FNB raises its profile through acquisitions

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FNB Corp., the once sleepy, nearly 150-year-old Mercer County bank, has been on an acquisition binge of late.

Last month, it announced its fourth major deal in two years -- purchases that have brought the regional bank into new markets in Maryland and bolstered its presence in Ohio and in the Pittsburgh region, where it has zoomed from No. 7 to the third biggest retail bank behind PNC and Citizens.

The acquisition streak is likely to continue, analysts say, as the bank executes its strategy of fighting the sluggish economy and tepid loan demand by growing through takeovers.

"FNB in my mind is doing a good job of growing through acquisitions," said Matthew Breese, who follows the company for Sterne, Agee & Leach in Birmingham, Ala., which makes a market in the stock.

PG graphic: FNB Corp.
(Click image for larger version)

Besides the risk of overpaying, acquisitions come with significant integration risks, including the chance that the cultures of the merging banks won't mesh well or that account conversions will cause big technical problems. If accounts get confused or ATMs go down or there's some other trouble, banks risk losing customers in droves.

So far, however, FNB, which operates under the First National Bank banner, has largely avoided those problems, analysts say.

Generally well regarded by investors and analysts, FNB has grown from assets of $8.4 billion at the end of 2008 to $12 billion at the end of 2012. It has been aided in the mergers-and-acquisition arena by a strong stock that sells at a premium to its peers.

"They can price deals like other banks cannot," Mr. Breese said.

Analysts cite the Baltimore-Washington, D.C.-Northern Virginia corridor and Cleveland as the most likely areas for further expansion of FNB.

That would build on the pending acquisition of Baltimore County Savings Bank and its 16 branch offices in the Baltimore region that was announced June 14; the takeover of BankAnnapolis and its eight offices that closed in April and brought FNB into Maryland for the first time; and the pending deal announced in February for Park View Federal Savings and its 16 offices in the Cleveland area, where FNB currently has just three branches.

PG graphic: FNB by the numbers.
(Click image for larger version)

FNB's biggest deal of late was the $130 million takeover of Monroeville-based Parkvale Savings, completed Jan. 1, 2012. It included 47 offices (17 of which FNB subsequently closed), $1.8 billion in assets and $1.5 billion in deposits.

Two weeks after the closing of the Parkvale deal, Vincent Delie, who had been running FNB's banking operations for the past year, was appointed CEO of the corporation, succeeding long-time chief executive Stephen Gurgovits. Mr. Delie, 48, was a National City Bank veteran who joined FNB in 2005 as head of the Pittsburgh region, three years before Cleveland-based National City was absorbed by Pittsburgh's PNC.

Swallowing Parkvale significantly raised FNB's profile in the seven-county Pittsburgh region, giving it the No. 3 share of deposits at 3.65 percent, just ahead of Dollar Bank at 3.57 percent, according to Federal Deposit Insurance Corp. figures.

Still, the bank remains dwarfed by market leader PNC, which holds a commanding 44.1 percent share, followed by Citizens at 7.12 percent.

Other acquisitions in recent years included the 15-office Community Bank & Trust Co. near Scranton in 2010 and the takeovers of South Side-based Iron and Glass Bank, with eight offices and State College-based Omega Bank with 64 branches, both in 2008.

Sandler O'Neill & Partners analyst Frank Schiraldi in New York mentioned the Harrisburg region as another area of interest for FNB. He said more deals in the Pittsburgh area were possible, although he thinks the bank has secured a big enough foothold in this region to focus instead on growing organically.

FNB has a history of solid earnings, remaining profitable throughout the financial crisis except for the fourth quarter of 2008 when it reported a loss of nearly $20 million, or 21 cents per share, due to troubled loans in its real estate portfolio in Florida.

"The core franchise held up very well and that put them in a position of strength that they continue to enjoy," Mr. Schiraldi said.

In recent years, FNB has focused on growing business loans, carving out a niche by concentrating on lending to medium-sized businesses whose needs are too small for the largest players such as PNC to court aggressively but too big for many smaller banks to handle, said Matthew Schultheis, an analyst with Boenning & Scattergood in West Conshohoken near Philadelphia.

On the consumer side, the bank may be able to make some headway in the Pittsburgh region as the only bank among the top three to offer free checking accounts -- FNB's is called Freestyle Checking -- with no minimum balance or monthly fee requirements.

No. 2 Citizens Bank dropped free checking at the end of 2010, while market leader PNC announced last month that it was eliminating free checking for new customers in mid-August and would be phasing it out altogether by next June.

Mr. Schiraldi called FNB a well-run institution and a strong competitor.

"I think we will hear more of them as time goes on," he said.

"There's no question they are one of the success stories."


Patricia Sabatini: psabatini@post-gazette.com or 412-263-3066.


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