Wilmington Trust and M&T received government investments of $330 million and $600 million, respectively, in late 2008 as part of the Troubled Asset Relief Program. Neither bank has repaid any of the principal on those investments, but both are current on their dividends.
The $351 million deal is expected to close in the middle of next year. M&T wll be the surviving entity, with Wilmington Trust's common shareholders receiving 0.05 shares of M&T stock for each Wilmington Trust share they own.
The announcement came as Wilmington Trust announced the results of a dismal third quarter. The company, based in Wilmington, Del., suffered a net loss of $365.3 million, compared to a loss of $5.9 million this period a year ago.
Wilmington Trust's chairman and chief executive, Donald Foley, said that the deal was in the best interest of his bank's clients and staff. As the quality of the bank's loan portfolio slid, Wilmington's board began discussing a potential merger with several banks.
"(A)s the financial realities associated with the credit quality of our loan portfolio intensified, our losses increased," Foley wrote in a memo to employees announcing the merger. "Although we are well capitalized today, loan losses have not slowed. As a result, we haven't been able to look to the future and believe with assurance that we could remain well capitalized indefinitely.
"With no meaningful economic recovery on the horizon, it became increasingly clear that we needed to explore all strategic alternatives."
M&T will assume responsibility for Wilmington Trust's $330 million in Series A preferred stock sold to the U.S. Treasury Department as part of the bank's participation in TARP.
Michael Zabel, a spokesman for the Buffalo, N.Y.-based company, said M&T will be responsible for paying the full amount of that debt.
Wilmington Trust would be the second TARP recipient that M&T has acquired. In December 2008, it agreed to take over Baltimore-based Provident Bankshares Corp., just weeks after that institution received $151.5 million in TARP aid.
The merger with Wilmington significantly expands M&T's footprint in Delaware, where it previously had just one branch. Wilmington Trust has 48 Delaware branches.
"This strategic partnership brings together two institutions that share many common values, and that operate several distinct but complementary lines of business," M&T's chairman and chief executive, Robert Wilmers, said in a statement. "By leveraging the combined strengths of both organizations, we are building an even more powerful franchise with strength and stability, scale and density and top-of-class products and services."
Once the deal is complete, M&T will operate about 800 branches and 2,000 ATMs in eight states, Washington, D.C., and Ontario, Canada.
The Wilmington Trust brand will be retained for brand and trust wealth management services, while M&T will assume the regional banking brand.