F.N.B. Corporation Reports First Quarter 2021 Earnings

^{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. For more information regarding our use of non-GAAP measures, please refer to the discussion herein under the caption, Use of Non-GAAP Financial Measures and Key Performance Indicators.}

First Quarter 2021 Results – Comparison to Prior-Year Quarter

Net interest income totaled $222.9 million, decreasing $9.7 million, or 4.2%, primarily caused by the repricing impact on earning asset yields from lower interest rates, partially offset by significant growth in average loans and deposits of $1.9 billion and $4.7 billion, respectively. Total average earning assets increased $3.0 billion, or 10.1%, which included $0.9 billion of round two PPP originations and $0.5 billion in PPP forgiveness processed in the first quarter of 2021, and a $1.4 billion increase in average cash balances largely due to the impact from government stimulus and deposits from PPP fundings.

The net interest margin (FTE) (non-GAAP) declined 39 basis points to 2.75%, as earning asset yields decreased 103 basis points primarily reflecting the impact of significant reductions in the short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets. Partially offsetting the lower earning asset yields, the total cost of funds improved 65 basis points to 0.36%, compared to 1.01%, due to a 78 basis point reduction in interest-bearing deposit costs and lower borrowing costs.

Average loans totaled $25.5 billion, an increase of $1.9 billion, or 8.3%, with commercial loan growth increasing $2.7 billion, or 17.8%, including $1.8 billion, or 33.4%, growth in commercial and industrial loans and $0.8 billion, or 8.6%, growth in commercial real estate balances. Excluding PPP loans, commercial origination activity was led by growth in the Pittsburgh, Mid-Atlantic (Washington D.C., northern Virginia and Maryland markets), Cleveland, and South Carolina regions. Average consumer loans decreased $0.7 billion, or 8.3%, primarily due to the sale of $0.5 billion of indirect auto installment loans in November 2020.

Average deposits totaled $29.4 billion with growth in non-interest-bearing demand deposits of $2.9 billion, or 46.3%, and interest-bearing demand deposits of $2.3 billion, or 21.0%. The growth in deposits was driven by solid organic growth in customer relationships, as well as deposits related to PPP funding and government stimulus activities. The loan-to-deposit ratio was 84.1% at March 31, 2021, compared to 96.5% at March 31, 2020.

Non-interest income totaled $82.8 million, an increase of $14.3 million, or 20.8%, compared to the first quarter of 2020 and reflected record performance for our wealth and insurance businesses. Mortgage banking operations income increased $16.8 million as a result of expanded gain-on-sale margins and strong sold production levels that were up 69% compared to the year-ago quarter. Included in mortgage banking operations income was a $2.5 million recovery for mortgage servicing rights (MSR) valuation, compared to $7.7 million of impairment in the first quarter of 2020. Wealth management revenues increased $2.2 million as securities commissions and fees increased $1.1 million, or 23.8%, due to strong activity levels across the footprint and trust services increased $1.1 million, or 14.1%, as market valuations on assets under management increased significantly. Capital markets decreased $3.4 million, or 30.6%, due to lower customer swap activity compared to the record levels in the beginning of 2020 from heightened volatility in interest rates. Insurance commissions and fees increased $0.6 million, or 9.7%, due to the benefit of our expanded footprint and seasonal increases in revenues.

Non-interest expense totaled $184.9 million, decreasing $10.0 million, or 5.1%. On an operating basis, non-interest expense was flat compared to the first quarter of 2020, excluding $8.3 million of branch consolidation costs and $2.0 million of COVID-19 expenses. On an operating basis, occupancy and equipment increased $2.9 million, or 9.5%, reflecting expansion in key regions such as the Mid-Atlantic and South Carolina and continued digital technology investment. Salaries and employee benefits, on an operating basis, increased $4.6 million, or 4.5%, related primarily to production-related commissions corresponding with record non-interest income levels. Included in salaries and employee benefits in both the first quarter of 2021 and 2020 was $5.6 million related to normal seasonal long-term compensation expense recognition. The efficiency ratio (non-GAAP) equaled 58.7%, compared to 59.0%.

The ratio of non-performing loans, 90 days past due, and other real estate owned (OREO) to total loans and OREO increased 1 basis point to 0.68%. Compared to 1.13% at March 31, 2020, total delinquency decreased 33 basis points to 0.80%, reflecting positive asset quality trends in an improving economic environment. Excluding PPP loans at March 31, 2021, total delinquency decreased 24 basis points to 0.89%.

