Good morning, everyone, and welcome to the F.N.B. Corporation's Q3 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal 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 touch-tone 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 Constantine, Manager of Investor Relations. Ma'am, you may begin.
Thank you. Good morning and welcome to our earnings call. This conference call of F.N.B. Corporation and the report it files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials 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 Wednesday, October twenty-sixth, 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 Vincent J. Delie Jr., Chairman, President, and CEO.
Thank you, and welcome to our Q3 earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer. F.N.B's Q3 operating earnings per share totaled a record $0.39, increasing 26% on a linked quarter basis. The success of this quarter was highlighted by record revenue, high quality loan and deposit growth, digital technology enhancements, and continued positive credit quality performance. We were also pleased to receive all regulatory approvals for our pending merger with UB Bancorp and anticipate the merger to close and convert in December of this year. We are looking forward to welcoming Union Bank employees and clients to F.N.B. We are confident that they will benefit from our deep product suite and robust digital tools.
Revenue totaled $300 million, led by 17% growth in net interest income, driven by solid loan growth, favorable deposit mix, and the asset-sensitive position of our balance sheet. Our fee-based businesses contributed to over $82 million, once again demonstrating the importance of our long-term strategy of building diversified sources of income. Record revenue coupled with well-managed expenses led to our historically low efficiency ratio of 49%, as well as double-digit positive operating leverage for the Q3 . As we plan for 2023, we remain keenly focused on risk management, expense control, diversification of revenue, and continuing to generate positive operating leverage. F.N.B again delivered double-digit annualized linked quarter loan growth, with total loans ending at nearly $28.5 billion. Consumer loans grew $547 million, driven by adjustable rate and Physicians First mortgage loans.
Physicians First mortgage product continued its success and accounted for 39% of the linked quarter growth as we leveraged the investments in the eStore with the digital Physicians First offerings. Commercial loans increased $189 million one quarter, with annualized growth of 9% and 2% in C&I and CRE respectively. While growth was spread across the entire F.N.B footprint, the Cleveland and North Carolina markets contributed the largest increases. Deposits increased $413 million one quarter or 4.9% annualized. We ended the quarter with non-interest-bearing deposits accounting for 35% of total deposits, and Union Bank will enhance our overall position by contributing a higher proportion of non-interest-bearing deposits.
Another area of continued success this quarter was with our digital channels, where eStore visits increased over 120% year-over-year in September, and monthly visits averaged over 37,000. We continue to expand our digital offerings for both our retail and business customers as we launch eStore online deposit applications for multiple business deposit products beginning in November. Next year, we will introduce enhancements to our mobile application, including real-time alerting capabilities and an update to our CardGuard debit card control service. Both features enhance our customers' ability to manage their account balances. Lastly, it is important to highlight the strong position of F.N.B's balance sheet in a time when leading indicators point to a potential economic softening. Our credit culture has been consistent, maintaining uniform underwriting standards through all parts of the economic cycle.
That same credit culture served us well during the Great Recession, when our loss rates meaningfully outperformed our peers. The credit team monitors the portfolio not only through typical historical analysis, but also uses prospective trends and analytics to identify any emerging risks. They also run various stress tests during their comprehensive reviews to evaluate our risk management systems and portfolio performance. Further mitigating risk and supporting our growth strategy is the geographic diversity of our footprint. Our presence in seven states in the District of Columbia provides F.N.B access to high growth metropolitan areas and a variety of high quality opportunities. Our numerous markets allow F.N.B to meet our growth objectives while still adhering to our conservative underwriting standards. This key risk management objective has been an important driver for our expansion strategy as well as our unique business model. We continue to prudently manage our capital levels.
As of last quarter, our CET1, TCE, and reserve coverage ratios all ranked at or above peer median. While it is too early to know this quarter's results for our peer set, we expect that we will continue to maintain capital and reserve coverage ratios at or above the median, once again demonstrating our solid position within the banking industry. F.N.B is well-positioned for a potential economic slowdown with conservative management of our diversified loan portfolio and the strength of our reserve coverage and capital ratios. I will now turn the call over to Gary to provide additional detail of our asset quality.
Thank you, Vince, and good morning, everyone. We had a solid Q3 with our credit portfolio favorably positioned following stable performance on both a quarter-to-date and year-to-date basis. Our key credit metrics ended September with delinquency remaining at very favorable levels, while we saw further reductions in non-performing and classified credits. Additionally, net charge-offs remained low and continue to track well following two consecutive quarters of very favorable results. I would like to cover the GAAP asset quality highlights for the quarter, and then I will provide a brief update on the upcoming UB Bancorp acquisition scheduled to close in Q4. Finally, I'll offer some color around the macroeconomic environment and the steps we're taking to proactively manage risk in our credit book to better position us as we look to the quarters ahead. Let's now review our Q3 results.
Total delinquency ended September at 59 basis points, remaining nearly flat compared to last quarter's historically low level, up only 1 basis point. The increase was driven by early-stage past dues tied to the runoff of the PPP credits still in process. Non-accrual levels improved by nearly $5 million on a linked quarter basis, with NPLs in OREO down 3 basis points, ending September at a solid 32 basis points, which reflects the tireless efforts of our workout teams to aggressively address and resolve problem assets. Net charge-offs for the quarter totaled $2.8 million or 4 basis points annualized, with year-to-date net charge-offs through 9 months of $4.3 million or 2 basis points annualized.
Funded provision expense totaled $10.1 million, up $3 million linked quarter to support strong loan growth, as well as some model build tied to updated macroeconomic factors and a continued decline in forecasted prepayment speeds. Our reserve at the end of September totaled $385 million or 1.34%, down 1 basis point versus the prior quarter as credit quality results remain favorable. Our NPL coverage position further strengthens to 440%. Now turning to the UB Bancorp acquisition that is scheduled to close in the Q4 . We remain on track with our established conversion process, and we continue to closely track and monitor the loan portfolio and its credit performance through legal day one.
We do not anticipate any material impact to our corporate credit metrics or loan risk profile as the portfolio remains in line with our expectations from due diligence. As we welcome the team from UB, we look forward to deepening our relationships with the UB customer base and the product offerings available to meet their banking and lending needs. Let's now switch gears and discuss the evolving macroeconomic environment, specifically some of the measures we've taken to manage credit risk and position our book moving forward. As I've shared in the past, our credit philosophy is to take a holistic approach, beginning with consistent and prudent underwriting across the footprint and throughout economic cycles.
