Call it "Extreme Makeover: Bank Edition."
Provident Bankshares Corp. closed its doors for last time the Friday before Memorial Day. On Tuesday all 135 branches of what had been Maryland's largest commercial banking company had reopened under the banner of their new owner, M&T Bank Corp.
As far as integrations go, M&T had wrapped up the equivalent of changing the locks, the plumbing and wallpaper of its new purchase within 72 hours.
Analysts said that is no small feat.
"It is interesting how rapidly they are moving after closing [the deal] — the weekend after closing to begin the integration," said Bert Ely, an independent banking consultant. "We have another deal in this market, Wells' acquisition of Wachovia, where they are going very slowly, particularly in terms of name changes, account changes. Presumably [M&T] had done a lot of integration planning."
Rene Jones, M&T's chief financial officer, said it had been preparing the integration since announcing its $401 million deal for the $6.5 billion-asset Provident in December. During the last six months, M&T converted internal systems and began training Provident employees on the new platform. The buyer laid off 29% of Provident's employees, or 521 workers, mostly in redundant back-office functions like technology and human resources. Six Provident branches that overlapped with M&T's 177 locations in Maryland and Virginia were closed.
The integration effort reached an apex over the long weekend, when more than 300 M&T employees descended on Provident's branches to help with the change. A pair of M&T workers will stay on at each former Provident branch for two weeks addressing employee and customer concerns.
Jones said moving swiftly makes good business sense for a few reasons. A quick system integration reduces risks, he said, and a quick rebranding tends to be less stressful for new employees and customers.
"If you linger too long, there is just a fair amount of uncertainty, and that uncertainty is not very good," he said. "We tend to move relatively quickly."
M&T, which has a history of growth through acquisitions, bought Provident to bolster operations in the Middle Atlantic, a region with far better demographic growth prospects than M&T's home market of Buffalo. Provident, a Baltimore fixture for 120 years, agreed to sell itself for $10.50 a share in stock; investment losses had hurt its profits over the last year.
Analysts had mixed reactions to the deal. Some questioned whether M&T would be overpaying in a buyer's market; the price was an 81% premium over Provident's closing share price a day earlier. And David George, an analyst with Robert W. Baird & Co., wrote in a research note at the time that M&T's key tangible common equity ratio could lose as much as 50 basis points from the more than $600 million of potential markdowns it would inherit from Provident's loan and securities portfolios. As of March 31 that ratio was 4.86%.
Jones dismissed the critiques, saying that M&T paid a fair price, and that the transaction carried a price-to-book value and a deposit premium well below historical market prices.
The potential benefits far outweigh the risk of capital dilution, he said. M&T expects the transaction to generate an internal rate of return of more than 16% and to be accretive to earnings this year, a year ahead of schedule.
"This might be one of the most attractive deals that we've ever done," Jones said.
Albert Savastano, an analyst with Fox-Pitt Kelton Cochran Caronia Waller USA LLC, said the transaction made strategic sense for M&T and should deliver strong savings, probably through the closure of former Provident branches.
"M&T being an experienced acquirer, I would put it as a low-risk deal for them in general," Savastano said.