The provision for credit losses totaled $5.9 million, compared to $47.8 million, with the year-ago quarter level primarily attributable to COVID-19 related impacts on macroeconomic forecasts used in the ACL model. Net charge-offs were $7.1 million, or 0.11% annualized, of total average loans for the first quarter of 2021, compared to 0.10% in the first quarter of 2020. The ratio of the ACL to total loans and leases was 1.42% and 1.44% at March 31, 2021, and March 31, 2020, respectively, decreasing 2 basis points. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loans and leases ratio equaled 1.57% at March 31, 2021.

The CET1 regulatory capital ratio increased to 10.0% (estimated), compared to 9.1% at March 31, 2020. The tangible book value per common share (non-GAAP) surpassed $8.00 to $8.01 at March 31, 2021, an increase of $0.55, or 7.4%, from $7.46 at March 31, 2020. During the first quarter of 2021, the Company repurchased 3.0 million shares of common stock at a weighted average share price of $11.91 for a total of $36.2 million, leaving $75.4 million remaining under the current authorized repurchase program.

First Quarter 2021 Results – Comparison to Prior Quarter

Net interest income totaled $222.9 million, a decrease of $11.5 million, or 4.9%, from the prior quarter total of $234.4 million due primarily to lower investment yields and lower contribution from PPP due to loan forgiveness. We have continued to focus on reducing deposit and borrowing costs in a lower interest rate environment as evidenced by our total cost of interest-bearing liabilities declining by 12 basis points. The resulting net interest margin (FTE) (non-GAAP) decreased 12 basis points to 2.75% due to lower contribution from PPP loans of 7 basis points, decreased benefit from acquired loan discount accretion of 2 basis points and higher average cash balances that reduced the net interest margin 6 basis points.

Total average earning assets increased $241 million, or 0.7%. The total yield on earning assets declined 22 basis points to 3.09%, reflecting lower yields on fixed-rate and variable-rate loan originations and investment securities purchased, including overnight investments, in a lower rate environment and a $0.7 billion increase in average cash balances. The total cost of funds decreased 9 basis points to 0.36% from 0.45%, as costs on interest-bearing deposits improved 12 basis points to 0.31%.

Average loans totaled $25.5 billion with average commercial loans flat compared to the fourth quarter of 2020, and average consumer loans declining $159.9 million, or 2.0%. Average commercial loans included growth of $31.5 million, or 0.3%, in commercial real estate offset by a decrease of $72.8 million, or 1.0%, in commercial and industrial loans primarily due to lower average PPP balances. Commercial origination activity was led by the Mid-Atlantic and South Carolina regions. The primary driver for the decrease in average consumer loans was the residential mortgage decline of $129 million, or 3.7%.

Average deposits totaled $29.4 billion, increasing $414 million, or 1.4%, driven by an increase in non-interest-bearing deposits of $324 million, or 3.6%, and interest-bearing demand deposits of $235 million, or 1.8%. This growth benefited from a third round of government stimulus as well as deposits from PPP round two loan fundings, and was partially offset by a managed decline in time deposits of $321 million, or 8.4%. 

The loan-to-deposit ratio was 84.1% at March 31, 2021, compared to 87.4% at December 31, 2020.

Non-interest income totaled $82.8 million, increasing $14.4 million, or 21.1%. On an operating basis, non-interest income increased $2.1 million, or 2.7%, when excluding significant items of $12.3 million from the fourth quarter of 2020. Wealth management revenues increased $1.9 million, or 14.4%, led by securities commissions and fees with strong contributions across the footprint in the first quarter of 2021. Mortgage banking operations income increased $0.4 million, or 2.7%, with continued strong mortgage production increasing 3% from the prior quarter and above average gain-on-sale margins compared to historical levels. Service charges decreased $2.0 million, or 6.6%, due primarily to lower seasonal activity volumes. Insurance commissions and fees increased $1.8 million, or 32.5%, from our expanded footprint and seasonal increases in revenue.

