DBRS: M&T’s Lower 3Q14 QoQ Results Due to Lower Fee Income; Asset Growth Offsets Narrower NIM

Summary:
• 3Q14 earnings to common shareholders of $251.9 million down 3.4% from $260.7 million for 2Q14.
• Lower 3Q14 earnings, QoQ, reflected a decline in fee income including a decrease in mortgage banking income, partially offset by lower expenses.
• DBRS rates M&T Bank Corporation Issuer & Senior debt at A (low) with a Stable trend.

Reflecting lower fee income, including a decline in mortgage banking income, M&T Bank Corporation (M&T or the Company) reported 3Q14 earnings of $251.9 million, down 3.4% linked-quarter. Meanwhile, spread income was stable linked-quarter, as average earning asset growth offset continued net interest margin (NIM) contraction. M&T’s expenses were down modestly linked-quarter, but remain elevated due to continuing enhancements to the Company’s risk management platform and systems,. DBRS views M&T’s sound asset quality and solid funding and capital profiles as supportive of its rating level.

Revenues were down modestly QoQ, reflecting lower fee income, mostly due to a decline in mortgage banking income. Meanwhile, spread income was stable QoQ, as a 17 bps narrowing of NIM to 3.23% was offset by 4.0% increase in average earning assets. The narrower NIM reflected the continuing build-out of liquid assets in preparation for compliance with the liquidity coverage ratio (LCR), increased deposits from the institutional trust business, and lower yields on new loan originations. Meanwhile, higher average earning assets were driven by growth in average levels of investment securities, interest bearing deposits at the Federal Reserve and loans. In general, higher average loans were attributable to increased average levels of commercial real estate loans, indirect automobile and recreation finance loans. Finally, the Company’s bottom line benefited from modestly lower linked-quarter non-interest expense.

M&T’s asset quality remains sound, reflecting a modest level of net charge-offs and lower level of non-accrual loans.

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 walk-away 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.

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