F.N.B. Corporation (NYSE:FNB) reported earnings for the fourth quarter of 2017 with net income available to common stockholders of $22.1 million, or $0.07 per diluted common share. Comparatively, third quarter of 2017 net income available to common stockholders totaled $75.7 million, or $0.23 per diluted common share, and fourth quarter of 2016 net income available to common stockholders totaled $49.3 million, or $0.23 per diluted common share. For the full year of 2017 net income available to common stockholders was $191.2 million or $0.63 per diluted common share compared to full year of 2016 of $162.9 million or $0.78 per diluted common share.
Fourth quarter operating net income per diluted common share (non-GAAP) was $0.24, which excludes the after-tax impact of merger-related expenses of $0.7 million and the impact of a reduction in the valuation of net deferred tax assets of $54.0 million due to the enactment of the Tax Cuts and Jobs Act during the quarter. Comparatively, third quarter operating net income per diluted common share (non-GAAP) was $0.24, excluding the after-tax impact of $0.9 million of merger-related expenses, and fourth quarter of 2016 operating net income per diluted common share (non-GAAP) was $0.24, excluding the after-tax impact of $1.3 million of merger-related expenses. For the full year of 2017, operating net income per diluted common share (non-GAAP) was $0.93, which excludes the after-tax impact of merger-related expenses of $37.7 million, the after-tax impact of merger-related net securities gains of $1.7 million and the previously mentioned reduction in the valuation of net deferred tax assets of $54.0 million. In comparison, full-year 2016 operating net income per diluted common share (non-GAAP) was $0.90, excluding the after-tax impact of $24.9 million of merger-related expenses.
"During 2017, FNB continued to grow loans and deposits while adhering to our risk profile, expanded our fee-based businesses and demonstrated disciplined expense management. The commitment and dedication of our employees led to the successful integration of our largest acquisition, where we entered several very attractive markets," said Vincent J. Delie Jr., Chairman, President and Chief Executive Officer. "As we look to 2018 and beyond, we believe FNB is well-positioned for success in serving our customers, communities and employees, and delivering increased value for our shareholders."
Fourth Quarter 2017 Highlights (All comparisons refer to the third quarter of 2017, except as noted)
Growth in total average loans was $158 million, or 3.0% annualized, with average commercial loan growth of $44 million, or 1.3% annualized, and average consumer loan growth of $114 million, or 5.9% annualized.
Average total deposits increased $1.0 billion, or 19.0% annualized, which included an increase in average non-interest bearing deposits of $106 million, or 7.6% annualized, and an increase in time deposits of $748 million.
Non-GAAP measures referenced in this release are used by management to measure performance in operating the business that management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included in the tables at the end of this release. "Incremental purchase accounting accretion" refers to the difference between total accretion and the estimated coupon interest income on acquired loans. "Organic growth" refers to growth excluding the benefit of initial balances from acquisitions.
The loan to deposit ratio ended December 31, 2017 at 93.7%, compared to 94.9% at September 30, 2017.
The net interest margin (FTE) (non-GAAP) expanded 5 basis points to 3.49% from 3.44%, reflecting $2.5 million of increased incremental purchase accounting accretion and $1.0 million of increased cash recoveries.
Total revenue increased 1.3% to $295 million, reflecting a 2.1% increase in net interest income and a 1.6% decrease in non-interest income.
Non-interest income declined $1.0 million or 1.6%, attributable to $2.8 million of lower net securities gains.
The efficiency ratio on an operating basis (non-GAAP) was stable at 53.1%, compared to 53.1%.
Annualized net charge-offs were 0.22% of total average loans, compared to 0.24% in the third quarter of 2017 and 0.31% in the year-ago quarter.
The tangible common equity to tangible assets ratio (non-GAAP) decreased 13 basis points to 6.74% at December 31, 2017, compared to 6.87% at September 30, 2017. The tangible book value per common share (non-GAAP) was $6.06 at December 31, 2017, a decrease of $0.06 from September 30, 2017. Both measures of capital were impacted by a reduction in the valuation of net deferred tax assets related to the new tax law.
