F.N.B.

Corporation (NYSE:FNB) Q3 2020 Earnings Conference Call October 20, 2020

8:15 AM ET

Company Participants

Matthew Lazzaro - Manager, Investor Relations

Vince Delie - Chairman, President and Chief Executive Officer

Gary Guerrieri - Chief Credit Officer

Vince Calabrese - Chief Financial Officer

Conference Call Participants

Frank Schiraldi - Piper Sandler

Casey Haire - Jefferies

Michael Young - Truist Securities.

Russell Gunther - D.A. Davidson

Collyn Gilbert - KBW

Matthew Breese - Stephens, Inc.

Timur Braziler - Wells Fargo Securities

Brian Martin - Janney Montgomery

Operator

Hello and welcome to the FNB Corporation Third Quarter 2020 Quarterly Earnings
Conference Call. All participants will be in listen-only mode. [Operator
Instructions] Please note, today's event is being recorded.

I'd now like to turn the conference over to your host today Matthew Lazzaro. Mr.
Lazzaro, please go ahead.

Matthew Lazzaro

Thank you. Good morning everyone and welcome to our earnings call. This conference
call of FNB Corporation and the reports it filed with the Securities and Exchange
Commission often contain forward-looking statements and non-GAAP financial
measures. Non-GAAP financial measure 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 earnings release, related presentation materials and in our 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
October 27 and the webcast link will be posted to the About Us, Investor Relations
and Shareholder Services section of our corporate Website.

I'll now turn the call over to Vince Delie, Chairman, President and CEO.
Vince Delie

Good morning and welcome to our earnings call.

Joining me this morning are Vince Calabrese, our Chief Financial Officer; and Gary
Guerrieri, our Chief Credit Officer. Today, I will provide third quarter highlights
and an update to our strategic initiatives. Gary will discuss asset quality and
Vince will cover the financials.

Third quarter operating EPS of $0.26 reflects strong fundamental performance. As we

continue to have success across many business units, despite a challenging
operating environment and provision expense totaling $27 million. This quarter's
performance reflects growth in average loans and deposits of 2% and 4%,
respectively, as well as continued strength in our fee-based businesses.

With strong contributions from capital markets activity and record mortgage banking
income of $19 million. On a linked quarter basis, tangible book value per share
increased $0.18 to $7.81. As we continue our commitment to paying an attractive
dividend by declaring our quarterly common dividend of $0.12 last week.

In addition, our CET1 and TCE ratios increased meaningful, and after adjusting for
the indirect loan sale, CET1 improves almost 20 basis points to the strongest level
in the Company's history. Our bolstered capital base should provide us with
increased flexibility to deploy capital on the best interest of the shareholders.

Return on tangible common equity was again peer leading at 14% and the efficiency
ratio equaled 55%. These results illustrate the resiliency of FNB's business model
and are truly remarkable, given the challenges presented and unique circumstances
the industry is facing amidst the global pandemic.

I’m extremely proud of our team for going above and beyond to support our customers
in this challenging macroeconomic environment. Their hard work was critical to
providing timely assistance to our impacted customers through the paycheck
protection program by offering loan deferral options and consumer relief, as well
as other programs to help clients manage their finances during these difficult
times.

Customer feedback has been overwhelmingly positive, and we are encouraged by the
low single-digit level of second loan deferral request as a percentage of total
loans as of October 15, 2020. Lower demand for second deferral requests is
indicative of the quality of our customer base, our consistent approach to credit
risk management and FNB's dedication to disciplined underwriting standards
throughout various business cycles.

Our bankers and credit teams will continue to actively evaluate and work with
COVID-19 impacted borrowers as they manage through their pandemic related
disruption. Earlier in the third quarter, our organization was recognized as a 2020
standout commercial bank by Greenwich Associates. With FNB being 1 of only 10 banks
in the country to be recognized for its response to the COVID-19 pandemic.

If you look at the credit metrics on FNB's COVID-19 sensitive sectors, we are
favorably positioned to peers on a relative basis. Our disciplined approach to
underwriting and portfolio management ensures granularity, diversification and
appropriate credit structure within our loan portfolio. On the deposit side,
organic growth in government programs have resulted in increased liquidity in our
customer base.
Looking at the recent FDIC data compared to 2019, FNB has successfully gained share
in 4 to 5 top market share position in Pittsburgh, Baltimore, Cleveland, Charlotte,
Raleigh and the Piedmont Triad with our largest market Pittsburgh surpassing the $8
billion mark in total deposit.

Additionally, as of June 30, 2020 FNB ranked in the top 10 in retail deposit market
share across 7 major MSA. And when looking at our footprint in total, FNB has a top
10 market share and more than 80% of the 53 markets categorized by the FDIC.
Compared to June, 2019, FNB continued to gain market share as total deposits
increased nearly $5 billion or over 20% overall.

If you look back over the last 6 months, we've added thousands of new households
and more than $4 billion in total deposits. Diving deeper by examining the regional
market share trends, FNB has 5 MSAs with greater than a $1 billion in deposits and
16 MSAs with greater than $500 million in deposits. These market positions reflect
successful execution of our deposit gathering strategy centered on attracting low
cost deposits through household acquisition and deepening commercial relationships,
thereby enabling FNB to eliminate our overnight borrowing position.

The surge in core deposits has strengthened our overall funding myth as the loan-
to-deposit ratio further improved to 89.1%. We continue to be absolutely focused on
generating noninterest bearing and transaction deposit growth, given the impacts of
the expected lower for longer interest rate environment. To complement our deposit
gathering strategy, we are focused on supporting our customers and expanding our
relationships as their primary capital provider with value added products and
services while staying true to our credit culture.

Looking ahead to the fourth quarter, we are encouraged by the current position of
the balance sheet with ample liquidity to support growth opportunity and an
expanded capital base. Additionally, with our PPP efforts, we've added more than
5,000 prospects for non-customer PPP lending to pursue as long-term relationships.

Given our success and the quality of our bankers, we have firmly established
ourselves as a formidable competitor across our seven state footprint, providing
competitive financial products and services supported by technology investment and
the best personnel.

With that, I'll turn the call over to Gary for more detail on asset quality.

Gary Guerrieri

Thank you, Vince and good morning, everyone. During the third quarter, our credit
portfolio continues to perform in a satisfactory manner as we continue to work
through this challenging economic environment. Our key credit metrics have held up
well with some slight increases noted during the quarter related to the COVID
environment that is largely tied to borrowers in the hardest hit industries, which
we have built loan loss reserves for accordingly.

I will now walk you through our results for the third quarter, followed by an
update on our loan deferrals and some of the proactive steps we are taking to
manage the book. Let's now discuss some key highlights. During the third quarter,
delinquency came in at a good level of 1.07%, an increase of 15 bps over the prior
quarter, that was predominantly COVID related tied to mortgage forbearances, while
the commercial portfolio remained relatively level with the prior quarter.

