DBRS Comments on the Q1 2009 Earnings of M&T Bank Corporation – Senior at A (low): Trend Negative

DBRS has today commented on the Q1 2009 earnings of M&T Bank Corporation (M&T or the Company), given the rapidly deteriorating economy and continuing instability in the markets.

M&T reported net income of $64 million, down from $102 million for the prior quarter and $202 million for Q1 2008. The sequential quarterly decrease reflects an 18 basis points (bps) narrowing of net interest margin (NIM) to 3.19%, a 4.6% increase in provisions for loan loss reserves and a 35% increase in losses related to investment securities. Partially offsetting was a sizeable 42% increase in mortgage banking revenues, spurred by significant mortgage re-financings and a 1.9% decrease in non-interest expenses. The annual quarter decrease reflected a 1.6x increase in provisions, a 19 bps narrowing of margin, significant investment securities losses during Q1 2009 and securities gains during Q1 2008, and a 3.0% increase in non-interest expenses. Somewhat offsetting was a 40% increase in mortgage banking revenues. DBRS notes that M&T’s franchise strengths and credit fundamentals remain unchanged, and its ratings – A (low) for its senior obligations and Negative trend – remain unaffected.

As anticipated, asset quality eroded during the quarter, given the deteriorating economy. At March 31, 2009, nonaccruals (NALs) increased to 2.05% of loans, up from 1.54% at December 31, 2008 and 0.97% at March 31, 2008. Meanwhile, the Company’s net charge-offs (NCOs) decreased to 0.83% of average loans, down from 1.17% for the prior quarter, but up from 0.38% for Q1 2008. The heightened level of NALs reflects a sizeable commercial loan, increased levels of residential builder and development exposures and residential mortgage loans. NCOs reflected most loan types. For Q1 2009, loan loss provisions of $158 million exceeded NCOs by $58 million and M&T’s allowance for loan loss reserves to total loans was 1.7%.

The Company’s NIM narrowed by 18 bps during Q1 2009, due to the negative impact of the rapid decline in interest rates during December 2008 and the almost 150 bps decrease in spread between LIBOR and fed funds. During Q1 2009, M&T took a $20 million (after tax) other then temporary impairment charge against non-agency mortgage securities.

DBRS notes that M&T’s liquidity remains sufficient and is underpinned by a moderate sized core deposit base that represents 72% of net loans (at December 31, 2008). A securities portfolio, which represents 12% of total assets and access to the Federal Home Loan Bank and the Federal Reserve Discount Window, round out the Company’s liquidity profile.

During December 2008, M&T issued $600 million of preferred stock to the U.S. Department of the Treasury (the Treasury), as part of the Treasury’s Capital Purchase Program, which helped augment regulatory capital ratios and provide more of a cushion to absorb credit losses. DBRS notes that this was at the minimum of the range outlined by the Treasury. At March 31, 2009, M&T’s Tier 1 risk-based capital ratio was estimated to be 8.76%, down slightly from 8.83% at December 31, 2008. M&T’s tangible common equity-to-tangible asset ratio expanded somewhat to 4.86%, yet still remains pressured by a considerable level of unrealized AFS securities losses. DBRS notes that M&T’s capital position will be further strained with the Provident Bankshares Corporation ($6.4 billion in assets) acquisition. DBRS expects that M&T will continue to maintain capital levels that are above regulatory guidelines.

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.