F.N.B. - Q4 2023
January 19, 2024
Transcript
Operator (participant)
Good morning, everyone, and welcome to the F.N.B. Corporation fourth quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please speak to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Lisa Hajdu, Manager of Investor Relations. Ma'am, please go ahead.
Lisa Hajdu (Manager of Investor Relations)
Thank you. Good morning, and welcome to our earnings call. This conference call of F.N.B. Corporation and the reports filed with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures are often used in addition to and not as an alternative for, our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP reporting measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release.
Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports, and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Friday, January 26th, 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.
Vince Delie (Chairman, President, and CEO)
Thank you, and welcome to our fourth quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer. FNB's fourth quarter net income available to common shareholders was $49 million on a reported basis and $139 million on an operating basis. Full-year 2023's operating performance was highlighted by record revenue of $1.6 billion, record net income available to common shareholders of $569 million, and record earnings per diluted common share of $1.50. Tangible book value per share has increased 15% year-over-year to a record high of $9.47 per share, steadily approaching a $10 milestone. Since 2009, FNB's internal capital generation, representing tangible book value and dividends, has been strong, with 10% compounded annual growth.
With this strong profitability, full-year positive operating margins totaled 1.5% and is expected to remain in the upper quartile on a peer relative basis. FNB's exceptional financial performance in 2023 was a direct result of the consistent execution of our strategic initiatives. The banking disruption in the first quarter of the year placed a spotlight on the importance of balance sheet resilience, including our deposit base, strong capital and liquidity position, improving underwriting standards. It also reinforced the value of our quality customer relationships and comprehensive delivery teams. These attributes have always been integral to FNB's long-term strategy, which has been proven through multiple cycles over the last decade and are ingrained in the foundation upon which FNB operates.
Our commitment to maintain a stable deposit base is evident in our total deposits, which ended the year at $34.7 billion, unchanged from the prior year, even with the elevated competition for customer deposits. The non-interest-bearing deposits of total deposit mix ended the year at 29.4%. While we have seen customer migration away from non-interest-bearing deposits, we continue to substantially outperform our peers and the industry in our total deposit costs and overall cost of funds. Our spot deposit cost ended the year below 2% and was over 50 basis points better than our peers in the third quarter. Our better-than-peer funding costs and strong liquidity provide balance sheet optionality. Our tangible common equity to tangible assets of 7.8% is the highest level in the company history and exceeds the peer median.
FNB remains committed to optimally deploy capital in a manner that is fully aligned with our shareholders' interests and best positions FNB for future success. As part of that commitment, FNB recently completed the sale of approximately $650 million of available-for-sale securities, announced the redemption of $110 million of preferred stock, and transferred $355 million of indirect auto loans to held for sale, with the sale expected to close in the first quarter. Together, these actions resulted in a capital-neutral transaction that improves forward returns and earnings, with expected EPS accretion in the low single digits. Our continued ability to meet our clients' needs is critical to our performance. FNB has continually made strategic investments in our delivery chain to deepen customer relationships, gain market share, and further outpace our competitors.
In June 2023, we introduced the eStore Common Application for the majority of our consumer loan products, and recently introduced deposit products in December, allowing customers to apply for up to 18 consumer deposit and loan products simultaneously. Our goal for 2024 is to bring small businesses into the fold with business loans, deposits, and payments included in the Common Application on the eStore. These additional features further enhance the customer experience and deepen product penetration, as customers can apply for multiple loan and deposit products simultaneously in a very streamlined manner, eliminating keystrokes, providing a portal to upload supporting documents, and automating account funding. We also made significant enhancements in our physical delivery channel in 2023.
In addition to expanding our footprint with four de novo locations, we entered into a partnership with the Washington Metropolitan Area Transit Authority that establishes FNB as the sole ATM provider for the third-largest heavy rail system in the United States. With ATM banking services at every Metro station, the partnership will add more than 120 machines to FNB's network in 2024. Our physical delivery channel is approaching 2,000 combined branches, ATMs, and Interactive Teller Machines. Paired with our digital eStore, FNB has significantly enhanced access for our current and future customers while augmenting brand awareness across our footprint. With the success of our eStore and our exceptional bankers, total loans and leases ended the year at a record $32.8 billion, an increase of $2.4 billion since year-end 2022.
We are beginning the year from a strong position and will continue closely monitoring the macroeconomic environment with market-specific trends to manage risk proactively as part of our core credit philosophy. We will remain steadfast in our approach to consistent underwriting and risk management to maintain a balanced, well-positioned portfolio throughout economic cycles. I will now turn the call over to Gary to provide additional information on the fourth quarter's credit performance. Gary?
Gary Guerrieri (Chief Credit Officer)
Thank you, Vince, and good morning, everyone. We ended the quarter and year-end period with our asset quality metrics remaining at solid levels. Total delinquency finished the year at 70 basis points, seasonally up 7 basis points from the end of September and down 1 basis point from the prior year-end period. NPLs and OREO decreased 2 basis points from the prior quarter and 5 basis points from the year ago period, to end at a very good level at 34 basis points. Criticized loans were down 13 basis points compared to both the prior quarter and year-end, with net charge-offs for the quarter and full year at 10 and 22 basis points, respectively. I'll conclude my remarks with an update on our credit risk management strategies and CRE portfolio. Total provision expense for the quarter stood at $13.2 million, providing for loan growth and charge-offs.
Additionally, provision expense had a positive benefit from a reduction in criticized loans and NPLs. Our ending funded reserve increased $4.9 million in the quarter and stands at $406 million, or a solid 1.25% of loans, reflecting our strong position relative to our peers. When including acquired unamortized loan discount, our reserve stands at 1.39%, and our NPL coverage position remains strong at 418%, inclusive of the unamortized loan discounts. We remain committed to consistent underwriting and credit risk management to maintain a balanced, well-positioned portfolio throughout economic cycles. Each quarter, we perform specific in-depth reviews of our portfolios in addition to ongoing full portfolio stress tests.
Our stress testing results for this quarter have shown lower forecasted net charge-offs and stable provision compared to the prior quarter's results, again, confirming that our diversified loan portfolio enables us to withstand various economic downturn scenarios. Regarding the non-owner-occupied CRE portfolio, in 2023, we were successful in addressing maturities and the impact of the rising rate environment on the portfolio. In 2024, we will continue with the same strategy, monitoring the rate environment and proactively addressing upcoming maturities. At year-end, delinquency and NPLs for the non-owner-occupied CRE portfolio continued to remain very low at 32 and 18 basis points, respectively, which confirms our consistent underwriting and strong sponsorship. In closing, asset quality metrics ended the year at very good levels, and we are well positioned going into 2024.
We continue to generate diversified loan growth in attractive markets in a competitive environment for high-quality borrowers, while maintaining our consistent underwriting standards. We closely monitor macroeconomic trends and the individual markets in our footprint and will continue to manage risk aggressively while maintaining a consistent credit profile across all of our portfolios. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
Vince Calabrese (CFO)
Thanks, Gary, and good morning. Today, I will focus on the fourth quarter's financial results, provide additional detail on the recent actions taken to further optimize our balance sheet, and offer guidance for 2024. Fourth quarter operating net income available to common shareholders totaled $139 million, or $0.38 per share, excluding $114 million of significant items impacting earnings. On a full year basis, operating earnings totaled a record $1.57 per share, and tangible book value totaled $947, a 15% increase from December 2022. Part of our ongoing proactive balance sheet management strategy, we took several actions to enhance future profitability and capital positioning.
