Defying the slow market for mergers and acquisitions, F.N.B. Corp. of Hermitage, Pa., announced its second deal in three months, to snatch up one of the last remaining community banking companies in Pittsburgh's attractive southern suburbs.
F.N.B. said Friday that it had agreed to pay $86.1 million in cash and stock for the $300 million-asset Iron and Glass Bancorp Inc. of Pittsburgh.
The $6.1 billion-asset parent of First National Bank of Pennsylvania would gain eight branches — four in southern Pittsburgh and four in suburbs south of the city. It has 15 of its 163 branches in the city and its northern suburbs.
"This is one of the last remaining community banks left in the attractive South Hills of Pittsburgh, where we are conspicuously absent," Stephen J. Gurgovits, F.N.B.'s chairman and chief executive, said in an interview Friday. "The alternative was to pursue a de novo branch strategy, which would take a lot of time and energy to accomplish and would probably be dilutive to our shareholders."
Mr. Gurgovits said the deal for Iron and Glass, expected to close in the third quarter, would be accretive to earnings within the first 12 months of its closing. He would not say by how much.
The agreement calls for each Iron and Glass share to be exchanged for $75 in cash or five shares of F.N.B.
The price works out to a 41.5% premium over Iron and Glass' closing price Thursday of $53 a share.
After the deal was announced, its stock soared 35.2%, to $71.65. F.N.B.'s stock was virtually unchanged Friday, at $14.90.
Mike Hagan, the CEO of Iron and Glass, said several banking companies had been wooing it.
"We chose F.N.B. because we felt it was a great deal for our shareholders — not only because of the price, but also because of the potential for future growth in F.N.B.'s stock price," he said.
David W. Darst, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp., said the deal works out to 2.2 times the seller's tangible book value and roughly 23 times its 12-month trailing earnings from the quarter that ended Sept. 30.
The pricing is in line with other Pennsylvania deals, which have been happening at a brisk pace, he said. Last year 10 companies, including F.N.B., announced deals in the state. F.N.B.'s $393 million deal for the $1.8 billion-asset Omega Financial Corp. in State College is expected to close next quarter.
The overall M&A market has slowed during the past few quarters, because of credit quality deteriorating, the capital markets drying up, and bank stock prices sagging. Only a dozen deals were announced nationwide last month.
But Mr. Darst said he expects this year to be another busy one for Pennsylvania deals, because organic growth is tough to come by in one of the nation's slowest-growing states.
F.N.B. should be able to cut about 40% of Iron and Glass' expenses, he said.
The deal also would increase First National Bank's deposit market share.
Mr. Gurgovits said its deposits in Allegheny County would jump roughly 50%, to $600 million, giving it the 10th-largest share. It currently has the 11th-largest.
Though the increase would be small in terms of percentage — 50 basis points, to 1.4% — he said that Pittsburgh has been a very successful market for his company, and that it plans to increase its market share even more there.
Peter J. Winter, an analyst with Bank of Montreal's BMO Capital Markets Corp., said the deal would be good for F.N.B., filling a gap in its branch network.
"This one should be easy to execute, given the size," Mr. Winter said. "They could integrate it really just over the weekend."
Mr. Darst said the pending deal for Omega is helping make this latest deal affordable for F.N.B.
He said F.N.B. wants to buy the capital-rich Omega to build its own capital levels and is planning to use some of that capital to buy Iron and Glass.
F.N.B.'s ratio of tangible equity to assets is 4.86%. The deal for Omega would raise that ratio to 5.5%, Mr. Darst said, but the deal for Iron and Glass would lower it to 5.25%.
"But this a good use of capital, because this is a small, in-market transaction that they can make accretive within 12 months," he said.
Besides, F.N.B. operates with lower capital levels, he said, because it does not experience aggressive organic growth in Pennsylvania.
