F.N.B. Corporation (FNB) — Q1 2024 Form 10-Q
Business context and period. F.N.B. Corporation is a diversified regional financial services company headquartered in Pittsburgh, operating across seven states and Washington, D.C. through 348 branches. It provides commercial and consumer banking, wealth management and insurance services. This unaudited report covers the three months ended March 31, 2024; income-statement comparisons are with Q1 2023, while balance-sheet comparisons are generally with December 31, 2023.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior date |
|---|---|---|
| Net interest income | $319.0 million | $336.7 million, Q1 2023; down 5.2% |
| Non-interest income | $87.9 million | $79.4 million, Q1 2023; up 10.7% |
| Total revenue, calculated as net interest income plus non-interest income | $406.9 million | $416.0 million, Q1 2023 |
| Net income / income available to common stockholders | $122.3 million / $116.3 million; diluted EPS $0.32 | $146.5 million / $144.5 million; diluted EPS $0.40 |
| Operating diluted EPS (non-GAAP) | $0.34 | $0.40, Q1 2023 |
| Net interest margin (FTE, non-GAAP) | 3.18% | 3.56%, Q1 2023; down 38 basis points |
| Non-interest expense | $237.1 million | $219.9 million, Q1 2023; up 7.8% |
| Net cash from operating / investing / financing activities | $245 million / $76 million / $(410) million | Net cash decreased $89 million during Q1; ending cash and cash equivalents were $1.487 billion |
| Loans and leases, net of allowance | $32.178 billion | $31.917 billion at December 31, 2023 |
| Deposits | $34.735 billion | $34.711 billion at December 31, 2023 |
| Total borrowings | $4.195 billion | $4.477 billion at December 31, 2023 |
| Common equity tier 1 ratio | 10.21% | 10.04% at March 31, 2023 |
- Profitability weakened year over year: net income fell 16.5%, and reported diluted EPS declined from $0.40 to $0.32. Return on average assets was 1.08%, versus 1.37%; return on average equity was 8.15%, versus 10.37%.
- Higher funding costs pressured margin. Interest expense more than doubled year over year to $224.5 million as customers shifted toward higher-yielding deposits and average borrowings increased. Q1 margin was down only 3 basis points sequentially.
- Loan growth was 6.2% year over year. At quarter-end, loans increased $261 million from December, while deposits were nearly unchanged. The loan-to-deposit ratio was 93.8%; non-interest-bearing deposits were 29% of deposits.
- Credit measures remained comparatively low: non-performing loans were $105 million, or 0.32% of loans; non-performing assets were $108 million. Net charge-offs were $12.8 million, or 0.16% annualized. The loan allowance was $406.3 million, 1.25% of loans, and coverage of non-performing loans was approximately 389%.
- Capital measures included a 7.99% tangible common equity-to-tangible assets ratio and tangible book value of $9.64 per share, up 11.3% year over year. FNB redeemed $111 million of Series E preferred stock in February; no preferred shares remained outstanding at quarter-end.
Material changes, outlook and risks
- Revenue and costs: Non-interest income rose on stronger mortgage banking, wealth management and dividends on non-marketable equity securities. Non-interest expense growth reflected compensation, technology and third-party costs, and a $4.4 million FDIC special assessment. The efficiency ratio (FTE, non-GAAP) increased to 56.0% from 50.6%.
- Significant items: Q1 2024 included $1.2 million of branch consolidation costs, $4.4 million of FDIC special assessment and a $2.6 million favorable reduction to the estimated indirect-auto-sale loss. The preferred-stock redemption also reduced common earnings by approximately $4.0 million. Management reported operating EPS of $0.34 after excluding significant items. Q1 2023 included $2.1 million of merger expenses.
- Balance-sheet actions: FNB sold $332 million of indirect auto loans in Q1, affecting held-for-sale balances and consumer-loan averages. The company also continued balance-sheet repositioning after a $648.7 million AFS securities sale in Q4 2023 that incurred a $67.4 million realized loss. At March 31, AFS securities had $228 million of gross unrealized losses and HTM securities had $350 million; management attributed these primarily to higher interest rates and said it did not intend, nor expect to be required, to sell the AFS securities before recovery.
- Liquidity and funding: Management described liquidity as strong. About 78% of deposits were insured or collateralized; unused wholesale credit availability at FNBPA was $16.2 billion, and cash plus salable unpledged government and agency securities totaled $2.0 billion, or 4.4% of bank assets. However, the twelve-month cumulative liquidity gap was negative 5.1% of assets, and deposit migration toward time deposits continues to increase funding costs. Parent-company cash was $268.3 million; its liquidity coverage ratio was 2.6 times and cash-on-hand coverage was 13.9 months.
- Interest-rate exposure: Management reported that modeled net interest income would rise 1.7% under a gradual +100-basis-point rate scenario and fall 1.7% under a -100-basis-point scenario over 12 months. These are model estimates, not forecasts, and depend on assumptions about deposit repricing, prepayments and future balance-sheet activity.
- Credit and legal matters: Commercial real estate warrants attention: $8.8 billion of non-owner-occupied CRE included 21.2% office exposure. FNB disclosed a DOJ and North Carolina settlement resolving disputed fair-lending concerns related to historical mortgage activity; FNBPA agreed to provide $11.75 million in mortgage subsidies beginning in 2024, with no civil money penalty. Management said other ordinary-course legal and regulatory matters were not expected to have a material adverse effect on financial position or liquidity, though they could affect earnings in a period.
- Guidance: The filing does not provide a specific earnings or financial guidance range. Management cautioned that interim results are not necessarily indicative of full-year results. Principal risks include economic and market conditions, deposit competition and funding costs, interest-rate changes, credit deterioration, regulation and litigation, and cyber or operational disruptions.
Important facts for investors to verify
- Whether deposit pricing and migration to higher-cost products continue to pressure net interest margin and earnings.
- Loan growth, deposit stability, available contingent liquidity and the impact of FNB’s high loan-to-deposit ratio.
- Trends in office and other commercial real estate credit, criticized loans, delinquencies, charge-offs and allowance adequacy.
- Realization risk and capital effects from unrealized securities losses, including any need to sell securities before recovery.
- The outcome and costs of the fair-lending settlement and other legal, regulatory or supervisory matters.
- How reported results compare with non-GAAP operating measures and the effect of unusual items, including the preferred-stock redemption and FDIC assessment.