Late in the fourth quarter, we sold approximately $650 million of available-for-sale investment securities, transferred $355 million of indirect auto loans to held for sale, and announced the redemption of $110 million of the Series E preferred stock that was issued 10 years ago. The cumulative impact of these balance sheet actions generates incremental earnings and has a tangible book value earn back period of less than one year versus an earn back of five years for a stock buyback, while retaining capital flexibility in 2024. The sale of investment securities resulted in a realized loss of $67.4 million in the fourth quarter, as we sold securities yielding 1.08 on average, and reinvested the proceeds into securities with yields approximately 350 basis points higher, with similar duration and convexity profiles.
We recorded a $16.7 million negative fair value mark and other non-interest expense on the indirect auto loans classified as held for sale at December 31st, reflecting changes in interest rates from the time of origination. The sale of these loans is expected to close during the first quarter, with the proceeds being used to repay loans that have a similar yield to the sold loans. Our year-end loan-to-deposit ratio benefited by approximately 100 basis points. Excluding the $355 million of held for sale indirect auto loans, underlying period-end loan growth was 8% since year-end 2022. Fourth quarter loan production reflected high-quality loans across our diverse footprint, with quarterly commercial loan growth of $351 million and consumer loan growth of $178 million. Investment portfolio remained essentially flat linked quarter at $7.2 billion, inclusive of the securities portfolio restructuring.
There remains a fairly even split between AFS and HTM, with 45% in available for sale at the end of the year. The duration of our securities portfolio at December 31st is 4.2 years, similar to last quarter. Total deposits ended the year at $34.7 billion, a slight increase of $96 million linked quarter. As of December 31st, non-interest-bearing deposits comprised 29.4% of total deposits, compared to 30.9% on September 30th. Given our granular, stable deposit base, we believe we will continue to outperform the industry with a favorable mix of non-interest-bearing deposits to total deposits and lower deposit costs, which meaningfully outperform the peers, as our team remains actively focused on managing deposit mix. With our spot deposit costs ending the year at 1.93, our cumulative deposit beta totaled 34.3%, in line with our expectations discussed last quarter.
The fourth quarter's net interest margin was 3.21%, a decline of only 5 basis points, which is better than our expectations discussed last quarter. The yield on earning assets increased 14 basis points to 5.25%, due to higher yields on both loans and investment securities. Total cost of funds increased 21 basis points to 2.14%, as the cost of interest-bearing deposits increased 29 basis points to 2.65%. Net interest income totaled $324 million, a slight decrease of $2.6 million from the prior quarter. Turning to non-interest income and expense. Operating non-interest income totaled $80.4 million, adjusting for the $67.4 million realized loss on the investment securities restructuring. Mortgage banking operations income increased $3.1 million linked quarter due to improved gain on sale margins, aided by the decline in mortgage rates in the fourth quarter.
Other non-interest income declined $2.4 million, as Small Business Investment Company funds income decreased, reflecting normal fluctuations based on the performance of the underlying portfolio of companies. Additionally, we broke out our service charges fee income line on the income statement into service charges and a new line item for interchange and card transaction fees, which was previously captured in the service charge line. This will create better transparency into our various revenue streams in non-interest income. Operating non-interest expense of $218.9 million was relatively stable compared to the prior quarter, when adjusting for the fair value mark on the held for sale indirect auto loans of $16.7 million and the $29.9 million FDIC special assessment related to replenishment of the Deposit Insurance Fund for the bank failures.
The linked quarter increase in outside services of $2.4 million reflects higher third-party costs. Bank shares and franchise taxes declined $2.3 million, reflecting charitable contributions that qualify for Pennsylvania Bank Shares Tax credits. Marketing expenses decreased $1.2 million due to the timing of digital marketing campaigns in the third quarter. The fourth quarter efficiency ratio of 52.5% continues to be in the top quartile of our peers. Efficiency ratio of 51.2% on a full year basis demonstrates our commitment to effectively managing costs while growing our diverse revenue streams. We ended the year with our capital ratios at some of the strongest levels in recent history. Our CET1 ratio of 10.1%, which includes the impact of the previously discussed balance sheet management items and the FDIC special assessment, remains above our stated operating target.
Tangible common equity totaled 7.8%, and when excluding the 54 basis point impact of AOCI, would equal 8.3%. Tangible book value per common share was $9.47 at December 31st, an increase of $0.45 per share from September 30th. AOCI reduced the tangible book value per common share by $0.65 as of year-end, compared to $1.06 last quarter, primarily due to the impact of interest rates on the fair value of available-for-sale securities. Because the investment securities that were sold in December were available-for-sale, the realized loss did not incrementally impact TCE or tangible book value, since the market value was already reflected in AOCI. Let's now look at the 2024 guidance for both the first quarter and the full year, starting with the balance sheet.
On a full year spot basis, we expect loans to grow mid-single digits as we continue to increase our market share across our diverse geographic footprint. Total projected deposit balances are expected to grow low single digits on a year-over-year spot basis. Full year net interest income is expected to be between $1.295 billion and $1.345 billion, with the first quarter of 2024 between $318 million and $328 million. Our guidance assumes three 25 basis point rate cuts aligning with the Fed dot plot, which we are projecting to occur in May, July, and November 2024. Non-interest income is expected to continue to benefit from our diversified fee-based income strategy, with the full year results between $325 million and $345 million, and the first quarter between $80 million and $85 million.
Full year guidance for non-interest expense is expected to be between $895 million-$915 million, which includes the impact of approximately $6 million of rent expense during the build-out phase of our new headquarters, while we still occupy our current office space. Adjusting for this impact, the midpoint of our expense guidance results in a 3.7% increase from 2023 operating expense levels. The first quarter non-interest expense is expected to be between $225 million-$230 million, as the compensation expense is higher in the first quarter, largely due to normal seasonal long-term stock compensation and higher payroll taxes at the start of the new year.
Full year provision guidance is $80 million-$100 million, and is dependent on net loan growth and charge-off activity. Lastly, the full year effective tax rate should be between 21% and 22%, which does not assume any investment tax credit activity that may occur. With that, I will turn the call back to Vince.
Vince Delie (Chairman, President, and CEO)
During 2023, FNB completed a number of initiatives that align with our strategic priorities, including introducing the eStore Common Application for consumer loans and deposit products, expanding our physical delivery channel, and investing in systems and processes that enable us to streamline operations.
We continue to expand our data analytics capabilities and the use of AI to improve performance. These strategic initiatives have directly contributed to our peer relative outperformance in 2023, amidst the banking industry disruption, with the company generating record operating EPS of $1.57 and strong organic loan growth of $2.4 billion. Deposit balances remained flat, with non-interest-bearing deposits comprising 29.4% of total deposits and a top quartile cost of funds. We've completed over $75 million in cost savings over the last 5 years, excluding acquisition synergy, leading to positive operating leverage and efficiency, and an efficiency ratio in the top quartile relative to peers at 51.2%.
