Honesdale, Pa.-based Norwood Financial Corp. has agreed to buy Geneva, N.Y.-based UpState New York Bancorp Inc. in a cash-and-stock deal worth about $80 million based on Norwood's Jan. 8 closing price of $38.93 per share.
For each share of UpState common stock held, shareholders of UpState can choose to receive either 0.9390 shares of Norwood common stock or $33.33 in cash or a combination of both. In addition, UpState may also be permitted, under certain performance conditions, to distribute at the closing of the merger a special cash dividend of up to an additional 67 cents per share to its shareholders. The deal is expected to be a tax-free exchange for shareholders of UpState receiving Norwood common stock.
The transaction value represents 176.8% of UpState's tangible book value at Sept. 30, 2019, 16.1x UpState's earnings per share for the latest 12 months ended Sept. 30, 2019, and a 13.1% core deposit premium, according to a news release.
The transaction is expected to be about 18.0% accretive to Norwood's earnings in 2021, the first full year of operations.
On an aggregate basis, S&P Global Market Intelligence calculates the deal value to be 181.5% of common equity and tangible common equity, and 15.1x earnings. The deal value is also 18.35% of assets and 20.67% of deposits, and the tangible book premium to core deposits ratio is 19.43%. Ratios are based on UpState's June 30, 2019, small parent equity and last-12-months net income of $44.1 million and $5.3 million, respectively.
S&P Global Market Intelligence valuations for bank and thrift targets in the Mid-Atlantic region between Jan. 8, 2019, and Jan. 8, 2020, averaged 146.47% of book and 152.53% of tangible book and had a median of 17.09x last-12-months earnings, on an aggregate basis.
Norwood President and CEO Lewis Critelli will remain as president and CEO of the combined company. All members of Norwood's executive management team and unit Wayne Bank will continue in their current positions.
UpState directors Jeffrey Gifford and Alexandra Nolan will be appointed to the boards of Norwood and Wayne Bank. In addition, the other directors of UpState will be invited to join a regional advisory board. UpState President and CEO R. Michael Briggs will enter into a consulting agreement with Wayne Bank.
The deal is expected to be completed in the third quarter and is subject to certain closing conditions, including receiving requisite regulatory approvals and the approval of Norwood and UpState's shareholders. UpState has agreed to pay Norwood a termination fee of $3.2 million if, under certain circumstances, the planned deal falls through.
The transaction will extend Norwood's footprint into Ontario, Otsego and Yates counties in New York. The combined company will have about $1.7 billion in assets and 31 offices across five counties in northeastern Pennsylvania, two counties in the southern tier of New York and three counties in upstate New York.
Based on S&P Global Market Intelligence data, the acquisition will see Norwood Financial enter Otsego County, N.Y., with two branches to be ranked fourth with a 15.01% share of about $1.12 billion in total market deposits. Additionally, the company will enter Ontario County, N.Y., with one branch to be ranked fifth with a 8.45% share of roughly $2.3 billion in total market deposits and will enter Yates County, N.Y., with one branch to be ranked fourth with a 4.98% share of approximately $427.2 million in total market deposits.
As of Sept. 30, 2019, UpState unit USNY Bank had total assets of $435.9 million, while Wayne Bank had total assets of $1.22 billion.
The Kafafian Group Inc. was financial adviser to Norwood and provided a fairness opinion. Boenning & Scattergood Inc. was financial adviser to UpState and provided a fairness opinion. Jones Walker LLP served as legal counsel for Norwood, and Stevens & Lee PC acted as legal counsel for UpState.