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 has been revised to Stable from Negative. 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 ratings confirmation and trend revision to Stable reflects M&T’s solid performance through the pandemic. 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. M&T’s commercial real estate concentration, as well as the considerable integration risk associated with the People’s United Financial, Inc. (PBCT) acquisition are also taken into consideration.
Over the longer term, if M&T continues to grow its franchise and diversify its business mix and loan portfolio, while sustaining top-tier financial results, the ratings would be upgraded. Conversely, a sustained deterioration in asset quality, or prolonged negative operating leverage, would result in a ratings downgrade.
Franchise Combined Building Block (BB) Assessment: Strong/Good
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. Moreover, DBRS Morningstar views the PBCT acquisition as a long-term positive for M&T’s franchise. On a pro-forma basis, the combined company will become the 11th largest U.S. commercial bank, with $200 billion in total assets and leading market share positions across an attractive footprint. Additionally, we expect the combination to provide significant revenue growth and cost savings opportunities, while also allowing the combined entity to leverage its considerable scale to increase investments in technology.
Earnings Combined Building Block (BB) Assessment: Strong
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 2021, the Company reported $1.9 billion of net income, which was up 37% versus the prior year, representing a return on assets of 1.22%. Bottom line results benefited from a sizable loan loss reserve release and favorable fee income trends.
Risk Combined Building Block (BB) Assessment: Strong/Good
M&T has a track record of superior credit quality through various cycles. While asset quality metrics continue to be benign, 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 is concentrated in New York City, which was particularly hard-hit by the pandemic.
Funding and Liquidity Combined Building Block (BB) Assessment: Strong
M&T’s funding and liquidity remain strong, underpinned by a sizable, low-cost deposit base and high-quality investment securities portfolio. Consistent with industry trends, deposit growth remained strong during 2021 primarily due to excess liquidity in the system.
Capitalization Combined Building Block (BB) Assessment: Strong/Good
We view the Company’s capitalization as strong, especially considering its successful track record of managing credit risk. At YE21, M&T reported a CET1 ratio of 11.4%, up 140 basis points from the prior year, in part due to the suspension of share repurchases, following the announcement of the PBCT acquisition. The impact of the transaction is expected to be capital neutral. In late February, M&T’s board of directors reauthorized a stock repurchase program of up to $800 million, which is expected to resume in 2Q22.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/392111.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organizations (July 19, 2021): https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations
Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021):
The primary sources of information used for this rating include Morningstar, Inc. Company Documents. 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 did have 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 generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
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