Operating return on average tangible common equity totaled 18%, and tangible book value grew 15% to a record $9.47. Our asset quality continues to be a strength as we end the year at or near historically low levels. This year's exceptional performance was made possible by our employees. Their commitment to FNB's mission and values drives success for all of our stakeholders. In 2023, our team's efforts were evident as FNB received more than 30 prestigious awards. Multiple independent organizations recognized FNB's financial performance, outstanding culture, and innovative technology, with eStore earning international awards. We believe that these honors and our performance are a direct result of our engaging and rewarding workplace environment. I am proud of what we've built together. Thank you.
Operator (participant)
Ladies and gentlemen, we'll now begin the question-and-answer session. To ask a question, you may press star and then one using the touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up your handsets prior to pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Daniel Tamayo from Raymond James. Please go ahead with your question.
Daniel Tamayo (Director)
Morning, guys. Maybe we start on the impact of the balance sheet restructuring on the margin. I appreciate the guidance for 2024, but just as we think about the impact in the first quarter, curious if you can walk through how you're thinking about the impact of the restructuring, you know, looking at it as a 5 or 6 basis point impact, relative to kind of just continued deposit pressure, and then how the path of the margin moves throughout the year in your assumptions.
Vince Calabrese (CFO)
Yeah, I would say a couple things. You know, first of all, if we look at the fourth quarter and obviously to go forward, you know, net interest income only declined $2.6 million in the quarter, which was the same as the prior quarter. You know, the NIM compression for the quarter was only 5 basis points. Last quarter was 11. In fact, November and December were at 3.20, so the level kind of stabilized there, at least for those two months. You know, the restructuring is fully baked into our guidance that we provided.
I think as far as the path with the margin here, I would still say what we said last quarter, that probably bottom somewhere in the first half of the year and then have some slight improvement from there as far as when you get into the second half of the year. But there's a lot to happen, right, with the Fed cuts. I mean, we have three Fed cuts in ours, whether it's three, four, or five, the three felt most reasonable to us. That's what's baked into our guidance, you know, with the benefit of the restructuring. And, you know, as we have over time, we'll continue to actively go after the demand deposits. We're going to focus here.
I think our percentage of total deposits has performed very well relative to the peers, and the changes in that bucket have also kind of stacked up very well. So, you know, the NII guide kind of has everything baked into it, Danny.
Daniel Tamayo (Director)
No, I understand, and I appreciate that. I guess another way of asking, maybe, do you think the deposit pressure in the first quarter offsets the—I mean, it sounds like you're saying we still maybe get more compression in the first quarter on an overall basis. So you think that offsets, more than offsets the balance sheet restructuring and that just continues in the first half or in the first quarter?
Vince Calabrese (CFO)
Well, we're not going to guide to margins—we're not going to specifically comment on margins for the quarter, right? You know, the net interest income has all of that baked in. The mix shift that has happened during the quarter, you know, we've continued to see customers going after higher rate products, and that's just natural. People are sitting here feeling like, okay, the Fed is at the top. They haven't raised rates since July.
When are they going to start to cut? So there's definitely been some of that mix shift still occurring. In the first quarter, our demand deposit, that's usually our weakest quarter seasonally because the municipal deposits kind of bottom and then build out. So all of that does put some pressure on the margin, and then the restructuring helps to offset some of those impacts in the first quarter. Probably one way that I could comment on that.
Daniel Tamayo (Director)
Got it. Okay. I guess just, just lastly, just digging in on the balance sheet sensitivity side. Just curious how we should be thinking about, you know, you, you mentioned bottoming in the middle of the year. I think in the past, we've talked about maybe being liability sensitive in the medium term, but, but maybe asset sensitive in the near term with rate cuts. That's still how we should be thinking about it? Perhaps some, some negative impact early on, and then maybe, you know, after a few quarters, that's when you start to benefit more from the rate cuts.
Vince Calabrese (CFO)
Yeah. No, that's definitely the right way to think about it. You know, the sensitivity, whether we get additional cuts beyond the three, you know, as you know, there's a lot of moving parts to this question, and there's actions we may take depending on the economic environment. But as you described, the time frame is key, right? In the short run, you have a negative impact, you know, particularly from the cuts or an additional cut, and then I think the deposit lags will catch up over time. I mean, historically, if you look at our beta today, right, we're around 34%. In the last upgrade cycle, we kind of maxed out at 35. It seems reasonable to assume that, but that would take kind of more in the medium term, the longer term, to catch back up.
Probably the medium term for the deposit rate lags to catch up and have that benefit. And as you know, we've taken a lot of actions. I mean, the CD book has been growing in the shorter term, 7- and 13-month type area. Our total average maturity of the CD portfolio right now is 10 months. So there's opportunities there to reprice that as we go forward, kind of sync up with the timing of when the Fed would move. But yeah, I think that's. We're still slightly asset sensitive and really philosophically managing to neutral, and then we think that if you look at our margin paths for the year, it goes kind of more neutral with the expected 3 cuts that we have baked in.
Daniel Tamayo (Director)
Okay, great. Thank you for all the color. Appreciate it.
Vince Calabrese (CFO)
Sure.
Operator (participant)
Our next question comes from Frank Schiraldi from Piper Sandler. Please go ahead with your question.
Frank Schiraldi (Managing Director)
Good morning. Just wondering if you could talk a little bit about the dynamics of loan growth versus deposit growth here. And you're obviously, you know, your guide has you getting closer to 100% loans deposit over time. Just trying to think through what might be the main governor on loan growth here and how you're bringing deposit dollars in the door in what continues to be a, you know, pretty competitive environment?
Vince Delie (Chairman, President, and CEO)
Yeah, I think, you know, let me start out, and then I can turn it over to Vince Calabrese. First of all, I think some of the things that we talked about in the prepared comments relative to acquiring new clients is a way for us to drive deposit balances. I mean, adding the ability to simultaneously open a deposit account with a loan application without additional keystrokes, that's huge for us. So I think that'll help. Once the field starts utilizing these tools and customers start engaging online and realize that they can do that, you know, it'll increase our probability of capturing more of the client relationship, particularly the deposit side. So when the loan request comes in, we'll be able to act a little more quickly on opening the deposit account.
So that's one thing that, you know, we plan for and we think will help us as we move forward. If you look at engagement with the eStore, you know, we looked at the, we rolled that out about mid-year. So if you look at the six months in 2022 versus the six months in 2023 in the same period, and you compare the number of applications that we were able to obtain online, they doubled. So we doubled the number of, of consumer loan applications. That's without the deposit account opening capability, by the way. And 30% of those applications were with non-FNB customers. So that's one piece of it, the enhancement to the digital strategy. The second opportunity for us is really in small business and middle market banking on the TM side.
We've invested pretty heavily in our treasury management capabilities. We have some, you know, product capabilities coming online. We mentioned that we're going to bundle products in the small business space in 2024. You know, probably towards the latter half of the year, we'll be rolling that out. That will also help us grow deposit balances. And if you look at, you know, what we've done historically, you know, we've historically grown deposit balances around the 8%-10% range organically. So I think we've kept pace with the organic loan growth that we've achieved, which is similar, right, over a long period of time.
