Two more Midwest thrift companies have announced plans to merge rather than try to slug it out alone in markets that are barely growing and where competition is already intense.
United Community Financial Corp. of Youngstown, Ohio, announced late Tuesday that it had agreed to buy the $908 million-asset PVF Capital Corp. in Solon, Ohio, for $130.8 million in cash and stock.
PVF chief executive John R. Male said Ohio’s sluggish economy is making it hard for PVF’s 87-year-old thrift, Park View Federal Savings Bank, to remain independent.
“With the automobile business and the housing business in the rut that they’re in, that has hurt our business, no question about it,” Mr. Male said in an interview Wednesday. “Part of the impetus for this merger is because it is a difficult operating environment.”
The $2.7 billion-asset United is also struggling to grow organically, and its CEO, Douglas M. McKay, said its best chance for growth is to bulk up through acquisitions. Its second-quarter profit fell 37% from a year earlier, largely because loan demand fell and nonperforming loans rose.
“The Midwest is not in a particularly impressive growth mode right now, and even though we’ve done well opening branches in new markets one or two at a time, this deal will meet our strategic growth objectives, because it’s such a large transaction,” Mr. McKay said Wednesday.
United is the parent of the Home Savings and Loan Co., which has 38 branches in northern Ohio and western Pennsylvania. PVF would be its largest acquisition ever — and first since 2002 — and give Home Savings 17 additional branches, mainly in the Cleveland area, where it now has just five branches.
“When this opportunity arose, we thought it was a perfect fit to fill in our network of retail banking branches,” Mr. McKay said. “Park View is in the suburbs, largely servicing residential areas, and that’s where we like to put our branches.”
Of course, community banks all over the country are teaming up to become more competitive with larger banks, but the trend is more pronounced in the Midwest, where loan growth has been especially poor, said David W. Darst, an analyst at First Horizon National Corp.’s FTN Midwest Research.
Nine deals involving sales or acquisitions by banks headquartered in Ohio have been announced this year, compared with 10 in all of 2006 and seven in 2005, according to data from SNL Financial LC. In 2004, 23 deals involving Ohio banks were announced.
On Friday the $1.3 billion-asset Oak Hill Financial Inc. in Jackson, Ohio, announced it was selling itself to WesBanco Inc. of Wheeling, W.Va., for $201 million in cash and stock.
As Mr. Darst put it, “The economic conditions are leading smaller banks to realize that they need to partner with another bank to be a little larger in order to better compete.”
He said he does not expect the dealmaking to slow soon. “M&A activity in the Midwest will continue to increase as more boards begin their strategic planning for 2008,” he said.
Mr. Male said PVF is also selling to a larger banking company because of increasingly burdensome regulatory requirements, particularly from Sarbanes-Oxley and the Bank Secrecy Act. Moreover, combining with United would give PVF’s customers a wider product selection and larger lending limits, Mr. Male said.
In the near term both United and PVF have credit quality issues, though Mr. McKay said they should be resolved by the time the deal closes in early January. Like United, PVF, citing a higher loan-loss provision, reported a sharp decline in earnings for the quarter that ended June 30, its fiscal fourth quarter.
Mr. McKay said he expects United’s earnings to rebound in 2008 as credit quality improves and the acquisition, priced at two times PVF’s book value, becomes accretive to earnings.
Park View Savings is to be merged into Home Savings and Loan. Mr. Male is to become vice chairman of United, and two additional PVF board directors would join United’s board.
