FNB - F.N.B. Corporation (FNB) Q1 2023 Earnings Call Transcript
2023-04-20 12:36:13 ET
F.N.B. Corporation (FNB)
Q1 2023 Earnings Conference Call
April 20, 2023, 08:30 AM ET
Company Participants
Lisa Hajdu - Manager of IR
Vince Delie - Chairman, President and CEO
Gary Guerrieri - Chief Credit Officer
Vince Calabrese - CFO
Scott Free - SVP and Treasurer
Conference Call Participants
Frank Schiraldi - Piper Sandler
Daniel Tamayo - Raymond James
Timur Braziler - Wells Fargo Securities
Michael Perito - KBW
Russell Gunther - Stephens
Brian Martin - Janney
Presentation
Operator
Good morning, and welcome to the F.N.B Corporation First Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Lisa Hajdu, Manager of Investor Relations. Please go ahead.
Lisa Hajdu
Thank you. Good morning and welcome to our earnings call. This conference call of F.N.B. Corporation and the reported files with the Securities and Exchange Commission often contains forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release.
Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until Friday, April 29 and the webcast link will be posted under 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
Thank you, and welcome to our first quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer; and Gary Guerrieri, our Chief Credit Officer. FNB reported first quarter net income available to common stockholders of $144.5 million or $0.40 per diluted common share. On an operating basis, EPS grew 54% over the first quarter of 2022. Operating pre-provision net revenue increased 68% from the year ago quarter, as we managed the positive operating leverage of 21%. The overall success of FNB's financial performance was due to the consistent execution of our previously stated strategic initiatives.
For example, we set out to diversify income and rely on various sources to maintain performance. This quarter, FNB reported record wealth management revenue of $18 million. On a linked-quarter basis, contributing to our stable non-interest income. We also strive to be our customers' primary operator. And through our deep customer relationships and granular deposit base, we were able to maintain stable average deposit balances.
Our philosophy of maintaining consistent and prudent underwriting standards regardless of the macroeconomic environment contributed to FNB growing average loans 3.6% from quarter without compromising on asset quality. The first quarter also had positive momentum on several key performance metrics, including return on tangible common equity of 20%, return on average assets of 1.4%, and a tangible common equity ratio of 7.5, one of the highest levels in company history.
We are pleased with this quarter's results and believe it validates the aforementioned execution of our strategy, especially our conservative and diligent balance sheet management with ample capital liquidity to withstand the adversity of the industry in a more challenging economic environment.
The recent bank failures, however, idiosyncratic in nature, have placed a spotlight on the importance of liquidity and maintaining a diversified new granular deposits, conservative and prudent balance sheet management, solid capital levels and sound Risk Management policies and governance. These practices have always been integral to FNB's long-term strategy and are ingrained in our Enterprise Risk Management program which includes regular liquidity stress test analysis, capital stress testing, CECL reserve model analysis and diligent proactive credit model.
As I previously mentioned on multiple calls, we foster close relationships with our customers and remain focused on being their primary operating bank. In addition to prioritizing high-touch service, we have made strategic investments in our digital technology treasury management platform, containment solution capabilities, which enables our customer privacy.
The first quarter deposit levels through the industry disruption are a testament to the success of our focus on growing client relationships with deposits ending the quarter at $34.2 billion, a slight decline of 1.7% from the prior quarter, outperforming the H.8 deposit data for small and large banks.
Between March 8, when the industry volatility began in quarter end, our deposit balances were essentially flat, declining 0.7%, primarily due to seasonal outflows from normal wholesale and retail customer activity. Another strength is the diversity of our deposit base throughout the different customer segments with consumer account balances comprising the largest segment of total deposits at 41%.
The consumer segment is comprised of approximately one million accounts with a median consumer deposit balance at quarter end around $5,000. Additionally, since March 8, we experienced a net increase in the number of accounts across all customer segments, positioning FNB is a benefactor as deposit inflows are restored to normal levels and customers diversified funds between banks.
Because of the granularity in our deposit base, FNB ended the quarter with approximately 76% of deposits, either insured by the FDIC or collateralized, which exceeds the peer median for the 50 banks in the KRX Bank invested at year-end. If necessary, we also have available liquidity to fund up to 170% of our uninsured and non-collateralized deposit balances, as of March 31, placing FNB in a very strong liquidity position.
FNB's investment portfolio philosophy is also conservative by nature with respect to duration and risk. We manage to an average duration of between three to five years and have historically maintained a fairly even split between available for sale and held to maturity.
At the onset of the current banking industry disruption, FNB Management activated our contingency funding plan. Our team's response was swift and working diligently over the weekend to ensure that our Board of Directors were briefed, employees were reassured of our stability and customer-facing personnel began proactive client outreach with talking points regarding the strength of our balance sheet, including FNB's capital and liquidity position on a relative and outright basis.
In addition, we bolstered our liquidity position by increasing cash on the balance sheet by nearly $1 billion. Through the financial crisis, pandemic and now the banking industry disruption, FNB has earned our customers' trust, and we promised to uphold that trust as we have positioned the company to outperform the industry in a wide array of potential economic and industry scenarios. Credit continues to remain as one of our strengths. I'm very pleased to once again report solid credit position with low delinquency at 60 basis.
I will now turn the call over to Gary to give more details on our asset quality and our consistent management of credit risk. Gary?