And I think some of the things that we've done strategically and, you know, entering into new markets that have more opportunities because of population growth and business formation, you know, we're going to be able to continue to achieve our objective, which is to fund our loan growth with the deposit balances that we secure from new customers. I don't know, Vince, do you want to add anything, numerically?
Vince Calabrese (CFO)
Yeah, no, all, all I would add, Frank, is that we don't get all the way to 100% within our guidance. You know, we're in that 95%, 96%, 97% kind of area as you kind of forecast it out. But, you know, as we've done in the past, historically, when we got to 97%, going back a bunch of years, you know, we took action. We took action this quarter. You know, selling the indirect auto loans creates more shelf space for us. I mean, that gave us 1% in the loan deposit ratio. So we, we will manage that level.
We won't go all the way to 100%. You know, we're in the mid-90s, which is what's baked into the guidance, as I mentioned. You know, we'll start to manage. We get to 95%, we'll look at what's the environment, how fast are loans growing, and we'll take action, as we always have, to just kind of manage it.
Vince Delie (Chairman, President, and CEO)
But, you know, for us, it's not a function... it's not a question as to whether or not we can fund our balance sheet with deposit growth. We can do that, and we have the capability of doing it. It would just be a margin forever, right? So we're trying to balance it all out, right?
Frank Schiraldi (Managing Director)
Got it.
Vince Delie (Chairman, President, and CEO)
We feel very confident we could grow. If we want to price up, you know, we want to compete with everybody else out there, price up our CDs and our money market rates, we could bring a lot of money in.
Vince Calabrese (CFO)
We brought in $1.003 billion in new money-
Vince Delie (Chairman, President, and CEO)
Yeah, I mean, we-
Vince Calabrese (CFO)
in the back half of the year.
Vince Delie (Chairman, President, and CEO)
It's a function of trying to manage it all so that we maintain, you know, relative profitability. Our goal is to outperform, so we're, we're not trying to give everything away or, or balloon our balance sheet. We, we understand what our funding constraints could potentially be, and the trade-off is margin, so we have to be getting it on the other side, you know, with the loan originations to justify it. That's, that's how we look at it.
Frank Schiraldi (Managing Director)
Sure. Oh, no, understood. That's great color. Thanks. And then, I guess, just a follow-up there, Vince. You mentioned making some room with the small sale of the loans. Obviously, you know, you're always thinking about balance sheet optimization. But, that being said, just wonder if, you know, if this is... If you see more opportunities here in the near term to do just that, maybe jettison some smaller pieces that, for whatever reason, you know, the total return's not there. Is that a way in the near term to continue to hold the loans deposit ratio where it is, or is it-- or do you see this as more of like a one and done in the near term?
Vince Calabrese (CFO)
Yeah, no, I'd say we spent a lot of time during the fourth quarter sizing what we wanted to do as far as the amount of securities and the amount of the loans that we would sell. So we don't have any plans to do any additional sales as we're sitting here today. I think we're fine. We're fine, like Vince said, we have the ability to fund and grow the deposits. We've done it forever. So at this point, that's. I wouldn't say one and done forever, right? Because we're always studying the balance sheet, and if there's opportunities, we'll look at it, but there's no plans right now. That, like I said, we spent a lot of time sizing it and came up with what we executed on.
Vince Delie (Chairman, President, and CEO)
If the rate environment enables us to unload low-yielding assets and, you know, we get a gain, and we can roll that into something else, sure, we've done that historically. We've sold over $1 billion over the years. So we'll look selectively, Frank, and, you know, we constantly look at the balance sheet. Our objective is to produce the highest returns possible. And, you know, we'll look at opportunities to get out, particularly with indirect auto, you know, the limited relationship, right? I mean, we'll look at that, and we'll trade out of it or we'll pare it back, right? We've used, you know, pricing mechanisms to move the portfolio around, right? And, you know, we'll see.
It's all a function of what the interest rate environment is, what demand looks like in higher-yielding categories, what the risk profile of the balance sheet looks like. We take all of that into consideration and make decisions based on that. But our plan is to manage in the range from a loan-to-deposit perspective that we have historically. We're not looking to move outside of that.
Vince Calabrese (CFO)
Yeah, I would just say, too, Frank, we're not—we don't feel constrained as far as loan growth that we would want to go after. I mean, the mid to high single digits that we've done, we can do that. We've done things like Vince is describing, and then, like in the mortgage business, we've adjusted our, our pricing a little bit there to create more saleable product. So we're kind of reducing the amount of growth that's going out to the balance sheet, which is kind of part of how we manage the balance sheet. So there's a lot of, you know, a lot of different levers there.
Frank Schiraldi (Managing Director)
Great. Okay. Thanks for the color.
Vince Delie (Chairman, President, and CEO)
Yeah.
Vince Calabrese (CFO)
All right. Thank you.
Operator (participant)
Our next question comes from Timur Braziler from Wells Fargo. Please go ahead with your question.
Timur Braziler (VP)
Hi, good morning. Maybe starting, Vince Delie, you, you had made a comment, positive operating leverage in 2023 looked to be in the top quartile in operating leverage going forward. Does that put positive operating leverage on the table for 2024, or is the revenue backdrop challenging enough where that's more likely not going to happen next year?
Vince Delie (Chairman, President, and CEO)
Yeah, I think as we move through this interest rate cycle, you know, it becomes more challenging, obviously, right? Because you're seeing a decline in revenue and your expense base is pretty much fixed, so you, you know, we've taken expense out, but it's hard to go deeper. You know, I think the second half of the year, I certainly would expect us to go, you know, produce positive operating leverage. So as we move through that inflection point that Vince spoke about earlier, right, with the margin compression, with the rate cuts, we should be able to move through that and into the second half of the year, experience positive operating leverage. If you look at FNB on a full year basis in 2023, we outperformed others, right? Because we produced full-year operating leverage.
You know, there was negative operating leverage all over the place, at least based on what I saw. So I think, you know, I would expect us to do everything we can to be in a similar position in 2024. That helps.
Timur Braziler (VP)
Okay, that's helpful. Yeah, that's helpful. Thank you. And then, one for Gary. Just looking at the office maturities in 2024, it looks like 20% of that book is maturing. I'm just wondering how much of that maturation is for loans kind of vintage 2019 and earlier. And then, as you look at your CRE portfolio, again, looking at the vintages 2019 and earlier, how different are those loans from a credit quality standpoint, just given how different the world is today versus pre-pandemic?
Gary Guerrieri (Chief Credit Officer)
Yeah, generally speaking, you know, we're going to underwrite those things from the origination date in the low-to-high 60s range. So, you know, when you look at those maturities, in addition to that LTV level, which has been very helpful through this cycle so far, they're also underwritten very short, so with maturities of inside of five years, or slightly less, in some cases. So a number of those transactions, you know, have been renewed over the last year or two. You know, many of those borrowers right-sized those transactions. It has been our intent to keep those maturities very short. And we'll continue to do that during these times.
That all said, you know, we feel as focused as we are on that office space, as is everyone, we feel, you know, quite good about the portfolio at this point. We've only had a couple of credits over the last number of years. Since this space has taken a tough go of it from all of the pandemic issues that we've seen. We've only had a couple of credits that we've had to deal with from a loss standpoint. So we feel good about the position of it.
