Analysts consider Meridian Bancorp to be a takeover target, but management continues to pursue its own aggressive acquisition campaign.
On Thursday, the Reading, Pa., bank holding company announced its fourth and fifth acquisitions this year. These deals were its first in New Jersey.
Furthermore, Samuel A. McCullough, Meridian chairman and chief executive, affirmed in a telephone interview his company's plans to go it alone.
"There are a lot of people who I'm sure would be interested in us, but our strategy is to remain independent," he said.
Meridian's stock price is up about 20% this year. Late Thursday, Meridian shares were trading at $28.50, unchanged from Wednesday.
Earnings Rebound Cited
However, analysts consider the stock to be undervalued because they think it has the potential to be acquired for a hefty premium. They also cite rebounding earnings.
The shares trade at about 1.5 times book value. In contrast, shares of rivals such as PNC Financial Corp., Pittsburgh, and CoreStates Financial Corp., Philadelphia, are trading at about 1.7 times book value.
The deals for 21 branches of Security Savings Bank, Vineland, and for Cherry Hill National Bank, Medford, should add about $928 million in assets, to about $12.5 billion.
But analysts said the deals announced Thursday were too small to give Meridian the size it probably will need to survive in competitive eastern Pennsylvania and southern New Jersey.
"I don't think they want to be taken over, but I don't think they have done anything to [avoid] being a [takeover] candidate themselves," said Mary Quinn, an analyst at Keefe, Bruyette & Woods Inc.
Her Keefe colleague Joseph C. Duwan said PNC Financial is the most likely candidate to acquire Meridian and could easily pay two times book value, the minimum level seen needed to acquire Meridian. At twice book value, Meridian would fetch about $1.7 billion.
PNC is only the fourth largest bank in deposits in the Philadelphia area and has been vocal about its interest in expanding there. Meridian ranks No. 6 in that market with 4.4% of deposits.
In fact, analysts and investors believe PNC held extensive but unsuccessful merger discussions this spring with CoreStates, itself mentioned as a potential Meridian buyer.
Significant Market Presence
On the acquisitions announced Thursday, analysts said Meridian is acquiring healthy assets and getting a toehold in a market in which it is important for it to have a presence.
Meridian said the deals will add $3.6 million, or 8 cents a share, to 1993 earnings. Meridian is expected to earn about $110 million this year.
Cherry Hill National's Tier 1 capital ratio is about 8%, and nonperforming assets are only 1.34% of loans and foreclosed real estate. Meridian said assets in the Security branches are equally healthy. Although the entire company is struggling, Meridian is cherry-picking the good assets.
Meridian will purchase Cherry Hill in a stock swap valued at $15.4 million, or 1.7 times book value.
Capital Enhancement Planned
For the Security branches, Meridian will pay $13 million, or a 2.36% premium of deposits. It plans a $45 million stock offering before the transaction closes to provide capital for the branches.
The deals are expected to be completed at yearend. Meridian will set up a separate subsidiary, in which it will fold the New Jersey purchases.
In February, Meridian acquired $300 million in Philadelphia-area deposits from Equimark Corp., Pittsburgh. The following month, it acquired $440 million in deposits of failed Bell Federal Savings Bank in Upper Darby, Pa. Pending is its acquisition of $143 million-asset Peoples Bancorp in Lebanon, Pa.