When excluding PPP loan volume, delinquency would have ended the quarter at 1.18%.
The level of NPLs and OREO totaled 76 basis points, a 4 basis point increase linked
quarter, while the non-GAAP level excluding PPP loans stands at 85 bps. This slight
migration is attributable to some COVID impacted credits that were placed on non-
accrual during the quarter, which is in line with our proactive risk management
measures that we have in place to help identify potential pockets of softness.

Of our total nonperforming loans at September 30, 50% continued to pay on a current
basis. Net charge-offs came in at $19.3 million for the quarter or 29 basis points
annualized with the increase largely due to write-downs taken against a few COVID
impacted credits that were already showing weakness, entering the pandemic.

On a year-to-date basis, our GAAP net charge-offs stood at 18 basis points through
the end of the third quarter. Provision expense totaled $27 million, which includes
additional bill for COVID related credit migration, driven by the hotel and
restaurant portfolios, bringing our total ending reserve to 1.45%.

When excluding PPP loan volume, the non-GAAP ACL stands at 1.61%, a 7 basis point
linked quarter increase. Our NPL coverage remains favorable at 210% at quarter end,
which reflects the reserve build for the COVID driven credit migration during the
quarter. When including the acquired on amortized loan discounts, our reserve
position excluding PPP loan volume is 1.87%.

We continue to conduct a series of scenario analysis and stress test models under
our existing allowance and DFAST frameworks as we work through this COVID impacted
environment. Under the final 2020 severely adverse DFAST scenario, the current
reserve position inclusive of on amortized loan discounts would cover 77% of
stressed losses, which does not include losses already incurred year-to-date.

As it relates to our borrowers requesting payment deferral, 3.4% of our total loan
portfolio, excluding PPP balances were under a COVID related deferment plan at
quarter end with remaining first request representing 1.4% of the portfolio and 2%
being second deferrals. As of October 16th, total deferrals have further declined
by approximately $100 million to stand at 2.9%.

We continue to carefully monitor the credit portfolio as the pandemic evolves and
borrowers work to overcome the uncertainty and challenging conditions that many
currently face. Our exposure to highly sensitive industries remains low at 3.5% of
the total portfolio, which includes all borrowers operating in the travel and
leisure, food services and energy space with deferrals granted to these borrowers
totaling 29% driven primarily by the hotel portfolio as we continue to work through
these hardest hit sectors.

During the quarter, we conducted another thorough deep dive credit review of our
commercial borrowers operating in these economically sensitive industries, which
was led by our seasoned and experienced credit officer team. Our portfolio review
covered over 80% of our existing credit exposure in COVID sensitive portfolios,
including travel and leisure, food services and retail related C&I and IRE.

As part of our review process, we assess the adequacy of cash flow, strength of the
sponsors backing the deals, the collateral position, and direct feedback from
borrowers about their expected short and long-term outlooks, this level of review
has helped us to quickly identify potential credit deterioration and take
appropriate action as we did during Q3 to better position us for the quarters
ahead, should this challenging economic environment continue.

In closing, we are pleased with the position of our portfolio entering the final
quarter of 2020 relative to where we are in this COVID impacted economic
environment. Our credit metrics have held up well and continued to trend at
satisfactory levels as we remain focused on proactively identifying risk in the
portfolio and aggressively working through it.
The experience and depth of our credit and lending teams have been paramount to our
success, and I would like to recognize these groups for their tireless efforts each
and every day as we work through these challenging conditions.

I will now turn the call over to Vince Calabrese, our Chief Financial Officer for
his remarks.

Vince Calabrese

Thanks, Gary. Good morning, everyone. Now we will discuss our financial results and
review the recent actions taken that have enhanced our overall balance sheet
positioning, reduced interest rate risk and boosted capital levels.

As noted on Slide 4, third quarter operating EPS totaled $0.26 consistent with the
prior quarter. The level of PPNR remain solid and we continue to proactively manage
our overall reserve position with provision expense totaling $27 million. We feel
good about the strength of the balance sheet and our current level of reserves
based on what we know today after a comprehensive review of our loan portfolio.

Additionally, the quarter's results reflect the continued execution of our

strategies focused on prudent risk management supported by our recent actions. For
example, during the third quarter, we took proactive measures to strengthen capital
and reduce credit risk. We signed an agreement to sell $508 million of lower FICO
indirect auto loans that close in Q4 with the proceeds being used to pay down a
similar amount of high cost federal home loan bank borrowings, of which $415
million with a rate of 2.59% was prepaid this quarter for breakage fee of $13.5
million.

We also sold Visa Class B shares at a $13.8 million gain to fully mitigate the
capital impact of the FHLB breakage costs. Results in transactions should add
roughly 17 basis points to CET1 group credit risk and be neutral to run rate
earnings. We continue to strengthen risk based capital levels with our CET1 ratio
increasing to 9.6% at the end of the quarter.

As I just noted, the pro forma CET1 ratio would increase by another 17 basis points
after considering the impact of the upcoming loan sale. The pro forma CET1 ratio
marks the highest level in our history and will be in line with peer median levels
from the most recent filings.

Our improved capital levels give us additional flexibility that is important at

this stage of the economic cycle. Looking at our TCE ratio, we ended September
comfortably above 7% increasing to 7.2%, which translates into 7.7 when excluding
PPP loans. On the expense front, we are progressing well towards achieving our 2020
cost savings goal, reducing run rate expenses via optimizing our branch network and
reducing operational costs to ongoing vendor contracts through negotiations.

On the revenue front, we are leveraging our new geographies to drive market share
gains and fee based businesses, notably mortgage banking, capital markets, wealth
and insurance to offset net interest margin pressure in the current low rate
environment.

Let's now shift to the balance sheet. Spot balances, total loans were relatively
flat compared to the prior quarter, excluding the transfer of $508 million of
indirect auto loans to held for sale. Looking ahead, it's important to focus on the
position of the balance sheet after the loan sale and excluding PPP. We remain
focused on driving organic growth, that’s a $2.5 billion in PPP loans enter the
forgiveness process and those balances wind down in the future.
Compared to the second quarter, average deposits increased 4% primarily due to 6%
growth in interest bearing deposits and 7% growth in noninterest bearing deposits,
which was partially offset by 6% planned decrease in time deposits. As Vince noted,
core deposit growth generated by building on our commercial and consumer
relationships remains a focus for us as we eliminated our overnight borrowing
position and have ample liquidity to fund future growth objectives.

Let's now look at noninterest income and expense. Noninterest income reached a
record $80 million, increasing 3% linked quarter, primarily due to significant
growth in mortgage banking, as well as strong contributions from wealth, insurance
and capital markets. Mortgage banking income increased $2.3 million as sold
production increased 9% from the prior quarter with sizable contributions from the
mid Atlantic and Pittsburgh regions and a meaningful improvement in gain on sale
margins.

