Philadelphia. (Photo: f11photo/Shutterstock.com)

Aggressive expansion by Pennsylvania law firms appears to be paying off.

Revenue growth at Pennsylvania-headquartered law firms outpaced the national average in 2019, a new survey shows, and partner profit growth at these firms was better than in all but one region.

Pennsylvania-based law firms grew revenue by 7.3% in 2019, according to Citi Private Bank's latest flash survey, which included responses from 11 firms from this state. Profits per equity partner were up 8.8% at Pennsylvania firms, compared with 6% nationally, second only to the northeast region.

The group of 11 was relatively evenly split between Am Law 100 firms, Am Law 200 firms and niche or boutique firms, according to Gretta Rusanow, head of advisory services for Citi Private Bank's Law Firm Group.

Their revenue growth was driven by demand, which grew by 2.1% in 2019, almost twice the national average of 1.1%. Billing rates, meanwhile, increased by 3.9%, more sluggish than the national average of 4.5%.

"Almost all of the [Pennsylvania] firms reported growth in hours logged last year," Rusanow said. "The demand environment was better for this group of firms and they were better able to collect on their work as well."

Also driving revenue was a shorter collections cycle. It shortened by 3.9% at locally based firms, in stark contrast with a 1.8% lengthening of the collections cycle industrywide.

"That is a standout result," Rusanow said. Only two other regions saw collections quicken—the Northeast (5.1% shorter) and West (2.3%).

Realization was about in-line with the national average, down 0.6% at Pennsylvania firms in 2019. Despite the shorter collections cycle, local firms were able to grow inventory by 3.1%, though that's far less than the 7.1% inventory growth industrywide.

Pennsylvania firms grew head count more than the national average in 2019, coming in at 2.1% growth, while their equity partner head count declined by 1.2%, compared to flat equity partner head count across the industry.

Productivity was flat at the Pennsylvania firms, compared with a decline of 0.5% industrywide. Bradford Winton, a senior vice president in the Law Firm Group who is based in Philadelphia, said only the central region showed an increase in productivity, which declined in eight of the 11 regions, so flat productivity is a good result.

The increased head count came with expenses, which grew by 7.2% at Pennsylvania firms, far outpacing the 4.8% expense growth nationally. Compensation expenses were up 9.1% in Pennsylvania, versus 5.3% nationally, while operating expenses were up 5.8%, versus 4.3% industrywide.

Still, as evidenced by the growth in profits, those expenses did not hurt partners' wallets. The PEP growth wasn't just a result of having fewer equity partners, Rusanow noted, as the region saw net income increase by 7.5%, coming in fifth out of the 11 regions for that metric.

Rusanow noted that consolidation throughout the industry plays a major role in the financial story for Pennsylvania law firms, especially as the market saw several major law firm combinations involving Pennsylvania firms announced in recent months. Winton said the entry of non-Pennsylvania firms to the Philadelphia and Pittsburgh market are also worth noting, though Citi's regional survey only includes results from law firms headquartered in the state.

"The Philadelphia legal market is the most well-known hidden secret," Winton said. It is home to "very high-achieving world-class law firms that are able to do comparable work to the New York firms, and have an advantage from a rate perspective."

Read More

As Pennsylvania Law Firms Went National, Here's What Happened at Home

What's Behind a Wave of Healthier, Faster Law Firm Combinations?