Total average deposits totaled $15.7 billion and increased $16 million, or 0.4% annualized. Organic growth in low-cost non-interest bearing deposit accounts was $69 million, or 6.9% annualized, which was due mainly to seasonally higher business DDA balances. On an organic basis, growth in average non-interest bearing deposits was offset by an expected decline in time deposits of $97 million, or 14.4% annualized.
Non-interest income totaled $53.2 million, increasing $1.8 million, or 3.6%. The increase in non-interest income was supported by strong performance in our fee-based businesses, notably mortgage banking, capital markets (defined as swap income, international banking and syndications) and insurance. Commercial loan interest rate swaps had increased demand across the footprint resulting in increased fee income. Mortgage banking income increased $0.8 million to $3.6 million, reflecting higher overall production levels. Insurance revenues increased $0.8 million to $4.9 million, reflecting new client acquisition and seasonally higher commissions. Non-interest income equaled 25% of total revenue.
Non-interest expense totaled $121.1 million, decreasing $8.6 million, or 6.6%, and included a $10.3 million decrease in merger expense to $0.3 million, compared to $10.6 million in the prior quarter. Absent these merger expenses, non-interest expense would have increased $1.7 million, or 1.4%. The efficiency ratio (non-GAAP) improved to 54.4%, compared to 55.4% in the prior quarter, reflecting the full realization of cost savings from the Metro merger.
Credit quality results continued to reflect solid performance and stable non-performing asset and total delinquency levels. The ratio of non-performing loans and OREO to total loans and OREO improved 3 basis points to 0.92%, and for the originated portfolio, the ratio of non-performing loans and OREO to total loans and OREO decreased 7 basis points to 1.08%. Total originated delinquency, defined as total past due and non-accrual originated loans as a percentage of total originated loans, decreased 2 basis points to 1.00%, compared to 1.02% at June 30, 2016.
Net charge-offs totaled $12.1 million, or 0.33% annualized of total average loans, compared to $10.1 million, or 0.28% annualized in the prior quarter. For the originated portfolio, net charge-offs were $12.3 million, or 0.41% annualized of total average originated loans, compared to $9.9 million or 0.35% annualized. The increase in net charge-offs during the quarter was primarily due to the successful exit of some rated credits at slightly better than positioned levels. The ratio of the allowance for loan losses to total originated loans decreased by 3 basis points from June 30, 2016 to 1.23% at September 30, 2016, reflecting the utilization of previously-established reserves. The provision for loan losses totaled $14.6 million, compared to $16.6 million in the prior quarter.
Net interest income totaled $452.2 million, increasing $81.3 million, or 21.9%, reflecting average earning asset growth of $3.5 billion, or 23.9%. The reported net interest margin (non-GAAP) was 3.39%, compared to 3.43%. The core net interest margin (non-GAAP) narrowed 5 basis points to 3.36%, due to the extended low interest rate environment as origination yields on new earning assets remain pressured.
Average loans totaled $14.1 billion and increased $2.6 billion, or 22.1%, due to the benefit from continued organic loan growth and the acquired METR, 5/3 and BofA balances. Organic growth in total average loans equaled $957 million, or 8.3%. Organic growth in average commercial loans totaled $547 million, or 8.5%, and organic growth in average consumer loans was $404 million or 8.0%. Total organic commercial loan growth was led by the incremental lift from more commercial lending opportunities concentrated in the metropolitan markets of Pittsburgh, Baltimore and Cleveland. Total average consumer loan growth was broad-based with good performance across residential mortgage, indirect auto and home-equity related products.
Average deposits totaled $15.2 billion and increased $3.2 billion, or 27.1%, due to average organic growth of $1.0 billion or 8.3%, and the benefit from acquired METR, 5/3 and BofA balances. On an organic basis, average total transaction deposits increased $1.1 billion or 11.9%. Total loans as a percentage of deposits was 92.5% at September 30, 2016.
Non-Interest Income
Non-interest income totaled $150.7 million, increasing $31.4 million or 26.3%. 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 insurance.
Non-Interest Expense
Non-interest expense totaled $387.3 million, increasing $98.0 million, or 33.9%. The first nine months of 2016 included merger expenses of $35.8 million and a $2.6 million impairment charge on acquired other assets. Absent these items and merger expenses of $1.7 million in the first nine months of 2015, total non-interest expense increased $61.3 million, or 21.3%, compared to the first nine months of 2015, with the increase primarily attributable to the expanded operations from the acquisitions of METR, 5/3 and BofA. The efficiency ratio (non-GAAP) was 55.4%, improved from 56.1% in the first nine months of 2015 due to increased scale including the benefit from new customers gained in expanded markets.
