FNB(FNB) - 2023 Q4 - Annual Report

Financial Performance and Growth - Total assets increased to $46.158 billion in 2023 from $43.725 billion in 2022, reflecting a growth of 5.6%[454] - Net loans and leases grew to $31.917 billion in 2023, up from $29.853 billion in 2022, an increase of 6.9%[454] - Net interest income rose to $1.317 billion in 2023, up from $1.120 billion in 2022, a 17.6% increase[456] - Net income available to common stockholders increased to $477 million in 2023 from $431 million in 2022, a 10.7% growth[456] - Earnings per common share (diluted) improved to $1.31 in 2023 from $1.22 in 2022, a 7.4% increase[456] - Comprehensive income for 2023 was $607 million, a significant improvement from $144 million in 2022[457] - Retained earnings grew to $1.669 billion in 2023, up from $1.370 billion in 2022, a 21.8% increase[458] - Net income for 2023 was $485 million, an increase of 10.5% from $439 million in 2022[459] Credit Losses and Allowances - F.N.B. Corporation's net loan and lease portfolio was $32.3 billion with an associated Allowance for Credit Losses (ACL) of $405.6 million as of December 31, 2023[441] - The ACL is composed of three components: quantitative reserves, asset-specific reserves, and qualitative reserves, which capture factors such as regulatory, legal, and technological environments, competition, forecast uncertainty, and natural disasters[441] - The qualitative factors in the ACL process are especially challenging to audit due to their reliance on expert credit judgment and the need to capture risks not addressed by quantitative models[442] - Total allowance for credit losses on loans and leases increased from $401.7 million to $405.6 million in 2023[607] - Commercial real estate allowance for credit losses increased from $162.1 million to $166.6 million in 2023[607] - Residential mortgages allowance for credit losses rose from $55.5 million to $70.5 million in 2023[607] - Total allowance for unfunded loan commitments increased slightly from $21.4 million to $21.5 million in 2023[607] - ACL on loans and leases increased by $3.9 million (1.0%) to $405.6 million at December 31, 2023, compared to December 31, 2022[610] - Ending ACL coverage ratio decreased to 1.25% at December 31, 2023, from 1.33% at December 31, 2022[610] - Total provision for credit losses for 2023 was $71.8 million, compared to $64.2 million in 2022[610] - Net charge-offs in 2023 were $67.7 million, including a $31.9 million commercial loan charge-off due to alleged fraud[610] Internal Controls and Audits - Management concluded that F.N.B. Corporation's internal control over financial reporting was effective as of December 31, 2023, based on the COSO criteria[432] - Ernst & Young LLP audited F.N.B. Corporation's internal control over financial reporting and expressed an unqualified opinion on its effectiveness as of December 31, 2023[446] - F.N.B. Corporation's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP[451] Loans and Leases Portfolio - Total loans and leases, net of unearned income, grew to $32.323 billion in 2023 from $30.255 billion in 2022, with commercial real estate loans increasing to $12.305 billion and residential mortgages rising to $6.640 billion[575] - The company transferred $355 million of indirect automobile loans to the held-for-sale portfolio in Q4 2023, with the sale completed in February 2024[577] - Commercial real estate loans were 29.0% owner-occupied and 71.0% non-owner-occupied as of December 31, 2023, compared to 30.2% and 69.8% respectively in 2022[579] - Related-party loans decreased to $12 million at the end of 2023 from $13 million at the beginning of the year, with $8 million in new loans and $10 million in repayments[581] - The commercial loan portfolio had $12.4 million in gross charge-offs for commercial real estate and $51.2 million for commercial and industrial loans in 2023[585] - The remaining accretable discount on acquired loans decreased to $42.6 million in 2023 from $58.6 million in 2022, including $10.0 million for Howard and Union at acquisition[576] - Accrued interest receivable on loans and leases increased to $128.6 million in 2023 from $99.3 million in 2022, excluded from credit loss estimates[574] - Total consumer loans decreased to $2,115 million in 2023 from $2,862 million in 2022, a decline of 26.1%[586] - Total loans and leases decreased to $5,486 million in 2023 from $6,624 million in 2022, a decline of 17.2%[586] - Total charge-offs decreased to $0.8 million in 2023 from $5.2 million in 2022, a decline of 84.6%[586] - Direct installment loans decreased to $340 million in 2023 from $713 million in 2022, a decline of 52.3%[586] - Residential mortgages decreased to $1,424 million in 2023 from $1,692 million in 2022, a decline of 15.8%[586] - Indirect installment loans decreased to $313 million in 2023 from $395 million in 2022, a decline of 20.8%[586] - Consumer lines of credit decreased to $38 million in 2023 from $62 million in 2022, a decline of 38.7%[586] - Total direct installment gross charge-offs were $0.6 million over the period from 2019 to 2023[586] - Total residential mortgages gross charge-offs were $0.7 million over the period from 2019 to 2023[586] - Total indirect installment gross charge-offs were $10.7 million over the period from 2019 to 2023[586] - Total commercial real estate loans amounted to $11.526 billion, with $2.013 billion in 2022 and $2.390 billion in 2021[587] - Total direct installment loans reached $2.784 billion, with $801 million in 2022 and $888 million