Fulton Financial Corp.'s deal for Columbia Bancorp has the makings of a perfect marriage.
In the last two years the $1.3 billion-asset Columbia in Maryland has increased its assets by nearly 50%, all through organic growth, but it has been struggling lately to maintain that rate, because of limited resources and capital.
Meanwhile, the $12.1 billion-asset Fulton, of Lancaster, Pa., has been looking to add to its Maryland holdings by expanding into the state's most attractive market, the Baltimore-Washington corridor.
So, in an arrangement that would help both companies achieve their stated objectives, Fulton announced late Tuesday that it would acquire Columbia for $313 million in cash and stock in what would be its largest acquisition to date.
Once the deal closes, Columbia would operate as a unit of Fulton - a multibank holding company with 14 subsidiaries in Pennsylvania, New Jersey, Maryland, Delaware, and Virginia - with its own board and management.
John M. Bond Jr., Columbia's chairman and chief executive officer, said Fulton's deeper pockets would help his company accelerate its growth in its current markets and build branches in other central Maryland counties. He also said Columbia could attract more customers with new offerings, including Fulton's trust services, which Columbia has never offered directly.
"When you reach a certain stage in growth and development, you need a larger partner to provide additional resources," said Mr. Bond, 61. "And we have known each other for a while and have been developing a friendship, and the more we got to know each other, the more it made sense to come together."
Rufus A. Fulton Jr., Fulton's chairman and CEO, said it was looking to get into the Baltimore and Washington markets because they are growing much faster than its primary market in southern Pennsylvania. He also said that the Columbia deal would better connect its older Pennsylvania markets with its newer ones in Virginia, where it acquired a bank last year.
"Frankly, I think it would be hard to identify a better bank or a better geographic area in the country," said Mr. Fulton. (The company is not named for him.)
Expanding into the Baltimore-Washington corridor would not come cheaply for Fulton. It would pay $42.48 a share, or 3.42 times Columbia's book value, well above the price-to-book average of 2.16 for deals announced this year, according to Highline Bank Data Services.
Fulton has two other banks in Maryland, the $265 million-asset Hagerstown Trust Co. in the western part of the state, and the $105 million-asset Peoples Bank of Elkton in northeast Maryland, just over the Delaware state line. Last year Fulton made its first acquisition in Virginia when it bought the $1.2 billion-asset Resource Bank in Virginia Beach. Two of that bank's branches are in the Washington suburbs.
Mr. Fulton said that his company has no plans to merge any of its banks, and that it would continue to look for deals in Maryland and Virginia.
Columbia, which Mr. Bond founded in 1988, has 19 branches in the Baltimore and Washington suburbs and the largest market share in Howard County, which is located between the two cities.
While Columbia has been turning out above-average returns on equity and assets, its capital levels are well below those of other companies its size. In the first quarter, it reported an equity capital-to-asset ratio of 8.25%, compared with the 10.75% average for banks with $1 billion to $10 billion of assets, according to the Federal Deposit Insurance Corp.
Columbia has long been talked about as a takeout target, especially with Mr. Bond approaching retirement age, so analysts were not that surprised that it decided to sell. However, Collyn Bement Gilbert, an analyst with BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc. in Livingston, N.J., who follows both companies, said she was surprised that Columbia sold to Fulton when several regional banking companies would have been willing to pay even bigger bucks for a significant stake in the Baltimore-Washington market.
"They could have probably gotten a higher price from someone else," Ms. Gilbert said. "But I commend them for their integrity in wanting to preserve the institution."
Columbia shareholders were clearly pleased with the deal. By late in Wednesday's trading session its stock had shot up 11.5%. Fulton's stock, on the other hand, was down 2.7%, perhaps because many investors had viewed it as a seller, rather than a buyer.
Robert H. Hughes, an analyst with Keefe, Bruyette & Woods Inc. in New York, said he believes Fulton's stock was slightly inflated on speculation that it was on the block.
Still, "it's basically hard to take issue with the transaction itself," he said. "It's a reasonable price for a fairly high-quality Maryland bank. It's just a friendly acquisition."