As we continue to execute on our loan growth strategies and our lending pipelines convert, we actively monitor our concentrations of credit and asset mix on a continuous basis to maintain a diverse and balanced loan book that fits within our desired loan risk profile. With the ongoing investments we've made in our credit systems and expansion of our risk analytics, we can make strategic data-driven decisions to better manage and mitigate risk in the book. Furthermore, our bankers remain in close contact with our customers to understand the challenges and headwinds they face, allowing us to identify signs of stress resulting from ongoing elevated inflation, rising interest rates, and the standing labor supply chain and interview-related challenges across various industries and markets. These factors are carefully analyzed and addressed in underwriting as macroeconomic and market-specific conditions continue to evolve, with our core credit philosophy remaining front and center.
In closing, we are very pleased with the continued strength, consistency and favorable positioning of our credit portfolio following a successful Q3 . As we look to finalize the UB Bancorp acquisition in the months ahead and close out the year strong, we remain vigilant of the evolving macroeconomic conditions, and we'll continue to proactively and aggressively manage our credit portfolio each and every day. As we look ahead, we remain committed to our consistent approach to underwriting, which has proven itself well throughout prior economic cycles. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
Thanks, Gary. Good morning, everyone. Today, I will focus on the Q3 's financial results and offer guidance for the remainder of the year. The Q3 net income available to common shareholders totaled a record $135.5 million, or $0.38 per share. After adjusting for $2.1 million of merger-related expenses, net income reached $137.2 million, or $0.39 per share. The growth in the balance sheet, driven by loans and investment securities that were largely funded through deposit growth, brought assets to $43 billion at period end. Investment securities totaled $7.2 billion, with a fairly even split between AFS and HTM. During the quarter, we largely reinvested our securities cash flows, which was around $100 million per month, while staying in the 3.5-4.5 duration area.
Period-end total loans increased $736 million linked quarter, or 10.4% annualized, including an increase of $547 million in consumer loans and $189 million in commercial loans and leases. Commercial loans saw another quarter of healthy production, with year-to-date activity 7.5% higher than the same period in 2021. With such strong production, the 90-day pipeline has softened a bit relative to last quarter. Consumer loan growth was driven by strong organic residential mortgage activity across our footprint, with particularly strong growth in the Carolinas and Mid-Atlantic regions. The Physicians First mortgage program accounted for $141 million, or 39%, of the increase in the mortgage balance on a linked quarter basis.
Indirect auto lending increased 10.5% linked quarter as we saw more seasonal activity in that space, as well as an increased supply of vehicles. The indirect book is predominantly higher quality prime paper. Total deposits ended the quarter at $33.9 billion, an increase of $413 million linked quarter or 4.9% annualized. The deposit mix continues to be favorable, with non-interest bearing deposits comprising 35% of total deposits at quarter end. Long-term debt increased $347 million following the August 2022 issuance of $350 million in three-year senior notes. We plan to use the net proceeds from the offering for general corporate purposes, which includes the extinguishment of debt.
On the income statement, net interest income totaled a record $297.1 million, an increase of $43.4 million or 17.1%, reflecting growth in average earning assets and benefits from the higher interest rate environment as our net interest margin increased 43 basis points to 3.19%. Managing deposit costs continues to be an ongoing focus. While the cost of interest bearing deposits increased 29 basis points from last quarter, they remained fairly low at 57 basis points. In terms of deposit betas year to date, we have a cumulative beta of 12.5% on total deposits. As the Fed continues to increase rates, this creates competitive pressure on deposit pricing, and we are currently anticipating our deposit costs will increase in the Q4 , bringing the total 2022 cumulative deposit beta to around 20%.
Turning to non-interest income and expense. Non-interest income totaled $82.5 million, a slight increase from last quarter. Capital markets income increased 12% linked quarter to a total of $9.6 million, with solid contributions from syndications, international banking and swap fees. Service charges increased $1.3 million linked quarter, largely due to growth in treasury management services, interchange fees, and higher customer activity. Mortgage banking operations income decreased $1 million as sold mortgage volumes declined $111.2 million or 34.2% as consumer preferences shifted to adjustable rate mortgages that we are holding on the balance sheet.
On an operating basis, non-interest expense increased $2.2 million or 1.2% compared to the prior quarter, excluding merger related expenses of $2.1 million and $2.0 million in the third and Q2 s of 2022, respectively. Salaries and employee benefits increased $2.8 million, reflecting reduced vacancy rates and higher production and performance related incentives. Marketing decreased $1.4 million due to the timing of digital advertising and campaigns for our Physicians First program in the prior quarter. Overall, the efficiency ratio came down to a record 49.4%, a significant improvement compared to the Q2 's ratio of 55.2% and the year ago quarter's result of 55.4%.
Tangible book value per common share was $8.02 at September thirtieth, a decrease of $0.08 per share from June thirtieth. This change reflected the impact of AOCI, reducing the current quarter's tangible book value per share by $1.08 compared to $0.72 at the end of the prior quarter, which was largely mitigated by the higher level of earnings for the quarter. The increased unrealized losses in the AFS portfolio due to rising interest rates will accrete back into capital over time as securities mature or prepay. Lastly, as Vince mentioned, we are expecting the UB Bancorp acquisition to close and convert in December of this year. Their balance sheet continues to trend within our expectations, and we are excited to add their low cost deposit base in a higher rate environment.
Now let's turn to guidance, which excludes the announced UB Bancorp acquisition. We increased our full year guidance for loans to mid-teens growth, with underlying organic growth in the high single to low double digits on a year-over-year spot basis. Total deposits are projected to grow mid to high single digits on a year-over-year spot basis. Full year net interest income is expected to be between $1.10 billion and $1.11 billion, with the Q4 between $315 million and $325 million. Our guidance currently assumes 125 basis points of rate increases for the Q4. We are increasing non-interest income to be between $317 million and $322 million, with the Q4 in the mid- to high-$70 million area.
