F.N.B. Corp. paid a hefty premium in a competitively bid deal for private equity-backed Howard Bancorp Inc., but the transaction announcement doesn't mean a return to its serial acquirer days, company Chairman, President and CEO Vincent Delie Jr. said in an interview.
The July 13 announcement price of $418 million in the all-stock deal represented a 41% one-day premium to Howard Bancorp's stock price and marked the regional bank's first whole-bank transaction since its $1.8 billion purchase of Raleigh, N.C.-based Yadkin Financial Corp., an acquisition that closed in 2017. At the time, the Yadkin deal was F.N.B.'s seventh deal announcement in six years, and investors balked at the out-of-market, non-contiguous acquisition, which was viewed as pricey.
In recent years, F.N.B. has been more focused on organic growth, a strategy that Delie said he would like to continue. He noted that the company is expanding its footprint incrementally through de novo branching efforts in South Carolina and Virginia.
"We're not under pressure to do deals, so we're going to do the right transactions for our shareholders and our communities," Delie said. "This one checks all the boxes."
The deal will deepen the presence of Pittsburgh-based F.N.B. in the metro area of Baltimore, where Howard is headquartered. Delie added that the talks accelerated in the first quarter as he and Howard Chairman and CEO Mary Ann Scully — who is not joining F.N.B. — identified overlap and cultural fits.
Delie said Howard, which is backed by such private equity firms as Patriot Financial Partners LP and GCP Capital Partners LLC, was evaluating different options.
"This is a unique circumstance where an opportunity came up to do a low-risk, in-market transaction that is financially attractive," Delie said. "When you look at it, it makes complete sense."
The transaction is a relatively small one for F.N.B., which had $38.48 billion in assets at the end of the first quarter. Through the same period, Howard had $2.63 billion in assets and would represent roughly 6% of the pro forma bank's asset base. In a July 13 report, Piper Sandler analyst Frank Schiraldi said F.N.B. is unlikely to seek another large, out-of-market deal in the mold of Yadkin, which represented about 25% of the expected F.N.B.'s pro forma assets when that deal was announced in 2016. Schiraldi wrote that the Yadkin deal disappointed investors and introduced "near-term risks to integration and growth trajectory."
"From that standpoint Howard better passes the smell test, and we expect should ultimately be better received," Schiraldi wrote.
F.N.B.'s stock dropped by 3.8% on July 13 after announcing the Howard Bancorp deal, compared to a 1.7% decline in the SNL US Bank and Thrift index. Delie said the stock dip was within expectations considering the decline in the broader sector and general investor skittishness around deal announcements.
Analysts applauded the deal's financial metrics, pointing to the significant expected expense reduction. F.N.B. projects cost saves greater than 50% of Howard's noninterest expense base, contributing to fully phased-in EPS accretion of 4%. Management highlighted that 62% of Howard Bancorp's branches were within two miles of an F.N.B. branch. At closing, management projects tangible book value per share dilution of 2% with an estimated earnback of roughly three years.
"Overall, we see this transaction as a positive for F.N.B. as it is strategically compelling and financially attractive," wrote Brian Martin, an analyst with Janney Montgomery Scott. Martin highlighted potential growth in fee income revenue since the line item represented only 10% of revenues for Howard.
And even though the deal value represented a hefty premium relative to Howard's stock price, the "price tag appears fair relative to deals we've seen in the market recently," wrote William Wallace, an analyst for Raymond James.