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Text: FNB's third quarter earnings per share was $0.34, representing an increase of 10% on a linked-quarter basis and bringing year-to-date earnings per share to $0.94.
Our performance across our core businesses led to record revenue this quarter of $321 million, up 18% on a linked-quarter annualized basis with strong underlying momentum visible on our loan growth, pipeline, fee income, and digital customer engagement.
Let's look at each one of these core building blocks starting with loan growth.
Our spot loan growth, excluding the impact of PPP forgiveness, is 8% annualized linked-quarter, driven by a strong pickup in lending activity in both the commercial and consumer portfolios.
Spot commercial loan growth totaled 7% annualized on a linked-quarter basis with positive growth in nearly every region across our footprint, notably the Pittsburgh, Cleveland, Harrisburg, and Raleigh region.
Consumer lending grew over 8% annualized linked-quarter, led by increases in residential mortgages and direct installment home equity.
As evidenced by the spot loan growth, our teams had a strong quarter, and overall loan production reached record levels as the economy continues to recover.
We saw healthy pipeline build and a slight increase in line utilization with the pipeline being up nearly 12% year-over-year.
In prior earnings calls, we indicated our expectation for improvement in loan demand and that is now materializing.
Commercial had record production in September and the consumer pipeline jumped 27% year-over-year.
Mortgage activity has slowed more recently because of the decline in refinance activity due to higher interest rates -- due to the higher interest rate environment.
In addition, revenues have decreased as margins have normalized.
Overall, we are optimistic that our total loan pipeline indicate a path for sustained growth.
As we have continued to execute our strategic plan, non-interest income reached a record $89 million with strong contributions from capital markets and wealth management, as well as solid SBA revenue.
Our emphasis on diversifying revenue streams has become even more important during the low-rate environment.
Through our efforts of enhancing our product suite and expanding our services, our non-interest income now comprises 28% of our total revenue.
Our clicks-to-bricks strategy, introduced several years ago, was designed to integrate our mobile, online, and in-branch channels for a seamless and convenient banking experience.
Our philosophy of continuing to invest in technology has resulted in many industry-leading offerings, including our e-store solution center, which features a retail shopping cart experience, our mobile app and our website with videos and substantial digital content.
After launching our new website at the beginning of last year, our website engagement has increased 13% year-to-date compared to the same period in 2020, which included increased usage due to COVID and PPP origination.
The platform we built with clicks-to-bricks has been extremely important, driving the increase in adoption and usage of digital channels.
We continue to make enhancements to provide our customers with the most flexible banking option as demonstrated by our online application functionality that enables customers to quickly and easily apply for multiple products, including consumer deposits, credit cards, and home equity and mortgage loans.
In May, we launched our digital applications for mortgages on our e-store.
And since then, 61% of all applications came through our digital channels, and those -- and of those applications, approximately 46% were submitted outside of normal business hours or on the weekend.
In addition, over half of our credit card applications were made digitally in the third quarter.
Online applications for small business loans and deposits, as well as auto loans will be available by year-end.
And next year, we plan to launch a single unified application for virtually all FNB loan and deposit products to make the shopping experience for multiple products even easier.
Our new interface will reduce customers' input by eliminating redundant application fields and expand our clients' capabilities to upload information in a secure portal to expedite approvals.
Broader use of e-signature and automated documentation and disclosures will also be added over time.
F.N.B. recently introduced a chatbot, which will apply artificial intelligence and automation to assist our customer service employees in supporting our customers.
The chatbot will identify policies and procedures and provide recommended scripting to address the Top 100 frequently asked questions.
We are excited about both the current and upcoming enhancements to our digital platform, which will continue to drive increased client engagement and client acquisition and improve our operating efficiency while differentiating F.N.B. in the marketplace.
Our credit portfolio ended the third quarter very well positioned, following continued positive results across all of our key credit metrics.
This solid performance was marked by further improvement in the level of delinquency and non-performing loans, reductions in rated credits, and low net losses for both the quarterly and year-to-date periods.
