F.N.B. Corporation Reports Second 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.}

Second Quarter 2021 Results – Comparison to Prior-Year Quarter

Net interest income totaled $227.9 million, which is stable compared to $228.0 million, as total average earning assets increased $2.0 billion, or 6.2%, which included $3.6 billion of PPP loan originations since program inception in the second quarter of 2020, $2.0 billion in total PPP forgiveness and a $2.1 billion increase in average cash balances largely due to the continued impact from government stimulus and deposits from PPP fundings. The growth in average earning assets was offset by the repricing impact on earning asset yields from lower interest rates, partially mitigated by the improved funding mix with reductions in higher-cost borrowings and reductions in the cost of interest-bearing deposits.

The net interest margin (FTE) (non-GAAP) declined 18 basis points to 2.70%, as earning asset yields decreased 54 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 37 basis points to 0.30%, due to a 48 basis point reduction in interest-bearing deposit costs and an improved funding mix.

Average loans totaled $25.4 billion, a decrease of $204.8 million, or 0.8%, primarily due to the sale of $0.5 billion of indirect auto installment loans in November 2020. Commercial loans increased $431.1 million, or 2.5%, including $333.1 million, or 5.0%, growth in commercial and industrial loans and $79.8 million, or 0.8%, growth in commercial real estate balances. Commercial origination activity was led by growth in the Pittsburgh, Mid-Atlantic (Washington D.C., northern Virginia and Maryland markets), Cleveland, Raleigh, and South Carolina regions. Average consumer loans decreased $636.1 million, or 7.4%, reflecting the previously mentioned indirect auto loan sale.

Average deposits totaled $30.5 billion with growth in average non-interest-bearing demand deposits of $1.9 billion, or 23.5%, and average interest-bearing demand deposits of $1.9 billion, or 16.1%. The growth in average deposits reflected inflows from the PPP and government stimulus activities, in addition to organic growth in new and existing customer relationships, as well as recent customer preferences to maintain larger deposit account balances than before the pandemic. The loan-to-deposit ratio was 82.4% at June 30, 2021, compared to 92.1% at June 30, 2020, as deposit growth outpaced loan growth. Additionally, the funding mix continued to improve with non-interest-bearing deposits totaling 33% of total deposits, compared to 30% as of June 30, 2020.

Non-interest income totaled $79.8 million, an increase of $2.1 million, or 2.8%, compared to the second quarter of 2020 as FNB continued to generate broad-based contributions across our fee-based businesses. Service charges increased $5.8 million, or 24.2%, as the year-ago quarter reflected reduced customer activity at the beginning of the pandemic. Wealth management revenues increased $3.9 million, or 35.2%, as securities commissions and fees increased $2.0 million, or 52.7%, due to strong activity levels across the footprint, and trust income increased $1.9 million, or 26.3%, through a combination of strong organic sales activity and favorable market conditions as assets under management increased significantly. Mortgage banking operations income decreased $9.1 million as the gain-on-sale margins tightened meaningfully in the second quarter of 2021 and mortgage held-for-sale pipelines declined from record levels, however sold production levels remained solid. Capital markets revenue decreased $5.5 million, or 44.0%, due to lower customer swap activity compared to the record levels in the beginning of 2020 given heightened volatility in interest rates.

Non-interest expense totaled $182.5 million, increasing $6.6 million, or 3.7%. On an operating basis, non-interest expense of $179.9 million increased $5.9 million, or 3.4%, compared to the second quarter of 2020, excluding $2.6 million of branch consolidation costs in the second quarter of 2021 and $2.0 million of COVID-19 expenses in the second quarter of 2020. On an operating basis, salaries and employee benefits increased $8.6 million, or 9.3%, primarily due to normal merit increases and an increase in production-related commissions. Occupancy and equipment, on an operating basis, increased $2.3 million, or 7.8%, reflecting continued investment in both the physical and digital channels. In the year-ago quarter, the Company also recognized an impairment of $4.1 million from a renewable energy investment tax credit transaction. The related renewable energy investment tax credits were recognized during the year-ago quarter as a benefit to income taxes. The efficiency ratio (non-GAAP) equaled 56.8%, compared to 53.7%.

The ratio of non-performing loans, 90 days past due, and other real estate owned (OREO) to total loans and OREO decreased 18 basis points to 0.57%. Compared to 0.92% at June 30, 2020, total delinquency decreased 17 basis points to 0.75%, reflecting positive asset quality trends across the portfolio. Excluding PPP loans at June 30, 2021, total delinquency decreased 22 basis points to 0.80%.

Due to improved credit trends in our portfolio, the provision for credit losses was a net benefit of $1.1 million for the second quarter of 2021, compared to an expense of $30.2 million in the second quarter of 2020 with the year-ago quarter level primarily attributable to COVID-19 related impacts on macroeconomic forecasts used in the allowance for credit losses (ACL) model. Net charge-offs were $3.8 million, or 0.06%, annualized of total average loans for the second quarter of 2021, compared to $8.5 million, or 0.13%, in the second quarter of 2020. The ratio of the ACL to total loans and leases increased 2 basis points to 1.42%. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loans and leases ratio equaled 1.51% and 1.54% at June 30, 2021 and June 30, 2020, respectively, directionally consistent with improved credit metrics.

