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Text: I'd like to open the call by expressing my appreciation to 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.
Its total revenue increased both on a year-over-year and linked-quarter basis.
We established a new record for noninterest income at $83 million, supported by strength in 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 loan.
On a linked-quarter basis, tangible book value per share increased $0.13 to $8.01, as we continue to -- our commitment to paying an attractive dividend by declaring our quarterly common dividend of $0.12 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 expansion of our fee-based businesses and how we've continually expanded our suite of value-added products and services.
Next, I want to highlight FNB'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 Vince 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 headwind, 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, FNB 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 toward 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 FNB's e-style checking designed to prevent overdraft and NSF fees completely.
FNB 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 omnichannel online application so the customer can apply for multiple products with a single application while utilizing our shopping card 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 FNB 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 channel 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 team 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 pipeline are at an all-time high, and South Carolina was the fastest-growing commercial market companywide 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 market 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.
We continued to see positive performance across our credit portfolio during the first quarter of the year.
Our key credit metrics improved across the board and remained 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 linked-quarter basis, while at non-GAAP level, excluding PPP loans, stands at 72 basis points.
The improvement was largely driven by a reduction in nonaccrual 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 bps on a non-GAAP basis, with provision expense totaling $6 million, resulting in an ending March reserve position at 1.42%.
Excluding the PPP portfolio, the non-GAAP ACL stands at 1.57%, up 1 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 toward 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 workout 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.
Today, I will discuss our financial results and some of our current expectations.
As noted on Slide 5, first quarter earnings per share was solid at $0.28, up significantly on a year-over-year basis, as the first quarter of 2020, a significant reserve built at the onset of the pandemic.
At a high level, results for the quarter included record levels of noninterest income translating into revenue growth, well-managed expenses and significantly lower provision for loan losses given recent asset quality trends, partially offset by the continued impact of this low interest rate environment.
Let's review the balance sheet on Page 8.
Average balances for total loans increased 8.3% on a year-over-year basis and decreased 0.8% from the fourth quarter.
On a spot basis for the first quarter of 2021, total loans were up 0.3% as PPP balances increased $330 million on a net basis, with $900 million of round 2 PPP loans funded during the quarter partially offset by $500 million of PPP forgiveness.
Commercial line utilization rates remain at record lows in the low 30s, which translates into about $0.5 billion in funded balances at a normalized utilization rate.
This level creates upside for loan growth, as reflected in the strength of our long-range commercial pipelines, which are near all-time highs.
Average deposits grew 19.3% on a year-over-year basis and increased 5.7% annualized on a linked-quarter basis.
On a spot basis, for the first quarter of 2021, total deposits increased $1.2 billion or 16.9% annualized, led by strong growth in noninterest-bearing and interest-bearing demand deposits, partially offset by a managed decrease in time deposits.
This continued deposit growth bolsters our ample liquidity and strengthens our deposit mix, with a loan-to-deposit ratio at 84%, with 33% of our deposits being noninterest-bearing at the end of the quarter.
Turning to the income statement.
Net interest income declined $11.5 million or 4.9% compared to the fourth quarter.
The reported net interest margin narrowed 12 basis points to 2.75% as higher average cash balances were a 6-basis point negative impact on the margin compared to last quarter.
Additional drivers to the lower margin were a 7-basis point reduction in PPP contribution and a 2-basis point reduction in the benefit from purchase accounting on acquired loans.
Excluding these impacts, the underlying margin increased 5 basis points from the fourth quarter, with benefits from continuing to manage down interest-bearing deposit costs which improved 12 basis points to 31 basis points for the quarter.
With the cost of these deposits ending the quarter at 27 basis points on a spot basis, 4 basis points lower than the average, we expect further reductions in our cost of funds moving forward.
Let's now look at noninterest income and expense on Slides 10 and 11.
Noninterest income totaled a record $83 million as mortgage banking income remained strong at $16 million, with expanded gain on sale margins and strong sold production volume that was up 69% on a year-over-year basis.
