Earnings of F.N.B. Corporation (NYSE:FNB) will likely remain flattish through the end of 2025. Loan growth will likely lift earnings, while margin contraction will restrain earnings growth. Overall, I'm expecting the company to report earnings of $1.33 per share for 2024 and $1.34 per share for 2025. The year-end target price is close to the current market price. Further, the company is offering a satisfactory dividend yield. Based on the total expected return, I'm adopting a hold rating on F.N.B. Corporation.
Loan Growth Likely to Improve After the Lackluster First Quarter
F.N.B. Corporation's loan portfolio grew by a low rate of 0.8% during the first quarter of the year, or 3.3% annualized. The growth rate for last year was much better at 6.9%.
In my opinion, there's a good chance that the loan growth will recover after a slow first quarter because the operating environment is currently almost as good as the last couple of years. This is evident from the unemployment rate, which continues to remain at a satisfactory level. F.N.B. Corporation operates in Washington D.C., Ohio, Pennsylvania, Maryland, Virginia, West Virginia, North Carolina, and South Carolina. Although these states are contiguous, their economies are quite different from each other. As a result, I think it's appropriate to take the national average as a proxy for F.N.B. Corporation's diverse markets. As shown below, the unemployment rate is currently quite low when compared to previous years. Additionally, professional forecasters expect the unemployment rate to rise but remain below the level seen in years before 2019.
Moreover, strong pipelines will keep loan growth robust in the near term. The management mentioned in the conference call that the pipelines were up 15% at the time of the call.
Considering these factors, I'm expecting the loan portfolio to grow by 1.50% every quarter through the end of 2025. Further, I'm expecting other balance sheet items to grow mostly in line with loans. The following table shows my balance sheet estimates.
| Financial Position | FY19 | FY20 | FY21 | FY22E | FY23 | FY24E | FY25E |
| Net Loans | 23,093 | 25,096 | 24,624 | 29,853 | 31,917 | 33,648 | 35,713 |
| Growth of Net Loans | 5.1% | 8.7% | (1.9)% | 21.2% | 6.9% | 5.4% | 6.1% |
| Other Earning Assets | 6,807 | 7,499 | 10,340 | 8,717 | 8,782 | 8,744 | 9,281 |
| Deposits | 24,786 | 29,122 | 31,726 | 34,770 | 34,711 | 36,322 | 38,550 |
| Borrowings and Sub-Debt | 4,556 | 2,899 | 2,218 | 2,465 | 4,477 | 4,387 | 4,656 |
| Common equity | 4,776 | 4,852 | 5,043 | 5,546 | 5,943 | 6,242 | 6,556 |
| Book Value Per Share ($) | 14.6 | 14.9 | 15.6 | 15.7 | 16.4 | 17.2 | 18.1 |
| Tangible BVPS ($) | 7.5 | 7.8 | 8.6 | 8.4 | 9.4 | 10.2 | 11.1 |
| Source: SEC Filings, Author's Estimates | |||||||
| (In USD million, unless otherwise specified) | |||||||
Margin Likely to Dip Amid Interest Rate Cuts
The net interest margin fell for four straight quarters until the end of March 2024. Further margin contraction is likely in the latter part of this year because of anticipated Fed funds rate cuts. Based on the Fed's projections, I'm expecting the Fed funds rate to dip by 25 basis points towards the end of 2024 and 100 basis points in 2025. As mentioned in the earnings presentation, around 62% of loans carry variable/adjustable rates, which will re-price downwards soon after rate cuts. Meanwhile, the deposit cost won't be that rate-sensitive because of the large proportion of non-interest-bearing and time deposits.
The results of the management's rate sensitivity analysis given in the 10-Q filing show that a 100-basis points rate cut could reduce the net interest income by 1.7% over twelve months.
Considering these factors, I'm expecting the margin to have remained stable in the second quarter of the year. Further, I'm expecting the margin to remain stable in the third and fourth quarters of 2024. I'm expecting the margin to dip by two basis points in every quarter of 2025.
Earnings Likely to be Flattish
Based on my loan growth and margin estimates, I'm expecting the net interest income to dip by 1.5% year-over-year to $1.297 billion in 2024. My projection is near the lower limit of management's guidance given in the conference call. The management projected full-year net interest income to be between $1.295 billion and $1.345 billion.
I'm taking the management's guidance given in the conference call for the remaining income statement line items. The management gave the following guidance for 2024:
- Non-interest income to remain between $325 million and $345 million.
- Non-interest expense to be between $895 million and $915 million, with the second quarter non-interest expense expected to be between $220 million and $230 million.
- Full-year provision guidance is $80 million to $100 million and is dependent on net loan growth and charge-off activity.
- Full-year effective tax rate to be between 21% and 22%.
