When NS&T Bankshares Inc. signed a contract with Mellon Bank two years ago for the Pittsburgh bank to manage NS&T's data-processing operation, the announcement triggered widespread speculation that the two were preparing for the day when Congress would approve national interstate banking.
Since then, states have liberalized laws that previously banned interstate banking, and NS&T is completing a merger with United Virginia Bankshares Inc. of Richmond.
Meanwhile, Mellon has confirmed that it hopes to gain entry to the area's banking market by acquiring a crippled Maryland savings and loan.
The two strategies embraced by NS&T and Mellon typify two distinctly different trends that are shaping the course of interstate banking here: the aggressive expansion strategies of Virginia bank holding companies and a continuing shakeout in the savings and loan industry.
Both trends were very much in evidence last week. First, Mellon Bank Corp. announced that it is negotiating with Maryland to acquire Community Savings and Loan, and the Federal Reserve Board approved the application of Sovran Financial Corp. of Norfolk to merge with Suburban Bancorp of Bethesda.
Sovran controls more than 20 percent of the deposits in Virginia and will gain at least 10 percent of the total in Maryland by taking over Suburban.
In the meantime, Sovran is expected to receive Fed approval also to acquire D.C. National Bancorp. The two acquisitions in Sovran's trident strategy will increase its assets to more than $13 billion, making it the dominant player in the highly lucrative "Crescent," the market area between Baltimore and Norfolk.
Sovran's interstate banking forays into the District and Maryland typify the aggressive expansion strategies that major Virginia bank companies have pursued under reciprocal banking laws. Six of the seven leading Virginia bank holding companies have acquired or signed merger agreements with institutions in the District and Maryland. Only Central Fidelity Banks has chosen not to follow that strategy.
In the meantime, lingering problems in the savings and loan industry may change the course of banking in the area as much as the acquisitions by Virginia banks.
Already, Chase Manhattan Corp. has taken advantage of Maryland's savings and loan crisis to gain a foothold in the Washington-Baltimore corridor. Chase, with the approval of Maryland's General Assembly last year, received $25 million to take three crippled S&Ls off the state's hands and convert them to a commercial bank.
Although Meritor Savings Bank of Arlington has been negotiating for several weeks with Maryland officials to acquire the financially weakened Community, Mellon appears to have the inside track. Under existing regulations, federally chartered thrifts may acquire only failing federal associations across state lines. Thus, Meritor, a federally chartered savings bank, would not be permitted under those regulations to acquire a failing state-chartered thrift in Maryland.
It's possible that other Maryland-insured S&Ls may go on the block in the shakeout resulting from the crisis that developed last spring. It's logical to assume, therefore, that other big out-of-state banks will take advantage of the loophole that allows them to open banks in Maryland before the state's national interstate banking law takes effect.
Meanwhile, federal regulators are expected to reach a decision soon on the fate of National Permanent Bank, the District's second-largest thrift. The Federal Home Loan Bank Board is seeking a buyer for the troubled savings bank, and industry sources are convinced that it will be sold either to Chase or to New York rival Citicorp.
These developments tend to make certain key aspects of interstate banking laws in the District and Maryland irrelevant, for now at least. As long as banking giants such as Citicorp, Chase and Mellon can enter the highly coveted D.C.-Maryland market by converting crippled S&Ls to commercial banks, there is little incentive for them to buy commercial banks in the region.
Chase received a $25 million inducement to take over three Maryland S&Ls. Maryland Gov. Harry Hughes has indicated the state is prepared to pay a handsome bonus of at least $147 million to get rid of Community, and one can reasonably assume that the eventual buyer of National Permanent will receive cash assistance from federal regulators.
With those types of incentives available to them, why would money-center banks want to pay huge premiums for local bank stocks now?
The current trend suggests that the S&L factor will force stockholders in some area banks to postpone their plans. The evidence also suggests that lawmakers may have overlooked the S&L factor.