The effective tax rate was 19.7%, compared to 16.0% in the second quarter of 2020 due to the benefits from renewable energy investment tax credits recognized in the year-ago quarter.

The CET1 regulatory capital ratio increased to 10.0% (estimated), compared to 9.4% at June 30, 2020. The tangible book value per common share (non-GAAP) increased to $8.20 at June 30, 2021, an increase of $0.57, or 7.5%, from $7.63 at June 30, 2020.

Second Quarter 2021 Results – Comparison to Prior Quarter

Net interest income totaled $227.9 million, an increase of $4.9 million, or 2.2%, from the prior quarter total of $222.9 million primarily due to additional PPP contributions, a more favorable balance sheet mix, and our continued focus on reducing deposit costs in the lower interest rate environment, as well as a more favorable funding mix, as evidenced by our total cost of interest-bearing liabilities declining 7 basis points. The resulting net interest margin (FTE) (non-GAAP) decreased 5 basis points to 2.70% reflecting decreased benefit from acquired loan discount accretion of 3 basis points and higher average cash balances that reduced the net interest margin 7 basis points, partially offset by a higher PPP contribution of 3 basis points.

Total average earning assets increased $1.0 billion, or 2.9%. The total yield on earning assets declined 9 basis points to 3.00%, reflecting investment securities purchased in a lower rate environment, lower yields on variable-rate loan originations and a $0.7 billion increase in average cash balances. The total cost of funds decreased 6 basis points to 0.30% from 0.36%, as costs on interest-bearing deposits improved 7 basis points to 0.24%.

Average loans totaled $25.4 billion as average commercial loans decreased $116.2 million and average consumer loans increased $60 million compared to the first quarter of 2021.  Average commercial loans included growth of $164.6 million, or 1.7%, in commercial real estate offset by a decrease of $298.0 million, or 4.1%, in commercial and industrial loans, primarily due to lower average PPP balances as forgiveness accelerated during the second quarter. Excluding PPP, period-end loan balances increased $515 million, or 9.1% annualized, including growth of $210 million in commercial loans and $306 million in consumer loans. Commercial origination activity was led by the Pittsburgh and Carolina regions. Consumer loan growth reflected direct installment average balances increasing $56.4 million, or 2.8%, and residential mortgages increasing $25.2 million, or 0.8%, partially offset by a $28.9 million, or 2.2%, decline in consumer lines of credit.

Average deposits totaled $30.5 billion, increasing $1.1 billion, or 3.9%, driven by an increase in non-interest-bearing deposits of $0.8 billion, or 9.2%, and interest-bearing demand deposits of $0.4 billion, or 3.3%. This growth benefited from the continued government stimulus and deposits from PPP loan fundings, partially offset by a managed decline in time deposits of $0.3 billion, or 7.3%.  The loan-to-deposit ratio was 82.4% at June 30, 2021, compared to 84.1% at March 31, 2021.

Non-interest income totaled $79.8 million, decreasing $3.0 million, or 3.7%, from record non-interest income levels in the prior quarter. Mortgage banking operations income decreased $8.3 million, or 52.8%, as gain-on-sale margins tightened meaningfully in the second quarter of 2021, mortgage held-for-sale pipelines declined from significantly elevated levels and the benefit from mortgage servicing rights impairment valuation recovery was $0.3 million compared to $2.5 million last quarter. Mortgage sold production remained stable with prior quarter levels. Service charges increased $1.9 million, or 6.8%, reflecting higher customer activity volumes, and bank owned life insurance income increased $1.8 million primarily due to life insurance claims. Wealth management revenues of $15.0 million reflected record levels for the quarter. Included in other non-interest income was a $1.2 million increase in SBA premium income compared to the prior quarter reflecting higher market premiums and higher volumes.

Non-interest expense totaled $182.5 million, a decrease of $2.4 million, or 1.3%. On an operating basis, non-interest expense decreased $5.0 million, or 2.7%, compared to the prior quarter, excluding $2.6 million of branch consolidation costs in the second quarter of 2021. On an operating basis, salaries and employee benefits decreased $5.3 million, or 4.9%, primarily related to $5.6 million in normal seasonal long-term stock compensation in the first quarter of 2021 while production-related commissions increased by $2.8 million. On an operating basis, occupancy and equipment decreased $1.9 million, or 5.6%, due primarily to lower seasonal utilities costs. Outside services expenses increased $1.8 million, or 10.4%, due to increases from third-party technology providers, legal costs and other consulting engagements. The efficiency ratio (non-GAAP) equaled 56.8%, compared to 58.7%.

The ratio of non-performing loans, 90 days past due, and OREO to total loans and OREO decreased 11 basis points to 0.57%. Total delinquency decreased 5 basis points to 0.75%, compared to 0.80% at March 31, 2021. Excluding PPP, total delinquency decreased 9 basis points to 0.80%, reflecting favorable asset quality trends across the portfolio.

