Md. banks strong, looking to get stronger

Low interest rates among the obstacles


January 12, 2003|By William Patalon III | William Patalon III,SUN STAFF

Maryland's banking sector could experience some solid growth this year, but it may require higher interest rates and less economic uncertainty for that industry to truly rebound, local banking executives and other experts predict.

"It's been a good environment for all Maryland banks," said J. William Knott, regional president for Wachovia Corp., a Charlotte, N.C.-based bank with a growing presence in Maryland. "We've seen good deposit growth, and still-good loan growth."

Nationally - and locally - last year's headlines above stories about banking scandals tended to obscure what was actually one of the banking industry's best years ever, said Arnold G. Danielson, chairman of Danielson Associates Inc., a Rockville-based consulting firm.

Baltimore-based Allfirst Financial Inc. revealed in February that one of its currency traders engaged in a series of unauthorized, money-losing trades.

The total losses were eventually placed at $691.2 million; the story remained in the news for most of 2002; and Allfirst's parent company, Dublin-based Allied Irish Banks PLC, signed a deal to sell Allfirst to Buffalo-based M&T Bank Corp. The deal, worth about $3.1 billion, is expected to close in April.

Nationally, big banks such as J.P. Morgan Chase, PNC Corp. and others were caught up in the Enron Corp. accounting scandal, the demise of the Internet-stock bubble and Latin American currency problems.

Contrary to any negative perceptions, Maryland's banking sector enjoys considerable financial strength, and will benefit from any pickup in the local and national economies, said Mary Louise Preis, the state's commissioner of financial regulation.

"We think [the sector] is strong and stable and poised to support the business borrowing that will ultimately bring the economy back," Preis said.

Underscoring that strength is Lutherville-based Bay National Bank, which opened in 2000, before the economy soured.

Even though its initial financial forecasts were based on a strong economy, Bay has consistently exceeded its own internal goals, said Hugh W. Mohler, the bank's chairman and chief executive officer.

"We're pretty much right on target," Mohler said. "We're very pleased."

Expansion is the watchword for a number of local banking companies, which is a strong indicator of the faith the company leaders have in the outlook for the region's economy, bankers said.

"The Maryland economy looks pretty strong, compared with the rest of the nation," Mohler said. "Banks - from Northern Virginia, D.C. and into Maryland - are doing quite well."

Provident Bankshares Corp. expects to open 14 branches this year, bringing its network to 121, said Peter M. Martin, chairman and chief executive officer of the Baltimore-based bank.

"I'm optimistic about 2003," Martin said.

Four of the 14 branches will expand Provident's presence in Maryland; the other 10 will serve markets in Washington and Northern Virginia in accordance with a key Provident strategy of boosting its presence there.

For Provident, innovation accompanies expansion, according to Martin. Five of the 10 Washington-corridor branches will be situated inside grocery stores or other retailers, a strategy that has caused other banks to stumble. Analysts said Provident is executing superbly, however.

The four Maryland locations will be "Express" branches, which offer customers quick service, though they are not full-service branches.

Wachovia, formed by the September 2001 merger between Wachovia and First Union Corp., also would like to expand its presence in Maryland.

Baltimore-based First Mariner Bancorp. will also expand this year, establishing four more branches of its Finance Maryland LLC consumer finance subsidiary, said Mark Keidel, the bank's chief financial officer. All four locations - Hagerstown, Salisbury, Bel Air and Laurel - are scheduled to open in the first quarter.

Despite the pokey economy, Finance Maryland has performed far better than anyone at the bank expected, which is why four more locations are being opened, Keidel said.

Banks aren't just adding branches as they search for growth. Baltimore-based Mercantile Bankshares Corp. has been bulking up its wealth-management business, and executives said that will remain one of the bank's key initiatives this year. Several other institutions are pursuing similar initiatives.

But the wild cards that threaten Maryland banks are some of the same ones that the large money-center banks fret about: Ultra-low interest rates, the potential for the economy to dip back into recession, a volatile stock market and uncertainty in the Middle East.

"It's been a difficult operating environment for us, with rates as low as they are, the [still unfinished] economic recovery and a securities market that's as volatile as it is," said Mercantile CEO Edward J. "Ned" Kelly III.

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