DBRS Comments on the Q3 2009 Earnings of M&T Bank Corporation – Senior at A (low): Trend Remains Negative

DBRS has today commented on the Q3 2009 earnings of M&T Bank Corporation (M&T or the Company). DBRS notes that M&T’s franchise strengths and credit fundamentals remain unchanged, and its ratings of A (low) for its Senior obligations and Negative trend – remain unaffected.

In light of the downturn in the economy and high unemployment, M&T reported net income available to common shareholders of $114 million for Q3 2009, compared to $41 million for the prior quarter. The Company’s earnings on a linked quarter basis, which includes numerous non-recurring gains/losses and other expenses, such as a $29 million (after tax) other than temporary impairment (OTTI) loss, an $18 million (after tax) gain related to the FDIC facilitated Bradford Bank acquisition (closed in August 2009) and merger related expenses reflected a 7% increase in revenues and an 11% decrease in non-interest expenses. The Company’s net-interest income increased by 9%, driven by an 18 basis points (bps) widening of net interest margin to 3.61%, and a full quarter’s impact of earning assets related to Provident Bankshares Corporation (acquired in May 2009). Provisions for loan loss reserves increased a moderate 5%. Excluding the one time items, revenues reflected higher service charges on deposits, mostly offset by lower mortgage banking revenues and M&T’s equity position in the operating results of Bayview Lending Group, LLC. M&T’s operating expenses, which exclude amortization of core deposits and other intangible assets and merger related expenses, declined modestly. The decline mostly reflected the Company’s Q2 2009 $33 million FDIC special assessment charge, partially offset by higher operating expenses related to its recent acquisitions.

Despite the steep downturn in the housing market and high unemployment, M&T’s asset quality deterioration remains manageable. At September 30, 2009, non-accrual loans (NALs) increased to $1.23 billion or 2.35% of total loans up from $1.11 billion or 2.11% of total loans at June 30, 2009. The heightened level of NALs reflected loans acquired in the Provident transaction, along with newly classified non-accruals, including two commercial and industrial loans, and a residential developer credit. Meanwhile, the Company’s net charge-offs were $141 million (1.07% of average loans) in Q3 2009, compared to $138 million (1.09% of average loans) in Q2 2009. The company’s provision for loan loss reserves exceeded charge-offs by $13 million. The allowance for credit losses at September 30, 2009 was $868 million, which amounted to 1.81% of total legacy loans, which excludes loans obtained in the Provident and Bradford Bank acquisitions, which were marked to fair value at acquisition.

DBRS notes that M&T’s liquidity remains sufficient and is underpinned by a moderate sized core deposit base that represents 80% of net loans (at June 30, 2009). A securities portfolio, which represents 11% of total assets, access to the Federal Home Loan Bank and the Federal Reserve Discount Window, round out its liquidity profile.

M&T’s tangible common equity ratio increased to 4.89% at September 30, 2009, up from 4.49% at the end of the second quarter, but remains somewhat moderate. The increase reflected a lower level of unrealized losses on the available for sale portfolio, earnings retention and a slightly smaller balance sheet. DBRS expects that M&T will continue to augment its tangible capital over the intermediate term.

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

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.