Merger-itis again hits Md. banks Crestar, others seek quick growth through acquisition

November 18, 1993|By David Conn | David Conn,Staff Writer

After a summertime lull, the merger mania among the state's banks and thrifts is showing signs of heating up again.

Crestar Financial Corp. of Richmond signed a letter of intent yesterday to buy Annapolis Bancorp Inc., parent of Annapolis Federal Savings Bank, expanding Crestar's presence in Maryland. Annapolis Federal has $332 million in assets and 10 branches in Anne Arundel County and points south.

At the same time, Baltimore-based First Maryland Bancorp announced plans to make its first-ever sale of preferred stock: up to 6 million shares that the company expects will raise $150 million for "general corporate purposes," including possible acquisitions.

Those deals are bound to continue, analysts said, as several forces drive companies to grow through acquisition. First is the stagnant economy, which is generating little commercial loan demand. Most banking companies intent on growth are finding they can do it only by buying others.

And as companies continue to be acquired in desirable markets such as Maryland, remaining banks realize they better join the game or risk being ultimately acquired themselves.

"I'm looking at the Baltimore market as one where I do think TC there'll be a lot of activity going forward," said Merrill Ross, an analyst with Wheat First Securities in Richmond.

Ms. Ross and others said the buying is likely to focus on thrifts, or banks that used to be thrifts, rather than the more expensive commercial banks. That's because recent bank acquisitions have cost around 200 percent of the target's book value, whereas thrift acquisitions have been running at 140 percent to 150 percent of book value.

Crestar's planned purchase of Annapolis Bancorp would cost about 1.5 times book value, a "reasonable" price, Ms. Ross said. "This won't fill their appetite by a long shot," she predicted.

The Annapolis Bancorp deal is the second planned acquisition this month for Crestar, which has $13 billion in assets, and 302 branches in Virginia, Washington and Maryland. Last week the company signed an agreement to buy NVR Federal Savings Bank, the savings and loan subsidiary of NVR Inc., the McLean, Va., homebuilder.

Annapolis Bancorp shareholders will be able to exchange their shares for $12.75 worth of Crestar shares in a tax-free exchange of stock worth about $15.4 million. There are 1.2 million shares of Annapolis Bancorp stock outstanding, and at current prices Crestar estimated it would exchange those shares for about 400,000 of its own.

Crestar said it plans to buy back an equal amount of its shares on the common market so the deal won't be dilutive to current shareholders. Yesterday the company's stock closed at $38.125, down $1 a share amid a general sell-off of bank stocks.

Arnold G. Danielson, a Rockville banking consultant, praised Crestar's expansion strategy, which has focused so far on the Washington area. The company has about 7.5 percent of the Washington area's bank deposits, second only to NationsBank's percent share.

"They're going around picking up every slightly hurting thrift in the Washington area," he said of Crestar. "But [Annapolis Bancorp] is a good acquisition for them."

In Baltimore, the urgency to acquire may have intensified since NationsBank's purchase of MNC last month. First Maryland, whose main subsidiary is the First National Bank of Maryland, has the second-biggest share of the Baltimore area market, next to NationsBank. The company is wholly owned by Allied Irish Group plc. of Dublin, which should protect it from unwelcome suitors.

The preferred stock sale, to be led by Merrill Lynch & Co., PaineWebber Inc. and Prudential Securities Inc., will have a liquidation price of $25 a share, which probably will be the offering price, too. First Maryland hasn't announced yet what the dividend rate will be on the stock, whose sale awaits regulatory approval.

The company could have raised capital through its parent, Allied Irish, but there are several reasons to do the deal here, analysts said, not least of which is familiarity with the market and vice versa.

"It's an American issue, in American dollars, and we've got good name recognition in this region," said Robert W. Schaefer, the company's chief financial officer. He said local investment bankers, such as Alex. Brown Inc. and Legg Mason Inc., no doubt will be part of the underwriting team.

If First Maryland wants to keep up with NationsBank and other out-of-state banks, it may have to move quickly. First Union's purchase this fall of the First American banks has brought that aggressive North Carolina company less than a dozen branches in the Baltimore area, but its stated policy is to be at least the third-biggest player in each of its markets.

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