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Banks' merging mania Who's next?: Deal-making has exploded in Maryland in recent years, and jockeying continues in today's 'buy or be bought' market.


Most people hate being the subject of rumors, but Jeffrey R. Springer has come to expect it.

"Everything you hear in the market is no more than speculative gossip," said Mr. Springer, president of Citizens Bancorp in Laurel. "You wonder if people are just bored."

Twice in the last four months, Citizens' stock has surged on rumors that the bank was about to be bought. And twice, it was just talk.

But that hasn't stilled the rumor mill. It's working at a high pitch these days in Baltimore and other cities -- and with good reason. More than 300 banks have merged this year in deals valued at a record $48.5 billion, double the amount last year even though there were 563 mergers, according to SNL Securities LP, a Charlotte, Va.-based bank and thrift consulting firm.

What's more, three of the largest mergers in the industry's history have been announced this year, led by the $11.4 billion Chemical Banking Corp.-Chase Manhattan Corp. merger.

"Everybody is jockeying for position," said Mary P. Quinn, a bank analyst with Keefe Bruyett & Woods. "That leads people to believe the time is now."

And there has been plenty of jockeying in Baltimore.

Since NationsBank Corp. acquired MNC Financial Inc. in October 1993, the deal-making here has exploded, and Baltimore has suddenly found itself the financial colony of Charlotte, N.C., and Richmond, Va. Ten years ago, Baltimore had nine independent banks and thrifts with assets of more than $500 million each and deposits totaling nearly $16 billion. Today, there are only two independent banks left with more than $1 billion each in assets and total deposits of $6.5 billion.

The reason: Out-of-state banks such as NationsBank, First Union Corp. and Crestar Financial Corp. have rushed in to amass as much market share as possible in Baltimore, which is viewed as a key mid-Atlantic market. Last November, for example, First Fidelity Bancorp. snapped up Baltimore Bancorp. Then in June, First Fidelity became the acquiree -- agreeing to merge with First Union.

The deals haven't stopped. Earlier this year, Pennsylvania's Susquehanna Bancshares Inc. bought two area thrifts, and it is on track to buy a third by year's end; and in May, Crestar Financial Corp. agreed to buy Baltimore's largest independent savings and loan, Loyola Capital Corp.

"It's a buy or be bought market," said Bill Tignanelli, who heads the Richmond Federal Reserve Bank's Baltimore branch.

The question is: Who's next? In a market that has proved any merger is possible, there is no precise way to predict the next bank merger, but analysts and bankers are sure there are more deals to come.

The reasons are numerous. Stock prices of banks -- the currency used to do acquisitions -- have held up, making it attractive for shareholders of weaker institutions to sell. Also, acquirers are paying hefty prices for their targets. Baltimore Bancorp, for instance, was bought for more than twice its book value. And with banks able to enter almost any market they want, weaker banks fear they will be swamped by the competition so many are looking to sell.

"I think a lot of banks are taking a look at what they have and are saying, 'Jeez, it is getting harder and harder to compete,' " said Vernon Plack, a bank and thrift analyst with Scott & Stringfellow Inc. But most banks simply don't put up a for sale sign in front of the main lobby. In fact, one thing that independent banks all say is that they are not for sale, but it is their duty to entertain any serious offer.

Analysts say that of the banks with large positions in Baltimore, Mercantile Bankshares Corp. and First Maryland Bancorp are the least likely to be acquired.

Crestar Financial Corp. and Signet Banking Corp. are strong enough to survive independently, but they remain on many takeover lists. The banks that are prime for takeover, analysts say, are Provident Bankshares Corp. and Citizens.

Here's why:

Provident Bankshares

Analysts believe the $2.5 billion-asset Provident is an obvious target because they view it as the most vulnerable. While its profitability and credit quality have improved, analysts see it losing out to larger banks that can invest millions of dollars in new technology, hire the most talented executives and offer more products and services.

