow-up, you know, with some slower loan growth, relatively speaking, to the second quarter, some slower growth in the back half of the year and, with you guys already above your target capital levels. Just wondering, and I know you bought back a little bit in the second quarter, but would you expect buyback activity to maybe ramp up here? Or, you know, are you more price sensitive? Obviously, we've seen a recent rally in bank stocks, so just wondering how we should think about buyback activity, maybe, as you see it today.
Jim Dutey (Corporate Controller)
Yeah, no, I would say the level of activity we had in the second quarter was really just to kind of buy back some of the incentive shares that were issued earlier in the year. So, you know, 250,000 that we bought. You know, as we sit here today, you know, the focus on capital kind of building from here, at this point, we don't have any plans to repurchase shares, you know, looking at the second half of the year. I mean, that can change if the environment changes, but right now, using the capital to support the loan growth, I think the fact that we were able to support the, the robust loan growth that we had this quarter at capital ratios, CET1 hold at 10.2% and TC ratio came down 0.1%.
Holding those levels of capital and supporting the loan growth, I think is kind of the best use of the capital at this point. You know, the buybacks will be part of our operation every year as we go forward. But as we sit here today, I think the best use is still letting that gradually build a little bit as we go through.
Frank Schiraldi (Analyst)
Great. Okay, thanks for the color, guys.
Jim Dutey (Corporate Controller)
Thanks.
Operator (participant)
The next question comes from Casey Haire with Jefferies. Please go ahead.
Casey Haire (Managing Director)
Great, thanks. Good morning, everyone. A couple follow-up questions on the funding strategy. Just wondering, what does the guide assume in terms of the borrowings? I'm assuming that, that, stays there. Or is there an opportunity with these deposit initiatives to pay some of that down?
Jim Dutey (Corporate Controller)
Yeah, I would say that the guide basically has the interest liability position that we're entering the third quarter, is what's baked into that. So the better we do on the initiatives that Vince has described, there's obviously opportunity to fund additional loan growth as well as replace some of those short-term borrowings. And I should comment, too, that, you know, the short-term borrowings are that short term. So when the Fed does cut, you know, the rate on those is going to come down in tandem with the rate coming down. So we made a decision during the quarter, given the loan growth, to kind of, you know, forego a little bit of earnings in the short run in the second quarter, but position us so that we can benefit from the down rates as we go forward.
Casey Haire (Managing Director)
No, understood. Okay. And, and it sounds like these deposit initiatives are, you know, it doesn't sound like they're CDs. So just wondering, you know, to the extent that they're successful, what, what is the new money rate on these, on these deposits that you, you hope to bring in versus the, you know, the 5% borrowing yield?
Jim Dutey (Corporate Controller)
Yeah, I mean, it'll be a mix, Casey. I mean, you know, we still have some level of CDs coming in. I mean, it's definitely slow, so the kind of remixing of what it was last year, you know, if we look at the second quarter, literally, we decreased CDs $36 million on average a month. So, where we had a high of $164 million last July. So the shifting there has definitely slowed, but they're still - customers are still grabbing those rates, right?
Vincent J. Delie (Chairman, President, and CEO)
Yeah. Our people aren't incented to originate CDs.
Jim Dutey (Corporate Controller)
Right. That's a key point. I think that the operating account initiatives that Vince talked about, calling on companies, new customers to come in, bringing in their operating accounts, non-interest bearing, is obviously the key focus. So it's hard to predict with any certainty the mix, but it'll be a little bit of both. And, you know, the CD that's there, customers want to grab it before rates start to come down. So, you know, we have some attractive offerings there. I think that the importance as we move forward is just growing the total deposits, you know?
Casey Haire (Managing Director)
Yeah, for sure. Okay, and then just last one for me. The slide 16, the balance sheet repricing. Thanks for sharing that. So the new money bond yield on the roll-off rate of 250, just curious what yield you're getting on reinvestment, and then that swap with an 87 basis points average received rate. Is that billion, does that mature? You know, is that ratable throughout 2025? Just looking for the maturity date on that.
