F.N.B. Corporation

Good morning and welcome to the FMB Corporation first quarter 2021 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 on your touchtone phone. To withdraw 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 or ordered 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 in our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our earnings 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 April 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 DeLete, Chairman, President, and CEO. Thank you. Thank you, and welcome to our earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrero, our Chief Credit Officer. I'd like to open the call by expressing my appreciation for the entire FNB team who produced highly impressive results despite continued challenges presented by the pandemic. First quarter net income totaled $91 million, or $0.28 per share, resulting in an upper quartile return on tangible common equity of 15%. I'm so proud to state that the first quarter results are on par with pre-COVID-19 levels, an extraordinary accomplishment given the significant changes in interest rates and a less favorable economic environment during the last 12 months. Our company remains well capitalized with increased risk-based capital ratios, and an allowance for credit losses excluding PPP loans at 1.57%. FNB demonstrated strong fundamental performance as total revenue increased both on a year-over-year and link quarter basis. We established a new record for non-interest income at $83 million, supported by strengthened mortgage banking, record wealth management and insurance revenues, and solid contributions from capital markets. During the quarter, we originated nearly 1 billion of PPP Round 2 loans. On a linked quarter basis, the annual book value per share increased 13 cents to $8.01 as we continue our commitment to paying an attractive dividend by declaring our quarterly common dividend of 12 cents last week, while executing on 36 million of share buybacks during the quarter at an average price of $11.91. In addition, Our CET1 ratio increased to 10% as we continue to prioritize our options for capital deployment in the manner that produces the highest risk-adjusted returns for our shareholders. Diligent expense management remains a top priority, and we are on track to meet this year's $20 million cost savings target, completing our three-year $60 million expense reduction initiative. The efficiency ratio totaled 58.7%, improving 36 basis points compared to the first quarter of 2020, with both quarters reflecting seasonally elevated expenses. Today, I'll take a deeper dive into three areas discussed in our annual letter to shareholders, where we've successfully gained scale, strengthened our risk profile, and diversified our revenue streams. First, I will cover the successful expansions of our fee-based businesses, and how we've continually expanded our suite of value-added products and services. Next, I want to highlight F&B's new digital capabilities and provide updates about our de novo strategy within the Clicks to Bricks initiative. Lastly, after Gary reviews asset quality and then provides details on financials, I will wrap up with a summary of how we differentiate ourselves and deliver value to all of our stakeholders. One of the main areas emphasized in our 2020 annual report was our goal of diversifying our overall revenue mix. Over the last several years, we've been consistently growing value-added fee-based businesses, many of which generated double-digit annual growth rates that have led to a more granular fee-based revenue stream. In what has been a challenging interest rate environment over the last 12 months, we have successfully leveraged these investments in our fee-based businesses to mitigate net interest margin headwinds, specifically through significant growth in capital markets, mortgage banking, wealth management, and insurance revenues. During the first quarter of 2021, we've continued to build on last year's success, as those businesses have increased 16 million, or 56%, compared to the first quarter of 2020. If you recall, we laid out our long-term strategy to invest and scale our fee-based businesses, to offer core products and services to our clients, namely mortgage banking and capital markets. As we transformed our footprint and expanded into attractive markets such as Baltimore, Maryland, Washington, D.C., and the Carolinas, F&B continues to grow the scope and depth of client relationships. In 2021, we are adding capacity to mortgage banking operations and servicing, as production levels continue to set records each quarter. As of this week, mortgage pipelines are at record levels in relation to both production and held for investment origination. Our mortgage banking business had a record-breaking year in 2020, with more than $3 billion in total production and $50 million in fee income. Even as rates have risen, we are confident that a broader geography and a more favorable economic environment for purchase money mortgage loans will support healthy production levels and become a greater portion of our total volume. Turning to our capital markets platform, we've expanded our capabilities significantly through building our syndications, derivatives, and international banking platforms organically. With those businesses now contributing revenues from just over $1 million to more than $30 million annually, Additionally, we have expanded the breadth and reach of our capital markets platform with enhanced debt capital markets capabilities geared towards our upper middle market and large corporate clients. Looking ahead, we are also focusing on specific opportunities in public finance and other specialty verticals that will provide broader revenue opportunities with the issuance of corporate and municipal debt. As we've advanced our fee-based businesses, our consumer bank is making important decisions relative to evolving overall consumer preferences and how we deliver products to our clients. Consumers can now utilize FMV's e-style checking designed to prevent