M&T Bank Corporation (MTB)

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M&T Bank Corporation (MTB)

Q2 2014 Earnings Conference Call

July 17, 2014 11:00 am ET

Executives

Donald J. MacLeod - Administrative Vice President and Assistant Secretary

Rene F. Jones - Vice Chairman and Chief Financial Officer

Analysts

Bob Ramsey - FBR Capital

Keith Murray - ISI

Eric Wasserstrom - SunTrust Robinson Humphrey

Brian Klock - Keefe, Bruyette & Woods

Ken Usdin - Jefferies & Co.

Jeffrey Elliott - Autonomous Research

Bill - Nomura

Erika Najarian - Bank of America/Merrill Lynch

Matt Burnell - Wells Fargo Securities

Sameer Gokhale - Janney Montgomery Scott

Sachin Shah - Albert Fried

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the M&T Bank Second Quarter 2014 Earnings 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) Thank you. I would now like to turn the conference over to Mr. Don MacLeod, Director of Investor Relations. Sir, you may begin your conference.

Donald J. MacLeod

Thank you, Paula, and good morning everyone. This is Don MacLeod. I'd like to thank everybody for participating in M&T's second quarter 2014 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 Web-site, 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 F. Jones

Thank you, Don, and good morning everyone, and thank you for joining us on the call. Our results for this quarter were strong and relatively straightforward. As we noted in the press release, we experienced an uptick in customer activity during the second quarter from what had been an unusually slow first quarter.

In addition to an uptick in loan growth, the improvement was reflected in our Wilmington Trust fee businesses and mortgage banking as well as deposit service charges. Credit metrics remained solid and M&T's balance sheet measures continue to strengthen. Operating expenses remained elevated as we continue to make significant progress on our regulatory initiatives including BSA/AML compliance and our overall risk management activities.

As we usually do, I'll start by reviewing a few of the highlights from M&T's second quarter results, after which Don and I will be happy to take your questions. Looking at the numbers, diluted GAAP earnings per common share were $1.98 for the second quarter of 2014, improved from $1.61 in the first quarter but down from $2.55 in the second quarter of 2013. Net income for the recent period was $284 million, increased from $229 million in the prior quarter. Net income was $348 million in the year ago quarter.

Noteworthy items included in the second quarter's results were an $8 million reduction in M&T's accrual for income taxes, which followed resolution with the taxing authorities of previously uncertain tax position, and a $12 million addition to M&T's litigation reserve which amounts to $7 million after tax. Prior to M&T's acquisition of Wilmington Trust Corporation, the SEC commenced a civil investigation of Wilmington Trust financial reporting and securities filing. The addition to the reserve reflects our belief that we are nearing resolution of this matter. We have worked diligently to resolve some of the legacy issues while we continue to build on Wilmington Trust's historic strength, both in the Delaware community and in the wealth and investment services space.

Recall that results for the second quarter of 2013 included securities gains and reversal of a contingent compensation accrual that in aggregate increased net income by $49 million and diluted earnings per share by $0.38. 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 when they occur. After-tax expense from the amortization of intangible assets was $6 million or $0.04 per common share in the recent quarter compared with $6 million and $0.05 per share in the prior quarter.

M&T's net operating income for the second quarter, which excludes intangible amortization, was $290 million, up from $235 million in the linked quarter. Diluted net operating earnings per share were $2.02 for the recent quarter, up from $1.66 in the linked quarter. Net operating income yielded annualized rates of return on average tangible asset and average tangible common equity of 1.35% and 14.92% for the recent quarter. The comparable returns were 1.15% and 12.76% in the first quarter of 2014. In accordance with SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results including tangible assets and equity.

Turning to the balance sheet and the income statement, taxable equivalent net interest income was $675 million for the second quarter of 2014, an increase of $13 million from the linked quarter. The increase was attributable to higher levels of loans and investment securities as well as an additional day in the quarter. The net interest margin was 3.40% during the quarter, down 12 basis points, compared with 3.52% in the first quarter.

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