F.N.B. Corporation Reports Second Quarter 2016 Earnings

PRESS RELEASE

July 21, 2016 - PITTSBURGH, PA

F.N.B. Corporation (NYSE: FNB) reported earnings for the second quarter of 2016 with net income available to common stockholders for the second quarter of 2016 of $39.3 million, or $0.19 per diluted common share, including $0.03 per share in merger-related costs.  Comparatively, first quarter of 2016 net income available to common stockholders totaled $24.1 million, or $0.12 per share, including $0.09 per share in merger-related costs, and second quarter of 2015 net income available to common stockholders totaled $38.1 million, or $0.22 per share.  Operating results are presented in the tables below.

Vincent J. Delie, Jr., President and Chief Executive Officer, commented, “FNB  delivered another strong performance, achieving record revenue and operating net income, as well as an improved efficiency ratio.  Additionally, the second quarter revenue growth was led by a 29% increase in non-interest income compared to the year-ago quarter, directly attributable to our acquisition strategy and the strategic investments in our high-value fee-based businesses.”

Quarterly Results Summary	2Q16	1Q16	2Q15
Reported Results
Net income available to common stockholders ($ in millions)	$39.3	$24.1	$38.1
Net income per diluted common share	$0.19	$0.12	$0.22
Operating Results (Non-GAAP *)
Operating net income available to common stockholders ($ in millions)	$46.1	$40.7	$38.4
Operating net income per diluted common share	$0.22	$0.21	$0.22
Average Diluted Shares Outstanding (in 000’s)	211,675	194,878	176,362

Operating net income is a non-GAAP measure used by management to measure performance of the operation of the business, and management believes that the use of this non-GAAP measure enhances investors’ ability to better understand the underlying business performance and trends produced related to core business activities. See Reconciliation of Operating Net Income in the Data Sheets that follow.

Second Quarter 2016 Highlights

(All comparisons refer to the first quarter of 2016, except as noted; Organic growth in loans and deposits refers to growth excluding the benefit of initial balances acquired via an acquisition.)

Results include the impact from the acquisition of Fifth Third Bank Branches (5/3) on April 22, 2016 and Metro Bancorp, Inc. (METR) on February 13, 2016.

• Organic growth in total average loans was $150 million, or 4.3% annualized, with average commercial loan growth of $6 million, or 0.3% annualized, and average consumer loan growth of $133 million, or 9.7% annualized.
• On an organic basis, average total deposits and customer repurchase agreements grew $149 million, or 3.8% annualized, primarily due to growth in average transaction deposits and customer repurchase agreements.
• The net interest margin* increased one basis point to 3.41%, compared to 3.40% in the prior quarter.
• The efficiency ratio* was 55.4%, compared to 56.4% in the prior quarter and 56.0% in the year-ago quarter.
• Credit quality results reflect generally consistent non-performing loan levels and slightly increased total delinquency levels.  Non-performing loans and other real estate owned (OREO) to total originated loans and OREO was 1.15%, compared to 1.18% in the prior quarter, and total originated delinquency increased slightly to 1.02% at June 30, 2016.  Net originated charge-offs were 0.35% annualized of total average originated loans, compared to 0.21% annualized in the first quarter of 2016 and 0.23% annualized in the year-ago quarter.
• The tangible common equity to tangible assets ratio* was 6.68% at June 30, 2016, compared to 6.93% at March 31, 2016, reflecting the strong loan growth and the addition of Fifth Third balances.  The tangible book value per common share* increased $0.04 to $6.40 at June 30, 2016.       

Second Quarter 2016 Results – Comparison to Prior Quarter

(All comparisons refer to the first quarter of 2016, except as noted; Organic growth in loans and deposits refers to growth excluding the benefit of initial balances acquired via acquisitions.)

Results include the impact from the acquisition of Fifth Third Bank branches (5/3) on April 22, 2016 and Metro Bancorp, Inc. (METR) on February 13, 2016.

Net Interest Income/Loans/Deposits

Net interest income on a fully taxable equivalent (FTE) basis* totaled $157.2 million, increasing $14.3 million or 10.0%. The reported net interest margin increased slightly to 3.41%, compared to 3.40%, as the second quarter had $2.3 million of greater accretable yield benefit.  The core net interest margin* narrowed 3 basis points to 3.35%, reflecting the continued low interest rate environment.  Average earning assets grew $1.6 billion, or 9.5%, due to a full quarter of earning assets from the METR and 5/3 branch acquisitions and continued organic loan growth.  

Average loans totaled $14.3 billion and increased $1.1 billion, or 8.3%, reflecting the acquired METR and 5/3 average loan balances and organic average loan growth of $150 million, or 4.3% annualized (including the impact of exiting $60 million in adversely classified acquired commercial loan pools through sales in March and June).  Average organic consumer loan growth was $133 million, or 9.7% annualized. 