Wealth management and insurance revenues, each increased 10%. These segments
benefiting from increased organic commercial growth from greater activity in the
mid Atlantic and Carolina regions. Capital markets revenue, while down from a
record level last quarter was again at a very good level of $8.2 million with these
products continuing to remain an attractive option for borrowers given the
environment.

Termination of $415 million of higher rate federal home loan bank borrowings
resulted in a loss on debt extinguishment and related hedge termination costs of
$13.3 million reported in other noninterest income. Offsetting these charges was
the $13.8 million gain on the sale of the bank's holdings of Visa Class B shares,
also reported in other noninterest income.

Turning to Slide 9, noninterest expense totaled $180.2 million, an increase of $4.3

million or 2.4%, which included $2.7 million of COVID-19 expenses in the third
quarter compared to $2 million in the second quarter. Excluding these COVID-19
related expenses, noninterest expense increased $3.6 million or 1.9%, primarily
related to higher salaries and employee benefit expense, higher production related
commissions, lower loan origination salary deferrals, given the significant PPP
loan originations in the prior quarter, add an extra operating day in the third
quarter.

FDIC insurance decreased $1.3 million due primarily to a lower FDIC assessment rate
from improved liquidity metrics. The efficiency ratio equaled 55.3% compared to
53.7%, which is reflective of the higher production related expenses noted
previously.

Looking at revenue, net interest income totaled $227 million, stable compared to
the second quarter as loan and deposit growth mostly offset lower asset yields on
variable rate loans tied to the short end of the curve. Net interest margin
decreased 9 basis points to 2.79% as the total yield on earning assets declined 20
basis points to 3.34, reflecting lower yields on fixed rate loans originated at
lower rates, given the interest rate environment and the impact of a 19 basis point
decline in 1-month LIBOR.

The benefit of our efforts to optimize funding costs was evident in a 17 basis
point reduction in the cost of interest bearing deposits, which helped to reduce
our total cost of funds to 56 basis points, down from 67 basis points. We're very
pleased with the performance of our fee based businesses as they have supported
revenue growth amidst the current low interest rate environment, demonstrating the
importance of having diversification.

Turning to our fourth quarter outlook, we expect period and loans to be generally
flat to September 30th, assuming no forgiveness of PPP loans, given the current
timing expectations for the SBA to process requests. While we expect deposits to
decline from third quarter levels, that's based on an expectation that customers
increase their deployment of funds received through the government programs, we do
expect to see continued organic growth from transaction deposits. I'll note that
our assumptions do not include any further government stimulus programs for
actions.

We expect fourth quarter net interest income to be down slightly from third quarter
inclusive of the impact of the loan sale. We are not assuming any PPP forgiveness
in the fourth quarter. Absent the loan sale, we would have expected net interest
income in the fourth quarter to be flattish.

We expect continued strong contributions from fee based businesses with a similar
level in capital markets and some reduction from record levels of mortgage banking.
We expect service charges to increase continuing to rebound, given recent
transaction volume trends. Looking at fee income overall, we expect total
noninterest income to be in the mid to high $70 million range.

We expect expenses to be stable to up slightly from the third quarter, excluding

COVID-19 expenses of $2.7 million. We expect the effective tax rate to be around
17% for the full year 2020. Lastly, we are in -- we are currently in the early
stages of budgeting for 2021. Similar to 2019 and 2020, we will again seek to have
meaningful cost saving initiatives, building on consecutive years of taking $20
million out of our overall cost structure to support strategic investments and
manage the impact of the low interest rate environment.

Its taking considerable effort to bring our efficiency ratio down from over 60% in
the past to the low to mid 50% levels we’ve been operating at currently. In
addition to the scale gain from prior acquisitions, we have consolidated close to
95 branches in the past 5 years, which is about 25% of our current branch network.

We have always been disciplined managers of costs and it will be an important

driver to return us to a position of generating positive operating leverage, and
mitigate growth and expenses in 2021. We will share more details when we provide
2021 detailed guidance in January. Overall, we are pleased with the performance of
the quarter in a very challenging environment.

Next Vince will give an update on some of our strategic initiatives in 2020.

Vince Delie

Thanks, Vince. Now I'd like to focus on our progress regarding key strategic
initiatives since our last call. In our consumer bank, we continue to focus on
optimizing our delivery channels. The deployment of our new website has translated
into higher digital adoption through increased website traffic, increased mobile
deposit and exponential growth in the number of online appointment.

In the current environment, customer activity trends continue to shift towards

digital channels with mobile enrollment up 40% compared to 2019 averages. In fact,
we have seen both monthly average mobile and online users increased by 50,000 each
compared with the 2019 average level. Regarding website traffic, monthly visitors
are up nearly 70%. Looking at our physical delivery channel, we continue to execute
our established ready program to optimize our branch network, which included more
than 60 consolidations since may of 2018, making FNB one of the more active banks
for branch consolidation.

We will continue to thoroughly evaluate additional consolidation opportunities as

well as select de novo expansion across our footprint as consumer behaviors evolve.
We recently announced plans to develop additional de novo locations, which will
enhance our retail strategy and support our corporate banking efforts in these
attractive new markets.

For example, our Charleston branches are performing exceptionally well with nearly
$50 million of deposit growth compared to 2019. And these branches are currently
ranked among the upper quartile for performance compared to FNB's entire retail
network. This consumer growth works in tandem with our successful corporate banking
efforts as the Charleston region has grown nicely with our South Carolina
commercial loan balances approaching $200 million at the end of September.

We recently brought the wholesale bank and respective credit teams back into the
offices on a rotational basis as we remain steadfast in supporting our customers
while building momentum to carry into the next year. Given the impact from the
government stimulus programs, customers have increased liquidity with lower
commercial line utilization rates. A more normal environment offers upside moving
into 2021.

Our model is built on local decision making and the high-touch relationship based
approach, coupled with consistent investment in technology. This has served us well
during the pandemic where our local bankers are in the market and working closely
with our customers. As we built out certain high value fee-based businesses, such
as treasury management and capital markets, we've embedded local specialists across
all markets to support our commercial bankers efforts.

During this pandemic, where travel, physical mobility and face-to-face interaction
is limited having well-informed decision makers directly located in our market,
enables FNB to best support our customers. Together with our efforts in the
wholesale bank, FNB has also benefited from our long-term consumer strategy clicks-
to-bricks by investing heavily in our digital platform.

One key element necessary for FNB to continue to deliver attractive returns for our
shareholders is our commitment to our employees. I am pleased to share that FNB was
included for a 10th consecutive year as a greater Pittsburgh area top workplace by
the Pittsburgh Post Gazette, signifying the strength of our culture with a decade
of excellence and consistency. These results benefit our shareholders, and we would
like to recognize the hard work and dedication of all of our employees who have
made these results possible.

