Last November, M&T Bank (NYSE: MTB) announced plans to acquire Delaware-based Wilmington Trust (NYSE: WL) in a stock deal worth roughly $351 million, or $3.84 per share -- about half its stock price at the time. That makes it seem as if M&T stole a great deal, but does it make sense for M&T to take on an ailing bank? Wilmington shareholders approved the deal last month, but let's dig a little deeper to find out more.

The numbers speak
Wilmington’s loan portfolio seems to be out of order, as its nonperforming loans (NPLs) have spiked more than fivefold to $1.1 billion in 2010 from less than $200 million in 2008. This obviously explains Wilmington's willingness to sell itself at a discount, but it should also make you cautious about what M&T is buying. Does M&T really want to enter into these dark waters? The answer is yes -- as long as it's at the right price.

Post-recession, Wilmington experienced a spurt in the number of creditors defaulting on payments. The provision for loan losses swelled to $700 million in 2010 from $205 million in 2009. Wilmington has also seen net interest income drop 13% in 2010. These figures show the bad financial health of the bank and the big reason behind its sale.

The bad loan portfolio of the trust would definitely cast a shadow on the growing revenues of M&T. M&T, which saw its total revenue surge more than 20% in 2010, has managed to cut through the recession without skipping much of a beat. Nonperforming loans have also declined by 7% in 2010. This seems pretty impressive when compared with the growing number of NPLs that Wilmington has on its books. So how will the stronger bank benefit from a struggling Wilmington?

Positive outlook
Notwithstanding the negative numbers, Wilmington’s 48 branch locations in Delaware and 225 ATMs will help M&T increase its operations and boost its customer base. The larger client base would also help M&T extend its retail and insurance business. The deal will require a layoff of around 700 Wilmington employees, which will force M&T to pay about $23 million in severance-related charges. But despite the short-term transaction costs, M&T sees some clear paths to improved efficiencies and future economies of scale.

It’s worth mentioning here that the acquisition would add $8.3 billion in deposits and $8.1 billion in loans to M&T’s portfolio, making its position stronger in Delaware. The acquisition will also act as a "face-saver" for M&T after talks with Banco Santander (NYSE: STD) over a potential merger between M&T and Santander's Sovereign Bank unit broke down last year.

The real likelihood, however, that the group most rewarded by the deal will be the shareholders of M&T, which have been served by a management team that has run the bank effectively through thick and thin for many generations now. Even with Wilmington's challenges, that type of leadership should help solve some problems that Wilmington wasn't able to address.

The Foolish outlook
The banks are still waiting for regulatory approval, but I'm pretty positive about the long-term growth of the bank. After all, post-merger M&T looks to gain more deposits and manage Wilmington's large and wealthy client base. I am sure investors of M&T are licking their chops at the sight of assets that it should be able to salvage.

Keep your eyes on progress with M&T and Wilmington by adding them to your watchlist.

Anupama Pattanaik doesn’t hold shares of any of the companies mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.