M&T Bank Corporation (MTB)

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M&T Bank Corp., (MTB)

Q3 2010 Earnings Conference Call

October 20, 2010 10:34 am ET

Executives

Donald McLeod - Director of Investor Relations

Rene Jones - Chief Financial Officer

Analysts

Bob Ramsey - FBR Capital Markets

John Pancari - Evercore Partners

Craig Siegenthaler - Credit Suisse

Steve Alexopoulos - JPMorgan Securities

John Fox - Fenimore Asset Management

Collyn Gilbert - Stifel Nicolaus

Matthew Clark - KBW

Jennifer Demba - SunTrust

[Lynn] - UBS

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the M&T Bank Third Quarter 2010 Earnings Call. (Operator instructions). After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions). Thank you.

I would now like to turn the conference over to Mr. Don McLeod, Director of Investor Relations. Sir, you may begin your conference.

Donald McLeod

Thank you Paula and good morning. I’d like to welcome everyone to M&T’s Third Quarter 2010 Earnings Conference Call, both by telephone and through the webcast. If you have not read our earnings release we issued earlier 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 may 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 believe with the last call this morning among our regional and sub-regional peers so when we’re finished you can settle down and try to assess what it all means.

I’d like to cover the highlights of the recent quarter, after which I’ll take your questions. For the third quarter of 2010, diluted earnings per common share were $1.48, up from $1.46 in the previous quarter, and $0.97 in the third quarter of 2009. Net income for the recent quarter was $192 million, up from 189 million in the linked quarter and $128 million in last year’s third quarter.

Recall that our GAAP results for the third quarter of ’09 included $9 million of after tax merger related benefit arising from a gain on the Bradford Bank acquisition, which was partially offset by merger related expenses arising from both the Provident and Bradford transactions. There were no merger related expenses in this year’s second or third quarter.

Our results for the third quarter of 2010 included after tax expense from the amortization of intangible assets amounting to $8 million or $0.07 per share. This compares to $9 million and $0.07 per common share in the linked quarter and $10 million or $0.09 per common share in the year ago quarter.

Net operating income, which excludes the amortization of intangibles, as well as the net merger related benefit in last year’s third quarter was $200 million for the recent quarter, up from $198 million in the linked quarter and $129 million in last year’s third quarter.

Diluted net operating income per share was at $1.55 for the third quarter of 2010, up from $1.53 per share in the prior quarter and up 58% from the $0.98 per share in last year’s third quarter. And according to 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 $576 million for the third quarter, up from $573 million in the linked quarter and up 4% from 553 million in the third quarter of 2009. The net interest margin expanded slightly during the quarter, rising to 3.87% from 3.84% in the second quarter of 2010 and was up 26 basis points from the 3.61% in last year’s third quarter.

The yield on earnings assets was up about 2 basis points during the quarter, primarily reflecting favorable loan re-pricing. We also realized the benefit of prepayment penalties and the recognition of cash interest payments on non-accruing loans that was comparable to the levels that we saw in the second quarter.

The cost of funds declined by 1 basis point, reflecting the benefit of a shift in mix of core deposits from time deposits to non maturity savings product.

Looking forward, we seem to be on track with our previous comments back in January that our full year margin would not likely be higher than 380 to 385. Through the first 9 months of 2010, the margin was 3.83%.

As for the balance sheet, average earnings assets declined by an annualized 5% as compared to the second quarter of 2010 and this included the impact from $382 million decrease in investment securities and a $443 million or 3% annualized decline in average loan balances.

On an end of period basis, total loans for this year’s third quarter declined by 270 million or 2% annualized from the end of the prior quarter. On the same basis by category, C&I loans declined by 229 million or 7% annualized. Commercial real estate loans declined by $33 million or 1%. Consumer loans also declined by $33 million or 1% while residential real estate loans grew by $25 million or 2%. Despite the overall pressure on loan volumes, we’ve seen a few encouraging signs. On an end of period basis, the pace of decline in total loans is flowed from rates seen in each of this year’s first and second quarters. In the final month of the quarter, we saw a growth in commercial and industrial loans and stable commercial real estate loans.

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