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Jonathan Poland
Jonathan Poland
Articles (438)  | Author's Website |

F.N.B. Corp: A Small-Cap Bargain Bank

Tight trading range, solid dividend yield and a low price-earnings ratio make this stock worth owning right now

November 08, 2018 | About:

In the last 12 months, F.N.B. Corp. (NYSE:FNB) has generated over $1.2 billion in revenue and pushed $297 million to its bottom line.

These numbers are up big from 2008, when the bank posted $36 million in net income on $355 million in total revenue. In fact, for the last decade, the company has increased its top and bottom line performance every single year.

First National Bank, or F.N.B., is a bank and diversified financial services company operating primarily in the smaller metropolitan areas of Pittsburgh, Baltimore, Cleveland, Charlotte and Raleigh-Durham. The small-cap bank provides a full range of commercial and consumer banking, as well wealth management through a subsidiary network. F.N.B. has a large portion of its loan portfolio wrapped up in commercial real estate, which has helped it earn high rates of interest income.

What worries me is that net margins have increased as more risk has been taken on commercial loans. If those loans pay off long term with construction in F.N.B.'s primary markets, then no worries. If defaults start to occur, however, the bank will face liquidity issues that could ruin its streak.

Of course, this fear might not turn into any real danger. The company's latest quarter set yet another record for revenue and net income, with double-digit annualized deposit growth and a reduction of total expenses close to 7%. Interest income fell slightly to $234.8 million from the company's second-quarter results of $239.4 million, but was still up year over year. Moreover, the total average loans and leases in its third quarter were $21.8 billion, up 5.4% from a year ago, with help from consumer loans, which rose 3% to $8.2 billion.

However, the bank's revenue fell short of estimates for the eighth quarter in a row, pointing to a big reason why the stock is trading at a five-year low when revenue and net income have more than doubled over the same period. In other words, the underlying company is stronger than ever, but the stock hasn't caught up yet.


A good measure of strength for banks can be found in the company's debt to equity ratio, which sits at 0.43. For comparison, PNC Bank's (NYSE:PNC) equity to liabilities ratio is 0.81 and Wells Fargo's (NYSE:WFC) is 1.22. When these rates rise above 1.5, the bank is at risk. That is simply not the case with F.N.B., which adds to the list of reasons of why this is an excellent stock to buy right now.

The company also pays out 48 cents per share, 3.9% based on its current share price. Worst-case scenario, investors get paid to wait for the market to realize its mistake with F.N.B.'s stock, which has at least 41% upside potential. The company's annual earnings are expected to surpass 1.20 per share by 2020 and, given an industry average price multiple, would put the stock at $16.68.

Disclosure: I am not long or short FNB.

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About the author:

Jonathan Poland
Thanks for reading! I'm a former money manager and investment analyst who helped investors produce market beating results for over 15 years. Today, I run a private membership for business leaders and continue to document my journey through life, business, and the capital markets.

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