M&T Bank Corp. was among upstate New York's most acquisitive banking companies before it started expanding throughout the Middle Atlantic region during the past seven years.
On Thursday, the Buffalo company returned to its home state, announcing a $555 million deal to buy the $3.7 billion-asset Partners Trust Financial Group in Utica, N.Y. Related Link Click
The deal would strengthen $57.9 billion-asset M&T's market share in upstate New York, where it is already a dominant company. Partners Trust would be M&T's first purchase since April 2003 when it completed its largest deal ever — for the $16.5 billion-asset Allfirst Financial Inc. in Baltimore.
"It fits very nicely into our overall footprint in upstate New York," Rene Jones, M&T's chief financial officer, said of Thursday's deal. "So we're pretty excited about that market."
The deal was announced just four days after Partners Trust passed the third anniversary of going fully public. As it did with other converted mutuals, the Office of Thrift Supervision had imposed a no-sale moratorium on Partners Trust for three years from its conversion date.
M&T bought 10 banks in upstate New York between 1990 and 2001. It has not done a whole-bank deal there since buying Premier National Bank in Poughkeepsie in 2001, though it did buy 21 upstate branches from Citigroup Inc. last year. In an interview, Mr. Jones said that M&T took a break from dealmaking because it was tied up integrating Allfirst for two years and spent the next two years focused on growing organically. Besides, he said, asking prices were at an all-time high.
"From our perspective, we really didn't have a need to do a deal," he said.
Upstate New York is not as fast-growing as the markets in Maryland and Virginia that M&T entered in the Allfirst deal, but it has a stable base of core deposits. And with its deal for Partners Trust, M&T would gain the top market share in the Utica market, where Partners Trust dominates with 37% of the deposits and M&T ranks 10th, with 1.6%.
Partners Trust also has the top market share in two other counties: Herkimer, where M&T has no presence, and Broome, where M&T ranks second.
M&T agreed to pay $12.50 in stock and cash for each Partners Trust share, a 25% premium to Wednesday's closing price.
The deal price is equal to 2.3-times tangible book value and 24-times the last 12 months' earnings per share.
Comparable deals for converted mutuals in the Middle Atlantic region in the last four years had a median price of $400 million, or 2.5-times tangible book and 21.1-times earnings per share, according to data from Sterne, Agee & Leach Inc.
Mr. Jones said M&T expects to extract cost savings from the acquisition but did not quantify the amount.
He said 16 of the 33 Partners Trust branches are within one mile of an M&T branch.
He also pointed out that Partners Trust had an efficiency ratio of 81.8% in the second quarter, compared with M&T's 50.2%.
"But you can't necessarily think about that as an expense issue," he said. "Part of it is that Partners Trust looks more like a traditional savings bank, with, on the loan side, a fair amount of residential mortgages and, on the deposit side, a fair amount of households with one service. As we bring in more products and services to those customers, that'll help improve the revenue base, which in turn improves the efficiency ratio."
Damon DelMonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said that M&T is paying a reasonable price for Partners Trust. "I think [the latter's] shareholders should be happy," he said. "The company has been struggling fundamentally, and growth has been modest, if that."
Partners Trust had a net interest margin of 2.20% in the second quarter, down 31 basis points from a year earlier.
John A. Zawadzki, the president and CEO of Partners Trust and its subsidiary bank, described M&T as "an extremely good partner." His company, which was founded in 1839, wanted to find a buyer that would continue its tradition of community banking, he said, citing margin compression as a chief reason for the decision to sell now.
Mr. Zawadzki, 59, said he would not stay on at M&T but would join its regional advisory board.
It is not unusual for converted thrifts to sell quickly after they pass the three-year milestone.
Mr. DelMonte said that about 75% of mutuals that have converted in the last decade have sold themselves three to five years later.
Several analysts had identified Partners Trust as a likely seller.
Partners Trust shares soared on news of the deal, closing at $12.01, up 20%. M&T's shares nudged up 0.22%, to $110.74.
Source:
