Regional Bank Woes Are Just Beginning

I have been keeping an eye on the financial condition of local banks in my area to determine the impact of the economic crisis on regional banks. The three banks that I looked at were M&T Bank (MTB), First Mariner Bank (FMAR) and Provident Bank Corp (PBKS).

The first bank, M&T Bank, is the second largest bank in the local area. M&T owns the naming rights to the Baltimore Ravens stadium. M&T Bank shares dropped to a 52 week low of $47.44 Wednesday. M&T recently agreed to acquire a small local bank, Provident Bank, for 400 million dollars. M&T says that they are well capitalized but they recently borrowed 600 million from the US Government’s TARP program. This is probably only the beginning of capital raising for M&T. Roughly 35% of M&T’s loan portfolio is tied to commercial real estate. As retail store owners and commercial property developers continue to go bankrupt, M&T will see its losses escalate. M&T will survive this but I think there is much more pain ahead for M&T shareholders.

First Mariner Bank appears to be in major trouble if economic conditions do not improve measurably in 2009. First Mariner Bank has seen its shares trade as low as 22 cents this year. The stock is currently at $1.27. The bank has been plagued by negative earnings growth, deteriorating cash position and rising mortgage delinquencies. In a move to conserve capital First Mariner has stopped paying interest on its preferred debt securities. 2009 may prove to be too tough an operating environment for First Mariner. I expect that the bank will become insolvent in the very near future.

Provident Bank, the second largest bank in Baltimore, was saved by the M&T deal. Provident was the largest independent bank in the state of Maryland but was hurt by a decline in market share and profitability.

National banks may have felt the pain early from the financial crisis but I think that the bleeding for regional banks is just beginning.

Disclosure: no positions