First Niagara buys troubled Harleysville National - Update

First Niagara Financial Group, Buffalo, has bought the biggest bank in Philadelphia's Pennsylvania suburbs, troubled Harleysville National Corp., for $5.50 a share, or around $237 million total. Harleysville's 83 branches and $5.6 billion in loans and investments will join First Niagara's $11.6 billion-asset network in western Pennsylvania and upstate New York. Announcement here.

Harleysville suffered in the collapse of the central Montgomery County building boom. The bank's share price dropped from a peak of $28 in 2003 to $4 last week. Chief executive Paul Geraghty warned earlier this year that federal regulators were demanding his bank raise capital, in a tough market, to cover its loan losses.

By selling the bank, Harleysville avoided a possible federal takeover and gave shareholders, including investors in the former Willow Financial Bank, which Harleysville bought last year, hope they might recover some of their losses. Geraghty says he'll continue to run the Philadelphia-area market for First Niagara, though such arrangements often don't survive bank mergers. Harleysville said it employs around 1,100.

First Niagara hopes the deal will help the bank grow its way out of slower markets to the north and west. The bank is one of a handful "with sufficient capital, credit quality and management talent (which) stand to benefit by roling up failed institutions," analyst Sandra Osborne at Keefe, Bruyette & Woods wrote in a report to clients Friday.

First Niagara also plans a push into Western Pennsylvania. Last Spring it agreed to buy 57 former National City Bank branches from PNC Financial Services Group, effective in September.