Sometime this year, if stockholders and regulators approve, Citizens Bancorp of Maryland will swap almost $50 million worth of Citizens stock for ownership of the small Bank of Damascus in upper Montgomery County.
The largest reported shareholder, Herbert S. Hyatt, a retired Damascus bank president and a director for 44 years, would get Citizens stock valued at $3.4 million in return for his 3,599 shares of Damascus. Several directors of the bank would each get more than $1 million in Citizens stock -- almost four times the book value of their Damascus stock before the sale, according to recent bank records.
At the same time, Riggs National Corp., stepping across the District line for the first time, will spend $37.8 million to buy the shares of the Guaranty Bank and Trust Co., of Fairfax. The largest reported shareholder, Elizabeth M. Fairchild of Washington, a director and owner of 64,315 shares, would get $2 million for her stock. Two other directors would get more than $1 million each.
The stockholders of the Bank of Damascus and Guaranty Bank and Trust Co. are the beneficiaries of a second wave of "merger mania" that is sweeping the area banking community, enriching longtime investors and stock speculators.
The first wave of activity began early last year when Virginia banks marched across the Potomac to buy District and Maryland banks. United Virginia Bankshares, Sovran Financial Corp., Bank of Virginia and Dominion Bankshares moved rapidly to expand their franchises, sending the price of area bank stocks soaring by as much as 189 percent. (See chart, page 21.)
For shareholders, one of the most profitable merger deals was the Sovran buyout of Suburban Bancorp in Maryland. When the merger was announced in September, Suburban shares were selling for $61.50 a share. By the time the deal closed in March, each Suburban share was worth $100.60, a gain of 63.6 percent in six months. That was on top of a 46 percent gain made earlier in the year when a possible merger was anticipated.
In the second wave, major institutions are buying smaller banks either to obtain an "address" in another jurisdiction, as in the case of Riggs, or to extend and strengthen their home base, as in the case of Citizens.
The prices paid for small banks in the second wave have had a dramatic effect on some of the stocks, which tend to be held by relatively few shareholders and thinly traded, if at all.
The pattern has been established in four recently proposed mergers involving the Bank of Damascus, Guaranty Bank and Trust Co., Enterprise Bank of Falls Church and Ameribanc Investors Group, holding company for Ameribanc Savings Bank (First American Savings and Loan Association of Virginia).Value Jumped 277.6%
On May 15, a share of stock in the Bank of Damascus was valued by the bank at $250. A month later, after the directors accepted a buyout offer from Citizens Bancorp, that same share of stock was worth $944, a jump of 277.6 percent. Citizens offered to exchange eight shares of its stock, selling for $118 each, for one share of Damascus stock.
Emotions ran high in Damascus when Citizens made its controversial offer for the 65-year-old bank. Bank President Walter C. Brown, who has been with the bank for 37 years, voted against the offer, saying he wanted to retain its local control. He was joined by two others on the 11-member board.
Despite his opposition to the merger, Brown said he was angry about critics who said Citizens was paying too much. Citizens, he said, "is being made out to be paying an arm and a leg, and getting nothing. It isn't true."
Bank of Damascus, Brown said, owns real estate worth more than $10 million and securities that have increased in value by more than $2 million. These investments are included in the bank's book value at their original cost, far below their current value. If these two items were fully reflected in the bank's book value, the figure would increase from $253.20 to $443.20, Brown said.
At that level, the $944 deal with Citizens would be worth 2.1 times the Damascus bank's book value, instead of 3.7 times. The going rate for area bank mergers has been about 2.5 times book value.
Book value per share represents a bank's net assets minus the value of preferred stock, divided by the number of common shares.
Brown, according to bank records, owns 1,519 shares, now worth $1.4 million. Like other directors and shareholders, Brown has been accumulating his stock for nearly four decades.
Bank of Damascus, with four offices in Montgomery and Frederick counties, began operations in 1921. Founder William de Lashmutt put up $10,000, and local residents bought 1,000 shares at $25 each, according to the Damascus Courier-Gazette. Beyond that, no accounting of stock splits or stock dividends is available. Bank officials say they don't know exactly how the shares have multiplied but, as of today, the number of shares owned by 580 stockholders is 52,514.
The $250 price of the stock was established twice recently. The first time was when the bank, which has assets of $140 million, paid a 10 percent stock dividend and paid for fractional shares in cash at $250 a share. The other was when the bank sold an additional 2,500 shares of stock in the spring at $250 a share.
Brown noted that some shares recently brought $361 a share at a public auction.
Stock in Bank of Damascus has been closely held by a group that included prominent Damascus citizens and friends and relatives. The stock has traded privately and has been difficult to buy.
"It was not traded very frequently, and it would have been accumulated over a long period of time, through generations," said Brown.
Among those who have accumulated stock for many years is Helen W. Boyer, a cousin of major stockholder Herbert Hyatt. Boyer's 2,485 shares, at $944 a share, represent $2.3 million. She disclaimed voting control over another 651 shares worth $614,500 and held by a son.
Boyer's father, Archie W. Souder, was an organizer and founder of the bank in 1921, as was her father-in-law, Dr. George M. Boyer. Her husband, Dr. McKendree Boyer, joined the board in the 1940s and, after his death, Helen Boyer took his seat on the board.
There are two father-son teams on the board, Herbert Hyatt and his son Jerry H. Hyatt, an attorney and member of the Maryland House of delegates, and Bradley M. Woodfield, a retired auto dealer, and his son Henry H. Woodfield, president of Barwood Inc., a taxicab company.
