Orrstown Financial buying Pennsylvania rival Codorus for $207 million

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Orrstown Financial Services in Shippensburg, Pennsylvania, said it would acquire in-state rival Codorus Valley Bancorp, the parent of PeoplesBank in York.

Billed as a merger of equals, the $3 billion-asset Orrstown said in a press release late Tuesday it would acquire the $2.2 billion-asset Codorus and its bank in an all-stock deal valued at $207 million. Should the deal close as planned in the third quarter, Orrstown Financial shareholders would own approximately 56% of the combined company's outstanding shares.

The deal would create a $5.2 billion-asset bank with 51 branches spanning central and eastern Pennsylvania as well as the greater Baltimore area in Maryland. The two banks' territories overlap and the merger would deepen Orrstown Financial's presence in its existing footprint, including Baltimore and central Maryland.

The combined company and bank would operate under the Orrstown name. Its administrative headquarters would be located in Harrisburg, Pennsylvania, with an operations center in York.

Thomas Quinn Jr., president and CEO of Orrstown Financial, would become president and CEO of the combined company and bank. He touted the deal as an efficient way to gain substantial heft needed to compete with larger banks for customers and talent.

"The partnership of our companies will significantly increase our size and scale, which we believe will not only drive profitability and shareholder value but also benefit our clients, employees and communities through broader product offerings, higher lending limits, an improved customer experience, and increased career opportunities," Quinn said in the release.

Speculation of a potential Codorus Valley sale dates to 2021, when activist investor Driver Management in New York called on the banking company to review its strategic options. The investor said at the time that the bank was consistently profitable but it earned less than the average of its peers. Eventually, the two sides reached a cooperation agreement, and Codorus appointed a Driver-backed candidate to its board in April 2022. 

Codorus Valley's origins date to 1864, when its banking unit first opened as First National Bank of Glen Rock. It adopted the PeoplesBank moniker in 1997.

Craig Kauffman, president and CEO of Codorus Valley, would assume the role of chief operating officer of the combined company. Kauffman would be in line to succeed Quinn upon his planned retirement in mid-2025.

"This union marks a significant milestone in our commitment to providing enhanced financial services to our valued clients. Together, we are poised to create a stronger, more resilient institution that will harness the synergies of our combined expertise and resources," Kauffman said in the release. "This merger is a testament to our dedication to innovation, client satisfaction, community engagement and long-term growth in the dynamic landscape of the financial industry."

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Neil Kalani, chief financial officer of Orrstown Financial, would become CFO of the combined company.

The board of the merged company would consist of seven directors from Orrstown Financial and six from Codorus Valley. Joel Zullinger, chairman of Orrstown Financial, would become chairman, while J. Rodney Messick, chairman of Codorus Valley, would serve as vice chairman following the merger.

Raymond James acted as financial adviser to Orrstown Financial. Goodwin Procter served as legal counsel. Keefe Bruyette & Woods acted as financial adviser to Codorus Valley. Holland & Knight served as legal counsel.