There is a 20% roll rate in the coming year, and we expect to move through that with our sponsors, which have shown the ability to rightsize, post additional interest reserves, to pay down debt, to bring it back to a 1.20 type of debt service coverage. So we'll continue to do the same thing in 2024 that we did in 2023.
Vince Delie (Chairman, President, and CEO)
Yeah. I'll add on to what Gary said. I think from a prudent underwriting perspective, you know, most of the transactions that we would have underwritten in 2019 would have had long-term leases that go out, you know, longer than the maturity date. Gary mentioned having a shorter maturity date. What that means is that while cap rates may change and the valuation may change with a lower LTV and a longer lease term, that the debt service coverage remains intact. So, you know, it's a lot easier to deal with a devaluation, you know, because of a rise in cap rate if you have substantial liquidity and a long-term tenant locked up. So I think that, you know, in almost every case, that's what we would look at when we would underwrite these transactions, which gives us a great degree of confidence.
I also can tell you, you know, that most of the portfolio, the vast majority of the portfolio, sits outside of the urban office, you know, scenario. So I think that, you know, we have quite a bit of protection in that, you know, you know, suburban office in higher growth areas is not as subject to, you know, vacancy like you see in the large cities.
Gary Guerrieri (Chief Credit Officer)
The other-
Vince Delie (Chairman, President, and CEO)
To add to the size.
Gary Guerrieri (Chief Credit Officer)
40% of the portfolio is less than $5 million in terms of loan size. You move that up to 5-10, it's another 17, so you're pushing 60% of the portfolio is less than—almost 60%, is less than $10 million. And you move that up one more level to 15 million, and you're at 70% of the book of business. And in total, you know, the top 25 credits average right at just a touch above $30 million. I think it's right at $31 million. So, you know, the portfolio is very granular. I think we've been very prudent in taking granular hold positions, you know, across that space, and it's really shown in the performance through what's been a difficult time.
It's geographically diverse, too. It's spread across seven states, concentrated in one city or one specific area. But that, you know, we obviously, it's something we watch. It's, you know, there's definitely weakness in urban office, so it's a good question. Does that help?
Timur Braziler (VP)
Great. Thank you.
Gary Guerrieri (Chief Credit Officer)
Are we good?
Timur Braziler (VP)
That's helpful. Yes. I appreciate the color. Thank you.
Operator (participant)
Our next question comes from Casey Haire from Jefferies. Please go ahead with your question.
Casey Haire (Managing Director and Equity Research Analyst)
Great. Thanks. Good morning, guys.
Vince Delie (Chairman, President, and CEO)
Morning.
Casey Haire (Managing Director and Equity Research Analyst)
I wanted to follow up on the NII guide. So Vince C, if... It sounds like deposit beta is going to peak at around cumulative deposit beta peaks around 35%. Just wondering, when does that take place relative to your first Fed cut? And then, what does your guide assume for deposit beta on the way down, for 2024?
Vince Calabrese (CFO)
Yeah, I would say we would drift a little higher. You know, we ended the year at 34.3, I think it says in the slide. Yeah, we're just a little bit higher here. Another point or two is what we're thinking. And then, you know, when that happens for second quarter, kind of consistent with the margin kind of bottoming in the first half of the year. And then, you know, what we were thinking, you know, I mentioned the update, it's been 35% now twice on the upside. I think as we look to the point when the Fed pivots and starts to reduce rates, using a similar over the medium term, right, 35% makes sense to us.
But within 2024, depending on the timing of the, the Fed cuts, right, I mean, we'd get some portion of that. Probably get more than half of it, but you wouldn't get 35% all in, in calendar 2024. So, you know, as we have been, we will actively be managing our deposit book and the pricing. And, you know, in our weekly pricing committee meetings, we're already starting to talk about, okay, when do we lower rates? Some of our competitors have, so we're going to monitor very closely, discuss it constantly, and, you know, we'll take the right action at the right time. But, you know, somewhere in that, you know, that half or so, that 35% is my guess this year.
Casey Haire (Managing Director and Equity Research Analyst)
Gotcha. Thank you.
Vince Calabrese (CFO)
That's my case. Yeah, I don't ... Just logically.
Casey Haire (Managing Director and Equity Research Analyst)
Yeah, no. Understood. Understood. And then just switching to credit, Gary, if I'm interpreting your remarks correctly, it sounds like you expect net charge-offs to decline this year. I'm just wondering what kind of loss rate your provision guide contemplates?
Gary Guerrieri (Chief Credit Officer)
Yeah, I mean, in terms of the provision guide at the 80-100, naturally, that supports loan growth as well as charge-offs. You know, the specific charge-off level that, you know, we've got baked into our plans, I mean, that's a number we don't disclose. But I would concur with your thoughts. I mean, we do expect performance there to be stable to slightly improved over the prior period.
Vince Delie (Chairman, President, and CEO)
But I think, Casey, if you go to page nine in our presentation, you can see net charge-offs to average loans. You know, the third quarter of 2023 has, we have that one time event that occurs. So I mean, we're-
Casey Haire (Managing Director and Equity Research Analyst)
Yeah, fair enough. That's, that was... Yeah. Right. Okay.
Vince Delie (Chairman, President, and CEO)
That's what-
Casey Haire (Managing Director and Equity Research Analyst)
Okay
Vince Delie (Chairman, President, and CEO)
... That's what you're seeing in your charge-off.
Gary Guerrieri (Chief Credit Officer)
Yeah, if you, if you look over the last three years, Casey. The last three years would have been 6 basis points, 6 basis points, and 23 would have been 10 basis points, excluding that one item. So you've got, you've got really solid, steady performance there over a very, you know, pretty sizable, extended and somewhat tumultuous period. And, and like I said, you know, we like the position of the portfolio. We feel, we feel quite good about it going into 2024. Naturally, we're, you know, all, all concerned a bit about, you know, where's this economy going and, and, and what will that all mean? And that has to play out, as, as we all know. But, you know, we've seen good, steady performance and, and stable, stable outcome across the portfolios.
Casey Haire (Managing Director and Equity Research Analyst)
Okay, great. And just last one for me. Vince Delie, you mentioned, you know, your TCE is at the highest level, I think in your history, and the CET1 above 10. How are you guys thinking about what's the share buyback appetite with your capital ratios at current levels?
Vince Delie (Chairman, President, and CEO)
We still have, you know, we have authorization to purchase shares from the board. You know, we plan on evaluating that as we move along. If we see opportunities to buy shares back, we're certainly going to do it if the earn back is reasonable, right? I mean, because we're trying to manage tangible book value levels as well. So I think we're going to continue to look at it and evaluate it and opportunistically execute transactions if they make sense. You know, the deployment of capital as we move forward, really, you know, we're looking at the potential for changes in the economy and loan growth as well, because we want to deploy that capital in the most meaningful way.
But if we see, you know, slowness, we're not just going to sit here and continue to build capital. We'll do what we have to do to make sure the returns are all good. I don't know if that answers your question or not. In other words, still on the table, and we're still going to consider it as we move along.
Casey Haire (Managing Director and Equity Research Analyst)
Gotcha. Thanks, guys.
