F.N.B. Corp. in Hermitage, Pa., has been anxious to expand beyond its Rust Belt markets, and on Friday it struck a deal that would move it into some of the faster-growing regions of its home state.
The $6.1 billion-asset parent of First National Bank of Pennsylvania said it is buying the $1.8 billion-asset Omega Financial Corp. of State College for $393 million in stock.
F.N.B. already has a handful of branches in central Pennsylvania, and the deal for Omega would give it 64 more in the heart of the state, including State College, home to Pennsylvania State University and several technology firms.
“This is consistent with our strategic plan of moving east into some of the stronger Pennsylvania markets and this strengthens our presence in the central part of the state,” Stephen J. Gurgovits, F.N.B.’s president and chief executive officer, said in an interview Friday.
And it may not be done acquiring, he said. “In the future, we hope to move further east — the Philadelphia suburbs would be ideal — and southeast to Maryland.”
The deal would make F.N.B. the fifth-largest bank holding company in the state, with $8 billion of assets and 210 branches.
Most of its operations are in western Pennsylvania and northeast Ohio. Peter J. Winter, an analyst with Bank of Montreal’s BMO Capital Markets Corp, said that it is smart for F.N.B. to go east, because its current markets to the west — the heart of the Rust Belt — are fairly slow.
“This acquisition puts them in better growth markets and strengthens their overall franchise,” Mr. Winter said. “It might be more expensive to get into Philly, because of the better growth prospects, but F.N.B. is a company that’s disciplined on pricing.”
The deal is priced at 2.4 times Omega’s tangible book value. Mr. Winters said the price is fair to both companies.
F.N.B. moved into central Pennsylvania on a smaller scale two years ago when it bought the $382 million-asset Legacy Bank in Harrisburg. The deal for Omega would be the largest for F.N.B. since it spun off its Florida subsidiary in 2004. Fifth Third Bancorp bought that bank, the $6 billion-asset First National Bank of Florida in Naples, the following year for $1.5 billion.
The Omega acquisition would also continue a trend of consolidation in Pennsylvania, where organic growth has been hard to come by in recent years.
Donita R. Koval, Omega’s president and CEO, said in an interview Friday that her company decided to sell itself because it was getting too difficult to remain independent in the current operating environment.
“The industry has increasingly tightened margins, and the stock market’s receptivity to financial stocks — particularly within the last several weeks — it’s a tough market,” she said.
“We felt this was an opportunity to partner with another, larger bank that had a similar cultural fit of really providing good customer service but also had the efficiency of a much larger organization.”
Ms. Koval would become the regional president and CEO of First National Bank of Pennsylvania’s Omega region. Four Omega board members would become directors of First National Bank of Pennsylvania, and three Omega directors would join F.N.B’s board.
Buying Omega also would increase F.N.B.’s fee income sources and cross-selling opportunities, Mr. Winter said. In the third quarter Omega generated about a third of its total revenue from fee income, including income from its equipment leasing subsidiary — a line of business F.N.B could cross-sell to its current customers.
Omega has also been able to get more lower-cost deposits, even certificates of deposit at lower rates, in its markets, and those deposits would lower F.N.B.’s cost of funds, he said. In the third quarter F.N.B.’s yield on its interest-bearing liabilities was 3.68%, and its yield on CDs was 4.5%.
According to Mr. Gurgovits, buying Omega would raise F.N.B.’s nonperforming loan ratio by 33 basis points, to 0.9% of total loans on a pro forma basis.
Of Omega’s $22 million of nonperforming assets in the third quarter, $14 million was from one commercial borrower. Omega has already written down part of the loan and has reserved for the rest, and the borrower has emerged from bankruptcy under new management and now is repaying its loan again, he said.
Omega’s shareholders would receive 2.022 shares of F.N.B. stock for each of their shares. Based on Thursday’s closing prices, Omega shareholders would receive about $31.14 for each share held, or a premium of about 19%.
The deal is expected to close in the second quarter. F.N.B. expects about 30% of cost savings and says the deal should be neutral to next year’s earnings but accretive in 2009.
After Friday’s announcement, F.N.B.’s shares rose 0.45%, to close at $15.47, while Omega’s soared 16.6%, to $30.56.