M&T Bank (MTB 2.33%) is one of the best-run regional banks in the U.S. It's profitable and efficient, and it even has a 2.3% dividend yield. And it's growing like a weed.
To figure out exactly where and how M&T might grow in the future, we can use data from the FDIC's annual Summary of Deposits to guide our analysis. Every June 30, the regulator reports deposit data for every insured institution, broken down from the national level to the local branch up the street.
The Summary of Deposits is a robust database, and it can show us how management at M&T pursues growth.
Tracking deposit growth since the end of the financial crisis
We'll start the investigation by addressing how M&T's deposits break down today and how they've grown since the end of the financial crisis. From there, we'll dive deeper to see where and how the bank is growing.
Here's the breakdown by state:
| State | Number of Offices | MTB Deposits | Deposit Market Share |
|---|---|---|---|
| Delaware | 15 | $5,672,018 | 1.36% |
| District Of Columbia | 10 | $1,028,486 | 2.49% |
| Florida | 3 | $24,856 | 0.01% |
| Maryland | 6 | $17,918,131 | 14.49% |
| New Jersey | 2 | $103,608 | 0.04% |
| New York | 6 | $36,097,483 | 2.79% |
| Pennsylvania | 2 | $10,689,256 | 3.36% |
| Virginia | 1 | $718,712 | 0.3% |
| West Virginia | 2 | $45,831 | 0.15% |
We knew that M&T was a regional player, and this gives a little clarity to exactly what that region is. The bank has a huge presence in New York, Maryland, and Pennsylvania in raw dollar terms, while Maryland stands out as a state that M&T dominates. In terms of market share, the bank's presence in D.C. is also pretty impressive.
Now let's look at how this breakdown has changed since the 2009 Summary of Deposits report.
| State | Deposit Growth Rate Since 2009 |
|---|---|
| Delaware | 21,645% |
| District Of Columbia | 50.7% |
| Maryland | 32.5% |
| New Jersey | 849.9% |
| New York | 58.7% |
| Pennsylvania | 38.3% |
| Virginia | (3%) |
Florida and West Virginia excluded, as amounts are insignificant to the analysis.
Two main tools in the toolbox: Organic growth and growth by acquisition
Several interesting points jump out. First, since 2009 the bank has seen tremendous deposit growth, all of which came without a significant change in the bank's footprint. The bank has grown organically and through acquisitions, but it has remained disciplined in its geographic area.
The outsized growth in Delaware is somewhat deceptive, as the bank grew from just one branch in 2009 to 44 in 2014 as a result of its 2011 acquisition of Wilmington Trust.
The growth in New Jersey is a function of the bank's relatively small $104 million in the state's lone office today. That office has clearly done a great job growing deposits, but it barely moves the needle in the larger context of the whole bank. We'll return to a discussion of New Jersey in a moment -- there's more to this story in the bank's future.
The bank's 32.5% growth in Maryland is a result of organic deposit growth, supplemented by the 2009 acquisition of Bradford Bank, a failed Baltimore-area institution. The growth in all the bank's other markets is primarily attributable to organic growth. Outside of these few transactions, M&T has not closed any other signification acquisitions.
The gorilla in the board room: Hudson City Bancorp
The growth data alone is probably sufficient to conclude that M&T's plan is to increase its market share within its existing footprint from Virginia to New York. But if you're not yet sure, consider the pending merger with Hudson City Bancorp (NASDAQ: HCBK).
The merger agreement was first inked in 2012, but due to regulatory hurdles, the deal has not yet closed. Regulators are requiring M&T to massively overhaul their Bank Secrecy Act systems and processes, a project that M&T has tackled head-on. The bank has invested millions upon millions into the project, a testament to the bank's commitment to make this merger succeed.
Assuming the two finally do merge, M&T will see its total assets jump from less than $100 billion to nearly $140 billion. This merger is a huge deal, and to me, it proves M&T's commitment to the Mid-Atlantic.
Here's a breakdown of Hudson City's deposit market share, per the FDIC:
| State | Number of Offices | HCBK Deposits | Deposit Market Share |
|---|---|---|---|
| Connecticut | 9 | 1,048,120 | 0.93% |
| New Jersey | 97 | 16,521,258 | 5.77% |
| New York | 29 | 3,074,960 | 0.24% |
What state is positioned right in the center of New York, Pennsylvania, Maryland, and Delaware? That would be New Jersey, a state where Hudson City Bancorp runs a pretty successful banking business. Go figure, right?
Here's a pro forma estimation of M&T's deposit breakdown post-merger:
| State | Deposit Market Share |
|---|---|
| Connecticut | 0.93% |
| Delaware | 1.36% |
| District Of Columbia | 2.49% |
| Florida | 0.01% |
| Maryland | 14.49% |
| New Jersey | 5.81% |
| New York | 3.03% |
| Pennsylvania | 3.36% |
| Virginia | 0.3% |
| West Virginia | 0.15% |
Source: FDIC Summary of Deposit data and author's calculations.
What does this tell us about future growth at M&T Bank? Taken altogether, we have a pretty strong basis to predict where and how M&T will grow in the future.
Until the current Hudson City acquisition is closed, I don't expect to see much in the way of growth by M&A -- the regulators are primarily to blame for that. However, after this deal is done, it would be a surprise to me if M&T didn't return to doing deals inside its existing footprint, filling out its mid-Atlantic geography and perhaps even doing a bolt-on deal or two on the periphery in Connecticut, North Carolina, or other adjacent markets.
At the same time, it seems highly likely that M&T will continue to see successful growth through traditional branch banking and marketing. The bank has proven itself fully capable, and I see no reason why this success would falter.
