M&T Bank Corporation (MTB)

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M&T Bank (MTB)

Q3 2012 Earnings Call

October 17, 2012 10:30 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

Leanne Erika Penala - BofA Merrill Lynch, Research Division

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

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

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

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

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Collyn Bement Gilbert - Stifel, Nicolaus & Co., Inc., Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Presentation

Operator

Good morning. My name is Lynn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2012 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Don MacLeod, you may begin your conference.

Donald J. MacLeod

Thank you, Lynn, and good morning. This is Don MacLeod. I’d like to thank everyone for participating in M&T's Third Quarter 2012 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 made 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

Thanks, Don, and good morning, everyone. Thank you for joining us on the call today.

The third quarter was a busy one for us, including our announcement of the acquisition of Hudson City Bancorp near the end of August, as well as M&T's final exit from the TARP program through the U.S. Treasury's sales of its investment in M&T through a public offering.

As we noted in the press release, this year's third quarter financial results reflect good progress from across most of our core banking businesses, as well as a very favorable mortgage banking environment. I'll begin by reviewing some of the highlights, after which, Don and I will take your questions.

Turning to the specific numbers, diluted GAAP earnings per common share were $2.17 in the third quarter of 2012, up 27% from $1.71 earned in this year's second quarter and up 64% from the $1.32 earned in the third quarter of 2011.

Net income for the third quarter was $293 million, up 26% from $233 million in the linked quarter, and up 60% from $183 million in last year's third quarter.

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 acquisition activity.

There were no merger-related expenses in the recent quarter's results. However, M&T's results for the second quarter of 2012 included related -- merger-related expenses of $4 million after tax or $0.03 per common share related to the Wilmington Trust merger.

GAAP earnings in last year's third quarter included $16 million of after-tax merger-related expenses or $13 per share also related to the Wilmington deal.

After-tax expenses from the amortization of intangible assets was $9 million or $0.07 per common share in the recent quarter, down from $10 million or $0.08 per share in this year's second quarter.

After-tax amortization expense was $11 million or $0.08 per common share in last year's third quarter.

M&T's net operating income for the third quarter of 2012, which as noted, excludes the merger-related expenses and the intangible amortization, was $302 million, up 22% from -- up 22% from $247 million in the linked quarter and up 44% from $210 million in last year's third quarter.

Diluted net operating earnings per common share were $2.24 for the recent quarter, up 23% from $1.82 in the linked quarter and up 46% from $1.53 in the year-ago quarter.

Net operating income expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity was 1.56% and 21.53%, respectively, for the recent quarter, improved from 1.30% and 18.54% in the second quarter of 2012.

As usual, 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.

Next, I'd like to cover a few highlights from the balance sheet and the income statement.

Taxable equivalent net interest income was $669 million in the third quarter of 2012, up $14 million from $655 million in the prior quarter. The net interest margin expanded during the third quarter, increasing to 3.77%, up from 3.74% in the second quarter.

Major items impacting the comparison in the linked quarter were as follows: An estimated 5 basis points of the improvement is attributable to a lower level of excess liquidity held at the Federal Reserve. Average funds on deposits with the Fed declined to $151 million in the third quarter, down from $1.17 billion in the recent quarter.

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