Harleysville National Corp. had gone three years without making an acquisition before striking what it described as the "perfect" deal Wednesday.
The $3.3 billion-asset company said it has agreed to buy East Penn Financial Corp. in Emmaus, Pa., for about $92.7 million in cash and stock. The deal would give Harleysville seven additional branches in Lehigh County, one of the fastest-growing areas in the state, and the No. 3 deposit-share position in a county where it currently ranks 15th, according to Federal Deposit Insurance Corp. data.
"I think this is a jewel of an acquisition," Demetra "Deb" M. Takes, Harleysville's interim president and chief executive officer, said in an interview.
Two of Harleysville's 44 branches are in the Lehigh Valley; the rest are to the north and south of that area. Ms. Takes said the deal for the $451 million-asset East Penn would fill in a large gap between the two regions where Harleysville is most concentrated. "And the market is probably one of the hottest in our area, so it's perfect, perfect, perfect," she said.
Brent Peters, the chairman, president, and CEO of East Penn Financial, would remain with Harleysville as president of its East Penn division.
Mr. Peters said that East Penn had been looking for a partnership with a larger company because of the increasing cost of regulation. Despite its strong asset quality and core deposit growth, he added, its stock price had stayed mostly flat.
The deal is the second between two Pennsylvania banking companies announced this month. On May 1, Susquehanna Bancshares Inc. in Lititz said it had agreed to buy Community Banks Inc. in Harrisburg for $860 million in stock and cash.
Analysts said the buyers in both deals paid lofty premiums over the seller's stock price — 44% in Susquehanna's case, 80% in Harleysville's.
East Penn's shares jumped nearly 67% after the deal announcement to close at $13.50.
Harleysville is to pay $14.50 per share, based on calculations made before the announcement, Ms. Takes said. The final price can be no less than $86.3 million and no more than $99.1 million, under the agreement.
No analysts cover Harleysville or East Penn. But Collyn Gilbert, an analyst at Stifel, Nicolaus & Co. who follows other Pennsylvania companies, said she thinks some are willing to pay such high prices because Pennsylvania banks are struggling to grow organically. "It's a function of what the buyer's appetite is," she said.
The deal for East Penn works out to 3.68 times its yearend book value and about a 20% core deposit premium.
"To pay that kind of multiple tells me Harleysville really wants to get into Lehigh County," Ms. Gilbert said.
The population of Lehigh County grew 6.2% from 2000 to 2006, compared to 2.5% for the state overall, according to statistics that Harleysville provided, and its median household income is above the state average, as is income growth.
East Penn Bank, which also has single branches in Northampton and Berks counties, would become a division of Harleysville, retaining its name and logo. Harleysville also intends to transfer nine of its own branches into the East Penn division.
Ms. Takes said Harleysville wants to maintain the East Penn brand because of its "absolutely fabulous" name recognition.
The company is not done expanding either, she said. It plans to open two branches this year and four next year, including one with the East Penn name.
