M&T Bank Corporation Announces Third Quarter Results

BUFFALO, N.Y., Oct. 19, 2016 /PRNewswire/ -- M&T Bank Corporation ("M&T")(NYSE: MTB) today reported its results of operations for the quarter ended September 30, 2016.

GAAP Results of Operations.  Diluted earnings per common share measured in accordance with generally accepted accounting principles ("GAAP") for the third quarter of 2016 were $2.10, up 9% from $1.93 in the year-earlier quarter.  GAAP-basis net income in the recent quarter aggregated $350 million, 25% higher than $280 million in the third quarter of 2015.  Diluted earnings per common share and GAAP-basis net income were $1.98 and $336 million, respectively, in 2016's second quarter.  GAAP-basis net income for the third quarter of 2016 expressed as an annualized rate of return on average assets and average common shareholders' equity was 1.12% and 8.68%, respectively, compared with 1.13% and 8.93%, respectively, in the year-earlier quarter and 1.09% and 8.38%, respectively, in 2016's second quarter.  During the recent quarter, M&T sold substantially all of the collateralized debt obligations held in its available-for-sale investment securities portfolio.  As a result, net gains on investment securities totaled $17 million after applicable tax effect, or $.11 of diluted earnings per common share.

Commenting on M&T's financial performance, Darren J. King, Executive Vice President and Chief Financial Officer, noted, "Third quarter results posted by M&T were highlighted by a 16% rise in mortgage banking revenues, strong growth in the commercial real estate and commercial loan portfolios and continued solid credit performance.  The favorable results were achieved in a period where the low interest rate environment continued to pressure M&T's net interest margin and where we continued to invest for the future.  During the recent quarter, M&T successfully divested certain investments that were subject to the 'Volcker Rule'."

For the first nine months of 2016, diluted earnings per common share were $5.80, up 4% from $5.56 in the corresponding period of 2015.  GAAP-basis net income for the nine-month period ended September 30, 2016 aggregated $985 million, 22% higher than $809 million in the year-earlier period.  Expressed as an annualized rate of return on average assets and average common shareholders' equity, GAAP-basis net income for the first nine months of 2016 was 1.06% and 8.17%, respectively, compared with 1.11% and 8.77%, respectively, in the similar 2015 period.

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 expenses associated with merging acquired operations into M&T, since such items are considered by management to be "nonoperating" in nature.  The amounts of such "nonoperating" expense are presented in the tables that accompany this release.  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. 

Diluted net operating earnings per common share were $2.13 in the third quarter of 2016, up 9% from $1.95 in the year-earlier quarter and up 3% from $2.07 in the second quarter of 2016.  Net operating income during the recent quarter was $356 million, compared with $283 million in the third quarter of 2015 and $351 million in 2016's second quarter.  Expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity, net operating income was 1.18% and 12.77%, respectively, in the recent quarter, 1.18% and 12.98%, respectively, in the third quarter of 2015 and 1.18% and 12.68%, respectively, in the second quarter of 2016. 

Diluted net operating earnings per common share in the first nine months of 2016 were $6.07, up 8% from $5.64 in the corresponding period of 2015.  Net operating income during the nine-month period ended September 30, 2016 was $1.03 billion, compared with $819 million in the similar 2015 period.  Net operating income expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity was 1.15% and 12.36%, respectively, in the first nine months of 2016, compared with 1.17% and 12.89%, respectively, in the first nine months of 2015.

Taxable-equivalent Net Interest Income.  Net interest income expressed on a taxable-equivalent basis totaled $865 million in the third quarter of 2016, up 24% from $699 million in the year-earlier quarter.  Contributing to that improvement was a 28% increase in average earning assets, which grew to $112.9 billion in the recent quarter from $88.4 billion in the third quarter of 2015.  That growth reflects the November 2015 acquisition of Hudson City Bancorp, Inc. ("Hudson City") that added approximately $16.2 billion in average loans in the recent quarter.  In total, average loans in 2016's third quarter were $88.7 billion, up $20.9 billion, or 31%, from the year-earlier quarter.  Partially offsetting the favorable impact of the asset growth was a 9 basis point narrowing of the net interest margin to 3.05% in the recent quarter from 3.14% in the third quarter of 2015.  That narrowing reflects the ongoing impact of low interest rates on yields on securities and newly originated loans and higher balances on deposit at the Federal Reserve Bank of New York.  As a result of the challenging interest rate environment, taxable-equivalent net interest income in the recent quarter was 1% lower than $870 million in the second quarter of 2016.  A $992 million increase in average earning assets as compared with the second 2016 quarter, including a $577 million increase in average loans and leases, was offset by an 8 basis point compression of the net interest margin.

Provision for Credit Losses/Asset Quality.  The provision for credit losses was $47 million in the recent quarter, compared with $44 million in the third quarter of 2015 and $32 million in 2016's second quarter. Net charge-offs of loans were $41 million during the third quarter of 2016, compared with $40 million and $24 million in the third quarter of 2015 and second quarter of 2016, respectively.  Expressed as an annualized percentage of average loans outstanding, net charge-offs were .19% and .24% in the third quarter of 2016 and 2015, respectively, and .11% in the second quarter of 2016.