At the Guaranty Bank and Trust Co., of Fairfax, original stockholders made huge profits long before Riggs National Corp. offered to buy them out for $31.50 a share. When the offer was made, the stock was selling at $28 a share, and the $31.50 Riggs price represented a 12.5 percent premium -- small compared with some bank deals. Guaranty Paid Dividends
The real profits at Guaranty Bank and Trust, which has five offices, were made by stockholders who had been patient and collected yearly stock dividends.
Since 1964, the bank has paid 18 dividends, most at 10 percent, and had one 2-for-1 stock split. An investor who bought 100 shares of stock for $1,000 in 1964, when the bank opened for business, today would own 1,014 shares worth, at $31.50 each, $31,941, according to records.
The increase in value was more than 3,000 percent, or 17 percent a year annualized over the 22-year period.
Riggs' offer of $31.50 a share for Guaranty, with a book value of about $9.77, was 3.2 times book value, higher than the average for bank sales in the area. Guaranty has 1,700 shareholders holding 1.2 million shares of stock.
Eighteen officers and members of the board of directors hold 22.8 percent of the stock.
The three largest stockholders listed in the bank's May proxy statement were Elizabeth Fairchild of Washington, Robert C. Arledge, chairman of Arledge Real Estate Corp. of Arlington, who holds 43,744 shares worth $1.37 million, and Dr. Morton O. Alper, a Washington dentist, with 42,302 shares valued at $1.33 million.
Ernest M. Carter, the bank's president, owns 12,272 shares worth $386,568.
Alper, who helped organize the bank 22 years ago, said of the Riggs offer, "We were in a healthy position to continue. But everybody is getting older and it was a good offer."
Alper, 61, said he doubted that his $1.33 million payment from Riggs would change his life style. "We worked for it," he said. "It isn't like hitting a sweepstakes. It was an earned, planned thing. It is like putting seeds in the ground and raising a garden. It didn't just happen. It had to be weeded and fertilized."
Stockholders more than doubled their money when one of the smaller Virginia banks, Enterprise Bank of Falls Church, recently approved an offer to sell.
Enterprise, with two locations and assets of $35.4 million, is tiny compared with its purchaser, Washington Bancorporation, which owns the National Bank of Washington. NBW has assets of $1.4 billion and 21 branches in the District.
The proposed merger gives NBW its first address in Northern Virginia, helping it compete with outside competition and improving its appeal as a possible takeover candidate, itself. NBW would acquire 362,500 shares of Enterprise Bank at $25 a share for a total cost of about $9 million.
Enterprise Bank, formed in 1972, originally sold its shares for $16 each. A 5-for-1 split in the 1970s reduced the share price to $3.20. When the NBW deal was made, Enterprise shares were selling at about $11 each.
NBW, selling at $100 a share, agreed to swap one share of NBW for four shares of Enterprise. That was the equivalent of giving Enterprise stockholders $25 a share for each of their shares.
That took Enterprise stock from a value of $11 a share to $25, more than double, and a gain of 127.3 percent. The $25-a-share sale was 2.8 times the $9 book value of the bank as of Dec. 31.
A stockholder who invested in the bank when it was formed received a 681 percent increase in his investment, or a 15.8 percent annualized return over the 14-year period.
Because Enterprise Bank has fewer than 500 shareholders, it is not required to report publicly the number of shares owned by members of its board of directors.
Donald E. Ervin, president of the bank, said that 11 board members owned 35 percent of the stock and that he owned less than 3 percent.
A 3 percent ownership of the 362,500 shares, or 10,875 shares, would be worth $271,875. 35.5% Gain for Investors
Investors in Ameribanc Investors Group will realize a 35.5 percent gain on their stock from the recently proposed merger with NCNB Corp.
Ameribanc Investors Group, formerly called MIW Investors, owns First American Savings and Loan Association in Virginia, which has assets of $704 million and 30 offices in Virginia. The acquirer, NCNB Corp., has assets of $23 billion and 600 banking offices in North Carolina, Florida, South Carolina and Georgia.
NCNB agreed to exchange 0.28 share of NCNB stock for each of the 6.2 million shares of Ameribanc in a deal valued at $92.5 million.
With NCNB shares then selling at $53.25, the 0.28 of a share was equal to $14.91. At the time the deal was made, Ameribanc shares were trading at $11 a share, giving Ameribanc stockholders an immediate 35.5 percent premium.
MIW Investors began life in 1969 as Mortgage Investors of Washington. During the 1970s, high interest rates and inflation nearly crushed MIW as builders and developers went under. Foreign investors, who now own about 30 percent to 40 percent of the MIW stock, came to the rescue. MIW later acquired two thrifts and changed the course of its business.
MIW stock, which sold as low as $1.88 during the past six years, moved to the $8 range last fall. MIW shares began to appreciate as investors increasingly perceived it to be a company that would benefit from the low-interest-rate environment. The stock recently rose to $11. CAPTION: Illustration, BANK OF DAMASCUS MAY 15, 1986; Illustration, BANK OF DAMASCUS AFTER MERGER, ILLUSTRATIONS BY JOHN PACK FOR THE WASHINGTON POST; Picture 1, Washington Bancorporation has offered to buy Enterprise Bank of Falls Church for approximately $9 million, PHOTO BY ELLSWORTH J. DAVIS -- THE WASHINGTON POST; Picture 2, Citizen's Bancorp has offered some $50 million in stock for Bank of Damascus, PHOTO BY JEFFREY MARKOWITZ -- THE WASHINGTON POST, Picture 3, NCNB Corp., has offered $92.5 million for the First American Savings of Virgina., PHOTO BY ELLSWORTH J. DAVIS -- THE WASHINGTON POST