M&T Bank Corporation Announces Second Quarter Profits

BUFFALO, N.Y., July 21 /PRNewswire-FirstCall/ -- M&T Bank Corporation ("M&T")(NYSE: MTB) today reported its results of operations for the quarter ended June 30, 2010.

GAAP Results of Operations.  Diluted  earnings per common share measured in accordance with generally accepted accounting principles ("GAAP") for the second quarter of 2010 rose 306% to $1.46 from $.36 in the second quarter of 2009 and were 27% higher than $1.15 in the initial 2010 quarter.  GAAP-basis net income in the recent quarter aggregated $189 million, up from $51 million and $151 million in the second quarter of 2009 and the first quarter of 2010, respectively.  GAAP-basis net income for the second quarter of 2010 expressed as an annualized rate of return on average assets and average common stockholders' equity was 1.11% and 9.67%, respectively, improved from .31% and 2.53%, respectively, in the year-earlier quarter and .89% and 7.86%, respectively, in the first quarter of 2010.

The recent quarter's earnings as compared with the second quarter of 2009 reflects a significant rise in net interest income, resulting from a widening of the net interest margin, and a lower provision for credit losses.  Also contributing to the improved performance as compared with the year-earlier quarter were lower assessments by the Federal Deposit Insurance Corporation ("FDIC") and acquisition-related expenses incurred in 2009's second quarter associated with M&T's acquisition of Provident Bankshares Corporation ("Provident") on May 23, 2009 related to systems conversions and other costs of integrating operations and introducing Provident's former customers to M&T's products and services.  Such costs aggregated $40 million, after applicable tax effect, or $.35 of diluted earnings per common share, in the second quarter of 2009.  Increases in net interest income, service charges on deposit accounts and mortgage banking revenues combined with declines in the provision for credit losses and personnel costs contributed to the rise in net income as compared with the initial 2010 quarter.  

Reflecting on M&T's second quarter performance, Rene F. Jones, Executive Vice President and Chief Financial Officer, noted, "This quarter's results were strong in every respect.  Performance metrics including net interest margin, the efficiency ratio, credit costs and our capital position all improved during the quarter.  Of note, the net interest margin continued to widen, up six basis points to 3.84% from 3.78% in the first quarter, while average core deposits grew an annualized 4%.  At the same time, we strengthened our tangible common equity ratio to 5.75% at June 30, 2010 from 5.43% at March 31, 2010."

Supplemental Reporting of Non-GAAP Results of Operations.  M&T consistently provides supplemental reporting of its results on a "net operating" or "tangible" basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and expenses and gains associated with merging acquired operations into M&T, since such items are considered by management to be "nonoperating" in nature.  Although "net operating income" as defined by M&T is not a GAAP measure, M&T's management believes that this information helps investors understand the effect of acquisition activity in reported results.  Reconciliations of GAAP to non-GAAP measures are provided in the financial tables included herein.  

Diluted net operating earnings per common share, which exclude the impact of amortization of core deposit and other intangible assets and merger-related expenses and gains, increased for the fifth consecutive quarter, totaling $1.53 in the recent quarter, up from $.79 and $1.23 in the second quarter of 2009 and the first quarter of 2010, respectively.  Net operating income during the second quarter of 2010 was $198 million, compared with $101 million and $161 million in the second quarter of 2009 and the first quarter of 2010, respectively.  Expressed as an annualized rate of return on average tangible assets and average tangible common stockholders' equity, net operating income was 1.23% and 20.36%, respectively, in the recently completed quarter, compared with .64% and 12.08% in the second quarter of 2009 and 1.00% and 17.34% in the initial 2010 quarter.

Taxable-equivalent Net Interest Income.  Taxable-equivalent net interest income totaled $573 million in the second quarter of 2010, up 13% from $507 million in the year-earlier period and 2% higher than $562 million in the first quarter of 2010.  The significant improvement from the second quarter of 2009 was predominantly the result of a 41 basis point widening of the net interest margin to 3.84% in the recent quarter from 3.43% in the year-earlier quarter.  The increase in taxable-equivalent net interest income from the initial 2010 quarter was due to a six basis point widening of the net interest margin, partially offset by a 1% decline in average earning assets.

