M&T Bank Corporation Announces Second Quarter Profits

BUFFALO, N.Y., July 20, 2011 /PRNewswire/ -- M&T Bank Corporation ("M&T") (NYSE: MTB) today reported its results of operations for the quarter ended June 30, 2011.

GAAP Results of Operations.  Diluted  earnings per common share measured in accordance with generally accepted accounting principles ("GAAP") for the second quarter of 2011 rose 66% to $2.42 from $1.46 in the year-earlier quarter and were 52% higher than $1.59 in the initial 2011 quarter.  GAAP-basis net income in the recent quarter aggregated $322 million, up from $189 million and $206 million in the second quarter of 2010 and the first quarter of 2011, respectively. GAAP-basis net income for the second quarter of 2011 expressed as an annualized rate of return on average assets and average common shareholders' equity was 1.78% and 14.94%, respectively, improved from 1.11% and 9.67%, respectively, in the year-earlier quarter and 1.23% and 10.16%, respectively, in the first quarter of 2011.

M&T's second quarter results were impacted by several noteworthy items.  Most significantly, M&T completed its acquisition of Wilmington Trust Corporation ("Wilmington Trust"), effective May 16, 2011, including the issuance of 4.7 million common shares.  Results of the operations acquired from Wilmington Trust are reflected in M&T's results since the acquisition date.  Assets acquired in the transaction totaled approximately $10.8 billion, including $6.4 billion of loans, while liabilities assumed were $10.0 billion, including $8.9 billion of deposits.  Although significant merger-related expenses will be incurred in the third and fourth quarters of 2011 as systems conversions are completed and operations are integrated, M&T recognized a net after-tax gain of $42 million, or $.33 of diluted earnings per common share, in the recent quarter related to the Wilmington Trust acquisition. That net gain was comprised of a non-taxable gain of $65 million, which represented the excess of the fair value of assets acquired less liabilities assumed over consideration exchanged, and merger-related expenses, which aggregated $23 million, after applicable tax effect. Such expenses were associated with integrating operations and introducing Wilmington Trust's former customers to M&T's products and services.  Also contributing to the recent quarter's improved performance were net gains on investment securities, which aggregated $51 million, after tax effect, or $.41 of diluted earnings per common share. Net securities gains in 2011's initial quarter contributed $14 million to that quarter's net income, or $.12 of diluted earnings per common share, while net securities losses during the second quarter of 2010 reduced net income and diluted earnings per common share by $14 million and $.11, respectively.  Other actions initiated by M&T during the recent quarter included the purchase from the U.S. Department of the Treasury ("Treasury Department") and subsequent retirement of $330 million of preferred stock that Wilmington Trust issued pursuant to the Troubled Asset Relief Program ("TARP"), the redemption of $370 million of M&T Series A Preferred Stock issued to the Treasury Department by M&T pursuant to the TARP, and the issuance by M&T of $500 million of fixed rate, perpetual non-cumulative preferred stock to supplement its Tier 1 capital.

Commenting on M&T's financial results for the recent quarter, Rene F. Jones, Executive Vice President and Chief Financial Officer, noted, "The second quarter was truly a period of significant accomplishment.  On May 16, we welcomed the employees and customers of Wilmington Trust into the M&T family.  We are excited about the possibilities this merger brings to M&T's customers, both existing and new.  Above and beyond the positive impact of the merger, M&T's results reflected higher fee income, lower operating expenses and continued improvement in credit trends.  Also exclusive of the impact of the merger, average loans during the quarter grew an annualized 2% and average core deposits rose an annualized 10%."

Supplemental Reporting of Non-GAAP Results of Operations.  M&T consistently provides supplemental reporting of its results on a "net operating" or "tangible" basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and gains and expenses associated with merging acquired operations into M&T, since such items are considered by management to be "nonoperating" in nature.  Although "net operating income" as defined by M&T is not a GAAP measure, M&T's management believes that this information helps investors understand the effect of acquisition activity in reported results.  Reconciliations of GAAP to non-GAAP measures are provided in the financial tables included herein.

Diluted net operating earnings per common share, which exclude the impact of amortization of core deposit and other intangible assets and merger-related gains and expenses, were $2.16 in the recent quarter, up from $1.53 and $1.67 in the second quarter of 2010 and the first quarter of 2011, respectively.  Net operating income during the second quarter of 2011 was $289 million, improved from $198 million and $216 million in the second quarter of 2010 and the first quarter of 2011, respectively.  Expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity, net operating income in the recently completed quarter was 1.69% and 24.40%, respectively, compared with 1.23% and 20.36% in the second quarter of 2010 and 1.36% and 20.16% in the initial 2011 quarter.

