Marine Midland Bank announced an agreement Thursday to acquire one of its competitors, First Federal Savings and Loan Association in Rochester, N.Y., for $620 million in cash.
For a price - about 1.55 times book value - deemed relatively inexpensive by analysts, Marine will be increasing its assets by more than $7 billion, to $30 billion, and solidifying its No. 1 market position in western New York.
"It is no secret that we have been trying to grow in New York carefully and conservatively through acquisitions," said Jim Cleave, president and chief executive of Buffalo-based Marine Midland, the principal U.S. banking unit of HSBC Holdings, London.
The acquisition will shore up Marine Midland's No. 1 share of deposits in Monroe County, which includes Rochester. Marine is also No. 1 in Erie County, its home market.
Mr. Cleave said Marine had been eyeing First Federal, which is owned by CT Financial Services Inc. of Toronto, for the last two years.
CT Financial, the parent of Canada Trust, decided it could not compete long-term in the United States without making major investments in First Federal. It came away with "a substantial return on investment" and "extremely valuable experience in the U.S. market," said Canada Trust president W. Edmund Clark.
Marine Midland stands to benefit by consolidating branches, back offices, and jobs in the two institutions' overlapping territories.
"It is clear that ... there will be some redundancies," Mr. Cleave said.
"We don't have an estimate of the consolidation, but we are offering to our nonmanagement employees guaranteed employment for one year," Marine's chairman added. "During that time we will resolve what needs to be consolidated, and what the impact will be on our employees." Marine's total employment is 8,200, First Federal's 1,600.
While both Marine and First Federal are concentrated around Buffalo and Rochester, Mr. Cleave said First Federal also has 31 downstate branches, including 24 in New York City. Marine Midland has 99 in the New York metropolitan area, 42 of them in the city.
"We are still looking to become a larger retail bank in New York (City)," Mr. Cleave said.
Marine will also be acquiring First Federal's mortgage banking business, which consists of 15 origination offices in nine states and an anticipated volume of $2.2 billion in loans this year.
Mr. Cleave said Marine Midland wants to expand its origination network and broker operations.
Bank analysts said the agreement reflected Marine Midland's current acquisition strategy.
"I don't see them being as aggressive as the other superregional banks," said Richard Coleman, a bank analyst in London with Merrill Lynch & Co. "There is a reluctance to pay top dollar."
Marine Midland paid $93 million last month for East River Savings Bank, a $1.1 billion-asset thrift in the Queens section of New York City.
Mr. Coleman said Marine is looking to build a national banking business, but still has a long way to go. "In the meantime, the bank has been effectively servicing it's national scope with mortgage originations and credit cards," he added.
The acquisition, which is subject to shareholder and regulatory approvals, is expected to close by yearend.