Additionally, improving trends across the broader economy and government stimulus have further contributed to these favorable results, including deferrals, which have reached an immaterial level of only 0.2% of total loans.
Let's now review some of the highlights for the third quarter.
The level of delinquency, excluding PPP balances, ended September at a very solid 71 basis points, a 9 bp improvement on a linked-quarter basis, reflecting a notable improvement in non-accruals within the commercial book.
The level of NPLs and OREO improved to end the quarter at 49 basis points, representing a 9 basis point reduction from the prior quarter's ex-PPP level.
The reduction in NPLs during the quarter totaled $18 million and when compared to the year-ago period when NPLs had reached their peak, declined by $68 million, representing a solid 38% year-over-year reduction.
Net charge-offs for the quarter were very low at $1.6 million or 3 basis points annualized, while year-to-date net charge-offs were solid at 7 basis points on an annualized basis.
We recognized a $1.8 million net benefit in the provision during the quarter following these improvements in our credit quality position.
This resulted in a GAAP reserve position that was down 1 basis point to stand at 1.41% with the ex-PPP reserve decreasing 6 bps to stand at 1.45%.
Our NPL coverage position further improved ending September at a very solid level of 317% following the noted reductions in NPLs during the quarter.
Our total ending reserve position inclusive of acquired unamortized discounts totaled 1.56%.
In closing, we are very pleased with the position of our portfolio moving into the final quarter of the year and the continued progress we've made to further reduce non-performing and rated credit levels.
We remain vigilant and attentive to any emerging risks in both the broader economy and within the markets in which we and our customers operate.
With the continued supply chain and labor disruptions, elevated input costs, and the evolving nature of the virus, our approach to managing and growing our loan portfolio in this highly competitive environment remains balanced and consistent with our time-tested credit principles that have served us well throughout the various economic cycles.
This foundation of sound and consistent underwriting, timely and comprehensive management of risk, and selectively pursuing opportunities that fit our desired credit profile will support our future growth objectives as we move ahead.
Today, I will discuss our financial results for the third quarter and provide guidance for the fourth quarter.
Overall, this was a strong quarter, and we are very pleased with the results.
Our continued strategic focus on diversified fee income contribution drove non-interest income to a record $88.9 million, up $9.1 million or 11% linked-quarter, leading to record pre-provision net revenue of $138 million on an operating basis and a return on tangible common equity reaching nearly 17%.
Our tangible book value per share reached $8.42, an increase of $0.22 or 2.6% on a linked-quarter basis.
Let's walk through the financials in greater detail, starting with the highlights on Slide 4.
Third quarter earnings per share increased to $0.34, up $0.03 over the prior quarter and $0.09 from the year ago quarter.
On a linked-quarter basis, total revenue reached a record of $321 million, an increase of $13.6 million or 4.4% and drove net income available to common stockholders to a record $109.5 million, an increase of $10 million or 10.2%.
When excluding PPP, which is more reflective of the underlying loan growth, period-end total loans increased $463 million or 7.8% annualized on a linked-quarter basis with commercial loans and leases increasing $289 million or 7.4% annualized and consumer loans increasing $173 million or 8.5% annualized, building on the strong growth generated in the second quarter of this year.
As Vince said, this loan growth was across the footprint with production levels 17% higher than last quarter and 45% higher than third quarter of 2020.
Let's continue with the balance sheet on Slide 7.
Reported average loans and leases totaled $24.7 billion with average commercial loans and leases decreasing $942 million, which was entirely due to lower average PPP balances as we saw an acceleration of forgiveness and ended the quarter at $694 million.
On the deposit side, average deposits totaled $30.8 billion, an increase of $0.3 billion or 1.1% primarily in non-interest-bearing deposit accounts.
We continue to see a shift in customers' preferences for more liquid accounts in the low interest rate environment as well as maintaining larger deposit account balances than before the pandemic.
In addition, we have also seen an acceleration of deposit accounts opened digitally.
Turning to Slide 8, net interest income totaled $232.4 million, an increase of $4.5 million or 2% from the prior quarter.
