A New Jersey community banking company has received Federal Reserve permission to boost to nearly 25% its stake in a local rival - many of whose investors and customers told the Fed they oppose the plan.
The $164 million-asset Penn Bancshares Inc. applied in September to buy a 20% stake - it already owns 4.89% - in the $141 million-asset Harvest Community Bank. Both are headquartered in Pennsville. The Fed board of governors announced its approval late Monday.
Harvest's directors and management have said they viewed Penn's application as the first step in a hostile takeover attempt. Indeed, they were so incensed that they urged their investors and customers to write letters to the Fed, and the campaign proved successful, to a degree.
In a 16-page decision outlining the reasoning behind its action, the Fed noted that it had received 73 letters on the application, a great many opposing it, but said the opponents had not made a compelling case.
Harvest, it said, "asserted that … Penn would control HCB after consummation of the proposal and thereby potentially harm the future prospects of HCB. … The board believes that the facts of record, including the commitments made in this case, do not support this conclusion."
The decision came as no surprise to Robert Vanderslice, the president of Penn's bank subsidiary, Pennsville National Bank. In an interview Monday afternoon, before the release of the decision, he said he fully expected approval.
"Honestly, I can't see any reason for them to decline," he said. "We're a well-capitalized company, and we do everything by the rules."
According to several industry analysts, Penn's application is notable for the size of the stake it is seeking, 24.89% in all. Banks rarely seek to buy so much stock in other banks, they said.
In an October interview, Mr. Vanderslice said Penn has no other investments in community banks. Still, Penn has insisted that its investment in Harvest would be passive, and it made a similar pledge to the Federal Reserve.
It promised it would not attempt to "exercise a controlling influence over the management or policies of HCB or any of its subsidiaries," according to the decision document.
But Harvest officials are not convinced. Dennis H. Engle, its president and chief executive officer, did not return a call, but in a September news release he claimed that Penn filed its application "in direct response to the competitive pressure that Pennsville National Bank is facing as a result of our bank's phenomenal growth."
Though hostile takeover attempts are rare in banking, Harvest is one of several community banks currently trying to fend off unsolicited interest from other banks. Ballston Spa Bancorp in New York is trying to block a takeover attempt by TrustCo Bank Corp NY of Glenville, and Great Eastern Bank in New York is fighting a similar battle against Cathay General Bancorp in Los Angeles.
Penn, which is privately held, said it plans to acquire the additional Harvest shares in private transactions.
Before it can proceed, though, it must obtain the approval of the New Jersey Department of Banking and Insurance. The Federal Reserve said in its decision that it had notified the state agency when it received Pennsville's application back in September, and that state officials submitted no comments.
Pennsville National Bank is more profitable than Harvest. It reported net income of $1.2 million and a return on equity of 16.2% for the first nine months of the year. Harvest reported net of $521,000 and ROE of 6.35%.
Harvest, however, has steadily been gaining deposit share in Salem County, both companies' primary market - from 2.93% at mid-2001 to 12.26% at mid-2005. Most of the increase came from competitor banks.
Salem County, which is largely agricultural, is one of the few in New Jersey that is not gaining population. Though the state population grew 3.3% from 2000 to 2004, according to the Census Bureau, Salem's was virtually unchanged.
