FNB Beats by a Penny



F.N.B. Corporation (FNB) reported its third quarter 2012 earnings of 22 cents per share, which edged past the Zacks Consensus Estimate by a cent. The results compared favorably with the prior-quarter earnings of 21 cents and prior-year quarter earnings of 19 cents.
Decent top-line growth along with reduction in operating expenses contributed to the better-than-expected quarterly results. Further, continuous improvement in credit quality, growth in loans and deposit balances as well as steady capital ratios were the other highlights for the quarter.
Net income came in at $30.7 million, improving from $29.1 million in the prior quarter and $23.8 million in the year-ago quarter.  
Performance in Detail
FNB’s total revenue inched up 0.4% sequentially and grew 11.1% on a year-over-year basis to $142.6 million. Moreover, revenue surpassed the Zacks Consensus Estimate of $127.0 million by 12.3%.
Taxable net interest income marginally fell 1.0% sequentially to $95.4 million. The decline was mainly attributable lower interest income. However, net interest margin dipped 10 basis points from the prior quarter to 3.70%.
Non-interest income stood at $34.8 million, rising 6.2% from $32.8 million in the prior quarter. The increase was primarily due to higher service charges, insurance commissions and fees, securities commissions and fees, gain on sale of loans and other income.
Non-interest expense was $77.1 million, down 1.8% from $78.5 million in the previous quarter. The fall was mainly a result of lower occupancy and equipment costs, amortization of intangibles along with a decline in other real estate owned (OREO) costs and other expenses, partly offset by higher salary and employee benefits.
The efficiency ratio fell to 56.8% from 57.7% recorded in the prior quarter. The fall indicates improvement in profitability.
Asset Quality
Asset quality witnessed improvements in the quarter. Nonperforming assets dipped 9.9% sequentially and 26.8% on a year-over-year basis to $121.3 million. Allowance for loan losses marginally increased 1.1% sequentially, but declined 5.6% year-over-year to $102.7 million.
Further, ratio of annualized net charge offs to total average loans came in at 0.37% in the reported quarter, down from 0.38% in the previous quarter and 0.53% in the year-ago quarter. 
Loans and Deposits
FNB’s total loans in the reported quarter were nearly $8.0 billion, rising 1.5% from previous quarter and 17.5% from the prior-year quarter. The improvement was mainly driven by increases in commercial loans and leases, direct and indirect installments and consumer LOC loans.
Total deposits for the quarter inched up 1.6% sequentially and surged 23.9% on a year-over-year basis to $9.1 billion. The increases were primarily due to the higher levels of noninterest-bearing demand deposits.
Profitability and Capital Ratios
FNB’s profitability and capital ratios witnessed mixed movements in the quarter. As of September 30, 2012, the estimated total risk-based capital ratio was 12.3%, compared with 12.0% as of June 30, 2012 and, the estimated tier 1 risk-based capital ratio was 10.7% compared with 10.5% as of June 30, 2012. The leverage ratio was 8.24% compared with 8.07% in the prior quarter and 9.01% in the prior-year quarter.
The return on average assets was 1.03% in the reported quarter compared with 1.00% as of June 30, 2012 and 0.95% as of September 30, 2011. As of September 30, 2012, return on average equity came in at 8.83%, up from 8.57% as of June 30, 2012 and 7.79% as of September 30, 2011. Book value per common share was recorded at $9.98, up from $9.82 in the prior quarter and $9.55 in the year-ago period. 
Concurrent with the earnings release, FNB has announced the agreement to acquire Annapolis Bancorp Inc. (ANNB) – the parent company of BankAnnapolis. This all-stock deal is valued at approximately $51 million. The deal, which is expected to close in April 2013, will provide FNB $437 million in total assets, including $343 million in total deposits and $297 million in loans.
Our Viewpoint
We are impressed with FNB’s modest organic growth as well as constantly improving credit quality and strong balance sheet. However, rising expenses keep us on the sidelines. Moreover, we are concerned about the impacts of the prevailing low interest rate environment, sluggish economic growth and stringent regulatory landscape on the company’s financials in the subsequent quarters.
FNB currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
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