Wilmington Trust Chairman and CEO Donald Foley said the board examined numerous alternatives, held talks with a number of potential partners and felt the deal with M&T was the best available option for its stockholders.
Wilmington Trust investors dumped the stock Monday morning. The bank's shares tumbled $3.11, or 44 percent, to $4 in morning trading. Shares of M&T rose $1.84, or 2.5 percent, to $76.59.
The deal comes after Wilmington Trust, based in Wilmington, Del., posted a net loss of $369.9 million in the third quarter due to bad real estate construction loans in Delaware, and the bank said future losses were likely.
Wilmington Trust said it set aside $281.5 million for loan losses, up 37 percent from the previous quarter. Non-performing assets climbed more than three-quarters to $988.6 million from the second quarter and represented 12 percent of all loans.
"There is no significant economic or real estate recovery on the horizon in our markets. Therefore, we have little assurance that our loan portfolio will strengthen significantly in the near term, or that our capital position will not erode further," Foley said in the company's earnings statement.
Under terms of the deal, Buffalo, N.Y.-based M&T said Wilmington Trust shareholders will receive 0.051372 shares of M&T stock for each share of Wilmington Trust.
M&T expects to add $8.3 billion in deposits and $8.1 billion in loans after the deal. It will become the 19th largest bank by deposits in the country, up from the 21st biggest, according to research firm SNL Financial. Currently, M&T has $47.3 billion in deposits.
M&T will operate 800 branches in eight states, Washington, D.C., and Ontario, Canada.
The transaction is expected to close by the mid-2011.
In related news, Allied Irish Bank shareholders debated Monday whether to sell a 22.4 percent interest in M&T Bank to help prevent it from becoming the fourth Irish bank taken over by the government.
A general meeting at its headquarters was expected to approve the M&T sale through a public offering at $77.50 a share.