M&T Bank Corporation (MTB)

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M&T Bank (MTB)

Q4 2012 Earnings Call

January 16, 2013 10:30 am ET

Executives

Donald J. MacLeod - Vice President and Assistant Secretary

René F. Jones - Chief Financial Officer, Executive Vice President, Chief Financial Officer of M & T Bank and Executive Vice President of M & T Bank

Analysts

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

Brian Foran

Bob Ramsey - FBR Capital Markets & Co., Research Division

Erika Penala - BofA Merrill Lynch, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division

Brian Klock - Keefe, Bruyette, & Woods, Inc., Research Division

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

Stephen Mead - Anchor Capital Advisors, LLC

Presentation

Operator

Good morning. My name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Fiscal Year 2012 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Don MacLeod, Director of Investor Relations. Please go ahead.

Donald J. MacLeod

Thank you, and good morning, everyone. This is Don MacLeod. I’d like to thank everyone for participating in M&T's Fourth Quarter 2012 Earnings Conference Call, both by telephone and through the webcast.

If you have not read the earnings release we issued this morning, you may access it, along with the financial tables and schedules, from our website, www.mtb.com, and by clicking on the Investor Relations link.

Also, before we start, I'd like to mention that comments made during this call might contain forward-looking statements relating to the banking industry and to M&T Bank Corporation. M&T encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-K and 10-Q, for a complete discussion of forward-looking statements.

Now I’d like to introduce our Chief Financial Officer, René Jones.

René F. Jones

Thank you, Don, and good morning, everyone. And thank you for joining us on the call today to discuss the fourth quarter, as well as our full year results.

Let me begin by reiterating some of my comments from this morning's press release. This past year was one of tremendous accomplishment at M&T. For the full year, net income and earnings per share reached a new high, exceeding those earned in 2006, the last full year prior to the financial crisis.

We successfully completed the integration of Wilmington -- of the Wilmington Trust merger and took the final step -- final major step in the integration process by completing the conversion of the trust systems and operations into a single platform. Retention of the Wilmington Trust customer base has exceeded our expectations.

We completed our exit from the TARP program last August by agreeing to amend the terms of that instrument and assisting in its sale by the United States Treasury through a public offering. We were able to capitalize on the disruption from HSBC's decision to exit upstate New York markets and, as a result, increased our sale of customer and business relationships in those markets.

We saw continued improvement in credit trends, with net charge-offs for the year down 30% to 30 basis points of average loans. We continue to build our capital ratios through earnings retention, with the tangible common equity ratio increasing 80 basis points from the end of 2011, yet our return to shareholders improved.

And lastly, we entered into an agreement to purchase Hudson City Bancorp, subject to the approval of the regulators and the shareholders of both companies. All of these accomplishments were attributable to the extraordinary efforts of our dedicated employees this past year.

Turning to the numbers. Diluted GAAP earnings per common share were $2.16 in the fourth quarter of 2012 compared with $2.17 earned in the previous quarter. Net income for the recent quarter was $296 million, up from $293 million in the linked quarter.

M&T has consistently provided supplemental reporting of its results on a net operating or tangible basis from which we exclude after-tax effect of amortization of intangible assets, as well as expenses and gains associated with mergers and acquisitions when incurred. After-tax expense from the amortization of intangible assets was $8 million or $0.07 per common share in the recent quarter compared with $9 million in the third quarter, also amounting to $0.07 per share. There were no merger-related expenses in either of the past 2 quarters.

Diluted net operating earnings per common share were $2.23 for the recent quarter compared with $2.24 for the linked quarter. M&T's net operating income for the fourth quarter, which excludes the amortization expense I mentioned, was $305 million, up from $302 million in the linked quarter.

Net operating income expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity was 1.56% and 20.46%, respectively, for the fourth quarter of 2012 compared with 1.56% and 21.53% in the recent quarter. In accordance with the SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results, including tangible assets and equity.

Next, I'd like to cover a few highlights from the balance sheet and income statement. Taxable-equivalent net interest income was $674 million for the fourth quarter of 2012, up from $669 million in the linked quarter. The net interest margin contracted to 3.74% during the fourth quarter, down 3 basis points from 3.77% in the third quarter.

For the most part, the reduction in margin as compared with the third quarter came as a result of what I'd call core margin pressure -- core margin compression, as pressure on the loan yields, which declined 6 basis points, was partially offset by a lower cost of funds. The items that usually have an impact on the linked quarter margin comparison, such as prepayment penalties, noninterest -- interest on nonaccrual loans, were consistent with the third quarter.

Interest income from acquired loans was $78 million in the fourth quarter, down from $87 million in the prior quarter. However, the average balance of acquired loans declined to $6 million -- excuse me, $6 billion in the fourth quarter from $6.8 billion in the third quarter, thus the yield on the acquired loan portfolio was little changed from the third quarter.

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