With that, I'll turn the call over to the operator. Operator?

Question-and-Answer Session

Operator

Yes. Thank you. [Operator Instructions] And the first question comes from Frank
Schiraldi with Piper Sandler.

Frank Schiraldi

Thanks. Just first on the NIM mechanics. Just, Vince, you talked about a flattish
NIM next quarter. Obviously, it sounds like no PPP forgiveness, so I guess PPP will
still be there and negatively impacting the margin, I guess. But just trying to
think through the moving parts, think about reinvestment rates for securities going
lower. Is there more room on the deposit side? And then, does purchase accounting
accretion, does that play -- how does that play into the quarterly progression?
Vince Calabrese

Sure, Frank. I would say a few things. The PPP is actually slightly additive to the
margin by a few basis points when you include the fees that are being created in.
So that as far as the kind of the look forward to the fourth quarter, I mean, I'm
looking at the third quarter kind of being a bottom here, so kind of flattish from
there. LIBOR has been stable for 15, 16 basis points. Really, the spot, beginning
and end of the quarters within a basis point of each other. So I think LIBOR being
stable from here helps. There's still more room on the interest bearing deposit
costs side.

As we had in the slide, we brought it down 17 basis points to 55. The spot at the
end of the quarter was 51. So you're kind of 4 basis points ahead as a starting
point, and then we would expect kind of another 3 basis points a month improvement
in the fourth quarter. So kind of 9 to 10 additional reduction in the cost of
interest bearing deposits in the fourth quarter overall kind of supporting the
margin. And then the other dynamic is just you have loans coming on at -- new loans
coming on at lower rates, just given where rates are. So kind of if you run it all
together and kind of get you to the flattish comment that we had in the prepared
remarks there.

Frank Schiraldi

Got you. Okay. And then just in terms of the balance sheet actions, I get if you
can accrete capital and there's really no impact to earnings, it seems like a win
in terms of providing more flexibility, but just wondering if we should read
anything more into the increased -- the increase in capital levels? I mean, you
guys have always sought to operate with pretty streamlined capital. So is there any
change to where you think, or any pressures, general pressures on the industry to
where you think ratios need to go to and could there be additional actions to get
there?

Vince Calabrese

No, there's no change. We've been saying for at least the last year that we've been
more actively looking at the asset side of the balance sheet and considering
different options to kind of just optimize it to balance sheet position and the
capital position. So they are underlying that other than we've been looking at
indirect for a while and securitizing or selling a portion of the portfolio. We're
remaining in that business, so we'll continue to generate new assets as we go
forward. But then it was just kind of planets aligning.

There is a good opportunity to sell that at basically a slight gain, and then to
boost the capital ratios, 17 basis points to CET1, about a 11 basis points to the
TCE ratio in a non-dilutive manner, which just felt like a good smart thing to do
right now. And then as we kind of come through and get more certainty about the
economic environment and where everybody is going, there's opportunity for us to
restart the share buyback program and this gives us some powder to do that. So it's
really just looking at the opportunity that presented itself.

And then we also had -- we had to gain the Visa Class B shares that we’ve been
monitoring for a while became very attractive so we can sell those, pay off some
home loan borrowings that were at 2.59 rate kind of helping the run rate earnings
going forward. So it just kind of made sense economically to do that. And again,
like I said, create some more powder for share buy backs going forward.

Frank Schiraldi
Okay, great. And then just really quick, if I could just ask Gary, do you provide,
or would you provide where criticized and classified the trend from 2Q into 3Q?

Gary Guerrieri

Yes. Let me walk you through that, Frank. I mean, as I mentioned in my remarks, we
conducted another really deep dive review of the borrowers operating in the hardest
hit COVID sensitive industries and we really looked at about $3 billion of the
total portfolio pulling in a few other credits that maybe slightly impacted. We
wanted to be proactive in building reserves where appropriate against these hardest
hit borrowers under the current economic environment. And this review was important
from the bank's perspective.

Really a handful of our senior group reviewed these relationships with our regional
credit officers, one-by-one over a 4-day period to really assess these up to date
positions on each borrower. And we took aggressive risk rating actions against the
COVID impacted portfolios, primarily the hotel and restaurant portfolio. And we
moved about $350 million of that into classified and about $79 million into special
mention. We are essentially migrating about 90% of the hotel portfolio and about
25% of the restaurant portfolio to prudently build reserves against these pieces of
business that are impacted by the COVID economy.

Just finishing up there in total, we also included some retail IRE. We've built
during that quarter $22.5 million of the total of $27 million provision against
these portfolios. So it was pretty meaningful piece, which we felt was the prudent
thing to do. Overall, when we look at these industries and building these reserves
and reviewed these credits, we were really pleased with the positions of the
majority of the borrowers across the space, and we remain confident they'll weather
the storm.

Finally on deferrals. The deferrals are heaviest in the hotel space, as you would
expect right at about 53%. Restaurants are very low at this point, only 12% and
retail IRE only 5.6%. So overall pleased with that review and the reserve
positioning that we were able to accomplish during the quarter.

Frank Schiraldi

Great. Thanks for all the detail.

Vince Calabrese

Thanks, Frank.

Gary Guerrieri

Thanks, Frank.

Operator

Thank you. And the next question comes from Casey Haire with Jefferies.

Casey Haire

Yes. Thanks. Good morning, guys.

Vince Calabrese

Good morning, Casey.

Casey Haire

A couple of questions on the PPNR front. First off, housekeeping, the purchase
accounting adjustment in the quarter. How much was that?

Vince Delie

The PCD accretion was $11 million in the third quarter. Just for reference, it was
$13. 2 million in the second quarter.

Casey Haire

Okay, excellent. And then, so the 4Q outlook it looks like revenues --you're
calling for revenues to be down, obviously, mortgage banking was very strong and
normalization is to be expected, but I'm just curious why wouldn't expense it?
What's keeping the expenses stable to slightly higher? Why wouldn't we see leverage
in the fourth quarter?

Vince Delie

I think in the fourth quarter, you typically have certain things at the end of the
year. You have -- first of all, mortgage is still going to be strong in the fourth
quarter. So we're going to have commission related expense that will be at a heavy
level again, corresponding with the revenue course. You have incentives at the end
of the year, depending on all the different business units and how they close out
the year. So kind of that's a component you typically see in the fourth quarter.
So, I mean, there's nothing unusual there. I mean, we're managing costs. As we've
talked about earlier in the year, we've basically removed $40 million from our
overall cost structure for the last two years with a goal to reach a 3-year level
of $60 million. So we took 20 out last year, we're going to take 20 out this year,
and that's kind of been a process throughout the year to a combination of branch
optimization, continue to renegotiating the contracts, process improvement and
everything that we do every day. So those efforts are continuing and helping to pay
for kind of some of the investments in the strategic initiatives. So it's really
just kind of normal activity, Casey, in addition to those items.

