F.N.B. Corp. (FNB) Hurt by High Expenses, Weak Asset Quality
F.N.B. Corporation’s FNB persistent rise in non-interest expenses and deteriorating asset quality are major near-term headwinds. However, the company is set for organic growth, given decent loan demand and higher interest rates.
F.N.B. Corp. has been recording a steady rise in non-interest expenses. The metric witnessed a compound annual growth rate (CAGR) of 3.9% over the five-year period ended 2022, with the uptrend continuing in the first nine months of 2023. The increase was mainly due to higher salaries and benefits costs as well as strategic acquisitions. Overall costs are expected to remain elevated as the company continues to invest in franchises, digitize operations and grow through acquisitions. We expect non-interest expenses (GAAP) to witness a CAGR of 5% over the three years ended 2025.
FNB’s asset quality has been deteriorating over the past few years. While the company recorded a plunge in provision for credit losses in 2021, the metric increased substantially in 2020 and 2022 as it continued to build reserves to combat the tough operating environment. Even in the first nine months of 2023, provisions witnessed a year-over-year rise. Provisions are expected to remain high, given the current tough macroeconomic outlook in the near term. Management expects the provision for credit losses between $70 million and $80 million in 2023. We expect provisions to increase 24.3% in 2023.
FNB currently carries a Zacks Rank #4 (Sell). Shares of the company have gained 20.2% over the past six months compared with the industry's growth of 17.2%.
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Despite the abovementioned headwinds, F.N.B. Corp. is focused on its revenue growth strategy. Its total revenues witnessed a CAGR of 5.6% over the last five years (2017-2022). Net loans saw a CAGR of 7.5% over the same time frame. Both revenues and loans recorded a rise in the first nine months of 2023. The company has been undertaking strategic actions to improve non-interest income by enhancing its product suite and expanding services. In the first nine months of 2023, fee income comprised 19.5% of total net revenues. Strategic expansion moves like de novo expansion and decent loan demand will likely continue to support the top line. We expect NII to grow 16.8% in 2023. While non-interest income is expected to decline in 2023 and 2024, the metric will likely grow 3.2% in 2025. Net loans and leases are expected to rise 6.9% in 2023.
Supported by higher interest rates, F.N.B. Corp.’s net interest margin (NIM) is expected to improve in the near term though rising deposit costs might weigh on it. Notably, after slashing rates thrice in 2019, the Federal Reserve cut interest rates to near zero in March 2020, with an aim to support the U.S. economy amid the coronavirus-induced mayhem. This hurt the company’s NIM, which had been declining over the past few years — 3.17% in 2019, 3.39% in 2018 and 3.43% in 2017. NIM declined 2.68% in 2021 and 2.91% in 2020. Nevertheless, NIM increased to 3.03% in 2022, with the uptrend continuing in the first nine months of 2023. We expect NIM to increase to 3.34% in 2023.
Stocks to Consider
Some better-ranked bank stocks are FVC Bancorp FVCB and Live Oak Bancshares LOB.
The Zacks Consensus Estimate for FVC Bancorp’s 2023 earnings has moved 1% upward over the past 30 days. The stock has appreciated 20% over the past three months. FVCB currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for Live Oak Bancshares’ 2023 earnings has remained unchanged over the past seven days. The company’s shares have gained 49.3% over the past three months. LOB has a Zacks Rank of 1 at present.
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