F.N.B. Corp., which closed two substantial bank acquisitions in 2022 and is generating strong profits in a favorable interest rate environment, gave a tepid outlook for deal activity in its 2022 fourth-quarter earnings report.
"I wouldn't want to be an investment banker in the short run here," Chairman, President and CEO Vincent Delie Jr. said during a conference call on Jan. 24. He cited obstacles like hits to the value of banks' bond portfolios as rates surged in 2022.
"We've stated repeatedly that we're not interested in diluting tangible book value," he said. "We have capital flexibility that we've never had before," but that could translate into share repurchases and a higher dividend.
The Pittsburgh-based bank's common equity Tier 1 ratio was 9.8% at the end of 2022, and CFO Vincent Calabrese Jr. said it expects to move past 10% in the near term. He said F.N.B.'s priority remains loan growth, but buybacks are "clearly on the table for 2023."
F.N.B. completed a $452.0 million purchase of Howard Bancorp Inc. early in 2022, adding branches in Maryland. It also completed a $127.6 million purchase of UB Bancorp in December 2022, adding branches in North Carolina. F.N.B. entered the state in 2016, and Delie said the Carolinas have contributed 40% of the bank's net loan growth over the last three years.
Delie said the $43.72 billion asset bank plans to continue to grow in its "expansion market" in Charleston, S.C., and that the Philadelphia market, where it has no deposit branches, presents opportunities to grow in middle-market and large corporate commercial lending. He also said the bank has studied opening a commercial loan production office in Atlanta and is "looking at de novo expansion in Richmond." The bank has just one deposit branch in Virginia, in a suburb of Washington, D.C.
But F.N.B. is planning nothing "earth shattering" in terms of retail de novo expansion.
F.N.B.'s fully taxable equivalent net interest margin widened by 34 basis points sequentially to 3.53%, and Delie said that period-end commercial and consumer loans grew 14% and 6%, respectively, on an annualized basis excluding the UB Bancorp acquisition. The bank reported a cumulative total deposit beta, or the increase in deposit costs relative to underlying interest rates across the tightening cycle so far, of 16.3% as of the fourth quarter of 2022, and projected a cumulative beta in the high 20s through the end of 2023.
It also projected mid-single-digit percent ending period loan growth in 2023 and net interest income of up to $1.40 billion, compared with $1.12 billion in 2022.
Analysts said the 2022 fourth-quarter results beat consensus estimates, and the guidance for 2023 also exceeded expectations. FNB's shares were up about 3.1% around 11:20 a.m. ET on Jan. 24, while the KBW Nasdaq Bank Index was up about 0.2%.
The loan growth outlook does reflect softening commercial pipelines, however, which Delie said are down about 10% to 15% year over year.
"We're being a little more careful as we move into next year" over economic uncertainty, Delie said.
"Our borrowers are on the sidelines for a little bit here to see what happens," Delie added. "That's just something that illustrates where we are economically."