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M&T buys Utica bank to expand upstate

M&T Bank Corp.'s deal Thursday to buy a Utica bank significantly expands its presence in Central New York and gives it the top market share across almost all of Upstate New York.

The Buffalo-based bank agreed to pay $555 million in cash and stock to buy Partners Trust Financial Group, which has 33 branches in Broome, Chenango, Herkimer, Oneida, Onondaga and Tioga counties. The smaller company has $3.65 billion in assets, $2.3 billion in deposits and $2.3 billion in loans, making it less than 10 percent of M&T's size. It employs more than 800 workers.

The deal gives M&T top billing in the sluggish markets of Utica and Binghamton, while further cementing its No. 1 position in Syracuse. M&T is already the largest deposit bank in Buffalo and Rochester, after buying 21 Citibank branches last year.

"It's a relatively small deal for M&T, but I think it makes sense strategically in that it infills some of their upstate New York footprint," said Jennifer A. Thompson, bank analyst at Oppenheimer & Co. in New York.

Despite upstate's economic struggles, Mark J. Czarnecki, M&T's president, said the bank is "very happy" about the deal -- its first bank purchase since expanding heavily into faster-growing Baltimore and Washington with Allfirst Financial in 2003.

"We have found a way, even in slower growth markets, to do very well," Czarnecki said. "We would love for all of Upstate to have the economic growth that we have seen in some of our other markets. But we understand how to make money in those markets."

M&T shares closed at $110.74 Thursday, up 24 cents.

In buying Partners Trust, M&T gains 15 branches and 37 percent of the market in Utica-Rome, 10 branches and 29 percent of the deposits in Binghamton, and 8 branches and 4 percent of the market in Syracuse. Prior to this deal, M&T was No. 2 in Binghamton and No. 12 in Utica, while Partners Trust was No. 1 in both.

The deal leaves Albany as the one of the few major upstate market where M&T has yet to carve out a dominant position. M&T ranks No. 9 in the attractive Albany market, well behind the market leaders, as well as in the Hudson Valley, two areas where M&T would like to grow.

"Albany is a market that we would be desirous of," he said. But "how we get there is important to our shareholders. We're patient and we look for the right opportunities."

This is M&T's fourth investment in the last year, following the Citibank deal, the purchase of East Amherst insurance agency Multi-Line Professionals, and an investment in commercial real estate lender Bayview Lending Group LLC.

The bank has long acknowledged that its higher-growth opportunities lie in its Mid-Atlantic markets, and it continues to invest heavily there.

But three of the recent deals have been upstate. Czarnecki said that reinforces the company's commitment to upstate New York, where the company has added 4,900 jobs since 1985 and now employs 7,100.

"We're very vested in upstate New York," he said. "Although we're certainly concerned about the growth, we still have a lot of customers here and when we have an opportunity to expand our franchise, we're going to be aggressive about it."

Partners Trust, founded in 1839, has grown sharply in recent years, but apparently ran out of steam because of the upstate economy and the difficult business climate for banks.

Partners Trust on Thursday reported second-quarter profits of $7.2 million, or 17 cents per share, up from $6.76 million, or 15 cents per share, a year ago. But the increase was driven solely by one-time items, with loan and fee revenues falling.

The company also this month reached the end of a three-year period after its conversion in which federal regulations bar it from being acquired. Indeed, while Czarnecki said M&T and Partners Trust had discussions "for a while," the talks heated up only in the past month.

"Both M&T and Partners Trust share a common commitment to customers, employees, shareholders and communities, and this merger provides us with an opportunity to build on those longstanding traditions," said Partners Trust CEO John A. Zawadzki, who will serve on a regional advisory board but did not seek a job with M&T.

The deal gives M&T a chance to cross-sell more products to a customer base that is focused on mortgages and savings, not business loans and checking.

M&T also can wring out savings, as 16 branches overlap. An undetermined number will be closed, and some back-office jobs may be cut. Partners Trust spends 82 cents to produce $1 of revenue; M&T spends 50 cents.

Analysts praised the deal for being typical M&T fare -- small, digestible and priced right.

Oppenheimer's Thompson admitted to being "a little bit surprised" that the purchase was in upstate New York, not in stronger markets, but "sometimes as an acquirer, you just don't have a lot of choices."

Under the terms of the deal, M&T will pay $12.50 per share, a 25 percent premium from Partners' closing stock price on Wednesday. Shareholders can be paid in cash or M&T shares, but the agreement calls for the total to be half cash and half stock.

The deal, which is subject to shareholder and regulatory approval, is expected to close by yearend and add to M&T's operating earnings next year.


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