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High Rates & Strategic Buyouts Aid F.N.B. Corp., Asset Quality Weak
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F.N.B. Corp. (FNB - Free Report) remains well-poised for growth on the back of revenue growth, strategic buyouts, technological enhancements and higher rates. However, a mounting expense base, concentrated loan portfolio and deteriorating asset quality remain woes.
FNB’s Growth Drivers
Strategic Efforts to Grow Revenues: F.N.B. Corp.’s revenues and loans witnessed a 5.4% and 7.8% compound annual growth rate (CAGR) over the five years ended 2023, respectively. While revenues witnessed a decline during the first half of 2024, the momentum for loans continued.
The company’s strategic efforts to bolster non-interest income via product suite enhancement, AI leverage, consistent client acquisition and service expansion will likely aid revenues to some extent. Further, de novo expansion, alongside a solid loan and deposit pipeline will boost revenues.
Our estimates suggest net interest income to fall 3% in 2024, with a subsequent recovery in 2025 and 2026, demonstrating 3.6% and 3.8% growth, respectively. Also, we project non-interest income to jump 38.1% in 2024 and net loans and leases to grow 4.3%.
Revenue Growth Trend
Image Source: Zacks Investment Research
High Interest Rates to Aid Net Interest Margin (NIM): Despite a high likelihood of a rate cut in September 2024, interest rates are still anticipated to be high in the near term, given the 11 rate hikes implemented by the Fed previously to tackle inflationary pressures.
In 2023, NIM expanded to 3.35% from 3.03% in 2022 and 2.68% in 2021. While the trend reversed during the first half of 2024, high rates alongside rolling off of swaps will aid NIM expansion in the near term, while rising deposit costs will weigh on it.
We estimate NIM to be 3.11% in 2024 as high deposit costs exert pressure on it.
Opportunistic Buyouts: The company is actively engaged in strategic acquisitions to expand its footprint and diversify revenue streams. FNB has successfully integrated numerous buyouts since 2005.
In 2022, the company acquired UB Bancorp to deepen its presence in North Carolina and Howard Bancorp. Likewise, previous deals will likely be accretive to the company’s earnings going forward.
A solid balance sheet and liquidity profile enable F.N.B. Corp. to pursue its inorganic expansion strategy.
Technological Enhancements: F.N.B. Corp. has been enhancing its banking services through mobile integration, online and in-branch platforms, leading to higher digital traffic.
The company has been investing in technology to boost client experience, notably by merging its e-store into the FNB Direct mobile app to offer a universal platform for all products and services.
In 2022, it introduced e-store kiosks in branches and is expanding its branch and automated teller machines network in northern Virginia and Washington, D.C. by 2024. These initiatives are likely to boost the operational efficiency of the company over time.
Headwinds for F.N.B. Corp.
Elevated Expense Base: FNB’s total non-interest expenses reflected a 5.7% CAGR over the five years ending 2023, with an uptrend persisting in the first six months of 2024.
This growth was primarily driven by higher salaries and benefits costs alongside strategic acquisitions. Overall expenses are likely to stay elevated in light of ongoing investments in franchises, digitization of operations and opportunistic buyouts.
While we project non-interest expenses to dip slightly this year, the metric will grow 5% and 2.7% in 2025 and 2026, respectively.
Total Expense Growth
Image Source: Zacks Investment Research
Worsening Asset Quality: F.N.B. Corp. recorded a significant rise in provision for credit losses from 2020 to 2023 (except in 2021, where the metric plunged) given the company’s efforts to combat a tough operating backdrop through building reserves. The uptrend continued during the first half of 2024.
Provisions are likely to stay high in the near term amid the expectations of an economic slowdown. Management anticipates provision for credit losses to be in the range of $75-95 million in 2024. We project the metric to rise 12.6% this year.
Concentrated Loan Portfolio: As of June 30, 2024, FNB’s commercial loans accounted for 62.5% of total loans and leases. A dynamic macroeconomic backdrop is likely to exert pressure on the creditworthiness of these loans. Hence, a less diversified loan portfolio will likely hurt the company’s financials in the event of economic turmoil.
Loan Portfolio (As of June 30, 2024)
Image Source: F.N.B. Corp.
FNB currently carries a Zacks Rank #3 (Hold). Year to date, shares of the company have gained 6.5%, underperforming the industry’s growth of 15.9%.
Estimates for CTBI’s current-year earnings have remained unchanged in the past month. The company’s shares have jumped 24.1% over the past six months.
Estimates for FSRL’s current-year earnings have been revised 11.3% upward in the past week. The company’s shares have risen 11.9% over the past six months.
