SP Bancorp may be dedicated to Texas, but it is Maryland that collects the Dallas-area bank's tax payments.
This is because SP Bancorp Inc. is one of at least a dozen financial institutions not based in Maryland that nonetheless filed tax returns there last year. Maryland is trying to make a bigger name for itself with lenders pinching every penny they can, by promoting its lower taxes and better protection for directors.
The Old Line State has been aggressively vying with Delaware for years to be perceived as more business-friendly, lawyers said. But the competition has heated up recently, particularly as more financial institutions have converted to stock-ownership structures. Reduced tax costs have helped the state lure companies from states as far away as Georgia, Ohio and Texas. There are even some Delaware banks that have incorporated next door.
"Delaware has become extremely expensive from a franchise tax standpoint," typically creating "several hundred thousand dollars in tax franchise costs per year," said Kip Weissman, a lawyer at Luse Gorman Pomerenk & Schick.
Weissman said his firm has handled roughly a dozen conversions in the last 18 months and "virtually all of those have been filed in Maryland."
The biggest difference favoring Maryland is the annual franchise tax cost. In Delaware, it is a percentage of either the company's shares outstanding or its asset size, which can run more than $10,000 per year for community banks, attorneys said. In contrast, Maryland's annual franchise taxes and fees typically run less than $1,000 for most community banks.
This means big savings for cost-conscious bankers like Jeff Weaver, the president and chief executive of SP Bancorp, which became a Maryland corporation after SharePlus Federal Bank in Plano, Texas, converted to a stock company from a mutual on Oct. 29.
Incorporating in Maryland generated "north of an $80,000 difference," Weaver said. That "is pretty significant for a small bank."
Though cost was the primary reason for incorporating in Maryland, Weaver said the strong anti-takeover and change-in-control protections for the company's board also helped tip the scales in the state's favor.
"Maryland has very favorable company anti-takeover laws … even more so than Delaware," said Frank Bonaventure, a lawyer at Ober, Kaler, Grimes & Shriver. "Most of mine are Maryland corporations."
This benefit may prove especially attractive since the financial crisis, which spawned many disgruntled bank investors.
"We're in an ugly environment from a regulatory and economic standpoint, and [as a Maryland corporation] at least the board doesn't have to worry about another group looking at them," Weissman said.
Delaware still holds one advantage over Maryland: More corporate lawsuits are filed in Delaware, making legal decisions more predictable. (But even that is not what it used to be; in recent years, these decisions have increasingly favored shareholders, said Marty Meyrowitz, a lawyer at Silver, Freedman and Taff, who has handled several stock conversions nationwide.)
It can also be much more difficult for an existing stock company to incorporate in Maryland because it would require shareholders to give up some of their control to the board, lawyers said. This is why many of the recent Maryland incorporations have involved mutual conversions.
Such recent conversions include Capitol Federal Financial in Topeka, Kan., which closed its conversion Dec. 21; Heritage Financial Group Inc. in Albany, Ga., Nov. 3, and Fox Chase Bancorp Inc. in Hatboro, Pa., June 29.
The State of Maryland tried to charge a $126 fee (reduced to $40 after press time) to supply a list of banks that had sought to incorporate in the state in recent years.
Other impediments exist to incorporating in Maryland, though many are purely psychological.
Meyrowitz said some community bankers, even during conversion, choose to remain incorporated in their home state due to perceptions among their customers.
"There are a lot of local depositors who get concerned because they feel their money is being taken away [by] another state," Meyrowitz said.
Such concerns have not prevented lawyers familiar with Maryland's statutes and advantages from trying to persuade clients otherwise. "There are very few states that stay up to date as Maryland," Weissman said, "and very few states that push to protect the corporate interest as Maryland does."