F.N.B. Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. F.N.B. Corporation is a regional financial services company operating in seven states and Washington, D.C., with commercial and consumer banking, wealth management and insurance businesses. Amounts below are in U.S. dollars; financial statement amounts are generally in millions.
Financial performance and position
| Metric | Q1 2022 / Mar. 31, 2022 | Comparable period / Dec. 31, 2021 |
|---|---|---|
| Net interest income | $234.1 million | $222.9 million in Q1 2021; up 5.0% |
| Net interest margin (FTE, non-GAAP) | 2.61% | 2.75% in Q1 2021; down 14 basis points |
| Non-interest income | $78.3 million | $82.8 million in Q1 2021; down 5.4% |
| Non-interest expense | $227.4 million | $184.9 million in Q1 2021; up 23.0% |
| Net income / diluted EPS | $53.0 million / $0.15 | $93.2 million / $0.28 in Q1 2021 |
| Operating net income / diluted EPS (non-GAAP) | $92.0 million / $0.26 | $91.2 million / $0.28 in Q1 2021 |
| Total assets | $42.0 billion | $39.5 billion at Dec. 31, 2021 |
| Loans and leases, gross of allowance | $26.8 billion | $25.0 billion at Dec. 31, 2021 |
| Deposits | $33.9 billion | $31.7 billion at Dec. 31, 2021 |
| Total borrowings | $2.14 billion | $2.22 billion at Dec. 31, 2021 |
| Allowance for credit losses / loan coverage | $370.6 million / 1.38% | $344.3 million / 1.38% at Dec. 31, 2021 |
| Operating cash flow | $358 million | $215 million in Q1 2021 |
| Ending cash and cash equivalents | $3.86 billion | $3.49 billion at Dec. 31, 2021 |
Q1 reported earnings included $28.6 million of Howard merger costs, $19.1 million of initial provision for acquired non-PCD loans and $4.2 million of branch consolidation costs. The company’s non-GAAP operating measures exclude these items; they are not a substitute for GAAP results. Reported net income fell 43.2% year over year, while operating net income was broadly level.
Material changes and business developments
- F.N.B. completed its acquisition of Howard Bancorp on January 22, 2022, issuing about 34.1 million common shares. Howard added approximately $1.8 billion of loans and $1.8 billion of deposits at estimated fair value, and $172 million of preliminary goodwill. Acquisition valuation remains incomplete; management said it could not practicably separate post-acquisition Howard revenue and pretax income.
- Loans and deposits grew substantially from year-end, primarily reflecting Howard, alongside organic activity. Excluding PPP and acquired Howard loans at acquisition, period-end loans grew 4.3% annualized on a linked-quarter basis. PPP balances declined to $179.6 million from $336.6 million at year-end.
- Mortgage banking income declined 57.6% year over year to $6.7 million as higher mortgage rates reduced secondary-market revenue and the mortgage pipeline. Service charges, trust services and insurance commissions increased.
- Net charge-offs were $1.9 million, or 0.03% of average loans on an annualized basis, compared with $7.1 million, or 0.11%, in Q1 2021. Nonperforming assets increased to $110 million from $96 million at year-end, partly reflecting Howard; nonperforming loans were 0.38% of loans.
- Available-for-sale securities had $156 million of gross unrealized losses at quarter-end, versus $26 million at year-end. The resulting quarterly other comprehensive loss was $140 million; management attributed the securities losses to interest-rate movements and said it did not intend, and was not likely required, to sell before recovery.
- Common equity Tier 1 was 10.0% for F.N.B. Corporation; management reported both the company and bank exceeded regulatory well-capitalized requirements. The company repurchased 2.25 million shares for $29.8 million during the quarter. In April, the board authorized an additional $150 million in buybacks, bringing total authorization to $300 million.
Liquidity, outlook, risks and contingencies
- Management described liquidity as adequate. At March 31, the bank reported $14.98 billion of unused wholesale credit availability; cash plus salable unpledged government and agency securities equaled 9.8% of bank assets, against a 3.0% policy minimum. The parent-company liquidity coverage ratio was 2.2 times and cash on hand represented 14.8 months of expenses and dividends.
- The balance sheet was asset-sensitive in the company’s models: an immediate +100-basis-point rate shock was estimated to increase 12-month net interest income by 6.5%; a +200-basis-point shock by 13.2%. These are model scenarios, not forecasts, and exclude potential management responses. Assumptions about deposit repricing and customer behavior may differ from actual results.
- F.N.B. identified economic slowdown, inflation, changing interest rates, competition, COVID-19 effects, the Russia-Ukraine conflict, cyber and operational disruption, regulation, litigation and acquisition integration as risks. It also disclosed roughly $10 billion of LIBOR-indexed loans and $190 million of LIBOR-indexed issued debt; transition efforts to SOFR and other indices were underway.
- Off-balance-sheet commitments to extend credit were $12.1 billion and standby letters of credit were $204 million. Management said ordinary-course legal matters were not expected to materially affect financial position or liquidity, while acknowledging they could materially affect income in a period. No material risk-factor changes since year-end were reported.
- The filing provides no specific earnings or financial guidance for the remainder of 2022 and cautions that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- How final purchase accounting, acquired-loan performance, integration costs and expected Howard synergies compare with management’s plans.
- Whether loan growth and deposit funding remain durable as PPP balances run off and interest rates and deposit pricing change.
- Trends in net interest margin, mortgage banking income, expense levels and GAAP earnings relative to management’s non-GAAP operating presentation.
- Whether asset quality remains sound given higher nonperforming assets, and how credit-loss reserves respond to economic conditions and acquired portfolios.
- The impact of unrealized securities losses and AOCI on capital and tangible book value, alongside planned share repurchases and dividends.
- Progress on LIBOR contract transition, and any material developments in litigation, regulatory matters or off-balance-sheet commitments.