The revised full-year non-interest income guidance is due to higher than projected Q3 income. Full-year guidance for non-interest expense was only revised to provide a tighter range of $768 million-$773 million on an operating basis, while maintaining our previous guide of $190 million-$195 million for the Q4 . This does not include the one-time expenses associated with acquisitions and branch consolidations. Full-year provision guidance was also revised to a tighter range of $25 million-$35 million, which does not include the initial $19.1 million of provision related to Howard and is dependent on net loan growth and macroeconomic factors during the Q4 .
Lastly, the effective tax rate should be between 20% and 21% for the Q4 , which does not assume any investment tax credit activity in the quarter. With that, I will turn the call back to Vince.
Thank you, Vince. We are pleased with this quarter's record revenue and earnings per share, as well as our loan and deposit growth and our current level of non-interest bearing deposits. Our asset quality continues to perform favorably with a low delinquency rate of 59 basis points and only 4 basis points of net charge off. We continue to stay focused on changes to the economic environment and remain confident in our ability to manage through potentially challenging macroeconomic conditions. Our F.N.B. employees have performed admirably throughout uncertain times, and I know that they will remain dedicated to fulfilling our commitment to all of our stakeholders. To them, I extend my sincere gratitude that their collective efforts are what drives our performance. I look forward to working alongside our dedicated team as we close out 2022.
Ladies and gentlemen, with that, we'll begin our question and answer session. Once again, to ask a question, you may press star and then one using a 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 the handset prior to pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Jared Shaw from Wells Fargo Securities. Please go ahead with your question.
Hey, guys. Good morning.
Hey, Jared.
Good morning, Jared.
You know, I guess maybe just starting on you know, asset sensitivity and the outlook for the, you know, as we go into 2023. Any thoughts on starting to moderate that asset sensitivity, you know, with the UB deal coming on? Like you said, that's going to add even more DDA. How should we be thinking about, you know, what you're doing in terms of portfolio decisions to potentially look at falling rates as we build out our models here?
Yeah, I would say a couple things, Jared. I mean, over the course of 2022, you know, we deployed various strategies to reduce our exposure to downside rates as you look ahead from here. You know, we've reduced our cash position, added asset duration in the loan side through mortgage and securities books. Plus, we've executed about $1 billion or so in received fixed swaps to protect us on the downside, and in the midst of kind of looking at potential other opportunities to put some more derivatives on potentially. You know, to protect us from downside movement in rates next year that's expected. You know, it's happened organically outside of that $1 billion.
I think, you know, the way we're positioned today, there's still a good amount of benefit to come from the expected movement in rates as we get into the Q4 and then into next year. We'll capture that obviously in the guidance for 2023. You know, there's still upside to the margin and to the net interest income as you look into the Q4 for sure, given the overall asset-sensitive position of the balance sheet. I would just say again too that, you know, over time, you know, we've kind of foregone some short-term earnings to kind of position the balance sheet so that we would get that benefit from rising rates when it ultimately did come. You know, we've stayed short in our investment portfolio.
We have consistently had a 50/50 split between AFS and HTM, which helps on the, you know, the AOCI impacts that everybody's experiencing right now. I think some of those tactics that we've taken in the past and strategies, you know, are benefiting as we sit here today and, you know, as we look ahead from here.
Okay. Thanks. You know, on the deposits, great beta performance this quarter. Could you give us an update? Anything that we should think about with the deposit growth this quarter? Is there any seasonality there that could roll off? What were spot rates at the end of the quarter? You know, as we look forward, what do you think the through the cycle beta could be on the overall blended deposit base with EB there?
Yeah, I would say a couple of things. I mean, we do have seasonality in our municipal business that we have every year and kind of swings, I say, to $300 million-$500 million as you go kind of from peak to trough and go through the year. That still builds through October into November. That's kind of normal seasonality is there. On top of that, you know, we continue to have good success adding new accounts on the retail side as well as on the commercial side with the markets we're in. You know, we continue to win not just lending side, but also bringing in the operating accounts. That's clearly a benefit to the overall deposit, you know, growth that we've consistently had. Our DDAs, you know, continuing to build over time has been a focus.
There's a new slide that we added. We look back from 2009 forward from 16% up to 35%, and it's been continuously moving up. You know, it's a big focus in the company for sure. You know, as far as the betas, I mean, the liquidity in the banking system is still there. You know, we still have $1.8 billion in excess cash on our balance sheet. You know, as like others, we're starting to see more pressure on deposit rates as the Fed continues to move. You know, at this point, there's been very limited movement of our retail deposit rates, but definitely more frequent conversations with municipal business clients, you know, where we've been making adjustments, particularly for those that have a full relationship with us.
We have not lost any clients, which is important. I think the commercial customers and municipal customers having conversations with us aren't just closing accounts and moving somewhere else. I think it speaks to the relationships that people have built up over time. As you know, we have a new slide that we added in there. I mean, so far, cumulative beta for total deposits was at 12.5 at the end of September. You know, our forecast is to be around 20% for total deposits at the end of the year.
Okay. Great. I guess just finally for me, you know, on the expense side, as we look into 2023, any more update on sort of the hiring pace of hiring in the D.C., Northern Virginia area? Is that going to be, you know, an area of continued growth? And then, you know, potentially even Richmond with that hire you did down there.
Our hiring in D.C. has been underway, so we don't expect a particular pain point in that area. There are several locations, retail locations that are, you know, coming online, so there'll be a little bit of an expense pickup, but it's not significant relative to the total base. When you look at expenses overall, we've been engaged in a multi-year expense takeout exercise. You know, we targeted certain levels and then we achieved them. We did it repeatedly over the last three years. You know, we expect to continue to stay focused on it. You know, there is some opportunity within our expense base to continue to manage expenses down in the face of inflation, so we can offset some of the natural increases that we're going to see.
I think from an occupancy or a vacancy perspective, you know, vacancy has been reasonable for us. The culture at the company is such that I think, you know, our employees are genuinely happy and are committed to the company. We've taken some actions to increase salaries or, you know, here and there, and continue to take care of the employees as we move along. We weren't caught off guard. If you recall, we had, you know, significant increases in the retail space over the last five years or so in salary expense to retain those people and with commercial banking and with job grades that we've reassessed throughout time. Our vacancy rate has been, you know, within historical ranges.