Taxable-equivalent Net Interest Income.  Taxable-equivalent net interest income totaled $593 million in the second quarter of 2011, up 3% from $573 million in the year-earlier period and $575 million in the first quarter of 2011.  The improvement from the second quarter of 2010 was the result of a $3.6 billion rise in average earning assets, partially offset by a 9 basis point narrowing of the net interest margin to 3.75% in the recent quarter from 3.84% in the year-earlier quarter. The increase in taxable-equivalent net interest income from the initial 2011 quarter was due to a $4.0 billion increase in average earning assets, partially offset by a 17 basis point narrowing of the net interest margin.  The narrowing of the net interest margin in the recent quarter as compared with the year-earlier quarter and the first quarter of 2011 was partially attributable to the impact of the Wilmington Trust acquisition.  Also contributing to the narrowing were significantly higher earning balances on deposit with the Federal Reserve and higher amounts of agreements to resell securities, which in the aggregate averaged $1.3 billion during the recent quarter and totaled $2.5 billion at June 30, 2011.

Provision for Credit Losses/Asset Quality. Credit quality continued to show solid improvement during the recent quarter.  The provision for credit losses was $63 million in the second quarter of 2011, improved from $85 million in the year-earlier quarter and $75 million in the first quarter of 2011.  Net charge-offs of loans totaled $59 million during the recent quarter, down from $82 million and $74 million in the second quarter of 2010 and the first quarter of 2011, respectively.  Expressed as an annualized percentage of average loans outstanding, net charge-offs were .43% and .64% in the second quarter of 2011 and 2010, respectively, and .58% in the first quarter of 2011.

Loans classified as nonaccrual aggregated $1.26 billion at June 30, 2011, compared with $1.09 billion a year earlier and $1.21 billion at March 31, 2011.  Reflected in nonaccrual loans at June 30, 2011 were $77 million of loans obtained in the Wilmington Trust acquisition.  Nonaccrual loans as a percentage of total loans were 2.15%, 2.13% and 2.32% at June 30, 2011, June 30, 2010 and March 31, 2011, respectively. Assets taken in foreclosure of defaulted loans were $159 million at June 30, 2011, down from $193 million at June 30, 2010 and $218 million at March 31, 2011.  The decrease in such assets at the recent quarter-end resulted from the sale of a commercial real estate property in New York City with a carrying value of $99 million.  Reflected in assets taken in foreclosure of defaulted loans at June 30, 2011 were $57 million of such assets obtained in the Wilmington Trust acquisition that were recorded at fair value on the acquisition date.  The ratio of nonperforming assets to total loans plus real estate and other foreclosed assets was 2.42% at June 30, 2011, improved from 2.73% at March 31, 2011.  That ratio was 2.50% at June 30, 2010.

Loans past due 90 days or more and accruing interest totaled $373 million at the end of the recent quarter, including loans guaranteed by government-related entities of $207 million.  Included in such loans at the recent quarter-end were $130 million of loans obtained in the Wilmington Trust acquisition.  Loans past due 90 days or more and accruing interest were $203 million and $264 million at June 30, 2010 and March 31, 2011, respectively, including $188 million and $215 million of government guaranteed loans at those respective dates.

Allowance for Credit Losses.  M&T regularly performs detailed analyses of individual borrowers and portfolios for purposes of assessing the adequacy of the allowance for credit losses.  Reflecting those analyses, the allowance totaled $908 million at June 30, 2011, up from $895 million and $904 million at June 30, 2010 and March 31, 2011, respectively.  Beginning in 2009, GAAP requires that expected credit losses associated with loans obtained in acquisitions be reflected in the estimation of loan fair value as of each respective acquisition date and prohibits any carry-over of the acquired entity's allowance for credit losses.  Excluding amounts related to loans obtained in acquisition transactions subsequent to 2008, the allowance-to-legacy loan ratio was 1.80% at June 30, 2011, compared with 1.86% at June 30, 2010 and 1.81% at March 31, 2011.  

Noninterest Income and Expense. Noninterest income totaled $502 million in the second quarter of 2011, compared with $274 million and $314 million in the second quarter of 2010 and the first quarter of 2011, respectively.  Reflected in those amounts were net pre-tax gains on investment securities of $84 million and $23 million in the recent quarter and the first quarter of 2011, respectively, and net pre-tax losses from investment securities of $22 million in the second quarter of 2010.  The net securities gains in the recent quarter resulted from $111 million of gains realized on the sale of investment securities available for sale, predominantly residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, collateralized debt obligations and capital preferred securities, having an amortized cost of approximately $1.21 billion.  Partially offsetting those securities gains were $27 million of other-than-temporary impairment charges related to certain of M&T's holdings of privately issued collateralized mortgage obligations.  The net securities gains in the initial 2011 quarter resulted from $39 million of gains realized on the sale of investment securities available for sale having an amortized cost of approximately $484 million.  Partially offsetting those securities gains were $16 million of other-than-temporary impairment charges related to certain of M&T's holdings of privately issued collateralized mortgage obligations.  Due largely to the Wilmington Trust acquisition, M&T sold the securities in order to manage its balance sheet size and composition and the resultant capital ratios.  The net losses in the second quarter of 2010 were predominantly due to other-than-temporary impairment charges on investment securities.  

