F.N.B. Corporation (NYSE: FNB) reported earnings for the fourth quarter of 2016 with net income available to common stockholders of $49.3 million, or $0.23 per diluted common share, including $0.01 per share in merger expense. Comparatively, third quarter of 2016 net income available to common stockholders totaled $50.2 million, or $0.24 per diluted common share, and fourth quarter of 2015 net income available to common stockholders totaled $37.1 million, or $0.21 per diluted common share. Net income available to common stockholders for the full year of 2016 totaled $162.9 million, or $0.78 per diluted common share, including $0.12 per share in merger expense, compared to net income available to common stockholders of $151.6 million, or $0.86 per diluted common share in 2015, including $0.01 per share in merger expense. Quarterly and full-year operating results are presented in the tables below.
Vincent J. Delie, Jr., President and Chief Executive Officer, commented, “We are pleased with the quarter’s results and another outstanding year at FNB. Fourth quarter operating net income per diluted common share was $0.24 per share and increased 10% from the year-ago quarter. Full-year operating net income per diluted common share increased to $0.90 and we successfully integrated Metro Bancorp, Inc. and 17 Fifth Third branches during 2016. Our financial performance was highlighted by high-single digit organic loan and deposit growth, solid asset quality and continued growth in our fee-based businesses. These ongoing trends led to an outstanding year, as the full-year efficiency ratio improved 76 basis points to 55.4% compared to 2015.”
Quarterly Results Summary
4Q16
3Q16
4Q15
Reported Results
Net income available to common stockholders ($ in millions)
$49.3
$50.2
$37.1
Net income per diluted common share
$0.23
$0.24
$0.21
Common equity to total assets (period-end)
11.28%
11.41%
11.33%
Book value per common share (period-end)
$11.68
$11.72
$11.34
Operating Results (Non-GAAP)
Operating net income available to common stockholders ($ in millions)
$50.6
$50.4
$38.1
Operating net income per diluted common share
$0.24
$0.24
$0.22
Tangible common equity to tangible assets (period-end)
6.64%
6.69%
6.71%
Tangible book value per common share (period-end)
$6.53
$6.53
$6.38
Average Diluted Shares Outstanding (in 000’s)
212,748
211,791
176,907
Full Year Results Summary
2016
2015
Reported Results
Net income available to common stockholders ($ in millions)
$162.9
$151.6
Net income per diluted common share
$0.78
$0.86
Operating Results (Non-GAAP)
Operating net income available to common stockholders ($ in millions)
$187.7
$153.7
Operating net income per diluted common share
$0.90
$0.87
Average Diluted Shares Outstanding (in 000’s)
207,769
176,339
Operating net income is a non-GAAP measure 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. See the Data Sheets included with the release for “Non-GAAP Financial Measures and Key Performance Indicators” and additional information.
Fourth Quarter 2016 Highlights (All comparisons refer to the third quarter of 2016, except as noted; Organic growth in loans and deposits refers to growth excluding the benefit of initial balances from acquisitions.)
Organic growth in total average loans was $179 million, or 4.9% annualized, with average consumer loan growth of $154 million, or 10.3% annualized (including residential mortgage, direct and indirect installment and home-equity related products), and average commercial loan growth of $26 million, or 1.2% annualized
On an organic basis, average total deposits increased $296 million, or 7.5% annualized, with organic growth in average non-interest bearing deposits of $103 million, or 10.1% annualized.
The reported net interest margin (FTE) (non-GAAP) narrowed 1 basis point to 3.35%, compared to 3.36% in the prior quarter. The core net interest margin (FTE) (non-GAAP) was stable at 3.32% due to $1.5 million of accretable yield benefit, compared to 3.32% and $1.9 million of benefit in the prior quarter.
The efficiency ratio on an operating basis (non-GAAP) was 55.4%, compared to 54.4% in the prior quarter and 56.3% in the year-ago quarter.
Credit quality results reflect improved non-performing asset levels and slightly increased total delinquency levels. Net originated charge-offs were 0.38% annualized of total average originated loans, compared to 0.41% annualized in the third quarter of 2016 and 0.25% annualized in the year-ago quarter.
The tangible common equity to tangible assets ratio (non-GAAP) was 6.64% at December 31, 2016, compared to 6.69% at September 30, 2016. The tangible book value per common share (non-GAAP) was $6.53 at December 31, 2016, which was the same at September 30, 2016.
Fourth Quarter 2016 Results – Comparison to Prior Quarter (All comparisons refer to the third quarter of 2016, except as noted; Organic growth in loans and deposits refers to growth excluding the benefit of initial balances from acquisitions.)