It's on the upper end, but it's been within historical ranges, so not really an outlier. You know, I hope that helps. We didn't give guidance for next year on expenses. I'll turn it back over to Vince if you want to add something.
Yeah, no, I would just add, you know, to Vince's point, you know, over the last four years, including this year, you know, we had $70 million of cost savings that we've realized. It's always a focus every year as far as coming up with, you know, what that target should be. It really comes out of just continuing to renegotiate with vendors.
Optimizing space throughout the footprint, as well as a variety of process improvement initiatives that is just kind of ongoing. We've always had that discipline focus and will continue to have that. You know, as you can see from the guidance this year that has been consistent is at $190-$195 and managing expenses, you know, within that band. That'll continue to be a focus for us and creates the positive operating leverage that's in the double digits, that we were able to generate this quarter that, you know, we expect will continue to be at very good levels, you know, in coming quarters here.
Great. Thanks, Jared.
Thanks for taking the questions.
All right. Thank you.
Our next question comes from Daniel Tamayo from Raymond James. Please go ahead with your question.
Thanks, guys. Good morning. Maybe just following up on the margin discussion. You know, you gave a lot of color on deposit betas and expectations there. If I could just get your thoughts, I guess, on, you know, maybe where the margin may peak, you know, in relation to when we get the last rate hikes and the kind of your thoughts around what happens once we get the peak margin, if we get a decline or stabilization or maybe another floating up. Thanks.
I would just say that as I commented on minutes ago, I mean, there's still upside in the margin from here, you know, with the continued Fed action. You know, I think our team has, across the board, done a very nice job managing the deposit costs on the retail and the commercial and municipal side. That's very much a focus for us, you know, given the excess cash we have on the balance sheet and just kind of operating the company. We have a very active process every week through our pricing committee to kind of optimize where those rates should be. I mean, when we give guidance for next year, obviously we'll give you kind of an outlook for the full year as well as the quarterly path. You know, I think there's still upside.
There's definitely more upside from here on the margin and net interest income. As I said earlier, we've taken some action to protect us for when rates do come down. There's still plenty of upside, but have put some protection in place to help with that when it happens. None of us know for sure exactly when that's going to happen. I should comment too that the, you know, the guidance has an additional 125 basis points in rate hikes, as we mentioned on that slide, in the Q4 . That's what's kind of baked into our outlook point.
Okay. Shifting gears here then over to credit quality. Obviously, that's been really strong for you so far. Things looking very clean in the numbers. Your comment's very positive based on what's available now. Where are you kind of most concerned or looking at most closely in terms of you know the loan books given what we're expecting here going into the next cycle?
Gary, Daniel, you know, one of the focuses of our team today is on the economically sensitive areas. We feel that, you know, those are the small business portfolio as well as the indirect portfolio on the consumer side. You know, those books of business have continued to perform really well. Delinquency flat quarter-over-quarter in both of them. Charge-offs did tick up a little bit with used car prices coming down in the indirect book, as expected. But those are the areas of focus at the moment. Like I said, we're pleased with how they've held up to this point and expect them to perform well, even though there are headwinds, you know, in those areas.
We've also been stressing interest rate sensitivity, right, Gary, within the commercial real estate portfolio, so.
Across the C&I book as well. I mean, we're pretty aggressive with our interest rate stresses. I mean, we're underwriting CRE transactions today at north of 7.5%. Then we're stressing it from there. You know, we've got some pretty heavy stresses built into the front side of the underwriting equation and the oversight and management of the book and the stresses that we place on those portfolios.
You know, we've said this before on other calls, and Gary stated it in the prepared comments. You know, we manage credit risk consistently through cycles. You know, we don't go crazy during the good times and loosen structure and, you know, we don't tighten crazy in a crazy way during the bad times. You know, for conservative underwriting up front, you know, better LTVs, if you look at the consumer book, you know, the credit scores and the LTVs are very solid, you know, I'd say, you know, in most cases.
I mean, the average there is in the high 700s.
Basically, what that does is it protects your downside as you move through the cycle and when others are returning capital and shrinking their balance sheet, it gives us an opportunity to selectively grow our balance sheet. That happened throughout the last cycle. You know, we reported multiple quarters of loan growth when the industry was shrinking, and our credit performance was pretty darn good. You know, I'm very confident in our team. I know there's a lot of uncertainty moving forward. We're not naive to it. You know, we monitor portfolios prospectively. We do all kinds of things from an analytics perspective and stressing.
perspective, we're very active at grading our credits accurately and quickly. You know, what you're seeing from us is you know, as close to real time as we can get it. You know, I think things are pretty good today. We're looking forward, you know, Gary's team is being very cautious as we move forward.
Terrific. I appreciate all that color. Just a related follow-up on reserves. How much would you say the qualitative side is impacting the level of where you are right now in reserves? Just kind of thinking through how you know changes in macro forecasts could impact reserves going forward. Thanks.
Yeah. The qualitative piece of the reserve today, Daniel, is right at about 25%. We would expect that to move down slightly as we go forward and some of the other quantitative models take effect. You know, during the quarter, as I mentioned in the remarks, the loan growth naturally took some provision expense, a pretty good chunk of it. We did see slower prepayment speeds, which are naturally extending the lives of some of those portfolios. Naturally, the impact with provision there from a CECL standpoint. Our economic forecasts have seen some softening. These are quantitative models in our model around CRE and housing variables. So that did take a little bit of provision expense as well.
That all said, those builds on that side of the equation were primarily offset by improvements in credit quality, which you know ultimately drew the reserve down one basis point to 134, as mentioned. All told, you know, credit quality continues to be a driver there, and loan growth is gonna drive the provision going forward.
Our reserve position relative to our peer group is still very positive, very favorable. I attribute that to, you know, gradations. You know, staying on top of the credits, making sure we're understanding where we are from a risk perspective and a gradations standpoint. I don't know, Gary, you want to talk to that?
No, I would agree with that. I mean, you know, we viewed the pandemic as, you know, not something that was finite and totally ending, so, you know, we were a little cautious around that. I go back to, you know, a year and a half back, when we were really starting to get worried about the inflationary signs that we were seeing, back in, you know, early 2021. You know, we felt that it was appropriate to be prudent with the reserve as opposed to releasing large chunks of it. We managed it, I think appropriately and accordingly, and we're pleased with the strength of it today.