Some analysts, like Alex C. Hart, at Ferris, Baker Watts Inc., said the company relies too heavily on consumer and mortgage lending, and doesn't make enough business loans, which return larger yields.

"That is the problem, it [the loan portfolio] looks more like a thrift than a commercial bank," Mr. Hart said.

He's not impressed with Provident's earnings despite sizable increases, either. Shareholders earned 10 cents for every dollar they invested in equity in the first six months of the year. The return pales in comparison with the 15.31 cents banks with assets ranging from $1 billion to $10 billion returned to their shareholders, and the 14-cent average Maryland banks registered.

Provident would be a good acquisition for Crestar, which analysts say needs to expand here to be a major player. It also would be a good fit for First Maryland Bancorp, First Union, or First Virginia Banks Inc. of Falls Church, Va., analysts say, because it would anchor their positions in Baltimore.

Carl W. Stearn, Provident's chairman and chief executive, said management is running the bank "as if it always is going to be independent. Now, somebody could come along and make us an offer that we say, 'Gee, that is too good to turn down,' " he said.

Mr. Stearn and Provident's president, Peter M. Martin, are convinced they can beat the competition by making quicker decisions on loans and by offering better customer service. They are also as technologically advanced as any bank, they contend.

Provident has made progress since Mr. Stearn and Mr. Martin took charge of the once-troubled bank five years ago. Today, the stock trades in the $30 a share range, up from $12 a share when the company posted its last loss in 1990.

"We have created a lot of value," Mr. Martin said.

He said the company can grow through acquisitions in Washington and Annapolis, and he discounts talk that Provident will eventually be swallowed up.

"I don't believe you have to be $100 billion to survive," he said. "Obviously, if we weren't doing well we would be vulnerable."

Citizens Bancorp

Analysts think Citizens is likely to be acquired, but Mr. Springer says the game plan is to remain independent, although he's obligated to consider offers. Several weeks ago, there were rumors that North Carolina's Wachovia wanted to buy the company, but Mr. Springer put the rumors to rest, denying the company is involved in any negotiations.

Analysts and consultants say Citizens isn't a bank that can be ignored for long. It has nearly $4 billion in assets, it's well managed, and operates a network of 106 branches in suburban areas such as Prince George's and Montgomery counties, where banks like First Union and Crestar aren't represented. One rub against the bank is it isn't a huge money-maker.

"I think they have been just trying to get their own act together," said David West, an analyst with Davenport & Co. "They have been gradually improving things." "They bring you two very nice counties," added Arnold Danielson, president of Danielson Associates Inc., a Rockville-based consulting firm. An acquisition Citizens "is only a matter of time."

Signet Banking Corp.

Depending on the analyst, Signet is either a survivor or a bank that will be acquired in the next one to five years. Signet executives are used to the rumors. They've heard all sorts of possibilities -- from Wachovia Corp., to First Union, to First National Bank of Maryland.

Banks interested in Signet missed an opportunity early this year when the company spun off its credit card subsidiary, now called Capital One Financial Corp. Capital One contributed 65 percent of Signet's earnings, and when it was cut loose, the company's profits suffered and its future looked uncertain.

"I think we were highly vulnerable at the time," said Ken Trout, president and chief executive of Signet Bank of Maryland. "You could have been picked off then."

Signet has since rebounded with a return on equity of 15 cents for every $100 as of June 30, compared with 8 cents in the same period a year ago. Now, the sale of the credit card unit is working in favor of the company because there are negative tax consequences for any company that would acquire Signet.

Signet also has redesigned the way it runs its business, so it simply might not be a good fit for another bank. Instead of relying on customers to walk through branch doors, it has developed a vast data base and markets products such as car loans, credit cards and student loans over the phone, computer and through the mail.

"I consider them to be on the leading edge of alternative delivery," said Merrill H. Ross, a bank analyst with Wheat First Butcher Singer Inc.