Gary Guerrieri
Thank you, Vince, and good morning, everyone. We ended the quarter with our credit portfolio well positioned, and our asset quality metrics remaining near historically low levels. Our performance for the period reflects total delinquency that ended the quarter at 60 basis points, NPLs and OREO at 38 basis points and net charge-offs at 18 basis points. Criticized loans were up moderately at 19 basis points quarter-over-quarter, although down 55 basis points year-over-year and still at historically low levels.
I will cover these GAAP asset quality highlights for the quarter in more detail, followed by some insight into our credit strategy we used to manage the loan portfolio throughout economic cycles.
Let's now walk through our credit results. Total delinquency declined 11 basis points in the quarter, maintaining the historically low delinquency levels seen in previous quarters. NPLs in OREO were down 1 basis point compared to the prior quarter with 55% of our NPLs in a contractually current payment status.
Net charge-offs for the quarter totalled $13.2 million or 18 basis points on an annualized basis, with 11 basis points reflecting the use of previously established specific reserves. Total provision expense for the quarter stood at $14.9 million, providing for loan growth and charge-offs that did not have a previously established specific reserves.
CECL related model builds were moderate at approximately $4 million. Our ending funded reserve increased $1.7 million in the quarter and stands at $403 million, or a solid 1.32% of loans, reflecting our strong position relative to our peers. When including acquired unamortized loan discounts, our reserve stands at 1.49%, and our NPL coverage position remains strong at 356%.
We remain steadfast in our approach to consistent underwriting and managing credit risk to maintain a balanced well-positioned portfolio throughout economic cycles. We proactively review and stress test portfolios on an ongoing basis, including in the current quarter where we performed an in-depth review of commercial real estate loans maturing in 2023 and '24.
We were pleased with the outcome of that exercise and did not have any risk rating changes which was not unexpected as we maintain a diversified commercial real estate portfolio backed by strong sponsors and low LTVs.
Regarding the office portfolio, delinquency remains very low at 27 basis points and criticized loans are below 10%. Our top 25 office exposures averaged $28 million and 43% of the loans are less than $5 million. We have and will continue to aggressively manage this portfolio on a loan-by-loan basis as part of the in-depth reviews we regularly perform.
In closing, we had a successful quarter marked by the strength and favourable positioning of our credit portfolio as we continue to generate diversified loan growth in attractive markets. We closely monitor macroeconomic trends and the individual markets in our footprint, and we'll continue to manage risk proactively and aggressively as part of our core credit philosophy, which has served us well in softer economic times.
I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
Vince Calabrese
Thanks, Gary. Good morning, everyone. Today, I will focus on the first quarter's financial results, provide some color on our balance sheet management activities during the banking disruption in March and offer guidance updates for the remainder of 2023.
First quarter net income available to common shareholders totalled $144.5 million or $0.40 per share, with record revenue contributions, seasonally higher expenses and continued solid asset quality performance. Total earning assets reached an all-time high, ending the quarter at $39.3 billion with a $352 million quarterly increase driven by loans and leases growing $418 million or 5.6% annualized.
Commercial loans increased $222 million or 4.7% annualized driven by the continued success of our strategy to grow high-quality loans across a diverse geographic footprint. While commercial production was slightly lighter than the fourth quarter, reflecting normal seasonality, attrition approved and loan pipeline increased sequentially after the robust loan production last quarter.
Consumer loans increased $196 million linked quarter or 7.3% annualized as growth in residential mortgages of $292 million was partially offset by decreases in average direct home equity instalment loan balances, consumer lines of credit and indirect auto loans.
Given the high rate environment, organic growth in residential mortgage reflects customers' continued preference for adjustable rate mortgages as well as the continued success of our physicians first mortgage program both of which we currently keep in portfolio.
Investment portfolio remained stable at $7.3 billion, with 46% classified as available for sale. When including the fair value marks in our AFS and HTM portfolios, our CET1 ratio is above the peer median calculated on the same basis, and we remain well capitalized.
Duration of our securities portfolio at March 31 is 4.5 years, and inclusive of our cash position is 3.9 years. Total deposits ended the quarter at $34.2 billion, a decrease of $580 million linked quarter or 1.7% partly due to normal first quarter seasonality. In fact, since March 8 audits were relatively flat with a slight 0.7% decline due to normal outflows from wholesale and retail customer activity.
Vince mentioned earlier, our median consumer deposit balance was $5,000 at the end of March. And looking at the total deposit portfolio, our average account balance is approximately $30,000 which is well below Silicon Valley Bank's average of $1.1 million and Signature Bank's $508,000. We are also lower than our peer median as of year-end.
The deposit mix did shift this quarter, with time deposits increasing $1.1 billion as customers move funds out of money market accounts to take advantage of higher CD rates. As of March 31, our mix of non-interest bearing deposits remained strong and 33% of total deposits, down slightly from 34% at year-end, while loan-to-deposit ratio remained at a comfortable level, ending the quarter below 90%.
In light of the banking industry disruption, we decided to bolster our on-balance sheet liquidity position by increasing short- and long-term borrowings by about $1 billion in the aggregate, bringing our excess cash position to $1.3 billion at quarter end.
Looking at the income statement, record quarterly revenue of $416 million was driven by net interest income totalling $337 million, a linked quarter increase of $1.8 million or 0.5%. The net interest margin expanded three basis points as the earning asset yield increased 39 basis points with loan yields up 42 basis points while the cost of funds increased 38 basis points.
