F.N.B. Corporation — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015; the filing also presents fourth-quarter results. Unless otherwise noted, financial amounts are in U.S. dollars.
Business context
F.N.B. is a diversified financial holding company headquartered in Pittsburgh, Pennsylvania, with Community Banking, Wealth Management, Insurance and Consumer Finance segments. At year-end, it operated 288 bank branches in Pennsylvania, Ohio, Maryland and West Virginia, and 76 consumer finance offices in Pennsylvania, Ohio, Tennessee and Kentucky. It reported $17.6 billion in assets, $12.2 billion in loans and $12.6 billion in deposits.
Financial performance and position
| Metric | 2015 | 2014 | Change or context |
|---|---|---|---|
| Net interest income | $498.2 million | $466.3 million | Up 6.8%; fully taxable equivalent net interest income was $505.9 million, up 6.9%. |
| Non-interest income | $162.4 million | $158.3 million | Up 2.6%. |
| Net revenue (net interest income plus non-interest income) | $660.6 million | $624.6 million | Up approximately 5.8%. |
| Net income | $159.6 million | $144.1 million | Up 10.8%. |
| Net income available to common stockholders | $151.6 million | $135.7 million | Diluted EPS rose to $0.86 from $0.80. |
| Provision for credit losses | $40.4 million | $38.6 million | Up $1.8 million. |
| Non-interest expense | $390.5 million | $379.3 million | Up 3.0%; includes $3.0 million of merger costs, versus $9.6 million in 2014. |
| Net interest margin | 3.42% | 3.59% | Down 17 basis points, as loan yields fell faster than deposit rates. |
| Return on average assets / equity | 0.96% / 7.70% | 0.96% / 7.50% | ROA unchanged; ROE improved. |
| Assets / net loans / deposits at year-end | $17.56 billion / $12.05 billion / $12.62 billion | $16.13 billion / $11.12 billion / $11.38 billion | Growth reflects acquisitions and organic expansion. |
| Operating cash flow | $223.5 million | $446.8 million | Lower year over year; investing activities used $1.14 billion and financing activities provided $1.12 billion. |
Cash and cash equivalents were $489.1 million at year-end, compared with $287.4 million in 2014. Total stockholders’ equity was $2.10 billion. Short-term and long-term borrowings were $2.05 billion and $641.5 million, respectively, for total borrowings of approximately $2.69 billion. The Corporation issued $100 million of 4.875% subordinated notes due 2025; net proceeds were $98.4 million.
Credit measures were generally favorable: net charge-offs were 0.21% of average loans, versus 0.23% in 2014; non-performing loans were 0.59% of loans, versus 0.61%; and non-performing assets were 0.63% of assets, versus 0.68%. The allowance for credit losses was $142.0 million, or 1.16% of loans, compared with $125.9 million, or 1.12%, a year earlier.
Liquidity indicators included a parent-company liquidity coverage ratio of 1.8 times and 14.0 months of cash on hand, both above stated internal minimums. FNBPA had $5.2 billion of unused wholesale credit availability and $1.3 billion of unpledged government and agency securities.
Material changes and notable items
- Net interest income increased with loan and deposit growth, including acquisitions; average earning assets grew 12.4%. Lower asset yields pressured margin despite increased balances.
- Non-interest income included $0.8 million of net securities gains in 2015, compared with $11.7 million in 2014. The prior-year figure included a $13.8 million gain from selling pooled trust preferred securities.
- Mortgage banking income rose to $8.6 million from $3.7 million, alongside residential mortgage loan sales of $444.7 million, versus $162.7 million in 2014.
- At year-end 2015, commercial, construction and commercial real estate loans represented 56.7% of the loan portfolio; consumer loans represented 23.3%. Management noted some credit migration among borrowers sensitive to lower energy and metals prices, including one commercial and industrial credit tied to the metals market.
- F.N.B. completed its purchase of five Bank of America branches in September 2015, adding approximately $154.6 million in deposits. It also acquired insurance brokerage assets during the year.
- After year-end, on February 13, 2016, F.N.B. completed its approximately $403 million acquisition of Metro Bancorp, issuing 34.0 million common shares. Metro had approximately $2.9 billion in assets, including $2.0 billion in loans and $2.3 billion in deposits. Purchase accounting was preliminary at filing. The company also had a pending agreement to acquire 17 Fifth Third branches and approximately $383 million in deposits, expected to close in the second quarter of 2016.
- Common dividends were $0.48 per share for 2015, unchanged from 2014. The company reported no common-share repurchases in the fourth quarter.
Outlook, risks and contingencies
- No specific earnings or revenue guidance was provided. Management described the balance sheet as modestly asset-sensitive and expected rising interest rates to have a modest positive effect on net interest income; results depend on rate movements and modeling assumptions.
- Key risks include credit deterioration, particularly in commercial and consumer lending; regional economic weakness; competition for deposits and funding costs; interest-rate and valuation risk; acquisition integration, dilution and deposit retention; and evolving regulatory capital, liquidity and compliance requirements.
- Operational and cybersecurity risks include dependence on third-party service providers and potential disruption, data loss or reputational harm. The filing cautions that insurance coverage may not cover every cyber event.
- F.N.B. disclosed pending and threatened legal proceedings. Management did not expect aggregate liability to materially affect consolidated financial position, but could not rule out an effect on results in a future period.
- Capital ratios at year-end included a 9.5% common equity tier 1 ratio and 12.9% total capital ratio at the Corporation; both the Corporation and FNBPA were reported as well-capitalized. Management stated it met Basel III capital requirements on a fully phased-in basis.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management concluded internal controls were effective.
Important facts for investors to verify
- Metro acquisition integration, realized cost savings, purchase-accounting adjustments and the effect of 34.0 million issued shares on per-share earnings.
- Progress and final terms of the pending Fifth Third branch purchase.
- Whether loan growth can offset continued margin pressure, and how funding mix and interest rates affect net interest income.
- Credit trends in commercial and consumer portfolios, especially exposures affected by energy and metals markets, and whether allowance levels remain adequate.
- Liquidity and capital after acquisitions, debt issuance, dividends and any planned capital distributions.
- The drivers of lower operating cash flow versus 2014 and the sustainability of reported earnings and deposit growth.