PDF ATTACHED: FNBC 1-31-17 FDIC Call Report & Rating Change
Close $5.95 / “Market-Perform” / $5.50 Price Target / HQ=New Orleans, LA / $115 Mil. Mkt. Cap
- Reducing EPS Estimates On Negative FDIC Call Report: Large credit provision leads to $3.00 loss in 4Q16, triggering lower EPS estimates in 2017 ($0.63, down $0.08) and in 2018 ($0.12, down $0.09). This causes us to change our rating to “Market-Perform” given high uncertainty around the company and stock.
- HBHC Transaction Still Closes By 3-31-17 & Should Create a One-Time Gain & Higher Capital: As FNBC sells $1.3 Bil. in Loans, the smaller balance sheet frees up capital. Our model includes a gain on the sale plus further provision until it is clear that credit problems have been fully addressed. See Page 3
- New Capital & New Management Still Needed, Both Remain Uncertain: A permanent CEO and CFO are needed to reposition the company in the future, we think this requires additional capital to execute. $200 Mil. of capital at $4.00 is factored in our forecast by Mid-2017, pro forma tangible book is $7.91 per share.
- DTA Valuation Allowance Is Expected, But Unknown Amount: Today over $156 Mil. in disallowed DTA-Deferred Tax Assets are already excluded from regulatory capital. A valuation allowance on the DTA further reduces tangible book per share, but not regulatory capital ratios. The DTA haircut is unknown.
- Price Target is $5.50 or 75% of forward tangible book value post-capital raise
We are lowering our rating on FNBC to “Market-Perform” given continued uncertainty over hiring a permanent CEO and a negative FDIC call report filing showing another significant credit charge. The company’s regulatory capital ratios are now below 5.00% on Tier 1 leverage, albeit temporary given a pending Asset sale to HBHC-Hancock Holding. When the transaction closes by March 2017, these capital ratios should be much improved. However, we expect that additional credit provisions and DTA impairment could impact the capital needs and another $200 Mil. of new capital is still included in our earnings model. A $4.00 equity issue price is factored.
FNBC previously announced the sale of Loans ($1.29 Bil), Deposits ($511 Mil.) Borrowings ($600 Mil.), and 9 branches to HBHC in exchange for $237 Mil. in Cash. We think a one-time gain of about $53 Mil. is possible for FNBC in 1Q-2017. This is the result of $15 Mil. in excess fair market value on the branches plus a $44 Mil. premium on the Deposits less transaction costs. We anticipate the stock price will be weak until a permanent management team is hired (i.e., CEO Albert J. Richard is not expected to remain beyond the next few quarters). There is upside once leadership and capital questions have been answered. See our EPS Model on Page 3.