DBRS Confirms M&T Bank Corporation at A (low); Changes Trend to Negative on Acquisition Announcement

DBRS has today confirmed the ratings of M&T Bank Corporation (M&T or the Company) and its rated subsidiaries as indicated below. At the same time, DBRS has changed the trend on all ratings to Negative from Stable.

The rating action follows the Company’s announcement of its intent to acquire Provident Bankshares Corporation (Provident) in a stock transaction valued at $401 million. Subject to regulatory and shareholders approval, the transaction is expected to close during Q2 2009.

The Negative trend reflects DBRS’s concern with the risks associated with the Provident transaction, including M&T’s lower tangible common equity position and loss absorption capacity when the deal closes. Although M&T will take significant write-downs on Provident’s assets, which will reduce future earnings volatility, DBRS notes that additional mark-downs are possible if current economic conditions continue to deteriorate. Indeed, with the housing market showing little sign of stabilization, yet alone improvement, and the economy in a recession, DBRS anticipates that M&T will be pressured by higher credit and operating costs. DBRS comments that additional significant credit costs and/or charges of the scale to materially impact earnings could result in negative rating actions. Conversely, the absence of additional significant credit costs and/or charges, in concurrence with strengthened tangible capital could result in the restoration of a Stable trend.

M&T’s ratings are supported by a Northeast and mid-Atlantic commercial and consumer banking franchise, which is underpinned by a diversified earnings stream and relatively sound asset quality. The ratings also take into account M&T’s significant commercial real estate exposure, with a focus on the New York City market, its acceptable liquidity position and moderate capitalization compared with its similarly rated peers.

Provident (at $6.4 billion in assets), a commercial and consumer lender, operates in the Maryland, Virginia and the Southern York County, PA regions through 143 branches, most of which are located in Maryland. DBRS comments that the transaction will augment M&T’s deposit market share and deepen its customer base within the Baltimore – Washington D.C. corridor. Furthermore, DBRS anticipates near-term revenue synergies, given that M&T will offer its broader menu of products and services through the acquired branches. DBRS also expects meaningful expense synergies, given the significant overlap between the franchises.

DBRS notes that this transaction is consistent with M&T’s opportunistic strategy of buying banks at a rational price with compatible corporate cultures. Provident meets M&T’s disciplined cost of capital and investment criteria, and the transaction is expected to be accretive to 2010 operating earnings using conservative cost savings assumptions. DBRS believes that M&T’s experience with integrating a diversity of financial businesses over the years and its experienced management team should also facilitate a smooth integration.

Headquartered in Buffalo, New York, M&T Bank Corporation is a bank holding company operating two bank subsidiaries, M&T Bank and M&T Bank, N.A. M&T reported $65 billion in consolidated assets as of September 30, 2008.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Banks and Bank Holding Companies operating in the United States, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.