ACNB-Traditions Bancorp deal ends whole-bank M&A drought in Pennsylvania

Gettysburg-based ACNB Corp.'s acquisition of York-based Traditions Bancorp Inc. is a rare bright spot in what has been a notably slow year for Pennsylvania bank M&A.

The transaction, announced July 24, is the first whole-bank deal in the state, excluding government-assisted transactions, since December 2023, when Orrstown Financial Services Inc. announced a merger of equals with Codorus Valley Bancorp Inc. That deal closed in July.

The only other bank deal in the Keystone State this year was when Fulton Financial Corp. purchased the failed Republic First Bank in a government-assisted transaction in April.

If the current pace continues, 2024 could be the slowest year in decades for bank deals in Pennsylvania. Aside from the pandemic year of 2020, when there were two whole-bank deals announced in the state, there have been at least four such transactions every year since 1990.

This article is part of S&P Global Market Intelligence's series of state profiles, which take an in-depth look at M&A and key banking metrics for banks and thrifts with less than $10 billion in assets.

Dealmaking challenges

M&A in Pennsylvania has had to deal with many of the same hurdles as in the rest of the country, with volatile stock prices and higher interest rates impacting banks' securities portfolios and making it harder for potential buyers and sellers to connect on pricing, Stephens managing director Frank Sorrentino said in an interview.

"The interest rate mark-to-market has been a big issue with the higher-for-longer environment, it's made it very, very challenging for acquirers to put together a good economic deal for either side," Sorrentino said. Dashed expectations of Federal Reserve rate cuts in February made M&A tough this year, he said.

A majority of the deals Pennsylvania announced in the last few years have originated within the state; only five transactions announced since 2020 featured out-of-state buyers. Sorrentino called Pennsylvania "one of the most competitive marketplaces" in the US.

"That could almost scare somebody off out of that market," he added.

Buyers from neighboring New Jersey, an even more competitive banking market, have had a difficult time drumming up capital since concerns about corporate real estate portfolios began to weigh on market valuations, Sorrentino said. That has made in-state deals with potential branch overlap more comfortable.

"The best acquirers for Pennsylvania banks are other Pennsylvania banks," Sorrentino said.

ACNB and Traditions

ACNB's all-stock acquisition of Traditions Bancorp followed a long, close relationship, including loan participations, ACNB CFO Jason Weber said in an interview.

With the addition of Traditions, ACNB will gain a pro forma top-five market share in York County, where it already had a branch. It will also add branches in Lancaster to its current footprint.

The company targets such less populated areas, Weber said.

"Our M&A strategy is to go east in Pennsylvania, not so much west," he said. "That's how we think about acquisitions in Pennsylvania. East but not in Philly, and then Maryland, not in Baltimore. We're not looking to get into cities."

Markets outside of the major metro areas, such as northeastern Pennsylvania, Scranton, Main Line and Bucks County can be attractive targets, Sorrentino said. "These are very stable, very good funding markets," he said.

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Community bank performance

Trends show Pennsylvania's community banks underperforming peers.

Banks in the state with less than $10 billion in assets had a median 6.50% return on average equity over the 12 months ended June 30, compared to the nationwide median of 10.05%. Their median net interest margin was 2.89%, compared to a US median of 3.36%.

Median efficiency ratios and loan growth were also both worse than the US median over the period, though deposits grew slightly faster in Pennsylvania than nationwide.

Of the 124 total banks in the state, 115 banks had under $10 billion in assets as of June 30.

Community banks often feel pressure to acquire to reach a "sweet spot" of between $5 billion and $10 billion in assets, partly because of institutional investor interest in community banks of that size, Sorrentino said.

ACNB falls below that range with $2.46 billion in assets as of the deal announcement. Based on financial results as of June 30, the combined company would have pro forma total assets of $3.3 billion.

Seven of the most recent sellers since 2020 in Pennsylvania deals had assets of less than $1 billion, while only two exceeded $5 billion. The largest seller, TriState Capital Holdings, had $12.16 billion at deal announcement.