After a decade on the sidelines, Sandy Spring Bancorp Inc. in Olney, Md., returned to the acquisition market by announcing a deal to buy its first bank outside its home state.
The $2.6 billion-asset Sandy Spring said that it is acquiring the $247 million-asset Potomac Bank of Virginia in Fairfax for $65 million in cash and stock, or 2.5 times Potomac's book value. The deal, announced Wednesday, is expected to close in the first quarter.
Buying Potomac would give Sandy Spring an additional $192 million of deposits and $193 million of loans and, most importantly, would bring it into the fast-growing northern Virginia market.
"The northern Virginia suburbs are just across the river from their current footprint," said Mark Muth, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp. "It's an attractive market - high-growth - a natural extension for them."
Hunter Hollar, Sandy Spring's president and chief executive officer, said it has avoided acquisitions over the past 10 years to focus on organic growth. Its most recent whole-bank acquisition was in 1996, when it bought Annapolis Bancshares for $18 million, though it did buy seven branches from Mellon Financial Corp. in 1999.
And Sandy Spring may not be done acquiring. In an interview, Mr. Hollar said it would consider additional deals in Maryland and Virginia. "Organic growth has slowed, so getting that growth through acquisitions becomes more attractive."
For the first half, Sandy Spring's net income rose 5% from a year earlier, to $16.4 million, but its profitability ratios fell slightly. Its return on assets for the first two quarters dropped 6 basis points, to 1.31%, and its return on equity dropped 97 basis points, to 14.94%.
Potomac's customers should hardly notice the transition, Mr. Hollar said; Potomac would keep its name and operate as a division of Sandy Spring, and G. Lawrence Warren would remain its president and CEO.
"The Sandy Spring name is not as well known [in Virginia] as it is in Maryland, so we want to keep the name that they have built up over the years," Mr. Hollar said.
He also said that Sandy Spring has a broader range of products and services that Mr. Warren and his team could offer to Potomac's customers. "We can add a little more in terms of investment products, insurance, and wealth management that we can deliver through their branch network."
Sandy Spring, which was established in 1868, has 32 branches in six Maryland counties. Potomac has four branches in Fairfax County. For the second quarter, its earnings rose 1% from a year earlier, to $411,000.
