DBRS Upgrades M&T Bank Corporation to A (high), Trend Stable

DBRS, Inc. (DBRS) upgraded most of the ratings of M&T Bank Corporation (MTB or the Company), including the Company’s Long-Term Issuer Rating to A (high) from ‘A’. At the same time, DBRS upgraded the ratings of its primary banking subsidiary, Manufacturers & Traders Trust Company (the Bank) to AA (low) from A (high). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank was raised to AA (low), 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.

KEY RATING CONSIDERATIONS
The upgrade reflects M&T’s sustained top-tier financial results and balance sheet strength. Given its strong track record, DBRS sees M&T as well positioned to achieve similar results going forward. Additionally, the ratings consider M&T’s consistent and disciplined underwriting, which has underpinned the Company’s long history of low earnings volatility and financial outperformance, particularly during times of stress.

The ratings also consider M&T’s high commercial real estate concentration (39% of total loans), including its significant exposure in New York City, and capital management activities that will likely lead to capital metrics migrating towards the lower end of the peer group, consistent with historical trends. Expectations of a slowing U.S. economy, a prolonged challenging interest rate environment and normalizing credit quality trends are also factored into the ratings. Nonetheless, DBRS views M&T’s well-established culture and track record of superior credit quality through various cycles as mitigating these concerns.

RATING DRIVERS
Given the recent rating action, DBRS views additional positive rating action over the intermediate term as unlikely. Over the longer term, better-than-similarly-rated-peer performance, including growing fee income levels could lead to positive rating pressure. Conversely, negative rating pressure would likely result if M&T reflects a sustained level of credit deterioration, particularly if it stems from underwriting weaknesses, or if the Company experiences a sustained decrease in core earnings.

RATING RATIONALE
Led by a long-tenured management team, M&T maintains a deeply entrenched commercial banking franchise throughout the Northeast and Mid-Atlantic regions, underpinned by a large, stable and low-cost deposit funding base. Overall, M&T is the 17th largest bank in the U.S. by deposits, ranking second in total deposits in Maryland, third in Delaware and sixth in New York. Of particular note, the Company ranks first or second in total deposits in seven of its ten largest MSAs, including market shares greater than 15% in most of these markets.

M&T’s earnings power remains strong, supported by a diverse set of businesses, including a solid level of fee income (typically around 30% to 35% of total revenue), which provides stability to the bottom line. In 1H19, the Company reported another very strong performance. Specifically, M&T reported $956 million of net income, which was up 13% versus the prior year period, representing a peer-leading return on assets of 1.64% (up from 1.46% in 1H18). The improved results were driven by a wider net interest margin, continued strength in trust income and improved mortgage banking revenue, which more than offset a modest increase in expenses.

Asset quality metrics remain pristine, with credit metrics still well below historical norms. Meanwhile, M&T’s capital levels continue to deliberately drift lower. At the end of 2Q19, the Company’s CET1 ratio stood at 9.84%, down 68 basis points from the year-ago quarter. Historically a shareholder-friendly institution, DBRS views the Company’s long-term plan to manage its capital levels toward the lower end of the peer group as justified, given its successful track record of managing credit risk and strong levels of capital generation. In late June, M&T announced that the Federal Reserve did not object to its capital plan, which included net capital distributions of approximately $1.9 billion.

Headquartered in Buffalo, New York, M&T Bank Corporation reported $122 billion in consolidated assets as of June 30, 2019.

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

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

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (June 2019), which can be found on our website under Methodologies.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

For more information on this credit or on this industry, visit www.dbrs.com.

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