F.N.B. Corporation (NYSE: FNB) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a quarterly filing. FNB is a regional diversified financial services company operating in seven states and Washington, D.C.; its businesses include community banking, wealth management and insurance. At year-end it reported $39.5 billion in assets, $25.0 billion in loans and leases, and $31.7 billion in deposits.
Financial performance and condition
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total revenue (net interest income plus non-interest income) | $1.237 billion | $1.217 billion | Up 1.7%; record revenue |
| Net income available to common stockholders | $396.6 million; $1.23 diluted EPS | $278.0 million; $0.85 diluted EPS | Income up 42.7%; EPS up 44.7% |
| Operating net income (non-GAAP) | $400.0 million; $1.24 diluted EPS | $314.0 million; $0.96 diluted EPS | Operating EPS up 29.2% |
| Net interest income | $906.5 million | $922.1 million | Down 1.7% |
| Net interest margin (FTE, non-GAAP) | 2.68% | 2.91% | Down 23 basis points |
| Non-interest income | $330.4 million | $294.6 million | Up 12.2%; up 6.5% excluding identified significant items in 2020 |
| Non-interest expense | $733.2 million | $750.3 million | Down 2.3%; adjusted operating expense rose 1.2% |
| Provision for credit losses | $0.6 million | $122.8 million | Substantially lower, reflecting improved credit trends and forecasts |
| Net charge-offs | $13.9 million; 0.06% of average loans | $59.8 million; 0.24% | Lower year over year |
| Return on average assets | 1.05% | 0.78% | Improved |
| Efficiency ratio (FTE, non-GAAP) | 57.2% | 56.1% | Higher, reflecting the low-rate environment and expense levels |
- Loans and deposits: Period-end loans and leases fell 1.9% to $25.0 billion, largely because PPP loans were forgiven. Excluding PPP, loans grew 5.7%. Deposits rose 8.9% to $31.7 billion; non-interest-bearing demand deposits increased 19.3%. The loans-to-deposits ratio declined to 78.7% from 87.4%.
- Credit and reserves: Non-performing loans declined 48.2% to $88 million, or 0.35% of loans, from $170 million, or 0.67%. The loan ACL was $344.3 million, down from $363.1 million; ACL coverage was 1.38% of total loans, or 1.40% excluding PPP loans.
- Cash flow: Operating activities provided $530 million; investing activities used $153 million; financing activities provided $1.733 billion. Cash and cash equivalents increased $2.110 billion to $3.493 billion.
- Debt and capital: Period-end short- and long-term borrowings totaled $2.218 billion, down from $2.899 billion. FNB’s CET1 ratio was 9.9% versus 9.8%; total capital was 12.2% and leverage was 8.0%. FNB and its bank subsidiary were reported as well-capitalized.
- Liquidity: Parent-company liquidity coverage ratio was 2.4x and months of cash on hand were 16.9, above internal limits of 1.0x and 12 months. FNBPA reported $14.7 billion of unused wholesale credit availability.
Material changes and notable items
- Reported net income increased as the provision for credit losses fell by $122.2 million and non-interest income grew; net interest income declined amid lower asset yields.
- Average earning assets increased 6.8%, but the average yield on earning assets fell 59 basis points to 2.97%. Lower funding costs and a higher share of non-interest-bearing deposits partly offset the yield pressure.
- PPP originations totaled $3.6 billion since program inception; $3.3 billion had been forgiven by year-end, leaving $336.6 million outstanding.
- FNB repurchased approximately 3.6 million shares for $43.2 million in 2021. It paid $0.48 per common share in dividends, unchanged from 2020.
- FNB completed its acquisition of Howard Bancorp on January 22, 2022, after the reporting date. Howard had approximately $2.4 billion in assets and $1.8 billion in loans and deposits at acquisition. The merger’s fair-value accounting was incomplete when the filing was prepared; FNB cited expected cost savings and other benefits but cautioned that integration and accretion assumptions could prove incorrect.
Outlook, risks and contingencies
- The filing provides no specific 2022 earnings or revenue guidance. Management described FNB as positioned to benefit from rising rates: a static-balance-sheet simulation estimated a 14.4% increase in 12-month net interest income under an immediate 200-basis-point rate increase. This is a modeled sensitivity, not a forecast, and excludes potential management actions.
- Key risks include COVID-19 and regional economic conditions, inflation and interest-rate movements, borrower credit deterioration, deposit competition and liquidity, cybersecurity and third-party service disruptions, changing banking regulation, and climate-related and reputational risks.
- FNB had approximately $10.5 billion of LIBOR-indexed loans at year-end, plus LIBOR-linked derivatives and debt. It had begun originating loans indexed to SOFR and other replacement indices; transition execution and contract fallback provisions remain important to monitor.
- Commitments to extend credit were $11.228 billion and standby letters of credit were $194 million. Management stated that commitments may expire undrawn and that a significant portion may be terminated at its discretion.
- FNB reported ordinary-course legal proceedings and said it did not expect them, individually or in aggregate after reserves and insurance, to materially adversely affect financial position or liquidity; outcomes remain uncertain and could affect income in a period.
- Identified 2021 significant items were $2.6 million of branch consolidation costs and $1.8 million of Howard-related merger expenses. The 2020 comparison included $45.6 million of significant items, including debt-extinguishment costs, branch costs, COVID-19 expenses and a Visa-share sale gain.
Investor verification priorities
- Reconcile GAAP earnings with management’s non-GAAP operating figures and review which items are excluded.
- Assess whether loan growth excluding PPP, deposit growth and the improved credit metrics persist after pandemic-related stimulus and PPP forgiveness effects.
- Evaluate margin sensitivity to rate changes, deposit repricing, cash balances and the transition of LIBOR-linked contracts.
- Review the adequacy and sensitivity of the ACL, including forecast assumptions, criticized loans, commercial real-estate exposures and remaining COVID-related modifications.
- Verify Howard acquisition accounting, integration costs, realized cost savings, credit marks and post-close earnings contribution in subsequent filings.
- Monitor liquidity and capital alongside share repurchases, dividends, debt maturities and the availability of subsidiary dividends to the parent.
Audit and controls: Ernst & Young issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The auditor identified the ACL, particularly management’s qualitative reserve adjustments, as a critical audit matter.