) second-quarter 2013 operating earnings came in at 21 cents per
share, in line with the Zacks Consensus Estimate. This, however,
compares favorably with the year-ago earnings of 20 cents.
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On a year-over-year basis, the improvement was driven by top-line
growth, partially offset by higher operating expenses. Further,
growth in loans and deposit balances were the other highlights
for the quarter. However, deteriorating capital and profitability
ratios were the headwinds for the quarter while asset quality was
a mixed bag.
Considering after-tax charges for merger-related costs and other
non-operating items, net income in the second quarter stood at
$29.2 million, up from $ 29.1 million in the year-ago quarter.
Performance in Detail
FNB's total revenue in the reported quarter rose 1.8% on a
year-over-year basis to $144.6 million and surpassed the Zacks
Consensus Estimate of $132.0 million.
Taxable-equivalent net interest income increased 2.4% year over
year to $98.5 million. The rise was mainly attributable to higher
interest income and a decline in interest expense. However, net
interest margin dipped 17 basis points from the prior-year
quarter to 3.63%, reflecting lower accretable yield and reduced
yield on earnings assets, partially offset by solid growth in
average loans and lower cost transaction deposit and customer
repurchase agreements as well as lower cost of funds.
Non-interest income increased 12.1% from the prior-year quarter
to $36.8 million. The increase was primarily due to higher
service charge revenue, insurance commissions and fees,
securities commissions and fees, trust income, gains on sale of
loans as well as other income, partially offset by decline in
gain on sale of securities.
Non-interest expense was $84.2 million, up 7.3% from $78.5
million in the previous-year quarter. The jump was mainly a
result of higher salary and employee benefits costs, occupancy
and equipment costs as well as merger related cost and other
expenses. These were partially offset by a fall in amortization
of intangibles expenses and a drastic decline in other real
estate owned (OREO) costs.
The efficiency ratio rose to 58.63% from 57.74% recorded in the
prior-year quarter. The rise indicates deterioration in
Asset quality was a mixed bag during the quarter with
nonperforming assets rising 3.5% sequentially but dipping 9.0% on
a year-over-year basis to $122.5 million.
Annualized net charge offs as a percentage of total average loans
came in at 0.34% in the reported quarter, up from 0.21% in the
previous quarter but down from 0.38% in the year-ago quarter.
Moreover, allowance for loan losses increased 0.5% sequentially
and 6.5% year over year to $108.3 million. Likewise, provision
for credit losses grew 4.8% from the prior quarter and 12.59%
from the prior-year quarter to $7.9 million.
Loans and Deposits
FNB's total loans as of Jun 30, 2013 were $8.6 billion, rising
9.9% from the previous year-quarter. All the loan portfolios
performed well during the quarter.
As of Jun 30, 2013, total deposits advanced 7.3% year over year
to $9.6 billion. The increase was primarily due to the higher
level of non-interest-bearing demand deposits.
FNB's capital ratios witnessed deterioration in the quarter. As
of Jun 30, 2013, the estimated total risk-based capital ratio was
11.9%, compared with 12.3% as of Mar 31, 2013.
Further, the estimated tier 1 risk-based capital ratio was 10.4%,
down from 10.7% as of Mar 31, 2013. The leverage ratio was 8.3%
compared with 8.4% in the prior quarter.
FNB's profitability ratios deteriorated during the reported
quarter. The return on average assets was 0.94% compared with
0.96% as of Mar 31, 2013 and 1.00% as of Jun 30, 2012.
As of Jun 30, 2013, return on average equity came in at 7.94%,
down from 8.20% as of Mar 31, 2013 and from 8.57% as of Jun 30,
2012. Book value per common share was $10.12, up from $10.07 in
the prior quarter and $9.82 in the year-ago period.
In Jun 2013, FNB announced a deal to acquire Baltimore-based
BCSB Bancorp, Inc
) and its subsidiary Baltimore County Savings Bank in an
all-stock transaction valued at about $79 million. As per the
terms of the agreement, shareholders of BCSB Bancorp will receive
2.08 shares of FNB for each share of BCSB Bancorp.
The transaction is expected to be complete in the first quarter
of 2014. Moreover, the deal will be marginally accretive to the
company's earnings (excluding one-time transaction cost of nearly
$16.4 million) in the first full year, while having no
significant impact on its tangible book value per share.
Further, in Apr 2013, the company closed an all-stock deal to buy
Annapolis Bancorp Inc. for about $51 million.
FNB's consistent organic growth, improving credit quality and
strong balance sheet are quite impressive. However, mounting
expenses, the prevailing low interest rate environment and
stringent regulatory landscape remain major concerns for the
company going forward.
FNB currently carries a Zacks Rank #4 (Sell). However, some
better performing banks include
Synovus Financial Corporation
Pinnacle Financial Partners Inc
). All these carry a Zacks Rank #1 (Strong Buy).