F.N.B. Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. FNB is a diversified bank operating in seven states and Washington, D.C., with commercial banking, consumer banking, wealth management and insurance businesses. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless noted.
Financial results and condition
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue (net interest income plus non-interest income) | $321.3 | $307.1 | $934.6 | $913.9 |
| Net interest income | $232.4 | $227.1 | $683.2 | $687.7 |
| Non-interest income | $88.9 | $80.0 | $251.4 | $226.2 |
| Net income available to common stockholders | $109.5 | $80.8 | $300.1 | $207.8 |
| Diluted EPS | $0.34 | $0.25 | $0.93 | $0.64 |
| Provision for credit losses | $(1.8) net benefit | $27.2 expense | $3.0 expense | $105.2 expense |
- Profitability and margins: Q3 return on average assets was 1.14%, return on average equity 8.74%, and return on average tangible common equity (non-GAAP) 16.77%. Net interest margin (FTE, non-GAAP) was 2.72%, down 7 basis points year over year but up 2 basis points sequentially. The non-GAAP efficiency ratio was 55.4%.
- Balance sheet at September 30: Assets were $39.4 billion, up 5.4% from December 31, 2020. Deposits were $31.4 billion, up 8.0%; loans and leases were $24.7 billion, down 2.9% including PPP runoff. Cash and cash equivalents were $4.1 billion, versus $1.4 billion at year-end. Shareholders’ equity was $5.1 billion.
- Credit quality: Allowance for credit losses on loans was $349 million, or 1.41% of loans (1.45% excluding PPP loans), versus $363 million and 1.43% at year-end. Non-performing loans declined to $110 million from $170 million; non-performing assets were $118 million versus $180 million. Q3 annualized net charge-offs were 0.03% of average loans.
- Capital and liquidity: FNB’s CET1 ratio was 9.9% (9.88% in the regulatory table), compared with 9.84% at year-end; management reported both FNB and its bank subsidiary above regulatory well-capitalized requirements. Parent liquidity coverage ratio was 2.5 times and months of cash on hand 17.6, above internal minimums of 1 time and 12 months. Unused wholesale credit availability was $13.9 billion.
- Borrowings and cash flow: Short- and long-term borrowings totaled $2.45 billion, down from $2.90 billion at year-end. For the first nine months, operating cash flow was $384 million, investing cash flow $624 million, and financing cash flow $1.72 billion; cash increased $2.73 billion to $4.11 billion.
Material changes versus comparable periods
- Q3 common earnings rose 35.6% year over year and diluted EPS increased from $0.25 to $0.34. Management cited record revenue, lower credit-loss provision, and stronger fee income.
- Q3 non-interest income rose 11.0%, led by service charges, trust services and capital markets. Mortgage banking income fell 56.2% as activity and margins normalized from unusually high 2020 levels.
- Q3 net interest income increased 2.3%, but the FTE margin declined year over year as low rates and higher cash balances weighed on asset yields. Lower funding costs and an improved deposit mix partly offset that pressure.
- Nine-month net interest income declined 0.7%, while non-interest income increased 11.2%. The provision for credit losses fell sharply from the pandemic-driven 2020 level; nine-month net charge-offs declined to $12.5 million from $33.4 million.
- Deposits grew faster than loans, lowering the period-end loan-to-deposit ratio to 78.6% from 87.4%. Growth reflected customer relationship expansion, PPP and government stimulus inflows, and customers holding larger balances.
- PPP loans outstanding were $694 million at quarter-end, down from $2.16 billion at December 31, 2020, following $2.9 billion of SBA forgiveness processed during the first nine months.
Outlook, commentary and risks
- Management reported two consecutive quarters of high-single-digit loan growth excluding PPP and highlighted diversified fee revenue and continued growth in tangible book value. The filing does not provide specific forward earnings or revenue guidance; interim results are not necessarily indicative of full-year results.
- FNB agreed to acquire Howard Bancorp for approximately $418 million in stock, issuing about 33.8 million FNB shares. Howard had approximately $2.6 billion in assets. Regulatory clearances had been received; shareholder approval and customary closing conditions remained. Closing was expected in early 2022. FNB expected the transaction to be accretive in the first full calendar year after closing, excluding one-time charges, based on preliminary estimates.
- Acquisition risks include integration and systems-conversion challenges, employee or customer attrition, unanticipated costs, failure to realize projected benefits, potential EPS dilution, and credit-mark or acquired-loan-loss estimates proving inadequate. The merger may not close.
- COVID-19 and its uncertain economic effects remain risks, including potential changes in borrower conditions, employment, business failures, supply chains and labor availability. Other cited risks include interest-rate and market changes, competition, regulation, litigation, cybersecurity and operational disruption.
- Interest-rate sensitivity modeling indicated a 15.8% increase in projected 12-month net interest income under an immediate +200-basis-point shock and a 2.4% decrease under a -100-basis-point shock. These are model estimates based on a static balance sheet and do not reflect potential management actions; actual outcomes may differ.
- Approximately $10.1 billion, or 41%, of loans had LIBOR-based variable rates. FNB was preparing for the benchmark transition and expected to use replacement indices for new floating-rate agreements by year-end 2021. Legal proceedings were described as ordinary-course matters; management did not expect them, individually or collectively after reserves and insurance, to materially affect financial position or liquidity, though a given period’s net income could be affected.
Most important facts for investors to verify
- Whether loan growth excluding PPP is sustained and how PPP forgiveness and fee recognition affect future net interest income.
- Whether deposit balances remain elevated and how excess liquidity, cash yields and funding costs affect margins and earnings.
- Whether asset-quality improvement persists, including trends in non-performing loans, charge-offs, COVID-related modifications and allowance adequacy.
- Whether the Howard acquisition closes as expected, achieves projected cost savings and earnings accretion, and integrates without material credit, customer-retention or systems issues.
- How the LIBOR transition, rising or falling rates, and actual deposit repricing compare with management’s sensitivity models.
- Capital and liquidity levels after dividends, share repurchases and any acquisition-related actions; confirm non-GAAP measures against the filing’s reconciliations.