DBRS Upgrades M&T Bank Corporation to A, Trend Now Stable

DBRS, Inc. (DBRS) has upgraded most of the ratings for M&T Bank Corporation (M&T or the Company), and its related entities, including the Company’s Long-Term Issuer Rating to ‘A’ from A (low). The trend on all ratings is now Stable. The Intrinsic Assessment (IA) for Manufacturers & Traders Trust Company (the Bank) was raised one notch, to A (high) from ‘A’, while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

The upgrade considers the Company’s consistent above peer median financial performance, particularly during times of stress, as well as its conservative risk management culture, which has resulted in superior credit quality through-the-cycle. Additionally, M&T’s Written Agreement with the Federal Reserve Bank of New York (signed June 17, 2013) related to weaknesses found in its BSA/AML compliance programs was terminated on July 25, 2017, allowing M&T to consider acquisitions again, which has been an important part of its growth and enhanced franchise strength over the long-term.

The Company’s ratings are underpinned by its deeply entrenched commercial banking franchise throughout the Northeast and Mid-Atlantic region, as well as its long history of low earnings volatility and consistent profitability. In addition, M&T maintains an ample funding and liquidity profile, and its capital position, once considered a rating constraint, currently stands at the top end of its regional bank peer group.

M&T’s earnings power remains resilient, supported by a diverse set of business, which provides stability to the bottom line. For 1H17, the Company generated $730 million of net income, which was up 15% versus the prior year period, representing a strong return on assets of 1.20%. Results benefited from the Fed rate hikes, which drove 29 basis points of net interest margin expansion (to 3.40%) and solid growth in net interest income. Fee income also increased 4% compared to 1H16, driven by higher trust income, while expenses remained well-contained (55% efficiency ratio in 1H17).

Meanwhile, M&T’s asset quality remains strong with manageable levels of non-accrual loans and very low net charge-offs. DBRS notes that the Company’s CRE concentration remains high at 37% of total loans, with a significant component located in New York City. Nonetheless, the portfolio has performed relatively well through numerous credit cycles.
The Company’s other balance sheet fundamentals remain solid, including its funding and liquidity, which is underpinned by a sizable deposit base and high quality securities portfolio. With a CET1 ratio of 10.8% at the end of 2Q17, M&T’s capital position remains sound, despite ongoing capital management activity.

Headquartered in Buffalo, New York, M&T Bank Corporation reported $121 billion in consolidated assets as of June 30, 2017.

The Grid Summary Grades for M&T are as follows: Franchise Strength – Strong; Earnings Power – Strong; Risk Profile – Strong/Good; Funding & Liquidity – Strong; Capitalisation – Strong.

RATING DRIVERS
Given the recent rating action, DBRS views additional positive rating action over the near-term as unlikely. Conversely, ratings could come under pressure if M&T reflects a sustained level of credit deterioration, or material decrease in core earnings.

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

The applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017), which can be found on our website under 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.

Lead Analyst: Michael McTamney, Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG – Global FIG
Initial Rating Date: 14 July 2005
Last Rating Date: 2 August 2017

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.