We have been managing deposit costs in this rate environment continues to be a significant focus. Spot interest-bearing deposit costs ended the quarter at 171 with the quarterly average coming in at 150 reflecting the ongoing diligent work by our team. Total cumulative deposit betas ended the quarter at 21.8% within our prior guidance of 22%.
Turning to non-interest income and expense. Non-interest income totalled $79.4 million, a slight decrease of 1.5% in the fourth quarter of last year. Wealth Management reached a record $18 million with a quarterly increase of $2.4 million, mostly split between securities, commissions and fees, driven by strong annuity revenue and trust services, primarily from strong organic growth seasonality.
Higher production and contingent revenues led to a $3.3 million or 73% linked quarter increase in insurance commissions and fees, while mortgage banking operations income increased $2.1 million linked quarter, reflecting a 5% increase in sold mortgage volume and improved gain on sale margins.
Capital markets income decreased $3.2 million due to reduced syndications and swap fees from very strong levels in the fourth quarter of 2022. Service charges in the quarter decreased $2.9 million, largely reflecting the expected decline in overdraft and nonsufficient fund charges due to our previously announced speed program changes given the current competitive environment.
Operating non-interest expense totalled $218 million, an 11% increase from the fourth quarter, largely reflecting normal seasonality combined with the addition of the Union expense base for a full quarter and the impact of the previously announced increase in the FDIC insurance assessment rate.
Salaries and employee benefits increased $17 million of which approximately $12 million was related to normal seasonal compensation activity, including $6.7 million of long-term compensation and seasonally higher employer paid payroll factors. The remaining $5 million increase is primarily from reduced salary deferrals given lower loan origination volumes and the addition of the prior Union expense base. Even with these expense items, the efficiency ratio remained at a favourable level of 50.6%.
Our capital ratios ended the quarter at levels that are expected to be at or above peer median. Tangible book value per common share was $8.66 at March 31, an increase of $0.39 per share from 4.7% from December 31, largely from the higher level of earnings and the decreased impact of AOCI, which reduced the current quarter end tangible book value by $0.87 per share compared to $0.99 at year-end.
As Vince mentioned, our TCE ratio is one of the highest in company history of 10.5%. To demonstrate the strength of this level, amidst the industry disruption TCE adjusted for our HTM unrealized losses equalled 6.9%, which is 50 basis points higher than our peer median using reported year-end levels.
Let's now look at the 2023 financial objectives, starting with the balance sheet. On a full year spot basis, we maintained our previous guide for loans to increase mid-single digits year-over-year. Total deposits projected to end 2023 at a similar level as December 31, 2022 spot balances, although we do expect the continued shift in the deposit mix given the current rate environment.
Full year net interest income is expected to be between $1.315 billion and $1.365 billion with the second quarter between $325 million to $335 million. Our guidance currently assumes a 25 basis point rate hike in May then flat for the remainder of the year. The modest decrease in guidance from last quarter is largely related to our expectations or higher deposit betas given the current banking industry environment. If rates were to come down this year as the forward curve currently is projecting that could lead to modest upside to our NII forecast.
Full year non-interest income is expected to be between $305 million and $320 million, with a slight upward revision reflecting our first quarter beat relative to our previous guidance. Second quarter is expected to be in the mid-$70 million range with continued benefits from the diversified revenue strategy.
Full year guidance for non-interest expense on an operating basis is $835 million to $855 million. Adjustment is to account for the higher first quarter expense levels for the remaining nine months are expected to be consistent with our prior guidance. Second quarter non-interest expense is expected to be between $205 million to $210 million.
Full year provision guidance remains $65 million to $85 million and is dependent on net loan growth, potential CECL model-related builds from a softer macroeconomic environment.
Lastly, the effective tax rate should be between 20% and 21% for the full year, which does not include any investment tax credit activity that may occur.
With that, I will turn the call back to Vince.
Vince Delie
Our conservative business practices have positioned FNB to sustain solid performance during turbulence in our industry. We ended the first quarter with a strong capital position and stable deposit base and are confident that we are poised to capitalize on this foundation in the monsoon. FNB's financial performance is directly correlated to maintaining our superior culture.
We are proud of our differentiated culture and the awards we have received for our industry leadership and employee and client experiences. In 2023, FNB was selected as a selling model bank for omnichannel retail delivery for our proprietary of eStore. One of America's best banks by Forbes, Top Workplace USA by Energage, and a Greenwich excellence award winner for client service for the 12th consecutive year.
We also continue to be honoured for our commitment to diversity and inclusion, is one of America's greatest workplaces for LGBTQ+ a best of the best company by three diversity publication and a Woman's Choice Award winner for women and millennial. FNB earned these awards through the hard work and dedication of our employees who share our commitment to our values and mission.
Thank you to our team for cultivating an environment that succeeds at creating shareholder value while respecting one another and winning together.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from Frank Schiraldi of Piper Sandler. Please go ahead.
Frank Schiraldi
Good morning. Vince, you mentioned the negative carry or -- you mentioned the additional liquidity on the balance sheet. Just wondering what the negative carry is on that, and is that a primary driver of the lower NII guide? Or is it more the mix shift, I guess you now have accelerating a bit into time, it seems?
Vince Calabrese
Yes, the negative carry, Frank, is really like maybe 10, 15 basis points. It's not that significant because we're earning our excess cash position was still at $1.3 billion. We're earning $490 million on that. I think the borrowings we took down around 40% or so. It's not a big negative carry. It's kind of just a mix shift and start continuing to roll given current deposit rates.
