PNC Bank Corp.'s plan to acquire Midlantic Corp. will intensify competitive pressures on New Jersey's remaining independent banks and force smaller institutions to reconsider their options, bankers and analysts said.

In particular, increased competition on pricing and the introduction of advanced computerized systems for corporate credit scoring, telephone banking, and other services will force smaller New Jersey banks that have been slow to adopt technology to begin investing or find partners.

"There are too many banks trying to do business the way they've done it for 50 years, and the world is changing rapidly," said Elizabeth A. Summers, a bank analyst with Ryan, Beck & Co. in West Orange, N.J.

"This market is overbanked, consumers are underserved, and competition means economies of scale, with more services at lower prices."

Edward E. Furash, a Washington-based banking consultant, agreed. "This is further evidence that all markets, regardless of size, are rapidly moving to become oligopolies," he said.

Mr. Furash predicted that New Jersey, and other markets, will within a few years be dominated by a handful of banks holding between 65% and 85% of the market. The remainder, he added, will be held by small, specialized institutions.

The merger is the latest in a series in New Jersey's rapidly consolidating market. Three weeks ago, First Union Corp. purchased First Fidelity Bancorp. while earlier this year, Chemical Banking Corp sold off 84 branches in 15 southern New Jersey counties to PNC. Announcement of the planned acquisition sent New Jersey and neighboring state bank stock prices soaring as investors scrambled to purchase shares in other potential takeover candidates.

UJB Financial Corp. shares rose $2.37 to $34.87. Summit Bancorp was up $2.25 to $23.87, Meridian Bancorp rose $1.62 to $37, and United Countries Bancorp gained $8.25 to $173.25.

"Prices are flying, and they're not going to come down," said Thomas Hanley, the top bank analyst at CS First Boston. "The race is on for who's going to be next to the altar."

Ms. Summers predicted that "consolidation will continue. New Jersey is still a very fragmented market, and there are too many banks."

The acquisition, announced yesterday, would give the combined bank 322 branches in New Jersey and some $11.1 billion of deposits, or 8.9% of the state's market. This would put PNC in second place there after First Union, which would have 350 New Jersey branches and $16.1 billion of deposits, or 12.9% of the market, after its planned merger with First Fidelity.

New Jersey Banking Commissioner Elizabeth Randall welcomed the Midlantic purchase and said it was another reason the state should approve the federal Interstate Banking and Branching Act. Ms. Randall commended PNC for its record of community reinvestment and discounted speculation that the deal would harm small community banks.

"Small community banks have carved a niche for themselves. They will continue not only to survive but to thrive," she said.

Meanwhile, community bankers in New Jersey said they see little to fear from the acquisition. The transition period from the time of the announcement until after the deal is completed should give them opportunities to pick up disgruntled customers.

"Whenever there is a major change in a larger bank, until those people get settled down with their new operational procedures, it's going to give community banks an opportunity to pick up some account relationships from these larger banks that are no longer headquartered in New Jersey," said C. Mark Campbell, chief executive of Bergen Commercial Bank and former president of the Community Bankers Association of New Jersey.

Bankers like Anthony S. Abbate, president and chief executive of Interchange Financial Services Corp., Saddle Brook, N.J., argued that mergers increase competitive pressure on institutions like UJB, the last remaining midsize bank in the state.

They added that Midlantic had little choice, given its inability to drum up increased revenues to cover the high cost of investing in the technology necessary to remain competitive.

"That was a deal that needed to be done," said Mr. Abbate. "If they (Midlantic) were going to go ahead and compete in today's environment, the capital commitment to technology and the training of the staff would be extremely costly,"

Analysts also predicted that the Midlantic acquisition would increase pressures on smaller banks to merge and increase their market share.

"I expect to see additional transactions when you drop down to smaller banks," Ms. Summers predicted. "The key to (small banks') survival will be their ability to identify a market niche they can exploit profitably."

Jonathan Epstein in Washington contributed to this article.

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