An Eye on Financial Results: F.N.B. Corporation (NYSE: FNB)

PITTSBURGH, June 21, 2019 – F.N.B. Corporation (FNB) reported earnings for the first quarter of 2019 with net income available to common stockholders of $92.10M, or $0.28 per diluted common share. Comparatively, first quarter of 2018 net income available to common stockholders totaled $84.80M, or $0.26 per diluted common share, and fourth quarter of 2018 net income available to common stockholders totaled $98.10M, or $0.30 per diluted common share. On an operating basis, first quarter of 2019 earnings per diluted common share (non-GAAP) was $0.29, excluding $1.60M in branch consolidation costs.  Operating earnings per diluted common share (non-GAAP) equaled reported results in the first and fourth quarters of 2018.

First Quarter 2019 Results – Comparison to Prior-Year Quarter:

Net interest income totaled $230.60M, increasing $4.50M, or 2.0%. The net interest margin (FTE) (non-GAAP) declined 13 basis points to 3.26%, mainly because of the sale of Regency in the third quarter of 2018. Regency contributed 12 basis points to the net interest margin in the first quarter of 2018. The first quarter of 2019 included $8.40M of incremental purchase accounting accretion and $1.00M of cash recoveries, contrast to $4.80M and $1.10M, respectively, in the first quarter of 2018. The continued benefit from purchase accounting accretion mainly reflects continued improvement in credit quality performance for the attained loan portfolio. First quarter interest expense included a net benefit of $1.60M for the $2.50M recognition of the remaining discount on higher coupon attained debt that was stepped down during the quarter, partially offset by $0.90M of incremental interest expense for the quarter. These facilities were extinguished late in the quarter following a $1200M issuance of subordinated debt. Moreover, non-interest expense of $1.10M was recorded related to the debt extinguishment.

Total average earning assets increased $1.70B, or 6.2%, due mainly to average loan growth of $1.20B. The total yield on average earning assets increased to 4.37% from 4.08%, reflecting repricing of variable and adjustable loans, higher purchase accounting accretion, and higher reinvestment rates on securities. The total cost of funds increased to 1.14%, contrast to 0.71%, reflecting higher interest rates on borrowings and interest-bearing deposits caused by four increases in benchmark interest rates during 2018, increased deposit pricing competition and a $327.0M increase in average short-term borrowings.

Average loans totaled $22.40B and increased 5.8% because of solid growth in the commercial and consumer portfolios. Excluding Regency balances in the first quarter of 2018, average loans grew 6.6%. Average total commercial loan growth totaled $602.0M, or 4.5%, counting 13.2% growth in commercial and industrial loans and commercial leases. Commercial loan growth was led by strong activity in the Clevelandand Mid-Atlantic (Greater Baltimore-Washington D.C. markets) regions and continued growth in the equipment finance and asset-based lending businesses. Average consumer loan growth was $622.0M, or 8.0%, as growth in indirect auto loans of $468.0M, or 31.7%, and residential mortgage loans of $446.0M, or 16.4%, were partially offset by declines in direct installment loans and consumer lines of credit.

Average deposits totaled $23.40B, a boost of $1.20B, or 5.6%, reflecting growth in non-interest-bearing deposits of $285.0M, or 5.1%, growth in money market balances of $445.0M, or 9.8%, and growth in time deposits of $711.0M, or 15.3%, partially offset by a decline in interest checking of $182.0M, or 3.7%. The growth in non-interest-bearing and money market deposits included growth in consumer and commercial relationships. The loan-to-deposit ratio was 94.7% at March 31, 2019, contrast to 94.5% at March 31, 2018.

Non-interest income totaled $65.40M, decreasing $2.10M, or 3.1%. Excluding a $1.20M branch consolidation-related loss on fixed assets, non-interest income reduced $0.90M or 1.4%. Capital markets income grew $0.80M, or 15.8%, reflecting strong interest rate swap and international banking activity across the footprint, while trust income grew $0.30M, or 5.2%. Dividends on non-marketable equity securities increased $1.00M to $5.00M, because of a boost in the FHLB dividend rate, while mortgage banking operations income declined $1.60M, or 29.4%, mainly because of a $1.30M interest rate-related valuation adjustment of mortgage servicing rights. Bank-owned life insurance income reduced $0.40M, or 13.5%.

Non-interest expense totaled $165.70M, decreasing 3.1%. Excluding $0.50M of branch consolidation costs, non-interest expense totaled $165.30M, decreasing 3.4%. The primary driver of the decrease in non-interest expense was a $2.90M, or 32.6%, decrease in FDIC insurance expense, partially offset by a $2.00M, or 2.2%, increase in salaries and benefits. The decline in FDIC expense was mainly because of the elimination of the FDIC’s large bank surcharge in the fourth quarter of 2018, while the increase in salaries and benefits was mainly related to annual merit increases. The efficiency ratio (non-GAAP) improved to 53.4% from 55.8%.

