Crestar buys Citizens Bancorp 103 branches added in move to dominate greater D.C. region

'Strategic position'

Acquisition elevates institution to No. 2 in Md. in total assets

September 17, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SNL Securities LP, Charlottesville, Va.SUN STAFF

Crestar Financial Corp. yesterday moved to become the largest banking company in the greater Washington area through a $775 million acquisition of Citizens Bancorp, a combination that furthers the Richmond, Va.-based financial institution's Napoleonic push into Maryland.

By acquiring the Laurel-based Citizens, Crestar will boost its asset base by $4.2 billion, or 23 percent, and add $3.1 billion in deposits, 103 new branches and more than 220,000 new deposit accounts.

At the same time, Crestar will counter regional expansions by larger competitors such as First Union Corp. and NationsBank Corp., two North Carolina conglomerates.

"If you look at Crestar's market position, it flows north from Richmond to Baltimore," said Richard G. Tilghman, Crestar's chairman and chief executive. "We're real strong in Washington and Northern Virginia, but we needed to bulk up on the Maryland side of the equation. Citizens is almost a mirror image of us, and when you put the two together, you end up with a very strong institution in terms of its deposits and branch network."

With Citizens, Crestar will become the state's second largest financial institution behind NationsBank in terms of total assets, with $22.7 billion, and control 482 branches. The enlarged Crestar also will become the largest banking company headquartered in Virginia, Washington or Maryland, double the size of its nearest competitor, Signet Banking Corp.

And nationwide, the combined entity will jump 10 spots to rank as the 34th largest U.S. bank in terms of assets, according to SNL Securities of Virginia.

Crestar estimates it will save $52.3 million by combining back office operations and by closing 45 branches.

Up to 600 of Citizens' 1,900 employees may be terminated as a result of the merger, although Tilghman said the company plans to integrate as many of the employees as possible.

The acquisition of Citizens, contingent upon both regulatory and shareholder approval, is expected to close by March 31.

"We pick up some added horsepower that one really needs to work this market," said Jeffrey R. Springer, Citizens' president, who along with Chairman Alfred H. Smith Jr. will become a Crestar board member after the purchase. "In terms of both commercial and retail banking, we married up really well. Our growth strategies, cultures and core values are very similar."

Both banks have grown tremendously in recent years. Last year alone, Crestar absorbed the Loyola Capital Corp. through a $259 million acquisition, and added former Chase Bank of Maryland and Mellon Bank (Maryland) branches.

Those moves, along with new services, have more than quadrupled Crestar's net income since 1991, and its asset base has risen 55 percent.

Citizens, too, has seen its star climb, as its 1995 earnings were 78 percent above those of five years ago, and its assets have grown by 35 percent.

Banking industry analysts also touted the Citizens purchase as a positive step for Crestar. "Citizens has always been a respected name in the region with healthy balance sheets, so this makes Crestar a significantly more powerful player," said Charles Wittmann, a Wheat First Butcher & Singer analyst in Richmond.

But Crestar will pay a hefty price for the increased power and market share.

Based on its $51.25 per share offer and Citizens' closing stock price on Friday, Crestar intends to pay a 59 percent premium in stock to purchase Citizens.

"They paid a full price, but at the end of the day they'll have an attractive strategic position in Baltimore and Washington to compliment their already strong position in Virginia," said George A. Bicher, an Alex. Brown & Sons Inc. analyst in New York.

Citizens' stock price leaped $14.75 per share to close at $47 yesterday on news of the acquisition, while Crestar's per share price fell $2.25 to close at $59.125.

Additionally, Crestar plans to take a $43 million, 50 cents per share, pretax charge in the second quarter to absorb Citizens, and the purchase will dilute Crestar earnings in that three-month period by 12 cents per share, or 2.2 percent.

By the end of the third quarter of next year, however, Crestar anticipates the Citizens acquisition will positively affect its earnings.

Alex Hart, a Ferris Baker Watts Inc. analyst, also predicted the Crestar/Citizens' deal might spark a flurry of other area bank mergers, as competitors jockey to gain market share and react to Crestar's growth.

Biggest bank/thrift deals

I= The 10 biggest bank and thrift acquisitions since Jan. 1:

Buyer .. .. .. .. .. .. .. .. .. .. Seller .. .. .. .. .. Value

.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ... .. ... .. (billions)

Wells Fargo (Calif.) .. .. .. First Interstate (Calif.) .. . $12.3

NationsBank (N.C.) . .. .. .. Boatmen's Bancshares (Mo.) ... 9.7

Washington Mutual (Wa.) .. .. Keystone Holdings (Calif.) ... 1.6

First Nationwide (Calif.) ... Cal Fed Bancorp (Calif.) . ... 1.4

Crestar (Va.) ... .. .. .. .. Citizens Bancorp (Md.) . .. .. 0.75

HSBC Holdings * . .. .. .. .. First FS&LA of Rochester (N.Y.)0.65

Union Planters (Tenn.) ... .. Leader Financial (Tenn.) .. .. 0.5

First Union (N.C.) . .. .. .. Center Financial (Conn.) .. .. 0.38

First Union (N.C.) . .. .. .. Home Financial (Fla.) .. .. .. 0.34

lTC US Bancorp (Ore.) .. .. .. .. California Bancshares (Calif.) 0.33

* Foreign

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