Provident to buy savings bank First Citizens deal to allow expansion into Montgomery Co.

March 12, 1997|By Bill Atkinson | Bill Atkinson,SUN STAFF

Provident Bankshares Corp., the Baltimore-based banking company many analysts view as a takeover candidate, said yesterday it would acquire a Gaithersburg savings bank in a transaction worth about $100 million.

The deal is a key one for Provident, because the acquisition of First Citizens Financial Corp. enables it to expand its franchise into the affluent Montgomery County market.

"It is acquire or be acquired, that is the mantra" in the banking industry, said Martin Friedman, an analyst with Friedman Billings Ramsey & Co., an Arlington, Va.-based investment banking and research firm. "Provident paid the price to enter the market, but it is a good market, and it adds significant assets."

"Everybody had us being sold," said Carl W. Stearn, Provident's chairman and chief executive. "The goal is to expand our franchise and reward our shareholders."

When the deal is completed, Provident, with $2.8 billion in assets, will have 62 branches, from Baltimore City to Frederick County.

Provident also will solidify its position as Maryland's second-largest banking company, with $3.4 billion in assets, and it will have the seventh largest deposit share in the state with $2.34 billion, the companies said. Mercantile Bankshares Corp. is Maryland's largest independent banking company, with $6.4 billion in assets as of Dec. 31.

The Provident-First Citizens deal, which must be approved by shareholders and regulators, is expected to close in the third quarter.

Provident's stock fell 93.75 cents a share yesterday to close at $41.937. First Citizens' shares jumped $3.875 a share to close at $28.625.

The once-troubled Provident has been viewed by analysts as Baltimore's next banking casualty, and its stock price has benefited from speculation that it will be taken over. The shares have jumped more than 50 percent in 14 1/2 months.

The deal "surprised me," said Alex Hart, a banking analyst with Ferris, Baker Watts Inc. "I was not surprised that First Citizens was bought. I was surprised that Provident was the buyer."

Hart said the acquisition would make Provident even more attractive to other banks: "They really need the exposure to the higher-profile markets and they are getting it in a meaningful way."

Provident is paying 2.19 times First Citizens' book value, which Stearn acknowledged was a little high for a savings bank. But analysts said it was a fair price, because there are few savings banks the size of First Citizens left in Maryland. First Citizens has $687 million in assets and 15 branches.

Each share of First Citizens' stock will be converted into 0.73 shares of Provident stock. Based upon the closing price of Provident's stock on March 10, First Citizens stock is worth $31.30 a share.

First Citizens also granted Provident an option to buy 9.9 percent of newly issued First Citizens' common stock at $23 a share if another institution tops Provident's offer.

In addition, it agreed to pay Provident a "break-up" fee of $1.7 million if the deal falls through. The savings bank can walk away from the deal if Provident's stock falls below $35.625 a share.

Provident has wanted to make an acquisition for two years, Stearn said, and began serious talks with First Citizens about a month and a half ago. The banks reached a final agreement at 10: 30 p.m. Monday.

"They were looking around and had some interest in selling, because they were a little small to compete in the market they were in," Stearn said.

Stearn said he liked the fit because First Citizens is profitable, has cleaned up its loan problems and is located in a vibrant market. "We have been anxious to get into that market," he said.

Enos K. Fry, president and vice chairman of First Citizens, said even though the savings bank was making money, it was tough for it to compete against larger institutions. He views Provident as having a similar philosophy.

"It seems like a good match," said Fry, who will became a Provident director and executive. "We have similar goals. It is not a big regional banking company coming in here, it is another community bank."

Fry said First Citizens' branches would adopt the Provident name when the deal is completed.

In many ways the acquisition signals Provident's return to health. The bank was battered by losses from problem loans in the late 1980s.

Stearn and Peter M. Martin, Provident's president and chief operating officer, restructured the company by getting rid of customers who didn't pay their loans. They also added new consumer products to boost fee income, opened branches in the suburbs and raised additional capital.

Pub Date: 3/12/97

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