Total average deposits and customer repurchase agreements totaled $16.0 billion and increased $1.5 billion, or 10.2%, including the acquired METR and 5/3 balances and average organic growth of $149 million or 3.8% annualized.  Organic growth in low-cost transaction deposit accounts and customer repurchase agreements was $140 million, or 4.3% annualized.

Non-Interest Income

Non-interest income totaled $51.4 million, increasing $5.4 million, or 11.7%.  The increase in non-interest income was due to the benefit of a full quarter of METR operations, increased capital markets revenue driven by higher commercial volume, and favorable mortgage and consumer banking performance.  Capital markets, mortgage banking, insurance and wealth management organic growth results reflect the benefits from investments made to increase the scale of each business and incremental lift from the newer markets of Cleveland and Baltimore.   Non-interest income equaled 25% of total revenue.  

Non-Interest Expense

Non-interest expense totaled $129.6 million, decreasing $7.0 million, or 5.1%, and included merger and severance costs of $10.6 million, compared to $24.9 million of merger and severance costs and a $2.6 million impairment charge on acquired other assets in the prior quarter.  Absent these merger and acquisition-related costs, non-interest expense would have increased $10.0 million, or 9.1%, primarily attributable to the additional operating costs for a full quarter of METR and 5/3 branches converted early during the second quarter.  The efficiency ratio* improved to 55.4%, compared to 56.4%.

Credit Quality

Credit quality results continued to reflect satisfactory performance and slightly increased non-performing loan levels and total delinquency levels.  The ratio of non-performing loans and OREO to total loans and OREO was flat at 0.95%, and for the originated portfolio, the ratio of non-performing loans and OREO to total loans and OREO decreased 3 basis points to 1.15%.  Total originated delinquency, defined as total past due and non-accrual originated loans as a percentage of total originated loans increased 9 basis points to 1.02%, compared to 0.93% at March 31, 2016.  The increase in originated delinquency primarily relates to loans 30 days past due.

Net charge-offs totaled $10.1 million, or 0.28% annualized of total average loans, compared to $6.0 million, or 0.18% annualized.  For the originated portfolio, net charge-offs were $9.9 million, or 0.35% annualized of total average originated loans, compared to $5.9 million or 0.21% annualized.  The increase in net charge-offs during the quarter was caused by $4.0 million of net charge-offs from a single commercial relationship involving a borrower alleged to have falsified documents and financial information over an extended period of time.  The ratio of the allowance for loan losses to total originated loans was stable at 1.26% at June 30, 2016.  The provision for loan losses totaled $16.6 million, compared to $11.8 million in the prior quarter, with the increase driven by the above-mentioned charge-off.

June 2016 Year-To-Date Results – Comparison to Prior Year-To-Date Period

(All comparisons refer to the first six months of 2015, except as noted; Organic growth in loans and deposits refers to growth excluding the benefit of initial balances acquired via acquisitions.)

Results include the impact from the acquisition of Fifth Third Bank branches (5/3) on April 22, 2016, Metro Bancorp, Inc. (METR) on February 13, 2016, and the acquisition of five Bank of America branches (BofA) on September 19, 2015.

Net Interest Income/Loans/Deposits

Net interest income on a FTE basis* totaled $300.0 million, increasing $50.7 million, or 20.3%, reflecting average earning asset growth of $3.2 billion, or 22.0%.  The reported net interest margin was 3.41%, compared to 3.46%.  The core net interest margin*  narrowed 4 basis points to 3.39%, due to the extended low interest rate environment and competitive landscape for earning assets.

Average loans totaled $13.8 billion and increased $2.4 billion, or 20.9%, including the impact of acquired METR, 5/3 and BofA balances.  Organic growth in total average loans equaled $926 million, or 8.1%.  Organic growth in average commercial loans totaled $554 million, or 8.7%, and organic growth in average consumer loans was $368 million or 7.4%.  Total organic commercial loan growth was led by the increased production levels from the metropolitan markets of Pittsburgh, Baltimore and Cleveland.  Total average consumer loan growth was led by foot-print wide growth in the residential and indirect portfolios. 

Average deposits and customer repurchase agreements totaled $15.2 billion and increased $2.8 billion, or 22.1%, due to acquired METR, 5/3 and BofA balances and average organic growth of $725 million or 5.8%.  On an organic basis, average total transaction deposits and customer repurchase agreements increased $834 million or 8.4%.  Total loans as a percentage of deposits and customer repurchase agreements was 92.1% at June 30, 2016.

