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If the $401 million sale of Baltimore mainstay Provident Bankshares Corp. to M&T Bank Corp. of Buffalo, N.Y., is approved by regulators and shareholders as expected by June, the combined company will have more bank branches in Maryland than any other institution.
But some of those 253 branches could close, especially the ones close to each other, analysts said this week.
About 44 percent of Provident's branches are located within one mile of an M&T branch, said Philip Hosmer, a spokesman in M&T's regional headquarters in Baltimore. If the deal is approved, M&T executives will conduct a "thorough analysis to determine how to most effectively integrate the two companies to best serve customers," Hosmer said Monday.
Michael P. Pinto, chairman and CEO of M&T's Mid-Atlantic division, said in a conference call last Friday that if there are job cuts, displaced employees will receive "preferential consideration" for some 200 open jobs in M&T's Mid-Atlantic region.
M&T wants to have a significantly larger presence in the Mid-Atlantic region, which may lead to many former Provident offices remaining open, said Bethesda banking consultant Paul Joegriner, a former executive with Chevy Chase Bank and American Partners Bank. "But they might shut down some that are redundant," he said.
Provident and M&T both have heavy presences in Baltimore and Montgomery County. For instance, they both have branches in downtown Rockville, Baltimore and Silver Spring.
Large banks based in
Maryland declining
Provident is the largest publically traded bank headquartered in Maryland and eighth largest in deposits in the state with $3.8 billion as of last June, according to the Federal Deposit Insurance Corp. M&T is the fifth largest bank in Maryland deposits with $7.4 billion.
If the Provident acquisition is approved, M&T will move up to second in deposits behind only Bank of America Corp. of Charlotte, N.C., which had $18.5 billion in deposits. The combined institution will have 44 more branches than its closest competitor, PNC.
Earlier this month, privately held Chevy Chase Bank of Bethesda, the third biggest bank in Maryland deposits with $8.2 billion, signed an agreement to be sold to Capital One Financial Corp. of McLean, Va., in a $520 million transaction.
If those sales go through as planned, none of the eight banks with the most deposits in Maryland will be headquartered in the state, unlike about a decade ago when half of the top eight largest banks were based in Maryland. Sandy Spring Bancorp of Olney will be the largest Maryland bank at ninth place, with $2.2 billion in state deposits, and the only state-based bank with more than $1 billion in deposits in Maryland.
That leads some analysts to wonder if Sandy Spring and other mid-sized banks might seek similar sales. Joegriner said as many as one-third of banks across the nation could disappear over the next five years, due to competition and the difficulty of making money when institutions borrow funds at 3.5 percent to 5 percent in wholesale and retail CDs and lend at 6 percent.
"There is space for smaller boutique banks," Joegriner said. "The large national banks will attract the retail customers, and smaller boutique banks will focus on small-business customers who want the local customer service.… The mid-tier banks might have more difficulties competing."
As larger banks such as Wachovia Corp. are also sold, well-run smaller banks will benefit in this climate, David G. Danielson, president of Vienna, Va., bank consulting company Danielson Capital LLC, said in a recent report.
"Banking will still be a needed service, but with fewer big banks to meet the need," Danielson said. "There are bound to be large gaps in [big banks'] interest and coverage. Thus, times may be tough, but there are surely better days ahead."
Income declines, mortgage loan defaults rise
The price of the sale M &T Bank is to pay for Provident would be about 1.4 times Provident's tangible book value, which measures a bank's net worth. Two years ago, Mercantile Bankshares Corp., another longtime Baltimore institution, was bought by PNC Financial Services Group for 2.6 times the book value.
Still, the deal represented a 58 percent premium over Provident's stock closing price of $6.63 on Dec. 16. Under the agreement, Provident shareholders will receive 0.17 shares of M&T stock in exchange for each share of Provident stock, or $10.50 a share.
Given that Provident, the parent of Provident Bank, received a $151 million capital infusion from the U.S. Treasury Department's capital purchase program and was still looking for a merger partner indicates that there was something more going on, Joegriner said. "It came as a surprise to me," he said.
Provident had not been looking for a partner for long, but M&T's offer was compelling since the two share a similar tradition and values, Gary N. Geisel, Provident chairman and CEO, said in a conference call.
"When we started looking for an alternative, we wanted someone who would keep the legacy of the ‘Provident Way' alive," Geisel said. "Fortunately, we did not have to look very far."
If the sale goes through, Geisel will be appointed to the board of directors of M&T Corp. and its banking subsidiary, M&T Bank. M&T executives said they plan to retain the level of Provident's community donations and volunteer work.
Like many banks, Provident, which formed as a savings institution for sailors at a Baltimore mission in 1882, faced declining earnings amid rising mortgage loan defaults. In the first nine months this year, Provident reported a net loss of $12.8 million, compared with net income of $47.6 million in the same period in 2007.
The percentage of noncurrent loans and leases — those 90 days or more past due or already in default — to total loans rose to 1.2 percent in September from 0.7 percent a year earlier, according to the FDIC. Like many banks, Provident's stock price has declined substantially, by more than 50 percent in the past year.
Despite the difficulties, Provident actually bucked a trend to add about 30 employees in the past year, as it purchased some Chevy Chase deposits inside grocery-store branches.
Profits down but M&T's presence enhanced
In the first nine months of the year, M&T reported a net profit of $453.6 million, down 23 percent from the same period in 2007. Nonperforming loans to total loans rose to 1.5 percent in September from 0.8 percent a year ago. Its stock price hasn't declined by as much as many banks, having declined some 30 percent in the past year.
The deal enhances M&T's already strong presence in Maryland, said Atwood "Woody" Collins III, president the bank's Mid-Atlantic division, which is based in Baltimore. M&T has grown significantly in Maryland since 2001, when it only had 25 branches and $510 million in deposits in the state, according to the FDIC.
The purchase of Allfirst Financial in 2003 was a key factor. Shortly thereafter, M&T bought the naming rights for the Baltimore Ravens' $220 million stadium for $75 million over 15 years.
"While other banks have been scaling back growth, curtailing lending and laying off employees, M&T is continuing to invest in the Mid-Atlantic, where we have opened, renovated or relocated 30 branches since 2007," Collins said.
M&T is opening three branches in Montgomery County — in Bethesda, Silver Spring and Rockville — by early next year.
Other Maryland banks have been sold this year. Bethesda institution Eagle Bancorp acquired Fidelity & Trust Financial Corp. of Bethesda in a deal valued at $13.1 million. American Partners Bank of Bethesda, which has $198 million in deposits, changed its name to Waterfield Bank after being bought by Affinity Financial Corp. of Irvine, Calif.
Provident Bankshares Corp.
Maryland bank deposits, 2008: $3.8 billion
Rank in state: 8th
Maryland branches: 100
Rank in state: 7th
M&T Bank Corp.
Maryland bank deposits, 2008: $7.4 billion
Rank in state: 5th
Maryland branches: 153
Rank in state: 3rd [tie]
Combined entity
Maryland bank deposits, 2008: $11.2 billion
Rank in state: 2nd
Maryland branches: 253
Rank in state: 1st
Sources: Provident Bankshares Corp., M&T Bank Corp., Federal Deposit Insurance Corp.