With M&T Bank Corp.'s takeover of Provident, Md. loses biggest local

Daily Record, The (Baltimore), Dec 22, 2008 by Andy Rosen

The acquisition of Provident Bankshares Corp. by Buffalo, N.Y.- based M&T Bank Corp. removes yet another player in what was a much more crowded regional banking market just a decade ago.

As federal rules for consolidation have relaxed over the past several years, many medium-sized banks have been absorbed as larger, national players have used acquisitions to enter the wealthy Maryland and mid-Atlantic markets. These moves have left many local players in Maryland, but few large ones remain independent.

Provident became the largest locally owned bank in Maryland after Mercantile Bankshares Corp. was bought out by PNC Financial Services Group Inc. of Pittsburgh. That $6 billion deal was completed last year. M&T itself entered the market through the acquisition of a bank that was once a Maryland powerhouse.

M&T bought Allfirst Financial Inc. for $3.1 billion in 2003. Allfirst was formerly called First National Bank, and was for a time the largest bank in Maryland, but was bought out by Allied Irish Bank in 1989 and renamed a decade later. The acquisition took place the year after the company was rocked by a currency trading scandal that cost nearly $700 million.

Though Provident was not affected by any scandal, some saw the deal not as a reflection of the Baltimore market as a financial center, but as an opportunity for M&T based on Provident's recent performance. Provident had a rough 2008, a year in which many financial companies saw big losses and reorganizations.

John Boo, director of equity trading at Ferris, Baker Watts Inc., said some of the deals that saw regional banks bought out were not so much about the economic conditions here as they were about the particular circumstances of the companies.

M&T had an opportunity to enter the market after the trading scandal weakened Allfirst, he said, and Provident's troubles likely made it attractive as well. Still, he said, Maryland's relatively strong economy probably makes banks here more attractive during a recession that has hit other parts of the country harder.

"This isn't about selling from strength and getting top dollar," Boo said. "Good for M&T. They wanted to be in a strong market, and they were able to get some distressed assets. Good trade."

David G. Danielson, president of Danielson Capital in Vienna, Va., said many banks were worse off than Provident, which made it attractive.

"This is a logical move for M&T," Danielson said. "They already have a significant presence in the area and this helps M&T solidify its hold."

The deal would give the combined banks Maryland's second-largest market share in terms of deposits, the company said. Bank of America N.A. had 19.2 percent of the deposits in the state as of June 30, according to the Federal Deposit Insurance Corp. M&T has 7.7 percent of deposits, and Provident has 4 percent.

After the deal, First Mariner Bancorp would be the largest remaining bank in Baltimore, and Sandy Spring Bancorp Inc., based in Olney, would be the largest in Maryland.

Kathleen Murphy, president and CEO of the Maryland Bankers Association, said the fact that M&T already has a large presence in the state suggests that the transition will likely be smooth.

"Provident Bank has just been a stellar lender in our community, and we believe that, given M&T's strong commitment to the Maryland marketplace, that this will wind up being a strong combination," Murphy said.

John A. Scaldara Jr., president and CEO of The Columbia Bank, a Howard County subsidiary of Pennsylvania-based Fulton Financial Corp., said this year has been tough on the financial sector.

"Right now, some of the larger banks are positioned to weather that storm better than the midsized banks," he said.

But he said his bank has worked to keep decisions local, a factor that banks can lose when they're taken over by national players.

The Provident deal is expected to be complete by the middle of 2009. The proposed transaction, which must win several regulatory approvals, has been valued at $401 million. For Provident, write- downs in its loan portfolios caused nearly $100 million in charges through the first three quarters of the year.

The company announced in April that it would raise $115 million with a secondary stock offering and a debt offering. In November, the bank took $151 million from the federal government, taking part in the government's $125 billion Troubled Asset Relief Program targeted at regional banks to get money flowing again.

Within the past several months, Provident's shares fell as low as $4.52, the stock's cheapest price in more than 15 years. The stock's 52-week high was $23.34 per share.

M&T offered the stock equivalent of $10.50 per share for Provident, calculated according to M&T's value at the close of trading last Tuesday. According to Bloomberg, that value was 37 percent higher than Provident's 20-day average share price.

Gary N. Geisel, chairman and CEO of Provident, said in an interview that the company had been evaluating potential deals since late November, and decided that the deal with M&T would be best for Provident.