That's great color. Thanks for all that. That's all for me. I appreciate it.
Thank you.
Thanks.
Our next question comes from Casey Haire from Jefferies. Please go ahead with your question.
Yeah, thanks. Good morning, guys.
Morning.
Question for Vincent J. Calabrese, Jr. The non-interest-bearing deposit mix has been very strong. Just wondering, you know, is that 35% level sustainable from here, or are you factoring in some attrition, you know, as you know, in your 20% QMB data through the end of the year?
I mean, Casey, this is Vince Delie. We focused on that historically to grow that position. I mean, if you go back, I think if you look at the charts in the deck, you can see the deposit mix has shifted very favorably. That's been an effort, a multi-year effort. You know, these changes are built into our DNA. I mean, basically have incented people to focus more on low-cost deposit gathering. They work, you know, pretty diligently, strategically to secure treasury management relationships. You know, that 35% we're hoping is sticky. Having said that, I mean, I'm sure as you move forward in a rising rate environment, there's pressure, right, on non-interest-bearing deposits, so it's reflected in the deposit beta guide that we gave. Right, Vince?
Yeah.
I don't know if you have any other detail that you wanna break down, I guess.
Okay.
The other thing I will add, Casey, is our small acquisition is also additive, right? Because their deposit mix is also favorable to even higher percentage of demand deposits, higher than ours.
Yeah.
It's 42%, I think, right? 48.
At announcement, yeah, it's 42. Yeah, 42, 48.
Yeah. It's gonna be additive from that standpoint as we move into a period of elevated rates.
Okay, understood. On the cash position, I think you mentioned excess cash of $1.008 billion. What is sort of like the bare minimum that you want to run at? You know, just a reminder there to, you know, so we get a sense as to when that does run low, you know, you're a little bit more like the use of wholesale borrowings becomes more prevalent.
Casey, that's really what we would consider excess cash, that $1.8 billion. We have a certain core level of, you know, cash on the balance sheet that you would typically see. That $1.8 billion that I referenced is truly the excess cash, so that can go down to zero.
Okay. All right. Decent cushion from here. And then just lastly, on the loan pipeline, you know, obviously a strong result here. It sounds like the pipeline's a little bit softer. Just wondering if there's, you know, any a little more color on any verticals, or is it just a little bit lighter after a strong production quarter? And then also, the indirect auto has had very nice growth over the last two quarters. Is that seasonal in nature, or is that gonna slow down, or is that momentum gonna continue?
Well, I'll answer the question, the first question about the overall pipeline. I'll let Gary talk about indirect auto. It still reports up through Gary. But the pipelines in general, you know, they were fairly robust leading into the last two quarters, actually. You know, we've been able to produce some pretty significant loan growth. As we close out those transactions, the pipeline has contracted, which is pretty natural. We're at a point in the cycle where, you know, you typically don't see a surge in, you know, commercial borrowing requests, you know, at the seasonal period, basically. From a cyclical perspective, I wouldn't expect to see a surge in demand, particularly in the C&I book, as we move towards the end of the year. You know, I think those pipelines will refill. I mean, they're not terribly low.
They're, you know, at a decent level. They've just been reduced because of all the stuff we closed in the 90-day bucket. My hope is that we're able to go out, given the size of our footprint, the fact that we have, you know, fairly significant share across 7 states and the District of Columbia. I would expect us to be able to go out and continue to generate high-quality earning assets. You know, that goes for both consumer and commercial. I know that our regional presidents, while they face a very, you know, significant amount of competition quarter after quarter, they're very optimistic about their ability to execute in the markets that they're in. Gary, I don't know, do you want to comment on indirect auto?
Yeah, sure, Vince. Thanks. The second and Q3 s, Casey, are seasonally high periods for us. We do normally see that type of spike in volume during the middle part of the year. We've really been focused over the last month and a half, couple months on enhancing our margins in that business. I would expect as we move through Q4 here, that we'll see lower volumes there. Again, we're focused, as always, on high-quality paper. I would expect that to seasonally dip for those couple of reasons as well as our focus on enhancing those margins.
Okay. Understood. Sorry, one more housekeeping question. The tax rate guidance is up a little bit, 20%-21%. Is this the level we should assume, you know, carry into 2023?
What? I was gonna say, it'll always be dependent on the level of the investment tax credit activity that we execute. You know, we'll continue to be active on those types of transactions. We don't foresee any activity in the Q4, so that's why we're up to what I would say is a normalized 20-21 absent those types of transactions.
20 to 21 with a benefit provided that there's some tax-advantaged transactions delivered.
Yeah, we expect. There's some that we had teed up in the Q4 that we expect to happen next year, so that'll create some benefits to that tax rate, but a pretty clean rate.
Understood. Thank you.
All right. Thanks for the indication.
Thank you.
Our next question comes from Michael Perito from KBW. Please go ahead with your question.
Hey, good morning, everyone. Thanks for taking my questions.
Morning, Mike.
Morning, Mike.
I wanted to ask just first if you could, you know, maybe just give us a quick refresher on the Physicians First mortgage program, kind of the type, the use case. You know, just a little bit of a refresher as it's clearly seen some nice growth recently for you guys. Just wondering if you could give us a rundown of, you know, kind of how that product works generally.
Well, we started with a mortgage product that had, you know, a more advantageous LTV. You know, basically, that's the basic premise of it for physicians, you know, medical professionals, doctors that are starting out typically are loaded with student loan debt. You know, we made some adjustments to the underwriting of that product to assist the physicians in securing their homes. You know, we migrated it from a purely physical, you know, origination process to a digital origination process, and we bundled a series of other products.
You know, medical practice loan, which is a small business loan, the student loan refinance product with the depository product and then the first mortgage product. We call that our Physicians First bundle. It's on our digital eStore, which is our, you know, our e-commerce website that we set up, and I referenced it in the prepared comments. We use that platform with our originators to go, you know, after physicians globally. That portfolio has performed extraordinarily well over time. It's grown nicely. You know, Gary, I don't know if you want to comment on some of the credit-
Yeah. I mean, the delinquencies in that portfolio were very near zero. High FICO scores, very solid debt to income ratios. I mean, it's a high quality book of business. You know, we continue to see good opportunities there. The bundling of the programs and the opportunities in at small business practice lending business, I think are ahead of us, as well as you know, some of the student loan rebuy opportunities there. You know, we expect that to continue to bear fruit as we move forward with that program.