Non-Interest Income

Non-interest income totaled $97.5 million, increasing $19.5 million or 25.0%.  Non-interest income reflects the benefit of the METR, 5/3 and BofA acquisitions and strong organic growth from capital markets, mortgage banking, wealth management and positive consumer banking revenue trends. 

Non-Interest Expense

Non-interest expense totaled $266.3 million, increasing $75.1 million, or 39.3%.  The first six months of 2016 included merger costs of $35.5 million and a $2.6 million impairment charge on acquired other assets.  Absent these items and merger costs of $0.4 million in the first six months of 2015, total non-interest expense increased $37.4 million, or 19.6%, compared to the first six months of 2015, with the increase primarily attributable to the expanded operations of METR, 5/3 and BofA.  The efficiency ratio* was 55.9%, improved slightly from 56.3% in the first six months of 2015.

Credit Quality

Credit quality results continued to reflect satisfactory performance with slightly increased non-performing loan and total delinquency levels.  For the originated portfolio, non-performing loans and OREO to total loans and OREO was 1.15%, compared to 1.05%, and total originated delinquency increased sixteen basis points to 1.02% at June 30, 2016.  The increase in originated non-performing levels was due to normal migration at this stage of the economic cycle.

Net charge-offs for the first six months totaled $16.1 million, or 0.23% annualized of total average loans, compared to 0.21% annualized in the prior-year period.  Net originated charge-offs were 0.28% annualized of total average originated loans, compared to 0.23% annualized.  For the originated portfolio, the allowance for loan losses to total originated loans was 1.26%, compared to 1.21% at June 30, 2015, reflecting additional reserves related to the normal credit migration in this stage of the economic cycle.  The ratio of the allowance for loan losses to total loans decreased 7 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 provision for loan losses was $28.4 million, compared to $17.0 million in the prior-year period.  The increase is attributable to strong originated loan growth and limited credit migration along with the above-mentioned charge-off. 

Capital Position

The tangible common equity to tangible assets ratio* was 6.68%, compared to 6.93% at March 31, 2016. The book value per common share increased to $11.61, from $11.50 at March 31, 2016.  The tangible book value per common share* increased to $6.40, from $6.36 at March 31, 2016.  The common dividend payout ratio for the second quarter of 2016 was 64.7%.

* Non-GAAP Financial Measures

F.N.B. Corporation uses non-GAAP financial measures, such as operating net income available to common stockholders, operating net income per diluted common share, net interest income on a FTE basis, core net interest margin, efficiency ratio, tangible book value per common share and the ratio of tangible common equity to tangible assets, to provide information useful to investors in understanding F.N.B. Corporation’s operating performance and trends, and to facilitate comparisons with the performance of F.N.B. Corporation’s peers.  The non-GAAP financial measures used by F.N.B. Corporation may differ from the non-GAAP financial measures other financial institutions use to measure their results of operations.

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, F.N.B. Corporation’s reported results prepared in accordance with U.S. GAAP.  Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable U.S. GAAP financial measures are included in the tables at the end of this release under the caption “Non-GAAP Financial Measures.”

Operating net income is a non-GAAP measure used by management to measure performance in operating the business that management believes provides investors with the ability to better understand recurring business performance and the underlying trends produced by core business activities.

We believe merger expenses are not organic costs to run our operations and facilities. These charges represent expenses to either satisfy contractual obligations of acquired entities without any useful benefit to F.N.B Corporation or to convert and consolidate customer records onto the F.N.B. platforms. These costs are unique to each transaction based on the contracts in existence at the merger date.

Interest income amounts are reflected on an 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.  The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

Conference Call

F.N.B. Corporation will host a conference call to discuss financial results for the second quarter of 2016 on Thursday, July 21, 2016, at 2:00 p.m. Eastern Time. Participating callers may access the call 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. The Webcast and presentation materials may be accessed through the “About Us - Investor Relations & Shareholder Services” section of the Corporation’s Web site at www.fnbcorporation.com.

A replay of the call will be available shortly after the completion of the call on the day of the call until midnight ET on Thursday, July 28, 2016. The replay can be accessed by dialing (877) 344-7529 or (412) 317-0088 for international callers; the conference replay access code is 10088077. Following the call, a transcript of the call and the related presentation materials will be posted to the “Shareholder and Investor Relations” section of F.N.B. Corporation’s web site 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 six states and three major metropolitan areas. It holds a top retail deposit market share in Pittsburgh, PA, Baltimore, MD, and Cleveland, OH. The Company has total assets of $21.2 billion and more than 300 banking offices throughout Pennsylvania, Maryland, Ohio and West Virginia. F.N.B. 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. F.N.B.’s wealth management services include asset management, private banking and insurance. The Company also operates Regency Finance Company, which has more than 70 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 web site at www.fnbcorporation.com.

