Dive Brief:

• Clearfield, Pennsylvania-based CNB Financial Corp. has agreed to buy in-state peer Stroudsburg-based ESSA Bancorp in an all-stock transaction valued at roughly $214 million, the companies announced Friday.
• The combined entity will have roughly $8 billion in assets, $7 billion in deposits, and $6 billion in loans and expand CNB’s services to eastern Pennsylvania and the greater Lehigh Valley market.
• The transaction — expected to be completed in the third quarter of this year — has been approved by the respective boards but awaits approval from shareholders of both companies and regulators.

Dive Insight:

Adding ESSA would bring 20 new locations into CNB’s 55-branch fold.

“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,” CNB CEO Michael D. Peduzzi said in a statement.

The merger aligns with CNB’s acquisition history and brand strategy, Keefe Bruyette & Woods analyst Timothy Switzer said. With the acquisition, ESSA — which has the third-highest market share in deposits in Greater Lehigh Valley — will become the seventh community bank brand CNB has acquired. CNB’s last acquisition, Bank of Akron, came in July 2020. 

“The ESSA acquisition is in line with [CNB’s] strategy of establishing separate community bank brands…in markets where the holding company’s larger overall size allows for superior capabilities and a wider range of products than other community bank competitors in its footprint,” Switzer wrote in a note to investors. “We believe the overall outcome of the acquisition will be largely dependent on management’s efforts to transform ESSA into a more commercially-focused bank, matching [CNB’s] historical strengths.” 

Under the deal, ESSA shareholders will receive 0.8547 shares of CNB common stock for each outstanding share they own, the companies said. That translates to $21.10 per share, based on CNB’s stock price of $24.69 from Wednesday. 

Under the transaction terms, three ESSA directors — CEO Gary S. Olson, board chair Robert C. Selig Jr. and Daniel J. Henning — will join the boards of CNB Bank and its holding company. Olson will also serve as a strategic adviser to CNB’s CEO, while the acquirer will form a board of advisers for its ESSA Bank unit.

“CNB’s multi-state, multi-brand business model fosters our entrepreneurial spirit, and continues our commitment and presence in eastern Pennsylvania,” Olson said in a statement Friday. “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.” 

ESSA will merge into the $6 billion-asset CNB, with CNB as the surviving entity. If the merger is not completed under specific conditions, the $2.2 billion-asset ESSA may pay CNB a termination fee of $8.8 million, according to a Securities and Exchange Commission filing.

The transaction is expected to boost CNB's earnings per share by roughly 35% in 2026 once cost synergies are fully realized, with a 15% initial dilution to tangible book value per share expected to be earned back in about 3.3 years, the bank said. 

The combined entity, at closing, is positioned to have a tangible common equity ratio of 7.7%, a common equity tier 1 ratio of 10.7%, and a loan-to-deposit ratio of 89%.

ESSA agreed to pay over $3 million in 2023 to settle redlining allegations. However, Olson disputed the Justice Department’s findings, noting that ESSA did not receive fair lending complaints during the investigation period and expanded its presence by opening a branch in a majority-nonwhite area of Allentown in 2018.