Philadelphia. (Photo: f11photo/Shutterstock.com)

Coming off a record 2018, law firms should be pleased with their performance in the first half of 2019, and Pennsylvania-based firms have even greater cause for celebration.

Local firms outperformed industry averages in several metrics in the first half, according to a recent survey by Citi Private Bank's Law Firm Group.

Revenue was up 6.3% at Pennsylvania firms surveyed, versus 4.1% industrywide. Demand, while flat across the industry, was a bit better among Pennsylvania firms, showing 0.5% growth.

Rate growth was about in line with industry averages, at 4.7% for Pennsylvania-based law firms.

"This from my perspective will still be a decent year for the firms in Pennsylvania," Citi Private Bank's Jeff Grossman said. Grossman said last year's legal industry growth was fueled by corporate M&A work.

"While many of those deals had concluded and there's much more uncertainty this year, the small or midmarket deals that are still transactional for midmarket-sized companies that are clients of our law firms, continued," he explained. "They're late in the game as we saw an uptick, but they're late in the game in terms of a slowdown."

However, both in Pennsylvania and industrywide, expenses grew more than revenue. Expenses were up 7.2% in the second half for Pennsylvania firms, versus 5.9% nationally. Compensation expenses were a major part of that, growing 9.1% at the local firms, while operating expenses were up 5.8%.

The increased compensation costs were due in part to increased associate salaries, which then "cascaded" through to staff pay, Grossman said. Additionally, local firms added more nonpartner lawyers—lawyer head count was up just 0.3%, while equity partnership ranks shrunk by 0.5%.

"They're re-leveraging their firms with less costly timekeepers," Grossman said.

"A lot of local firms have been laser-focused on maintaining their equity head counts," added Citi's Bradford Winton, who is based in Philadelphia. "It's a matter of focus on keeping the right talent in the doors."

The collections cycle in Pennsylvania differed from the industry average as well. While the average collections cycle lengthened by 1.6% in the first half industrywide, it was actually 0.8% shorter among Pennsylvania-based firms. That's a unique position for the market, particularly in a transactional economy, Grossman said.

Based on that, it's unsurprising that inventory increased by a lesser amount in Pennsylvania than industrywide, though not by much. Inventory was up 5.5% among Pennsylvania survey respondents.

"There is some demand growth in Pennsylvania, [and] there's inventory," Grossman said. "We actually think this will be a relatively strong year for Pennsylvania."