Operator (participant)
Our next question comes from Michael Perito from KBW. Please go ahead with your question.
Michael Perito (Managing Director)
Hey, guys. Good morning. Thanks for all the color so far. I really just have one last question I wanted to hit on for Gary on the credit piece. Just, you know, yesterday Discover reported earnings and had some uptick on the consumer side in their prime book, you know, lines of credit, autos, and things of that nature. Just curious, you know, what you guys are seeing on the consumer side and from a credit health perspective.
You know, most of those portfolios outside the mortgage book, I think, shrunk this year. Just what type of growth is baked in to 2024? And, you know, what are some of the, maybe the key things that could drive some better growth performance on the consumer side? Is it just kind of a macro health environment? Is it pricing, competitive dynamics? Just would love some color around all those topics. That'd be great. Thanks.
Gary Guerrieri (Chief Credit Officer)
Yeah. Total delinquency across that all-inclusive portfolio, which is right at about $12 billion, is 89 basis points. So that's all in consumer. The fourth quarter, it's always up a little bit seasonally at the end of the year with the holidays and whatnot. But if you look over a rolling 13-month timeframe, you know, it's been from 70 basis points to the low 90s. So we've seen very consistent performance across that portfolio. The underwriting that we do there, you know, I feel very good about. I think it's very prudent and very stable. We're able to generate good loan growth through those portfolios.
And, you know, when you look at the investment that we've made in the teams there, it's an important part of our business. So, you know, as we look forward, we continue to expect good, solid growth there, and that may be at the slightly higher range in this environment with the higher single-digit range in this environment. And expect that portfolio to continue to perform well through, you know, the cycle that we're in.
Michael Perito (Managing Director)
That's helpful. So, it sounds like in the mid-single-digit growth guidance, there's some consumer growth baked into that for 2024. That's the expectation as you stand today?
Vince Delie (Chairman, President, and CEO)
Yes. More, including mortgage. But if you stripped out mortgage, we're still expecting growth. So... And again, I think some of the investments we've made in the digital tools, the fact that we're spread across a pretty broad geography with 60 million consumers in our footprint, some of the build-out with the ATM delivery channel that heightens, you know, provides consumers with accessibility to cash and our brand.
I think all of that gives us a little bit of confidence, even though I would say the consumer, with inflation and some of the changes economically that are going on, are going to be a little challenged. I think we're in a pretty good spot to continue to grow the book not as robustly as we have in the past. I know it's been, last year was tough, but things are going to stabilize, and we should see, in a lower rate environment, some opportunities to grow that portfolio. But that's baked into the guide.
Michael Perito (Managing Director)
Right. Very helpful. Thank you, guys, and for, you know, all the other color this morning. Appreciate it.
Vince Calabrese (CFO)
Okay, thank you.
Gary Guerrieri (Chief Credit Officer)
Thank you. Take care.
Operator (participant)
Our next question comes from Russell Gunther from Stephens. Please go ahead with your question.
Russell Gunther (Managing Director)
Hey, good morning, guys. I just wanted to follow up on the balance sheet repositioning, and around the tangible book value earn back math. So I get the securities repositioning. I just wanted to confirm that the preferred stock dividend saving is included in that calculation, and then just ask for some additional color on the indirect auto piece. You know, where—what rate borrowings would be paid down, whether there's any reserve release associated with those loans included in that math. Just trying to get the puts and takes.
Vince Calabrese (CFO)
Yeah. So, Russell, so as you know, the securities repositioning was done on the available-for-sale portfolio, so that was already baked into the tangible book value. So there's no incremental hit from that. You know, there's very slight hit from the loan sale. But just given the overall, you know, strong earnings accretion from the combined transaction, that earn back is less than a year. You know, when you add in the preferred dividend, you know, it still stays, obviously, because that's accretive to that, would be less than a year. So, you know, pretty strong earn back metric. Anything... I'm sorry, did I address all your questions there?
Russell Gunther (Managing Director)
The auto piece and what the puts and takes of the savings were there, just the rate of borrowings you'd expect to pay down and whether there's any reserve release associated with those loans that's included in that calculation.
Vince Calabrese (CFO)
Got you. Yeah. No, so the borrowings we, we talked about paying off at a similar rate as the, the yield on the loans. You know, so we're talking roughly 5%-5.5% type yield on those loans. So-
Vince Delie (Chairman, President, and CEO)
Net.
Vince Calabrese (CFO)
Yeah, net. So it'll pay down borrowings at a similar rate. And, and just as a reminder, you know, that loan sale hasn't closed yet, so we actually haven't seen the capital benefits from that full transaction. So just on a pro forma basis, you know, when the loans do go off the balance sheet, we'd expect CET1 to increase, you know, an estimated 10 basis points, and TCE to increase, you know, roughly 6 basis points as well, on top of that.
Russell Gunther (Managing Director)
Okay. Okay, great.
Vince Calabrese (CFO)
There's no interest. There's no additional income statement impact, Russell, in the first quarter, because with us marking it to the market, that captures everything in the fourth quarter. So really, it's just actually executing the sale itself.
Russell Gunther (Managing Director)
Thank you, guys. And then I guess just the last follow-up then would be back to the CET1 discussion. The pro forma is still north of that 10%. You guys addressed the repurchases, but also sensitivity around earn back. So not willing to let capital accrete. Are additional, you know, securities repositionings on the table, or how are you thinking about that?
Vince Calabrese (CFO)
No, I think, you know, we spent a lot of time in the fourth quarter sizing what we did. So, we don't have any plans to do any additional security sales just to sit here. Remember, during the last few years, I mean, we stayed short with bulk of our investment portfolio. We stayed conservative in how we managed that. So, you know, the total dollar amount that we did there was kind of the total we're looking to do.
We don't have any plans to do anything additionally. And then, you know, from a capital ratio perspective, you know, within our guidance, and then our capital ratios will drift up as you go through the year, which is important. And then to Vince's point earlier, opportunistically, that will create, you know, an ability to do share buybacks, if it makes sense.
Vince Delie (Chairman, President, and CEO)
Yeah, and I, and I like to see tangible book value, you know, above $10, right? I mean, that would be, that would be something that we could all celebrate because I think ultimately that translates into a higher valuation for us, given our profitability. But, you know, so we're going to be managing all of that. We're going to be watching all of that and making smart decisions based on return thresholds.
Russell Gunther (Managing Director)
Understood. Thank you, guys. I appreciate y'all taking my questions.
Vince Delie (Chairman, President, and CEO)
Yeah, thank you.
Operator (participant)
Our next question comes from Manuel Navas, from D.A. Davidson & Co. Please go ahead with your question.
Manuel Navas (Senior Research Analyst and Managing Director)
Hey, good morning. Just wanted to get a bit of your economic backdrop behind your loan growth guidance and then behind the provisioning guidance?
Vince Calabrese (CFO)
I mean, the economic environment, it's, you know, kind of what the consensus economists would be saying. I mean, it's slowing growth in the second half of the year. We're not making kind of calls on our own. We're kind of looking at what the expectations are from economists throughout the country, and that's kind of what's baked in. I think the GDP, Scott, in our plan, goes down to, like, a zero point, but it's still growth.