overdrafts and NSF fees completely. FMV continues to expand its digital capabilities through launching new products we recently rolled out a number of new features such as e-signature and offering credit scores with plans for embedding the Solution Center e-store into our robust mobile application. This will provide clients with the opportunity to directly purchase loan products within the mobile application as well as deposit products. The next phase is to finalize our single omni-channel online application so the customer can apply for multiple products with a single application while utilizing our shopping cart experience. Along with our digital investments, we continue to streamline elements of the physical delivery channel through implementing dynamic appointment setting capabilities and a comprehensive data driven sales management platform to better identify value added products and services when clients conduct business in the branch. Additionally, we are focused on bringing the application process online for more of our loans and our other consumer products in the coming quarters so that consumers are able to seamlessly manage and add F&B products and services using online or mobile channels as we continue to make progress within applications for end-to-end delivery of digital products and services. In addition to investing in technology, we continue to make targeted investments in our physical delivery channels to position our company for accelerated growth and efficiency. Charleston, South Carolina is an example of our successful de novo strategy to enter a higher growth market. This year, we will have five retail branch locations and a regional hub that permits us to offer a complete set of fee-based products complementing the consumer and commercial teams that are firmly established in the market. our South Carolina bankers were recruited from some of the largest financial institutions in the country. The commercial team has originated more than $150 million in funded assets since inception, and the retail locations ranked among the upper quartile of branches relative to their key performance indicators during 2020. Looking ahead, near-term commercial pipelines are at an all-time high, And South Carolina was the fastest-growing commercial market company-wide on a percentage basis for both full year 2020 and first quarter 2021. There are many exciting things happening with our investments in de novo growth markets and digital technology. Another area we are proud of is our risk management and credit performance. And with that, I will transition the call over to Gary to discuss our progress.

Gary? Thank you, Vince, and good morning, everyone. We continue to see positive performance across our credit portfolios over the first quarter of the year. Our key credit metrics improved across the board and remain at very solid levels, with better than expected results across a number of consumer portfolios, as well as the favorable positioning of our commercial book, following the actions taken last quarter to proactively reduce exposure to the most challenged industries. I would now like to review some highlights for the quarter, followed by a brief overview of our current deferral levels. The level of delinquency improved over the prior quarter to end March at 80 basis points, representing a 22 basis point improvement linked quarter, which was driven by positive macroeconomic trends and some seasonally lower past due levels in the consumer portfolio as is typical in the first quarter. Excluding PPP loan volume, delinquency stands at 89 basis points. The level of NPLs in Oreo ended March at 65 basis points, an improvement of 5 bps on a length quarter basis, while the non-GAAP level excluding PPP loan stands at 72 basis points. The improvement was largely driven by a reduction in non-accrual loans of $12 million during the quarter, with nearly half of our NPLs continuing to pay on a contractually current basis. Net charge-offs for the first quarter came in at a very solid level of $7 million, or 11 basis points annualized and 13 BIPs on a non-GAAP basis, with provision expense totaling $6 million annually. resulting in an ending March reserve position at 1.42%. Excluding the Triple P portfolio, the non-GAAP ACL stands at 1.57%, up one basis point over the prior quarter. Inclusive of the remaining acquired unamortized discount, our total reserve coverage stands at 1.78%, with our NPL coverage position also remaining favorable at 230%, following the previously noted improvement in NPL levels during the quarter. I'd now like to provide you with a brief update on our loan deferral levels. At the end of March, our deferrals are down to 1.2% of our core loan portfolio, and the number of new requests from commercial borrowers have essentially ceased at this point. We continue to monitor these smaller credits actively, as we have done throughout the entire pandemic, with the expectation that the numbers will continue to reduce as the economy opens up. Additionally, we continue to track our portfolio mix and performance trends to stay ahead of any potentially sensitive asset classes that could show signs of stress towards the tail end of the pandemic. As is consistent with our approach to risk management, we will continue to proactively identify any potential areas of risk and take action if opportunities arise that are strategically and financially beneficial to the company. In closing, we are very pleased with the solid start to the year and the continued progress we've made in the book to work down our limited exposure to the more sensitive industries. As the broader economy continues to evolve, we are focused on managing our book through our core credit principles of disciplined underwriting across our footprint, attentive risk management, and the proactive work out of credits to keep our portfolio well positioned as we look forward to the anticipated activity from an accelerating economy in the second half of the year. I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks. Thanks, Gary, and good morning.