Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 7, 1995 TAG: 9505050038
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
But in the past year, two Virginia banks, Crestar and First Union, have been harvesting thrifts, leapfrogging over each other for second place in terms of deposits in the Washington, D.C., metropolitan area.
The two most recent examples, both announced last month, gave First Union control of Columbia First Federal Savings Bank of Arlington, while Crestar gathered up Loyola Federal Savings Bank for a major position in Baltimore. The deals were worth $232.8 million and $259.2 million respectively.
The First Union acquisition catapulted it over Crestar to second place in the Washington market behind NationsBank, which has an 18.4 percent share. But Crestar came right back with the Loyola merger, giving both banks a share of about 12.5 percent. They are within $20 million of each other in terms of deposits.
Their strategies recently were lauded in an article in Bank Mergers and Acquisitions, a publication of Charlottesville-based SNL Securities, a firm of banking analysts.
Since the end of the third quarter of 1994, the publication said, First Union has reported five acquisitions, in Florida, South Carolina and Virginia.
"In-market expansion through thrift acquisitions is a savvy strategy in an environment where mid-sized bank stocks are trading at significantly higher multiples than those of larger banks," SNL Securities wrote.
The analysts said the First Union deal "seemed to send investors scurrying for Washington, D.C.-area bank stocks." The publication mentioned First Patriot Bank, Riggs National Corp. and Citizens Bancorp., each of which surged more than 8 percent with the First Union announcement.
Ben Jenkins, president of First Union National Bank of Virginia, pointed out again that any growth for the bank is good for the Roanoke Valley because the Virginia, Maryland and Washington banks have their headquarters here. The state's service center is located here as well.
The bank has 2,200 workers in Roanoke, many of them in system-wide enterprises such as credit card customer service, mortgage loan servicing, consumer loan servicing and the print shop.
"We like acquisitions that make sense," both banks and thrifts, Jenkins said. But in the last year or so, he said, First Union has had more opportunities to buy thrifts.
Any acquisition, he said, strengthens the bank in key markets. Purchase of a thrift doesn't guarantee customers, but it gives First Union an opportunity to retain a base of customers.
A financially favorable acquisition adds a mass of loans and deposits at low cost and greater efficiency than through a branch-by-branch expansion, he said. It also provides a quick distribution network.
The addition of some thrifts, like that of Ameribanc Savings Bank of Annandale, brings some problems, Jenkins conceded. Ameribanc, for instance, brought some nonperforming loans to the First Union balance sheet.
But First Union has an excellent portfolio management department, headed by Richard Carling of Roanoke, Jenkins said. It has gathered experience in handling problems loans quickly, effectively and efficiently. He predicted that First Union will deal with those problems better than the thrifts could have done.
Jenkins said acquiring a thrift generally causes the bank to suffer a loss in net interest margin, which is the difference between interest paid on deposits and interest earned on loans. The margin at a typical bank, he said, is 4.25 to 4.5 percent compared to the typical thrift's 2.5 to 3.5 percent. (SNL Securities said Columbia First has a margin of only 2.01 percent.)
That's because their loan mixes are different. Banks have commercial loans with floating interest rates while thrifts own fixed residential mortgages. And, Jenkins added, their deposits also are at variance: Banks have checking accounts while thrift have a larger share of time deposits.
The net interest margin for a bank normally goes down slightly when it acquires a thrift, Jenkins said.
But, he said, that is more than outweighed by the advantages of the base of customers - who can be sold other bank products and services - the loans and deposits, and the distribution network.
Eugene Putnam, senior vice president and director of investor relations for Crestar Bank, said its acquisition of thrifts is not necessarily a strategy. Crestar likes to acquire banks as well.
But in the mid-1980s, Crestar began to take a closer look at thrifts, which were beginning by then to look more like banks than they did in the past.
That study, he said, "gave us a leg up" in the 1990s when the Resolution Trust Corp. began to seize thrifts and other thrifts began to look for takeovers. "There's more of an inventory of them" than there is of banks.
Crestar, he said, "can't control the time frames" for availability of merger partners. This is, he said, a seller's market because so many banks are trying to expand during acquisitions. The market, he said, is "supply-driven more than our demand" for thrifts vs. banks.
Crestar has purchased 13 thrifts during the 1990s, 10 of them in the last year or so, Putnam said.
No problems arose in connection with these acquisitions, Putnam said. "It was very beneficial to us."
He said the move gave Crestar many new customers in suburban Washington who were "on the whole better educated and more affluent" than the population in general. They tended to use more types of bank products, he said.
The recent acquisition of Loyola, he said, allowed Crestar to enter the Baltimore market. Half of the 35 Loyola branches are in Baltimore; the rest stretch out along the corridor to Washington and toward Annapolis.
The main difference between banks and thrifts is in the loan portfolio, Putnam said. Thrifts have a low percentage of commercial loans and a high percentage of residential mortgages.
"That's not a problem for us," Putnam said of Crestar. "We like mortgage lending."
And the new deposits gained in the acquisition of a thrift, Putnam said, can be used for new commercial lending.
by CNB