Mid Penn Bancorp in Millersburg, Pennsylvania, is buying in-state rival Riverview Financial Corp. in State College for $ 125 million in stock.
The deal, announced late Wednesday, comes two months after the $ 3.4 billion-asset Mid Penn raised $ 75 million in a public offering.
President and CEO Rory Ritrievi said the combination will generate earnings-per-share accretion of 25%, creating the opportunity for substantial cost savings and providing a jumping-off point for an expansion into the densely populated Pittsburgh area.
On a conference call with analysts Thursday, Ritrievi said he was also attracted to Riverview for its $ 1.1 billion of deposits.
That comment surprised analysts, who questioned why the bank would be so eager to add more deposits on top of the roughly $ 700 million it has added since the end of 2019.
“So many banks are awash in deposits, so much so they’re having trouble putting all that liquidity to work,” said Matt Breese, who covers Mid Penn for Stephens Inc.
Ritrievi, for his part, called himself “a deposit guy.”
“I love deposits, especially core deposits,” Ritrievi said, noting nearly three-fourths of the $ 1.4 billion-asset Riverview’s deposits are classed as core and that its cost of funds, 0.35%, is actually lower than Mid Penn’s.
“I’m never going to go after core deposits,” Ritrievi added. “We’ll figure out a way to deploy them.”
One tactic Mid Penn can take advantage of as soon as its deal for Riverview closes is keeping more of its big-dollar commercial-and-industrial and commercial real estate loan production on its balance sheet. With a legal lending limit set at about $ 40 million currently, that is currently a challenge Ritrievi said.
Acquiring Riverview will push Mid Penn’s legal lending limit to about $ 50 million.
“We think Riverview has an excellent and complementary core deposit platform,” Ritrievi said. “If and when rates do rise it will provide additional liquidity and fuel for our organic loan growth.”
Mid Penn is projecting pretax cost savings of $ 14.5 million, about 50% of Riverview’s noninterest expense base, driven largely by cuts to back-office costs and branch closings.
While Ritrievi did not say how many branches could be shuttered, he said the combined company’s count of 59 “is clearly too many.”
“At its core the deal is essentially in-market and provides enough scale and overlap to generate 50% cost [savings]. This translates to significant earnings accretion, ”Piper Sandler Analyst Frank Schiraldi wrote in a research note Thursday.
Riverview would be Mid Penn’s fourth acquisition since 2015, and in the previous three it either met or exceeded its cost-savings target Chief Financial Michael Peduzzi said on the conference call.
Under the terms of the deal, which is expected to close in the fourth quarter, Riverview shareholders will receive 0.4833 shares of Mid Penn stock for each existing Riverview share. The exchange rate implies a price of $ 13.28 per share and a price to tangible book value of 128%.
Riverview investors will own about 28% of the pro forma company, and Mid Penn plans to add two Riverview directors to its board.