Casey Haire

Okay. Very good. And just -- so the hotel book, the hotel and lodging book,
specifically the hotel book, the -- apologies if I missed this, how much did of the
charge-offs were driven by the hotel book? And then what is the -- what do we
expect in terms of loss trajectory going forward from the current level in the
third quarter here, and as well as deferral strategy specifically for the hotel
book, just given half of it is in still in deferral?

Gary Guerrieri

Yes. In terms of the charge-offs, Casey, the charge-offs were just a little over $3
million in that portfolio. And as we look forward, I mean, we're going to continue
to work with those borrowers. We were pleased with the review of that book of
business, as I've mentioned. Some of those borrowers are going to have a tougher
time than others, and we'll work through those particular accounts. That's why we
built some reserve against that portfolio. I mean, it's the hardest hit industry
under this COVID economy that we have seen. So we'll take appropriate actions as we
move through the fourth quarter and manage it accordingly. There's only -- there
was only one new nonaccrual during the quarter in that book of business. And we
reviewed every credit over $2 million. So that gives you a feel for where we sit at
the moment and we'll continue to stay ahead of that portfolio as we move forward.
Casey Haire

Okay. Very good. And just last one, Gary. I think you mentioned or maybe it's
Vince, the indirect auto portfolio that you're selling, you do expect to sell that
at a gain. And so there's no -- that can be a loss or there's no reserves built on
that portfolio?

Vince Delie

No, it actually came in. We were able to sell it a little bit better than what we
expected through dealer reserves and all kinds of things on the books there. So we
were able to sell it at a -- kind of a slight premium to par and then you have the
reserve component of it also. It was -- the execution was better than kind of what
we were going in with.

Casey Haire

Okay. So I'm sorry, so was that portfolio has already been sold or I thought it was
due to be closed in November?

Vince Delie

Yes. It's in held for sale, Casey. You're right. It's held for sale. It's all
executed as of yesterday. It'll close in the fourth quarter, but it's in the held
for sale bucket on the balance sheet 9.30.

Casey Haire

Understood. Thank you.

Operator

Thank you. And the next question comes from Michael Young with Truist Securities.

Michael Young

Hey, thanks for taking the question. I wanted to start on kind of the expenses as a
follow-up. You've kind of mentioned the $20 million of additional cost saves that
were kind of already targeted for 2021. Obviously, the revenue environment is going
to be challenging and some headwinds still on that kind of year-over-year basis. So
you'd expect more of those cost saves to drop to the bottom line next year, or is
it better to think about it in terms of efficiency ratio next year, and you guys
just maintaining that positive operating leverage, so efficiency ratios should be
stable to better?

Vince Delie

Yes, I would say, I mean, we continue to have some strategic initiatives that we've
been working on during the year, upgrading our teller platform and the system in
the branches are fixed -- [indiscernible] our initiatives. So I think that the kind
of cost savings goal for next year would be to mitigate any increase in expenses
with the goal of getting back to generating positive operating leverage, like you
said. I think that's a key goal for us, it's been in the past and the goal is to
return to that. So, I mean, it clearly goes to the bottom line, right, because it's
going to offset other costs increases.

So there's clearly an EPS benefit to that. And like we're in the early stages of
our budgeting process, Michael. So it's -- we are going to be talking about it in
detail and help with kind of list of the items that we have in the past. So --
well, in January, we're refreshing up, I guess, the outlook for next year once we
finish that process. But there's a goal to, like I said, get a 3-year level with 60
and then we'll finish the process and share any more information we have in
January. And I think it's important, too, that we've mentioned in my prepared
remarks, we closed 95 branches over the last five years, 25% of the network. And
we'll continue to look at optimizing the network and customer behaviors have
changed as we are in this pandemic. And some of that will be permanent, some of it
may not. We don't really know yet, but we'll continue to look, still have a lot of
branches. We continue to look at opportunities there, kind of optimize the overall
network and see how customer behaviors come out of the pandemic.

Michael Young

That's helpful. And maybe this is more a question for Vince, but I guess over the
last year or two, you guys have done a good bit of reinvestment in some of the
digital initiatives, new branch openings, et cetera. So it seems like maybe a lot
of that's behind you. So there would be more of an opportunity for some cost saves
to drop to the bottom line. But I guess, just to put that against the new branches
in Charleston, et cetera, that have obviously been doing well. And so just kind of
generally trying to think about your thoughts there on reinvestment and new
initiatives versus, maybe just taking a pause or a breather on some of that stuff.

Vince Delie

Yes, I think, we developed a longer term view that we're in the second cycle of our
3-year strategic planning process. We've mapped out our CapEx investment and
technology. So we sit together, discuss where we want to be at a future point. Then
we devise budgets, our CapEx budget, and then we layer it into our forecast. So we
-- what that does is, it requires us to cover those investments on an ongoing
basis, which we have. And that's what you're pointing out in your statement. I
think that we're in really good position as we move forward to continue executing
our plan.

We're going to continue to add elements to our digital offering. Soon, we'll be
able to originate a whole variety of loans on our website. We've pretty much
completed the depository side. We are moving on to the loan side. And then the
third piece of it is -- are the fee based businesses that also be integrated into
that digital platform. What that does for us is it gives us the ability to market
our banking services, products and services globally without a physical presence,
and open accounts end-to-end on our platform. And if you -- if you've looked at our
website, you'll see that we've changed the format of the website. It's very unique.
It's a very unique experience where you can put multiple products into a shopping
cart and then purchase multiple products at one-time.

Our goal is to continue to streamline that process for the consumer so that they
only need to fill out one application and they can open both loans and depository
products or other products in a very streamlined fashion. The interactions with the
customer base relative to the PPP has significantly amplified the exposure to our
website. So the number of clicks on our website has gone up, as I said,
exponentially. That’s very helpful for us, because we’ve embedded digital content
into our website about those products and services. So people can shop around, use
the healthy decide tools, buy other products other than just depository products or
schedule appointments, we mentioned appointment scheduling, that was all done prior
to the pandemic.

So as we move through this and we started to everyone was kind of forced into using
a digital environment that played very well for us. That's why our deposit balances
are up, our market shares up in a number of markets. We've had really great success
with appointment setting throughout the pandemic. We've received numerous awards
about our response to the pandemic. And we significantly outperformed larger banks
just about any bank in the first round of PPP with an 83% capture rate. We set up
everything on our -- with a digital -- with our digital channel with a portal and
basically it was an end-to-end process that was fully digital. Like very few banks
were able to do that. So I think we're in a position where we can start to leverage
that as we get through the pandemic and deal with the pandemic. I would not read
into our decisions to bolster capital. I think that's been something we've stated
even prior to the pandemic.

