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F.N.B. Corporation’s (FNB - Snapshot Report) fourth quarter 2012 earnings of 23 cents per share were ahead of the Zacks Consensus Estimate by a penny. This also compares favorably with the prior-year quarter earnings of 19 cents.

Better-than-expected quarterly results were driven by top-line growth, partly offset by higher operating expenses. Further, continuous improvement in credit quality, growth in loans and deposit balances as well as steady capital ratios were the other highlights for the quarter.

Considering after-tax charges related to litigation settlement and branch consolidation, net income in the fourth quarter stood at $29.0 million or 21 cents per share, up from $23.7 million or 19 cents per share in the year-ago quarter. In 2012, net income, after considering certain non-recurring items, was $110.4 million or 79 cents per share compared with $87.0 million or 70 cents per share in 2011.

Performance in Detail

FNB’s total revenue in the reported quarter grew 7.9% on a year-over-year basis to $139.7 million, surpassing the Zacks Consensus Estimate of $129.0 million.

In 2012, total revenue jumped 10.2% on a year-over-year basis to $563.4 million. Also, it surpassed the Zacks Consensus Estimate of $505.0 million.

Taxable-equivalent net interest income marginally surged 16.7% year over year to $95.7 million. The rise was mainly attributable higher interest income and a decline in interest expense. However, net interest margin dipped 13 basis points from the prior-year quarter to 3.66% reflecting the present low interest rate environment.

Non-interest income declined 1.4% from the prior-year quarter to $32.1 million. The decrease was primarily due to significantly low gain on sale of securities, partially offset by higher service charges, insurance commissions and fees, securities commissions and fees as well as gain on sale of loans.

Non-interest expense was $76.6 million, up 7.0% from $71.6 million in the previous-year quarter. The jump was mainly a result of higher salary and employee benefits costs, occupancy and equipment costs as well as amortization of intangibles. These were partially offset by drastic decline in other real estate owned (OREO) costs.

The efficiency ratio fell to 55.45% from 59.27% recorded in the prior-year quarter. The fall indicates improvement in profitability.

Asset Quality

Asset quality witnessed a mixed bag during the quarter with nonperforming assets dipping 1.9% sequentially and 20.7% on a year-over-year basis to $118.9 million.

Annualized net charge offs as a percentage of total average loans came in at 0.38% in the reported quarter, up from 0.37% in the previous quarter but down from 0.95% in the year-ago quarter.

However, allowance for loan losses increased 1.6% sequentially and 3.7% year-over-year to $104.4 million. Likewise, provision for credit losses grew 10.0% from the prior quarter and 11.9% from the prior-year quarter to $9.3 million.  

Loans and Deposits

FNB’s total loans as of Dec 31, 2012 were $8.1 billion, rising 18.7% from previous year. The improvement was driven by increases in all the loan portfolios.

As of Dec 31, 2012, total deposits advanced 24.6% year over year to $9.1 billion. The increases were primarily due to the higher levels of non-interest-bearing demand deposits.

Capital Ratios

FNB’s capital ratios witnessed improvement in 2012. As of Dec 31, 2012, the estimated total risk-based capital ratio was 12.2%, at par with the Sep 30, 2012 level.

Further, the estimated tier 1 risk-based capital ratio was 10.7%, up from 10.6% as of Sep 30, 2012. The leverage ratio was 8.29% compared with 8.24% in the prior quarter.

Profitability Ratios

FNB’s profitability ratios witnessed mixed movements during the reported quarter. The return on average assets was 0.96% compared with 1.03% as of Sep 30, 2012 and 0.95% as of Dec 31, 2011.

As of Dec 31, 2012, return on average equity came in at 8.23%, down from 8.83% as of Sep 30, 2012 but up from 7.72% as of Dec 31, 2011. Book value per common share was $10.02, up from $9.98 in the prior quarter and $9.51 in the year-ago period.

Our Viewpoint

We are impressed with FNB’s organic growth as well as constantly improving credit quality and strong balance sheet. However, rising expenses keep us on the sidelines. Moreover, we remain concerned about the impacts of the prevailing low interest rate environment, sluggish economic growth and stringent regulatory landscape on the company’s financials in the near term.

FNB currently retains a Zacks Rank #4 (Sell). However, other southeast banks namely Access National Corp. (ANCX - Snapshot Report), First Bancorp (FBNC - Snapshot Report) and Union First Market Bankshares Corporation (UBSH - Snapshot Report) carry a Zacks Rank #1 (Strong Buy) and are worth considering for investment.

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