Onbancorp, a fast-growing savings bank in Syracuse, N.Y., said Tuesday that it has agreed to buy a profitable thirft in northeastern Pennsylvania for $136 million in stock.
The acquisition of Franklin First Financial Corp., which has $1.1 billion in assets, will boost Onbancorp to $4.7 billion, including other pending deals. Onbancorp will gain a major presence in the Wilkes-Barre area, about 120 miles south of Syracuse. Franklin has 19 branches with $795 million in deposits.
Investors Dislike Deal
Wall Street was clearly negative on the acquisition. By mid-afternoon, Onbancorp's shares were off $1.75, or 7%, to $25.75.
Meanwhile, Franklin's shares were up 37.5 cents, to $21.375. The stock traded at $17.50 as recently as Nov. 9 but rallied last week after the company disclosed it was holding merger discussions with an unnamed party.
E. Gareth Plank, an analyst at Mabon Securities in San Francisco, said it appeared investors are concerned Onbancorp is expanding too fast and paying too much for growth.
Onbancorp is paying a healthy 1.5 times Franklin's book value, or about $24 a share. While that is considered an average premium for a bank, it is steep for a thrift, Mr. Plank said.
Onbancorp, which currently has $2.5 billion in assets, agreed in February to buy Midlantic Corp.'s Syracuse and Albany, N.Y.-based commercial banks, which together have about $1 billion in assets. That deal is slated for completion by year-end.
A Strategy Conflict?
Mr. Plank said investors also may be asking why Onbancorp is buying a thrift instead of a bank, since chairman and chief executive Robert J. Bennett has made turning Onbancorp into a bank his primary focus. The company has applied for a commercial bank charter.
"I was almost prepared to put them in the bank category, but now I think I may hold off," Mr. Plank said.
Robert J. Berger, Onbancorp chief financial officer, said the company, over the last year, "got a feel for the [Wilkes-Barre] market" through a loan production office, "and liked it." Onbancorp plans to use Franklin as the nucleus to create one of the leading banks in the area, he said.
Franklin, with 15% to 17% of its local deposit market, shares third place in Luzerne County with Northeastern Bank, a unit of a PNC Financial Corp. First Eastern Bank and United Penn Bank, a subsidiary of Mellon Bank Corp., are ranked first and second, respectively.
Richard F. Mebane, Franklin's executive vice president and treasurer, said the company agreed to sell in part because its executives believed the company's earnings would erode if interest rates rise.
"As a thrift, we have a little more interest rate risk" than a bank he said, and profits "can't get much better."
Franklin earned a record $9.75 million in the first nine months of this year, for a 1.17% return on assets. It earned $7.9 million in all of 1991. Nonperforming assets were a relatively low 3.3% of loans and foreclosed real estate on Sept. 30.
Retaining Its Identity
Franklin will keep its name and management team and operate as a separate subsidiary of Onbancorp.
Mr. Berger said Onbancorp plans to issue about $24 million in stock to help pay for the deal. He said that book-value dilution, if any, would be slight, at about 5%. He forecast no dilution in earnings per share.
Onbancorp, which will have 80 branches when all pending acquisitions are complete, earned a record $20.2 million through Sept. 30, compared with $13.7 million for the first nine months of 1991.
In another interstate thrift purchase, TCF Financial Corp. of Minneapolis announced a letter of intent Tuesday to buy Republic Capital Group of milwaukee for about $62 million in stock.