Cashing out

Provident Bankshares Corp., the largest remaining Baltimore-based bank, squeezed by competition and losses, announced yesterday that it is selling itself to New York-based M&T; Bank Corp., a dominant player in the Mid-Atlantic that is working to expand its foothold in a city where its name adorns the biggest sports stadium.

The $401 million stock deal could lead to some layoffs among Provident's 1,660 employees as the banks merge operations and eliminate redundant operations, according to banking analysts and consultants. M&T; officials, who said they hope to absorb most Provident employees, already have a regional headquarters in Baltimore's financial district and about 150 branches in Maryland.


With the deal, M&T; solidifies its position in Baltimore, where it made major inroads when it bought Allfirst Financial Inc. six years ago as that bank was reeling from a trading scandal. And Provident, which has been in Baltimore since the late 1800s, gets financial backing from a parent 10 times its size after declines in real estate investments and a recent problem with its auditor.

"We were the largest independent bank in Maryland, and we were very proud of that," Provident Chief Executive Officer Gary N. Geisel said in an interview. "On the other hand, we're eager for a new beginning. And we think the new beginning is really good for customers, employees and certainly our shareholders."


Upheaval in the banking industry has prompted a frenzy of mergers, a trend spurred in part by the infusion of federal bailout money. Provident has not been immune to the market turmoil and has seen its stock price plummet, giving M&T; the opportunity to swoop in with a stock-for-stock offer that values Provident shares at about one-third of what they were last year.

"This gives Provident an exit strategy because I think they were finding it more and more difficult to compete in the marketplace," said Stuart Greenberg, a Baltimore-based banking consultant, adding that M&T; is getting the bank at a "cheap" price. "You could you say that they are being put out of their misery."

The Provident acquisition catapults M&T; to second in terms of market share among banks in Maryland, behind only Bank of America Corp. And it gives the Buffalo-based bank a greater footprint in the Baltimore-Washington area and in Virginia. It also leaves Susquehanna Bank and Sandy Spring Bank as the largest independent banks still in Maryland.

Geisel said yesterday that talks about a possible deal with Michael P. Pinto, chairman and CEO of M&T;'s Mid-Atlantic Division, began around Thanksgiving. The two executives have known each other for the past five years.

Both boards of directors approved the merger in recent days, and M&T; executives alerted Gov. Martin O'Malley and Baltimore City Hall officials yesterday morning. The deal, subject to regulatory and shareholder approval, is expected to close by June.

Under terms based on the closing price of M&T; stock earlier this week, the shares were valued at $10.50 each. Shareholders will get 0.17 shares of M&T; stock for each of their shares. Provident shares rose almost 61 percent, or $3.53, to close at $9.33 yesterday.

Investors appeared to believe the deal was more favorable to Provident than to M&T; as stock in the acquirer fell more than 6 percent, or $3.76, to close at $55.96 yesterday. Some analysts said that while the deal made strategic sense for M&T;, the bank could have paid less or waited for Provident to fall into greater distress and garner a better bargain.

While Baltimore is losing a corporate headquarters, M&T; officials pledged to sustain Provident's community involvement and to match its charitable giving - $700,000 last year - for at least the next three years. M&T; also noted its contributions of more than $25 million in the Mid-Atlantic during the past five years and citations from Baltimore Magazine as one of the area's most generous companies.


"M&T; has been a great partner," Baltimore Mayor Sheila Dixon said.

M&T; has concentrated expansion efforts in the Mid-Atlantic region. After it acquired Allfirst from Allied Irish Banks PLC, one of Ireland's largest banks, in the wake of a $691 million currency-trading scandal that rocked Baltimore's financial district, the company signed a 15-year, $75 million naming-rights deal for the Ravens football stadium. M&T; also purchased First Horizon Bank's retail operations last year.

"The one thing we won't do is we won't rebrand Provident's legacy of what they have done for this community," said Atwood "Woody" Collins III, an M&T; executive active in local civic organizations. "We are not going to change the commitment to this community. The community needs us now more than ever to be consistent."

But the impact on Provident's employees, customers and its infrastructure is unclear.

M&T; executives stressed that they would offer comparable positions to Provident employees who interact with customers, including service representatives and branch tellers, and to a substantial number of other employees. No jobs would be eliminated until after the merger is completed, and displaced employees will receive preferential consideration for about 160 open jobs, they said.

But analysts said layoffs are an inevitable consequence of mergers. In an investor presentation, M&T; said it expects to save nearly half of Provident's annual operating expenses through the merger.


Executives said they believe some branches will overlap, though they have not made any decisions about closings. They also said Provident customers should not see any changes in products or services. Provident's name will disappear during the conversion and integration process, and Provident customers will receive ATM cards, checks, statements and other products with M&T;'s name.