Quarterly Results Summary
4Q17
3Q17
4Q16
Reported results
Net income available to common stockholders (millions)
$
22.1
$
75.7
$
49.3
Net income per diluted common share
$
0.07
$
0.23
$
0.23
Book value per common share (period-end)
$
13.30
$
13.39
$
11.68
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)
$
76.8
$
76.6
$
50.6
Operating net income per diluted common share
$
0.24
$
0.24
$
0.24
Tangible common equity to tangible assets (period-end)
6.74
%
6.87
%
6.64
%
Tangible book value per common share (period-end)
$
6.06
$
6.12
$
6.53
Average Diluted Common Shares Outstanding (thousands)
After-tax impact of net merger-related securities gains
$
1.7
$
—
Reduction in valuation of deferred tax assets2
$
(54.0
)
$
—
(1)Favorable (unfavorable) impact on earnings; (2) Changes in the valuation of deferred tax assets are considered reasonable estimates as of December 31, 2017. As a result, the amounts could be adjusted during the measurement period, which will end in December 2018.
Fourth Quarter 2017 Results – Comparison to Prior Quarter
Net interest income totaled $230.0 million, increasing $4.8 million or 2.1%. The net interest margin (FTE) (non-GAAP) expanded 5 basis points to 3.49% and included $4.7 million of incremental purchase accounting accretion and $5.3 million of cash recoveries, compared to $2.2 million and $4.3 million, respectively, in the prior quarter. Total average earning assets increased $227 million, or 3.4% annualized, due to average loan growth of $158 million and a $130 million increase in average securities.
Average loans totaled $20.8 billion and increased $158 million, or 3.0% annualized, reflecting continuing loan growth in the commercial and consumer portfolios. Average commercial loan growth totaled $44 million, or 1.3% annualized, as strong commercial origination volume was partially offset by reduction in acquired commercial loan balances. Average consumer loan growth was $114 million, or 5.9% annualized, led by continued growth in residential mortgage and indirect auto loans.
Average deposits totaled $22.2 billion and increased $1.0 billion, or 19.0% annualized, due to growth in non-interest bearing deposits, interest bearing transaction deposits and time deposits. The loan to deposit ratio ended December 31, 2017 at 93.7%, compared to 94.9% at September 30, 2017.
Non-interest income totaled $65.1 million, decreasing 1.6% from the prior quarter. The decrease was driven by $2.8 million of lower net securities gains. Capital markets increased $2.1 million from the prior quarter, reflecting increased commercial swap activity during the fourth quarter. Mortgage banking income of $5.6 million reflects continued strong purchase origination volume and includes increased contributions from our Carolina markets.
Non-interest expense totaled $166.5 million, an increase of 1.7% compared to the prior quarter. The fourth quarter included $1.1 million of merger-related expenses, compared to $1.4 million of merger-related expenses in the third quarter. The primary driver of the linked-quarter increase in non-interest expense was a 4.4% increase in personnel expense primarily related to variable compensation across business lines. The efficiency ratio (non-GAAP) was stable at 53.1%.
The ratio of non-performing loans and OREO to total loans and OREO improved 4 basis points to 0.66%. For the originated portfolio, the ratio of non-performing loans and OREO to total loans and OREO improved 10 basis points to 0.81%. Total delinquency remains at satisfactory levels, and total originated delinquency, defined as total past due and non-accrual originated loans as a percentage of total originated loans, improved 3 basis points to 0.88%, compared to 0.91% at September 30, 2017.
The provision for loan losses totaled $16.7 million, compared to $16.8 million in the prior quarter. Net charge-offs totaled $11.3 million, or 0.22% annualized of total average loans, compared to $12.5 million, or 0.24% annualized in the prior quarter. For the originated portfolio, net charge-offs were $13.1 million, or 0.35% annualized of total average originated loans, compared to $13.0 million or 0.37% annualized. The ratio of the allowance for loan losses to total loans and leases increased to 0.84% at December 31, 2017, from 0.82% at September 30, 2017. For the originated portfolio, the allowance for loan losses to total originated loans was 1.10%, compared to 1.12% at September 30, 2017.
