M&T Bank Corporation (MTB)

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M&T Bank (MTB)

Q2 2013 Earnings Call

July 17, 2013 11:00 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

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

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

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

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

Erika Penala - BofA Merrill Lynch, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

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 M&T Bank's Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Don MacLeod, Director of Investor Relations. Please go ahead.

Donald J. MacLeod

Thank you, Jackie, and good morning. This is Don MacLeod. I’d like to thank, everyone, for participating in M&T's Second Quarter 2013 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. Thank you for joining us on the call today.

As I noted in the press release, our earnings quality remained strong in the recent quarter, including higher net interest income, comparatively strong mortgage banking revenues and above average credit quality. We took advantage of favorable market conditions by executing prudent balance sheet actions that enhanced our liquidity, capital and long-term return profile, while continuing to serve the needs of our communities in a relatively competitive landscape and an evolving regulatory environment.

Let's review the detail of the quarter's results. After which, Don and I will be happy to take your questions.

Turning to the specific numbers. Diluted GAAP earnings per share, common share were $2.55 in the second quarter of 2013, up 29% from $1.98 in this year's first quarter and up 49% from $1.71 in last year's second quarter.

Net income for the recent quarter was $348 million, up from $274 million in the prior quarter. Net income was $233 million in the second quarter of 2012.

During the quarter, we took advantage of some -- of the stronger risk appetite from investors in the current low interest rate environment by selling over $1 billion of private label mortgage-backed securities previously held in our available-for-sale investment portfolio. The after-tax loss on the sale amounted to $28 million or $0.22 per common share. This transaction resulted in higher liquidity and capital and removed a risk-sensitive asset, which had been generating substantially all of our other-than-temporary impairment charges, from our balance sheet, and assists us in preparation for entering the 2014 CCAR process.

Also during the quarter, we sold our holdings of Visa and MasterCard common stock, which we had received through the restructuring of those companies back before the financial crisis. The after-tax gain amounted to $62 million or $0.48 per common share.

Lastly, following the second anniversary of the Wilmington Trust merger, we reversed an accrual for a contingent compensation obligation assumed in that transaction. The result is a reduction of noninterest expense, having an after-tax impact of $15 million or $0.12 per common share. Taken together, these 3 items contributed $50 million to net income for the quarter or $0.38 per common share.

Since 1998, M&T has consistently provided supplemental reporting of its results on a net operating or tangible basis, from which we exclude the after-tax effect of amortization of intangible assets, as well as expenses and gains associated with mergers and acquisitions.

Included in GAAP earnings for the second quarter of 2013 were after-tax, merger-related expenses related to Hudson City that were incurred early in the quarter and which amounted to $5 million or $0.04 per common share. This compares with $3 million or $0.02 per share in the prior quarter. After-tax expenses from the amortization of intangible assets was $8 million or $0.06 per common share, unchanged from the prior quarter.

Net operating income for the quarter, which excludes those merger-related expenses and intangible amortization, was $361 million compared with $285 million in the linked quarter.

Diluted net operating earnings per common share were $2.65 for the recent quarter, up 29% from $2.06 in the linked quarter. Net operating income, expressed as an annualized rate of return on average tangible assets and average tangible common equity, was 1.81% and 22.72% for the recent quarter. The comparable returns were 1.48% and 18.71% in the first quarter of 2013.

In accordance with SEC guidelines, this morning press release -- this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results, including tangible assets and equity.

Read the rest of this transcript for free on seekingalpha.com