F.N.B. Corporation — Q3 2019 Form 10-Q
Business and period. F.N.B. Corporation is a diversified financial services company operating across seven states and the District of Columbia, with commercial and consumer banking, wealth management, and insurance businesses. This unaudited filing covers the quarter and nine months ended September 30, 2019; comparisons are generally with the corresponding 2018 periods, or December 31, 2018 for balance-sheet changes.
Financial performance and condition
| Metric | Q3 2019 | Prior comparable period |
|---|---|---|
| Net interest income | $229.8 million | $234.8 million in Q3 2018 |
| Net interest margin, FTE | 3.17% | 3.36% in Q3 2018 |
| Provision for credit losses | $11.9 million | $16.0 million in Q3 2018 |
| Non-interest income | $80.0 million | $74.8 million in Q3 2018 |
| Non-interest expense | $177.8 million | $170.7 million in Q3 2018 |
| Net income / net income available to common | $102.7 million / $100.7 million | $100.8 million / $98.8 million in Q3 2018 |
| Diluted earnings per common share | $0.31 | $0.30 in Q3 2018 |
- For the first nine months, net income was $292.1 million and common net income was $286.0 million, versus $272.7 million and $266.7 million, respectively, in 2018. Diluted EPS was $0.88 versus $0.82.
- Q3 FTE margin declined 19 basis points, primarily reflecting higher funding costs and the absence of Regency Finance, sold in 2018. The filing also cites lower acquired-loan cash recoveries year to date. Q3 FTE net interest income was $233.3 million, down from $238.2 million.
- At September 30, total assets were $34.3 billion, loans and leases $23.1 billion, deposits $24.6 billion, total borrowings $4.5 billion, and stockholders’ equity $4.8 billion. Since year-end 2018, loans rose 4.1%, deposits 4.9%, and total assets 3.7%.
- Cash and cash equivalents were $609 million, compared with $488 million at year-end. Nine-month cash flows were $137 million provided by operating activities, $771 million used in investing, and $755 million provided by financing; cash increased $121 million.
- Loan growth was led by commercial and industrial loans, up 14.2% since year-end, and residential mortgages, up 6.0%. The period-end loans-to-deposits ratio was 93.8%, versus 94.4% in the filing’s comparison.
- The allowance for credit losses was $194 million, or 0.84% of loans and leases. Non-performing assets declined to $119 million from $135 million at year-end; non-performing loans were $95 million and annualized Q3 net charge-offs were 0.11% of average loans.
- FNB and its bank subsidiary were categorized as well-capitalized. FNB’s CET1 ratio was 9.16%, total capital ratio 11.56%, and leverage ratio 8.15%. Tangible common equity to tangible assets was 7.44%, up from 6.89% in Q3 2018 (non-GAAP).
Changes, outlook, and risks
- Q3 common net income increased 2.0% year over year; reported non-interest income rose 6.9%. Excluding the $5.1 million Regency sale gain recorded in Q3 2018, non-interest income increased 14.8% on the company’s non-GAAP basis, led by capital markets and mortgage banking.
- Q3 non-interest expense increased 4.1%, including a $3.2 million impairment charge related to a renewable-energy investment tax-credit transaction. Related tax credits contributed to a lower Q3 effective tax rate of 14.5%, compared with 18.0%.
- For the first nine months, the company reported $4.5 million of branch-consolidation costs. The effective tax rate was 17.8%, versus 19.0% in 2018. Management’s adjusted/operating measures exclude certain items; they are non-GAAP and should be considered alongside reported results.
- Liquidity indicators were above internal limits: parent liquidity coverage ratio was 2.2 times versus a limit above 1.0, and months of cash on hand were 15.1 versus a limit above 12.0. FNBPA reported $11.4 billion of unused wholesale credit availability. Management said liquidity was sufficient for normal and contingency needs.
- Management described its interest-rate position as slightly asset-sensitive. Its static 12-month simulation estimated net interest income up 2.8% under an immediate +100-basis-point shock and down 4.2% under a -100-basis-point shock. These are model scenarios, not forecasts; results depend on assumptions and future balance-sheet actions.
- CECL outlook: The company planned to adopt the expected-credit-loss standard on January 1, 2020. Its preliminary estimate was a 25%–35% increase in the allowance on originated loans, primarily from consumer portfolios, with a fully phased-in CET1 impact of 14–20 basis points and tangible common equity impact of 11–15 basis points. It also estimated a $65–$75 million acquired-credit-impaired-loan allowance gross-up, with no capital impact. Management said estimates would be refined before adoption.
- Key stated risks include economic and market changes, interest rates and deposit competition, credit quality, regulatory and accounting changes, litigation, operational and cyber risks, and execution of CECL implementation. Management did not expect pending legal matters, after reserves and insurance, to materially harm financial position or liquidity, but noted they could materially affect net income in a particular period.
- The filing gives no clear full-year earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year results. Disclosure controls were assessed as effective; no material change in internal controls was reported.
Important facts for investors to verify
- Whether deposit pricing and funding costs continue to pressure net interest margin after the Q3 decline.
- Whether loan growth, especially commercial lending, is matched by stable credit quality and adequate allowance levels.
- Actual CECL adoption effects versus management’s preliminary allowance and capital estimates.
- The sustainability of capital-markets and mortgage-banking growth, and the effect of mortgage-servicing-rights valuation sensitivity.
- How the renewable-energy tax-credit transaction, branch consolidations, and other items affect reported versus operating earnings.
- Capital and liquidity measures, including the loans-to-deposits ratio, wholesale funding use, and regulatory capital buffers.