Net Interest Income/Loans/Deposits
Net interest income totaled $159.3 million, increasing $1.8 million or 1.1%. The reported net interest margin (FTE) (non-GAAP) narrowed one basis point to 3.35%, compared to 3.36%. The core net interest margin (FTE) (non-GAAP) remained stable at 3.32%, as asset yields and cost of funds remained at the same levels as the prior quarter. Total average earning assets increased $254 million or 1.3%, due to continued loan growth of $179 million and $123 million of growth in the securities portfolio.
Average loans totaled $14.8 billion and increased $179 million, or 4.9% annualized, due to growth in the consumer and commercial portfolios. Average consumer loan growth was $154 million, or 10.3% annualized, led by strong demand and increased origination volume in residential mortgage and indirect auto loans. Average commercial loan growth totaled $26 million or 1.2% annualized, as growth in originated commercial loans was offset by pre-payment activity in the acquired portfolio.
Average deposits totaled $16.0 billion and increased $296 million, or 7.5% annualized. The deposit growth was led by growth in total interest checking and money market accounts and growth in low-cost non-interest bearing deposit accounts of $103 million, or 10.1% annualized, due to seasonally higher balances.
Non-Interest Income
Non-interest income totaled $51.1 million, decreasing $2.2 million, or 4.1%. The decrease in non-interest income was due mainly to lower bank-owned life insurance income of $1.1 million and $0.4 million lower insurance commissions as the third quarter had higher seasonal revenues related to the timing of renewals. This was partially offset by solid performance in mortgage banking and capital markets (defined as swap income, international banking income and syndications income). The increase in mortgage banking income was attributable to the increased production volume. Capital Markets’ solid performance was due to deepening relationships with commercial customers across the entire footprint. Non-interest income equaled 24% of total revenue.
Non-Interest Expense
Non-interest expense totaled $123.8 million, increasing $2.8 million, or 2.3%, and included a $1.4 million increase in merger expense compared to $0.3 million in the prior quarter, and a $1.2 million increase in other real estate owned expense due to higher write-downs. Excluding merger expenses, adjusted non-interest expense would have increased $1.4 million, or 1.2%. The $3.0 million increase in other expense was attributable to seasonally higher marketing costs and higher outside service expense, which was partially offset by a $2.0 million decrease in amortization of intangibles. The efficiency ratio (non-GAAP) was 55.4%, compared to 54.4% in the prior quarter.
Credit Quality
Credit quality results remain satisfactory with improved non-performing asset levels. The ratio of non-performing loans and OREO to total loans and OREO improved 13 basis points to 0.79% and, for the originated portfolio, the ratio of non-performing loans and OREO to total loans and OREO improved 17 basis points to 0.91%. Total delinquency levels increased slightly, and total originated delinquency, defined as total past due and non-accrual originated loans as a percentage of total originated loans, increased 4 basis points to 1.04%, compared to 1.00% at September 30, 2016.
Net charge-offs totaled $11.5 million, or 0.31% annualized of total average loans compared to $12.1 million, or 0.33% annualized. For the originated portfolio, net charge-offs were $11.8 million, or 0.38% annualized of total average originated loans, compared to $12.3 million or 0.41% annualized. The ratio of the allowance for loan losses to total originated loans decreased 3 basis points from September 30, 2016 to 1.20% at December 31, 2016, reflecting utilization of previously-established reserves. The total provision for loan losses totaled $12.7 million, compared to $14.6 million in the prior quarter.
Full Year 2016 Results – Comparison to Prior Year (All comparisons refer to the full year of 2015, except as noted; Organic growth in loans and deposits refers to growth excluding the benefit of initial balances from acquisitions.)
Results include the impact from the acquisition of 17 Fifth Third Bank branches (Fifth Third) on April 22, 2016, Metro Bancorp, Inc. (METR) on February 13, 2016, and five Bank of America branches (BofA) on September 19, 2015.
Net Interest Income/Loans/Deposits
Net interest income totaled $611.5 million, increasing $113.3 million, or 22.7%, reflecting average earning asset growth of $3.6 billion, or 24.6%. The net interest margin (FTE) (non-GAAP) was 3.38%, compared to 3.42%. The core net interest margin (FTE) (non-GAAP) narrowed 5 basis points to 3.34%, reflecting $1.7 million of greater accretable yield benefit. The core net interest margin (FTE) (non-GAAP) narrowing reflects the lower interest rate environment for the full year of 2016 and competitive landscape for earning assets.