Frank Schiraldi
Okay. And then just kind of curious, I don't know if you have this granularity there in front of you. But as you think about the mix shift that's baked into your guide, what does that sort of assume in terms of non-interest-bearing levels as a percentage of total deposits by the end of the year?
Vince Calabrese
It comes down slightly between now and the end of the year. That's the mix. As you know, that's a big focus in the company, our account acquisition strategy and lending strategy has always revolved around bringing in the operating accounts and those continued efforts continue to bring in new accounts. And during this disruption period, actually net added accounts.
Vince Delie
We talk about customer primacy. What we mean by that is we're the principal operating bank we're the disbursement bank for consumers and businesses. And if you look at the granularity in the consumer book that we mentioned on the call in the prepared comments, right, there's -- that's pretty sticky. There's not a lot of places to go to earn more on $5,000. I don't know that it is impactful and enough for people to move their money around. And we tend to be -- that tends to be their principal operating account for us.
So they're going to keep cash in or the cover items that are presented for payment, and it's where direct deposit gives credit into. And then on the business side, as we've said historically, if you look at the concentration of 17% of the deposits that we have in the commercial segment, a good bit of that is tied directly to services. So compensating balances where you gain an earnings credit that sits in a non-interest-bearing bucket.
And again, tends to be sticky because customers prefer using balances to pay for services versus cash fees. So that's all embedded into that non-interest DDA category. So we feel pretty good about having a good solid base and at a minimum, we feel will outperform others who may be relying on more transient balances. I think it shows, basically, if you look back historically, you can see it in our performance relative to events in the category.
Frank Schiraldi
Yes. And then just lastly, as a follow-up, just a question for Gary on credit. In your slide deck, you talked about the average LTVs I think it's in the office book, specifically in the low 60s. I'm guessing, I assume that's largely value at origination of these loans. I'm just wondering as you've gone through this in-depth portfolio review what that's sort of telling you, if you can share what that's telling you about where value has moved in some of your markets in terms of the underlying property in sort of percentage terms? Thanks.
Gary Guerrieri
Yes. We've updated various appraisals, Frank on properties in that space. We've seen reductions generally speaking, in the 15% to high teen range, into the 20s. We did have one that had some leasing issues that got into the 30s. But so far, at this point, that's the range that we have been experiencing. And that's pretty much been across the board with the ones that we've had to update.
Frank Schiraldi
Okay. Great, I appreciate that. Thanks.
Vince Calabrese
And then Frank, just to clarify, on the negative carry question, I forgot we had some portion of what we took down with 2-year money like 440. So kind of all in, the additional liquidity, which really had no negative carry kind of all in on a flat basis.
Frank Schiraldi
Okay. Thank you.
Operator
The next question comes from Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo
Thanks. Good morning, everyone. Maybe first, on the operating expense guidance, if you could just give me an idea of what drove the overall outlook higher given, I guess, my overarching thought that with the outlook down that should drive a decline in incentive compensation?
Vince Calabrese
Yes, I can comment on that, Danny. I mean expenses for the quarter on an operating basis came in at $218 million. Our range from January was $210 million to $215 million. So $3 million above the high end of that range. Half of that variance was just lower deferrals on loan origination costs, lower consumer loan volumes than what we had planned. So that was kind of half of that $3 million difference, and then the rest of it was really a handful of kind of one-time items.
If you look at our guidance for the second quarter, $205 million to $210 million, that compares to 2018 figure. That's consistent with our original guidance that we gave in January. In fact, the nine months, as I mentioned in my prepared remarks, is unchanged from what we had said before. So it's really just a combination of lower FAS 91 deferrals and then some one-time items.
So as we move forward, depending on how the year plays out, there is commission incentive comp is variable, right, depending on how much revenue we create, that will be up or down. So that is a swing item or a variable expense that will vary depending on when it ultimately. But it's really just -- it was $3 million above the high end of the range. So it's not that significant. And the guidance forward we'll manage expenses diligently as we always have.
Daniel Tamayo
I appreciate that. Sorry, I missed the -- your comment in the prepared remarks on the stable from prior guidance for the rest of the year, but thanks for that. And then maybe a couple for Gary here on credit. First, the office portfolio, I appreciate all the incremental detail there. Just wondering if you had a breakdown of I know you mentioned it spread across the footprint, but what properties are in what cities or urban versus suburban, any way that we could get more detail into kind of the type of city that those offices are in?
Gary Guerrieri
Well, I mean the majority of the larger office facilities are in the metro cities, Daniel. As mentioned in the remarks, I mean, 43%, almost half of that book is under $5 million. So they're kind of scattered in suburban markets for the most part.
But in terms of those appraisals, we had one with the leasing issues in Pittsburgh that came down. We had one in the Carolinas that came down. So it's pretty much across the board.
Vince Delie
Gary, just to clarify, like you said, the majority -- vast majority of our CRE exposure is suburban in nature. I know you said metro markets that we tend not to finance on a long-term basis, large office facilities other than our own. But I mean, we don't -- we're not in that business, right?
Gary Guerrieri
With the average being $28 million, I mean that kind of speaks to the top $25 million to $28 million, speaks to the type of properties and locations. We have very little urban big city centre type of office properties, very little.
Vince Delie
And our LTVs are very conservative. I think a portion of the portfolio that's in construction fund up basically is typically secured by leases. We don't do a lot of spec or hardly any, so that's backed up by leases. And the LTVs are going to be a little higher on the construction pieces of the portfolio versus what we have in our book because we tend not to keep large exposures. We underwrite them to a permanent takeout.
So I just want to make sure everybody understands that in the makeup of the numbers on the slide that we presented for non-owner-occupied series.
Daniel Tamayo
Okay. Terrific. Thanks for that. Thank you. And lastly, just a follow-up there on -- not on office, but I guess the macro outlook overall, the reserves came down in the quarter, which was a little bit surprising, but just curious on your thoughts on the driver there of reserves down and then your thoughts on the overall macro outlook, I guess, relative to last quarter?
Gary Guerrieri
Yes. Actually, dollar reserves were not down, and the reserve was down from $1.33 to $1.32, so it was down 1 basis point, still at $403 million. And we used some specific reserves that I mentioned in the prepared remarks, in terms of that 1 basis point. So we look at it as flattish. And when you include the unamortized loan discounts at $149 million, I mean our reserve position compared to peers is very strong.
Daniel Tamayo
Okay. So...
Vince Delie
There's been 20, 25 basis points. If you look at our coverage level and versus the peers, that's a significant buffer over and above where others have been carrying their reserves.
Daniel Tamayo
Understood. I got you. All right. Well, I appreciate all the color. That's it for me. Thanks guys.
Operator
The next question comes from Jared Shaw with Wells Fargo. Please go ahead.
Timur Braziler
Hi, good morning. This is Timur Braziler filling in for Jared. Maybe just continuing the last line of questioning on the allowance ratio, I mean, to your point, it is quite elevated compared to peers. I guess how much of a pending recession reserve is already embedded in your numbers, and I guess if we do end up in a more punitive macro environment, does that 25 basis point buffer kind of hold true as the rest of the group catches up? Or is some of that already embedded in your more cautious starting point?
Gary Guerrieri
Yes. We -- Timur, we've taken a cautious position ever since we got into six months into COVID. We felt very strongly that it was going to be an issue for quite some time. We did not release reserves as other institutions did during that time frame in large sums. And we looked at it from a standpoint that we wanted to maintain those reserves, based on what we saw coming down the road.
And then we get into what appears to be naturally a softer economic time frame. So we've been able to maintain those reserves, they're well within our ranges of being quantitative versus qualitative, and it's an analysis that we go through each and every month. Actually, we rerun the reserve every week based on the changes in the portfolio week-to-week. So when you look at that position, we feel good about where we are, and we're going to continue to manage it accordingly.
Timur Braziler
Okay. Great. And then, Gary one more for you, just following up on the line of questioning regarding the office book. I guess for the -- you laid out 13% maturity in 23%, 11% in '24. I guess for those loans that are coming up for kind of maturity or refi cycle, what's the new rate that they would be rolling into? And I guess, what's the confidence in kind of the underlying occupancy and underlying trends that there is the ability to absorb the higher interest rate that they'd be rolling into?
Gary Guerrieri
Yes. We just did a deep dive on every single one of those larger credits during the quarter. And we had no downgrades, as I mentioned in the remarks around those credits. We manage them on a regular basis on a loan-by-loan basis. And so that most recent review, which reflected no downgrades, took into consideration those maturity walls, and the ability to reset generally in the 7% range.
So we've got that built into those particular situations. I'll also mention that LTVs generally in the 60s, naturally, some of that's going to take a hit when you have some leases rollout, but the sponsorship is extremely strong across that book, and we feel that it's very manageable based on the most recent review, which reflected no downgrades, as I mentioned.
Vince Delie
Thank you, Gary, the question came up about our reserves relative to peers. I think it's helpful to mention that our criticized and classified loan ratios are typically higher than the other banks because of our aggressive gradation, it doesn't necessarily translate into net charge-offs.
So if you look at over a long period of time, FNB versus the peers, we tend to run higher, but then have lower charge-offs throughout the cycle. That's a function our credit people being very aggressive and proactive in downgrading credits, which results in a higher reserve position. So the gradation really matters within the portfolio.
Other institutions could delay or have delays in their assessment of risk and they won't see the same level of reserves until the very tail end of a crisis. So it should be viewed as a positive, not a negative. I just want to make sure everybody understands that.
Am I on path here, Gary?
Gary Guerrieri
No, I would agree with everything I said. I mean we're very aggressive around the management of risk ratings, as you mentioned. And this portfolio is front and centre for certain and it has been for quite some time.
Timur Braziler
That's good color. I appreciate that. Maybe one for Vince Calabrese, on Slide 15, net interest rate sensitivity. It looks like the shock to both the 100 up and the 100 down increased. I'm just wondering what the dynamic is that NII benefits in both an upside and the downside scenario?
Scott Free
This is Scott Free, the Treasurer. It's the inverted yield curve has kind of created a unique circumstance where the deposit rates finally moving up, in the down scenario, now we'll start to get benefit moving those pounds a little faster than we thought.
Timur Braziler
Okay. Got it. And then just last for me. Any thoughts around the buyback, banks are kind of all over the place in terms of continuing it, pausing it. You guys are active in the first quarter. I'm just wondering if you can give any color as to what was repurchased kind of subsequent to March 8 and then what the outlook is for the buyback going forward.
Vince Delie
Well, I'd like to start out by saying if you look at our capital position, relative to others, we stand out because of the limited AOCI impairment and conservative management of our investment portfolio that we thought who's sitting here with us. So I think that puts us in a different position. We're already CET1, we're already -- we're bargaining, so we expect capital appreciation to continue to advance those capital ratios that gives us a little bit more flexibility than others. Having said that, we're still very cautious because of the environment that we're in.
