DBRS Morningstar Confirms M&T Bank Corporation at A (high), Trend Revised to Negative

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of M&T Bank Corporation (M&T or the Company), including the Company’s Long-Term Issuer Rating of A (high). At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, Manufacturers & Traders Trust Company (the Bank). The trend for all long-term ratings at the Company and all long-term ratings at the Bank has been revised to Negative from Stable. The Intrinsic Assessment (IA) for the Bank is 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 Negative trend reflects the wide scale of the economic disruption resulting from the Coronavirus Disease (COVID-19) pandemic and lower interest rates, which has pressured M&T’s earnings, affecting a number of business lines, and will likely continue to have a significant impact in future quarters. Nevertheless, unprecedented support measures have been put in place through monetary and fiscal stimulus, as well as relaxed criteria from regulators, which in our view, could help mitigate some of the negative impact of the crisis. However, should the crisis be prolonged, or if the recovery is muted, additional ratings pressure is likely.

The confirmation of M&T’s ratings reflects its sustained top-tier financial results and balance sheet strength. Additionally, the ratings consider the Company’s consistent and disciplined loan underwriting, which has underpinned its 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, including its significant exposure in New York City.

RATING DRIVERS
Given the Negative trend and current economic environment, an upgrade of the ratings is unlikely. However, DBRS Morningstar would revise the trend to Stable if the fallout from the coronavirus pandemic does not result in outsized credit losses or a sustained weakening of profitability metrics. Conversely, a sustained deterioration in asset quality, or prolonged negative operating leverage, would result in a ratings downgrade.

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 18th largest bank in the U.S. by deposits, ranking third 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 resilient, supported by a diverse set of businesses, including a solid level of fee income (typically around 30% to 35% of total revenue). In 1H20, the Company reported $510 million of net income, which was down 47% versus the prior year period, representing a return on assets of 0.80%. Bottom line results were adversely impacted by an outsized coronavirus-related provision for credit losses ($575 million in 1H20). Despite the substantial drop, returns remained at the high end of the industry.

Current asset quality metrics provide little visibility into future credit performance in our view, given the unprecedented relief measures that have been implemented. In 1H20, nonaccrual loans increased, but net charge-offs remained low. We remain concerned about M&T’s commercial real estate exposure, which represents almost 40% of total loans, especially considering that a significant portion of this exposure resides in New York City, an area heavily impacted by the coronavirus. While we view M&T's track record of superior credit quality through previous cycles as mitigating these concerns to a certain extent, we also recognize the unprecedented nature of the current downturn. We expect credit quality to weaken in 2H20.

Total deposits increased a notable $20 billion from YE19 to $115 billion, reflecting broad-based growth across commercial and consumer. Despite significant balance sheet growth, capital metrics remained sound, with a CET1 ratio of 9.5% at the end of 2Q20. Headquartered in Buffalo, New York, M&T Bank Corporation reported $140 billion in consolidated assets as of June 30, 2020.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8, 2020): https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar 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 Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

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