Since it entered North Carolina in March 2017, after
North Carolina was the ninth-most populous state as of July 1, 2021, with 10.6 million residents, according to the Census Bureau. Additionally, the bureau found that between April 2020 and July 2021, North Carolina gained about 94,000 people — more than any state except Texas, Arizona and Florida. State Demographer Michael Cline estimated North Carolina’s 2020-21 population growth at 112,000.
Pennsylvania, the $42 billion-asset F.N.B.’s core market, lost nearly 26,000 people in the same period, according to the Census Bureau.
“There’s a strategic focus on our part in continuing to build out the delivery channel in North Carolina,” F.N.B. Chairman and CEO Vincent Delie said in an interview. “It makes sense for us to be focused there.”
F.N.B. has invested significantly in North Carolina since completing its deal for Yadkin, which was the state’s largest community bank. Since 2017, F.N.B. has opened nine branches and loan production offices, as well as three regional headquarters, in Raleigh, Greensboro and Durham.
The $117 million all-stock
“There’s a bit of a gap for us and this bridges that gap,” Delie said, noting UB’s cost of funding is just 11 basis points — a key consideration since the deal would also add $1 billion in deposits.
“It provides us with some upside relative to the change in interest rates and the potential change in the liquidity profile of the industry,” Delie said. “We thought that was attractive.”
Overall, the combined company would operate 101 branches in North Carolina with $7.4 billion in deposits. It would hold a top-10 market share position in seven of the state’s 10 largest markets.
In the five years since F.N.B. entered North Carolina, the bank has grown noninterest income at a meaningfully faster clip. Between 2010 and 2016, F.N.B. saw fee income grow at an 8.58% combined annual rate. From 2017 through 2021, though, the pace of growth ticked up to 10.42%.
“Yadkin … did not have a large suite of fee-based products and services,” Delie said. “It was very limited. If you look at our growth in noninterest income, a good bit of it is being contributed from the North Carolina markets.”
Now F.N.B. is looking for the same kind of impact — albeit on a smaller scale — with UB. Through the first three months of 2022, the $1.2 billion-asset UB, which is headquartered in Greenville, North Carolina, derived just 9% of its $8.92 million total revenue from noninterest income. The same ratio at Yadkin was 20% at the end of 2016. The average for banks with $1 billion to $10 billion of assets is closer to 29%, according to Federal Deposit Insurance Corp. statistics.
UB’s fee-income disparity offers F.N.B. significant cross-sell opportunities for its capital markets, insurance and wealth management lines of business, according to both Delie and UB Chairman Lee Burrows.
While F.N.B.’s strategy remains anchored to organic growth, it’s been open to smaller, in-market deals that offer cross-sell opportunities as well as strong deposit franchises, robust cost savings and limited tangible book value dilution, Brian Martin, who covers F.N.B for Janney Montgomery Scott, wrote Friday in a research note.
The UB deal “checks all those boxes,” Martin added. It’s “consistent with F.N.B's strategy of blending acquisitions with organic growth to increase scale, strengthen its earnings power and increase franchise value.”
The same could be said of F.N.B.’s most recent acquisition, a $418 million all-stock deal for the $2.5 billion-asset
F.N.B.’s deal for UB follows a wave of consolidation that has largely stripped North Carolina of banks in the $5 billion-asset to $10 billion-asset range, said Paul Davis, director of market intelligence for Strategic Resource Management in Memphis, Tennessee.
The $10.1 billion-asset
"A bank the size of F.N.B. would normally want to buy somebody in between $5 billion and $10 billion of assets, but there are very few banks that size left in North Carolina,” Davis said. “In order to grow in North Carolina now, you’d have to piece together a bunch of smaller banks. The heyday to get into North Carolina with immediate scale was five or six years ago.”
UB Bancorp was founded in 1998 as the little bank. It rebranded in 2017 after acquiring Union Bank in Oxford, North Carolina. F.N.B. expects the acquisition of UB to be approximately 2% accretive to earnings per share after capturing 45% cost savings on UB Bancorp’s noninterest expense base, which totaled $5.6 million for the quarter ending March 31. F.N.B is projecting tangible book value per common share dilution to be less than 1%, with an earn-back period of less than two years.
According to Compass Point analyst Laurie Havener Hunsicker, the UB deal’s $117 million price tag works out to $19.56 per UB share, or 1.54 times the company’s tangible book value. That is slightly higher than the average for 2022 deals of 1.5 times tangible book value.