Jim Dutey (Corporate Controller)
Yeah. A couple of comments on that. I think, you know, we added this content just to give everybody a little more understanding of kind of what's underneath. So if we kind of roll through the pieces, you know, the cash flow, $850 annual cash flow coming off at $250. I mean, today we're investing 4.5-4.75. You know, during the second quarter, you know, our guys did a great job opportunistically investing earlier in the quarter, kind of south, I mean, north of 5% so-
Vincent J. Delie (Chairman, President, and CEO)
We're speaking to page 16 of the deck. It's over many minutes. I'm sorry.
Jim Dutey (Corporate Controller)
No, no, no. Good point. I do want to talk through that. And then, you know, these other pieces here would give us some flexibility as we move forward. I mean, $6.9 billion of time deposits, you know, weighted average maturity of 9 months. And the, the CD promotions we've had over the last year, you know, 7 months, 13 months. Today, our best rate is on a 5 months. So the idea is that when the Fed does start to move, we have the ability, they're maturing, and we can kind of reprice those. So that's an important point. We have another $4 billion in non-maturity deposits with rates above 4.75. Those are very repriceable. Again, once the Fed moves, and particularly if the Fed is expected to continue to move, after that first move. So that gives us some flexibility.
The $4.5 billion in short-term or floating-rate borrowings, again, those will just reprice down. So that's another lever for us. And then the $1 billion of swaps at the bottom there, Casey, is really they're going to mature $250 million a quarter next year. Eighty-seven basis points is what we're receiving today. I mean, that's a negative carry today of $10 million-$11 million a quarter, and that's going to start to go away in January.
Daniel Tamayo (Vice President and Senior Research Analyst)
Great. Thanks, guys.
Vincent J. Delie (Chairman, President, and CEO)
Thanks.
Operator (participant)
The next question comes from Russell Gunther with Stephens. Please go ahead.
Russell Gunther (Managing Director and Equity Research Analyst)
Hey, good morning, guys.
Vincent J. Delie (Chairman, President, and CEO)
Good morning, Russell.
Russell Gunther (Managing Director and Equity Research Analyst)
Maybe just follow up on, on the discussion we were just having. Given your move toward neutral and some of the balance sheet repricing we just discussed, is an initial Fed cut still a negative to the NIM, as deposit cost lags, or can some of that fixed repricing dynamic overcome a headwind from an initial step down?
Speaker 14
Hey, Russell, it's Chris. Yeah, I think it depends on kind of what the expectation is for cuts, kind of after that first cut, as Vince kind of talked about. If you know that move, if down rates are expected to continue, that gives us a lot more cover to be aggressive on the deposit pricing side. I'd say if it's one and done, like we kind of have in our guidance, there probably is some short-term timing issues where it probably is a near-term negative, and then you know there's some timing constraints with how fast we can reprice deposits.
But, you know, if there is, you know, several more cuts baked into the curve, and that's kind of expected on the client side, that gives us a lot more cover to act more aggressively, and hopefully, you know, we can capture some of that downside beta a little bit quicker than we think here.
Russell Gunther (Managing Director and Equity Research Analyst)
Okay, got it. Thanks, Chris. And then just could you guys talk about deposit pricing competition in your markets just broadly? Getting some, I don't know, mixed messages early in earnings season, particularly out of the Southeast, where some peers are talking about accelerated competition, others talking about successfully walking down promo rates. Just your overall thought would be helpful in terms of where you think deposit costs are headed over the next couple quarters.
Vincent J. Delie (Chairman, President, and CEO)
I think that many of our competitors have kind of shifted. You know, once they panicked and priced up deposits to, you know, to basically create liquidity, they have backed off. So I think a lot of the larger competitors have backed off a little bit. So if you look at the promotional pricing that's out there, you know, you're going to see 25-50 basis point reduction versus what was running in the, you know, the heat of, I call it the micro liquidity crisis. But I think, you know, that's why you're getting mixed signals. I think it's, it's different at each institution and, you know, then all of a sudden you'll see somebody emerge and they'll have a, you know, a really aggressive rate.
So I think they've moved—people have generally moved, companies have generally moved back to a strategy that we had, where they were selectively pricing up products and, maybe doing a more quiet promotional pricing versus, you know, what's on their website. So you're going to hear a mixed bag. I mean, it's going to be all over the board. So I would say it's less competitive than it was, but in spots, there's still some irrational pricing out there. So depending on who's calling on your client, you need to react to that, right? So that's where I think we are. But I do...