in 2021[587] - Total consumer loans stood at $10.965 billion, with $3.146 billion in 2022 and $2.864 billion in 2021[587] - Total loans and leases were $30.255 billion, with $7.061 billion in 2022 and $6.630 billion in 2021[587] - Residential mortgages totaled $5.249 billion, with $1.464 billion in 2022 and $1.587 billion in 2021[587] - Consumer lines of credit amounted to $1.331 billion, with $74 million in 2022 and $18 million in 2021[587] - Total indirect installment loans were $1.553 billion, with $805 million in 2022 and $368 million in 2021[587] - Total commercial and industrial loans reached $19.290 billion, with $1.655 billion in 2022 and $1.249 billion in 2021[587] - Total other commercial loans were $5.297 billion, with $1.531 billion in 2022 and $1.311 billion in 2021[587] - Total loans and leases past due increased to $226 million in 2023 from $216 million in 2022, with commercial loans and leases contributing $118 million and consumer loans contributing $108 million[590] - Non-performing loans and leases decreased to $107 million in 2023 from $113 million in 2022, representing 0.33% of total loans and leases compared to 0.37% in 2022[592] - Approximately $54.8 million of commercial loans are collateral dependent at December 31, 2023, with repayment expected through the operation or sale of collateral[593] - Accrued interest receivable on loan modifications totaled $0.41 million at December 31, 2023, excluded from the amortized cost of loan modifications[594] - Total outstanding modified loans amounted to $59.2 million at December 31, 2023, with term extensions being the most common modification type[595] - Specific reserves for commercial loans modified increased to $5.3 million in 2023 from $0 in 2022, with pooled reserves at $2.0 million[597] - Pooled reserves for other classes of modified loans remained stable at $3.8 million for both December 31, 2023 and 2022[598] - Amortized cost basis of modified financing receivables that subsequently defaulted totaled $28.2 million at December 31, 2023[600] - Payment status of modified loans showed $47.8 million current, $11.3 million 30-89 days past due, and $0.1 million 90+ days past due at December 31, 2023[601] - Total commercial loans recorded investment pre-modification was $3 million, post-modification decreased to $2 million[604] - Total consumer loans recorded investment remained stable at $10 million pre and post-modification[604] Securities and Investments - The fair value of AFS debt securities as of December 31, 2023, was $3.254 billion, with an amortized cost of $3.460 billion[557] - The fair value of HTM debt securities as of December 31, 2023, included an ACL of $0.28 million[558] - Total debt securities HTM as of December 31, 2023, had an amortized cost of $3,911 million and a fair value of $3,593 million, reflecting unrealized losses of $326 million[559] - The company sold $648.7 million of AFS securities in 2023, resulting in a realized loss of $67.4 million, and reinvested the proceeds into higher-yielding securities with an average yield increase of 350 basis points[559] - Securities pledged as collateral for public deposits and other purposes totaled $6,190 million as of December 31, 2023, representing 89.9% of total securities[562] - The municipal bond portfolio as of December 31, 2023, had a carrying amount of $1.0 billion, with an average rating of AA and 100% of the portfolio rated A or better[566] - The corporate bond portfolio as of December 31, 2023, had a carrying amount of $52.4 million, primarily consisting of subordinated debentures of banks within the company's footprint[568] - Unrealized losses on AFS debt securities as of December 31, 2023, totaled $216 million, with 84.7% of these securities backed or sponsored by the U.S. government[564] - The company evaluated AFS debt securities in an unrealized loss position and concluded that the losses are temporary and caused by interest rate movements, with no expected credit losses[564] - The municipal bond portfolio is geographically concentrated, with 60% of the securities from municipalities in the company's primary business states[566] - The average holding size of securities in the municipal bond portfolio is $2.5 million, and 61% of the bonds have formal credit enhancement[566] - The average holding size of securities in the corporate bond portfolio is $2.9 million[568] - The ACL on the HTM corporate bond portfolio was $0.28 million as of December 31, 2023, with $0.06 million related to the municipal bond portfolio and $0.22 million related to other debt securities[570] - Total non-marketable equity securities increased to $361 million in 2023 from $268 million in 2022, driven by growth in Federal Home Loan Bank stock and Federal Reserve Bank stock[573] Acquisitions and Mergers - The acquisition of Howard Bancorp, Inc. was completed on January 22, 2022, with assets valued at approximately $2.4 billion, including $1.8 billion in loans and deposits. The acquisition was valued at $443 million and resulted in the issuance of 34,074,495 shares of common stock[544] - The acquisition of Union Bancorp was completed on December 9, 2022, with assets valued at approximately $1.1 billion, including $0.7 billion in loans and $1.0 billion in deposits. The acquisition was valued at $126 million and resulted in the issuance of 9,672,691 shares of common stock[549] - Goodwill related to the Howard acquisition was recorded at $177 million, and goodwill related to the Union acquisition was recorded at $38 million[555] - The