M&T Bank on Expansion Spree - Analyst Blog

M&T Bank Corporation (MTB) is on an expansion spree. The company has purchased a failed bank − K Bank, Randallstown, Maryland − through a Federal Deposit Insurance Corporation (FDIC) assisted deal. The deal would help the company in expanding its network in the Mid-Atlantic region.

Deal Details

The Maryland Office of Financial Regulation closed K Bank last Friday and FDIC was appointed as the receiver. FDIC in turn entered into a purchase and assumption agreement with M&T Bank in order to assume all of the deposits of K Bank, except certain brokered deposits.

K Bank had total assets of around $538.3 million and total deposits of about $500.1 million as of September 30, 2010. Besides acquiring all the deposits of K Bank, M&T Bank also agreed to purchase around $410.8 million of K Bank's assets. FDIC would dispose off the remaining assets.

In connection with this deal, a loss-share transaction on $289.0 million of K Bank's assets was agreed upon by FDIC and M&T Bank. M&T, which will share the losses on the assets pool covered under the loss-sharing agreement, did not pay the FDIC any premium for the deposits of K Bank.

Expansion Spree

M&T Bank has only last week agreed to buy Wilmington Trust Corporation (WL) in a stock-for-stock transaction valued at around $351 million. The deal, expected to close by mid-2011, would add 48 branch locations in Delaware and 225 ATMs to M&T Bank's network and result in the company operating 800 branches and 2,000 ATMs in 8 states, the District of Columbia and Ontario, Canada. The deal would add $8.3 billion in deposits and $8.1 billion in loans from the merger to M&T, providing it the top deposit share and a significant commercial market share in Delaware. 

Our Take

M&T Bank has managed to put solid quarters even during the financial crisis and continues to experience growth in net interest margin. The company reported $1.48 per share, ahead of the Zacks Consensus Estimate of $1.41. Results were aided by an expansion in net interest margin coupled with lower credit costs. The acquisition of Provident and Bradford in the Mid-Atlantic region has proved to be meaningful, both in terms of customer base and profitability.

While the sluggish recovery of the economy and challenges from the recent legislative actions remain headwinds for the stock, we believe that an improvement in credit quality and a growing core deposit will uphold the bank in the long run. Additionally, the acquisition of Wilmington Trust and K Bank would also help in expanding its network and customer base.

M&T Bank shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation. We have a long-term Neutral recommendation on the stock.