Cautionary Statement Regarding Forward-looking Information

We make statements in this press release and the related conference call, and may from time to time make other statements, regarding our outlook for earnings, revenues, expenses, capital levels, liquidity levels, asset levels, asset quality and other matters regarding or affecting F.N.B. Corporation and its future business and operations that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act.  Forward-looking statements are typically identified by words such as “believe,” “plan,” “expect,” “anticipate,” “see,” “look,” “intend,” “outlook,” “project,” “forecast,” “estimate,” “goal,” “will,” “should” and other similar words and expressions.  Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. 

Forward-looking statements speak only as of the date made.  We do not assume any duty and do not undertake to update forward-looking statements.  Actual results or future events could differ, possibly materially, from those anticipated in forward-looking statements, as well as from historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties:

Our businesses, financial results and balance sheet values are affected by business and economic conditions, including the following:

• Changes in interest rates and valuations in debt, equity and other financial markets.
• Disruptions in the liquidity and other functioning of U.S. and global financial markets.
• The impact of federal regulatory agencies that have oversight or review of F.N.B. Corporation’s business and securities activities, including the bank regulatory examination and supervisory process.
• Actions by the Federal Reserve, U.S. Treasury and other government agencies, including those that impact money supply and market interest rates.
• Slowing or reversal of the rate of growth in the economy and employment levels and other economic factors that affect our liquidity and the performance of our loan portfolio, particularly in the markets in which we operate.
• Changes in customer preferences and behavior, whether due to changing business and economic conditions, legislative and regulatory initiatives, or other factors. 

Legal and regulatory developments could affect our ability to operate our businesses, financial condition, results of operations, competitive position, reputation, or pursuit of attractive acquisition opportunities.  Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and ability to attract and retain employees.  These developments could include:

• Changes resulting from legislative and regulatory reforms, including broad-based restructuring of financial industry regulation; changes to laws and regulations involving tax, pension, bankruptcy, consumer protection, and other industry aspects; and changes in accounting policies and principles.  We will continue to be impacted by extensive reforms provided for in the Dodd-Frank Wall Street Reform and Consumer Protection Act and otherwise growing out of the recent financial crisis, the precise nature, extent and timing of which, and their impact on us, remains uncertain. 
• Results of the regulatory examination and supervisory process.
• Changes to regulations governing bank capital and liquidity standards, including due to the Dodd-Frank Act, Volcker rule, Dodd-Frank stress testing rules (DFAST) and Basel III initiatives. 
• Impact on business and operating results of any costs associated with obtaining rights in intellectual property, the adequacy of our intellectual property protection in general and our operational or security systems or infrastructure, or those of third-party vendors or other service providers, and rapid technological developments and changes.

-        Business and operating results are affected by judgments and assumptions in our analytical and forecasting models, our reliance on the advice of experienced outside advisors and our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of third-party insurance, derivatives, swaps, and capital management techniques, and to meet evolving regulatory capital standards.

-        As demonstrated by our acquisitions, we grow our business in part by acquiring, from time to time, other financial services companies, financial services assets and related deposits.  These acquisitions often present risks and uncertainties, including, the possibility that the transaction cannot be consummated; regulatory issues; cost or difficulties involved in integration and conversion of the acquired businesses after closing; inability to realize expected cost savings, efficiencies and strategic advantages; the extent of credit losses in acquired loan portfolios; the extent of deposit attrition; and the potential dilutive effect to our current shareholders.

-        Competition can have an impact on customer acquisition, growth and retention and on credit spreads and product pricing, which can affect market share, deposits and revenues.  Industry restructuring in the current environment could also impact our business and financial performance through changes in counterparty creditworthiness and performance, and the competitive and regulatory landscape.  Our ability to anticipate and respond to technological changes can also impact our ability to respond to customer needs and meet competitive demands.

-        Challenges encountered in extending into new geographic markets, including management and oversight of remote locations, understanding the economic and business dynamics of new markets, customer acceptance of a new market entrant and other competitive concerns.

-        Business and operating results can also be affected by widespread disasters, dislocations, terrorist activities, cyber-attacks or international hostilities through their impacts on the economy and financial markets.

We provide greater detail regarding these and other factors in our 2015 Form 10-K, including the Risk Factors section of that report, and our subsequent SEC filings.  Our forward-looking statements may also be subject to other risks and uncertainties, including those we may discuss elsewhere in this news release or in SEC filings, accessible on the SEC’s website at www.sec.gov and on our corporate website at www.fnbcorporation.com.  We have included these web addresses as inactive textual references only.  Information on these websites is not part of this document.

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DATA SHEETS IN PDF