Provident to acquire Harbor Federal for $32 million

4 of 9 branches being acquired slated for shutdown


May 05, 2000|By William Patalon III | William Patalon III,SUN STAFF

Provident Bankshares Corp., the Baltimore-based parent of Provident Bank, will acquire Harbor Federal Bancorp Inc. of Towson in a deal valued at roughly $32 million, the two banks announced yesterday.

The acquisition will bring Provident new depositors in such key markets as Baltimore, Baltimore County and Anne Arundel County, and fits in with the bank's expansion strategy.

"I didn't expect it, but I'm not surprised -- they clearly want to get bigger," said Claus W. Hirsch, a banking analyst who follows Provident for Corinthian Partners, a New York City brokerage house. "It seems to me that they made the most expeditious move that they could. They certainly gained time [in their growth strategy] by buying established branches."

Peter M. Martin, Provident's chairman and chief executive officer, said Harbor is "a very good fit," and noted that the deal will add to profit in 2001. One-time merger charges will likely reduce this year's profit by about 17 cents per share, however. Provident was expected to earn $1.72 this year, according to a survey of seven analysts by Zacks Investment Research.

Executives with the two banks expect the deal to close in the third quarter.

By purchasing existing branches, Provident dodges the costs of opening new locations. It can also reap the benefits of cost-cutting by closing perhaps four of the nine Harbor branches, Martin said. That shouldn't inconvenience customers much: Each of the four branches slated for shutdown are near existing Provident locations.

In its effort to fuel growth, Provident has pursued a three-pronged strategy: It's bought other financial institutions, acquired the unwanted branches of rivals and opened new branches of its own -- many of these new branches inside supermarkets, a strategy that Martin says is really benefiting the bank.

The deal announced yesterday calls for Provident to exchange 1.256 shares of its common stock for each share outstanding of Harbor stock. Provident's shares closed yesterday unchanged at $14.3125, while Harbor's shares gained $2.375 to close at $16.625.

To acquire Harbor, Provident said it will issue about 2 million shares of stock. A portion of that will come from shares that Provident has bought back from shareholders. The offering price is about a 28 percent premium to Harbor's market price at the time an agreement was reached, and is roughly 20 percent higher than its so-called "book" value.

Those are very reasonable premiums, meaning that Provident is not overpaying for Harbor, said Hirsch, the Corinthian analyst. In fact, he said the price tag looks like a good one for a bank that's as conservatively run -- and financially sound -- as Harbor. If anything, Harbor is run too conservatively, meaning that with a bit more aggressiveness, it could be much more profitable, he said.

Provident has 87 locations in Maryland, Northern Virginia and York, Pa. With $5.2 billion in assets, its serves both consumers and businesses. Harbor has total assets of $244 million and total deposits of $181 million.

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