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
"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
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
"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."
Olson, Chairman Robert Selig and Director Daniel Henning will join CNB's board. Olson will also serve as a strategic advisor to Peduzzi.
Inside Pennsylvania, the merged institution would have 49 branches and $4.8 billion of deposits, making it the Keystone State's seventh-largest community bank. According to CNB, the merger would push its return on average assets to 1.3% in 2026 once the projected cost savings are achieved. For the three months ended Sept. 30, CNB reported a return on assets of 0.94%.
Essa achieved a return on average assets of 0.78% for the 12 months ended Sept. 30. The company is characterized by pristine asset quality, with four basis points of cumulative charge-offs the past five years. Though it's been profitable, ESSA's bottom-line results have been impacted by the increased funding costs that have accompanied the rise in interest rates in 2022 and 2023. Essa's net income for its 2024 fiscal year, which ended Sept. 30, totaled $17 million, down 9% from fiscal 2023, 15% from fiscal 2022.
CNB shares were trading down about 6% at $22.66 midday Friday.