Considering these assumptions, I'm expecting the company to report earnings of $1.33 per share for 2024 and $1.34 per share for 2025. The following table shows my income statement estimates.
| Income Statement | FY19 | FY20 | FY21 | FY22E | FY23 | FY24E | FY25E |
| Net interest income | 917 | 922 | 907 | 1,120 | 1,317 | 1,297 | 1,351 |
| Provision for loan losses | 44 | 123 | 1 | 64 | 72 | 89 | 88 |
| Non-interest income | 294 | 294 | 330 | 323 | 254 | 333 | 369 |
| Non-interest expense | 696 | 750 | 733 | 826 | 915 | 898 | 894 |
| Net income - Common Sh. | 379 | 278 | 397 | 431 | 477 | 483 | 487 |
| EPS - Diluted ($) | 1.16 | 0.85 | 1.23 | 1.22 | 1.31 | 1.33 | 1.34 |
| Source: SEC Filings, Author's Estimates | |||||||
| (In USD million, unless otherwise specified) | |||||||
F.N.B. Corporation is scheduled to announce its second-quarter results on July 17, 2024. Based on the assumptions mentioned above, I'm expecting the company to report earnings of around $0.33 per share for the quarter.
Exposure to Office Properties is the Only Major Source of Risk
F.N.B. Corporation's exposure to office property loans is the biggest source of risk. Office property loans totaled around $1.9 billion at the end of March 2024, representing 6% of total loans. Moreover, around 11% of these office loans were criticized, as mentioned in the earnings presentation.
Apart from the office exposure, the company's risk level appears low. Unrealized losses on the Available-for-Sale securities portfolio totaled $228 million at the end of March 2024, which is around just 4% of total equity book value.
Moreover, the liability side of the balance sheet also appears to have low risk. Around 78% of deposits were insured and collateralized at the end of March 2024, as mentioned in the earnings presentation. Further, the deposit book is granular with an average account size of ~ $29,000.
Adopting a Hold Rating
F.N.B. Corporation is offering a dividend yield of 3.5% at the current quarterly dividend rate of $0.12 per share. The earnings and dividend estimates suggest a payout ratio of 36.0% for 2024, which is below the five-year average of 42.5%. Therefore, the dividend appears safe from cuts. I'm not expecting an increase in the dividend level because the company has not changed it since 2009.
I'm using the historical price-to-tangible book ("P/TB") and price-to-earnings ("P/E") multiples to value F.N.B. Corporation. The stock has traded at an average P/TB ratio of 1.36x in the past, as shown below.
| FY19 | FY20 | FY21 | FY22 | FY23 | Average | |
| T. Book Value per Share ($) | 7.5 | 7.8 | 8.6 | 8.4 | 9.4 | |
| Average Market Price ($) | 11.6 | 8.5 | 12.0 | 12.5 | 12.1 | |
| Historical P/TB | 1.56x | 1.09x | 1.40x | 1.49x | 1.29x | 1.36x |
| Source: Company Financials, Yahoo Finance, Author's Estimates | ||||||
Multiplying the average P/TB multiple with the forecast tangible book value per share of $10.2 gives a target price of $13.9 for the end of 2024. This price target implies a 2.5% upside from the July 3 closing price. The following table shows the sensitivity of the target price to the P/TB ratio.
| P/TB Multiple | 1.16x | 1.26x | 1.36x | 1.46x | 1.56x |
| TBVPS - Dec 2024 ($) | 10.2 | 10.2 | 10.2 | 10.2 | 10.2 |
| Target Price ($) | 11.9 | 12.9 | 13.9 | 14.9 | 16.0 |
| Market Price ($) | 13.6 | 13.6 | 13.6 | 13.6 | 13.6 |
| Upside/(Downside) | (12.5)% | (5.0)% | 2.5% | 10.1% | 17.6% |
| Source: Author's Estimates |
The stock has traded at an average P/E ratio of around 9.8x in the past, as shown below.
| FY19 | FY20 | FY21 | FY22 | FY23 | Average | |
| Earnings per Share ($) | 1.16 | 0.85 | 1.23 | 1.22 | 1.31 | |
| Average Market Price ($) | 11.6 | 8.5 | 12.0 | 12.5 | 12.1 | |
| Historical P/E | 10.0x | 9.9x | 9.8x | 10.3x | 9.2x | 9.8x |
| Source: Company Financials, Yahoo Finance, Author's Estimates | ||||||
Multiplying the average P/E multiple with the forecast earnings per share of $1.33 gives a target price of $13.1 for the end of 2024. This price target implies a 3.4% downside from the July 3 closing price. The following table shows the sensitivity of the target price to the P/E ratio.
| P/E Multiple | 7.8x | 8.8x | 9.8x | 10.8x | 11.8x |
| EPS 2024 ($) | 1.33 | 1.33 | 1.33 | 1.33 | 1.33 |
| Target Price ($) | 10.4 | 11.8 | 13.1 | 14.4 | 15.8 |
| Market Price ($) | 13.6 | 13.6 | 13.6 | 13.6 | 13.6 |
| Upside/(Downside) | (23.0)% | (13.2)% | (3.4)% | 6.4% | 16.3% |
| Source: Author's Estimates |
Equally weighting the target prices from the two valuation methods gives a combined target price of $13.5, which implies a 0.4% downside from the current market price. Adding the forward dividend yield gives a total expected return of 3.1%. Hence, I'm adopting a hold rating on F.N.B. Corporation.