DBRS: M&T’s Lower QoQ Earnings Reflect Costs Assoc. with Inv. in BSA/AML Compl. and other Initiatives

Summary:

• 4Q13 earnings to common shareholders of $227.4 million down 17.4% from 3Q13, due to expenses associated with investments in BSA/AML compliance, and other initiatives
• Excluding 3Q13 loan securitization gains, QoQ core revenues were up modestly
• DBRS rates M&T Bank Corporation Issuer & Senior debt at A (low) with a Stable trend

DBRS, Inc. (DBRS) views M&T Bank Corporation’s (M&T or the Company) 4Q13 earnings as sound, despite the considerable costs associated with the strengthening its operating platform, including investments related to BSA/AML compliance, capital planning and stress testing, risk management and operational and technology initiatives. To a lesser extent earnings reflected margin contraction, resulting in lower net interest income. DBRS views M&T’s pressured, yet resilient earnings, sound asset quality, solid funding and capital profiles as supportive of its rating level.

Excluding loan securitization gains recognized in 3Q13, core revenues were up modestly QoQ, reflecting higher levels of mortgage banking revenues and trust income. Partially offsetting, spread income slightly declined, impacted by lower average loans related to the 3Q13 loan securitizations and by a narrower net interest margin. DBRS notes that the higher mortgage banking income was mostly attributable to an increase in mortgage servicing revenues, reflecting the first full quarter of revenues from the subservicing contract the Company entered into in 3Q13.

M&T’s asset quality continued to stabilize, reflecting lower sequential net charge-offs and nonaccrual loans. DBRS considers the Company’s loan loss reserves as adequate at 1.4% of total loans.

M&T’s funding and capital profiles remain sound. Positively, the Company continues to build capital.

In August 2012, M&T announced its intent to acquire Hudson City. The transaction has been delayed due to concerns with BSA/AML at M&T and the termination date has been extended again to December 31, 2014. DBRS notes that the Company entered into a written agreement with the Federal Reserve Bank of New York on June 17, 2013, to strengthen its BSA/AML systems and processes; an undertaking that management has taken very seriously. Moreover, the Company believes it has made significant progress in addressing many of the concerns stated in the agreement.

DBRS rates M&T Bank Corporation’s Issuer & Senior debt at A (low) with a Stable trend.

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

[Amended on December 23th, 2014 to remove unnecessary disclosures.]