Excluding gains and losses from investment securities in all periods and the gain recorded in the recent quarter related to the Wilmington Trust acquisition, noninterest income in the second quarter of 2011 aggregated $353 million, improved from $296 million in the year-earlier quarter and $291 million in the initial quarter of 2011. Contributing to the rise from the year-earlier quarter were significantly higher trust income, predominantly due to the Wilmington Trust transaction, letter of credit and other credit-related fees and gains on the sale of previously leased equipment, partially offset by lower service charges on consumer deposit accounts.  The recent quarter's improvement in noninterest income as compared with the initial 2011 quarter resulted from higher trust income, due to the Wilmington Trust acquisition, and higher consumer service charges and other fee income.  Wilmington Trust-related revenues in the recent quarter added $54 million to other income, including $46 million to trust income and $4 million to deposit service charges.

Noninterest expense in the second quarter of 2011 totaled $577 million, compared with $476 million in the year-earlier quarter and $500 million in the first quarter of 2011.  Included in such amounts are expenses considered to be nonoperating in nature consisting of amortization of core deposit and other intangible assets and merger-related expenses.  Exclusive of those expenses, noninterest operating expenses were $525 million in the recent quarter, compared with $461 million in the second quarter of 2010 and $483 million in 2011's initial quarter.  As compared with the second quarter of 2010 and the first quarter of 2011, the recent quarter's higher level of operating expenses was due, in large part, to the operations obtained in the Wilmington Trust acquisition.  

The efficiency ratio, or noninterest operating expenses divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses from bank investment securities and merger-related gains), measures the relationship of operating expenses to revenues.  M&T's efficiency ratio was 55.6% in the second quarter of 2011, compared with 53.1% in the year-earlier period and 55.8% in the first quarter of 2011.  

Balance Sheet.  M&T had total assets of $77.7 billion at June 30, 2011, compared with $68.2 billion at June 30, 2010.  Loans and leases, net of unearned discount, were $58.5 billion at the recent quarter-end, compared with $51.1 billion a year earlier.  Total deposits rose to $59.2 billion at June 30, 2011 from $47.5 billion at June 30, 2010.

Total shareholders' equity increased to $9.2 billion at June 30, 2011 from $8.1 billion a year earlier, each representing 11.89% of total assets.  Common shareholders' equity was $8.4 billion, or $66.71 per share, at June 30, 2011, compared with $7.4 billion, or $61.77 per share, at June 30, 2010.  Tangible equity per common share rose 19% to $37.00 at the recent quarter-end from $31.15 a year earlier.  Common shareholders' equity per share and tangible equity per common share were $64.43 and $34.38, respectively, at March 31, 2011.  In the calculation of tangible equity per common share, common shareholders' equity is reduced by the carrying values of goodwill and core deposit and other intangible assets, net of applicable deferred tax balances.  M&T's tangible common equity to tangible assets ratio was 6.28% at June 30, 2011, compared with 5.75% and 6.44% at June 30, 2010 and March 31, 2011, respectively.

Conference Call.  Investors will have an opportunity to listen to M&T's conference call to discuss second quarter financial results today at 11:00 a.m. Eastern Time.  Those wishing to participate in the call may dial (877)780-2276.  International participants, using any applicable international calling codes, may dial (973)582-2700.  Callers should reference M&T Bank Corporation or the conference ID# 82574531. The conference call will be webcast live through M&T's website at http://ir.mandtbank.com/conference.cfm.  A replay of the call will be available until Friday, July 22, 2011 by calling (855)859-2056, or (404)537-3406 for international participants, and by making reference to ID# 82574531.  The event will also be archived and available by 7:00 p.m. today on M&T's website at http://ir.mandtbank.com/conference.cfm.  

M&T is a financial holding company headquartered in Buffalo, New York.  M&T's principal banking subsidiary, M&T Bank, operates retail and commercial bank branches in New York, Pennsylvania, Maryland, Virginia, West Virginia, Delaware, New Jersey, the District of Columbia and Ontario, Canada.  Trust-related services are provided by M&T's Wilmington Trust affiliated companies and by M&T Bank.

Forward-Looking Statements.  This news release contains forward-looking statements that are based on current expectations, estimates and projections about M&T's business, management's beliefs and assumptions made by management.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

Future Factors include changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; legislation affecting the financial services industry as a whole, and M&T and its subsidiaries individually or collectively, including tax legislation; regulatory supervision and oversight, including monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters; continued availability of financing; financial resources in the amounts, at the times and on the terms required to support M&T and its subsidiaries' future businesses; and material differences in the actual financial results of merger, acquisition and investment activities compared with M&T's initial expectations, including the full realization of anticipated cost savings and revenue enhancements.

These are representative of the Future Factors that could affect the outcome of the forward-looking statements.  In addition, such statements could be affected by general industry and market conditions and growth rates, general economic and political conditions, either nationally or in the states in which M&T and its subsidiaries do business, including interest rate and currency exchange rate fluctuations, changes and trends in the securities markets, and other Future Factors.

INVESTOR CONTACT:
Donald J. MacLeod
(716) 842-5138

MEDIA CONTACT:
C. Michael Zabel
(716) 842-5385

SOURCE M&T Bank Corporation