Credit Quality
Credit quality results continued to reflect solid performance with modest increases in non-performing loan and total delinquency levels. For the originated portfolio, non-performing loans and OREO to total loans and OREO was 1.08%, compared to 0.99%, and total originated delinquency increased 11 basis points to 1.00% at September 30, 2016.
Net charge-offs for the first nine months totaled $28.2 million, or 0.27% annualized of total average loans, compared to 0.20% annualized in the prior-year period. Net originated charge- offs were 0.32% 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 1.23%, compared to 1.22% at September 30, 2015. The ratio of the allowance for loan losses to total loans decreased 9 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 $43.0 million, compared to $27.8 million in the prior-year period. The increase is attributable to strong originated loan growth and limited credit migration.
Capital Position
The tangible common equity to tangible assets ratio (non-GAAP) was 6.69%, compared to 6.68% at June 30, 2016. Book value per common share increased to $11.72, from $11.61 at June 30, 2016. Tangible book value per common share (non-GAAP) increased to $6.53, from $6.40 at June 30, 2016. The common dividend payout ratio for the third quarter of 2016 was 50.7%, reflecting net income of $50.2 million, which translates into retained earnings of $24.8 million after paying out $25.4 million in quarterly common and preferred dividends.
Non-GAAP Financial Measures and Key Performance Indicators
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, 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 F.N.B. Corporation’s operating performance and trends, and to facilitate comparisons with the performance of F.N.B. Corporation’s peers. Management uses these measures internally to assess performance in operating the business and to better understand the underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators 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 and Key Performance Indicators.”
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 that follow for additional information.
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.
For the calculation of net interest margin and the efficiency ratio, 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. The Corporation uses 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, October 20, 2016, at 10:30 AM ET.
Participants are encouraged to pre-register for the conference call at
http://dpregister.com/10094097. Callers who pre-register will be given 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 (those who did not pre-register): 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 web site 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 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, October 27, 2016. The replay can be accessed by dialing (877) 344-7529 or (412) 317-0088 for international callers; the conference replay access code is 10094097. 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. On a combined, pro forma basis, including 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 (Transaction), the Company will have total combined, pro forma assets of nearly $30 billion, and more than 400 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina. 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 web site at www.fnbcorporation.com.
Cautionary Statement Regarding Forward-Looking Information
This document/communication/information contains forward looking statements which may contain FNB’s expectations or predictions of future financial or business performance or conditions. 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 27E of the Securities Exchange Act of 1934, and the Private Securities Litigation Act of 1995.
In addition to factors previously disclosed in FNB’s and Yadkin’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: failure to obtain all regulatory approvals and meet other closing conditions to the proposed Transaction between FNB and Yadkin, including approval by the shareholders of FNB and Yadkin, respectively, on the expected terms and time schedule; delay in closing the proposed Transaction; potential risks and challenges attendant to the successful conversions of core data systems; difficulties and delays in integrating the FNB and Yadkin businesses or fully realizing cost savings and other benefits; business disruption following the merger; 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 and Yadkin’s respective business strategies, including market acceptance of any new products or services; and implementing FNB’s banking 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), and the regulatory approval process associated with the proposed Transaction; 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, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where FNB and Yadkin do 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; FNB’s ability to complete the acquisition and integration of Yadkin successfully; and other factors that may affect future results of FNB and Yadkin. 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/communication/information.
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 quarters ended March 31 and June 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, and in Yadkin’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 the quarters ended March 31 and June 30, 2016, each of which is on file with the SEC and available in the “Investor Relations” section of Yadkin’s website, www.yadkinbank.com, under the heading “Documents” and in other documents Yadkin 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. Neither FNB nor Yadkin assumes any 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.
Additional Information About the Merger 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 or a solicitation of any vote or approval. In connection with the proposed merger, FNB has filed with the SEC a Registration Statement on Form S-4 that includes a Joint Proxy Statement of FNB and Yadkin and a Prospectus of FNB, as well as other relevant documents concerning the proposed Transaction.
SHAREHOLDERS OF F.N.B. CORPORATION AND YADKIN FINANCIAL CORPORATION ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS 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 Joint Proxy Statement/Prospectus and other relevant materials, and any other documents FNB and Yadkin have filed with the SEC, may be obtained free of charge at the SEC’s internet site, www.sec.gov. Copies of the documents FNB 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. FNB and Yadkin and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Yadkin and F.N.B. in connection with the proposed Transaction. Information concerning such participants’ interests in the proposed transaction are set forth in the Joint Proxy Statement/Prospectus.
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