FNB(US:FNB)2022-08-04 16:00PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for F.N.B. Corporation as of June 30, 2022, and for the three and six-month periods then ended, including balance sheets, income statements, and cash flows Consolidated Balance Sheet Highlights (June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $41,681 million | $39,513 million | | Net Loans and Leases | $27,666 million | $24,624 million | | Total Deposits | $33,480 million | $31,726 million | | Total Liabilities | $36,245 million | $34,363 million | | Total Stockholders' Equity | $5,436 million | $5,150 million | Consolidated Income Statement Highlights (Six Months Ended June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Interest Income | $488 million | $451 million | | Provision for credit losses | $24 million | $5 million | | Net Income | $162 million | $195 million | | Net Income Available to Common Stockholders | $158 million | $191 million | | Diluted EPS | $0.45 | $0.59 | Note 3. Mergers and Acquisitions FNB completed its acquisition of Howard Bancorp, Inc. on January 22, 2022, for approximately $443 million, resulting in the issuance of 34.1 million shares of common stock and the recognition of $172 million in goodwill - On January 22, 2022, FNB completed the acquisition of Howard Bancorp, Inc. for a total value of approximately $443 million29 Howard Bancorp, Inc. Acquisition Details | Item | Value (in millions) | | :--- | :--- | | Fair value of consideration paid | $443 | | Fair value of identifiable assets acquired | $2,356 | | Fair value of liabilities assumed | $2,085 | | Goodwill recognized | $172 | - On May 31, 2022, FNB entered into a definitive merger agreement to acquire UB Bancorp for approximately $119 million, with the transaction expected to close in late 20223638 Note 4. Securities As of June 30, 2022, the company held $3.57 billion in Available-for-Sale (AFS) debt securities and $3.74 billion in Held-to-Maturity (HTM) debt securities, with AFS having $221 million in gross unrealized losses Debt Securities Portfolio (June 30, 2022) | Portfolio | Amortized Cost | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | | :--- | :--- | :--- | :--- | :--- | | Available for Sale (AFS) | $3,785 million | $3,566 million | $2 million | ($221) million | | Held to Maturity (HTM) | $3,740 million | $3,470 million | $2 million | ($272) million | - The unrealized losses in the AFS portfolio are considered temporary and caused by interest rate movements, not expected credit losses4748 Note 5. Loans and Leases Total loans and leases, net of unearned income, grew to $28.04 billion at June 30, 2022, from $24.97 billion at year-end 2021, with non-performing loans at $92 million (0.33% of total loans) Loan and Lease Portfolio Composition | Loan Category | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total commercial loans and leases | $17,991 million | $16,465 million | | Total consumer loans | $10,053 million | $8,503 million | | Total loans and leases | $28,044 million | $24,968 million | Asset Quality Ratios | Ratio | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Non-performing loans / total loans and leases | 0.33% | 0.35% | | Non-performing assets + 90 days past due / total loans and leases + OREO | 0.39% | 0.41% | - Total Troubled Debt Restructurings (TDRs) increased slightly to $95 million as of June 30, 2022, from $92 million at December 31, 202174 Note 6. Allowance for Credit Losses on Loans and Leases The Allowance for Credit Losses (ACL) on loans and leases increased to $378.0 million at June 30, 2022, from $344.3 million at year-end 2021, primarily due to the Howard acquisition and loan growth ACL Roll-Forward (Six Months Ended June 30, 2022) | (in millions) | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2021) | $344.3 | | Net Charge-offs | ($1.5) | | Provision for Credit Losses | $25.2 | | ACL for PCD Loans at Acquisition | $10.0 | | Ending Balance (June 30, 2022) | $378.0 | - The ACL coverage ratio was 1.35% at June 30, 2022, compared to 1.38% at December 31, 202188 Note 18. Business Segments The company operates through three reportable segments: Community Banking, Wealth Management, and Insurance, with Community Banking being the primary driver of performance, generating $157 million in net income for the six months ended June 30, 2022 Segment Net Income (Six Months Ended June 30, 2022) | Segment | Net Income (in millions) | | :--- | :--- | | Community Banking | $157 | | Wealth Management | $9 | | Insurance | $2 | | Parent and Other | ($6) | | Consolidated Total | $162 | - The Community Banking segment holds the vast majority of the company's assets, totaling $41.5 billion as of June 30, 2022175 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for the second quarter and first half of 2022, highlighting record revenue of $335.8 million in Q2 driven by net interest income expansion from higher rates and loan growth - Q2 2022 net income available to common stockholders was $107.1 million, or $0.30 per diluted share, compared to $99.4 million, or $0.31 per diluted share in Q2 2021201 - Revenue grew 7.5% in Q2 2022 to a record $335.8 million, driven by an 11.3% increase in net interest income due to the rising interest rate environment and strong loan growth202205 - Asset quality remains strong, with annualized net recoveries of 0.01% in Q2 2022 and an ACL to total loans ratio of 1.35%202207 Results of Operations For Q2 2022, net interest income grew 11.3% year-over-year to $253.7 million, benefiting from higher rates and earning asset growth, while net income for the six-month period was $162.1 million, down from $194.6 million in 2021 Q2 2022 vs Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Interest Income | $253.7M | $227.9M | | Provision for Credit Losses | $6.4M | ($1.1M) | | Non-Interest Income | $82.2M | $79.8M | | Non-Interest Expense | $192.8M | $182.5M | - The net interest margin (FTE, non-GAAP) for Q2 2022 increased by 6 basis points year-over-year to 2.76%, as the earning asset yield increased despite reduced contributions from PPP loans205223 - For the first six months of 2022, merger-related expenses of $30.7 million and an initial provision of $19.1 million for the Howard acquisition significantly impacted net income compared to the prior year246 Financial Condition As of June 30, 2022, total assets grew to $41.7 billion, up 5.5% from year-end 2021, largely due to the Howard acquisition and organic growth, with net loans and leases increasing 12.4% to $27.7 billion Balance Sheet Changes (June 30, 2022 vs Dec 31, 2021) | Account | Change ($) | Change (%) | | :--- | :--- | :--- | | Total Assets | +$2,168M | +5.5% | | Net Loans and Leases | +$3,042M | +12.4% | | Total Deposits | +$1,754M | +5.5% | - Non-performing assets increased by $6 million to $102 million at June 30, 2022, primarily driven by the acquisition of the Howard Bank portfolio282 Capital Resources and Regulatory Matters FNB and its bank subsidiary remained 'well-capitalized' as of June 30, 2022, with the Common Equity Tier 1 (CET1) capital ratio for the corporation at 9.7%, and the Board approved an additional $150 million for the share repurchase program F.N.B. Corporation Regulatory Capital Ratios | Ratio | June 30, 2022 | Dec 31, 2021 | Minimum + Buffer | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 9.72% | 9.92% | 7.00% | | Tier 1 Capital | 10.05% | 10.29% | 8.50% | | Total Capital | 12.00% | 12.18% | 10.50% | - The Board of Directors approved an additional $150 million for the share repurchase program in April 2022, with $175.6 million remaining for repurchase as of June 30, 2022294 Liquidity The company maintains a strong liquidity position, with the parent company holding $257.7 million in cash, exceeding internal limits for its Liquidity Coverage Ratio (2.6x) and Months of Cash on Hand (13.5 months) - The parent company's cash position was $257.7 million at June 30, 2022, sufficient to cover over 13.5 months of expenses and dividends, exceeding the internal limit of 12 months307309 - Total deposits increased by $1.8 billion since year-end 2021, with non-interest-bearing deposits now comprising 35.0% of total deposits310 FNBPA Credit Availability | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Unused wholesale credit availability | $15,717 million | $14,681 million | | Salable unpledged securities | $996 million | $836 million | Market Risk The company is primarily exposed to interest rate risk, which it manages through its Asset/Liability Committee (ALCO), with the balance sheet positioned to benefit from rising interest rates, as a +100 basis point immediate rate shock is modeled to increase net interest income by 4.8% over 12 months Net Interest Income Sensitivity (12 Months) | Rate Shock | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | +200 bps | +9.4% | +14.4% | | +100 bps | +4.8% | +7.0% | | -100 bps | (4.0)% | (2.4)% | - The company's balance sheet is positioned to benefit from future FOMC rate increases, with 48% of net loans and leases indexed to short-term rates that reprice within three months328 Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the information provided in the "Market Risk" section of Management's Discussion and Analysis (MD&A) within Item 2 of this report - Information regarding market risk is provided in the Market Risk section of the MD&A in Item 2 of this Form 10-Q363 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022, with no material changes to internal controls over financial reporting during the quarter - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level364 - No changes occurred during the fiscal quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting366 PART II – OTHER INFORMATION Legal Proceedings The company is involved in legal actions incidental to the normal course of business, which management does not believe will have a material adverse effect on its financial position or liquidity - The company is routinely party to legal actions considered incidental to the normal conduct of business and does not expect them to have a material adverse effect on its financial position148367 Risk Factors This section introduces new risk factors related to the recently announced acquisition of UB Bancorp, including potential integration difficulties, unrealized benefits, regulatory delays, and business uncertainties - The success of the UB Bancorp merger depends on the ability to successfully combine and integrate the businesses without disrupting customer relationships or losing key employees369371 - Completion of the merger is subject to customary closing conditions, including shareholder and regulatory approvals, which may not be received, may be delayed, or may impose unforeseen conditions372373 - If the merger is not completed, FNB will have incurred substantial expenses without realizing the expected benefits, which could negatively impact prospects and stock price375376 Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2022, FNB repurchased 1,101,100 shares of its common stock at an average price of $11.77 per share, and the Board authorized an additional $150 million for the share repurchase program Share Repurchases (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 335,000 | $11.90 | | May 2022 | 766,100 | $11.72 | | Total | 1,101,100 | $11.77 | Exhibits This section lists the exhibits filed with the Form 10-Q, including the Deferred Compensation Plan, form of director restricted stock unit agreement, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as Inline XBRL data files387