You know, just in the surveys that we do, where we do a lot of work on monitoring who's pricing what, you know, we've seen a pullback in the stated pricing, the promotional pricing that's out there, that we can see, you know, from many of our competitors. So it's come down. But then, like I said, you know, every once in a while, somebody emerges with a really aggressive rate. But the term has come in. You know, a lot of the competitors are doing what we're doing. They're shortening the duration of the time deposit portfolio by, you know, putting out a more aggressive CD that's, you know, that's priced shorter, 5 months, 3 months, 6 months. You know, we've seen it all over the place. The pricing's moved in. Anyway, that's what we're seeing.
Speaker 14
Yeah, I would just add there, too, it depends on if the bank is growing loans or not, right? So depending on who you're talking to-
Vincent J. Delie (Chairman, President, and CEO)
Yeah, that's true.
Chris Bowen (Treasurer)
The banks that aren't growing loans at all, you know, they're just managing the rates down more because they're not trying to generate deposits. With our growth and bringing in all those new customers, you know, it's a different environment that you want the deposits, you want to bring them in. So it really depends on the market and the bank.
Vincent J. Delie (Chairman, President, and CEO)
As I read through the earnings releases, I can see that. You know, I can see, you know, our margin contracted because we were lending. Others have improved their margin, right? They've seen inflows of deposits and, you know, the pricing's all over the board. So it's choppy, it's still competitive, and I think people are just retrenching to deal with the situation on an individual basis.
Chris Bowen (Treasurer)
Yeah, I would just add, too, to the margin compression. As Vince said, it was down 9 basis points for the quarter. But if you look at the dollars in that interest income, right, which is most critical from a bottom-line profitability standpoint, I mean, we were down $3.1 million this quarter, $5 million decline last quarter, from $6 million the quarter before. So kind of in line with that.
Vincent J. Delie (Chairman, President, and CEO)
Yeah.
Chris Bowen (Treasurer)
So, and then to go forward, as I mentioned earlier, more success we have with the deposit initiatives, and then rates come down, we can reprice all these items on line 16 that I talked about. It gives you that kind of positive momentum as you go forward.
Russell Gunther (Managing Director and Equity Research Analyst)
Got it. Well, guys, I appreciate both your thoughts on the question. I guess the last one for me and understanding, it sounds like we are, you know, poised to be flat to up on NII going forward, but a little incremental pressure overall to the guide. Would you guys consider another securities portfolio repositioning, or how does that currently fit in your opportunity set?
Jim Dutey (Corporate Controller)
Yeah, I would just say the net interest income. I mean, we expect the second quarter to be the trough in the net interest income dollar, so we do expect it to move up the next couple of quarters.you know, just given all the things that we described. And then we evaluate the whole balance sheet on a regular basis. So, you know, as we said, with what we did in the fourth quarter, we're very thoughtful about the size of that and, you know, the nature of the overall optimization strategy we deployed. So we look at everything. So, you know, everything's kind of on the table from an investment standpoint, but I think we're focused primarily on the organic growth in the loans and then all the deposit initiatives to really fund the loan growth.
Vincent J. Delie (Chairman, President, and CEO)
It really helps us to bring those households on. I mean, that helps us, in the future, helps us generate additional business. I think we've done a pretty good job of cross-selling to that customer base, so.
Russell Gunther (Managing Director and Equity Research Analyst)
Understood. Okay, guys, that's it for me. Thanks very much for taking my question.
Vincent J. Delie (Chairman, President, and CEO)
Thank you.
Jim Dutey (Corporate Controller)
Thanks, Rob.
Operator (participant)
The next question comes from Manuel Navas with D.A. Davidson. Please go ahead.
Manuel Navas (Managing Director and Senior Research Analyst)
Hey, good morning. If the Fed points to kind of a continued down rate cycle, could you have upside to the high end of your NII range, or would it actually maybe exceed it? Just kind of some thoughts on that kind of variability that you kind of touched on briefly before.
Jim Dutey (Corporate Controller)
Yeah, Manuel, I think, you know, like I said, our guide, you know, has 1 cut in it right now, and that's it for the year. If there were more, you know, kind of cuts baked into the curve, I think the upside really would show up at 25. I think that sets us up really well for what 25 could look like, especially, you know, if the curve, you know, uninverts after, I don't know how long, it's been 2 years now of inversion. So I think that would be more of a 25 impact. I'm sure it would be helpful, but like I said, there's some mechanics on the timing of when CDs mature.
