DBRS Confirms M&T Bank Corporation at A (low); Maintains Stable Trend

DBRS, Inc. (DBRS) has today confirmed the ratings of M&T Bank Corporation (M&T or the Company) and its rated subsidiaries, including M&T’s Issuer & Senior debt rating of A (low). The Trend on all ratings remains Stable. The rating actions followed a detailed review of M&T’s operating performance, financial fundamentals, and future prospects.

The Company’s ratings are underpinned by its strong Northeast and Mid-Atlantic commercial banking franchise, sound and improving asset quality, and solid funding and capital profiles. Ratings also consider M&T’s pressured, yet resilient earnings generation, large commercial real estate (CRE) concentration, particularly within the New York City market, and the pending Hudson City Bancorp, Inc. (Hudson City) acquisition. DBRS notes that sustained material improvement in core earnings, and/or a lower CRE concentration, could lead to positive rating actions. Conversely, a significant decrease in core earnings and/or a material level of asset quality erosion could result in negative ratings pressure.

M&T’s ratings reflect a deeply entrenched commercial banking franchise located across six states and the District of Columbia. The Company maintains defensible state deposit market shares, including the number two position in Maryland, the number seven position in New York, and the number six position in Pennsylvania. On a more granular level, M&T holds top three market share positions in many of the larger metropolitan statistical areas that it serves, including dominant positions in Buffalo and Rochester, with 50% and 24% market shares, respectively, and the number two position in Baltimore, with 22% market share.

DBRS views M&T’s August 2012 announcement to acquire Hudson City favorably, which will greatly enhance its modest New Jersey presence, and allow the Company to offer its deeper product set through Hudson City’s 135 branches. Although the transaction will be M&T’s largest bank merger ever, DBRS anticipates that integration risk will be manageable, especially given M&T’s experience in integrating numerous bank acquisitions, as well as Hudson City’s fairly straightforward mono-line business. The closing of 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 on June 17, 2013, the Company entered into a Written Agreement with the Federal Reserve Bank of New York to strengthen its BSA/AML systems and processes, an undertaking that management has taken very seriously. Importantly, the Company believes it has made significant progress in addressing the concerns stated in the agreement.

M&T’s bottom line is supported by a diverse set of businesses, which provides some stability to earnings. Indeed, for 2014, fee income, led by the Company’s trust and deposit businesses generated 40% of total revenues. Nonetheless, earnings remain pressured by additional expenses associated with strengthening the Company’s risk management platform, and a moderating net interest margin (NIM). Overall, on a linked-year basis, 2014 adjusted income before provisions and taxes (DBRS’s core earnings measurement) declined moderately, YoY, as higher adjusted expenses more than offset a modest increase in adjusted revenues.

M&T’s asset quality remains sound and improved, reflecting declining levels of non-accrual loans, and low net charge-offs. DBRS comments that the Company has a sizable CRE concentration at 41% of loans, with a significant component of CRE located in New York City. Nonetheless, the portfolio has performed relatively well through the credit cycle.

M&T’s solid funding profile is underpinned by a sizable low cost core deposit base, along with access to the FHLB, if needed. In 2014, liquidity was bolstered with purchases of high quality securities, as the Company prepares for LCR implementation.

M&T’s capital profile strengthened in 2014, driven by sustained earnings retention and the issuance of preferred stock. Overall, the Company’s capital positon remains sound, with an estimated Basel III Common Equity Tier 1 ratio on a fully phased-in basis of approximately 9.59%, at December 31, 2014.

Headquartered in Buffalo, New York, M&T Bank Corporation reported $96.7 billion in consolidated assets as of December 31, 2014.

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

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria – Support Assessments for Banks and Banking Organisations (January 2014) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015). These can be found at: http://www.dbrs.com/about/methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Mark Nolan
Rating Committee Chair: William Schwartz
Initial Rating Date: 14 July 2005
Most Recent Rating Update: 19 December 2013

For additional information on this rating, please refer to the linking document under Related Research.