First Commonwealth Financial Corporation (FCF) is anticipated to experience minimal changes in earnings this year. Moderate loan growth will likely contribute to earnings, while a corresponding rise in expenses will limit earnings expansion. Meanwhile, the margin is projected to remain consistent with the conclusion of the previous year. Overall, we forecast the company to report earnings of $1.54 per share for 2024, representing a negligible difference from the preceding year.
First Commonwealth Financial’s loan portfolio increased by 17.4% in 2023, including the acquisition of Centric Financial Corporation. Excluding the acquired loans, organic loan growth reached 4.9%. The company’s management anticipates loan growth to be within the “low to mid-single-digits” range for 2024, a target that appears achievable considering the organic growth witnessed in 2023. The favorable regional business environment in Pennsylvania and Ohio, with strong job markets, further supports this projection.
We expect the net interest margin to stabilize this year. In 2023, the margin expanded by 23 basis points compared to 2022, and is predicted to remain stable in 2024 as interest rates begin to decline. Approximately half of FCF’s loan portfolio is variable, enabling a rapid adjustment of loan yields to rate cuts. However, the company’s deposits are also sensitive to rate changes, with 60% held in variable-rate accounts. This dynamic is expected to balance out, resulting in a relatively stable margin.
Based on the assumptions outlined above, we estimate earnings of $1.54 per share for 2024, a marginal 0.4% decrease year-over-year. Non-interest expenses are projected to align with revenue growth, while non-interest income is anticipated to expand at the five-year average rate. Provisions for loan losses are expected to remain at the previous year’s level.
The risks associated with First Commonwealth appear manageable. Exposure to office loans is limited, and uninsured deposits are adequately covered by available liquidity. Unrealized losses on the Available-for-Sale securities portfolio constitute a modest 10% of the total equity book value.
With a dividend yield of 3.8% and a payout ratio of 33% for 2024, FCF’s dividend appears sustainable. The stock’s historical price-to-tangible book (P/TB) and price-to-earnings (P/E) multiples suggest a target price of $15.90, representing a potential upside of 20.4% from the current market price.
Considering the stable earnings outlook, manageable risks, and attractive valuation, we maintain a buy rating on First Commonwealth Financial Corporation.
