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M&T Bank (MTB) reported a big drop in quarterly earnings Tuesday, but a close look shows that its Wilmington Trust acquisition is bearing fruit at the right time.
July 17 -
When HSBC sold its branches in upstate New York, it created a big change with dozens of branches changing hands. Once the signs are changed, a number of community banks and regionals will have to work hard to keep business in those branches.
June 21
M&T Bank (MTB) says it is reaping the rewards of a major upstate New York bank deal - and it wasn't even the buyer or the seller.
The carve-up of HSBC Holdings' 195-branch upstate franchise among a handful of other banks has enabled M&T to woo business clients away from the new owners, says Rene Jones, the chief financial officer of the Buffalo, N.Y., bank.
First Niagara Financial Group (FNFG) this year
That long history matters, Jones says.
"There are a lot of customers in our markets who have been with the former Marine Midland for decades who are now having to rethink their position and who they are going to bank with," Jones says. "We have a pretty big advantage; we're known as someone who has also been in the market for over 156 years. We're actually benefitting from all the change."
Commercial and industrial loan growth in upstate New York contributed to overall loan growth of 11% in the second quarter compared with the same quarter last year. The acquisition in May 2011 of Wilmington Trust and subsequent systems conversion completion last month also helped power the $80 billion-asset M&T's
Profits fell year over year because securities and other gains pumped up year-earlier results, but most of the key balance sheet indicators of financial health moved in the right direction from the first quarter to the second. Lending, return on equity and loan and fee income rose; its efficiency ratio and net interest margin narrowed. Overall profits rose 13% from the preceding quarter on revenue gains in trust and brokerage services and mortgages. The company also benefited from lower operating expenses.
Though mortgage banking revenue and lending were strong in the quarter, M&T has decided to slowly reverse a decision it made last year to hold rather than sell most of the 30-year-home loans it originates.
There is a downside to the low rates that have led to a boom in demand: a lot of low-yielding assets that may not be paid back in full until 2042. M&T's consumer real estate loans have increased 38% — or some $2.7 billion — over the last three quarters
"We have reached a bit of our limit," Jones says. "Over time we are going to move back to selling most of our production. That will take another couple quarters." Though mortgages have delivered "a little bit better" returns than securities as investments, "you gotta remember you can only do so much," he says. "A bank is not meant to have assets with a 30-year maturity."
With the technological integration of Wilmington Trust complete, Jones says, the acquisitive M&T has the health and ability to keep doing deals. But in dealmaking, M&T is the one that prefers to be courted.
"From time to time people will call us. And they will not want to get out of banking, but they'll want to join us. That only happens when you keep your bank healthy and sound," Jones says. "We can't predict when it's going to happen, but we're ready if it were to happen. We don't go and seek deals. We end up with partnerships when it makes sense to join our team."
Jones' outlook for the M&A market is modest. It "is pretty quiet," and it will stay that way until bankers become familiar with "all the new rules of the game" brought on by economic and regulatory upheaval, Jones says.