Average loans totaled $14.3 billion, an increase of $2.6 billion, or 22.4%, due to the benefit from continued organic loan growth and the previously mentioned acquired balances. Organic growth in total average loans equaled $929 million, or 8.0%. Organic growth in average commercial loans totaled $485 million, or 7.4%, and organic growth in average consumer loans was $437 million, or 8.6%. Total organic commercial loan growth was led by the Pittsburgh, Baltimore and Cleveland markets. The increased number of opportunities concentrated in Baltimore and Cleveland led to market share gains within these regions. Total average consumer loan growth was led by strong growth in residential mortgage and indirect auto loans, as well as solid growth in home-equity related loans. Average deposits totaled $15.4 billion and increased $3.2 billion, or 26.5%, due to average organic growth of $887 million or 7.2%, and the benefit from acquired balances. On an organic basis, average total transaction deposits increased $1.0 billion or 10.5%. Total loans as a percentage of deposits was 92.7% at December 31, 2016.
Non-Interest Income
Non-interest income totaled $201.8 million, increasing $39.4 million or 24.2%. Non-interest income reflects the benefit of the previously mentioned acquisitions and continued organic growth from capital markets, mortgage banking and insurance.
Non-Interest Expense
Non-interest expense totaled $511.1 million, increasing $120.6 million, or 30.9%. Full year 2016 included merger expenses of $37.4 million and a $2.6 million impairment charge on acquired other assets. Absent these items and merger expenses of $3.0 million in 2015, total adjusted non-interest expense increased $83.6 million, or 21.6%, compared to 2015, with the increase primarily attributable to the expanded operations from the previously mentioned acquisitions. The efficiency ratio (non-GAAP) was 55.4%, improved from 56.1% in 2015.
Credit Quality
Credit quality results continued to reflect solid performance with improvement in total non-performing loan trends. For the originated portfolio, non-performing loans and OREO to total loans and OREO was 0.91%, compared to 0.99%. Total originated delinquency increased 11 basis points to 1.04% at December 31, 2016.
Net charge-offs for the full year of 2016 totaled $39.7 million, or 0.28% of total average loans, compared to 0.21% in the prior year. Net originated charge-offs were 0.34% of total average originated loans, compared to 0.24%. For the originated portfolio, the allowance for loan losses to total originated loans was 1.20%, compared to 1.23% at December 31, 2015. The ratio of the allowance for loan losses to total loans decreased 10 basis points to 1.06%, with the movement due to additional loan balances from acquisitions without a corresponding allowance for loan losses in accordance with accounting for business combinations. The total provision for loan losses was $55.8 million, compared to $40.4 million in the prior year, reflecting the increase in net charge-offs and strong originated loan growth.
Capital Position
The tangible common equity to tangible assets ratio (non-GAAP) was 6.64%, compared to 6.69% at September 30, 2016. Book value per common share decreased to $11.68, from $11.72 at September 30, 2016. Tangible book value per common share (non-GAAP) was $6.53, the same as September 30, 2016, and increased $0.15 from $6.38 at December 31, 2015. The common dividend payout ratio for the full year of 2016 was 62.4%.
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, net interest margin and core net interest margin to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. The Data Sheets appended to this release contain the Non-GAAP measures under the sub-heading, “Non-GAAP Financial Measures and Key Performance Indicators.” 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. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in the tables at the end of this release under the caption "Non-GAAP Financial Measures and Key Performance Indicators."
Operating net income available to common stockholders is a non-GAAP measure 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. See the Data Sheets that follow for additional information.
We believe merger expenses are not organic costs to run our operations and facilities. These charges represent expenses to satisfy contractual obligations of acquired entities without any useful benefit to us and to convert and consolidate the entity’s records onto our platforms. 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 35.0% for each period presented. We use these measures to provide an economic view believed to be the preferred industry measurement for these items and provides relevant comparison between taxable and non-taxable amounts.
Conference Call
The Company’s 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 Thursday, January 19, 2017, at 10:30 AM ET.
Participants are encouraged to pre-register for the conference call at http://dpregister.com/10098259. 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 “Shareholder and Investor Relations” 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 on the Corporation’s website on the “About Us” section of our corporate website at www.fnbcorporation.com.
A replay of the call will be available shortly after the completion of the call until midnight ET on Thursday, January 26, 2017. The replay can be accessed by dialing (877) 344-7529 or (412) 317-0088 for international callers; the conference replay access code is 10098259. Following the call, a transcript and the related presentation materials will be posted to the “Shareholder and Investor Relations” 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. On a combined, pro forma basis, giving effect to the proposed acquisition of Yadkin Financial Corporation (Yadkin), FNB will operate in eight states and seven major metropolitan areas. FNB holds a significant retail deposit market share in Pittsburgh, Pennsylvania; Baltimore, Maryland; and Cleveland, Ohio; and, assuming the Yadkin acquisition is completed, will add Charlotte, Raleigh-Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. If the proposed Yadkin acquisition is completed (the proposed Transaction), the Company will have total pro forma assets of nearly $30 billion, and more than 400 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina.