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High Rates & Strategic Buyouts Aid F.N.B. Corp., Asset Quality Weak
F.N.B. Corp. (FNB - Free Report) remains well-poised for growth on the back of revenue growth, strategic buyouts, technological enhancements and higher rates. However, a mounting expense base, concentrated loan portfolio and deteriorating asset quality remain woes.
FNB’s Growth Drivers
Strategic Efforts to Grow Revenues: F.N.B. Corp.’s revenues and loans witnessed a 5.4% and 7.8% compound annual growth rate (CAGR) over the five years ended 2023, respectively. While revenues witnessed a decline during the first half of 2024, the momentum for loans continued.
The company’s strategic efforts to bolster non-interest income via product suite enhancement, AI leverage, consistent client acquisition and service expansion will likely aid revenues to some extent. Further, de novo expansion, alongside a solid loan and deposit pipeline will boost revenues.
Our estimates suggest net interest income to fall 3% in 2024, with a subsequent recovery in 2025 and 2026, demonstrating 3.6% and 3.8% growth, respectively. Also, we project non-interest income to jump 38.1% in 2024 and net loans and leases to grow 4.3%.
Revenue Growth Trend
Image Source: Zacks Investment Research
High Interest Rates to Aid Net Interest Margin (NIM): Despite a high likelihood of a rate cut in September 2024, interest rates are still anticipated to be high in the near term, given the 11 rate hikes implemented by the Fed previously to tackle inflationary pressures.
In 2023, NIM expanded to 3.35% from 3.03% in 2022 and 2.68% in 2021. While the trend reversed during the first half of 2024, high rates alongside rolling off of swaps will aid NIM expansion in the near term, while rising deposit costs will weigh on it.
We estimate NIM to be 3.11% in 2024 as high deposit costs exert pressure on it.
Opportunistic Buyouts: The company is actively engaged in strategic acquisitions to expand its footprint and diversify revenue streams. FNB has successfully integrated numerous buyouts since 2005.
In 2022, the company acquired UB Bancorp to deepen its presence in North Carolina and Howard Bancorp. Likewise, previous deals will likely be accretive to the company’s earnings going forward.
A solid balance sheet and liquidity profile enable F.N.B. Corp. to pursue its inorganic expansion strategy.
Technological Enhancements: F.N.B. Corp. has been enhancing its banking services through mobile integration, online and in-branch platforms, leading to higher digital traffic.
The company has been investing in technology to boost client experience, notably by merging its e-store into the FNB Direct mobile app to offer a universal platform for all products and services.
In 2022, it introduced e-store kiosks in branches and is expanding its branch and automated teller machines network in northern Virginia and Washington, D.C. by 2024. These initiatives are likely to boost the operational efficiency of the company over time.
Headwinds for F.N.B. Corp.
Elevated Expense Base: FNB’s total non-interest expenses reflected a 5.7% CAGR over the five years ending 2023, with an uptrend persisting in the first six months of 2024.
This growth was primarily driven by higher salaries and benefits costs alongside strategic acquisitions. Overall expenses are likely to stay elevated in light of ongoing investments in franchises, digitization of operations and opportunistic buyouts.
While we project non-interest expenses to dip slightly this year, the metric will grow 5% and 2.7% in 2025 and 2026, respectively.
Total Expense Growth
Image Source: Zacks Investment Research
Worsening Asset Quality: F.N.B. Corp. recorded a significant rise in provision for credit losses from 2020 to 2023 (except in 2021, where the metric plunged) given the company’s efforts to combat a tough operating backdrop through building reserves. The uptrend continued during the first half of 2024.
Provisions are likely to stay high in the near term amid the expectations of an economic slowdown. Management anticipates provision for credit losses to be in the range of $75-95 million in 2024. We project the metric to rise 12.6% this year.
Concentrated Loan Portfolio: As of June 30, 2024, FNB’s commercial loans accounted for 62.5% of total loans and leases. A dynamic macroeconomic backdrop is likely to exert pressure on the creditworthiness of these loans. Hence, a less diversified loan portfolio will likely hurt the company’s financials in the event of economic turmoil.
Loan Portfolio (As of June 30, 2024)
Image Source: F.N.B. Corp.
FNB currently carries a Zacks Rank #3 (Hold). Year to date, shares of the company have gained 6.5%, underperforming the industry’s growth of 15.9%.
Year to Date Price Performance
Image Source: Zacks Investment Research
Banking Stocks Worth Considering
Some better-ranked bank stocks worth considering are Community Trust Bancorp, Inc. (CTBI - Free Report) and First Reliance Bancshares, Inc. (FSRL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks Rank #1 stocks here.
Estimates for CTBI’s current-year earnings have remained unchanged in the past month. The company’s shares have jumped 24.1% over the past six months.
Estimates for FSRL’s current-year earnings have been revised 11.3% upward in the past week. The company’s shares have risen 11.9% over the past six months.