FNB Beats on Earnings & Revs

F.N.B. Corporation’s (FNB) third-quarter 2013 operating earnings came in at 22 cents per share, beating the Zacks Consensus Estimate and the year-ago earnings by a penny.

Results were driven by top-line growth, partially offset by higher operating expenses. Further, growth in loans and deposit balances and an improved asset quality were the other highlights for the quarter. However, a drop in non interest income and deteriorating profitability ratios were the headwinds.

Considering after-tax charges for merger-related costs and other non-operating items, net income stood at $31.6 million, up from $30.7 million in the year-ago quarter.

Performance in Detail

FNB’s total revenue came in at $142.6 million, almost in line with the prior-year quarter but surpassed the Zacks Consensus Estimate of $132.0 million.

Taxable-equivalent net interest income rose 5.9 % year over year to $101.0 million. The rise was mainly attributable to higher interest income and a decline in interest expense. However, net interest margin declined 6 basis points from the prior-year quarter to 3.64%.

Non-interest income decreased 5.6% from the prior-year quarter to $32.9 million. The decline was mainly due to a fall in customer service charges, partially offset by increase in securities commissions and fees and trust income.

Non-interest expense increased 8.0% year over year to $83.2 million. Merger related costs, additional operating costs related to the ANNB acquisition and elevated FDIC insurance expense were attributable to the increased net interest expense.

The efficiency ratio rose to 59.72% from 57.40% recorded in the prior-year quarter. The rise indicates deterioration in profitability.

Asset Quality

Asset quality exhibited an improvement during the reported quarter with nonperforming assets decreasing 2.3% on a year-over-year basis to $118.6 million.

Annualized net charge offs as a percentage of total average loans came in at 0.25, down from 0.37% in the year-ago period.

Likewise, provision for credit losses declined 13.6% from the prior-year quarter to $7.3 million. However, allowance for loan losses increased 7.1% year over year to $110 million.

Loans and Deposits

FNB’s total loans as of Sep 30, 2013 were $8.6 billion, rising 10.7% from the previous-year quarter. All the loan portfolios performed well in the quarter.

As of Sep 30, 2013, total deposits advanced 6.5% year over year to $9.7 billion. The increase was primarily due to the higher level of non-interest-bearing demand deposits.

Capital Ratios

FNB’s capital ratios remained strong in the quarter. As of Sep 30, 2013, the leverage ratio rose to 8.42% from 8.24% in the year-ago quarter. Ratio of tangible equity to tangible assets was 6.09% up from 6.01% in the prior-year quarter.

Profitability Ratios

FNB’s profitability ratios deteriorated during the third quarter. The return on average assets was 0.99% compared with 1.03% as of Jun 30, 2012.

As of Sep 30, 2013, return on average equity came in at 8.50%, down from 8.83% as of Jun 30, 2012. Book value per common share was $10.20, up from $9.98 at the end of the the year-ago period.

Other Developments

On Oct 3, Moody’s Investor Services (MCO) rated FNB for the first time and conferred an issuer rating of Baa3 to the bank. Alongside, its banking subsidiary, First National Bank of Pennsylvania received a Baa2 rating owing to long-term deposits and other senior obligations.

On Oct 12, FNB completed the acquisition of PVF Capital Corp. Consequently, the company now operates a total of 29 banking offices in Ohio.

Our Viewpoint

FNB’s consistent organic growth, improving credit quality and a strong balance sheet are impressive. However, mounting expenses, the prevailing low interest rate environment and a stringent regulatory landscape remain major near-term concerns.

FNB currently carries a Zacks Rank #4 (Sell).

Among better performing banks, Community Trust Bank Corp Inc (CTBI) and SY Bancorp Inc. (SYBT) carrying a Zacks Rank #1 (Strong Buy) are worth considering. While Community Trust came out with its third-quarter earnings of 81 cents per share, SY Bancorp is expected to report on Oct 23.

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Read the Full Research Report on CTBI
Read the Full Research Report on SYBT
Read the Full Research Report on FNB


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