- Net Income: $123 million, $0.34 per diluted common share.
- Pre-Provision Net Revenue: Increased over 4% linked quarter.
- Tangible Book Value Per Share: Grew 12% year-over-year to $9.88.
- Loan Growth: 6% linked quarter, with consumer loans growing 5% and commercial loans showing double-digit year-over-year growth in the Carolinas.
- Deposit Growth: 1% linked quarter, with non-interest-bearing deposits over $10 billion, an annualized increase of 3.2% from the prior quarter.
- Non-Interest Income: $88 million for both Q1 and Q2, totaling $176 million for the first half of the year, a 10% increase over the same period in 2023.
- Provision Expense: $20.2 million for the quarter.
- Net Interest Margin: 3.09%, a decrease due to increased short-term borrowings.
- Net Interest Income: $315.9 million, a $3.1 million decrease from the prior quarter.
- Efficiency Ratio: 54.4% for the second quarter.
- Total Loans and Leases: $33.8 billion, a linked quarter increase of $1.2 billion or 3.6%.
- Total Deposits: $35 billion, an increase of $259 million linked quarter.
- Loan-to-Deposit Ratio: Increased to 96% at June 30 from 94% at March 31.
- Non-Interest Expense: $225.8 million, an $8.3 million decrease from the prior quarter.
- Capital Position: Tangible common equity ratio near 8%, CET1 ratio at 10.2%.
- Guidance for Full Year 2024: Projected net interest income between $1.27 billion and $1.29 billion, non-interest income between $350 million and $355 million, non-interest expense between $900 million and $915 million, and provision expense between $75 million and $95 million.
Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- F N B Corp (FNB, Financial) reported solid second-quarter results with net income available to common shareholders of $123 million, or $0.34 per diluted common share.
- Tangible book value per share grew 12% year-over-year to a record high of $9.88.
- Loan and deposit growth exceeded expectations, with loans growing 6% and deposits 1% linked quarter.
- Non-interest income remained stable at near-record levels, totaling $88 million for both the first and second quarters.
- Asset quality metrics remained strong, with delinquency at 63 basis points and net charge-offs at 9 basis points.
Negative Points
- Net interest margin decreased to 3.09%, driven by increased short-term borrowings.
- Loan growth is expected to slow in the second half of the year due to seasonal factors and a decline in commercial pipelines.
- The company had to rely on short-term borrowings to fund robust loan growth, increasing total borrowings by $1.4 billion.
- Deposit costs have been rising, with a total cumulative spot deposit beta of 38% since March 2022.
- The company faces challenges in maintaining its loan-to-deposit ratio, which increased to 96% at the end of the quarter.
Q & A Highlights
Q: You talked about a slowing of loan growth in the back half of the year relative to a strong second quarter. Can you discuss the expected mix of loan growth in the back half, particularly in residential and commercial real estate?
A: The mortgage growth is seasonal, and we expect it to come down substantially in the second half. Construction fundings will also slow as they are primarily from committed obligations. We had robust growth in equipment finance and C&I, particularly in the Carolinas, Pittsburgh, and Cleveland. We expect loan growth to return to historical levels for the remainder of the year.
Q: Can you provide more detail on the deposit initiatives planned for the back half of the year to right-size the loan-to-deposit ratio?
A: We have modified incentive plans for the consumer bank to focus on deposit growth. We have several calling initiatives on larger treasury management opportunities and have won transactions that are yet to be funded. Our digital investments are also starting to gain traction. We are focusing on lower-cost deposit categories and leveraging data analytics for cross-selling.
Q: Given the strong fee income quarter and guidance for continued strength, where do you see the greatest opportunity to grow fee income as a percentage of total revenue?
A: Our long-term target is 30% of total revenue. We have had success in capital markets, derivatives, syndications, and wealth management. There is also significant upside in treasury management and insurance. We continue to build out these capabilities and expect them to contribute more to our total revenue over time.
Q: With slower loan growth expected in the back half of the year and capital levels above target, do you expect buyback activity to ramp up?
A: Currently, we do not have plans to repurchase shares in the second half of the year. Our focus is on using capital to support loan growth. The buyback will be part of our operation every year, but as of now, the best use of capital is to support loan growth and let capital build gradually.
Q: Can you discuss the funding strategy and the impact of deposit initiatives on funding costs?
A: The guide assumes the increased liability position we are entering the third quarter with. The better we do on deposit initiatives, the more we can replace short-term borrowings. The short-term borrowings will reprice down quickly when the Fed cuts rates. Our deposit initiatives focus on operating accounts and non-interest-bearing deposits, which should help manage funding costs.
Q: Given your move towards a neutral balance sheet and the potential for Fed rate cuts, how will this impact the net interest margin (NIM)?
A: If the Fed cuts rates and there is an expectation of continued cuts, it gives us more cover to act aggressively on deposit pricing. This would help capture downside beta quicker. If it's a one-and-done cut, there might be short-term timing issues, but overall, it sets us up well for 2025.
Q: Can you provide an update on the competitive landscape for deposit pricing in your markets?
A: Many competitors have pulled back on aggressive deposit pricing. We have seen a reduction in promotional pricing by 25 to 50 basis points. The competition is less intense than during the peak of the liquidity crisis, but there are still pockets of aggressive pricing. The focus is now more on selective repricing and shorter-term CDs.
Q: What are your updated thoughts on M&A, especially in light of potentially more accommodating regulatory environments?
A: We remain opportunistic about M&A but are currently focused on internal initiatives such as building out digital platforms and enhancing our capabilities. We are also expanding organically in markets like Virginia and the Carolinas. M&A is not off the table, but our current focus is on strengthening our existing platform.
Q: Can you discuss the impact of the new building on expenses and the timing of the move?
A: We are currently incurring double rent expenses due to the timing of our move to the new building, which is scheduled for the fourth quarter of 2024. This double rent expense will not carry forward into 2025, resulting in a reduction in expenses once we complete the move.
Q: Are there any signs of weakness or potential concerns in credit performance based on your stress testing?
A: Over the last three quarters, our stress testing has shown improvements in potential charge-offs and losses. We are very aggressive in managing our loan book, and our stress testing results continue to show positive outcomes, indicating stable credit performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
