DBRS: M&T’s 3Q Sound: QoQ Reflects Non-Core Items, B/S Solid

Summary:
• The Company reported 3Q15 earnings to common shareholders of $257.3 million, down 2.3% from $263.5 million earned in 2Q15, yet up 2.2% from 3Q14.
• Recently, the Company received approval from both the Federal Reserve and the New York State Department of Financial Services to acquire Hudson City Bancorp, Inc. The Company expects to close the transaction on or about November 1, 2015.
• 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) 3Q15 results as sound, reflecting sustained loan growth and solid balance sheet fundamentals. The quarter-over-quarter (QoQ) decrease in earnings reflected two sizable 2Q15 non-core items, including a $45 million pre-tax gain on the sale of M&T’s trade processing business within the retirement services division of its Institutional Client Services business, and $40 million of tax deductible cash contributions to the M&T Charitable Foundation. Excluding these two items, the Company’s DBRS-adjusted income before provisions and taxes (DBRS’s measure of core earnings) was relatively stable linked-quarter.

During 3Q15, spread income increased 1.4%, spurred by higher levels of average loans and average securities. Average loan growth reflected increased levels of consumer loans and commercial real estate loans. Meanwhile, excluding the 2Q15 gain on the sale of its trade processing business, core fee income declined moderately QoQ, mostly reflecting a decrease in mortgage banking revenues and trust income, which more than offset improved levels of deposit service charges and trading account and foreign exchange gains.

The Company’s expense base remains well-managed, despite the costs associated with BSA/AML compliance, which should contract modestly going forward. Excluding the 2Q15 contribution to the M&T Charitable Foundation, the Company’s core 3Q15 non-interest expense was down modestly linked-quarter.

Overall, balance sheet fundamentals remain solid. Asset quality remains sound reflecting low net charge-offs and modestly lower non-performing loans linked-quarter. Meanwhile, the Company’s capital position is sound, with an estimated transitional Common Equity Tier 1 Ratio of 10.08%, which was up from the prior quarter.

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.