We felt that particularly CET1, we could improve that, increase our levels relative
to peers now where it's a pure median, I think on a pro forma basis. So we've come
a long way. The actions that we took with the portfolio made complete sense. It was
a very good move for us because at bolstered capital, we did not impair earnings
capacity moving into next year. And it gives us flexibility from a capital
perspective to buy back shares, to do whatever. So it opens the door for us. And
that's been a stated objective. So I would not read into it. We have no pressure at
all to change our operating strategy at this point. Anyway, I think there is an
opportunity. I think if you look at the FDIC data, there were -- we were moving in
the right direction even before the influx of PPP deposits.

Our noninterest bearing deposits are up substantially. I know the industry has
experienced an inflow, but we've consistently built our low cost deposit base over
time. So we're approaching the upper 20% -- 20% range in terms of low cost deposits
relative to the total, we're 26%, 27%. So, I think, all of those things continue to
move in the right direction and the markets that we moved in, I was just down in
the Carolinas. There's a lot more activity in the Carolinas in general with
hospitality, with restaurants, even the industries that are being impacted, there's
much more activity than there is in the Midwest or the Northeast. Anyway, that's
the answer. Sorry for the long answer.

Michael Young

No, that's okay. That was a good overview. And maybe just one last one for me, for
Gary. Just I think it was asked before kind of about the -- maybe the timing of
charge-offs or resolution of some of these credits. Is there any sort of update or
thoughts in your mind on when some of these may kind of come to resolution? Is that
first half of '21, or will there be extensions and restructurings that might kind
of draw it out over a longer period next year?

Gary Guerrieri

Yes, I would say, Michael, as you know, we're very proactive in not kicking the can
down the road. I mean, we aggressively address problem credits and manage them and
try to move them if possible. In terms of expected losses, I think we've talked in
the past a little bit about industry losses, moving upwards as you move into 2021
and through 2021. So I would expect that to occur. I would -- looking at the
industry in Q4 as well, you'll probably see losses start to increase at that point
based on the environment that we're in, but I think you'll see those accumulate
through 2021.

Michael Young

Okay. Thanks.

Operator
Thank you. And the next question comes from Russell Gunther with D.A. Davidson.

Russell Gunther

Hey, good morning guys.

Vince Delie

Good morning, Russell.

Russell Gunther

Just wanted to follow-up on the auto sale. So it makes a ton of sense and there's a
culture of derisking at FNB. Wondering if there's opportunity for continued
optimization without sacrificing much in the way of earnings power, or was the deep
dive review that you guys did in the portfolio this quarter, really ring-fence this
opportunity, and we should consider this more of a one-off move?

Vince Calabrese

Yes, I would say, we're always evaluating also as you know opportunities. If
there's things that come to light, it makes sense to us that are in the best
interest of the shareholders and make good financial sense, we'll do it. So we're
always looking at all the different elements of the balance sheet. And here this
quarter, we had an opportunity to, like I said, with kind of planets lining up to
pull some things together and make a smart financial decision that helps boost
capital, maybe some buffer going forward and like I said, it creates ability to buy
back shares. So we'll continue to look and there may be other opportunities as we
go down the road. So kind of a quarter-by-quarter thing.

Russell Gunther

Any portfolios in particular where you think you might have a better opportunity as
you had continued to analyze that?

Vince Delie

Russell, I think we're going to look from a risk perspective as well as the
commercial book. We've sold mortgage loans in the past. We sold Regency. So we got
out of consumer finance at the right time. I think we're going to continue to
evaluate what we have in our portfolio. We're going to look at returns on those
assets, and we're going to look at the risk profile associated with holding those
assets long-term and we get together and we make decisions about moving certain
assets off the balance sheet. I think we've done it very effectively. And I think
Gary and his team has done a great job. And Gary and the whole credit team has done
a great job of addressing future risks.

Russell Gunther

I appreciate you …

Gary Guerrieri

[Multiple speakers] on a quarterly basis, Russell, as we always do.

Vince Delie

Our goal is to get through this so that we're in a really strong position on the
other side of it. So understand that we're here managing through this situation. We
understand with a great degree of clarity, what we face. I think we've addressed
various elements of it very successfully, and we're going to continue to position
the company so that we're in a position of strength post pandemic crisis, the
economic side of the pandemic crisis.

Russell Gunther

Thanks very much guys. I appreciate it.

Gary Guerrieri

Russell, thanks.

Operator

Thank you. And the next question comes from Collyn Gilbert with KBW.

Collyn Gilbert

Thanks. Good morning, guys.

Vince Delie

Good morning, Collyn.

Collyn Gilbert

Maybe if you could just start with a little bit of discussion around kind of the
loan pipeline and what the sentiment is of your commercial borrower right now, kind
of how they're thinking about their businesses when you think -- maybe they start
to reinvest in the business. And then also to just some color from a geographic
perspective, if you're seeing why variances from your Carolinas franchises versus
what you're seeing, kind of in the Pennsylvania, Ohio markets?

Vince Delie

I think the commercial borrowers and Gary can answer as well, the commercial
borrowers have been a little more conservative. We're in an election year, there's
a lot of things that can potentially change relative to their businesses we've just
gone through. We're still going through the pandemic, so that's not over yet. So I
think there's been a little bit of caution in terms of capital investment. We were
just talking about that before the call started. So that puts a little bit of
damper on loan demand, but there's still a lot of conversation. I would say that
most of the industries that have not been directly impacted by COVID are performing
okay or pretty well.

So remarkably the economy outside of those industries that are obviously directly
impacted that Gary mentioned hospitality, the restaurant businesses, they were
impacted pretty heavily. But I think that as you look at the book, there's a
certain degree of optimism within that customer base that we're going to get
through this and things aren't so bad. When you look at utilization rates online,
the utilization rate for us is down. Now we have a more middle market, a small
business customer base, so they've benefited from PPP funding and other subsidies
or other opportunities to reduce their working capital facilities because they're
not investing as heavily in inventory or other cash consuming assets. But I think
that when you look at it, we're running at a point where there's some upside as the
economy starts to turn around.
I think geographically, the manufacturing sector is kind of flattish, they're
starting to see improvement. So the Midwest and the Northeast is probably lagging a
little bit. The South, as we look into the Carolinas, Raleigh has a very strong
pipeline, Charlotte is starting to see more activity. Charleston, I mentioned in my
prepared comments has done exceptionally well and continues to see opportunities.
There continues to be a migration of people into the Charleston MSA. I mean,
they're adding 32 people a day mostly from the Northeast. So there's opportunities
there from a mortgage perspective or retail banking perspective and with businesses
-- there's business formation in that market. So it seems to be pretty active.
We've expanded our commercial activities in Asheville, North Carolina and
Greenville. So we're starting to see some good activity there. The Carolinas are
really doing well. And I'd say the Midwest and the Northeast has been relatively
stable for us, both from a credit perspective than a growth perspective. I don't
know, Gary, if you want to add anything?

