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Bank deal: Bryn Mawr to pay $109M for Continental

Bulking up in Philly's richest suburbs

To boost its market share in Philadelphia's richest suburbs, Bryn Mawr Bank Corp. says it has agreed to buy Continental Bank Holdings Inc. of Plymouth Meeting for $109 million of Bryn Mawr's own stock.

Ted Peters, who plans to retire at the end of the year in favor of President Francis J. Leto, tells me his bank has agreed to give Continental shareholders 0.45% of a Bryn Mawr share for each Continental share. With Continental trading recently around $27.50, that works out to around $12.375 for each Continental share, giving investors a modest markup to the $10 a share -- or $8 a share, after you count the two 10% dividends -- that investors led Wycoff paid when they started Continental nine years ago, and a better profit for the private equity firms that invested in 2012 at $7 a share.

The deal, if it wins regulatory approval, will close on schedule at the end of 2014. The merger will join Bryn Mawr Trust Co.'s 26 branches, in Delaware and Chester Counties and its home base in Montgomery County's Lower Merion Township, plus outposts on the Philadelphia and Delaware borders, to Continental's 10 branches, mostly in southern Montgomery County across the Schuylkill.

Bryn Mawr expects to cut 35% of the acquired bank's expenses, probably through headquarters layoffs and tech consolidation. CEO Ted Peters says the bank has made no decision about whether to close branches in Berwyn, Merion, Conshohocken, or West Norriton, where both banks have offices. Bryn Mawr says a tech upgrade will follow the deal.

Bryn Mawr also hopes the deal will help it attract more investment clients in Continental's territory. Two as-yet unnamed Continental directors will join the Bryn Mawr board. Continental President H. Wayne Greist (who worked with Peters at the old Hamilton Bank's West Chester office way back in the '80s) and his lenders will join Bryn Mawr, including specialists in government-backed Small Business Administration loans.

Continental has reported rapid loan growth in recent quarters. Both banks are primarily real estate and small business lenders.

Why did Continental sell, if it's growing relatively fast in the sluggish Philadelphia-area market? I have a feeling interest rates are going to stay low for a long time," W. Kirk Wycoff, Continental's founder and a major shareholder, told me. Banks have trouble making money from deposits and loans when rates are so low: "Everyone's stretching for yields, and that always ends badly," at least for the "worst offenders," he noted. But Bryn Mawr has another major business line -- investments -- and the deal will help Bryn Mawr sell those services to Continental customers: "They have this tremendous fee business, and that allows them to be pretty conservative lenders."

Why pick Bryn Mawr over other buyers? "We could have gone with a much larger organization and caused a lot of employee turnover and a lot of customer turnover," Wycoff said. "But the (Continental) board liked this deal because Bryn Mawr is a very stable bank that puts up good numbers every year. We're bullish about the earnings and the dividends. The Wycoff family will have $9 or $10 million in Bryn Mawr stock when this i done. We'll watch it closely. The other large investors are all very happy with this, too."

"We've done five acquisitions in five and a half years," and looked at at least a dozen others, Peters told investors in a conference call, not counting at least one transaction that fell apart. "We are paying fairly for what we perceive as good value, strategically and finanically," he said, adding that the bank was "buying growth." He said investors will see earnings-per-share rise 4% from the deal next year, and more in the future. He noted Bryn Mawr shares rose slightly on initial news of the deal Monday.

Together the banks will hold around $3 billion in assets and nearly 5% of the bank deposits in Montgomery County, trailing big national banks like Wells Fargo, TD and Citizens.

Will putting two Continental investors on Bryn Mawr's board make the group more likely to sell the bank? "The fact Ted is retiring without any interest in selling the bank speaks to the way the board feels about the company and the way the shareholders feel," Wycoff told me.

"Our mantra has been to remain independent and show good growth and for our investors to see nice appreciation" in Bryn Mawr shares, including last year's 35% stock-plus-dividend yield," said Peters. While the combined banks might attract takeover offers from regional acquirers like PNC or First Niagara, Bryn Mawr resisted any sale under its previous largest investor, Rittenhouse Trust founder George Connell, and has stayed independent with its share price relatively high since Connell sold his shares three years ago. Major Bryn Mawr shareholders now include Lancaster-based Fulton Financial and the Ameriprise and Wellington investment management firms.

Peters, who will stay on the Bryn Mawr board after stepping down from the corner office and giving more time to his bank-investment fund (which he says avoids Philadelphia-area banks to prevent conflicts of interest), says he's confident Bryn Mawr "will remain independent."