Wealth management increased 14% from the fourth quarter to record levels due to the expanded footprint and positive market impacts on assets under management.
Solid contributions from capital markets and insurance also supported the record fee income result for the quarter.
Looking on Slide 11.
Noninterest expense totaled $184.9 million, relatively flat with the prior quarter and year ago quarter.
On an operating basis, compared to the fourth quarter of 2020, salaries and employee benefits increased $2.7 million or 2.5%, primarily related to $5.6 million of expense in the first quarter of 2021 due to the timing of normal seasonal long-term compensation recognition, similar to last year's first quarter.
Occupancy and equipment on an operating basis increased $2.5 million or 8.1% due to investments in digital technology, expansion in key growth markets across the footprint and seasonal expenses related to adverse weather.
Our CET1 ratio improved to an estimated 10%, up from 9.1% last March, even with $75 million of buyback over this period, reflecting FNB's strategy to optimize capital deployment.
Turning to our outlook.
We expect reported net interest income to be generally flat from first quarter '21 levels, as we expect a pickup in loan activity to be weighted toward the second half of the year and the net interest income contribution from PPP to be similar to the first quarter.
For the full year of 2021, our mid-single-digit loan and transaction deposit growth assumptions, ex-PPP, remain unchanged from our prior guidance.
We expect continued strong contributions in mortgage banking, given the pipelines Vince mentioned, with total noninterest income expected in the high $70 million range for the second quarter.
For provision, our current outlook is down from our expectations in January, subject to loan origination activity in the second half of the year.
We are on-track to achieve our expense savings target of $20 million for 2021 and expect operating expenses for the second quarter to be down from seasonally higher expenses in the first quarter, based on our current forecasted level of mortgage commissions.
For the full year of 2021, we still expect revenues to be stable compared to 2020 and expenses to be down slightly year-over-year.
Lastly, we expect the full year effective tax rate to be around 19%, assuming no change to the statutory corporate tax rate of 21%.
We've covered a lot of ground today, and I want to wrap up with how successfully executing our long-term growth strategy differentiates FNB moving forward.
First and foremost, FNB is in a unique position as a regional bank with a top market share in many attractive growth markets across a broad geography.
Given this position, our local product specialists and decision-makers, dedicated to serving our markets, can provide a high-touch, relationship-based personal service level that consumers and middle market borrowers prefer.
We have an exceptionally talented team of bankers, the necessary funding and optimal capital levels to pursue relationships across the footprint to accomplish our growth objectives and provide our shareholders with peer-leading returns on tangible common equity.
As an organization, we've consistently and prudently invested in technology, data analytics and risk management to better the customer experience, improve profitability and enable FNB to maintain superior asset quality throughout varying cycles while maintaining a top quartile efficiency ratio relative to peers.
We have been recognized for our mobile and digital offerings that have improved the customer experience by positioning the company for shifting preferences and providing FNB with a sustained competitive advantage.
Our culture of risk management and disciplined approach to underwriting and local decision-making allows us to maintain our lower risk profile.
We are unique in that we can maintain a lower level of cumulative losses while driving mid- to high single-digit loan growth because of our diversified granular approach to credit.
As it relates to the quality of people and strength of our culture, FNB has received more than 65 Greenwich Excellence and Best Brand Awards, including specific recognition for excellence in client advisory services and for its commercial banking client experience during the past decade.
The company further built on these honors in 2020 with three consecutive quarters of recognition as a Greenwich Associates Standout Commercial Bank amid crisis for our COVID-19 response.
And just last week, FNB was named to Forbes 2021 ranking of the World's Best Banks based on consumer feedback.
FNB is one of only 75 banks in the United States to be recognized on the list, which includes a total of 500 banks from around the globe.
In closing, we are focused on continuing our commitment to advance our market position by gaining scale and operational efficiency and by cultivating meaningful lasting relationships with our clients and communities while simultaneously creating value for our shareholders.

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compname reports q1 earnings per share $0.28.
q1 earnings per share $0.28.

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