DBRS Confirms M&T Bank Corporation at ‘A’, Trend Revised to Positive from Stable

DBRS, Inc. (DBRS) confirmed the ratings of M&T Bank Corporation (M&T or the Company), including the Company’s Long-Term Issuer Rating of ‘A’. At the same time, DBRS confirmed the ratings of its primary banking subsidiary Manufacturers & Traders Trust Company (the Bank). With the exception of the Company’s and the Bank’s short-term ratings, the trend has been revised to Positive from Stable. The Intrinsic Assessment (IA) for the Bank is A (high), 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 confirmation reflects M&T’s deeply entrenched commercial banking franchise throughout the Northeastern U.S. that is led by a long-tenured management team. 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 its capital metrics that are expected to migrate to the lower end of the peer group, consistent with historical trends. Nonetheless, DBRS perceives that the Company’s superior credit risk management and well-established culture mitigates these concerns.

The Positive trend considers the tailwinds to M&T’s earnings from the more favorable operating environment, including an improving economy, lower tax rates, higher short-term interest rates, recognizing that the credit cycle is likely in its later stages. Additionally, the trend change considers M&T’s enhanced financial flexibility, having satisfied its BSA/AML-related regulatory requirements, after investing more than $1.7 billion over the previous four years on its risk infrastructure, a significant portion of which was geared toward BSA/AML compliance.

RATING DRIVERS
DBRS views M&T as being in the top tier of its rating category. If the Company continues to generate similar financial results, including outperforming its similarly-rated peer group, while maintaining strong balance sheet fundamentals, the ratings would likely be upgraded. 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 it experiences a material decrease in core earnings.

RATING RATIONALE
In DBRS’s view, M&T has distinguished itself from many of its peers given its track record of minimal volatility in asset quality, revenue and profitability through the cycle, as well as its financial and credit outperformance, particularly during times of stress. 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. In addition, the Company ranks first or second in total deposits in seven of its ten largest MSAs, with market shares greater than 15% in most of those markets.

M&T’s earnings power remains strong, supported by a diverse set of businesses, including a comparatively high level of fee income (typically around 30% to 35% of total revenue), which provides stability to the bottom line. During 1H18, the Company generated $846 million of net income, which was up 16% versus the prior year period, representing a strong return on assets of 1.46% (up from 1.21% in 1H17). The improved performance was primarily due to the rise in short-term interest rates, which drove significant net interest margin expansion, offsetting flat loan growth. DBRS notes that elevated levels of commercial loan paydowns / payoffs and further planned runoff of Hudson City mortgages continues to dampen loan growth. Strong results from the Company’s trust business and a lower provision for credit losses also boosted results.

M&T’s asset quality remains pristine, as credit metrics continue to improve, despite already being at historically low levels. On the funding side, deposits declined somewhat in 1H18, owing principally to lower commercial mortgage escrow balances. Moreover, the Company’s capitalization remains robust, with a CET1 ratio of 10.5% at the end of 2Q18. 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. In late June, M&T announced that the Federal Reserve did not object to its capital plan, which included a 25% increase in the quarterly dividend and up to $1.8 billion in share repurchases.

Headquartered in Buffalo, New York, M&T Bank Corporation reported $118 billion in consolidated assets as of June 30, 2018.

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

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

The applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 2018), 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: 20 September 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.

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