DBRS Comments on M&T Bank Corp.’s 4Q12 Results; Ratings Unchanged – Senior at A (low), Stable Trend

DBRS, Inc. (DBRS) has today commented that its ratings for M&T Bank Corporation (M&T or the Company), including its A (low) Issuer & Senior Debt rating, are unchanged following the release of the Company’s 4Q12 results. The trend on all ratings is Stable. M&T reported net income available to common shareholders of $276.6 million for 4Q12, up from $273.9 million for 3Q12. On a QoQ basis, higher earnings benefited from higher mortgage banking revenues and loan growth. Specifically, higher QoQ earnings were driven by a 1.1% increase in total revenues, partially offset by a 1.6% increase in non-interest expense and a 6.5% increase in provisions for loan losses.

Importantly M&T continues to reflect solid balance sheet fundamentals. The Company’s loan portfolio has grown for five consecutive quarters, including 3.9% growth during 4Q12. Meanwhile, asset quality remains sound.

Benefiting from the low interest rate environment, the company reported a significant $9.7 million, or 9.1%, linked-quarter increase in mortgage banking revenues, which drove the Company’s solid 1.7% increase in non-interest income. Higher non-interest income also reflected increased levels of trading account/foreign exchange gains (up $1.9 million), trust income (up $1.2 million) and brokerage services income (up $758,000). On an operating basis, excluding securities gains/losses, and other-than-temporary-impairment (OTTI) charges of $14.5 million in 4Q12 and $5.7 million in 3Q12, M&T’s fee income increased by a high 3.7% sequentially.

Meanwhile, spread income increased by 0.7% on a linked-quarter basis, due to a 1.4% increase in average earnings assets, somewhat offset by a 3 bps narrowing of net interest margin (NIM) to a still solid 3.74%. Higher average earning assets reflected a $1.5 billion, or 2.4%, increase in average loans. Positively, loan growth was fairly broad-based, led by higher levels of residential mortgages (up $790 million), commercial & industrial loans (up $491 million) and commercial real estate loans (up $338 million). DBRS notes that M&T’s loan growth continues to benefit from a large competitor’s divestiture in western New York. Meanwhile, the narrower NIM was primarily driven by lower loan yields.

During 4Q12, expenses were well managed, and increased a moderate 1.6%. The increase in QoQ expenses mostly reflected a branch operating loss related to a customer who misappropriated funds. Higher expenses also reflected a $2.1 million, or 25.9% increase, in the cost of printing/postage supplies and a $1.3 million, or 0.4% increase, in salaries & employees benefits. DBRS anticipates that future expenses will remain well managed.

Despite the difficult operating environment, M&T’s asset quality remains sound. Specifically, at December 31, 2012, nonaccrual loans represented a manageable 1.52% of net loans, up from 1.44% at September 30, 2012. The increase in nonaccrual loans was mostly attributable to the addition of $64 million of loans with a single borrower. Importantly, these loans are fully secured by residential real estate. Moreover, the Company determined that no specific reserve was warranted. Meanwhile, 4Q12 net charge-offs represented a low 0.27% of average loans, up modestly from 0.26% for 3Q12. Finally, DBRS notes that M&T’s allowance for credit losses remains adequate at 1.39% of total loans.

The Company’s solid funding profile is underpinned by a low cost core deposit base which mostly funds its loans. Rounding out its liquidity profile, M&T has a moderately sized securities portfolio and ample access to the FHLB and the Federal Reserve, should additional funding be necessary.

Reflecting M&T’s fairly conservative risk profile, the Company has historically operated with a moderately sized capital position. During 4Q12, M&T’s capital profile improved, as its tangible common equity ratio increased to 7.20% at December 31, 2012, up from 7.04% at September 30, 2012 and its estimated Tier 1 common ratio increased to 7.57%, up from 7.47%, respectively.

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

[Amended on May the 23rd, 2014 to remove unnecessary disclosures.]