She says the field of acquirers is wide open.

L "It could be a phone company," she said. "All bets are off."

Crestar Financial Corp.

Crestar, thus far, has been on an acquisition spree that doesn't appear to be ending. Last year, the company announced and completed acquisitions of eight banks and thrifts in Virginia and Maryland.

"We have made it pretty clear that we are pursuing a course of independence," said C. Garland Hagen, head of Crestar's merger and acquisition group. "We still have a lot more opportunities in the merger and acquisition business."

In May, the $14.8 billion-asset company agreed to buy Loyola Capital Corp., but analysts say the deal provides Crestar only with a toehold in Baltimore, and they see it making another acquisition to expand the market.

Mr. Hagen wouldn't comment on specific banks Crestar likes, but he said the company is looking to grow in the Baltimore area.

"There is still more game to be played," he said. "The acquisition of Loyola has opened up a new market for us."

What makes Crestar an attractive target is its large franchise, which extends from Virginia to Washington, and into Maryland. It controls the largest share of market in Virginia, with about 17 percent of deposits in the state, it is churning out profits, and it has few loan problems.

"It's a good bank, it is performing well, and it's situated in a good geographic area," Mr. West said. "They've got the premium bank in the area. A lot of people want to get into the mid-Atlantic."

Janet McCabe, a banking analyst with Legg Mason Wood Walker Inc., says the company would be attractive to any number of players, including Ohio's Banc One Corp., which has eyed the market for years.

"You are going to see national bank franchises being built in the Baltimore-Washington metroplex," she said.

First National Bank of Md.

First National, the $10 billion-asset unit of Allied Irish Banks PLC, is looking to grow through acquisitions. The bank has $200 million in cash on hand to buy banks, and it can tap the parent company for more, said Frank Bramble, the bank's president.

"We have a strategic plan that takes us through 1997. Contemplated in that plan is that it [First National] will make one or two acquisitions," Mr. Bramble said.

But he wouldn't comment on future prospects, or whether the company is in negotiations. The bank has been rumored to be talking with Signet about a merger. Mr. Bramble said he doesn't comment on rumors.

"Neither Allied Irish nor First National was the source of that," he said.

What makes First National an attractive acquisition target is its size. It has nearly $7 billion in deposits and close to $6 billion in its loan portfolio, which is clean of bad credits. In Baltimore, First National has the second largest share of deposits behind NationsBank, and it runs neck and neck with NationsBank as the city's top commercial lender, said Mr. Danielson.

He thinks First Maryland would be a good fit for Philadelphia's Corestates Financial Corp., and Pittsburgh's Mellon Bank Corp. or PNC Bank Corp.

Mercantile Bankshares

At least short term no one believes Mercantile, Baltimore's only other large independent bank aside from Provident, will sell.

That belief is based upon Mercantile Chairman H. Furlong Baldwin's steadfast argument that Maryland needs a large independent bank. The company's high capital base would make an acquisition too expensive for the buyer, and its performance has been stellar, so management feels little need to think about a sale.

"If you keep the quality of earnings and assets up there is no reason to be forced into a selling situation," Mr. Baldwin said.

But "Furlong isn't going to be there forever," said Wheat First's Ms. Ross, noting that the bank's philosophy could change when Mr. Baldwin, who is 63, retires.

There are several reasons an acquirer would want Mercantile. In name alone, Mercantile signifies stability and it is the bank associated with the city's established business community. In addition, the $5.7 billion-asset Mercantile has a network of 20 community banks in Maryland, Virginia and Delaware, a trust department, and a sizable portfolio of business loans.

"That is good business and is not going away," Mr. Hart said.

Analysts like Mercantile because its trust department, which represented about 8 percent of the company's $269.9 million in revenues in the first half of the year, gives it a valuable and unique niche.

"Their trust business will be valuable when a lot of the other things fade away," Mr. Danielson said.

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