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F.N.B. Ratings Reiterated by Moody's, Outlook Downgraded

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Ratings of F.N.B. Corporation (FNB - Free Report) and its bank subsidiary, First National Bank of Pennsylvania, were recently confirmed by Moody’s Investors Service. However, the outlook has been downgraded from positive to stable.

The company has a long-term issuer rating and subordinate debt rating of Baa3. Also, the subsidiary’s deposits have been rated as A3/Prime-2. Its standalone baseline credit assessment (BCA) is baa2 and ratings for its counterparty risk assessments are Baa1(cr)/Prime-2(cr).  

Reasons Behind Ratings Affirmation

Moody’s had taken into consideration F.N.B. Corporation’s gradually expanding and sustainable core banking franchise, sound credit risk management, results in good core deposit funding and strong asset quality metrics while affirming the ratings. Also, the ratings agency was optimistic of the company’s lower capitalization and impressive efforts to grow inorganically.

Despite risky acquisition moves, F.N.B. Corporation’s asset quality stands strong as reflected by ratio of non-performing loans to gross loans as low as 0.94% and consistently declining net-charge offs. Good asset quality is a result of proper risk control measures undertaken by the company. Also, Moody’s was impressed by the company’s ability of smoothly integrating bank platforms and making appropriate credit marks.

F.N.B. Corporation has adequate dependence on wholesale funding because its banking business provides with a deposit base that is sufficient to funds its loans. Also, the company has successfully retained its acquired deposit relationships preserving the core deposit funding of its loan portfolio. Also, Moody’s feels that its originated loan growth rate (excluding acquired loans) is impressive and in line with peers.

However, per Moody’s, lower capital ratios remained a key negative factor for F.N.B. Corporation. Adjusted tangible common equity as a percentage of risk-weighted assets (per Moody’s calculation) was 8.5% at the end of 2017 compared to the similarly-rated peer median of 12%. Further, its common dividend payout ratio was considered to be high relative to earnings. Nevertheless, Moody’s expects dividend payout ratio to decline as earnings improve on the back of lower corporate tax rate and expectations of further rate.

What Made Moody’s Downgrade Outlook

Moody’s feels that F.N.B. Corporation would maintain its acquisition moves, which might affect its credit quality in the future. The rating agency fears that the acquisitions might become larger as the government recently uplifted the systemically important financial institution threshold from $50 billion to $250 billion of total consolidated assets. As of Dec 31, 2017, F.N.B. Corporation had $31 billion in assets.

Factors That Might Trigger Change in Ratings

Moody’s is of the opinion that a more predictable acquisition strategy and consistently good asset quality, sustained improvement in capital and liquidity metrics would result in upward ratings.

On the other hand, a materially lower capital position or weakening in asset quality in either the company’s originated or acquired loan portfolios could result in a downward rating movement.

The company’s shares have lost 7.3% in the past year against 7.7% growth of the industry.

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Carolina Financial Corporation has witnessed an upward estimate revision of 5.6% in the last 60 days. Additionally, the stock has rallied more than 31% in the past year. It carries a Zacks Rank #2 (Buy).

National Commerce Corporation’s earnings estimates for the current year have been revised 1.5% upward over the last 60 days. Its shares have gained 16.5% in the past year. It carries a Zacks Rank of 2.

Triumph Bancorp earnings estimate have been revised nearly 1% upward for the current year, over the last 60 days. The company’s shares have soared around 54.6% in a year’s time. It also carries a Zacks Rank of 2.

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