Acquisitions have helped fuel M&T Bank's growth.
In 30 years, the bank made 23 deals to buy other banks or collections of branches, expanding to 17,000 employees as far as Virginia and Maryland and adding nearly $67 billion in deposits.
Then, in 2013, the deals stopped. Federal regulators blocked the bank from more dealmaking until it strengthened its anti-money laundering and Bank Secrecy Act programs. Only an agreement already in the works to buy Hudson City Bancorp went forward.
Now, with regulators satisfied the bank has modernized its compliance systems, M&T is free to make deals again.
And those who watch the bank closely wonder: When will M&T get back in the acquisitions game?
For bank industry analyst Richard Bove, of Rafferty Capital Markets, there's no doubt the bank will resume acquisitions "now that the government's off their back."
"I think M&T grew upon continuous acquisitions, and they've been very successful in doing that," Bove said. "This is not a story where making acquisitions has created dilutions or problems or difficulties."
But even with the green light, M&T officials have sounded a cautious note about pursuing more deals.
"There are a number of things that have to be in place before we would embark upon a particular opportunity," said Richard S. Gold, an M&T vice chairman, in an interview in July. "But certainly one large impediment has been removed from the equation."
Mergers regain steam
M&T posted solid profits while the bank was sidelined from dealmaking. But acquisitions have been instrumental in expanding the bank's geographic reach and bolstering operations at its home base, since those deals often create supporting jobs back in Buffalo.
Across the country, bank mergers have regained steam since the end of the Great Recession. Through the end of August of this year, there were 170 deal announcements in the U.S. banking sector, with a combined disclosed deal value of $21.91 billion, according to S&P Global Market Intelligence. That compared to 162 deal announcements, worth an announced $20.7 billion, the same period a year ago. During all of 2016, there were 241 deal announcements valued at $26.8 billion, putting this year on pace to surpass last year in both deals and dollars.
M&T now has branches in eight states and Washington, D.C., using a series of deals to extend its footprint. M&T's most recent acquisition, Hudson City Bancorp, filled a hole in the bank's expanded territory, in New Jersey.
M&T historically has preferred making deals that enhance its presence within a certain area, or that connect to a market where M&T already operates, said John Wilcox, who teaches finance and economics at SUNY Buffalo State. "Part of this is prudent because you are familiar with those markets. You're not getting into things you're unfamiliar with."
M&T's experience in Maryland illustrates its methodical approach.
On the move in Maryland
In 2003, M&T bought Allfirst Financial, a watershed $3.1 billion deal that stretched the bank into the mid-Atlantic and transformed M&T into a top 20 U.S. bank. But it was only the start of its Maryland expansion.
Within the next several years, M&T bought three more Baltimore-based institutions, plus 13 branches in the Baltimore-Washington, D.C. area from a fourth bank. As of mid 2016, M&T ranked second in Maryland in deposit market share, and No. 2 in the city of Baltimore, behind only Bank of America, according to Federal Deposit Insurance Corp. data.
M&T has solidified its identity in Baltimore, opening a regional headquarters and putting its name on the Ravens' football stadium.
In two cases, M&T bought Maryland-based banks that regulators had seized. It's an opportunistic strategy M&T has used at times: acquire struggling institutions that need a merger partner, at a good price, in desirable locations, and set out to turn them around.
Bove said both Wilmington Trust and Hudson City reflect that approach by M&T. "They seem to be making pretty good successes of what those banks have done," he said.
Another example of the impact of M&T's dealmaking: Its $1 billion acquisition of Keystone Financial in 2000 turned M&T into Central Pennsylvania's largest deposit holder, building on a small presence the bank had established. Geographically, that deal opened the door to the mid-Atlantic region.
Bove said acquisitions are an essential piece of banks' growth strategy.
"If you look at what really drives banks, it's making loans, and making good loans," Bove said. "If you make bad loans, you ruin it. In order to get more loans, you've got to get more customers. In order to get more customers, you've got to make more acquisitions."
A wider field of play
Bove expects to see M&T expand by pushing the borders of its territory, rather than just filling in markets it already serves. "These guys really know what they're doing." he said. "They're incredibly smart. They've set up a phenomenally good record. ... They're ready to go again."
During the time M&T had to sit out dealmaking, the bank modernized its compliance systems to meet regulators' expectations. Bove believes those upgrades bode well for M&T's future. "It put the company in place where it can make a sizable number of acquisitions from this point," he said.
Darren J. King, M&T's chief financial officer, said M&T has historically grown through a combination of organic growth and acquisitions. "When you're part of a consolidating industry, it's hard to imagine a world where you're not growing with some combination, so we expect that to be part of our playbook going forward, like it has been," King said at a Barclays Financial Services conference in New York City on Wednesday.
King said M&T's "field of play" has widened with business lines including mortgage servicing, wealth management and insurance that the bank could add to. But a deal still has to make good economic sense, he said.
"We're definitely pleased we're in a position to do something when others aren't, but there's always two parts to the transaction: a willing seller and a willing buyer," King said. "We've got the second half of that covered. Now we just need a willing seller."
What might future deals by M&T look like?
Wilcox noted that during the 1980s and 1990s, "there were a lot of banks out there that were not well managed or doing well. You could take over one of these poorly run operations and almost just by imposing your management structure, you could make that a going concern. You don't have as many of those around any more."
Since M&T has grown over the years, the bank might be more inclined to focus on larger deals than some of the smaller transactions it made in past years, given the time and resources the bank must pour into the process, Wilcox said.
Ultimately, an acquisition still has to make financial sense for M&T, in line with the bank's careful approach to extending its presence beyond its current territory. "They're not going to do a deal simply to get bigger," Wilcox said.
Another factor to consider: other banks might also be in the market to buy, creating competition for deals M&T might want to make.
A recent American Banker story named 10 banks that investment bank KBW said could be potential takeover targets in the industry. One of them was New Jersey-based Investors Bancorp, which has $24 billion in assets and ranked just behind M&T in deposit market share in that state in 2016. (Another New Jersey-based bank named by KBW announced it was being sold just weeks after the story was published.)
Bove, in a commentary published by CNBC.com this summer, suggested banks have a need to make acquisitions, and that federal regulatory agencies are now led by people more accommodating of banks' interests. "All that is needed to start the rush is for someone to ring the bell," Bove wrote. "That someone is likely to be a new bank acquisition by BB&T." BB&T has expanded far beyond its home base of North Carolina, into states including Pennsylvania, Ohio and New Jersey.
Along with BB&T, Bove said he felt M&T, KeyCorp, Citizens Financial, Fifth Third, PNC Financial, SunTrust and U.S. Bancorp "would prefer to make acquisitions."
M&T's branch network has grown far beyond its upstate New York roots. It extends as far south as Virginia, into the Richmond area. East of New York State, M&T has branches in Connecticut, but only at the western end of the state. It has branches spread across central and eastern Pennsylvania. There is potential to expand in multiple directions.
After years of waiting, M&T can once again consider making deals. But the bank has not indicated it plans to go on a buying spree. As Gold said in late July: "We won’t do anything unless it enhances our ability to create value for our customers and our shareholders.”