Pennsylvania remains one of the busiest states for bank mergers and acquisitions, but unlike in other hotbeds such as Florida and California, the deals are mostly in-market.
That was the case again Tuesday, when Community Banks Inc. in Harrisburg emerged from a four-year break from M&A and announced a $326 million stock deal for the $1.1 billion-asset PennRock Financial Services Corp. in Blue Ball.
The deal, by far the largest in Community Banks' history, would make it the eighth-largest banking company headquartered in the state, with about $3 billion of assets. Community Banks also would vault into the top 20 in market share, with about 1% of the state's deposits. (It currently ranks 23d, and PennRock's Blue Ball National Bank ranks 33d, according to Federal Deposit Insurance Corp. statistics.)
More importantly, the deal would give Community a stronger foothold in Pennsylvania's so-called Golden Triangle, a fast-growing three-county area near the Maryland border. Community, which already has 27 branches in York and Dauphin counties, would gain 10 branches in Lancaster County. It would also gain two branches in Chester County, one of the country's most affluent counties, with a median income roughly twice the national average.
Community's chief executive officer, Eddie L. Dunklebarger, spared few adjectives in describing what the deal would mean for his company.
"This is a transformational merger," he said in a conference call announcing the deal. "It is a landmark, pivotal event in our history."
In a phone interview later, Mr. Dunklebarger said his company had not sworn off deals since acquiring the $184 million-asset Glen Rock State Bank in March 2001; it was just waiting for the right opportunity to come along.
"We've been actively pursuing other partners, and PennRock was at the top of our list," he said.
Tuesday's deal is the ninth announced so far this year in Pennsylvania, eight of which have been in-market, according to Highline Banking Data Services. By contrast, the buyers in 11 of the 18 deals announced in Florida so far this year are based outside the state.
Robert E. Kafafian, the president and CEO of the Parsippany, N.J., bank consulting firm Kafafian Group Inc., said that even though M&A activity has been brisk in recent years, Pennsylvania still has more banks than all but 12 states, so there is plenty of opportunity for in-market consolidation.
Also, Pennsylvania is by and large a slow-growth state, he said, "and the only way for institutions to get economies of scale is to combine."
That's not to say Pennsylvania banks are bargains.
Community is paying the equivalent of $41.85 for each of PennRock's shares, or 3.26 times book value, largely because PennRock's markets are among the most vibrant in the state. That is about 35% higher than the average price-to-book ratio on deals announced this year, according to Highline.
It is also paying a 29.8% premium on core deposits, compared to an average of 24.5%.
Mr. Dunklebarger said Community could justify the deposit premium "because we are buying into high-growth markets."
Matt Schultheis, an analyst at Ferris, Baker Watts Inc. in Baltimore, said that even though it has never acquired a company as large as PennRock, Community has a proven track record of integrating deals, and he does not foresee any glitches.
"I'm not losing any sleep over it," he said.
PennRock's stock soared after the announcement. It closed at $38.71 a share Tuesday, up 30.78% from Monday's close. Community's stock fell 10.14%, to $28.28.
