BB&T to buy Nat'l Penn for $1.8B/$13 a share, 2X book: boosts Chester County share

BB&T, the North Carolina-based branch-banking giant, says it has agreed to pay $1.8 billion, or $13 a share, for National Penn Bank, a consumer and small-business lender with more than 100 branches in Southeastern Pennsylvania.

Combined, the banks will rival Wells Fargo & Co. as the dominant branch banking network in Chester County, Pennsylvania's richest; BB&T will have more than $1.6 billion in deposits there if it can hold onto the accounts it is buying, according to FDIC data. The deal cements BB&T's #1 ranking in Lancaster County (from its recent acquisition of Susquehanna Bank), also #2 in Berks County (Reading) and #2 in both Lehigh (Allentown) and Northampton (Bethlehem). BB&T also hopes to boost insurance and investment sales here.

BB&T will have smaller market share elsewhere in the Philadelphia area, though it hopes to do more business there and in South Jersey in the future, President Ricky Brown told me. The bank will close branches where the two banks have duplicate locations.

BB&T plans to cut $65 million of National Penn's $150 million in yearly staff and facilities expenses by consolidating headquarters and IT work, which is bad news for Wyomissing and Boyertown, Berks County (where Nat Penn has its back offices), just as BB&T is consolidating Susquehanna's former IT operations in Lititz, Lancaster County. BB&T says it will still use National Penn's four-year-old headquarters, a cornerstone of downtown Allentowns urban revival, as its lead Pennsylvania-area office.

The sale is a blow to Allentown and other communities where National Penn has headquarters and back offices. The bank, one of Pennsylvania's busiest small-business lenders (and one of the biggest farmland lenders in the U.S.), moved its headquarters from Boyertown to its more visible new office tower four years ago, underlining its aspirations to regional leadership. Since the price is "hardly groundbreaking," the "surprising" timing of the deal raises questions about whether National Penn faced a "pending fundamental struggle" for control that culminated in the sale, writes Christopher Marinac in a report to clients of Atlanta-based FIG Partners, Atlanta.

But "the sale of this bank makes tremendous sense," since its book value, profitability and earnings power "haven't really improved since 2012," and the share price has been dragging the market, Jason O'Donnell, chief investment officer at Bluestone Financial Institutions Fund in Bryn Mawr, told me.

The deal price is higher than National Penn's share value since the financial crisis of 2008-09, but still far below the low $20s a share, where it traded in the mid-2000s.

At 2.2X National Penn's tangible book value, BB&T's offer "really a landmark deal" compared to recent bank sales, and predicted it will "will pave the way for richer deals in the region," analyst O'Donnell added.

But by other measures, the price represents only a 15.6% premium on core bank deposits, and 17.5 times past earnings per share --  and "these multiples are below the historically normal levels for mid-Atlantic banks of National Penn's size," leaving the sale "relatively inexpensive," countered Matthew Schutheis, bank analyst at Boenning & Scattergood in West Conshohocken, taking a longer view. Schultheis is recommending investors sell their National Penn shares to take advantage of the deal price.

"This makes sense for BB&T" after its recent purchase of Susquehanna, David Hilder, a New York-based bank analyst at Philadelphia-based Drexel Hamilton who has covered BB&T since 2000, told me.  "Regulators like BB&T and will allow them to make acquisitions," in a period when deal approvals haven't bene automatic, he added. BB&T has a history of buying banks National Penn's size, Hilder said.

The company sees eastern Pennsylvania, after years of industrial stagnation, as enjoying a period of modest economic growth, similar to Maryland and Virginia, where BB&T has been successful selling loans, insurance and investments.

BB&T, headed by CEO Kelly King, says the deal will make it Pennsylvania's fourth-largest bank, trailing PNC, Wachovia and Citizens with their larger office networks. BB&T will add National Penn, headed by Scott Fainor, to its recently acquired Susquehanna Bank branches in the region. Fainor will head a group of three Susquehanna veterans and one National Penn colleague in BB&T's newly expanded mid-Atlantic business group, BB&T president Brown told me.