Full Year 2017 Results - Comparison to Prior Year
Net interest income totaled $846.4 million, increasing $234.9 million, or 38.4%, reflecting average earning asset growth of $6.8 billion, or 36.9%, due to organic growth and the benefit of acquisitions. The net interest margin (FTE) (non-GAAP) expanded 5 basis points to 3.43% and included $4.0 million of higher incremental purchase accounting accretion and $4.4 million of higher cash recoveries compared to the full year of 2016.
Average loans totaled $19.5 billion, an increase of $5.3 billion, or 36.8%, due to the benefit from continued organic loan growth and acquired balances. Organic growth in total average loans equaled $918 million, or 6.3%. Total average organic consumer loan growth of $609 million, or 10.4%, was led by strong growth in residential mortgage and indirect auto loans. Organic growth in average commercial loans totaled $309 million, or 3.6%. Average deposits totaled $20.4 billion and increased $5.1 billion, or 32.9%, due to the benefit of acquired balances and average organic growth of $506 million or 3.2%. On an organic basis, average total transaction deposits increased $479 million or 3.7%.
Non-interest income totaled $252.4 million, increasing $50.7 million or 25.1%. Non-interest income primarily reflects the benefit of acquisitions and continued expansion of our fee-based businesses of capital markets, mortgage banking, wealth management and insurance.
Non-interest expense totaled $681.5 million, increasing $170.4 million, or 33.3%. Full year 2017 included merger-related expenses of $56.5 million, compared to $37.4 million in 2016. Excluding merger-related expenses, total non-interest expense increased $151.3 million, or 31.9%, with the increase primarily attributable to the expanded operations from acquisitions. The efficiency ratio (non-GAAP) was 54.2%, compared to 55.4% in 2016.
Credit quality results remained at satisfactory levels. For the originated portfolio, the ratio of non-performing loans and OREO to total loans and OREO was 0.81%, compared to 0.91%. Total originated delinquency was 0.88% at December 31, 2017, a decrease of 16 basis points from 1.04% at December 31, 2016.
The provision for loan losses was $61.1 million for the full year of 2017, compared to $55.8 million for the full year of 2016. Net charge-offs totaled $43.8 million, or 0.22% of total average loans, compared to 0.28%. Net originated charge-offs were 0.33% of total average originated loans, compared to 0.34%. For the originated portfolio, the allowance for loan losses to total originated loans was 1.10%, compared to 1.20% at December 31, 2016. The ratio of the allowance for loan losses to total loans decreased 22 basis points to 0.84%, with the decline due to acquired loan balances which were initially recorded at fair value without a corresponding allowance for loan losses in accordance with accounting for business combinations.
Non-GAAP Financial Measures and Key Performance Indicators
We use non-GAAP financial measures, such as operating net income available to common stockholders, operating net income per diluted common share, return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible common equity to tangible assets, efficiency ratio, and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators we use may differ from the non-GAAP financial measures and key performance indicators other financial institutions use to measure their performance and trends.
Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. In the event of disclosure or release of non-GAAP financial measures, the Securities and Exchange Commission's (SEC) Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP (included in the tables at the end of this release).
Management believes merger expenses are not organic costs to run our operations and facilities. These charges principally represent expenses to satisfy contractual obligations of the acquired entity without any useful benefit to us and to convert and consolidate the entity's records, systems and data onto our platforms and professional fees related to the transaction. These costs are specific to each individual transaction and may vary significantly based on the size and complexity of the transaction.
For the calculation of net interest margin and the efficiency ratio, net interest income amounts are reflected on a fully taxable equivalent (FTE) basis which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. We use these measures to provide an economic view believed to be the preferred industry measurement for these items and provide relevant comparison between taxable and non-taxable amounts.
