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TO MERGE OR NOT TO MERGE

THE BALTIMORE SUN

Raw numbers say Kenneth T. Bosley is wrong. But in an age of $100 billion banks, he looks at Sparks State Bank and still sees the community institution his late father used to run when dairy farmer Webster Bosley was a banker on the side. And he likes the view.

That's why Mr. Bosley is trying to rally Sparks stockholders to vote next Tuesday against a proposed $53.15 a share takeover by Mercantile Bankshares Corp. of Baltimore. His is a small campaign -- no official proxy solicitations, just an ad in the local weekly paper, some phone work and a dinner set for tonight at an Upperco restaurant -- and one that may face an uphill fight.

Mercantile's offer is 96 percent higher than Sparks' book value and about 65 percent more than Sparks' thinly traded stock commanded before Mercantile's December offer. The company's management and board are firmly for it -- and have promised to vote the 24.4 percent of Sparks stock they own in favor of the deal, which requires a two-thirds vote for approval.

Even other opponents of the deal disagree with Mr. Bosley: they say the problem is that Sparks is selling itself short by not looking for better offers. Three of them sued in Baltimore County Circuit Court, and are set to try to persuade a judge Monday to call off the vote and make the board seek more offers.

But Mr. Bosley and his son, Kenneth W. Bosley, don't want to sell at any price. What does a bank gain, they seem to ask, if it makes a big profit but loses its soul?

"The bank is doing very well. Why sell a good thing?" said the elder Mr. Bosley, whose father was president of Sparks for more than 20 years. "And it's part of the community. Why sell out to a larger institution that's not part of Baltimore County?"

Sparks is, by all accounts, doing very well. It made $2.4 million last year managing $192 million of assets, making it 20 times smaller than Mercantile, the biggest bank holding company still headquartered in Maryland.

Sparks is a tiny bank, with a small bank's horizons. It has only five offices, all in northern Baltimore County, and only 569 stockholders. Half of its loan money is in home mortgages, with about 60 percent of the rest representing mortgages on commercial buildings. Small business loans and consumer credit round out the list.

But according to a study by its investment bankers, Sparks' returns are higher than the average of other small Maryland and southern Pennsylvania banks, it has bigger reserves against possible loan losses, and it is growing faster than its peers.

Arnold Danielson, a banking consultant in Rockville, said Sparks is not especially threatened by the wave of bank consolidations, like last month's deal for First Union Corp. of Charlotte, N.C., to buy First Fidelity Bancorp., parent of the old Bank of Baltimore. Well-managed small banks are expected to thrive competing with mega-banks even as titans like First Union and NationsBank Corp. force midsized banks like First Fidelity to seek mergers.

"The local commercial banks do wonderfully," Mr. Danielson said.

Mr. Danielson is not enthusiastic about the deal either, but for different reasons than Mr. Bosley. "I wouldn't vote to sell," he said, arguing that comparable banks have sold for more than twice book value. "It's a price that raises questions. . . . People look at it and say, 'They must love Mercantile.' "

Sparks State Bank President Bradley G. Moore won't discuss the vote. The bank's lawyer, James Winn, says only that the company will resist the suit, but that the shareholders will have the final word on selling to Mercantile.

But to the Bosleys, who say they own more than 1 percent of the shares but won't be more specific, profits are not the only point.

"Pride of ownership might be it," the son said. "Maybe it's a little bit romantic, but if it's not broken it doesn't need to be fixed."

However, the bank board's legal duty is to make as much money as it can for stockholders, and that's why Sparks says it sought out Mercantile to propose the merger.

The company's proxy statement, its main public comment on the deal, said Sparks was worried that it would lose its customers to increasingly stiff banking competition so it looked for a merger partner. Mercantile's record of building a company out of 20 small community banks that have retained their own local management and community-based boards of directors helped make them the preferred candidate, the proxy said.

But the Bosleys aren't buying it. They look at Mercantile, consider that Mercantile is proposing swapping 2.33 shares of its Nasdaq-traded stock for each Sparks share, and see risks they don't have to take.

"What do you believe in over the long run, the Nasdaq or the local bank?" the younger Mr. Bosley said. "It can't last forever this way."

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