Business context and reporting period
F.N.B. Corporation is a diversified regional financial services company operating across seven states and Washington, D.C., with commercial banking, consumer banking, wealth management and insurance businesses. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022; dollar amounts below are in millions unless stated otherwise.
On January 22, FNB completed its acquisition of Howard Bancorp, adding approximately $2.4 billion in assets at acquisition and issuing 34.1 million FNB shares. The acquisition’s preliminary accounting remained subject to valuation review. FNB also agreed to acquire UB Bancorp, a North Carolina bank holding company with approximately $1.2 billion in assets; closing was expected in late 2022, subject to shareholder and regulatory approvals.
Financial results and condition
| Metric | Q2 2022 | Prior comparable period |
|---|---|---|
| Net interest income | $253.7 | $227.9 |
| Non-interest income | $82.2 | $79.8 |
| Net income | $109.1 | $101.4 |
| Net income available to common stockholders | $107.1 | $99.4 |
| Diluted EPS | $0.30 | $0.31 |
| Net interest margin, FTE (non-GAAP) | 2.76% | 2.70% |
| Efficiency ratio, FTE (non-GAAP) | 55.18% | 56.83% |
Q2 revenue (net interest income plus non-interest income) was $335.8, up 9.2% year over year. Higher interest income and service charges contributed; mortgage banking income declined as higher rates reduced refinancing activity.
For the first six months, net income available to common stockholders was $158.1 versus $190.6, and diluted EPS was $0.45 versus $0.59. Operating diluted EPS, a non-GAAP measure excluding specified significant items, was $0.57 versus $0.59. Year-to-date results included $30.7 of merger costs, $19.1 of initial provision for acquired non-PCD loans, and $4.2 of branch consolidation costs. Net interest income rose 8.2% to $487.8; non-interest income declined 1.3% to $160.5, principally reflecting lower mortgage banking income. Year-to-date FTE net interest margin was 2.69%, down from 2.72%.
At June 30, total assets were $41.7 billion, up 5.5% from year-end; loans and leases were $28.0 billion, up 12.3%; and deposits were $33.5 billion, up 5.5%. Non-interest-bearing deposits were $11.7 billion, or 35% of deposits. Total borrowings were $2.1 billion: $1.4 billion short-term and $712 million long-term. Cash and cash equivalents were $2.0 billion, down $1.5 billion from year-end as cash was deployed into loans and securities.
Six-month operating cash flow was $692; investing cash flow was negative $1.588 billion and financing cash flow was negative $568. Cash and cash equivalents declined by $1.464 billion to $2.029 billion. Credit quality indicators included an allowance for loan and lease losses of $378 (1.35% of loans), net charge-offs of $1.5 for six months, and nonperforming loans of $92 (0.33% of loans). Nonperforming assets were $102.
FNB’s CET1 ratio was 9.72%, down from 9.92% at year-end, primarily reflecting loan growth. The company and bank subsidiary remained above regulatory well-capitalized thresholds. Tangible book value per share, a non-GAAP measure, was $8.10; accumulated other comprehensive loss was $252, with the decline largely reflecting higher rates’ effect on securities values. The board authorized an additional $150 for share repurchases, bringing total authorization to $300; FNB repurchased $13.0 of shares in Q2.
Material changes, outlook and risks
- Q2 common earnings increased, while diluted EPS declined year over year, reflecting a larger share count, including shares issued for Howard. Six-month GAAP earnings fell, substantially affected by acquisition-related charges and the initial acquired-loan provision.
- Management attributed stronger Q2 net interest income and margin to asset growth and higher market rates. The filing describes the balance sheet as positioned to benefit from modeled rate increases, but outcomes depend on deposit pricing, rate paths, customer behavior and other assumptions. No specific full-year earnings guidance is provided; management cautions that interim results are not necessarily indicative of full-year results.
- Liquidity measures were above stated internal limits: parent liquidity coverage ratio was 2.6 times versus a limit above 1.0, and months of cash on hand were 13.5 versus a limit above 12. FNBPA reported $15.7 billion of unused wholesale credit availability. Loan-to-deposit ratio was 83.8%, up from 78.7% at year-end.
- Key risks include economic slowdown, inflation, interest-rate and market changes, credit deterioration, deposit competition and funding costs, cyber and operational incidents, regulatory or legal matters, and successful integration of acquisitions. UB Bancorp transaction risks include approval or closing delays, integration costs, customer or employee attrition, and the possibility anticipated benefits are not achieved. Management said ordinary-course legal matters were not expected to materially affect financial position or liquidity, though they could affect income in a period.
- FNB reported approximately $9 billion of loans still indexed to LIBOR at June 30 and about $220 million of outstanding issued or acquired debt using LIBOR. The company identified SOFR as its primary replacement index and continued transition work. Litigation loss outcomes remain inherently uncertain; the filing states accruals are not material in aggregate based on current information.
Important facts for investors to verify
- Track Howard integration, final purchase-accounting valuations, and whether merger savings offset recurring costs and dilution.
- Confirm UB Bancorp transaction approvals, closing timing, integration requirements and realized accretion versus stated expectations.
- Monitor loan growth, deposit mix and pricing, net interest margin, and the sensitivity of earnings to further rate changes.
- Assess credit trends, acquired-loan performance, allowance adequacy, nonperforming assets and charge-offs as economic conditions evolve.
- Review securities-related AOCI, tangible book value, capital ratios and liquidity as loan growth and share repurchases continue.