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CNB Financial Corp. is taking on its biggest-ever acquisition, a $214 million, all-stock deal to buy in-state rival ESSA Bancorp.
The deal is expected to close in the third quarter and to create an $8 billion-asset bank. It would expand Clearfield, Pennsylvania-based CNB's footprint east, giving the company a presence in Scranton, Allentown and suburban Philadelphia. It comes a little more than two months after the $5 billion-asset Mid Penn Bancorp agreed to pay $127 million in stock to acquire William Penn Bancorp, an $812 million-asset institution headquartered in Bristol, Pennsylvania, a Philadelphia suburb.
"We're excited to partner with ESSA," CNB President and CEO Michael Peduzzi said in a press release Friday. "This combination aligns two high-performing banks with an exceptional commitment to client-focused services for its customers and financial support to sustain the economic vitality of the communities in which they operate."
According to analyst Jake Civiello, who covers CNB for Janney Montgomery Scott, the combined institution "will have greater potential for profitability improvement" than either stand-alone CNB or $2.2 billion-asset ESSA could produce.
Stroudsburg-based ESSA has a lower cost of deposits, which should also benefit the post-merger CNB, Civiello said in a research note. But Civiello sounded some cautionary notes related to the deal's projected 15% tangible book value dilution, as well as CNB's forecast of $20.5 million in cost savings— about 40% of ESSA's estimated 2026 noninterest expense base. Civiello characterized both numbers as "high."
CNB is projecting a 3.3-year earn-back period for the tangible-book-value dilution.
The deal would be CNB's fourth since 2013. None of the acquired banks approached $1 billion of assets. CNB's most recent transaction, for the $471.2 million-asset Bank of Akron in New York, closed in July 2020.
Peduzzi joined CNB as president and chief operating officer of its bank subsidiary, CNB Bank, in August 2021. He was appointed CEO of the holding company, succeeding Joe Bower, on Dec. 31, 2022.
While CNB, which was founded in 1865, maintains a single charter, it operates a multi-brand model. Currently, in addition to the legacy CNB division, it operates five other brands, including Impressia Bank, launched in 2023 to serve women entrepreneurs. CNB plans to operate ESSA as its seventh division. At closing, it plans to appoint an advisory board to help guide the unit's operations.
"CNB's multi-state, multi-brand business model fosters our entrepreneurial spirit, and continues our commitment and presence in eastern Pennsylvania," ESSA President and CEO Gary Olson said in the press release. "Leveraging CNB's infrastructure and robust capital position, suite of banking products, and combined larger lending limit, will further enhance our community banking model, and continue to serve our new and existing customers extremely well."