Gary Guerrieri

Yes. Collyn as Vince mentioned, I mean, the borrowers are facing a lot of
uncertainty at the moment. The election actually as I’m thinking and they've been
on hold with it for a little while in many cases. The pandemic still continuing
also is on there -- on the top of their mind. So those two major uncertainties are
critical to their investment going forward. That being said, as Vince mentioned
also, some of the borrowers are doing extremely well even in this environment and
are investing today. Some are on hold. The commercial line utilization rate has
reached an all-time low, we're now at 32%. So that continues to reflect the
borrowers' decisions to pay down debt, go to cash and to handle some of this
uncertainty from a conservative standpoint. So I think, they're approaching it
directly. But what it tells me is on the backside of this, there's a lot of
opportunity for the industry going forward from a loan demand and a growth
perspective. So we're looking forward to getting on the backside of it.

Collyn Gilbert

Okay. That’s helpful. And then just, Gary, a question for you, I appreciate all the
color that you're giving us on kind of net charge-offs. Unfortunately, it's a
component of our models that we have to be -- model with a lot more precision now,
obviously given CECL. So -- which is probably why we're asking a lot of questions
on net charge-offs. But just in terms of -- so let me ask, so the -- as you look
out in terms of potential losses, is it safe to say that you do see greater near-
term pressure mostly just on the COVID related segments? Are you not seeing cracks
or you not anticipating kind of outsized losses, maybe in the other segments of the
book?

Gary Guerrieri

I will tell you, Collyn, that the book is holding up very nicely. We're very
pleased with the performance of it. The softness as we've discussed today is really
in that COVID sensitive area, the hotels, the restaurants. And as I mentioned, I
mean, the restaurants were a pleasant surprise to me. I mean, I sat down with the
team over that 4-day period and went through these accounts one-by-one. And that
total review looked at $3 billion worth of impacted and potentially impacted
credits. I walked away from that feeling very good. And the reserve build that we
talked about earlier was in the areas where it needed to be. So I think you'll see
what losses come through, I think you'll see it in those COVID sensitive areas
without a doubt. And again, we think a lot of that book has a lot of positive
things happening in already. Occupancy levels are up, very improving. A heavy dose
of that is in the Carolinas. We got it through the acquired book. As we've talked,
those areas are more active. So we're seeing some positive occupancy levels start
to make some headway there. So hopefully that helps answer your question, but it's
kind of really concentrated in that COVID impacted sector.

Collyn Gilbert

Okay. That is. And then just one final question on that front. Do you happen to
have what the LTV, kind of the average LTV is on the -- on your hotel and lodging
book, kind of a $360-some-odd-million I guess, you're kind of [multiple speakers]

Vince Delie

Yes. You're right, that's about 65%, Collyn.

Collyn Gilbert

Okay, great. All right. I will leave it there. Thanks, everybody.

Gary Guerrieri

Thanks.

Vince Calabrese

Thanks, Collyn.

Operator

Thank you. And the next question comes from Matthew Breese with Stephens, Inc.

Matthew Breese

Good morning, guys.

Vince Delie

Good morning, Matt.

Vince Calabrese

Hi, Matt.

Matthew Breese

Hey, just a few. First, what was the average balance of PPP loans for the quarter?
And then, do you have the total PPP related income?

Vince Calabrese

Yes, the average balance $2.5 billion for the third quarter, and kind of the total
net interest income, it runs about $21 million a quarter, including the coupon at
1% plus the fees that come in.

Matthew Breese

Okay.

Vince Calabrese
And that's net interest income.

Matthew Breese

And then, the $508 million of indirect auto loans, what was the yield on that?

Vince Delie

Yes, the gross yield was about 5%.

Matthew Breese

Okay. And then you mentioned potentially selling more of this product. Could you
just give us a sense for the overall origination activity over the course of the
last year? And if you were to repeat this, how much of that would you like to sell
versus retain?

Vince Delie

Yes. No, just to clarify, I was saying that in the past, we've been looking at this
asset class for a while as far as potentially securitizing or selling the portion.
So, at this point, we don't have any plans to sell any additional slugs of it. This
was just a result of that review we've been doing for the last year or two. So,
just to clarify that.

Matthew Breese

Got it. Okay. And then, I know you …

Vince Delie

Yes, what it does for us is it -- you know it would built out the infrastructure to
service. So it provides us with an opportunity to sell in the future that's I think
we will …

Vince Calabrese

Yes on a flow basis [indiscernible].

Vince Delie

On a flow basis. We're going to look at it from an economic perspective, what's

best for the shareholders from a return on capital standpoint, that's how we manage
it going forward.

Vince Calabrese

So, that's a good point. Yes, I was referring to kind of a bulk sale, but Vince is
right, we have the capacity to be able to do it.

Vince Delie

Yes, I don't think -- I'm not going to suggest that in this environment we are
going to start ramping up that business, we are not. We're just -- we just wanted
to have the capability to move those assets off the balance sheet efficiently when
the pricing is right, and the stars align and that's -- going through this exercise
was -- completing the ability to do that gives us another option in terms of
capital management.
Matthew Breese

Okay.

Vince Delie

Does that makes sense?

Matthew Breese

Yes. No, that makes perfect sense. And then, I know you provided some broader fee
income guidance and you do expect mortgage to normalize. But could you talk a
little bit about the capital markets lines of business, and what the pipeline and
activity there looks? How repeatable is what you saw this quarter?

Vince Delie

Yes, I think this quarter was a little more normal than the previous quarters. I
mean they were just outrageously good because of the steep decline in interest
rates. Really that is, it hinges on our ability to originate new volume. So, as we
see the pipeline start to pick up, there is opportunity for us to sell derivative
products to customers. Our syndication's pipeline looks very solid. So that's been
generating a decent amount of fee income recently. And as we continue to elevate
our name, our brand in the new markets that we are in. We are seeing more and more
opportunities to lead transaction. So we would expect that business to continue to
grow as we move through the cycle. And we've -- as I've said we had some great
success there recently and we expect that to continue.

Then there is other areas that were part of our three year strategic plan that
we're essentially building out today. So eventually, we may provide advisory
services, both municipal finance and corporate finance advisory services. We were
establishing a broker-dealer to benefit from fee income for our larger clients that
access debt through the capital markets. So there are certain things that we're
doing that will enhance fee income in the future. So it will augment the derivative
fee income that we garner. Is that helpful?

Matthew Breese

Yes, it's very helpful. I appreciate it. That's all I had. I appreciate taking my
questions. Thank you.

Vince Delie

Okay. Thank you, Matt.

Operator

Thank you. And the next question comes from Jared Shaw with Wells Fargo.