Completion of the proposed Transaction is subject to regulatory approval and satisfaction of customary closing conditions. 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 Company also operates Regency Finance Company, which has more than 75 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee. 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.
Additional Information About the Proposed Transaction and Where to Find It
Communications in this document do not constitute an offer to sell or the solicitation of an offer to buy any securities. In connection with the proposed Transaction with Yadkin Financial Corporation, F.N.B. Corporation has filed with the SEC a Registration Statement on Form S-4 (File No. 333-213776) and other relevant documents concerning the proposed Transaction.
SHAREHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS CONTAINED THEREIN REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
The Registration Statement and other relevant materials, and any other documents F.N.B. and Yadkin have filed with the SEC, may be obtained free of charge at the SEC’s internet site, http://www.sec.gov. Copies of the documents F.N.B. has filed with the SEC may be obtained, free of charge, by contacting James G. Orie, Chief Legal Officer, F.N.B. Corporation, One F.N.B. Boulevard, Hermitage, PA 16148, telephone: (724) 983-3317; and copies of the documents Yadkin has filed with the SEC may be obtained free of charge at Yadkin’s website at www.yadkinbank.com.
Cautionary Statement Regarding Forward-Looking Information
This document contains forward-looking statements which may contain FNB’s expectations or predictions of future financial or business performance or conditions, or otherwise anticipate the closing date of the proposed Transaction. This document/communication/information may also contain certain forward-looking statements, including certain plans, goals, projections and statements about the proposed Transaction, plans relative to the proposed Transaction, objectives, expectations and intentions regarding the proposed Transaction, the expected timing of the completion of the proposed Transaction, and other statements that are not historical facts. Forward-looking statements, that do not describe historical or current facts, typically are 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 are subject to numerous assumptions, risks and uncertainties. The forward-looking statements are intended to be subject to the safe harbor provided under Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Act of 1995.
In addition to factors previously disclosed in FNB’s reports filed with the Securities and Exchange Commission (SEC), the following risk factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: potential risks and challenges attendant to the successful conversions of core data systems; difficulties and delays in successfully integrating the FNB and Yadkin businesses or fully realizing cost savings and other benefits; business disruption following the completion of the transaction; changes in asset quality and credit risk; changes in general economic, political or industry conditions; uncertainty in U.S. fiscal policy and monetary policy, including interest rate policies of the Federal Reserve Board (FRB); the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of FNB products and services; potential difficulties encountered by FNB 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 initiatives; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; the impact, extent and timing of technological changes, capital management activities, competitive pressures on product pricing and services; ability to keep pace with technological changes, including changes regarding maintaining cybersecurity; success, impact and timing of FNB’s business strategies, including market acceptance of any new products or services; and implementation of FNB’s banking culture, philosophy and strategies.
Additional risks include the nature, extent, timing and results of governmental and regulatory actions, examinations, reviews, reforms, regulations and interpretations, including those related to the Dodd-Frank Wall Street Reform Act and Consumer Protection Act and Basel III regulatory or capital reforms (including DFAST stress-testing protocols), as well as those involving the Office of the Comptroller of the Currency (OCC), FRB, Federal Deposit Insurance Corporation (FDIC), and Consumer Financial Protection Board (CFPB); the possibility that the proposed Transaction does not close when expected or at all because required regulatory or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; the possibility that the anticipated benefits of the proposed Transaction are not realized when expected or at all, or the transaction is delayed or does not close due to unanticipated circumstances, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the economic conditions and competitive factors in the areas where FNB does business; the possibility that the proposed Transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed Transaction; and other factors that may affect future results of FNB. There is no assurance that any of the risks, uncertainties or risk factors identified herein is complete and actual results or events may differ materially from those expressed or implied in the forward-looking statements contained in this document.
Additional factors that could cause results to differ materially from those described above can be found in FNB’s Annual Report on Form 10-K for the year ended December 31, 2015, and in its subsequent Quarterly Reports on Form 10-Q, including for the quarters ended March 31, June 30 and September 30, 2016, each of which is on file with the SEC and available in the “Investor Relations & Shareholder Services” section of FNB’s website, www.fnbcorporation.com, under the heading “Reports and Filings” and in other documents FNB files with the SEC.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. FNB 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.
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