company incurred merger expenses of $31.0 million in 2022 related to the Howard acquisition and $14.3 million in 2022 and $2.2 million in 2023 related to the Union acquisition[546][551] - The company acquired PCD loans and leases of $186.9 million from Howard and $36.9 million from Union, with ACLs established at $10.0 million and $1.8 million, respectively[547][552] - The company integrated the systems and operating activities of Howard in February 2022 and Union in December 2022, making it impracticable to disclose revenue and income before taxes from these acquisitions[548][553] Other Financial Metrics - Total non-interest income decreased to $254 million in 2023 from $323 million in 2022, a 21.4% decline[456] - Total non-interest expense increased to $915 million in 2023 from $826 million in 2022, a 10.8% rise[456] - Net cash flows from operating activities in 2023 were $423 million, a significant decrease from $1,218 million in 2022[459] - Net change in loans and leases for 2023 was a decrease of $2,442 million, compared to a decrease of $2,831 million in 2022[459] - Debt securities available for sale purchases in 2023 totaled $1,008 million, up from $880 million in 2022[459] - Time deposits increased by $2,600 million in 2023, compared to an increase of $366 million in 2022[459] - The company operates 346 branches across seven states and the District of Columbia as of December 31, 2023[461] - The company adopted ASU 2022-02 on January 1, 2023, which eliminated troubled debt restructuring accounting and expanded loan modification disclosures[470] - HTM debt securities are carried at amortized cost, with certain securities assumed to have zero expected credit losses based on historical data and credit ratings[478] - AFS debt securities are evaluated for impairment related to credit losses at least quarterly, considering all relevant information at the individual security level[479] - AFS debt securities in an unrealized loss position are evaluated for credit losses, with impairment recorded through the ACL if the fair value is less than the amortized cost basis[480] - Changes in the ACL are recorded as a provision for credit loss expense, with losses charged against the ACL when AFS debt securities are not collectible[481] - Securities sold under agreements to repurchase are accounted for as collateralized financing transactions, with the fair value of collateral continually monitored[482] - Derivative instruments are carried at fair value on the Consolidated Balance Sheets, with changes in fair value recorded in AOCI for cash flow hedges[483][484] - Interest rate swap agreements are used to manage interest rate risk, with changes in fair value recognized in current period earnings[486] - Residential mortgage loans held for sale are accounted for under the FVO, with changes in fair value recorded in mortgage banking operations non-interest income[487] - SBA loans originated with the intention to sell are classified as held for sale and carried at the lower of cost or fair value[489] - Non-performing loans are placed on non-accrual status when principal or interest remains unpaid for a certain number of days, with unpaid accrued interest reversed against interest income[491] - The ACL on loans and leases is estimated using a non-discounted cash flow factor-based approach, including PD, LGD, and EAD models[494][496] - Goodwill and other intangible assets are amortized over their estimated useful lives, with core deposit intangibles primarily amortized over ten years[506] - Goodwill and other intangibles are subject to impairment testing at least annually, with quarterly assessments based on qualitative factors such as macroeconomic conditions and financial performance[507][508] - The fair value of reporting units is determined using discounted cash flows, market comparisons, and recent transactions, involving significant estimates and assumptions[509] - Servicing rights for residential mortgage loans and SBA-guaranteed loans are initially recorded at fair value and subsequently measured at the lower of cost or fair value, with impairment evaluated quarterly[510][511][512] - Bank Owned Life Insurance policies are recorded at their cash surrender value, with tax-exempt income from death benefits recorded as non-interest income[513] - Investments in Low Income Housing Tax Credit Partnerships are recorded in other assets, generating returns through federal tax credits[514] - Lease obligations and right-of-use assets are recognized on the Consolidated Balance Sheets, with lease expense recognized on a straight-line basis for operating leases[515][516] - Revenue from contracts with customers is recognized when control of services is transferred, with deposit services revenue recognized daily based on published fees[519][520][522] - Wealth management services revenue is recognized monthly based on fixed fees or asset-based scales, with the right to terminate services at any time[525] - Income tax expense is based on estimates and judgments, with deferred tax assets and liabilities computed using expected tax rates[529][530] - Stock-based compensation awards are measured and recognized based on estimated fair values, with expense recognized over the service period[537][538] - Mortgage loans sold with servicing retained increased to $5,729 million at December 31, 2023, from $5,242 million at December 31, 2022[611] - Mortgage servicing fees for 2023 were $14 million, compared to $13 million in 2022[612] - MSR balance at end of 2023 was $59.5 million,