Does that particularly?
Sorry, go ahead, Vince.
No, go ahead. Go ahead and ask your question.
I was going to say competitively, do you guys feel like that there's a little bit of an edge you guys have here or a lot of other banks in this space or focused on this niche or is there room for you guys to kind of take some market share?
Well, there are other banks focused on this niche. I mean, just about every competitor we have offers a similar mortgage product. The difference is, you know, the way we've organized our approach to gathering those clients. We use data analytics. We use our digital tools, the eStore. You know, we said in our prepared comments, we had 37,000 customers visit our site. We've created traffic on our website, which translates into the ability to promote certain products and services. When we engage in digital advertising and traditional advertising methodology, we can direct them to our portal. You know, when you look at it, you know, the Physicians First eStore page, for example, you know, it grew to 900 visits per month from zero.
We just stood that up, you know, not that long ago, a couple quarters ago. You know, that supported the growth year over year of 18.2% in that category in terms of views on that site. It supports the overall views. You know, when we use that tool, that digital tool, we're creating traffic that enables customers to look for solutions. We're applying, in some instances, our analytics tools to present products to customers as they visit the site. You know, they put the Physicians First package, the mortgage package in the shopping cart, and then the other items pop up and, you know, they say people that purchase this product typically look at these other products.
It's led to, you know, more views and, you know, ease of marketing and a higher, visibility, right? We're attributing some of our success to, you know, obviously, the people matter most. But some of our success is directly attributable to our digital strategy and the eStore concept that we've developed.
Got it. Helpful, thanks.
Hope that helps.
Yeah, no, it is. Very thorough.
I mean, 900 physicians a month now look at our website, just to keep that in perspective. I mean, that's 900 physicians we wouldn't normally see most likely. Helps build awareness and.
Yeah.
Supports our brand.
Just lastly and unrelated, just on the capital markets fees, which were, you know, pretty solid in the quarter. Is it reasonable to think that in the current environment, there's room for that to kind of continue to be elevated with rates moving and some of the economic uncertainty and everything? Are you seeing a little extra engagement from the commercial clients there? Or just love a little extra color there, if you don't mind.
It's a great question. I mean, I think we're a little bit of an anomaly, right? Because we have a pretty broad offering for our size. We have a debt capital markets group that participates in bond economics. You know, they support our large corporate calling activity, our you know, large corporate bankers. We have you know, syndications effort that's outsized, I think, for a bank our size. In fact, our syndications revenue has doubled, right, Vince?
More than doubled, yeah.
More than doubled over the last year. It's a sizable contributor. We do hedging. We throw international into the mix because we do some hedging for our international clients. That's grown nicely. You know, the derivatives business is a core business for the company. That's more volatile because of the changes in interest rates and, you know, demand from a loan perspective. That both impacts that area. You know, we have a very strong team and have had great success structuring products for clients to protect them in both up and down interest rate cycles. You know, sure. I mean, I'm bullish on our capital markets platform in general over the long term. I believe there's significant upside over the long term. In the short run, you know, you're going to see variability.
It's lumpy because of the changes in rates. You know
I think capital markets is very early.
Yeah, debt capital markets is early. Syndications is, you know, there's still upside there. Even though we performed extraordinarily well this year, there's upside. There's always an opportunity in the, you know, debt capital markets area because of the activity that goes on with our larger borrowers in terms of the issuance of debt, you know, bonds, not bank debt or added debt, but bond debt. As we've grown as a company, you know, our credit appetite in terms of hold positions has grown. In order for us to compete more effectively against larger competitors and to hold our own against some of the regional players that we compete with day in and day out, we've built out our syndications capability. We have, you know, very strong corporate bank. There are terrific corporate bankers across the company.
I've been in the business for 35 years. I can tell you they've competed against everybody, you know, over the last three decades. We have a very strong team, so you know, their knowledge and capability will lead to growth in capital markets. The stronger your bankers are, the more opportunities you have in that space. That's why over the long haul, I'm very optimistic about that area, barring, you know, economic headwinds.
Yeah.
No, that makes sense, and it's good to see the momentum this year. Thank you guys for taking my questions.
Yeah. Thank you.
Thanks.
Appreciate it.
Our next question comes from Brandon King from Truist Securities. Please go ahead with your question.
Thank you. Good morning.
Good morning.
Good.
Yeah. I just had one question really on loan yields. I was just curious what the loan yield was for new loans in this month of October. I also wanted to know if you can give us color on what you're seeing from a loan spread dynamic. Are you seeing more competitive pressures, or are you actually seeing an expansion in loan spreads, given kind of what you've been able to price out there in the market?
I can comment on the mids and then maybe ask Gary or Vince to comment on spreads for current loans. You know, the new loans made during the Q3 came on at a yield of 4.38, which was up significantly from 3.53 in the Q2 . If you look at kind of the overall spot portfolio rate, it increased 87 basis points to 4.53 after increasing 46 basis points in the Q2 to 3.66. You know, the new rates, where they're coming on, you know, as you would expect, significantly higher, which, you know, bodes well for my comments earlier about kind of the margin as you get into the Q4 and continue building that interest income there.
Yeah. In terms of the spreads, we are seeing them strengthen. So we're seeing some benefit pretty much across the board. You know, high quality paper is naturally bringing very, very low rates in terms of the strength of investment grade credits, but that has also moved up. So I would tell you that everything's up, you know, 20-25 basis points, upwards of 50 basis points, from a spread standpoint, depending upon asset class. Yeah. We're not a yield chaser, by the way. You know, we focus principally on credit quality. So we like to do...
Even though some transactions may be more thinly priced, you know, the ability to, you know, produce results through cycles, you know, is directly hinged on, you know, how creditworthy those borrowers are going in. While we try to, you know, benefit from higher yields in certain asset classes across, you know, a broader spectrum of lending, you know, we have a portfolio. As of late, Gary, you know, many of the C&I credits that we brought in were larger, right?
Yeah.
More creditworthy, and the credit spreads on those deals are thinner. Anyway, just thought I'd bring that up. That's in the C&I book. In the consumer book, again, we tend to chase higher quality borrowers. But that's going to impact your overall credit spreads and our perception of spreads. In other words, we're not out there doing high risk, you know, private equity deals with significant leverage, right? That's where you'll find the best yields. That's not in our portfolio.
Got it. Got it.
Brandon, just a further comment to your question. The 4.38 that I mentioned, that's the rate for new loans for the entire Q3 . If we look at the month of September, loans came on at a 4.94, you know, relative to the 4.38 average for the quarter. To kind of be responsive to your question about kind of more current. That's where we ended the quarter for the month of September.
Got it. Thanks for taking my question.
All right. Thank you.
Thank you.
Our next question comes from Manuel Navas from D.A. Davidson & Co. Please go ahead with your question.
Hey, good morning. I think most of my questions have been answered, but just can you describe any differences you're seeing in terms of loan pricing or deposit pricing, just regionally? You talked a little bit about loan growth, Cleveland being pretty strong, but just kind of can you continue that with loans and deposits, just in terms of pricing competition?
Yeah, you know, we're in some pretty intense markets. Our core markets are actually extraordinarily competitive. People think it's the opposite, but you know, Cleveland, Pittsburgh, and even Baltimore are, you know, very competitive markets. I mean, Cleveland has always been a tougher market to price in. As you move into the Southeast, while there are more competitors, there tends to be more activity. You know, so it kind of buffers the competitive environment slightly. You know, if you looked overall, the variations are not that great, but there are variations. I just pointed them out. I think that goes for both loans and deposits.
As you look at the state of Pennsylvania where we compete, as you move across the state into Philadelphia, you know, credit spreads tend to narrow as you get closer to Philadelphia because it is more competitive, and even more competitive in that, in that area. Once you cross into Central PA into the Philadelphia market, the commercial pricing becomes, you know, a little thinner. You know, from a depository perspective, it's the same, you know, same type of thing. You know, we're really focused as a company on gathering demand deposits. This is a very strong deposit franchise. It's evident in the results. You can see it in the trend that we presented. Our objective here is to be the principal operating bank for our clients. We're not out buying deposits to fund our operations.
What that means is the commercial bankers are out, you know, they're selling treasury management services. We're getting the principal disbursement accounts, so we have balances that are typically used to pay for services or are sitting for liquidity purposes for the company in demand deposit accounts. Then on the consumer side, we strive to be the principal bank for the consumer. I mean, that's how you're able to maintain, you know, pricing and produce better betas and all the things that help leveraging their data science and lead generation, all those things. Yeah. It's all tied together. Anyway, I hope that answers your question.
No, I appreciate that. Thank you, Vince.
Thank you, Vince.
Our next question comes from Brian Martin from Janney Montgomery Scott. Please go ahead with your question.
Hey, good morning, guys. Thanks for taking the question. Maybe just one follow-up on the-
Good morning, Brian.
On the loan yields. I think, Vince, you said it was a 4.94% yield in the month of September. Can you, I guess, give a little color on just the commercial yields outside of, you know, whether it's for the quarter or just for the month on were new productions coming on?
I don't have that handy, that level of granularity. I can tell you, I don't think we have that at our fingertips, but, you know, when you look at the deals that are coming in, you know, typically, you know, a middle market commercial deal is anywhere from 175 to 250 in credit spread.
Gotcha.
Okay. That you know what, Brian? That's been fairly consistent. If you wanna convert that to a fixed rate yield, you'd have to look at the yield curve.
Yeah.
We focus on credit spreads in that space.
Gotcha.
kind of manage the groups that way versus looking at an outright yield. You know, they may book a fixed rate loan, they may do a variable or adjustable rate loan, so we're, you know, kind of keying in on that credit spread.
Yeah.
You know, I would say credit spreads have broadened slightly across the board. They have. I mean, they're up, like I said, 25-50 basis points in some asset books.
Gotcha.
Then that new origination, the reason it's difficult to put your finger on what the yields would be in the commercial book is because we run the broad spectrum of market, from small business up to large corporate. If we book a large corporate deal, a lot more plus $1.50 or $1.25, that's your spread, right? It's gonna reduce the yield in that quarter. We look at it more broadly from a portfolio perspective and try to manage it that way.
Gotcha.
That helps us manage it as well.
Okay.
I can't give you any more than that. I hope that helps.
Got it.
We're expecting credit spreads to continue to broaden as we move through a more difficult period in the cycle.
Gotcha. No, that's helpful. Maybe just the reinvestment rates for securities today, where are they at? You know, I guess whether for the quarter or for September, just kind of how you're thinking about next quarter?
I would say, just to make a few comments on that. You know, the reinvestment rates averaged 3.83% for the quarter. For the Q3 it was up from 3.27% last quarter, 1.90% in the Q1 , as we know, with rates having moved up. The 3.83% compares to a roll-off rate of 2.04%. That kind of gives you a reference point there. The duration of what we've invested in during the quarter was still in that kind of 4.2 level. If we look at where we're investing today, you know, we continue to take advantage of the market yields. You know, we've been investing at about 4.80% as we sit here so far in October, with the duration just a little bit south of 4.
Gotcha. Okay. No, that's helpful. All right. Perfect. Just how about, maybe just one for Gary on the commercial real estate concentration levels. Just, is there any areas you guys are staying away from lending today? You know, just given, you know, maybe an increased focus here from the regulatory side on commercial real estate or just, any thoughts on if you're staying away from anything today and just kind of where the current concentration levels are.
Yeah. We've been extremely cautious for, I would say, the last, you know, year and a half, couple of years, and beyond, even in
Retail space. We're doing very little volume around retail CRE. We do occasionally come across a very strong transaction with long-term leases, credit tenants, and those type of underwritings and, you know, we'll continue to pick our spots there. The other space is the office space. Overly cautious there. I mean, it's been a space, you know, that we identified very early on in the pandemic as one that's going to, you know, have an elongated tail around potential risk in that space. Again, similar to the retail, we'll find the odd transaction that is long-term lease to a extremely strong credit type of tenant. You know, we'll move forward with a transaction like that, but very little volume.
We have very little hospitality. The portfolio is tiny.
Yeah, the hospitality. I mean, we haven't made a hospitality loan in 5, 6 years.
