M&T Bank Corp. of Buffalo headed west a more than a decade ago to find new markets for its mortgage lending operations, and now it is extending that reach through a broad swath of the South.
Late Friday the company said it had agreed to assume Regions Financial Corp.'s wholesale mortgage operations. The deal will bring it 13 offices in 12 states, from Florida and Georgia to Texas and California, and add 170 employees to M&T Mortgage's staff of 1,000, a quarter of whom work in its western territory.
Financial terms were not disclosed, but M&T said Regions' wholesale business originated $4 billion of mortgages last year. Merrill Lynch analyst Edward R. Najarian said in a research note that the Regions operations would increase M&T's mortgage production by about 35%.
M&T has made clear for a while that it has been looking to expand its mortgage business. James J. Beardi, the president of M&T Mortgage Corp., said in a recent interview, "The fact that we are a fee-income business makes us an attractive component of the bank, given the challenges that every bank is having in terms of margin compression."
M&T Mortgage, which has assets of $1.9 billion, was created in 1991 to service the bank's mortgage originations in New York. By 1994 it was building from scratch in places like Portland, Ore., Seattle, and Salt Lake City. Today it has offices in Arizona, Colorado, Idaho, Nevada, Ohio, Oregon, Utah, California, and Washington.
M&T's 2003 acquisition of Allfirst Financial Inc., the Baltimore banking unit of Dublin's Allied Irish Banks PLC, expanded its mortgage lending to the Middle Atlantic region. But M&T was still absent from some the nation's fastest-growing mortgage markets, including Florida. That was the apparent appeal of Regions' business, said Lehman Brothers analyst Jason Goldberg.
Wall Street has paid little attention to M&T Mortgage, however. Last year the subsidiary's revenues fell 15%, to $195 million, but made up 20.7% of the $52.7 billion-asset company's revenue over all, according to M&T's annual 10-K filing with the Securities and Exchange Commission. Its mortgage revenues are up 66.7% since 2000.
In morning trading on Monday, M&T's stock was among the bank group's top performers. It was up 1% one hour before the close of trading. Shares of Regions were up 0.3%.
As M&T telegraphed its desire to expand, Regions signaled just as clearly that it wanted to shed its wholesale mortgage business. The Birmingham, Ala., company sold or shut down loan production offices in the second quarter and sold its $6 billion West Coast loan servicing portfolio.
It was unclear whether there is to be an actual exchange of money between M&T and Regions, but if M&T did have to pay for the operations, the price "was not a big figure," Mr. Goldberg said. (The deal is expected to close in the second quarter.)
Mr. Beardi acknowledged that M&T Mortgage has been slow to expand in other hot markets, such as California, where some of the largest mortgage lenders are based.
"I would agree that California may represent a large percentage of the mortgage banking pie, and there is a lot of mortgage activity out there," he said, but he added that a company can build its mortgage operations without being in California.
"Basically how we expanded our West operation to the six [states] we have today is opportunistically as things became available," Mr. Beardi said.
Jacqueline Reeves, an analyst with BankAtlantic Bancorp Inc.'s Ryan Beck & Co., said the Regions deal is consistent with that expansion strategy. "My comfort with the transaction stems from M&T's diligent approach to integrating deals," she said.
Many investors have become wary of banking companies with large mortgage operations, but Ms. Reeves said that the weakness in mortgage lending after the end of the refinancing boom could work to M&T's advantage.
"This is when you see strong companies step up and expand," she said.
M&T's original decision to move west was opportunistic as well.
One day in 1994, Mr. Beardi said, he heard that his counterpart at KeyCorp, Jeffrey A. Evershed, was moving back to his hometown of Portland after Key decided to get out of wholesale mortgages. The two had known each other since 1991, when M&T and Key bought some failed thrifts and split the businesses between themselves. (At the time Key was based in Albany, N.Y.; it merged with Cleveland's Society Corp. in 1994.)
Mr. Beardi contacted his former rival. "We thought it would be a good opportunity for us to set up a little mortgage operation out West," he recalled.
Mr. Evershed, the president of M&T Mortgage's western division, has built the western operations gradually, through lift-outs of management teams.
"When we started with M&T," he said in a recent interview, "we said we wanted … to be a great investment for the bank. … We feel like in some manner we have succeeded."