Moving to PPP contribution and purchase accounting accretion, net interest income increased $2.8 million or 1.4%, reflecting an increase in average loans, more favorable funding mix and lower deposit costs.
We are expecting a slight tailwind for net interest income, excluding PPP contribution as a significant portion of our loan growth occurred during the end of the quarter.
Reported net interest margin increased 2 basis points to 2.72%, reflecting higher PPP contribution of 23 basis points and a 5 basis point benefit from acquired loan discount accretion, which was offset by higher average cash balances that reduced the net interest margin 26 basis points.
Excess cash balances grew to $3.7 billion at quarter end, a 45% increase from June 30.
When excluding these higher excess cash balances, acquired loan discount accretion and PPP impact, net interest margin declined 2 basis points.
Now let's look at non-interest income and expense on Slides 9 and 10.
Record non-interest income totaled $88.9 million, increasing $9.1 million or 11.4% from the prior quarter with broad contributions from each of our fee-based businesses.
Capital markets income increased $5.5 million, reflecting very strong swap activity with solid contributions from commercial lending activity as well as contributions from loan syndication, debt capital markets and international banking.
Service charges increased $2 million, reflecting seasonally higher customer activity volumes.
SBA volumes and average transaction sizes continue to be strong with $2 million in premium income included in other non-interest income.
Also included in other non-interest income was a $2.2 million recovery on a previously written off other assets.
Reported non-interest expense increased $1.7 million or 0.9% to $184.2 million this quarter.
Excluding non-operating items, non-interest expense increased $3.4 million or 1.9%.
On an operating basis, the increase was driven by salaries and employee benefits increasing $2.9 million or 2.8% due to production and performance-related commissions and incentives, consistent with record levels of total revenue, which was driven by diversified strong contributions from our fee-based businesses.
Overall, we produced a strong quarter and believe we are well positioned for the fourth quarter.
Now, let's turn to fourth quarter guidance on Page 12.
We expect PPP forgiveness to be $300 million to $500 million.
With the PPP loan balances decreasing, we are estimating a range of $10 million to $15 million with a PPP contribution to net interest income compared to the third quarter's contribution of $27 million.
Excluding PPP contribution, we expect net interest income to be up low single-digits relative to the third quarter.
Continuing to benefit from our diversified revenue base, we expect non-interest income to be in the high $70 million to $80 million for the fourth quarter.
Non-interest expense is expected to be around $180 million on an operating basis, which is subject to normal production-related incentives and commissions as we close out the year.
We expect the effective tax rate to be between 19% and 19.5%.
Lastly, I would like to quickly review our full year 2021 guide given last quarter.
We believe we will meet our loan growth guidance of mid single-digits.
We expect full year GAAP revenue to be up year-over-year, which will impact the production-related incentives and commissions, bringing compensation related expenses slightly higher.
Full year provision is expected to continue its strong performance with incremental provision dependent on the level of loan growth.
Overall, we believe we will finish 2021 with solid earnings.
We're pleased to announce that Howard Bank integration is currently underway, and overall, everything is moving very smoothly.
We are impressed with Howard's employees and strong customer base, and look forward to working with them.
We are still expecting to close the transaction in early 2022.
F.N.B. was once again recognized for our best-in-class digital strategy, clicks-to-bricks.
We recently received a prestigious national award for our mobile banking experience.
Our continued productive investment in our top mobile offering will soon have a new look and feel with chat support, a credit center, mobile statements and F.N.B.'s proprietary mobile e-store enabling product, service and financial literacy to be available within the mobile app.
Other features include Snap-to-Pay, which enables customers to add a payee by taking a picture of their bill and F.N.B. express deposit, where for a fee, select customers would be offered immediate funds availability for mobile deposited items.
This quarter's performance demonstrates the dedication and drive of our employees.
It is because of each person's commitment to F.N.B. and our clients that we have been able to achieve record quarterly revenue.

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q3 revenue $321 million versus refinitiv ibes estimate of $306.9 million.
q3 earnings per share $0.34.

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