Some of that's locked in. You know, with 5-month CDs that are coming on now, a lot of the repricing happens at the end of the year. I think that really sets us up better for 2025. Our band is pretty tight, as you know, if you look at the guides for that interest income. It's a pretty, pretty tight band there.
Manuel Navas (Managing Director and Senior Research Analyst)
Okay. The last three years, this third quarter has certainly been a pretty good deposit growth quarter. I think you have some seasonality that you touched on in net inflows. Can you just kind of touch on that kind of just organic, better deposit trends this quarter? Potential.
Vincent J. Delie (Chairman, President, and CEO)
Yeah, go ahead, Vince.
Vincent J. Calabrese (CFO)
I was just going to say, yeah, the normal seasonal surge that we see in deposits, particularly on the municipal side, happens kind of now through October, November time frame, and, you know, that can be $600 million-$800 million kind of peak to trough, and usually we bottom in the first quarter and then we go. So that seasonality we expect, and that would be supplemented by the initiatives Vince talked about earlier as far as commercial and consumer deposits.
Manuel Navas (Managing Director and Senior Research Analyst)
Can you release where your NIM kind of ended the quarter? Sometimes you show where it's progressed monthly basis.
Vincent J. Calabrese (CFO)
Yeah, I mean, the monthly margin, there was some noise in the last month of the quarter. It was within a basis point or two of the quarterly average.
Manuel Navas (Managing Director and Senior Research Analyst)
Great. Thank you.
Vincent J. Calabrese (CFO)
Thank you.
Vincent J. Delie (Chairman, President, and CEO)
Thank you.
Operator (participant)
The next question comes from Kelly Motta with KBW. Please go ahead.
Kelly Motta (Director of Equity Research)
Hey, good morning. Thanks for the question.
Vincent J. Delie (Chairman, President, and CEO)
Good morning.
Kelly Motta (Director of Equity Research)
I think you've touched on it a bit, but clearly, loan growth was incredibly strong, and it's a great opportunity to win new households and clients to the firm. Just wondering where you're seeing the greatest opportunity to take share, whether it's you know, a certain region or segment of the business. Thanks.
Vincent J. Delie (Chairman, President, and CEO)
Yeah, and we've seen, you know, some pretty decent growth coming out of the Carolinas. I think that continues to be an area with upside for us. You know, I think that we've only started to scratch the surface in terms of our calling activity there, so, you know, there's quite a bit on the table. And, you know, as we moved into South Carolina, you know, we've built out, building out Greenville and South Charleston. There's a lot of opportunity there for us, both from a Wealth, Private Banking and commercial banking. So, you know, we continue to see good growth in those areas. In Charlotte, we've had some good success. You know, we've had success from a deposit perspective, we've had great success in Wilmington and Greensboro. So, you know, we're pretty optimistic about the Southeast.
And then Pittsburgh and Pittsburgh continues to perform very well. We have a lot of upside there. We have significant share here in the Pittsburgh market. So I think in certain business lines, we're undersized. You know, I, you know, mortgage, I don't think we're sized appropriately given the deposit share that we have here. So, you know, there's some opportunity there for us to continue to grow in the Pittsburgh market, from a consumer lending perspective. And, you know, basically from a C&I perspective, you know, we're not penetrating in this market, so there's, there's quite a bit to do. Cleveland was sluggish over the last few years, but I, I think there's upside in the Cleveland market for us in C&I. And then I mentioned equipment finance.
I think equipment finance is, you know, has done very well and, you know, should continue to do well as we move through this period, get through the election, because there's been kind of a hold up on some small ticket capital spending from the C&I base. You know, we'll see that release as we move past November... you know, when there's more clarity on what's going to happen. I think, you know, those are the areas that I think have the most upside for us. And then on the flip side of that, you know, there's less activity going on in CRE, obviously, right? Because it-
Kelly Motta (Director of Equity Research)
Right.
Vincent J. Delie (Chairman, President, and CEO)
It's happening.