Non-interest expense totaled $184.9 million, a decrease of $14.5 million, or 7.3%. On an operating basis, non-interest expense slightly increased $0.7 million, or 0.4%, compared to the fourth quarter of 2020, when excluding $10.5 million of branch consolidation costs and $4.7 million of COVID-19 expenses. On an operating basis, salaries and employee benefits increased $2.7 million, or 2.5%, primarily related to $5.6 million of expense in the first quarter of 2021 for normal seasonal long-term compensation recognition. Occupancy and equipment, on an operating basis, increased $2.5 million, or 8.1%, due to investment in digital technology, expansion in key growth markets across the footprint, and seasonal expenses. Offsetting these increases were reductions in marketing of $1.7 million, or 32.8%, due to the timing of certain promotions. Additionally, outside services declined $1.4 million, or 7.7%, on an operating basis. The efficiency ratio (non-GAAP) equaled 58.7%, compared to 56.5%.

The ratio of non-performing loans, 90 days past due, and OREO to total loans and OREO decreased 9 basis points to 0.68%. Total delinquency decreased 22 basis points to 0.80%, compared to 1.02% at December 31, 2020. Excluding PPP, total delinquency decreased 22 basis points to 0.89%, reflecting favorable asset quality trends and improving economic conditions.

The provision for credit losses totaled $5.9 million, compared to $17.6 million. Net charge-offs totaled $7.1 million, or 0.11% annualized of total average loans and leases, compared to $26.4 million, or 0.41% annualized. The ACL on loans and leases totaled $362 million as of March 31, 2021, essentially unchanged from $363 million at December 31, 2020. The ratio of the ACL to total loans and leases was 1.42% and 1.43% at March 31, 2021, and December 31, 2020, respectively. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loans and leases ratio increases 1 basis point to 1.57%, compared to 1.56% at December 31, 2020.

The effective tax rate was 18.9%, compared to 15.9%, due to the lower pre-tax income in the fourth quarter of 2020 and benefits in 2020 from renewable energy investment tax credit activity.

The CET1 regulatory capital ratio increased to 10.0% (estimated) from 9.8% at December 31, 2020. Tangible book value per common share (non-GAAP) was $8.01 at March 31, 2021, an increase of $0.13 from December 31, 2020. During the first quarter of 2021, the Company repurchased 3.0 million shares of common stock at a weighted average share price of $11.91 under the existing share repurchase program, leaving $75.4 million remaining under the current authorized repurchase program.

Use of Non-GAAP Financial Measures and Key Performance Indicators

To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible equity, return on average tangible common equity, operating return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible equity to tangible assets, the ratio of tangible common equity to tangible assets, allowance for credit losses to loans and leases, excluding PPP loans, non-performing loans to loans and leases excluding PPP loans, non-performing loans and 90 days past due and OREO to loans and leases plus OREO excluding PPP loans, net loan charge-offs to average loans and leases excluding PPP loans, past due and non-accrual loans to loans and leases excluding PPP loans, pre-provision net revenue to average tangible common equity, 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 assess their performance and trends.

These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for or superior to, our reported results prepared in accordance with GAAP. When non-GAAP financial measures are disclosed, 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. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this release under the heading “Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to GAAP.”

Management believes charges such as branch consolidation costs and COVID-19 expenses are not organic costs to run our operations and facilities. These charges are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities. The branch consolidation charges principally represent expenses to satisfy contractual obligations of the closed branches without any useful ongoing benefit to us. These costs are specific to each individual transaction and may vary significantly based on the size and complexity of the transaction. Similarly, losses on FHLB debt extinguishment and related hedge terminations are not organic to our operations. The COVID-19 expenses represent special Company initiatives to support our employees and the communities we serve during an unprecedented time of a pandemic.

To provide more meaningful comparisons of net interest margin and efficiency ratio, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets (loans and investments) to make it fully equivalent to interest income earned on taxable investments (this adjustment is not permitted under GAAP). Taxable-equivalent amounts for the 2021 and 2020 periods were calculated using a federal statutory income tax rate of 21%.

Cautionary Statement Regarding Forward-Looking Information

This document may contain statements regarding F.N.B. Corporation’s outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset quality levels, financial position and other matters regarding or affecting our current or future business and operations. These statements can be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve various assumptions, risks and uncertainties which can change over time. Actual results or future events may be different from those anticipated in our forward-looking statements and may not align with historical performance and events. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance upon such statements. 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. We do not assume any duty to update forward-looking statements, except as required by federal securities laws.

F.N.B.’s forward-looking statements are subject to the following principal risks and uncertainties: