KNBT Bancorp of Bethlehem, Pa., plans to expand into three more counties in its home state by acquiring Northeast Pennsylvania Financial Corp. in Hazelton.
The $98 million deal for the $836 million-asset Northeast was announced Thursday and would give KNBT 16 branches in Schuylkill, Columbia, and Luzerne counties. The $2.3 billion-asset company already has 41 branches in four neighboring counties, including Northampton, where it holds the top deposit share, and Lehigh, where it ranks second.
The deal is expected to close in the second quarter.
Scott V. Fainor, KNBT's president and chief executive officer, said it had been looking to make a deal since March, when it finished integrating First Colonial Group Inc. in Nazareth, which it acquired for approximately $82 million in stock.
KNBT has had the capital to make deals since it converted from a mutual bank to a stock holding company (and changed its name from Keystone Savings Bank to KBNT) in October of last year.
Thomas M. Petro, Northeast's CEO, said it came on KNBT's radar screen over the summer, and both sides liked what they saw. "The cultures are very similar, and the geographic fit is like two puzzle pieces coming together," he said.
Mr. Fainor said he liked Northeast because buying it would bring KNBT into the insurance business and expand its trust operations. Besides its main banking subsidiary, First Federal Bank, Northeast owns Higgins Insurance, NEP Trust Co., and the title insurer Abstractors Inc.
The acquisition, when combined with KNBT's recently acquired broker-dealer, Oakwood Financial Corp., would enable KNBT to serve almost all of its customers' financial needs, Mr. Fainor said.
However, Matthew Schultheis, an analyst with Ferris, Baker Watts Inc. in Baltimore, said Northeast may have sought to sell itself because it has a lot of Federal Home Loan Bank debt but does not have enough capital to prepay it and absorb the penalties.
However, Mr. Petro said that the Home Loan bank debt was "not an important factor" in Northeast's decision to seek a buyer.
At the end of the third quarter Northeast had $244 million of Home Loan bank advances, versus the average of $97 million for banks its size, according to the Federal Deposit Insurance Corp.
The deal was announced just over a year after Mr. Petro was appointed Northeast's CEO. He succeeded E. Lee Beard, who resigned just before Northeast reported a $3.8 million loss for the third quarter because of an increase in nonperforming loans.
