Shareholders of the former Old York Road Bancorp in Pennsylvania have learned the joys of double dipping.

Last December, the community bank agreed to sell to Midlantic Corp., Edison, N.J. Seven months later, Midlantic itself was bought by PNC Bank Corp., Pittsburgh. And Old York shareholders who held on for the ride saw their investments soar a whopping 262%.

"For the shareholders of Old York Road, it was a very, very, very good one-two punch," said Christopher Quackenbush, principal at Sandler O'Neill & Partners.

As the merger scene heats up, community bank directors and managers are on the lookout for such double dips - deals with banks that eventually end up as takeover bait themselves.

If shareholders of the original bank hold onto stock throughout the string of sales, they often reap far more than they would have by accepting cash at the first sale.

Bank directors and shareholders are licking their chops over recent cases such as Old York and Northeast Federal Corp., whose buyer, Shawmut National Corp., is being bought by Fleet Financial Group. Many community banks are pestering investment bankers and analysts about getting in on the action.

"We are seeing people right now that want to explore the double dip," said Steve Hovde, executive vice president of Hovde Financial in Chicago. "People are becoming clear believers in the double-dip opportunities and that in the long term it will have greater value for their shareholders than a simple cash deal up front."

The burst of interest stems from a change in the attitude of bankers, who are realizing that a sale of their bank is still an investment, rather than just an exit from the business, Mr. Quackenbush said.

"When you sell your company, you're making one of the biggest investments of your life," Mr. Quackenbush said. "There are times when cash is a great thing, but there are times when if you can get a great stock on the other end that has some upside potential, that can be very attractive."

In fact, industry observers say, some bankers and directors are even willing to accept a slightly lower stock offer from one party instead of cash or stock from another because "there's some real clear sex appeal to the buyer's paper," said John Carusone, president of Hartford's Bank Analysis Center.

"A lot of these smaller community institutions don't have a prayer of being acquired by a major institution but may view an intermediate acquirer as a logical migration point," Mr. Carusone said.

Such was the case with Old York. The $226 million-asset bank agreed to sell to Midlantic for about $28.25 million, or $10 per share in stock. Up to 49% of Old York's outstanding shares could have been exchanged for cash, but few were, according to officials at Sandler O'Neill who worked with Old York on the transaction.

When Midlantic was bought by PNC in July for $3 billion, or $55.09 per share in stock, an investor who bought one share of Old York on Dec. 29 at $7.25, and held onto the stock through the two acquisitions, wound up with a piece of paper worth $18.97.

Such long-term possibilities were on the mind of J. Allen Kosowsky when Shelton Bancorp in Connecticut agreed to sell to Waterbury-based Webster Financial Corp. last month. That's because like many analysts, the Shelton vice chairman expects Webster to sell, too.

"It's something that I considered," Mr. Kosowsky said. "I felt that Webster was a fine merger partner and believed that somewhere down the road, they might decide to combine with a larger organization."

The double dip isn't a new phenomenon to banking. A classic situation might have seen a $200 million-asset institution sell to a $400 million bank, which would in turn be bought by a $2 billion-asset bank.

The concept is still the same, but analysts say deals are now fast and furious, and in a higher size range, especially with active buyers of community banks, such as Midlantic or First Fidelity Bancorp., suddenly placed on the auction block.

"Because of the increased activity in the industry, there's a higher probability that is going to happen," said Thomas G. Rudkin, managing director of Advest Inc. "The large buyers are now the large sellers."

Expectations for more payoffs remain high because parts of the country are still overbanked and ripe for consolidation, analysts say. And many regional institutions are now seen as targets.

"A lot of these intermediate companies are not going to walk into the 21st century as independents," Mr. Carusone said. "A sale to one of those institutions today could mean future rewards in two or three years."

But observers cautioned against basing decisions too much on a hope for a double dip. Final decisions must still be based on the value and structure of the deal, the fundamentals of the buyer, and the immediate benefits to shareholders, they say.

"It's something that is brought up, but you can never make it part of an offer," Mr. Rudkin said of double dips. "It'd be nice, but if you plan on it, it'll never happen. If you don't, sometimes it does."

"The second deal is just the gravy," said Peter J. Ostrowski, managing director of Ostrowski & Co. in New York. "You've got to get the meat and potatoes in the first deal and you've got to get a legitimate price and you've got to be comfortable with the stock you're getting."

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