Within days last fall, M&T Bank Corp. said it would buy Allfirst Financial Inc. for $2.8 billion and BB&T Corp., the Winston-Salem banking giant, agreed to buy Wheaton's Equitable Bank for $53 million.
Those deals were the first sizable banking acquisitions in the Washington area in more than a year, and began a wave of mergers that continued last week.
"When these types of deals start to occur, it creates a mindset in various boards of directors and management teams," said Kevin G. Byrnes, who next month is to become president and chief financial officer of Provident Bankshares Corp. "This is just what happens in the banking business from time to time."
In January, BB&T agreed to buy First Virginia Banks Inc. for $3.4 billion in one of the largest bank acquisitions in recent years. Last week, Mercantile Bankshares Corp., a company built with acquisitions over the past three decades but which has made few deals in recent years, agreed to buy F&M Bancorp of Frederick for $485 million.
"There has actually been a slowdown in the bank M&A market over the last couple of years," said Edward J. Kelly III, Mercantile's chief executive and a former investment banker. "But when you see an opportunity like that you have to take it."
Local bankers and industry analysts cite a number of reasons for the recent deals, such as the health of bank stocks and general economic uncertainty. There is no consensus on whether they will lead to another round of banking consolidation like the one that vastly reduced the number of local banks in the early and mid-1990s.
"It can hinge on so many things," said Gary B. Townsend, a banking analyst at Friedman, Billings, Ramsey & Co. "It's hard to say what might have been the principal factor."
Lower interest rates might be one of the reasons. Smaller community banks get most of their income from the difference between what they pay for deposits and what they earn on loans. As rates fall, their margins can be squeezed and price competition increases.
"There's some possibility that the rate environment might push small banks to sell," said Harry Terris, a banking analyst at SNL Financial in Charlottesville.
"They think selling is a better alternative than continuing to fight in a very competitive market," said Hunter R. Hollar, chief executive of Sandy Spring Bankcorp in Olney.
The prices paid recently for some banks might entice future sellers. BB&T, for example, paid more then three times First Virginia's "tangible book value," a common measure of a bank's worth. The average multiple for area deals in the past two years has been a little over two times tangible book value. Mercantile last week paid about 2.6 times tangible book value for F&M.
"It has a big impact on sellers," Kelly said. "If people are willing to pay that much for X, would they pay that much for Y?"
The value of bank stocks makes such deals easier. Most banks use their stock to buy other banks, so when share prices are high, banks can buy more.
The Standard & Poor's index of bank stocks is down 17 percent in the past year, but the broader S&P is down 27 percent.
Shares in BB&T were trading near a five-year high last year before it began its most recent acquisitions. On the other hand, Mercantile's shares are at the lower end of their 52-week range. But Mercantile is using cash to pay some of the $500 million price for F&M.
In the decade since the area's last big wave of consolidation, many community banks have sprung up around Washington. All of them are possible targets for acquisition by competitors or by big banks looking to increase their business in the area.
In Maryland there are 43 such banks with more than $250 million in assets, according to data from the Federal Deposit Insurance Corp. In Virginia there are 63. There's even one in the District, Independence Federal Savings Bank, whose stock price skyrocketed this year on rumors that it was for sale. Bank officials said it was not.
Many small-bank executives deny that their banks are for sale right up until the day deals are announced.
"I think there's some truth in that," Hollar said. "If they said otherwise they would spend all their time fending off conversations as opposed to running the bank."