By ALLISSA KLINE
akline@bizjournals.com | 716-541-1612

A plan to repay $600 million in federal government funding - plus $330 million assumed this week - may soon develop for M&T Bank Corp. now that it has agreed to acquire Delaware-based Wilmington Trust Corp.

M&T Bank President Mark Czarnecki said the bank will likely "start a series of discussions" about when and how to repay the money it borrowed as part of the U.S. Treasury Department's Troubled Asset Relief Program. It accepted the original $600 million in funding nearly two years ago in exchange for the sale of 600,000 preferred shares and it will take on the additional $330 million in its deal to purchase Wilmington Trust.

"We always looked at TARP as a longer-term thing in that the original purpose was to make sure banks continued lending during the entire financial crisis. And we're very proud of our record of lending," Czarnecki said. "So as we survey the situation and look to where the economy is going, I would think you would see us come out with a program or plan to begin to repay TARP in the future. It's certainly an issue we're putting together and thinking about in the not-too-distant future."

The Buffalo-headquartered bank announced Nov. 1 that it will purchase Wilmington Trust, the largest bank in Delaware, for $351 million in stock. The acquisition, which follows recently failed merger talks between M&T and Spanish financial firm Banco Santander SA, launches M&T into untapped territory and introduces a new wealth-management business line.

The bank, which previously operated just one branch in Delaware, will acquire 48 branch locations and 225 ATMs in the state. Subject to regulatory and shareholder approvals, the deal is expected to close in mid-2011.

M&T has periodically been criticized for not repaying the money it borrowed from the federal government, including TARP funds it assumed during the 2009 acquisition of Maryland's Provident Bankshares Corp. This past summer, national pay czar Kenneth Feinberg listed 17 financial institutions, including M&T, that paid out $1.58 billion in executive bonus compensation in 2008 and 2009 after receiving billions of dollars in taxpayer money. M&T was identified as one of six institutions that had not repaid TARP funds.

"It's a judgment call," Czarnecki said about repayment. "It's looking at where you are in the cycle and how capital would be built."

The Wilmington Trust deal is being characterized as a bargain for M&T. The bank will pay $3.84 per share, or 46 percent less than the value of the bank's closing price on Oct. 29. Financial services firm Janney Montgomery Scott LLC characterized the agreement as a "take-under" based on the acquisition price.

"We also opine that Wilmington Trust has not realized its true earnings potential for at least a decade and would have performed better under a more energetic management team," the company said in an equity research note.

Wilmington Trust Chairman and CEO Donald Foley acknowledged the 107-year-old bank's struggles to make its regional banking business line profitable. The same day the acquisition was announced, the bank reported its sixth consecutive quarterly loss. Third-quarter earnings showed a loss of $365.3 million, due in part to its souring commercial real estate portfolio.

M&T had similar issues early in the recession, so it "could relate" to Wilmington Trust's issue, Czarnecki said. It now will "work through" the problematic portfolio and integrate it into M&T's core banking model, he said.

The bank will retain the Wilmington Trust brand for all wealth advisory and corporate services businesses, marking the first time M&T will use a brand name other than its own. It plans to introduce those services to commercial banking clients in its existing footprint in Upstate New York and the mid-Atlantic region.

Two law firms are already investigating potential legal claims against Wilmington Trust's board of directors related to possible breaches of fiduciary duties. A spokesperson for M&T said the bank has no comment on the law firms' announcement.