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For a growing group of acquisition-minded community banks, fee-based businesses are looking like a more attractive way to bolster revenue and the bottom line than are traditional bank deals these days.
May 24
A Pennsylvania thrift has struck its first acquisition since it merged with two small rivals 45 years ago.
ESSA Bancorp Inc. in Stroudsburg, Pa., announced early Thursday that it is buying the $421 million-asset First Star Bancorp Inc. in Bethlehem, Pa., for $24.2 million in cash and stock.
The deal would create a $1.5 billion-asset company with 26 branches and roughly $1 billion of deposits in northeast Pennsylvania. In particular, it would significantly expand ESSA's presence in Pennsylvania's Lehigh Valley, where the company has opened three branches in the last two years.
"One of our goals has been to build a banking organization with the size to compete effectively and have a significant presence in the Lehigh Valley," ESSA's president and chief executive, Gary S. Olson, said in a news release. "This combination will accomplish that goal."
Olson added that ESSA expects to achieve a cost savings of roughly 30% over the next two years, but he stressed that no branches would be closed.
Founded as East Stroudsburg Savings Association nearly a century ago, the company had not been involved in a merger since it absorbed two small thrifts in 1966, according to its web site. The bank, which changed its name to ESSA Bank & Trust in 2004, has been sitting on a pile of capital since it public in 2007 and the deal for First Star would help it deploy a good chunk of it.
First Star shareholders would receive roughly $11.20 per share for each share they own, with ESSA paying out half in cash and half in stock. The deal price works out to roughly 0.87 times First Star's tangible book value.
Joseph T. Svetik, First Star's president and CEO, said the deal is a good one for his shareholders because it gives them ownership in a stock that is more liquid. First Star's shares trade on the pink sheets while ESSA's stock is listed on the Nasdaq.
Ambassador Financial Inc. and the law firm Luse Gorman Pomerenk & Schick advised ESSA on the deal and First Star was co-advised by The Kafafian Group Inc. and Keefe, Bruyette & Woods Inc.
The sale is is expected to close in the second quarter of 2012.