The provision for credit losses was a net benefit of $1.1 million for the second quarter, compared to an expense of $5.9 million in the first quarter of 2021 with continued improvement in the underlying portfolio credit trends including a 15% decline in classified assets. Net charge-offs totaled $3.8 million, or 0.06% annualized of total average loans and leases, compared to $7.1 million, or 0.11% annualized. The ratio of the ACL to total loans and leases remained unchanged at 1.42% for June 30, 2021 and March 31, 2021. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loans and leases ratio decreased 6 basis points to 1.51%, compared to 1.57%, directionally consistent with improved credit metrics.

The effective tax rate was 19.7%, compared to 18.9% in the first quarter of 2021.

The CET1 regulatory capital ratio is stable at 10.0% (estimated) from March 31, 2021. Tangible book value per common share (non-GAAP) was $8.20 at June 30, 2021, an increase of $0.19 per share from March 31, 2021.

June 30, 2021 Year-To-Date Results - Comparison to Prior Year-To-Date Period

Net interest income totaled $450.8 million, decreasing $9.8 million, or 2.1%, as the low interest rate environment impacted earning asset yields. The net interest margin (FTE) (non-GAAP) contracted 29 basis points to 2.72%, reflecting higher average cash balances that reduced the net interest margin 17 basis points, partially offset by increased PPP contribution of 11 basis points and increased benefit from acquired loan discount accretion of 7 basis points. The yield on earning assets decreased 78 basis points to 3.04%, while the cost of funds improved 50 basis points to 0.33%, primarily due to actions taken to reduce the cost of interest-bearing deposits given the low interest rate environment and strong growth in non-interest-bearing deposits.

Average loans totaled $25.4 billion, an increase of $869.3 million, or 3.5%, due to the net benefit from PPP loans and solid origination activity across the footprint. Growth in average commercial loans totaled $1.5 billion, or 9.7%, including growth of $0.9 billion, or 13.8%, in commercial and industrial loans and $0.6 billion, or 6.6%, in commercial real estate. Commercial growth was led by healthy commercial activity in the Pittsburgh, Mid-Atlantic, Cleveland and South Carolina regions. Total average consumer loans decreased $674 million, or 7.9%, with an increase in direct installment balances of $158 million, or 8.4%, offset by decreases in indirect installment loans of $639 million, or 34.6%, due to the sale of $0.5 billion of indirect auto installment loans in November 2020, as well as decreases in consumer lines of credit of $132 million, or 9.3%, and residential mortgage loans of $61 million, or 1.8%.

Average deposits totaled $29.9 billion, increasing $4.0 billion, or 15.4%, led by average growth of $2.1 billion, or 18.5%, in interest-bearing demand deposits and $2.4 billion, or 33.5%, in non-interest-bearing deposits driven by deposits from additional PPP funding and government stimulus activities, as well as solid organic growth in customer relationships.

Non-interest income totaled $162.6 million, increasing $16.4 million, or 11.2%, primarily attributable to increased contributions from mortgage banking and our wealth management businesses. Mortgage banking income increased $7.6 million, or 49.2%, as sold production levels increased 40%. Wealth management revenues increased $6.1 million, or 25.9%, as securities commissions and trust income increased 37% and 20%, respectively, through contributions across the geographic footprint and positive market impacts on assets under management. Capital markets decreased $8.9 million, or 37.7%, due to lower customer swap activity compared to the record levels in the beginning of 2020 given heightened volatility in interest rates. Other non-interest income increased $9.3 million reflecting higher contributions from SBA loan sale volumes and improved SBIC fund performance.

Non-interest expense totaled $367.4 million, decreasing $3.5 million, or 0.9%. Excluding significant items totaling $2.6 million in 2021 and $12.2 million in 2020, operating non-interest expense increased $6.1 million, or 1.7%. This increase was attributable to higher salaries and employee benefits expense of $13.3 million, or 6.8%, on an operating basis related to normal merit increases and higher production-related commissions and incentives. On an operating basis, occupancy and equipment increased $5.1 million, or 8.7%, due to continued investment in both the physical and digital channels. This was offset by an $11.0 million decrease in other non-interest expenses that included the previously mentioned renewable energy investment tax credit of $4.1 million in the year-ago quarter, as well as other lower miscellaneous expenses. The efficiency ratio (non-GAAP) equaled 57.8%, compared to 56.4% in 2020.

The provision for credit losses was $4.8 million, compared to $78.0 million, with the prior year levels primarily attributable to COVID-19 related impacts on macroeconomic forecasts used in the ACL model. Net charge-offs totaled $11.0 million, or 0.09% of total average loans, compared to $14.2 million, or 0.12%, in 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio.

The effective tax rate was 19.3% for 2021, compared to 17.0% in 2020, due to the benefits from renewable energy investment tax credits recognized in 2020.

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. 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 facilitate peer 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: