BB&T to pay $2.5B for Susquehanna Bank

North Carolina-based BB&T Corp. has agreed to pay $2.5 billion for Lancaster County-based Susquehanna Bancshares, which has 245 branches in southern Pennsylvania, the Philadelphia area and nearby states.

BB&T (it stands for Branch Banking and Trust) plans to cut $160 million from Susquehanna's $500 million in yearly expenses, including staff at Susquehanna headquarters and back offices in Lititz. Susquehanna (corrected) currently employs around 3,000. BB&T also plans to rename the Susquehanna Bank Center in Camden and call it the BB&T Center, BB&T President Ricky K. Brown told me.

BB&T is buying its way north in search of "diversification," Brown said. The bank is one of the largest U.S. regional lenders, with $187 billion in loans and other assets, and more than 1,800 branches in 12 Southern states and Washington, D.C. Susquehanna operates 245 branches and controls $19 billion in loans and other assets.

BB&T plans to give Susquehanna shareholders the equivalent of $13.50 for each Susquehanna share -- just over a quarter of a share of BB&T stock, plus $4.05 in cash. That's a fat premium to Susquehanna's recent share price of around $10, but below last summer's high of $13.57 a share, and just half the stock's value in the mid-2000s.

BB&T says it will cut enough Susquehanna workers and facilities to make the deal profitable within a year. Despite that claim, Sameer Gokhale, bank analyst at Janney Capital Markets in Philadelphia, reduced his prediction for 2015 profits at BB&T to $2.79 a share, from a pre-merger projection of $3.09. The deal makes "strategic sense" for BB&T, which is trying to find more loan customers, Gokhale added in a report to clients.

The deal must be approved by regulators and Susquehanna shareholders.

The sale will make BB&T the fifth-largest bank in Maryland but a more distant competitor in the crowded Philadelphia-area market, where Susquehanna trails Wells Fargo, PNC, Citizens, TD, Santander, Bank of America, M&T, and Beneficial banks, according to Federal Deposit Insurance Corp. data. BB&T wants to be one of the five largest banks in the Philadelphia area eventually, bank president Brown told me.

It's likely BB&T will try to bulk up by buying Beneficial or another Philadelphia-area bank in the next few years, said Robert Costello, boss at Costello Asset Management in Huntingdon Valley.

BB&T will inherit Susquehanna's deposits at its 58 branches in Philadelphia and its Pa. and N.J. suburbs, where the company controls less than 1% of the market.  Susquehanna has a more concentrated presence in South Jersey, with about 5% of bank deposits in Camden County.

Andrew Samuel (corrected), head of Susquehanna's banking unit, resigned last month, citing family reasons. In an Oct. 23 report, Frank Schiraldi, managing director at Sandler O'Neill + Partners in New York, said Susquehanna sales, profits and share values were unlikely to rise on its own, due to the company's "disappointing" loan growth.

BB&T will offer Susquehanna customers "expanded product offerings," "faster, simpler, more effective client service," and "a stronger balance sheet," Susquehanna Bancshares CEO William J. Reuter said in a statement.

BB&T will set up local management groups to cover Susquehanna's Pennsylvania and New Jersey customers, while merging Maryland branches into its existing network, according to a statement by BB&T chief executive Kelly S. King. Susquehanna boss Reuter and bank director Christine Sears will join the BB&T board, and the company plans a $10 million charitable foundation in Lancaster to help compensate for the disappearance of Susquehanna's Lititz headquarters.

Matthew Schultheis, bank analyst at Boenning & Scattergood in West Conshohocken, urged clients to dump Susquehanna stock after the deal was announced because the shares had nearly reached the price Susquehanna agreed to pay and were unlikely to rise more anytime soon.