You know, this portfolio as it sits is in a very good position moving into the cycle that we're in. I give that credit to Gary and his team. You know, obviously you wanna grow the book, you wanna grow revenue, but you know, when we're in choppy waters like this is one of the best places to be, you know, right? You've addressed risk within the portfolio. We're very conservative. What Gary didn't say is we don't have a lot of urban large office buildings. We don't. We have, you know, we have office buildings, but they're largely smaller suburban buildings that haven't experienced the same level of vacancy. You know, I think that we're very well positioned.
You know, obviously everybody's gonna be facing in the industry a slowdown next year if it occurs. You know, if we perform the way we have through other cycles, we'll be in really good shape. I think, you know, we have the same team, so hopefully, we're able to manage through this more effectively and outperform others. I don't know. Thank you. I don't know if you have any other questions.
You know, no, I think that answers most of it on the real estate side. Just the last two, just general questions. Just on the, you know, your outlook on the loan growth side, I know you're not giving much outlook for 2023, but just are you seeing more caution? It sounds like you're seeing more caution among the commercial customers, you know, obviously based on where we are in the cycle and just economically. But is that how we should kind of think about, you know, at least as we, you know, look at 2023, that's probably what we would expect, you know, as you get a little bit deeper into this quarter and share more next quarter. But is that kind of the trend you're seeing among the customers today on the commercial side?
Yeah. I think, you know, the clients, you gotta remember, we've all gone through a pretty significant, you know, turbulent time with the pandemic. You know, it's pretty shocking to a lot of people, a lot of clients. So I think that they're thinking about things more conservatively as we move into this cycle. You know, I obviously, the economic headwinds are real. Inflation's real. The supply chain disruption's real. You know, I think our commercial customer base appears to be pretty realistic about revenue expectations moving into next year, which ultimately translates into fixed charge coverage and performance on our loans. So, you know, I'm hopeful that on the commercial side, the customer base that we have, you know, we're relying on those management teams to get us through, just like we, you know, our shareholders rely on us to get them through.
You know, I think we have a very strong customer base. We have very prudent customers. They think about their business, they manage leverage appropriately, and that'll get them through, you know, a difficult time. On the consumer side, the consumers appear to be in pretty good shape. I mean, you know, there's obviously stressors out there from an economic perspective, but, you know, globally, when we look at the performance of the portfolio, delinquency rate's low, the charge off rates are low. I know those are lagging indicators. Then, if we look at, you know, cash positions within the consumer segment themselves, that they appear to still be fairly healthy, even though, you know, I would expect that to deplete over time with inflation. You know, with inflationary pressure and other things.
I think we're in a very good position moving into this next cycle and, you know, we're very cautious. I don't know how else to leave it. I may come across that way. It's because, you know, we are cautious. In terms of pipelines, you know, we manage our pipelines fairly rigorously. We do credit reviews upfront. That's really gonna be, you know, contingent upon what's going on from an economic perspective and, you know, over time, how other capital providers are impacted. You know, it's kind of tough to predict where the pipelines are gonna go. I feel pretty good about where we are today and, you know, the pipelines have softened but, you know, a lot of it has to do with transitioning deal flow.
You know, they're still at reasonable levels moving into next year. We'll see what happens.
Just an additional note, Brian. Just this within the last week, I've been pulled into 3 new transactions, and all of them extremely strong. You know, the pipelines can build rather quickly, you know, based on-
Some of the transactions that we're able to look at these days. You know, I was very pleased with those three discussions, and they're all moving forward.
Gotcha. No, that's helpful. Just the last one for me was just on capital. Just any changes in the outlook, just kind of maybe where the capital levels end at in Q4 , just, you know, post the Union deal and just how you're thinking about the buyback and just managing the, you know, the capital levels today.
Yeah. No change in our strategy there. We continue to target CET1 ratio around 10%. You know, the 9.8% estimated for this quarter is up from 9.7%, as you saw on the slides. You know, the strong earnings more than supported the asset growth for the quarter. You know, the dividend payout ratio is at a very attractive level. You know, we would expect to build the CET1 ratio to 10% in the near term and then gradually build that ratio in 2023, just given kind of higher earnings generation levels as we benefit from the asset sensitive positioning. You know, regarding the buybacks, it's still the same philosophy, Brian. I mean, our first and best use of capital is organic loan growth. The level of buybacks would be dependent on that.
We did not buy back any shares this quarter, but we will be opportunistic as we go forward, you know, given we still think there's significant value in our relative PE to the peers. You know, we've outperformed the peers significantly in recent periods, and we think there's still room for that PE to expand relative to the peers. We will be opportunistic, but the overall philosophy is still the same.
Gotcha. Okay, I don't know if someone asked earlier, but you talked about the positive operating leverage. I mean, with the efficiency ratio being below, you know, 50% today, is that kind of an achievable—is that a kind of a sustainable level, kind of given the outlook for what you're seeing with, you know, the margins still trending higher here, as you kind of look over the next couple quarters?
I would just say, I mean, for the Q4 , right, we'll give guidance in January for next year. I mean, as I mentioned, there's still upside into net interest income. It's baked into our guidance, and, you know, we'll continue to manage expenses diligently as we always have. You know, there's upside to that ratio or improvement to that ratio into the next quarter. Next year, you know, we'll cover that when we get into guidance in 2023.
Gotcha. Okay. Thank you for taking the questions, guys.
All right. Thank you.
Thank you, Brian.
All right.
Ladies and gentlemen, with that, we've reached the end of today's question and answer session. At this time, I would like to turn the floor back over to Vince Delie for any closing remarks.
Yeah. First of all, I'd like to thank our team. This was an exceptional quarter, but it's been a series of exceptional quarters. You know, that doesn't happen without a lot of hard work, focus. You know, and I you know truly appreciate what our team has done. All of our employees have really stepped up. Very proud to work here. It shows in the results, right? Thank you. You know, thank you, Gary and your team for keeping us moving along here and deploying capital through a cycle. I think that's gonna be very positive. I think we've shown that there's a tremendous amount of positive momentum. The business model is working, and we're looking forward to continuing to drive results for our shareholders. Thank you. Look forward to our next call. Take care, everybody.
Ladies and gentlemen, with that, we'll be concluding today's conference call. We do thank you for joining. You may now disconnect your line.