Hudson City Bancorp will be absorbed by a subsidiary of M&T Bank [stock MTB][/stock] in a transaction valued at valued at approximately $3.7 billion.

But what pushed the 144-year old mortgage lender into a merger?

The mortgage operations at Hudson City are hurting. The underperformance likely contributed to Hudson seeking a buyer. In the second quarter, then acting chief executive Denis Salamone said extraordinarily low market interest rates combined with the GSEs participation in the mortgage market made their mortgage business unable to profitably grow.

"It is apparent that these market conditions are likely to continue for the foreseeable future," Salamone said at the time. "Accordingly, we have been developing a variety of strategies to help us adapt to the new environment in which we operate.”

Hudson was always a survivor and a residential mortgage lender since inception in 1868. But the lender that lasted through the Great Depression could not strategize its way to past the difficulties of today's mortgage market.

Since then, the current Hudson City Chairman and CEO, Ronald E. Hermance, Jr. returned from a medical leave of absence. Hermance will serve on the board of M&T.

"As we combine Hudson City’s attractive retail network with M&T’s full service commercial banking suite, our stakeholders will participate in the growth of one of the nation's strongest and most successful banking franchises," Hermance said.

M&T expects to gain approximately $25 billion in deposits and $28 billion in loans from the merger, giving M&T the fourth largest deposit share in New Jersey.

M&T will acquire Hudson City’s network of 135 branch offices, which are located in New Jersey (97 branches), downstate New York (29 branches) and Fairfield County, Connecticut (9 branches). M&T’s existing branch network is adjacent to Hudson City’s franchise, with very little overlap.

The combined network of 870 branches will stretch from Connecticut to Virginia.

"M&T will build on Hudson City’s loyal customer base to create a comprehensive community banking franchise that provides a full range of checking and savings accounts, debit and credit cards, home equity loans and other lending options, plus small business and commercial banking services and our premier wealth management and corporate trust solutions through Wilmington Trust," said Robert G. Wilmers, M&T Chairman and CEO.

jgaffney@housingwire.com