Pennsylvania M&A poised for comeback after slow 2019

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The ranks of acquisition-minded banks in Pennsylvania are rising, as more lenders in the state view deals as a way to build scale, offset margin pressure and keep up with bigger competitors.

Overall activity in the Keystone State has been light this year, with just two whole-bank deals announced through Nov. 15. But more banks have been talking about acquisitions in recent weeks.

First Commonwealth, Dollar Bank, S&T Bancorp and CNB Financial are among the Pennsylvania community banks that have expressed in interest in M&A. And industry observers predict an increase in deals as more targets lower their pricing expectations.

“It is very apparent that there are a fair number of opportunities out there,” said Joe Bower Jr., president and CEO of the $3.5 billion-asset CNB Financial. “And the opportunities just continue to increase.”

While not as flashy as some states, Pennsylvania is the nation’s fifth biggest, with nearly 13 million residents. And Pittsburgh and Philadelphia are known for having slow-but-steady growth trajectories.

The state added 23,000 jobs in October, increasing the size of its workforce to more than 6.5 million, according to the Labor Department. Deposit balances at the 182 banks that operate in Pennsylvania rose by 31% over the five-year period that ended June 30, according to the Federal Deposit Insurance Corp.

Those numbers are generating more interest from potential buyers.

The $8.2 billion-asset First Commonwealth recently bought 14 Pennsylvania branches from Santander Bank, gaining access more than 20,000 households in several markets, including State College, the home of Penn State University.

First Commonwealth continues to mull opportunities to buy branches and banks in Pennsylvania and Ohio, CEO Mike Price said. The Indiana, Pa., company, which evaluated about 30 potential sellers before announcing the five deals it has closed in recent years, reviews about six possible acquisitions annually.

The key is finding a client base that will add loans and deposits over time, Price said.

“Announcing a deal is one thing, but how well you execute is 95% of the equation,” Price said. “That’s so important. … Despite all the vexing forces weighing on the industry, our bank is objectively getting stronger.”

CNB announced plans this week to raise $40 million by selling common stock. The Clearfield, Pa., company said it could use the proceeds to fund organic growth and acquisitions, among other things.

CNB would be interested in sellers located in growth markets, with proven management and lenders that could help the bank expand both sides of its balance sheet, Bower said.

“The people are very important,” he said.

Dollar has been relatively quiet since it created a mutual holding company last year in a move that should facilitate more acquisitions.

Jim McQuade, the Pittsburgh company’s president and CEO, said in a release announcing the restructuring that he would look for more scale as the bank neared the $10 billion asset threshold, where more regulation kicks in.

“It is critically important that Dollar Bank grow through appropriate merger and acquisitions to ensure long-term success as an organization,” McQuade said in the release.

The $9 billion-asset company declined to comment for this article.

S&T is the buyer in one of the whole-bank deals announced this year; it agreed in June to acquire DNB Financial in Downington, Pa., for $206 million.

Though the $7.6 billion-asset S&T didn’t immediately respond to a request for comment, CEO Todd Brice said during a conference call for the DNB deal that the acquisition would add $900 million in loans and $1 billion in deposits, much of them in fast-growing and affluent counties around Philadelphia.

“The DNB market is a strong and growing market where we can leverage our talents and technology to significantly expand our brand throughout southeastern Pennsylvania, a place where the economy is expanding very quickly,” Brice said during the call.

“We think the increased scale of the company will really enable us to accelerate commercial, small business, residential mortgage, consumer lending and also significantly enhance the revenue stream,” Brice added.

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