Loans classified as nonaccrual totaled $837 million, or .93% of total loans outstanding at September 30, 2016 and $849 million or .96% at June 30, 2016, compared with $787 million or 1.15% at September 30, 2015.  The higher level of nonaccrual loans at the two most recent quarter-ends as compared with September 30, 2015 reflects the normal migration of previously performing loans obtained in the acquisition of Hudson City that became past due over 90 days during the first nine months of 2016, and, as such, were not identifiable as purchased impaired as of the acquisition date.  Assets taken in foreclosure of defaulted loans totaled $160 million at September 30, 2016, compared with $66 million a year earlier and $172 million at June 30, 2016.  The higher level of such assets at the two most recent quarter-ends as compared with September 30, 2015 also resulted from residential real estate properties associated with the Hudson City acquisition.

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.  As a result of those analyses, the allowance for credit losses totaled $976 million or 1.09% of loans outstanding at September 30, 2016, compared with $970 million or 1.10% at June 30, 2016 and $934 million or 1.36% at September 30, 2015.  The lower ratios at June 30 and September 30, 2016 as compared with September 30, 2015 reflect the impact of residential real estate loans acquired in the Hudson City transaction.

Noninterest Income and Expense.  Noninterest income totaled $491 million in the recent quarter, up  from $440 million in the third quarter of 2015 and $448 million in the second quarter of 2016. Reflected in noninterest income in the recent quarter were $28 million of pre-tax gains from the sale of investment securities that had been obtained in acquisitions.  There were no significant gains or losses on investment securities in the third quarter of 2015 or in the second quarter of 2016.  In addition to the investment securities gains, mortgage banking revenues also contributed to the rise in noninterest income as compared with the two earlier quarters.

Noninterest expense in the third quarter of 2016 totaled $752 million, compared with $750 million in the second quarter of 2016 and $654 million in the third quarter of 2015.  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 $743 million in the recent quarter, $726 million in the second quarter of 2016 and $650 million in the third quarter of 2015. Contributing to the higher level of operating expenses in the two most recent quarters as compared with the third quarter of 2015 was the impact of operations obtained in the Hudson City acquisition.  As compared with the second quarter of 2016, the higher level of operating expenses in the recent quarter reflects increased FDIC assessments and higher advertising and promotion costs. 

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), measures the relationship of operating expenses to revenues.  M&T's efficiency ratio was 55.9% in the recent quarter, 57.1% in the year-earlier quarter and 55.1% in the second quarter of 2016.

Balance Sheet.  M&T had total assets of $126.8 billion at September 30, 2016 and $123.8 billion at June 30, 2016, up from $97.8 billion at September 30, 2015.  Loans and leases, net of unearned discount, totaled $89.6 billion at September 30, 2016, $21.1 billion or 31% above $68.5 billion a year earlier and up an annualized 5% from $88.5 billion at June 30, 2016.  During the recent quarter, loans to commercial customers grew $1.8 billion, while residential real estate loans, largely comprised of mortgage loans obtained in the Hudson City acquisition, declined $946 million.  Total deposits increased to $98.1 billion at the recent quarter-end from $72.9 billion at September 30, 2015 and $94.7 billion at June 30, 2016. 

Total shareholders' equity rose 26% to $16.3 billion at September 30, 2016 from $12.9 billion a year earlier, representing 12.88% and 13.21%, respectively, of total assets.  Common shareholders' equity was $15.1 billion, or $97.47 per share, at September 30, 2016, compared with $11.7 billion, or $87.67 per share, at September 30, 2015.  Tangible equity per common share of $67.42 at September 30, 2016 was up 10% from $61.22 at September 30, 2015.  Common shareholders' equity per share and tangible equity per common share were $96.49 and $66.95, respectively, at June 30, 2016.  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 estimates that the ratio of Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was approximately 10.76% at September 30, 2016.

In accordance with its 2016 capital plan, M&T repurchased 3,039,563 shares of its common stock during the recent quarter at an average cost per share of $115.15, for a total cost of $350 million.  During the first nine months of 2016, M&T repurchased 5,307,595 shares of its common stock at an average cost per share of $113.80, for a total cost of $604 million.

Conference Call.  Investors will have an opportunity to listen to M&T's conference call to discuss third 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 #87013497.  The conference call will be webcast live through M&T's website at http://ir.mandtbank.com/events.cfm. A replay of the call will be available through Saturday, October 22, 2016 by calling (800)585-8367, or (404)537-3406 for international participants, and by making reference to ID #87013497.  The event will also be archived and available by 7:00 p.m. today on M&T's website at http://ir.mandtbank.com/events.cfm.

M&T is a financial holding company headquartered in Buffalo, New York.  M&T's principal banking subsidiary, M&T Bank, operates banking offices in New York, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia and the District of Columbia.  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; the impact of changes in market values on trust-related revenues; 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 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.