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F.N.B. Corp (FNB) Gains From Buyouts & Loan Demand, Costs Rise

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F.N.B. Corporation’s (FNB - Free Report) strategic acquisitions, rise in demand for loans and digitization of operations will keep aiding financials in the quarters ahead. However, relatively lower interest rates and mounting costs are near-term concerns.

Acquisitions remain a major portion of F.N.B. Corp’s business expansion plan. Since 2005, it has successfully integrated 15 buyouts. This January, it acquired Howard Bancorp in an all-stock deal. This, along with prior deals, will continue to be accretive to the company’s earnings. Given a solid balance sheet and liquidity position, FNB is likely to continue its expansion strategy.

Similar to FNB, several other banks, including Fulton Financial Corporation (FULT - Free Report) and Stock Yards Bancorp, Inc. (SYBT - Free Report) , are undertaking acquisitions to further support revenues. This month, FULT and Prudential Bancorp, Inc. (PBIP - Free Report) entered into a merger agreement under which Prudential Bancorp will merge with and into Fulton Financial. The stock and cash deal, valued at $142.1 million, is expected to close in the third quarter of 2022.

Stock Yards Bancorp acquired Commonwealth Bancshares, Inc. earlier this month, following the regulatory nod from the Federal Reserve in mid-February. The merger will expand SYBT’s presence in Shelby County and strengthen its footprint in the Northern Kentucky markets.

Opportunistic buyouts and improving loan balance have been supporting F.N.B. Corp’s revenues. Over the last five years (ended 2021), the same witnessed a CAGR of 3%. Net loans saw a CAGR of 4.3% over the same time frame. Decent economic growth, strategic expansion moves like opportunistic de novo expansion and gradual rise in loan demand will support the top-line growth.

Management projects net interest income between $965 million and $1,005 million for 2022, while non-interest income is expected to be in the range of $320-$340 million.

Under its “clicks-to-bricks” strategy, F.N.B. Corp has been integrating mobile, online and in-branch modes for a seamless and convenient banking experience. Also, driven by increased digital usage, the company has been consolidating its branch network, leading to cost savings. These initiatives are expected to improve the company’s operating efficiency over time.

However, pressure on net interest margin (NIM) is a major concern for F.N.B. Corp. Amid the low-interest-rate environment, the company’s NIM has been declining – 2.68% in 2021, 2.91% in 2020, 3.17% in 2019, 3.39% in 2018 and 3.43% in 2017. Even though the Fed has signaled interest rate hikes this year, relatively lower rates are likely to keep its NIM under pressure in the near term.

Further, F.N.B. Corp has been witnessing a persistent rise in expenses. Adjusted expenses witnessed a CAGR of 1.2% over the four-year period ended 2021. The increase was mainly due to higher salaries and benefits costs as well as strategic acquisitions. Overall costs are expected to remain elevated as FNB continues to invest in franchises, digitize operations and grow through acquisitions.