I'm not quite sure how things play out throughout the rest of the year. I'm a little bit cautious because I feel that we are headed into a recessionary period, and we're seeing some slowing down in the economy in various sectors. So getting mixed signals. But because of that, we're going to proceed very cautiously. But we do have the capacity to do it if we desire to do so, and if it's beneficial to the shareholders. So Vince, I don't know if you want to add any color to that, but.
Vince Calabrese
Yes. No, I would just say, I mean, the 10% target that we've talked about, we still think is very appropriate given the risk profile of the balance sheet. So, as we move forward, we do, as Vince said, and expect that to kind of gradually build from here. We have capacity, and we'll be thoughtful about repurchasing. We repurchased, we get comfortable with the environment, we'd like to be repurchasing in 11, obviously. So I think there's definitely interest in having some of that deployed as we go through the year. It's just going to be kind of a matter of when.
Timur Braziler
And just to confirm, none of the first quarter repurchase activity happened the market disruption started well before that?
Vince Delie
I will say, again, we're in a different position than others fortunately. So we have options. And we'll be very careful about how we execute those options, but we do have the capacity to do it. Others do not. That's why you're getting mixed responses.
Timur Braziler
Great. Thank you, appreciate all the color.
Vince Calabrese
The other thing I would add to, is on the asset sensitivity, just to add to what Scott was saying. If you look at the numbers, it's very close to neutral with numbers, plus or minus, are not significant, like they may have been 9 or 12 months ago. So we do get that slight benefit, whether it's a plus or minus, but you're kind of starting to try and allow kind of neutral position there.
Operator
The next question comes from Michael Perito with KBW. Please go ahead.
Michael Perito
Good morning, guys. Thanks for taking my questions. You guys have hit most of it. I guess just one kind of bigger picture question around loan growth here. I guess what -- you guys have talked a lot about the credit side. But I guess what about -- in terms of the funding side, I mean is there a scenario that, that could impact your appetite for incremental loan growth here. I mean, obviously, I think in response to recent events, the CD growth kind of across the industry has surged.
I would imagine that will continue to a certain extent, maybe not quite as severely as it did over the last 30 days of the quarter. But is there a scenario where the funding, if it sustains at a kind of like the current beta increase and higher cost CDs where that could impact your appetite to book new loan growth?
Vince Delie
Well, I think our guidance is pretty conservative for us given the markets that we're in. So -- and if you look at our deposit base and our liquidity position, the mix of our deposits, we have a lot of avenues to drive liquidity that still creates a scenario where it's accretive to book loans. So I don't think we're going to be impacted like others might be. I'm not suggesting -- I think you're spot on across the industry, but that's what differentiates us again.
Our conservative nature, the fact that the company has been positioned with the deposit base that it has and our conservative credit underwriting standards gives us the ability to continue to land through the cycle very selectively. So while demand may fall off, there'll be fewer players out there looking to originate. I think the last cycle we went through, we saw it, so we may have an opportunity to increase share in the markets that we've expanded into relative to a number of competitors.
I don't see us in a position where we have to pull back. And I've told our employees that they should be very happy that they work here, particularly if you're in the lending business. So while it's a difficult, in good times because we tend to be a little more conservative, our ability to sustain our lending activity through the cycle is real, and Gary's philosophy about credit is real.
So we stay within a narrow band and we don't try to outgrow ourselves during frothy times and take on undue risk. And during times like this, we're in the market supporting our clients and growing there. I think that's utopia for commercial banker. I wouldn't say that's the case for everyone as you look across the broad spectrum of banks, everyone did a different position, but that kind of is in a very sound position relative to achieving our guidance.
Michael Perito
That's helpful. Thanks. And then not to put the cart in front of the horse here, but just as you guys think about that relative strength, right, and we get through these next couple of quarters and maybe hopefully finally get a better idea whether we're going into a recession or maybe stabilize what have you?
I mean how does that translate to -- I mean, I think one of the reasons that you guys are in this position is just because of the diversity of the franchise line of business, you go geography, M&A obviously historically has been a big part of achieving that diversity, and there's dislocation, you guys are kind of strongly positioned here. I mean, what type of opportunities longer term do you think could step for FNB from all this dislocation?
Vince Delie
Well, I certainly think the industry is going to change. I think the landscape is going to change because of what's going on. There will be pressure on others as we move through this cycle, we're going to stay pretty focused on managing risk, making sure we have ample liquidity, pricing our funding appropriately right, not worrying too much about growth, worry more about margin as we move through this portion of the economic cycle.
But I do think that there will be opportunities on the other end of it. I don't know what they are. I will tell you, though, that we've also done a terrific job our team done a great job of building businesses from the ground up. So if you look at our non-interest income, which performed pretty well this year and reflecting on the prepared comments, Vince mentioned the wealth management business, and we've had good success in insurance.
We have a very granular diversified group of businesses that generate fee income for the company. And that's largely been grown organically, so we'll continue to focus on building out our capabilities within those groups to drive fee income, which is an annuity benefit to the earnings, and then we're going to stay focused on our digital strategy.
I think the award that we received for the eStore was fairly substantial. There were large -- the largest banks in the world applied to be recognized, and we were selected. So our strategy is different. We are very focused on continuing to add features to that and continuing to penetrate the customer base that we have and the prospects that we have in the seven states that we operate in, which are pretty good states to be in. So I think that's the focus as we move forward.
