Marine Midland Plans Big Merger : Deal With Pennsylvania Bank May Be Top Interstate Deal

Marine Midland Bank announced Tuesday that it plans to buy First Pennsylvania Corp. for about $585 million in what is believed to be the largest interstate banking merger so far.

Marine Midland is the 16th-largest U.S. bank holding company, and First Pennsylvania is the parent of Pennsylvania’s third-largest bank, First Pennsylvania Bank.

The merger is expected to take place within a year after receiving approval from regulators and First Pennsylvania shareholders. Pennsylvania banking laws would allow the merger to take effect after March 4, 1990. It is the first merger between major New York and Pennsylvania banking companies.

Marine Midland Chairman John Petty said the purchase of the Philadelphia-based bank is “a key element of Marine Midland’s national strategy” of direct expansion in the northeastern United States.

Marine Midland, with assets of $25 billion, provides consumer, commercial and capital markets services to customers in New York and the Northeast. It also offers services on a selected basis throughout the country and overseas.

First Pennsylvania has assets of $5.6 billion. Its main subsidiary, First Pennsylvania Bank, is the oldest commercial bank in the United States, dating back to 1782.

First Pennsylvania Chairman George Butler said the deal would immediately improve the bank’s capital structure and benefit stockholders by “locking in an attractive purchase price.” The plan calls for an immediate capital infusion from Marine Midland of $150 million in exchange for preferred shares.

Pattern for Future Mergers

Before Marine Midland’s announcement, analysts said, the largest planned combination was Chemical New York Corp.’s proposal to buy Horizon Bancorp., the fifth-largest bank in New Jersey, for about $465 million. That merger is expected to be completed after banking laws allow such deals on Jan. 1, 1989.

Analysts said the Chemical and Marine Midland proposals are setting a pattern for future interstate combinations because both are regional acquisitions and both mergers have been planned well before state laws allow.

At a press conference, Marine Midland said the deal depended on its ability to earn $119 million by March, 1990. However, Marine said its actual earnings are expected to be at least 50% more than that.

Marine Midland Vice Chairman Thomas Donovan said the deal includes some protection against a possible deterioration in asset quality. He said earnings and asset quality will have to meet minimum standards no later than March, 1990.

First Pennsylvania will not be barred from discussing business combinations with other banks during that time.

The Marine Midland merger is the latest addition to a growing list of interstate banking combinations. Since the 1985 Supreme Court decision upholding the constitutionality of regional interstate banking laws, there have been about 45 interstate banking combinations announced or completed that have a dollar value of more than $50 million each, according to a research report released by Keefe, Bruyette & Woods Inc.

According to the report, there are only 13 states that have not at least moved some form of intestate banking legislation.