F.N.B. Corporation

Hello, and welcome to the FMB Corporation's second quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one in your touchtone phone. To throw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Matthew Lazaro, Manager of Investor Relations. Mr. Lazaro, please go ahead.

Thank you. Good morning, everyone, and welcome to our earnings call. This conference call of F&B Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, a report of results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our earnings release, related presentation materials, and in our reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website. A replay of this call will be available until July 24th, and the webcast link will be posted to the About Us Investor Relations section of our corporate website. I will now turn the call over to Vince DeLee, Chairman, President, and CEO.

Good morning, everyone, and welcome to our earnings call. Joining me today are Vince Calabrese, Chief Financial Officer, and Gary Guerrero, Chief Credit Officer. On today's call, I will provide an overview of second quarter results and update you on FMB's participation in the Paycheck Protection Program. Gary will discuss asset quality and provide further detail on our loan portfolios. This will address our financial results and cover relevant trends. I will then provide an update on our digital platforms and physical operations and finally discuss our organization's $250 million commitment and continuing initiative to address economic and social inequity in our community. As a company and on a personal level, we've endured significant challenges and change this year. Our thoughts are with those who have been impacted by the pandemic and unrest in our community. I am proud of how our company has rallied in support of our customers and neighborhoods where we operate. We resolve to work together to emerge even stronger and united in our demand for a more successful future for all of our constituents. FMV's second quarter results increased significantly Operating earnings per share increased 63% to $0.26, which included an additional $17 million, or $0.04 per share, of COVID-19 reserve bills in the quarter, and PPNR increased to $130 million. Poor revenue trends remained solid throughout a challenging interest rate environment, with total revenues increasing 6% annualized to $306 million. and total assets growing nearly $3 billion to end June at $38 billion. Compared to the first quarter, loans and deposits increased $2.3 billion and $3.6 billion, or 10% and 15% respectively. On a linked quarter basis, double-digit second quarter loan and deposit growth were supported by organic commercial production and originating nearly 20,000 PPP loans, totaling $2.6 billion. Our fee-based businesses performed exceptionally well, with capital markets and mortgage banking establishing revenue records of 13 and 17 million, respectively. Our efficiency ratio was 53.7%, and operating expenses were well-controlled, down 3% from the first quarter. Even though there has been disruption across our footprint due to COVID-19, We've still seen good commercial loan origination activity across most of the footprint. This is a testament to our teams who continue to serve our clients and meet their borrowing needs while dealing with a challenging operating environment. The strength in our balance sheet and ample liquidity enables FMV to support our clients' capital needs. We continue to apply our consistent underwriting standard aligned with our strategy and overall risk profile as we evaluate business opportunities in the current climate. On a link quarter basis, total average loans increased 9%, largely driven by growth in commercial loans of 14%. Commercial line balances, when compared to historical level, contracted as we saw much lower line utilization of 36%. The utilization rate decreased as PPP funds were utilized to support working capital needs by many existing clients, and economic activity declined during the period. Commercial loan balances were also impacted by large corporate borrowers paying down bank credit facilities with increased liquidity in the bond market. Average deposits increased 11% as we had solid organic growth in customer relationships. A large inflow of deposits for PPP funding and government stimulus activities also occurred. As part of our business strategy, we have been focused on reducing the level of wholesale borrowings by continuing to gain depositors and expand existing relationships. As a result, we were able to fully eliminate our overnight borrowing position, replacing it with customer deposits. Non-interest-bearing deposits were up $2.1 billion or 33% from prior quarter ends. Looking at June 30 spot balances, our loan-to-deposit ratio was 92%, including the funded PPP loans, which positions us more favorably in the current rate environment. Growing non-interest-bearing deposits has been an integral part of our long-term strategy, and we've consistently been able to grow organically through various interest rate environments. further strengthening our overall funding mix. In fact, transaction deposits have increased 4 billion, or 20%, from March 31, and now represent 85% of total deposits, which compares very favorably to 79% five years ago. With the Fed taking near-term rate increases off the table, there is opportunity to offset net interest income headwinds by continuing to reduce deposit costs. As we have stated previously, continuing to grow our fee-based businesses is essential to diversifying our revenue sources and to mitigate pressure on net interest income in an extended low-rate environment. With interest rate expectations now reflecting lower for longer, it is important we continue to build on our recent success in capital markets, mortgage banking, wealth management, and insurance. This quarter's record mortgage banking income of $17 million better reflects the fundamentals and the results without MSR impairment, as the mortgage banking business set a new production record for the quarter of $869 million. Turning to our participation in the Paycheck Protection Program, I would first like to recognize our teams for their support of our customers and communities throughout these extraordinary circumstances. Our employees have worked tirelessly to ensure businesses receive critical funding during a time when regions within our footprint experienced extended shutdowns, particularly in our metro markets in Pennsylvania and the Mid-Atlantic, and when many borrowers turned from larger banks to FMV to accommodate their needs. As part of the PPP origination process, each borrower opened an FMV account, which supports our efforts to bring in new households. Looking ahead, we are optimistic that borrowers will be able to deploy these funds as businesses around the footprint reopen. As an organization, we leveraged our technology infrastructure and expertise already in place to quickly adapt and accommodate our customers in a challenging remote environment. Coupled with significant financial aid and employee volunteerism in our communities, our efforts have helped tens of thousands of small businesses during the pandemic and supported the retention of hundreds of thousands of jobs. From the beginning of the COVID-19 crisis, F&B has upheld consistent volumes of total transactions, deposit transactions, by providing customers with a seamless transition from physical to online and mobile engagement. This was made possible from the significant investment we've committed to our digital and online platforms over the last decade. In fact, the appointment setting feature on our new website that went live in January enabled FMV to continue serving clients safely in our branches throughout the crisis. We grew from 26 monthly appointments in January to 2,700 appointments in April. The rapid shift to remote services accelerated the enhancements to our digital strategy that were already underway and minimized disruption for our customers. As the operating environment remains in a constant state of change, we will continue our innovative approach to better serve our customers. I will now share some updates regarding our operations and delivery teams. Together with the uptick in online appointment setting, our website increased traffic by millions of daily visitors. As we are deepening relationships with customers throughout our digital capabilities, we are also generating significant opportunities. By synchronizing the physical and digital customer experience, we can take customers who utilize a single product and broaden the relationship to include products such as savings, credit card, private banking, mortgage, wealth management, and insurance. At the end of the day, it provides tremendous value to the customer to have multiple product relationships within FMB on a single platform connected through digital capabilities. Overall, the acceleration of digital and remote banking volume demonstrates our versatile and integrated multi-channel strategy. Customers have been more active in FMB's mobile and online channels, with monthly average users up by 50,000 in both categories compared to the average for 2019. While our customer adoption rates for online and mobile have accelerated, our customers have still expressed a strong desire to conduct business within our branches. As an essential business, it is important for FMV to remain available and accessible. Our business continuity team in collaboration with other units, including data science, human resources, and retail banking, developed a monitoring system in which we can evaluate data related to the healthcare crisis on a locational basis On July 13, 2020, we reopened the majority of our branch lobbies to customers, adhering to the most stringent safety measures, including social distancing and cleaning protocols, as we begin to move forward to the next phase of operation. With that, I'll turn the call over to Gary to cover asset quality.