I've already going over our M&A strategy, we've talked about it before. But I think for now, we're just pausing and we're going to wait to see what shakes out. I think we will come through this in a position of strength. So we'll have plenty of opportunities.
Michael Perito
Right. No, that makes sense. I appreciate you guys providing all the color today. Thank you.
Operator
The next question comes from Russell Gunther with Stephens. Please go ahead.
Russell Gunther
Good morning, guys. I just wanted to -- just a quick follow-up. You just mentioned the liquidity steps taken in the quarter and excess cash. Just remind us of your target level of whether it's cash to assets? And has that bogey changed at all intra-quarter even just for the near term?
Vince Calabrese
No, I mean, we've been managing that cash position fluidly over the last 1.5 years or so. I would say that we took down quite another $1 billion or so of liquidity where we brought in liquidity, just given the uncertainty in the environment and just given our conservative nature. So that was $1 billion we wouldn't have otherwise taken, right? So we thought that was the smart thing to do and serve everything to do in this environment.
And when we look at what we put on, so our total wholesale funding today about $3 billion, about one-third of it is two years, one-third is 1one year and the other one-third is inside of six months. So kind of we're ladder together, and we use that kind of over time to kind of fund what we organically great as far as the lending side. So I mean that really that $1 billion is a reference point that we could use.
Russell Gunther
That's helpful. Thank you. And then just a follow-up to the NII guide. You mentioned a slight step down due to higher deposit beta assumptions. Have you guys quantified what you think the deposit beta through the cycle will be? Has that increased? Do you kind of put a target on that?
Vince Calabrese
Yes. No, we have our quarterly target in the slide. I would say that so far, just to remind everybody, right, as we have on the slide, our cumulative beta for total deposits was 21.8% at the end of the quarter. We had guided to $22 million, so pretty close to that. And it was, remember, it was 16.3% at the end of the year. So as we look ahead, we're projecting kind of mid-20s total deposit basis at the end of the second quarter. And while the end of the year feels very far away, I mean, our current thoughts, and I'll call them thoughts for year one will be kind of low 30s for total deposits as far as the cumulative beta through the end of this year.
Russell Gunther
That's great. Okay, Vince. I appreciate that. Last one for me. Gary, you guys have been conservative and derisk the portfolio in a couple of ways over the past two to three years. Do you see any opportunity or appetite for further derisking as you look out into the environment ahead?
Gary Guerrieri
As we look at the portfolio today, Russell, naturally, there are softer economic times ahead. We're not looking at any significant derisking at all at the moment because we're pleased with the position of the portfolio. And naturally, we're extremely cautious on the office sector as we have been for quite some time now, and we continue to review that book on a loan-by-loan basis. So we'll in the normal course of business, potentially move an asset or 2 or a small segment of them. But we have nothing teed up at this point.
Russell Gunther
Thanks, guys. And thank you all for taking my questions.
Operator
The next question comes from Brian Martin with Janney. Please go ahead.
Brian Martin
Good morning, guys. Say, most of my questions has been answered, but just a couple of things. maybe Vince Calabrese, just on the margin, I mean, I guess, can you talk about where the March margin was kind of at the steps you talked about a little bit about the liquidity? Just kind of what's the starting point, if you will, for next quarter?
Vince Calabrese
Yes. The March margin, Brian, was 3.49% kind of our entry point into the second quarter.
Brian Martin
Got you. Okay. And just kind of the puts and takes from here, I guess, as you look into 2Q, kind of with the guide you've given?
Vince Calabrese
I guess 1 thing, too, to point out that's important is with the excess cash we have, right, the additional liquidity that we grab $1 billion. That obviously affects that ratio, right? So the net interest income comes down a little bit. The ratio gets affected by that kind of excess liquidity position, what was there. I'm sorry, what was your second question again, Brian?
Brian Martin
Yes. No, I was just saying just to kind of think about that margin, stepping point into the next quarter, 3.49% is kind of the starting point. Just as it ties to the guidance? I mean, I guess is your expectation that, that margin percentage is relatively flat from here? Or just -- I know you talked about with rates being down, you could see a little bit of a benefit, but just near term in the next quarter or two?
Vince Calabrese
Yes, you just talk about net interest income. I mean it comes down a little bit from here. And then we build into the third and fourth quarter is kind of given earning asset growth as we move into the third and fourth quarter. I mean the margins fluctuates a lot and with the noise in the balance sheet, it's just harder to talk to the margin piece, Brian, but the net interest income. Okay.
Brian Martin
And as far as just that excess liquidity, Vince, I mean, what's the plan? I guess, how long do you plan -- I guess, do you just plan to keep that for a bit? Will some of it exit? Or just how are you thinking about that then?
Vince Calabrese
That's what I was saying one-third of it is kind of six months or less and then the third is one year versus two years. So we just let that -- we're not going to prepay it, just let that naturally kind of get absorbed as we lose time.
Brian Martin
Got you. Okay. I missed that part. So all right. And then just the pipeline, the loan pipelines in the quarter. I missed what you guys said there on the commercial side. Maybe that was Vince as far as what where they're at or just kind of how they're trending here?
Vince Delie
Well, I think the pipelines are a little softer than they've been historically at the same time. I don't think that we're out as aggressively knocking on doors. And I think that the demand has fallen off a little bit kind of unilaterally kind of across the board.
