Pennsylvania, of all places, has become a hotbed of merger activity.

In the last six months four in-state deals have been struck and an upstate New York company, Community Bank System of DeWitt, said it was moving into northeast Pennsylvania by acquiring First Liberty Corp. in Jermyn. Also, M&T Bank Corp. of Buffalo completed its $1 billion acquisition of Keystone Financial Corp. of Harrisburg, Pa., and NBT Bancorp of Norwich, N.Y., acquired and combined two banks in the Scranton/Wilkes-Barre area.

Bankers, analysts, and consultants say the recent flurry of deals is long overdue. Though one of the nation’s largest states, Pennsylvania largely missed out on the late-1990s consolidation wave and is still widely viewed as overbanked. Some 305 bank and thrifts are operating in Pennsylvania, according to the Federal Deposit Insurance Corp., compared with 243 in New York, 153 in New Jersey, and 137 in Maryland.

Robert Kafafian, a bank consultant at Tucker Anthony Sutro Capital Markets in Lancaster, Pa., said that while in-market dealmaking has been steady in some pockets, Pennsylvania has generally failed to attract much interest from out-of-state buyers. One likely reason: In the 1990s its population increased by less then 1%, according to 2000 Census data.

“A lot of banks would love to have the low-cost core deposit base that exists in Pennsylvania, but they’re concerned about it a being low-growth market and having to deal with that later,” Mr. Kafafian said.

Perhaps the most fragmented market is Scranton/Wilkes-Barre. Jon Holtaway, an analyst at Danielson & Associates in Rockville, Md., said there are simply too many banks and thrifts there — roughly 35 — competing for too little market share.

The Scranton/Wilkes-Barre market “needs to consolidate,” Mr. Holtaway said. “If you follow the banks there, they are not very effective in growing earnings. They’re basically killing each other.”

In-market mergers would appear to be one solution for increasing market share, but so far banking companies in northeast Pennsylvania have resisted that idea.

And those that do decide to sell may have to contend with local investors who are unhappy about the prospect of losing their hometown institutions.

Case in point: In November shareholders of the privately held Peoples State Bank of Wyalusing blocked its sale to $704 million-asset Citizens and Northern Corp. of Wellsboro. The shareholders at $120 million-asset Wyalusing feared that the deal would mean job losses and economic hardship for their small dairy town.

Still, if the banks in that market aren’t going to consolidate, then NBT and Community Bank are more than happy to do it for them.

Community Bank, which expects to close its deal for $628 million-asset First Community next month, says it already has its eye on further expansion in the Scranton/Wilkes-Barre market.

“There are more independent community banks in that section of northern Pennsylvania” than in upstate New York, “so there are good opportunities for future growth,” said Sanford A. Belden, president and chief executive of $2.2 billion-asset Community Bank.

Daryl R. Forsythe, president and CEO at $2.6 billion-asset NBT, agreed with his assessment of northeast Pennsylvania. He said his company, with a primarily rural customer base, expanded into that region in part because it is very similar to upstate New York.

“We understand the market,” Mr. Forsythe said. “We established a presence there, and we will try to build on it.”

In-market dealmaking has picked up in the southern part of the state — an area that stretches from Pittsburgh to Philadelphia and includes York, Harrisburg, and Lancaster — where the economy is generally more robust.

Three Rivers Bancorp of Monroeville has agreed to buy Pennsylvania Capital Bank of Pittsburgh, Sun Bancorp of Selinsgrove is acquiring Guaranty Bank of Shamokin, Promistar Financial Corp. of Johnstown is buying First National Bank of Herminie, and PSB Bancorp in Philadelphia is acquiring Jade Financial Corp. of Feasterville.

Analysts and consultants say that they are encouraged by the recent uptick of deals in the state, but that further consolidation is still necessary — especially for midtier banks.

In south-central and southeast Pennsylvania alone there are eight bank and thrift companies with assets of $1 billion to $7 billion. By contrast, Mr. Holtaway pointed out, Virginia has only two banking companies in that asset range, and one, $4 billion-asset F&M National Corp. of Winchester, is being acquired by BB&T Corp. of Winston-Salem, N.C.

Mr. Kafafian said, “As banks don’t improve their earnings, at some point they will be under pressure to merge” with similar-size institutions.

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