As for Provident's sizable presence in its downtown headquarters on Lexington Street, a 1920s-era building the bank has occupied for 25 years, M&T; will assume the lease once the transaction closes. But whether it continues to rent the entire 10-story building once the lease expires - in March 2012, according to CoStar Group Inc. - has yet to be determined, according to M&T.;

Records with CoStar, which tracks commercial real estate data, show about 300 employees work in the Provident building, which includes a bank branch. M&T; occupies a building nearby on Charles Street that is nearly at capacity, and the company is using most of the 168,000 square feet it leases for an operations center at the Montgomery Park office park in Southwest Baltimore.

There has been speculation in the past year that Provident could be an attractive takeover target, most recently in August when analysts said the bank has one of the strongest depository franchises in the Baltimore-Washington market. Many banks are seeking acquisitions rather than building out branch networks to gather deposits for lending operations crippled by the liquidity crunch.

Last summer, Geisel said Provident's long-term strategy was to remain independent, but he indicated the company would have to consider a compelling offer if presented with one. Although the bank had been increasing its deposits, profits had been hurt by continuing declines in the value of its investment portfolio since the beginning of the year. And its stock has fallen 56 percent this year.

Provident did report a profit in the second quarter but later had to restate it earnings lower, from $15 million to $10 million. It later fired the auditor that provided the guidance on how to value certain investments. The bank had a $5.4 million loss in the third quarter, primarily because of further declines in its investment portfolio.


Geisel said yesterday that the bank expects "significant challenges" in the quarters ahead and that the merger with M&T; provides needed resources in this "challenging economic environment."

While Provident marketed itself as the "right size bank," and championed its local roots, some industry observers said it was precisely the wrong size to contend in today's market. It can't offer the kind of hands-on customer service provided by much smaller community banks, and it doesn't have the commercial and other lending capacity of much larger banks, said Bert Ely, a consultant in Alexandria, Va.

"That's an awkward size for a bank these days," he said. "Banks that have been traditionally dominant in a local market find it gets harder and harder to stay independent. We're seeing this in a number of markets around the country."

M&T;, on the other hand, has experienced an annual net income growth of 12 percent since 2004 in its Mid-Atlantic region, compared with 9 percent for other regions. And the Mid-Atlantic region is adding loans at twice the pace of other regions during the same period, according to the bank.

But given the volatile financial markets and shaky outlook for banks, Rene F. Jones, M&T;'s chief financial officer, said that his institution and Provident could lean on each other.

"When you bring the two companies together," he said, "they're even stronger."


Baltimore Sun reporters Annie Linskey and Lorraine Mirabella contributed to this article.

In one form or another, a part of city since 1882


A Portuguese former sailor named John Marshall, who was working as a janitor at the Friends Gospel Mission in Federal Hill, agrees to begin holding the earnings of seamen who were away on ships and men who frequented the mission's free reading room.


As the informal system becomes popular, Marshall asks the two managers of the reading room, John R. Cary and James Carey Jr., for help in creating a repository for money. Money is collected each Saturday night in the reading room, with the funds deposited in a bank each Monday morning. Cary, a type foundry owner, and Carey, a lawyer, work with other businessmen in the city to form what will become the first branch savings bank in the country.



The Provident Savings Bank of Baltimore receives a charter from the Maryland legislature and opens for business in March. James Carey, the father of James Carey Jr., is elected the first president. Unlike downtown savings banks that were open from 10 a.m. to 1 p.m., Provident opens branches in neighborhoods where the working population lives and shops, including such locations as Northeast Market, Cross Street Market and Belair Market. The branches are open during evenings and on Saturdays.


Provident buys the site of the old Saratoga Hotel, at the southwest corner of Howard and Saratoga streets, for its central office. It was one of the few banks spared by the Great Baltimore Fire of 1904.


During the stock market crash, as some Baltimore banks fail, Provident employees work 14-hour days to accommodate customers seeking to withdraw their money.



Gov. Albert C. Ritchie closes all Maryland banks for a March "bank holiday" and requests that when they reopen, they pay out no more than 5 percent of the value of a passbook account. Provident's president, Charles C. Duke, refuses and maintains that customers' money is always available on demand. Provident joins the Federal Deposit Insurance Corp. upon its creation.


With the end of World War II, Provident finances whole neighborhoods with loans to builders, helping to establish some residential sections of such communities as Catonsville, Arbutus, Gardenville and Towson.


Provident begins offering personal checking accounts.



Provident begins offering certificates of deposit.


Renamed Provident Bank of Maryland, it moves to a new headquarters and opens a commercial loan department.


Provident purchases Citizens Savings Bank, moving into the Washington market. It is the company's first effort to expand outside the Baltimore area.



Provident expands into Northern Virginia and builds its first branches within Shoppers Food Warehouse.


Provident purchases Southern Financial Bank, extending its reach into central Virginia.


M&T; Bank purchases Provident.


Sources: Provident Bank, Baltimore, An Illustrated History by Suzanne Ellery Greene, Baltimore Sun archives