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Advantage Bank bank hopes to seal first deal this year

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Regulatory hurdles have pushed the merger of Advantage Bank in Lemoyne and The First National Bank of Lilly in Cambria County into late in the first quarter of this year at the earliest.

“Things are going as well as they can whenever you deal with regulators,” said George H. Groves, president and CEO of Advantage, a startup bank that formed in late 2016. “There is progress.”

The banks had hoped to merge before the end of 2017. Groves and James Leahey, CEO of FNB of Lilly, both said a major hurdle was cleared Dec. 23 when Lilly changed from a state charter to a federal charter. The change was needed as part of the overall merger plan, the two executives said in separate interviews.

From the start, Advantage has wanted to merge with a bank that already had insurance through the Federal Deposit Insurance Corp., which would eliminate the regulatory paperwork for Advantage to obtain FDIC insurance on its own. Last summer, that plan led Advantage to FNB of Lilly. The process remains on course but the FDIC still needs to sign off on the merger proposal.

“We are looking at the end of the first quarter or the beginning of the second quarter,” Leahey said. “There are so many regulations to follow, and we are working with a small amount of people.”

Lilly is a one-branch bank with six employees and about $21 million in assets, said Leahey, who will stay on as a regional vice president of the merged bank.

“It will give us more people to be able to do more things for our customers and to offer more products,” he added.

The bank, which traces its roots to 1906, shortened its name to First Bank of Lilly after the December charter change. According to data provided to the FDIC, the bank posted a net income of $17,000 for the first nine months of 2017, down from $28,000 for the same period in 2016. It has assets of $21.2 million.

Groves said the merged bank will focus on small-to-midsized businesses, offering loans of about $500,000 to $4 million.

Overall, Advantage intends to “create a dual approach of continued acquisitions to support organic growth through banking centers in Harrisburg, Lancaster and possibly Chester County,” according to presentation materials given by Advantage to investors.

In addition to getting the FDIC insurance through an acquisition, the goal is to “gain an operating platform and other infrastructure.”

Advantage Bank is trying to raise $20 million to $35 million in a stock offering that expires July 1. The minimum investment is $25,000. So far, about $9 million has been raised, according to a report prepared for investors and provided by Groves.

One of Advantage’s board members is David A. Schankweiler – founder and former CEO of Journal Multimedia, the former parent company of Central Penn Business Journal before it was sold in 2016 to BridgeTower Media.

Ed Novak, a spokesman for the Pennsylvania Department of Banking, said he could not speak to the specifics of the merger, other than that the department approved the charter change for FNB of Lilly in December.  

Generally, he noted, mergers are common. In 2009, Pennsylvania regulated about 225 depositories, including commercial banks, savings banks and credit unions. That number now is at about 200, Novak said.

Nick DiFrancesco, president and CEO of the Pennsylvania Association of Community Bankers, pointed out that mergers have changed banking in the state. When he joined the banking association in the 1990s, he said, it had about 225 members. It now has about 75. He attributed the decrease to mergers.

Banks rarely fail, he said. “Instead, they get taken over by somebody bigger.”

He noted that Mid Penn Bank announced in mid-January a merger with First Priority Financial Corp. in Chester County. Mid Penn, based in Millersburg just completed a merger early in the new year with The Scottdale Bank & Trust Co. in western Pennsylvania

DiFrancesco said he wasn’t familiar with details of the agreement between Advantage and First Bank of Lilly but said he thinks there is increased optimism going into the new year for bank deals.

“The regulatory environment is getting a little bit better,” he said.

The optimism could mean creation of more community banks, he said. The financial crackdowns after the Great Recession were intended to curb questionable activity on Wall Street but had the unintended consequence of hurting community bankers, he said. As regulations loosen, that will open opportunities for community banks, he added.

Groves said it is always possible that the new bank might be an attractive merger target in the future but that is not his focus.

“If you are setting a target to be sold, you are probably going about it the wrong way,” said Groves, who founded and then ran the Legacy Bank in Susquehanna Township from 1999 to 2006. “The better way to think about it, though, is that we are trying to build an attractive franchise for shareholders, customers and all stakeholders.”

The mergers of big banks have created opportunities for community banks, he added.

“As banks get bigger, they tend to pay less attention to the smaller relationships,” Groves said. “We are trying to fill a hole that we feel has opened up.”

“Our focus is going to be business customers, rather than the retail side,” he said.

Regulations tend to be less onerous on the commercial side of banking, he added, because the retail side has many more consumer-protection provisions.

Groves, however, is skeptical the regulatory process in Washington, D.C., is going to improve anytime soon.

“For things to get better, it has to be something coming from D.C.,” he said. “And not too many positive things are coming out of D.C.”

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