CHICAGO, May 22 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
reaffirmed the senior deposit and nondeposit obligations ratings for
Manufacturers & Traders Trust (M&T) at 'A+' (Single-A-Plus) and 'D-1' (D-One),
respectively. The rating action is in response to the announcement that M&T
Bank Corporation (MTB) will acquire Keystone Financial Corporation of
Harrisburg, Pa., for $1.03 billion in cash and stock. The cash component is
projected to be 35 percent, or $370 million, and will be financed through a
combination of trust preferred and subordinated debt. Management estimates
issuing roughly $180 million each of trust preferred and subordinated debt.
However, the exact mix has not yet been determined. The equity component will
be approximately $660million and will require MTB to issue approximately
1.6 million new shares based on the closing price for MTB of $415 on May 16,
2000. The trust preferred issue is expected to receive tier 1 capital
treatment.
Leverage is projected to increase slightly, with the tangible
equity-to-tangible asset ratio declining to 5.0 percent, on a pro forma basis,
from 5.4 percent at March 31, 2000. The increase in leverage is concerning,
but, in our opinion, is offset by the improved geographical and product line
diversification offered by the deal. Keystone has a strong mortgage banking
franchise and is very active in wealth management as well. The addition of
these business lines into MTB's existing business mix should lead to a lower
risk profile overall. Management anticipates returning the tangible equity
ratio to the 5.4 percent range within a few quarters following the closing of
the deal. The combined company will rank No. 1 in deposit share in the upstate
New York and central Pennsylvania markets. The transaction is expected to be
accretive on a cash basis immediately and on a GAAP basis in 2003.
DCR's comfort level with the transaction is enhanced by management's
successful integration of previous acquisitions and consistent strategy.
Historically, MTB has exhibited solid earnings performance, stable asset
quality and consistency in its strategy. Keystone's performance measures,
while decent, have not been as strong as MTB's. Nonperforming assets have
been increasing for Keystone over the past few years, but the company has not
experienced any significant asset quality problems and reserve coverage ratios
have been adequate. The operating strategies and cultures appear to be very
similar across both institutions, which should help mitigate integration risk.
There is no branch consolidations planned, since the companies' markets do not
directly overlap. Cost savings from the deal are estimated to be $43 million,
or 20 percent of Keystone's non-interest expense.
DCR recognizes that the financial risk has increased slightly and that the
company is becoming slightly more reliant on weaker forms of tier 1 and tier
2 capital. However, M&T is expected to remain well capitalized under
regulatory guidelines following the merger, and business risk has been reduced
through broader geographical and product line diversification. We intend to
monitor the company's use of leverage closely going forward in relation to
expectations and the company's present rating category.
For additional research on M&T, visit DCR's Web site at
http://www.dcrco.com (Quick Search: Manufacturers). DCR's research is also
available on Bloomberg at DCR, FirstCall's BondCall Direct/Research Direct
at http://www.firstcall.com and Multex at http://www.multex.com, as well as
through other third-party providers.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Lawrence G. Meding, CFA, 312-606-2339,
meding@dcrco.com, or Jon Vacko, 312-368-5476, vacko@dcrco.com,
both of Duff & Phelps Credit Rating Co.
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