Cautionary Statement Regarding Forward-Looking Information
A number of statements (i) in this earnings release, (ii) in our presentations, and (iii) in our responses to questions on our conference call discussing our quarterly results and transactions, strategies and plans may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our expectations relative to business and financial metrics, post-Yadkin merger integration and conversion activities, our outlook regarding revenues, expenses, earnings, liquidity, asset quality and statements regarding the impact of technology enhancements and customer and business process improvements.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. F.N.B. assumes no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
Such forward-looking statements may be expressed in a variety of ways, including the use of future and present tense language expressing expectations or predictions of future financial or business performance or conditions based on current performance and trends. Forward-looking statements are typically identified by words such as "believe," "plan," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "will," "should," "project," "goal," and other similar words and expressions. These forward-looking statements involve certain risks and uncertainties. In addition to factors previously disclosed in F.N.B.'s reports filed with the SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; potential difficulties encountered in expanding into a new and remote geographic market; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and timing of business and technology initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with the Yadkin merger, acquisitions and divestitures; economic conditions; and the impact, extent and timing of technological changes, capital management activities, and other actions of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Company and legislative and regulatory actions and reforms.
Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties described in F.N.B.'s Annual Report on Form 10-K for the year ended December 31, 2016, our subsequent quarterly 2017 Form 10-Q's (including the risk factors and risk management discussions) and F.N.B.'s other subsequent filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-relations-shareholder-services. We have included our web address as an inactive textual reference only. Information on our website is not part of this earnings release.
Conference Call
FNB's Chairman, President and Chief Executive Officer, Vincent J. Delie, Jr., Chief Financial Officer, Vincent J. Calabrese, Jr., and Chief Credit Officer, Gary L. Guerrieri, will host a conference call to discuss the Company's financial results on Tuesday, January 23, 2018, at 10:30 AM ET.
Participants are encouraged to pre-register for the conference call at http://dpregister.com/10115668. Callers who pre-register will be provided a conference passcode and unique PIN to gain immediate access to the call and bypass the live operator. Participants may pre-register at any time, including up to and after the call start time.
Dial-in Access: The conference call may be accessed by dialing (844) 802-2440 or (412) 317-5133 for international callers. Participants should ask to be joined into the F.N.B. Corporation call.
Webcast Access: The audio-only call and related presentation materials may be accessed via webcast through the "Investor Relations and Shareholder Services" section of the Corporation's website at www.fnbcorporation.com. Access to the live webcast will begin approximately 30 minutes prior to the start of the call.
Presentation Materials: Presentation slides and the earnings release will also be available prior to the start of the call on the "Investor Relations and Shareholder Services" section of the Corporation's website at www.fnbcorporation.com.
A replay of the call will be available shortly after the completion of the call until midnight ET on Tuesday, January 30, 2018. The replay can be accessed by dialing (877) 344-7529 or (412) 317-0088 for international callers; the conference replay access code is 10115668. Following the call, the related presentation materials will be posted to the "Investor Relations and Shareholder Services" section of F.N.B. Corporation's website at www.fnbcorporation.com.
About F.N.B. Corporation F.N.B. Corporation (NYSE:FNB), headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in eight states. FNB holds a significant retail deposit market share in attractive markets including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. The Company has total assets of $31 billion, and more than 400 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina. The Company also operates Regency Finance Company, which has more than 75 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee.
FNB provides a full range of commercial banking, consumer banking and wealth management solutions through its subsidiary network which is led by its largest affiliate, First National Bank of Pennsylvania, founded in 1864. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, international banking, business credit, capital markets and lease financing. The consumer banking segment provides a full line of consumer banking products and services, including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. FNB's wealth management services include asset management, private banking and insurance.
The common stock of F.N.B. Corporation trades on the New York Stock Exchange under the symbol "FNB" and is included in Standard & Poor's MidCap 400 Index with the Global Industry Classification Standard (GICS) Regional Banks Sub-Industry Index. Customers, shareholders and investors can learn more about this regional financial institution by visiting the F.N.B. Corporation website at www.fnbcorporation.com.
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