Community banks in the D.C. area will face a dearth of large suitors after Citizens Bancorp is swallowed by Crestar Financial Corp.
The $774 million deal for the Laurel, Md.-based Citizens by the Richmond-based regional would knock out one of the last intact large branch networks in the Washington market. The $4.2 billion-asset Citizens has 103 branches in the metropolitan area.
That reduces the options for any large, out-of-market buyer wishing to enter the market with a significant presence before acquiring smaller institutions as fill-ins, analysts say. With three regionals already controlling 36% of the market, the purchase could make it tougher for a community bank seller to find a bank willing to pay a high price to get into the neighborhood.
"Crestar and First Union (Corp.) have done a wonderful job of picking up the loose pieces, so that there really isn't any room for an outsider other than to buy Crestar," said Arnold G. Danielson, chairman of Danielson Associates, a Rockville, Md., consulting firm.
Only $5 billion-asset Riggs National Corp. and $4.5 billion-asset Chevy Chase Federal Savings Bank are viewed as big enough to attract a new entrant to Washington, but controlling shareholders at both are said to be uninterested in a deal. The only other large franchise, Falls Church, Va.- based First Virginia Banks, is stronger in Virginia than in Maryland or the District of Columbia.
There are more than 60 small banks and thrifts with less than $1 billion in assets between Washington and Baltimore, and they have been slow to consolidate. Only a handful have a presence throughout the area, however, making it less likely that the region would appeal to a CoreStates Financial Corp. or Banc One Corp.
"There's nothing left to buy," said Tom Finucane, research officer at John Hancock Funds in Boston. "You have to go very small, (and) they would be a little small for some of the acquirers' radar screens."
Despite such assessments, investors have driven the stocks of about 11 midsize community banks in the area up an average of 12% and as much as 37% since July 30. For example, since Monday the stock of Maryland Federal Bancorp has risen more than 10%, to $33, and has been trading at five times its average daily volume.
"The calls I'm getting from bankers indicate that clearly this was sort of a wake-up call," said Karen K. Edwards, managing director of investment banking at Friedman, Billings, Ramsey & Co., Arlington, Va. "To the extent that these companies are interested in pursuing partners, they need to be on top of it now. "
The market does have a few locally based buyers. Suburban Virginia's George Mason Bankshares and D.C.'s Franklin Bancorp. have expanded recently, but they both have less than $1 billion in assets.
On the other hand, a large acquirer might want to come to town just because of the market's size, with 4.5 million people, suggested Robert P. Pincus, president and chief executive of $450 million-asset Franklin.
"We're probably the only market of this size that doesn't have a major bank headquartered in the metro area," he said. "It represents a wonderful opportunity if they got into the community. They could really have a major presence."
Small banks are likely to reap short-term benefits from the Citizens deal. The bankers are eager to cash in on disgruntled Citizens customers who don't want to deal with a large, distant bank.
"You tend to have customers that bank with community banks," said Bernard H. Clineburg, president and chief executive of George Mason. "When these acquisitions occur, there is a portion, albeit a small one, who will look to go to a community bank."