Timur Braziler

Hi, good morning. This is actually Timur Braziler filling in for Jared. Just a
couple of follow-ups for me. Maybe starting with, Gary, the 65% loan to value on
the hotel and lodging portfolio. I guess, how was that derived? I'm assuming it's
pretty challenging to do appraisals right now, given that cash flows are still
impacted. So looking at that book, I guess, how comfortable are you with that 65%
loan to value? And maybe expanding that to the current allowance level, as we start
seeing some incremental losses flow through in the next few quarters, is the
expectation that the reserves already established will offset those losses or do
you think you're going to have to backfill the allowance to account for the new
losses coming in over the next couple of quarters?

Gary Guerrieri

Well, we've built reserves based on the performance of each credit and the position
of each credit in that portfolio during the quarter. So we essentially went through
that entire book, Timur, and positioned it appropriately for where it sits today.
As mentioned earlier, we only moved one account to non-accrual status during the
quarter. So you know that's an account that is in a problem state. We are working
through right now as we sit here today. So, I can't speculate on every single asset
that may or may not default in that book. But at this point -- as I mentioned
earlier, we feel good about the review and there are some credits in there that are
a little more challenge than others, but overall, it was a positive view of that
book of business. Some of them will default for certain under the environment that
we're in. As far as the LTV, it's based on LTVs at the original underwriting. So
you would expect that to come down over time. At 65%, we got a fairly good cushion
going into those things. So when you look at potential defaults in that book and
pick an expected reduction in valuation, the loss content on the defaulted ones
should be minimal, but there will be loss content on those assets that are not able
to continue.

Timur Braziler

Okay, that's good color. Thank you. And then just last one for me. Looking at the
commercial real estate growth in the quarter, I guess what industries are you
seeing strengthen there? And as you look ahead, is the expectation that balances
climb higher or should we expect some sort of retrenchment given how impacted some
of the CRE verticals remain?

Vince Delie

Yes. And we've seen some strength in the commercial and industrial space.
Multifamily has held up well and warehouse as well. So those are kind of the
segments. We are not seeing a lot of new activity in the multifamily space by any
means, but it's primarily that commercial and industrial warehouse where we have
seen some activity.

Timur Braziler

Thank you for the color.

Vince Delie

Sure thing.

Operator

Thank you. And the next question comes from Brian Martin with Janney Montgomery.

Brian Martin

Hey, good morning, guys.

Vince Delie

Hi, Brian.
Gary Guerrieri

Hi, Brian.

Brian Martin

Hey, just one question, back to capital for a minute on the -- where do you think
you stand on the buyback given the conversation this quarter, Vince, about the
pickup on the pro forma capital levels, just as you think about that.

Vince Calabrese

I think just looking for some more clarity about the environment, Brian, kind of
once you're -- you feel that there is a kind of light at the end of the tunnel here
and more comfortable with where things are going, that we would start to resume the
share buyback. So it's in place, it was fully authorized. We are kind of ready to
go once it feels like the right time to do it. And with stock trading below
tangible book value, it's very attractive. So it's definitely a trigger we would
pull, once we just kind of have a little bit more certainty about where everything
is going.

Brian Martin

Got you. Okay. Perfect. And then how about just -- I know you said nothing on the
PPP forgiveness this quarter, just your anticipation of how that plays out, or
based on what you're seeing with your customers there? I mean, is it first quarter
and second quarter as most of it get done in the first quarter you’re thinking now?

Vince Delie

I guess, our current thinking based on the SBA process would be kind of 40%, and
this is just our guesstimate really. 40% in the first quarter, kind of another 50%
in the second quarter, and then we have a 10% tail kind of at June 30 that would
just kind of run down from there. But we have, as Vince was commenting on the
process we built for the origination side, we've also built a portal for the
forgiveness side and kind of have that kind of ready to go now that the SBA has put
out how they want things to work. So kind of we're going to be ready to go and
expect to start submitting those in November and early part of November. But the
practicality of it is, we don't know how long it's going to take for the SBA to
turn those decisions back. So that's why we are kind of assuming first quarter to
really start that.

Brian Martin

Yes. Okay, perfect. And then maybe just one for Gary on that. On the retail IRE,
Gary, I guess the added reserve this quarter, just where are the bigger concerns in
that portfolio today, I guess as you kind of did your deep dive? And you've talked
a lot about the hotel and the restaurants, but just that retail IRE, what should we
be thinking about there? Where you guys are focused on?

Gary Guerrieri

Yes it's -- that book we built about $7 million of reserves in it, and it really
Brian, only move that reserve position up slightly. It's a fairly sizable book, and
it was just a few credits that had some retail related exposure where the bar --
where the tenants where more impacted. It's a portfolio that we feel very good
about. We are not seeing any concerns in it whatsoever. The deferral rate is just a
touch above 5% on it at this point. So it's just a few one-off tenants really is
what it is. And when you look at the LTVs there, again, they're running right at
65%. So it's a very well-positioned book, we feel very good about it at this point.

Brian Martin

Okay. And just, Gary, just bigger picture, I mean, I guess the reserve build this
quarter wasn't too much. I guess, do you feel like it's largely done at this point
based on how it seems like things in credit that are doing pretty well. I guess, is
that kind of a big picture read as you sit there today?

Gary Guerrieri

Well, when you look at the CECL reserve around the economy starting to show some
signs of improvement. I mean we wouldn't expect any additional deal from a CECL
economic forecast standpoint as you move forward. I mean actually you may see some
improvement there, if the economy continues to improve and an opportunity to have
some benefit there. I mean, I think it's a little too early to start releasing
reserves here as we sit today. But based on the reviews that we did, we took a
heavy look and an aggressive view of the COVID impacted environment, subject to it
getting worse, I mean, we feel pretty good about where we are and as you look into
the next quarter, hopefully we can continue to move that downward a little bit.

Brian Martin

Yes. Okay. All right. I appreciate it. Thanks, guys.

Gary Guerrieri

All right, Brian. Thanks.

Vince Calabrese

Okay, I have just one clarification. There was a question earlier on the indirect
portfolio as far as the yield, which I know is for modeling purposes. One thing I
forgot to mention is that the life on that portfolio, we sold is about 22 months,
so it's very short. So just to make sure for those of you that are modeling that,
we kind of have that data point.

Operator

Thank you. And as it was the last question, I would like to return the floor to
management for any closing comments.

Vince Delie

Thank you. I appreciate the call -- all the questions on the call. I think that
there were a lot of very good questions, and hopefully we provided you with
significant disclosure relative to your questions. And I'd like to thank the team,
particularly all of the employees that have stepped up during this time period. I
mean it's been remarkable. Gary, and Tom and the credit team have done a fantastic
job guiding us through what was a very scary and difficult environment, at least
early on. So I think we are coming through this and we are feeling better about
where we are and we are very hopeful that as we move into the next quarter, and
into the next year, we have more clarity from a credit perspective and we are in a
better position to focus on revenue growth again. So thank you everybody.
Appreciate the time and look forward to the next call. Take care.

Operator
Thank you. The conference has now concluded. Thank you for attending today's
presentation. You may now disconnect your phone lines.