Third quarter operating earnings per share 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.
And after adjusting for the indirect loan sale CET1 improves almost 20 basis points to the strongest level in the Company's history.
Return on tangible common equity was again peer leading at 14% and the efficiency ratio equaled 55%.
Earlier in the third quarter, our organization was recognized as a 2020 Standout Commercial Bank by Greenwich Associates, with FNB being one of only 10 banks in the country to be recognized for its response to the COVID-19 pandemic.
Looking at the recent FDIC data compared to 2019, FNB has successfully gained share and fortified 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 deposits.
Additionally, as of June 30 2020, FNB ranked in the top 10 in retail deposit market share across seven major MSAs, and when looking at our footprint in total, FNB has a top 10 market share in 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 six 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 five MSAs with greater than a $1 billion in deposits and 16 MSAs with greater than $500 million in deposits.
The surge in core deposits have strengthened our overall funding mix as the loan-to-deposit ratio further improved to 89.1%.
Additionally, with our PPP efforts, we've added more than 5,000 prospects for non-customer PPP lending to pursue as long-term relationships.
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.
Of our total non-performing loans at September 30th, 50% continue 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 build 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 unamortized loan discounts, our reserve position excluding PPP loan volume is 1.87%.
Under the final 2020 severely adverse DFAST scenario, the current reserve position, inclusive of unamortized 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 requests 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%.
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.
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 noted on Slide 4, third quarter operating earnings per share totaled $0.26, consistent with the prior quarter.
The level of PPNR remains solid and we continue to proactively manage our overall reserve position with provision expense totaling $27 million.
We signed an agreement to sell $508 million of lower FICO indirect auto loans, closing 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 for the FHLB breakage costs.
Resulting transactions should add roughly 17 basis points to CET1, improve 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.
Looking at our TCE ratio, we ended September comfortably above 7%, increasing to 7.2%, which translates into 7.7% when excluding PPP loans.
Limiting [Phonetic] 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.
We remain focused on driving organic growth as the $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 non-interest-bearing deposits.
It was partially offset by 6% planned decrease in time deposits.
Non-interest 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%.
Capital markets revenue, while down from a record level last quarter, was again at a very good level at $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 non-interest 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 non-interest income.
Turning to Slide 9, non-interest 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, non-interest 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; and 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 yield on variable rate loans tied to the short end of the curve.
The 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 one month LIBOR.
The benefit of our efforts to optimize funding cost 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.
Looking at fee income overall, we expect total non-interest 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 of 2020.
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.
It's taking considerable effort to bring our efficiency ratio down from over 60% in the past to the low-to-mid 50% levels we have been operating at currently.
In addition to the scale gain from prior acquisitions, we have consolidated close to 95 branches in the past five years, which is about 25% of our current branch network.
In the current environment, customer activity trends continue to shift toward digital channels with mobile enrollment up 40% compared to 2019 averages.
In fact, we have seen both monthly average mobile and online users increase by 50,000 each compared with the 2019 average levels.
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 consolidation since May of 2018 making FNB one of the more active banks for branch consolidation.
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.

Summary:
Third quarter operating earnings per share 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.
As noted on Slide 4, third quarter operating earnings per share totaled $0.26, consistent with the prior quarter.