Midlantic Selling Bank To Mellon

Mellon Bank Corp. has agreed to acquire a $1.4 billion-asset bank in northeastern Pennsylvania from Midlantic Corp. for about $90 million in cash, the two companies announced Thursday.

Mellon's acquisition of United Penn Bank will allow the company to expand in its home state, while helping Midlantic boost its anemic capital ratios. Pittsburgh-based Mellon is paying a slight premium over United Penn's book value.

"It's a nice little addition to the Mellon franchise, but the deal is much more important to Midlantic," said Lawrence W. Cohn, who will soon join PaineWebber Inc. as a banking analyst. "It gives them the opportunity to free up capital."

Small Profit for Midlantic

Analysts said that Midlantic, based in Edison, N.J., was fortunate to make a small profit on the sale. The money could be used to build the loan-loss reserves at Midlantic's lead bank, they said.

Midlantic's stock closed Thursday at $8, up 75 cents, while Mellon rose 37.5 cents a share, to $34.875.

Mellon officials have repeatedly expressed eagerness to expand in Pennsylvania and contiguous states. The company moved into eastern Pennsylvania in 1983 when it bought Philadelphia's Girard Bank. The United Penn purchase, expected to be completed by yearend, will give Mellon 382 branches in the state.

Mellon has said it may bid on Virginia's Perpetual Savings Bank, which is being auctioned by the Resolution Trust Corp. In addition, Mellon owns a small Maryland thrift and has branches in Delaware.

"We are in the acquisition mode," Richard A. Gaugh, Mellon's vice chairman of retail banking, said at a news conference. "This is a time to be opportunistic."

Midlantic reported a $415-million loss in the second quarter after adding $403 million to its loan-loss reserves. The company, which operates under close regulatory scrutiny, has announced a restructuring plan that involves the sale of $6.3 billion of assets in an effort to increase its capital ratios. Midlantic had $21.5 billion of assets at June 30.

In selling United Penn, Midlantic is about halfway toward its asset-sale goal. Earlier this summer, it agreed to sell York Bank and Trust Co. for $130 million to First Maryland Corp., a subsidiary of Allied Irish Banks. York has $1.5 billion of assets. Both sales await regulatory approval.

Mellon, according to sources, also was interested in buying York.

Midlantic's major remaining assets that are up for sale are a group of four banks in upstate New York that were bought from Bank of New York Co. two years ago. Midlantic paid a premium of more than 2 1/2 times book value, creating a heavy overhang of goodwill on its books.

Bank analysts speculated that several companies with a strong presence in upstate New York -- including Chase Manhattan Corp., KeyCorp, Fleet/Norstar Corp., and First Empire State Corp. -- are interested in buying the banks.

Mellon Fills Missing Market

For Mellon, a western Pennsylvania powerhouse with $28.7 billion of assets, the United Penn deal fills in its only missing market in Pennsylvania.

The bank, based in Wilkes-Barre, has 34 branches, $1.3 billion in deposits, and $86 million in equity. It earned about $2 million in the first half of 1991. Its relatively clean balance sheet includes $28 million in nonperforming assets, representing 2.6% of total loans and related assets.

"To get a slight premium in book value in that neck of the woods is pretty good for Midlantic at this time," said Michael Plodwick, an analyst at C.J. Lawrence & Co. "They needed to sell it, and they didn't take a loss on it."

Mellon said Glenn Y. Forney, president and chief executive of United Penn, will maintain his posts. The bank, which has 700 employees, will be renamed Mellon Bank-Northeast.

Mellon, which yesterday sold $100 million of subordinated notes, anticipates some cost-savings from integrating United Penn's back office into its system, but concedes that there will be few cost-related efficiencies. "It's not an in-market merger to the extent that we can't close overlapping branches," said Thomas Butch, a bank spokesman.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.