Vince Delie (Chairman, President, and CEO)
Still two on average.
Vince Calabrese (CFO)
On average for the year, right?
Manuel Navas (Senior Research Analyst and Managing Director)
Okay. So if the expectation-
Vince Delie (Chairman, President, and CEO)
[crosstalk]. I'm sorry, go ahead.
Manuel Navas (Senior Research Analyst and Managing Director)
That expectation, if it was to worsen, would the provision be above the range?
Vince Delie (Chairman, President, and CEO)
I think we're very comfortable with the range we have, right?
Gary Guerrieri (Chief Credit Officer)
Yeah. No, we feel very comfortable with the range at this point, based on where the economy is today and how the portfolio looks today.
Manuel Navas (Senior Research Analyst and Managing Director)
And then loan growth, the pace has been really strong here to close the year. Is that kind of more front-end loaded as it kind of slows across the back half of the year? Or is it you feel pretty good about that mid-single digits kind of staying consistent across the year?
Vince Delie (Chairman, President, and CEO)
Yeah, I mean, there's seasonality within the originations, depending on the portfolio. If you look at the commercial book, it tends to grow more in the second into the third quarter. You know, if you look at mortgage banking, I mean, move that up a little bit, maybe a quarter. You know, really, first and second quarter is when it starts to take off. So there are differences in the portfolios. I just used those two as an example. But, you know, I think when we build our plan to give consensus, we look at both macro and micro scenarios. So basically, we build our plan from the ground up, we survey our business units, we look at our production capability historically in the markets we're in, and then we look at the macroeconomic environment. Say, is this achievable?
You know, what's happening? We basically use... That's why Vince said, you know, we use consensus estimates by economists. We don't forecast ourselves. We use somebody else's forecast, and then we apply that to our model. So it's all kind of baked in to what we give you. So we're building it, you know, from inside of our own company, and then we're looking at the macroeconomic factors that could influence that. That goes for provision expense, loan growth, you know, commercial, consumer mortgage. Kind of break it down by segment and then build it from the ground up. So, you know, I think given where we are in the cycle and what we're seeing, kind of hard to predict, but we're a little more optimistic than we were a quarter ago, going into next year.
I think that's reflected in the guide on the loan growth. You know, I'm hoping we can do better. If you look at our pipelines, you know, we did pretty well commercially in the last quarter, and it's reflected in the loan growth and the surge in the fourth quarter. You know, that can change from year to year commercially. But we did well last quarter, so when you look at our pipelines moving forward, we're relatively flat. So we don't have this big pipeline that we're looking at that says: Hey, yeah, we're going to achieve 3% or 4% or 5% or whatever the mid-single digit in that portfolio refers to. You know, so I would say that, you know, I feel pretty confident about what we're putting forward, given what we know about the economy today. I don't know if that helps.
Manuel Navas (Senior Research Analyst and Managing Director)
That's great. No, that's really helpful.
Vince Delie (Chairman, President, and CEO)
It gives you confidence.
Manuel Navas (Senior Research Analyst and Managing Director)
No, that's great. Can I add... Is there any kind of regional takeaways from your eStore performance? You have a lot of activity, you have a lot of non-account holders using the eStore. Can you break it down regionally at all, or is it just great trends in general?
Vince Delie (Chairman, President, and CEO)
Yeah, that's an interesting question. I just asked our people that question, so I asked the same question internally. It's still relatively new. We're trying to figure out how to devise, you know, reporting that gets us as granular, you know, as we need to be from an origination perspective. But when they initially looked at it, it's pretty much across the board, which is interesting. It wasn't in one particular geography. It was spread across a pretty broad geography. So I think anywhere where we have name recognition, branch locations, right? We tend to get more action. You know, once you move outside of that, we don't advertise a lot, so you don't see as much activity.
So, which is part of the reason why we decided to go with branded ATMs and do the ATM deployment, because our theory was that the more frequently consumers see us, the more likely they are to engage us digitally. That was part of the strategy. So, you know, it seems to be working. If you, if you look at where our geographic locations are, where we have signage and some recognition, there's more activity digitally.
Manuel Navas (Senior Research Analyst and Managing Director)
That's great. I appreciate that. Thank you, guys.
Vince Delie (Chairman, President, and CEO)
And then obviously, we're going to... Yeah, now that we've added the deposit product in December, we are going to start advertising. So we will, you know, try to grow that, through some advertising, bring some awareness to the consumer of the capability. I know locally, I saw, you know, during the Super Bowl, we managed a couple of ads, right? Or the, not the Super Bowl, but the, National Championship for the, college football. Outside of me to say Super Bowl, I don't know what I was thinking. Steelers are already out, so I'm lost. But, you know, we did some, we did some sport. Let's put it this way: We were in the playoff game. We ran during the Steeler-Buffalo Bills game. We ran during the National Championship, probably locally, right?
Because we have customers that are in tune with those events. So we ran some advertising and some people commented on it. And then the branding of the buildings in certain markets has helped us with visibility, particularly Pittsburgh. I think we've seen more activity from a prospecting perspective because of the signage on our headquarters building and that activity that's brought some people in. And then the sponsorships with the Penguins. You know, the away jersey, the patch, you've got, you know, a lot of play on that as well. Anyway, that's how we're trying to build awareness.
Manuel Navas (Senior Research Analyst and Managing Director)
That's great. Thank you. I appreciate it.
Vince Delie (Chairman, President, and CEO)
That's all.
Operator (participant)
Once again, if you would like to ask a question, please press star and then one.
Vince Delie (Chairman, President, and CEO)
All right. Thank you.
Operator (participant)
To withdraw your questions, you may press star and two. Our next question comes from Brian Martin from Janney. Please go ahead with your question.
Brian Martin (Director of Banks and Thrifts)
Hey, good morning, guys. Well, most of my questions have been answered. Just, you know, one question, Vince; you answered it. I think the last question was just on the cadence of the commercial growth or the commercial pipeline. It sounds like it's a little bit slower to start here, given what fourth quarter looked like, but it probably builds from there. That's just in general what I heard. Is that fair?
Vince Delie (Chairman, President, and CEO)
Yep. Yeah, we—I mean, we had a really strong third quarter that kinda cleared out the 90-day bucket on the pipeline, and that has to rebuild. So it's relatively flat. We had good production out of the Carolinas. There's double-digit growth in some of the Carolina portfolios, which is pretty positive, without CRE, you know, without a big contribution from CRE. So, you know, we're pretty excited about that. And I think there'll be opportunity, you know, in the Midwest and in the Northeast as well from a C&I perspective as we move into next year, the latter half of next year.
Brian Martin (Director of Banks and Thrifts)
Gotcha. Okay, and then just one for Gary. Gary, the credit just it sounds very strong. I mean, I guess if you point to one area today that you're, you know, maybe a bit more watchful of, and you know, the credit side sounds like they were down this quarter, but just in general, is there any area that you're paying a bit more attention to as you kind of head into 2024, given the strength of the portfolio?