I will tell you that the short-term pipelines look pretty decent, our 90-day -- we measure it 90 days and then beyond. Beyond 90 days looks a little softer. The 90-day pipeline looks a little more solid. There's a higher percentage of fundings coming through in that pipeline, which means there's less junket I think people are a little more focused.
So it's a mixed bag as I look across all of the markets. Some of the markets in Carolina are down. Some have better pipelines, South Carolina looks pretty good. Charlotte looks good short term, is probably building their long-term pipeline. Cleveland and Pittsburgh are doing okay. So it's kind of all over the board, which tells me there's a lot of caution out there in the customer base.
So it's not us, it's not due to a lack of effort on the calling side, I think it's more about what the client is doing, and there's less demand from our existing customers for CapEx spend at this stage in the cycle, which is probably a good thing, right? So a little more caution in the portfolio.
What we're also seeing is utilization rates are flat. No one asked that question is all offered up. I think basically, as we look at the C&I book and Gary, you can chime in if you like to. But I think a lot of our customers have not been building inventories, they've actually been leading inventory, moving their short-term assets to cash as we move into a slower economic period. So we're starting to see reductions in line balances.
And I think after the disruption that occurred in the banking industry, a number of companies, it gave them a heightened awareness about where they are and they took cash and basically paid down revolver debt, because they're paying a much higher interest rate than receiving. So a lot of that's going on over the last few months, and it's a little hard to forecast out through the end of the year, but I would expect us to be in line with our guide, but it's going to be a bit to get there. Go ahead.
Gary Guerrieri
I would agree with the customer's position on managing inventory downward. We're pretty much seeing that across the board. Naturally, they built up some inventory during the supply chain issues. They've moved through some of that and with caution ahead from an economic standpoint, potentially slow down there. They are very focused on their inventory positions. And I would expect that to continue to move down and will go forward.
Brian Martin
Perfect. Thank you for the color. And just on the new origination yields, just -- I don't know if Gary or whomever, but just kind of where are those at today on the loan front?
Vince Calabrese
I think…
Gary Guerrieri
No, go ahead. Go ahead. Go ahead, Vince, you got the specific numbers. I mean, I have generalities.
Vince Calabrese
I can make a high-level comment here and then any color you want to add. Just new loans made during the first quarter came on at $631 million, but for comparison, that was $570 million in the fourth quarter, and that's total loans.
Brian Martin
Got you. Okay. Perfect. And maybe, Gary, just you mentioned earlier on the call, just the criticized level. Did you say that, that was up modestly in the quarter? I think you said down year-over-year? Or do I have that wrong as far as what criticized assets did?
Gary Guerrieri
It was up 19 basis points quarter-over-quarter, Brian, down 55 basis points on a year-over-year basis with a with a $5 billion larger balance sheet. So they're at near low record levels from a criticized standpoint still today.
Brian Martin
Okay. And just the increase, was there anything specific that kind of drove the increase? Or is it just a lot of things in there? Just anything you would point to, given all the things you've get, disclosure you've added on credit?
Gary Guerrieri
Yes, not really. It was kind of just general.
Brian Martin
Okay. Got you. Okay. And Bill, just the last one for me was on the capital markets revenue. I think you talked about syndications and being a little bit lower. Just any thoughts on just how that -- I guess, expectation would be that you see a little bit of volatility in that, but it should trend higher as you go throughout the year?
Vince Delie
Yes. I think if you look at how we performed this quarter, it's pretty consistent with a less robust. It's kind of our baseline performance, right? So I think that all depends on how everything shakes out as we move forward. I mean, obviously, on the structural side of syndications, if we're leading let leading, it's going to depend on CapEx needs, M&A activity. There's a bunch of factors that go into driving on in that category.
I would expect some things to come up over the next few quarters that will benefit that area because we do have a fairly significant falling effort syndication side. And then I would also expect derivatives as we move through the cycle and you see a number of companies burn through the old fixed rate program, I would expect to see them re-upping particularly with the inversion in the yield curve.
So I mean there's hope that we can sustain or grow those numbers. I think that's reflected in our guide. So I actually thought they did pretty well in the first quarter, which is typically seasonally lower. So I think we're good. From a wealth perspective, we're doing extraordinarily well producing new net asset value. So growing net asset value to clients in the Southeast, in particular, in the Mid-Atlantic.
So I would expect that to continue because we beat up staffing down there over the last few years, and have better penetration. So I'm expecting that to do a little better than the previous years in terms of organic growth. That should help us in the long run.
And then mortgage, there's quite a bit of uncertainty about where we're headed from a gain on sale perspective because of where rates are. But again, we're new to many of the markets, we have great people, great originators, and we're spread across a pretty vast geography with diversification with lower relative share in many markets. So we should be able to sustain that. So we feel pretty good about our guide.
Brian Martin
Yes. No, that's all. Understood. Okay, well thank you for taking the questions and thanks for all the added disclosures on the office book and the CRE book. It's very helpful.
Vince Delie
I think that concludes the questions. So I want to thank everybody for participating. Thank you for your thoughtful questions. Very detailed and hopefully we were able to answer. We've put out quite a bit, so I'd recommend reading through the disclosures that we've put out. I thought our team did an excellent job getting the information out to the street.
I'd like to thank you and thank our employees here and the shareholders for standing with us. And we're going to do well as we move through this on a relative basis. I know it because we are -- we've got a great team here. So thank you for participating. Take care. We'll see you again.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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F.N.B. Corporation (FNB) Q1 2023 Earnings Call Transcript