F.N.B. Corporation

Hello, and welcome to the F&B Corporation 4th Quarter 2020 Quarterly Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please sit down while conference specialists are 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 on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now 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 with 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, or reported results prepared in accordance with GAAP. Reconciliations of GAAP to non-GAAP operating measures and 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 related materials, 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 January 27th, and the webcast link will be posted to the About Us, Investor Relations, and Shareholder Services section of our corporate website. I will now turn the call over to Vince Lee, Chairman, President, and CEO.

Good morning, and welcome to our earnings call. Joining me this morning are Vince Calabrese, our Chief Financial Officer, and Gary Guerrero, our Chief Credit Officer. Gary will discuss asset quality, and Vince will review the financials. Today, I'll touch on our 2020 financial highlights, review last year's accomplishments, and wrap up with a discussion about our strategic objectives. We will then open the call for questions. First, I'd like to highlight some key metrics from our 2020 financial results. Despite substantial challenges resulting from the pandemic, management took significant actions to protect our employees and preserve shareholder value, implementing measures to improve efficiency and increase profitability as we navigated the pandemic. Looking at the fourth quarter, F&B reported operating earnings per share of 28 cents, and operating return on tangible common equity increased to 15%, building on the upper quartile returns relative to peers through the first nine months of 2020. Turning to the income statement for fiscal year 2020, F&B reported record total revenue of $1.2 billion, operating net income of $314 million, and operating earnings per share of 96 cents. while building significant credit reserves to address economic risk associated with the pandemic. These profitability levels resulted in strong internal capital generation, driving our tangible common equity and the CET1 ratio to the highest levels in decades, and increasing tangible book value per share by 5% to $7.88. Because of our performance in the prudent risk management culture, F&B continued to pay an attractive dividend. Our portfolios continued to expand with full-year average loan and deposit growth of 11% and 14% respectively. This growth was due to the resiliency of our bankers and the success of the Paycheck Protection Program, with balanced contributions across our legacy footprint and added growth in our southeastern market. Our leadership team prioritized a number of financial objectives during fiscal year 2020 designed to drive long-term results. Reflecting on the 2020 operational initiatives we laid out in last year's letter to our shareholders, we made significant progress towards those objectives in spite of a difficult operating environment. We set out to deliver peer-leading returns on tangible common equity and drive internal capital generation and growth in tangible book value per share. Our 2020 return on average tangible common equity of 13% and 5% growth in tangible book value continue to track above others in the industry. Sustaining this trajectory through execution of this strategy should increase our relative valuation over time compared to peers. In tandem with delivering this financial performance in a challenging environment, we set out to protect our attractive dividend while optimizing capital deployment. For the full year, we paid out $165 million in cash dividends and repurchased nearly $40 million of stock under our current stock repurchase program, returning over $200 million directly to shareholders. From a capital planning perspective, we've now surpassed our previously stated target and completed the adoption of CECL, both leading to enhanced flexibility to optimize capital deployment in this environment. During the second half of the year, we took significant steps to enhance future risk-adjusted returns through prudent balance sheet actions, notably the auto loan sale in November, reducing exposure to COVID-19-sensitive industries, and the prepayment of higher-cost liabilities. These actions reduce overall credit risk reduce future interest expense, and provides us with more liquidity moving forward. In the fourth quarter, we resumed the inaugural FMV share repurchase program after activity was halted in the first quarter due to uncertainty related to the pandemic. When considering the total capital consumed by the dividend and share buybacks combined, we are pleased to report an increase in year-end capital levels. Approximately 25% of the total shares repurchased were below tangible book value, resulting in accretion to that metric. The overall arching goal of our organization is to grow revenue by prudently increasing our loan and deposit portfolios, all while maintaining superior credit quality and FMV's risk management culture through the cycle. During a difficult operating environment, many of our teams exceeded loan and deposit origination targets while improving our funding mix through a focus on bringing in low-cost deposits. As a proof point, loans continued to grow even when excluding the impact of PPP and the auto loan portfolio sale. On the deposit side, in addition to an improved deposit mix, non-interest-bearing deposits surpassed $9 billion to end the year as a percentage of non-interest-bearing deposits increased to 31%, up meaningfully from 24% five years ago. FMB is in a very strong liquidity position with a loan deposit ratio of 87% to fund future loan growth to strengthen capital and enhance liquidity. Diversification and growth in our fee-based businesses, namely capital markets, mortgage banking, and wealth management, contributed significantly to our record total non-interest income levels. Our fee-based businesses had an outstanding year, with many groups setting all-time records for revenue. In 2020, Capital Markets Mortgage Banking and Wealth Management achieved revenue of $39 million, $50 million, and $49 million, respectively. The strong performance was driven by increased contributions due to our geographic expansion strategy and providing value-added solutions to borrowers. We continue to look for ways to diversify our fee income streams by executing on strategic initiatives such as growing the mezzanine finance group and enhancing FMV's debt capital markets capabilities. Total operating non-interest income exceeded $300 million in 2020. Through our continuous investment in both our digital and physical delivery channels, we aspire to provide our customers with intuitive and efficient solutions to meet their banking needs. On the digital front, adoption rates for mobile banking users have increased exponentially in 2020, attributable to 18% growth in new users added to the platform in the last nine months. Looking back over the last five years, we have now consolidated 111 branches, opened 12 de novo branches in Attractive Market, and expanded our ATM capabilities to exceed 800 locations. These actions enable FMV to optimize our overall footprint with limited disruption for our customers. We have diligently invested in technology and risk management infrastructure by upgrading platforms in the retail bank and improving the customer experience. We continue to evaluate our distribution network regarding consolidation efforts as we announced 21 consolidations to take effect in 2021. Building on FMV's strategy to grow its market presence, particularly in metropolitan Baltimore and Washington, D.C., we entered an agreement with Royal Farms, a regional convenience store operator, that enables us to connect cash distribution services with a robust online and mobile banking offering, providing convenient access to essential banking products and services throughout a broader geographic region with the deployment of more than 220 ATM locations in the Mid-Atlantic region. In addition to withdrawals, transfers, and balance inquiries, several of the Royal Farms ATMs will also feature check and cash depositing capabilities to provide customers with even greater flexibility and increased access to broader product offerings. As evidence of successful execution of our growth strategy, according to the most recent FDIC data, We experienced deposit growth in 50 of 53 MSAs across our footprint. FMB achieved top five share position in nearly half of those MSAs, further illustrating our ability to compete effectively in our market against a broad spectrum of competitors. Additionally, we strive to continue to manage cost and improve efficiency. This is evident by FMB achieving our stated 2020 cost savings goal of $20 million, In addition to achieving the 2020 target, F&B also achieved its roughly 20 million cost target in 2019. When including a plan to reduce an additional 21 million in expenses during full year 2021, in total, this amounts to more than 60 million of expense reduction over the three-year period. Because of our proactive expense management initiative, our efficiency ratio remained at a good level at 56%, despite pressures on net interest income in a challenging rate environment, and continued capital investment in technology. Our strategy is proven through varying cycles, as evidenced by the solid performance and continued focus on improvement in many key asset quality metrics. To expand on this topic, I'll ask Gary to comment on credit quality. Gary?