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Harleysville National Bank

Harleysville National Bank

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Harleysville National Corp., the largest bank based in the Philadelphia region, will be acquired by Buffalo, N.Y.-based First Niagara Financial Group for $237 million, the two companies said Monday.The companies signed a definitive purchase agreement and the deal is expected to close in the first quarter of next year.

The purchase price is about $5.50 per share.The acquisition of the Harleysville, Pa.-based bank will provide First Niagara (NASDAQ: FNFG) with $5.6 billion in assets, $3.6 billion in loans and $4.1 billion in deposits in 83 bank branches across nine eastern Pennsylvania counties.Harleysville (NASDAQ: HNBC) has struggled in recent months because of an influx in troubled loans, and failed to meet a June 30 deadline imposed by federal bank regulators to improve capital ratios.In order to maintain First Niagara's well-capitalized position, the merger agreement provides specific protections in the event of an increase in Harleysville National's loan delinquencies prior to closing.Under the terms of the agreement, each Harleysville stockholder will receive 0.474 shares of First Niagara common stock for each Harleysville share owned, representing a premium of about 37.5 percent based on the Pennsylvania bank's closing price Friday of $4 per share.The exchange ratio is based on First Niagara's five-day average closing stock price of $11.60 on July 22.Harleysville shares were trading 37 percent higher Monday at $5.47.

First Niagara shares were trading 4 percent higher at $12.22.Harleysville President and CEO Paul D.

Geraghty will continue to lead his in-market team.Harleysville is the largest locally based bank in the eight-county Philadelphia region and has the seventh-most deposits in the region.

In addition to its primary banking subsidiary, Harleysville National also operates East Penn Bank, Millennium Wealth Management and Cornerstone Cos.First Niagara said it intends to maintain all Harleysville National branches, as well as the Pennsylvania company's growing commercial banking and wealth-management business.

Harleysville has more than 1,100 employees."This move is a terrific next step in our strategy to leverage our strong capital position in markets with attractive demographics and long-term growth potential, where we can profitably play offense," said First Niagara President and CEO John R.


"The communities served by Harleysville are perfect complements to First Niagara's stable and resilient markets in Upstate New York and Western Pennsylvania.

We're also excited to offer Harleysville employees opportunities to further build their careers with our growing company."Harleysville National, parent company of Harleysville National Bank, said earlier this month that it has yet to hear from regulators about failing to meet the deadline to improve capital ratios.

On July 1, Harleysville said it had not raised any money or sold off any assets but was working hard to do so.

The bank's capital levels are less than those required under the Office of the Comptroller of the Currency's newly required minimum individual capital ratios.

Geraghty said Harleysville National hoped to raise $65 million to $120 million in equity.Harleysville has been acquisitive in recent years.

Last December, it enhanced its reach in the Philadelphia suburbs when it acquired Wayne, Pa.-based Willow Financial Bancorp for about $162 million.

Willow had $1.6 billion in assets and 29 branches.

Earlier last year, Harleysville National bought Emmaus, Pa.-based East Penn Bank, which has nine branches in the Lehigh Valley, for an estimated $92.7 million.Geraghty, a former National City Corp.

executive, became president and CEO in July 2007.First Niagara, parent to First Niagara Bank, had assets of $11.6 billion and deposits of $6.2 billion as of June 30.

First Niagara Bank is a community-oriented bank with 113 branches across Upstate New York.

In April 2009, the company announced plans to buy 57 branches in Western Pennsylvania from National City in September.

Regulators said PNC Financial Group had to divest those branches as part of its acquisition of National City.When both the Harleysville National and National City deals close, First Niagara will have 140 branches in Pennsylvania, just more than 3 percent of the deposit market share.First Niagara employs more than 2,000 and will have approximately 2,800 employees when its National City acquisition closes.First Niagara was advised by the investment banking firms of Sandler O'Neill & Partners and Keefe Bruyette & Woods, as well as the law firm of Luse Gorman Pomerenk & Schick.

Harleysville National was advised by the investment banking firm of J.P.

Morgan and the law firm of Dechert of Philadelphia.
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