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 a strong Northeast and Mid-Atlantic commercial banking franchise which was recently bolstered by the acquisition of Hudson City Bancorp, Inc. (Hudson City; closed November 1, 2015), sound asset quality, a solid funding positon and a strong capital profile. Ratings also consider M&T’s resilient, yet pressured, earnings generation, and large commercial real estate (CRE) concentration, particularly within the New York City market. Overall, DBRS views M&T as a top quartile bank within its rating peer group. DBRS notes that sustained material improvement in core earnings, could lead to positive rating actions. Conversely, a significant decrease in core earnings and/or a material level of credit quality erosion, could result in negative ratings pressure.

Ratings reflect M&T’s deeply embedded banking franchise throughout the Northeast and Mid-Atlantic region. Overall, the Company maintains strong, defensible deposit market shares, including the number two position in Maryland, the number four position in Delaware, the number six position in New Jersey, and the number seven position in New York. 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, Rochester, and Syracuse with 51%, 25% and 24% market shares, respectively, and the number two market position in Baltimore, with 22% market share. DBRS notes that the Hudson City acquisition, which included 135 branches, strengthened M&T’s presence in the New York City metropolitan region. The integration of Hudson City’s operations is expected to be completed in February after the conversion of the deposit system and branch network.

As with other banks, M&T’s earnings generation remains pressured by the low interest rate environment, slow and uneven economic growth, and elevated levels of regulatory related expenses. During 2015, earnings were up modestly, driven by a higher level of average earnings assets, reflecting both the Hudson City acquisition and organic growth. M&T’s well managed expense base also benefitted earnings.

The Company’s risk profile remains sound, despite its ongoing Written Agreement with the Federal Reserve Bank of New York (signed June 17, 2013) related to weaknesses found in its BSA/AML systems and processes. Indeed, it is the Company’s belief that significant progress has been made in addressing the concerns stated in the agreement. DBRS notes that management’s view is likely shared by the Federal Reserve, given its recent approval of the Hudson City transaction. Meanwhile, M&T’s asset quality remains sound with manageable levels of non-accrual loans and low net charge-offs. Although the recent Hudson City transaction somewhat reduced the Company’s CRE concentration, it still remains high at 34% of loans. While a concentration, DBRS notes that the CRE portfolio has performed relatively well through various credit cycles.

Other balance sheet fundamentals remain solid including M&T’s funding profile, which is underpinned by a sizable deposit base, as well as a sound liquidity positon, which reflects a high quality securities portfolio along with ready access to the Federal Home Loan Bank and capital markets. DBRS notes that shortly after the Hudson City deal closed, M&T restructured the acquired balance sheet and repaid $10.6 billion of Hudson City's higher cost borrowings with proceeds from the sale of $5.8 billion of investment securities, and cash. Finally, the Company’s capital positon is sound and improved at YE15, reflecting an estimated CET1 ratio of 11.06% (transitional basis), mostly driven by 80 basis points of capital accretion related to the Hudson City acquisition.

Headquartered in Buffalo, New York, M&T Bank Corporation reported $122.8 billion in consolidated assets as of December 31, 2015.

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 (December 2015). Other applicable methodologies include the DBRS Criteria – Support Assessments for Banks and Banking Organisations (December 2015) 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: 17 February 2015

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