Kelly Motta (Director of Equity Research)
Got it. That's super helpful. And then, you know, understanding these things take time. Just wondering if we could get your updated thoughts on M&A. Clearly, you know, valuations across the board have improved and, especially in light of, a potentially more, accommodating regulatory environment, potentially, on the horizon. Just wondering, updated thoughts, any, thoughts on potentially where you would be looking to add density or, or fill in? Thank you.
Vincent J. Delie (Chairman, President, and CEO)
Yeah, I think it's gonna be the same answer we've given the last few quarters. You know, we're gonna be opportunistic. We are focused internally. We have a number of major initiatives going on right now in building out Heightened Standards capabilities. We're, you know, focusing on building out the digital platform. Do you remember when you came and met with us? We had quite a bit that we were tackling. That doesn't mean M&A is off the table. It's just that we've been focused internally to strengthen the platform, right? To so that we can grow and expand and benefit from the scale that we put on. So I would say it's the same. You know, we'll be opportunistic and look for opportunities in market.
We've been building out Virginia on a de novo basis, so you've seen a lot of branch announcements in Northern Virginia. I think, you know, we have opened 2. We've got 2 more that are coming online in the near term. And then Richmond, we've been focusing on. So that's kind of happening organically. And then in the Carolinas, we're building out the Charlotte market, the inner city Charlotte market, yet largely outside of the city of Charlotte. So we're looking at opportunities to go in there. So you'll see some de novo expansion in those markets, which I think, you know, Charlotte, in particular, should bring us some good opportunities from a consumer and small business perspective, as we build out that channel.
Kelly Motta (Director of Equity Research)
Understood. You guys certainly have plenty of green shoots internally. Maybe last question for me, just a model refresher here. On the expense side, you have about a $7 million double carry from the excess lease expense.
While you're still leasing. Can you remind us, does that—that doesn't carry through to 2025. Is that correct, or is there any kind of change in plans or timing with the move to the new building?
Jim Dutey (Corporate Controller)
Yeah, Kelly, it's Jim Dutey. That's exactly right. Yeah. Once we move in, in fourth quarter is our planned move-in date of 2024, that double carry on the current leases that we have will end. So it's not a carry forward in 2025.
Kelly Motta (Director of Equity Research)
Awesome. Thank you so much.
Vincent J. Delie (Chairman, President, and CEO)
Thanks, Kelly.
Jim Dutey (Corporate Controller)
Thank you, Kelly.
Operator (participant)
The next question comes from Brian Martin with Janney. Please go ahead.
Brian Martin (Director)
Hey, good morning, guys.
Vincent J. Delie (Chairman, President, and CEO)
Good morning.
Brian Martin (Director)
Hey, that expense reduction, can you remind us what that is on the building, on the property?
Vincent J. Delie (Chairman, President, and CEO)
It's basically the timing of our move. You know, we lease a number of locations here because we have a lot of people spread across five locations here on the North Shore. So it was the timing. It's the rent expense that started on the building, right?
Brian Martin (Director)
Yep.
Vincent J. Delie (Chairman, President, and CEO)
That we're paying rent on all these other locations until we can shift into the building, which we're scheduled to do in November, you know, early December this year. So the question was: What happens with that additional rent expense? It goes away. So we're double, we're double-- Right now, we have double expenses, right?
Jim Dutey (Corporate Controller)
Brian, there's a footnote on the slide 20, the guidance slide, which is for $7 million of rent expense.
Vincent J. Delie (Chairman, President, and CEO)
Yeah, and we're not actually paying-
Brian Martin (Director)
Yeah, yeah.
Vincent J. Delie (Chairman, President, and CEO)
We're not paying double. You know?
Brian Martin (Director)
Yeah.
Vincent J. Delie (Chairman, President, and CEO)
It's... You know, we got free rent for the move-
Brian Martin (Director)
Right.
Vincent J. Delie (Chairman, President, and CEO)
But from a GAAP accounting, we had to recognize it.
Brian Martin (Director)
Gotcha. Understood.
Vincent J. Delie (Chairman, President, and CEO)
Yeah.
Brian Martin (Director)
Okay. And then, just on the funding costs, can you talk about—I mean, can you give any sense on? I know you talked about the margin inflecting. As far as the cost of deposits, kind of do those, you know, begin to plateau here? I guess, I guess they've been—the rate of increase has obviously been lower, you know, narrowing, but just I guess, when do you expect the deposit cost to kind of plateau?
