M&T Bank Corporation (MTB)

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M&T Bank (MTB)

Q2 2011 Earnings Call

July 20, 2011 11:00 am ET

Executives

Unknown Speaker -

Donald MacLeod - Vice President and Assistant Secretary

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

Analysts

Todd Hagerman - Sterne Agee & Leach Inc.

Collyn Gilbert - Stifel, Nicolaus & Co., Inc.

John Fox - Fenimore Asset Management

Ken Zerbe - Morgan Stanley

L. Erika Penala

John Pancari - Evercore Partners Inc.

Kenneth Usdin - Jefferies & Company, Inc.

Gary Lu

Gerard Cassidy - RBC Capital Markets, LLC

Bob Ramsey - FBR Capital Markets & Co.

Matthew Clark - Keefe, Bruyette, & Woods, Inc.

Marty Mosby - Guggenheim Securities, LLC

Steven Alexopoulos - JP Morgan Chase & Co

Presentation

Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the M&T Bank Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Don MacLeod, Director of Investor Relations. Please go ahead.

Donald MacLeod

Thank you, Melissa, and good morning. This is Don MacLeod. I would like to thank everyone for participating in M&T's second quarter 2011 earnings conference call, both by telephone and through the webcast. If you have not read the earnings release that 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 would like to introduce our Chief Financial Officer, René Jones.

René Jones

Thank you, Don, and good morning, everyone. Thank you for joining us on the call today. As you know, the recent quarter was an eventful one for M&T. A few items worth noting, specifically, were the closing of the merger with Wilmington Trust, a purchase of Wilmington Trust TARP preferred stock from the U.S. Treasury immediately prior to the closing, the future, further repositioning of M&T's balance sheet in connection with the merger, our issuance of $500 million of perpetual preferred stock and our action to retire $370 million of M&T's own TARP preferred stock.

I'll cover the highlights from the earnings release, as well as the impact from these items. And then I'll take your questions.

Turning to the specific numbers, for the second quarter of 2011, diluted earnings per common share were $2.42, up from $1.59 in the prior quarter and up 66% from $1.46 in last year's second quarter. Net income for the recent quarter was $322 million compared with $206 million in the linked quarter and $189 million in last year's second quarter.

Completion of the merger with Wilmington Trust during the quarter resulted in a net after-tax gain of $42 million or $0.33 per common share. The net gain is comprised of a non-taxable gain of $65 million, which was partially offset by after-tax merger-related expenses of $23 million. M&T's results for the first quarter of 2011 included $3 million of after-tax merger-related expenses amounting to $0.02 per share. We expect additional merger-related expenses will be incurred in the third and fourth quarters of 2011. There were no merger-related expenses in the year-ago quarter.

Results for the recent quarter included $51 million of net after-tax securities gains amounting to $0.41 per common share. These net gains were the result of our continued program to reposition the balance sheet so as to enhance both capital ratios and the liquidity profile of the combined M&T and Wilmington Trust.

During the second quarter, we sold securities with an aggregate book value of $1.2 billion, including just over $1 billion of agency MBS and some $200 million of credit-sensitive trust-preferred securities and trust-preferred CDOs. Gains from these sales were partially offset by other-than-temporary impairment charges in our portfolio of private label MBS.

Net after-tax security gains in this year's first quarter were $14 million or $0.12 per common share. To partially replace the securities that were sold, we purchased $1.2 billion of lower risk-weighted Ginnie Mae pass-throughs during the recent quarter. While we have completed our sale of securities, the reinvestment into lower risk-weighted assets will likely extend into this year's third quarter.

Also included in our GAAP earnings for this year's second quarter was the after-tax expense from the amortization of intangible assets amounting to $9 million or $0.07 per common share. This compares with $7 million or $0.06 per common share in the linked quarter and $9 million or $0.07 per common share in the year-ago quarter. Net operating income, which excludes the amortization of intangibles, as well as merger-related items I mentioned, was $289 million or $2.16 per common share for the second quarter of 2011, compared with $216 million or $1.67 per common share in the linked quarter and $198 million or $1.53 per common share in last year's second quarter.

As previously noted, immediately prior to the closing of the merger, we purchased $330 million of Wilmington Trust TARP preferred stock that had been issued to the U.S. Treasury Department. That stock was then retired through the consummation of the merger. In addition, we retired $370 million of TARP preferred stock that M&T had issued to the Treasury Department. This purchase resulted in the partial acceleration of the amortization of the discount on that preferred stock, which was reflected as a net after-tax $9 million decrease to our net income available to common shareholders.

Lastly, we issued $500 million of non-cumulative perpetual preferred stock during this quarter. This issue has a fixed 6.875% non-cumulative dividend. It's called to at par in 5 years, and also has a regulatory event call at par as well, should it no longer qualify as Tier 1 capital. This issue also had a minimal impact on M&T's results for the recent quarter. As under GAAP, dividends for this stock are recorded when declared. In accordance with the guidelines, this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results including tangible assets and equity.

The annualized return on average tangible assets and average tangible common shareholders' equity was 1.69% and 24.4% for the recent quarter compared with 1.36% and 20.16% in the first quarter of 2011. Excluding the net securities gains from both periods, return on average on tangible assets was 1.39%, and the return on tangible equity was 19.75% in the second quarter of 2011. Those ratios were 1.27% and 18.75%, respectively, in the prior quarter.

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