DBRS: M&T’s 4Q Avg Earning Asset Growth Modestly Increased Revenues; B/S Sound

Summary:
• 4Q14 earnings to common shareholders of $254.2 million, up 0.9% from $251.9 million for 3Q14.
• Higher QoQ earnings reflected an increase in total revenues and stable expenses. Improved revenues were driven by a moderate increase in spread income.
• DBRS rates M&T Bank Corporation Issuer & Senior debt at A (low) with a Stable trend.

DBRS, Inc. (DBRS) considers M&T Bank Corporation’s (M&T or the Company) 4Q14 results as in-line with expectations. The moderate, QoQ, improvement in the Company’s bottom line, reflected higher spread income, due to higher levels of average deposits at the Federal Reserve, along with a moderate increase in average loans. The increase in average deposits at the Federal Reserve (up 78.1%) were driven by an increase in deposits from the Company’s institutional trust business. Meanwhile, higher average loans (up 1.6%), reflected broad-based growth across all segments. DBRS notes that on a geographic basis, M&T continues to see better loan growth out of its metro New York City and upstate New York markets. Going forward, the Company expects loan growth will be approximately 4.0% in 2015, consistent with 2014, reflecting the Company’s view that that the challenging operating environment will continue.

Although well managed, M&T’s expense base remains somewhat elevated due to the costs associated with strengthening its risk management platform, including BSA/AML. Although, most of the costs will be fixed, some variable cost elements, including professional services expenses should decline in 2015. That said, some of the reductions will be invested in technology and infrastructure.

Overall, balance sheet fundamentals remained solid in 4Q14, reflecting loan growth, sound and improving asset quality, and solid liquidity and capital profiles.

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 date after which either party may terminate the merger agreement has been extended again to April 30, 2015. 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. Indeed, the Company believes it has made significant progress in addressing 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.