Gary Guerrieri (Chief Credit Officer)
Well, I think the CRE book, just in general, I mean, we've been all over that, and the team has done a really nice job of building out risk management practices around that. Tom Fisher and his team are all over those books of business as they are the rest of the portfolio. But you know, the office space, naturally, and you know, we've said it for years, that was going to be a longer-term portfolio segment in the industry, that is gonna have to be dealt with over time. I mean, you know, that change was, I would say, not temporary. You know, there's been permanent change in that market.
Fortunately, I think we've chosen well there over time with solid sponsors that have liquidity, and I think that's why that portfolio has continued to perform as it has to this point. But, you know, that CRE space in that office portfolio, I think it has a way to go yet, Brian, so we'll continue to be all over that.
Brian Martin (Director of Banks and Thrifts)
Okay, perfect. And then,
Gary Guerrieri (Chief Credit Officer)
As we move forward.
Brian Martin (Director of Banks and Thrifts)
Yeah, and then maybe just last two, just on the fee income side, just kinda looking at the pickup in mortgage, and you talked a little bit about kind of a little bit of the changing strategy there. Just kinda the, the puts and takes on, on mortgage outlook for here, and then just the capital markets revenue. You know, it's pretty consistent, maybe a little bit lower level from, you know, where it was previous years. Just kinda wondering how to think about that or just how the pipeline looks there.
Vince Calabrese (CFO)
Yeah, I would just say, you know, the non-interest income, again, shows the benefit of having a diversified revenue base, right? I mean, we've had another good quarter above 80. We've been above 80, you know, six out of the last seven quarters. Getting there different ways, but again, the benefit of diversification. So, you know, capital markets was a solid quarter for us. I mean, it's up from the prior quarter. It's down from last year when it had a 10 handle to it, but, you know, there's still a lot of opportunity there. And I think when the rate environment starts to shift, you know, there will continue to be opportunity there. But we have really solid contributions from all the components there, from the swap perspective, international syndications, debt capital markets.
So there's a lot of pieces even within that, that business. And then, you know, the mortgage bounce back. I mean, we had a really strong 2023. I mean, in an environment where the market was down from an origination standpoint, you know, the overall industry was down, but we were up, and we're forecasting it from an origination standpoint, you know, close to double-digit increase in origination from 2024 versus 2023. And then my comments on pricing was more just about saleable versus portfolio, not really affecting the level of origination, but kind of what we bring on the balance sheet and what we sell.
Vince Delie (Chairman, President, and CEO)
Yeah. The other thing I would say is that, you know, in a lower rate environment, if we do get the rate decreases, we should see more activity in derivatives, more activity in debt capital markets with our large corporate customers, you know, going to market to raise capital. And, you know, syndication should pick up in the second half of the year. So... And then the mortgage business, you know, gain on sale should accelerate. So, you know, like Vince said, having, you know, a portfolio that-- And then we've had good, steady growth, I should mention, that, you know, our asset management and the wealth and trust shops have done extraordinarily well. So, you know, they're up in revenue, net income, you know, they've grown net assets under-
Vince Calabrese (CFO)
Record level, too.
Vince Delie (Chairman, President, and CEO)
I mean, we're at record levels, so we're in good markets where we should see continued growth in that book... So we have a good balanced set of fee generators that I think, you know, in the coming year, if rates play out the way some are forecasting, we should do okay with non-interest income.
Vince Calabrese (CFO)
And then initiatives on the small business and TM side, I think, will be added to.
Brian Martin (Director of Banks and Thrifts)
Yeah, no, the businesses you guys have built out are really paying dividends here, and like you said, the diversification. And I, I guess on the mortgage, I was just trying to understand, Vince, if, if part of the increase this quarter was really just you selling more, and if so, if you do have an increase in originations next year and you continue to sell at a higher rate, you know, maybe, you know, that also contributes to, you know, a better outlook for 2024.
Vince Delie (Chairman, President, and CEO)
Yeah, the gain on sale margin's lower, though. You know, I-
Vince Calabrese (CFO)
Yeah.
Vince Delie (Chairman, President, and CEO)
It depends on the rate environment. When you look at it, we may have sold, but we're not making as much per unit. We're just moving it off the balance sheet because the rate environment will provide us with the opportunity to do that. So, and remember, we focus principally on purchase money.
Brian Martin (Director of Banks and Thrifts)
Yeah.
Vince Delie (Chairman, President, and CEO)
So that activity's been lower, right? I mean, in a declining rate environment, we would see more refinance activity, even though we focus more on purchase money. We would get some benefit from the refinance market. So, you know, there's trade-offs.
Brian Martin (Director of Banks and Thrifts)
Got you.
Vince Delie (Chairman, President, and CEO)
But I think it's a pretty balanced approach, and I, I think that's why we've been able to sustain our fee income levels through this period. Even with declining consumer fee income, right? We've done pretty good.
Vince Calabrese (CFO)
Yeah, Brian, I would just add the mortgage income in the fourth quarter had benefit from rates coming down, too.
Vince Delie (Chairman, President, and CEO)
Yeah.
Vince Calabrese (CFO)
The fair value mark on the pipeline is contributed to that in the fourth quarter.
Brian Martin (Director of Banks and Thrifts)
Gotcha. Okay. Perfect. Then just the last one for me, was just on the margin, Vince, it's been seen. Just the one question. Just remind me, I mean, from the a variable rate perspective, I mean, the percentage of variable rate loans, and then if, you know, a 25 basis point cut on that p- on that piece, you know, how much does that move the margin, for each, you know, kind of 25 basis point cut?
Vince Calabrese (CFO)
We need to look at the whole balance sheet, right?
Brian Martin (Director of Banks and Thrifts)
Yeah.
Vince Calabrese (CFO)
I think our percentage is still about 47%-
Brian Martin (Director of Banks and Thrifts)
Okay.
Vince Calabrese (CFO)
of the total loans that are very adjusted down, and I was talking about earlier. You have all the different moving parts. The CDs are 10 months average maturity, so-
Brian Martin (Director of Banks and Thrifts)
Okay.
Vince Calabrese (CFO)
... there's pluses and minuses there. That's kind of all baked into the, you know, margin-
Brian Martin (Director of Banks and Thrifts)
Got it.
Vince Calabrese (CFO)
kind of bottoming in the first half of the year, Brian, and then, you know, moving up. Yeah.
Brian Martin (Director of Banks and Thrifts)
Yeah. Okay, that helps out, the 47%. So all right. I appreciate it. Thanks for taking the questions, guys.
Operator (participant)
Ladies and gentlemen, at this time, showing no additional questions. I'd like to turn the floor back over to Vince Delie for any closing remarks.
Vince Delie (Chairman, President, and CEO)
Yeah. I'd like to thank everybody for the questions. Great questions. You know, thank you for your interest. And I think given what's gone on this year, FNB has performed very well. And you know, many of the key strategies that we've deployed, that we've talked about over the years, you know, really played out during the liquidity crisis earlier this year. You got to see, you know, firsthand, what we've been talking about in terms of client primacy, the quality of our deposit portfolio, and you know, our credit underwriting.
So I think it's, I think it's, it really showed itself this year, and I'm very excited about moving into next year, hopefully moving into a better economic environment as we move into 2024, particularly the latter half of 2024. And, I, again, would like to thank our employees because they step up and get things done, and did an admirable job last year. So thank you. Thank you, everybody. Take care.
Operator (participant)
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.