M&T Bank Corporation (MTB)

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M&T Bank Corporation (MTB)

Q2 2010 Earnings Call

July 21, 2010; 10:30am ET

Executives

Rene Jones - Chief Financial Officer

Donald MacLeod - Administrative Vice President & Director of Investor Relations

Analysts

Steve Alexopoulos - JPMorgan Securities

Ken Zerbe - Morgan Stanley

Bob Ramsey - FBR Capital Markets

Matt O’Conner - Deutsche Bank

Matthew Clark - KBW

Ken Usdin - Bank of America

Collyn Gilbert - Stifel Nicolaus

Al Savastano - Macquarie

Presentation

Operator

Good morning. My name is Christine. I will be your conference operator today. At this time, I would like to welcome everyone to the M&T Bank second quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session (Operator Instructions).

I’d now turn the call over to Don MacLeod, Administrative Vice President and Director of Investor Relations. Please go ahead, sir.

Donald MacLeod

Thank you Christine, good morning everyone. I’d like to welcome everyone to M&T second quarter 2010 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 at 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, Rene Jones.

Rene Jones

Thank you Don, and welcome everyone. Thank you for joining us on the call today. I know that there have already been several earning calls this morning conducted by our peers, so you will certainly have a lot to digest. Let me cover the highlights briefly, after which I’ll your questions.

For the second quarter of 2010, diluted earnings per common share were $1.46, up from $1.15 in the previous quarter, and $0.36 in the second quarter of 2009. Net income for the recent quarter was $189 million compared with $151 million in the linked quarter and $51 million in last year's second quarter.

You’ll recall that our GAAP results for the second quarter of 2009 included $40 million of after-tax merger related expenses arising from the Provident acquisition. There were no merger related expenses in this year’s first or second quarters.

Our results for the second quarter of 2010 included after-tax expenses from the amortization of intangible assets amounting to $9 million or $0.07 per share. This compares with $10 million or $0.08 per common share in the linked quarter and $9 million or $0.08 per common share in the year-ago quarter.

Net operating income, which excludes the amortization of intangibles as well as the merger-related expenses in last year’s second quarter was $198 million for the recent quarter, up from $161 million in the linked quarter and $101 million in last year's second quarter.

Diluted net operating income per share was $1.53 for the second quarter of 2010, up 24% from the $1.23 per share in prior quarter and up 94% from the $0.79 per share in the second quarter of 2009. In accordance with the SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP to non-GAAP results including tangible assets and equity.

Turning to the balance sheet and income statement, taxable equivalent net interest income was $573 million for the second quarter, up 2% from $562 million in the linked quarter and up 13% from $507 million in the second quarter of 2009. The net interest margin expanded slightly during the second quarter rising to 3.84% from 3.78% in the first quarter of 2010 and was up significantly from 3.43% in last year's second quarter.

In comparing this year’s second quarter with the linked quarter, there were a lot of moving parts, but the six basis point increase could be simplified down to a few factors. More of our margin expansion came from the asset side this quarter. The higher average one-month LIBOR rate combined with higher prepayment penalties, some feels and interest received on pay downs and payoffs of non-accrual loans, all contributed to an eight basis point increase in the loan yield as compared with the linked quarter.

This was dampened by higher wholesale funding costs, also primarily driven by higher one and three months LIBOR rates. There was also a modest negative impact from a one additional day in the quarter.

Our comments earlier this year indicated a stable outlook for the net interest margin from the first quarter levels with a small bias to the upside. That outlook was based on the forward curve, which indicated action by the Fed to increase short-term rates in the second half of the year. What we saw during the second quarter was no action by the Fed, but nevertheless an increase in short-term LIBOR rates in the marketplace, which led to slightly more upside in the margin for the quarter, given our asset-sensitive position.

As for the balance sheet, average earnings assets declined by $520 million or about 3.5% annualized as compared to the first quarter of 2010. A $203 million increase in investment securities was more than offset by a $670 million decline in average loan balances. On an end of period basis, total loans for this year’s second quarter declined by $383 million. The majority of that decline resulted from the pay down, payoff, charge-off or foreclosure of non-accrual loans during the quarter, which I’ll discuss in more detail in a moment.

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