Jim Dutey (Corporate Controller)
I think it's hard to say. I mean, it's still moving up a little bit. I mentioned the CD mix shift has definitely slowed quite a bit. So, if you look at the total deposit costs at the end of June on a spot basis, it was 2.13%. It was 2.04% in the first quarter. If you went back, it's definitely the increase has slowed. I guess it becomes a function of what Chris was talking about earlier, is if the Fed does cut and there's an expectation they're going to keep cutting, obviously that gives you more ability to lower that down.
If all the pieces on slide 16 that I went through, you know, there's a lot of levers there and flexibility that, again, if the expectation is that the Fed's going to continue to cut, after hopefully cutting in September, then a lot of those pieces are in play. We have ability to-
Vincent J. Delie (Chairman, President, and CEO)
But I would say, you know, if you look at the makeup of the deposit base, it's not going to be, I don't see pricing increasing to draw in deposits. Like I said, you know, we've seen a number of competitors reduce their promotional pricing. So I think it's more a function of shift. So, you know, are we able to hold the demand deposits? Are we able to hold the low-cost interest checking? Are we able to hold that, right, without migration? I think the outflows have slowed dramatically, so we should be seeing, right?
Brian Martin (Director)
The new initiatives for him, right?
Vincent J. Delie (Chairman, President, and CEO)
New initiatives are focused more on lower cost deposit categories. So I think it should help us, but it's all a function of mix at this point.
Brian Martin (Director)
Got you.
Jim Dutey (Corporate Controller)
And Brian, from a beta standpoint, so I, I guess, you know, our beta has been very strong. You know, the 38, versus the peers, you know, we've been a good bit better than peers, and, you know, we would expect that just to gradually go up a little bit more from here, probably similar to what it did kind of first to second quarter. So just as another indicator.
Brian Martin (Director)
Yeah. Okay, that's helpful. And then, maybe just one for Gary. You know, on the credit side, the stress testing, Gary, anything, I mean, anything you're seeing from a sign of weakness or, you know, potential, you know, concerns, given things sound very good, and just the granularity and all, all the credit performance. But, you know, as you kind of do the stress test every quarter, is anything coming up that's, you know, it got you maybe more alerted to it, just paying closer attention to it?
Gary L. Guerrieri (Chief Credit Officer)
You know, Brian, I think over the last three quarters now, and we stress test, as you know, every quarter. Over the last three quarters, we've seen improvements from a potential charge-off and loss perspective. So those updates and those reviews around the severe economy continue to show improvement. We're very, very aggressive in managing the book, as you all know, and, you know, that test that our team goes through each and every quarter is really showing positive results for us as we continue to migrate through, you know, the current economy.
Brian Martin (Director)
Got you. Okay. Yeah, that's what it... Sorry. Okay, I think that's really it for me. I guess maybe one, one last just modeling question. I think, did you, did you guys mention that there was some impairment on the mortgage this quarter, or was that—did I, did I not hear that right?
Jim Dutey (Corporate Controller)
No, just normal fair value marks, on the overall portfolio, Brian, that's all. I mean, that swings any quarter to quarter, anywhere from $1 million in one way to $1 million or $2 million one way to $1 million or $2 million the other way. So it was just kind of hedging the pipeline.
Brian Martin (Director)
Yeah. Okay. That's what I thought. I just wanted to make sure of that. Okay. Thank you guys for taking the questions. Everything else was answered.
Jim Dutey (Corporate Controller)
Yep.
Vincent J. Delie (Chairman, President, and CEO)
All right. Thanks, Brian.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Vincent J. Delie for any closing remarks.
Vincent J. Delie (Chairman, President, and CEO)
Thank you. Thank you, everybody. I appreciate your interest and great questions. I hope we've answered everybody's questions. You know, we're very optimistic as we move forward. I think we had a great opportunity. As we said in the previous call, we were going to go after market share because we were in a position to do that. I think we have a great opportunity to, you know, create some pretty positive financial outcomes as we move forward and execute our plan to drive deposit growth in the second half of the year. So, really appreciate it and appreciate your interest, and thank you again. And thank you to all of our employees for their hard work. I know a lot of you are listening. I know we all appreciate it, so thank you. Yep, take care.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.