WL Wilmington Trust Corp. (DE)

M&T Bank Corporation (MTB) has announced its plan to repay its TARP dues simultaneously with the closing of the merger of Wilmington Trust Corporation (WL). The total TARP dues sum up to around $700 million.

The company recently declared that its application to acquire Wilmington Trust was approved by the board of governors of the Federal Reserve System. However, it still needs additional regulatory approvals including those from the New York State Banking Superintendent and the Delaware Banking Commissioner.

M&T Bank, which plans to complete the merger at the earliest following all regulatory approvals, aims to concurrently redeem the $330 million of preferred stock issued to the U.S. Department of the Treasury by Wilmington Trust under the Troubled Asset Relief Program.

In addition, by the end of second quarter 2011, M&T Bank Corp. plans to pay back an additional $370 million of the TARP preferred stock issued by Provident Bankshares Corporation and M&T to the Treasury Department. Provident was acquired by M&T Bank in 2009.

M&T Bank also plans to issue $500 million of new perpetual preferred stock prior to the end of the second quarter of 2011 in an effort to strengthen its capital position and supplement its Tier 1 capital.

The Wilmington Trust merger, which was announced last November received Wilmington’s shareholder approval for the merger this March. According to the merger agreement, upon closing of the Wilmington Trust merger, shareholders of Wilmington Trust will receive 0.051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock they own.

Our Take

M&T Bank managed to deliver solid quarters even during the financial crisis and continues to enjoy growth in net interest margin. Last week, M&T Bank reported first quarter 2011 earnings of $1.67 per share, which exceeded the Zacks Consensus Estimate of $1.41.

The better-than-expected earnings were aided by an increase in the net interest income on the back of net interest margin expansion coupled with substantially lower provision for credit losses.

Opportunistic acquisitions also augur well. Provident and Bradford acquisitions in the Mid-Atlantic region have proved to be meaningful, both in terms of customer base and profitability. Recently, the company also purchased K Bank, Randallstown, Maryland through an FDIC assisted deal. The deal will help the company in expanding its network in the Mid-Atlantic region. The merger of Wilmington Trust is projected to be accretive to the company’s earnings in 2012.

Credit quality challenges also seem to have lessened. Though the tepid economic recovery and challenges from legislative actions remain headwinds for the stock, a sound capital position with a growing core deposit should benefit the bank in the long run.

M&T Bank shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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