The provision for credit losses totaled $13.60M, contrast to $14.50M. The provision for credit losses supported strong loan growth and exceeded net charge-offs of $7.60M, or 0.14% annualized of total average loans, which declined from $10.60M, or 0.20%. For the originated portfolio, net charge-offs were $4.80M, or 0.10% annualized of total average originated loans, contrast to $11.00M or 0.29% annualized of total average originated loans. The ratio of the allowance for credit losses to total loans and leases was 0.82% and 0.84% at March 31, 2019, and March 31, 2018, respectively. For the originated portfolio, the allowance for credit losses to total originated loans was 0.94%, contrast to 1.08% at March 31, 2018, directionally consistent with credit quality.

First Quarter 2019 Results – Comparison to Prior Quarter:

Net interest income totaled $230.60M, decreasing $1.60M or 0.7%, due mainly to fewer days in the quarter. The net interest margin (FTE) (non-GAAP) declined 3 basis points to 3.26% and included $8.40M of incremental purchase accounting accretion and $1.00M of cash recoveries, contrast to $8.30M and $0.90M, respectively. First quarter interest expense included a net benefit of $1.60M for the $2.50M recognition of the remaining discount on higher coupon attained debt that was stepped down during the quarter, partially offset by $0.90M of incremental interest expense for the quarter. These facilities were extinguished late in the quarter following a $120.0M issuance of subordinated debt. In Addition To, non-interest expense of $1.10M was recorded related to the debt extinguishment.

Total average earning assets increased $532.0M, or 7.6% annualized, because of average loan growth of $440.0M and an $87.0M increase in average securities. The total yield on earning assets increased to 4.37% from 4.31%, reflecting repricing of variable and adjustable loans. The total cost of funds increased to 1.14% from 1.04%, reflecting higher interest rates on borrowings and interest-bearing deposits caused by a boost in benchmark interest rates and increased deposit price competition, and a $584.0M increase in average short-term borrowings.

Average loans totaled $22.40B and increased $440.0M, or 8.1% annualized, with average commercial loan growth of $332.0M, or 9.9% annualized, and average consumer loan growth of $108.0M, or 5.2% annualized. Commercial balances included growth of $283.0M, or 23.8% annualized, in commercial and industrial loans and commercial leases, and growth of $46.0M, or 2.1% annualized, in commercial real estate. Commercial loan growth was led by our Cleveland, Pittsburgh, and Mid-Atlantic markets. Consumer balances reflected continued growth in residential mortgage loans of $123.0M, or 16.4% annualized, and indirect auto loans of $34.0M, or 7.3% annualized, partially offset by declines in direct installment loans and consumer lines of credit.

Average deposits totaled $23.40B and reduced $87.0M, or 1.5% annualized, due mainly to normal seasonal declines in municipal deposits and declines in brokered time deposits, partially offset by growth in consumer non-interest-bearing deposits and business and consumer money market balances. The loan-to-deposit ratio was 94.7% at March 31, 2019, contrast to 94.4% at December 31, 2018.

Non-interest income totaled $65.40M, decreasing $3.00M, or 4.4%. Excluding a $1.20M branch consolidation-related loss on fixed assets, non-interest income reduced $1.90M, or 2.7%. Seasonally strong insurance commissions and fees increased $1.30M, or 35.7%, and capital markets income increased $0.80M or 16.1% because of strong interest rate swap and international banking activity across the footprint. Dividends on non-marketable equity securities increased $1.10M to $5.00M because of a boost in the FHLB dividend rate. This was offset by a $2.10M, or 6.6%, seasonal decrease in service charges, as well as a $0.60M, or 13.4%, decrease in mortgage banking operations reflecting a $1.30M interest rate-related valuation adjustment of mortgage servicing rights.

Non-interest expense totaled $165.70M, a decrease of $4.00M, or 2.3%. Excluding $0.50M of branch consolidation costs, non-interest expense reduced $4.40M, or 2.6%. The primary drivers of the first quarter decrease in non-interest expense were a $2.00M, or 11.9%, decrease in outside services (mainly legal and consulting), and a $0.80M, or 0.9%, decrease in personnel expense. These decreases were partially offset by a $2.00M, or 7.0%, increase in occupancy and equipment mainly because of seasonally higher utilities expense. Bank shares and franchise taxes increased $1.50M due mainly to Pennsylvania state tax credits recognized in the fourth quarter of 2018. Donations of $1.30M made in the fourth quarter to earn these tax credits were recognized in other non-interest expense. The efficiency ratio (non-GAAP) improved to 53.4%, contrast to 54.1%.

The provision for credit losses totaled $13.60M, contrast to $15.20M. The provision for credit losses supported strong loan growth and exceeded net charge-offs of $7.60M, or 0.14% annualized of total average loans, contrast to $13.40M, or 0.24% annualized in the prior quarter. For the originated portfolio, net charge-offs were $4.80M, or 0.10% annualized of total average originated loans, contrast to $12.10M or 0.27% annualized. The ratio of the allowance for credit losses to total loans and leases increased to 0.82% from 0.81% at December 31, 2018. For the originated portfolio, the allowance for credit losses to total originated loans declined to 0.94% from 0.95% at December 31, 2018.

Nurul Atikah

Finance and Tech Contributor

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