Provision for Credit Losses/Asset Quality.  The provision for credit losses was $85 million in the recent quarter, improved from $147 million in the second quarter of 2009 and $105 million in the initial quarter of 2010.  Net charge-offs of loans totaled $82 million during the second 2010 quarter, down from $138 million and $95 million in the second quarter of 2009 and the first quarter of 2010, respectively.  Expressed as an annualized percentage of average loans outstanding, net charge-offs were .64% and 1.09% in the second quarter of 2010 and 2009, respectively, and .74% in the first quarter of 2010.

Loans classified as nonaccrual aggregated $1.09 billion, or 2.13% of total loans at June 30, 2010, compared with $1.11 billion or 2.11% a year earlier and $1.34 billion or 2.60% at March 31, 2010.  Assets taken in foreclosure of defaulted loans were $193 million at June 30, 2010, up from $90 million at June 30, 2009 and $95 million at March 31, 2010.  The increase in such assets at the recent quarter-end resulted from the transfer of collateral related to a commercial real estate loan that was placed in nonaccrual status during the fourth quarter of 2009.  The ratio of nonperforming assets to total loans plus real estate and other foreclosed assets was 2.50% at June 30, 2010, improved from 2.78% at March 31, 2010.  That ratio was 2.28% at June 30, 2009.

Loans past due 90 days or more and accruing interest totaled $203 million at the end of the recent quarter, including loans guaranteed by government-related entities of $188 million.  Such past due loans were $155 million and $203 million at June 30, 2009 and March 31, 2010, respectively, including $144 million and $195 million of government guaranteed loans at those respective dates.

Allowance for Credit Losses.  M&T regularly performs detailed analyses of individual borrowers and portfolios for purposes of assessing the adequacy of the allowance for credit losses.  Reflecting those analyses, the allowance totaled $895 million at June 30, 2010, compared with $855 million and $891 million at June 30, 2009 and March 31, 2010, respectively.  Beginning in 2009, GAAP requires that expected credit losses associated with loans obtained in an acquisition be reflected in the estimation of loan fair value as of each respective acquisition date and prohibits any carry-over of the acquired entity's allowance for credit losses.  Excluding amounts related to loans obtained in 2009 acquisition transactions, the allowance-to-legacy loan ratio was 1.86% at the two most recent quarter-ends, compared with 1.76% at June 30, 2009.  

Noninterest Income and Expense.  Noninterest income totaled $274 million in the second 2010 quarter, compared with $272 million and $258 million in the second quarter of 2009 and the first quarter of 2010, respectively.  Reflected in those amounts were losses from investment securities of $22 million, $24 million and $26 million, each predominantly due to other-than-temporary impairment charges.  During the recent quarter, such charges related to a $12 million write-down of American Depositary Shares of Allied Irish Banks, p.l.c., which were obtained in M&T's acquisition of Allfirst Financial Inc. in 2003 and certain of M&T's holdings of privately issued collateralized mortgage obligations and collateralized debt obligations backed by pooled trust preferred securities, aggregating $10 million.  The impairment charges in the second quarter of 2009 and in the initial 2010 quarter related to privately issued collateralized mortgage obligations.  Because the impaired investment securities were previously reflected at fair value on the consolidated balance sheet, the impairment charges did not reduce stockholders' equity.  Excluding gains and losses from investment securities, noninterest income in the second quarter of 2010 aggregated $296 million, equal to the year-earlier quarter but up 4% from $284 million in the initial quarter of 2010.  Higher service charges on deposit accounts during the recent quarter as compared with the second quarter of 2009, largely due to the impact of the 2009 acquisitions, were offset by declines in mortgage banking revenues, trading account and foreign exchange gains, and losses at Bayview Lending Group.  As compared with the first quarter of 2010, the recent quarter's improvement resulted from higher service charges on deposit accounts and mortgage banking revenues.

Noninterest expense in the second quarter of 2010 aggregated $476 million, compared with $564 million in the year-earlier quarter and $489 million in the first quarter of 2010.  Included in such amounts are expenses considered to be nonoperating in nature consisting of amortization of core deposit and other intangible assets and merger-related expenses.  Exclusive of those expenses, noninterest operating expenses were $461 million in the recent quarter, compared with $482 million in the second quarter of 2009 and $473 million in 2010's initial quarter.  The decline in such expenses from the year-earlier period was largely attributable to a special assessment levied on insured financial institutions by the FDIC in the second quarter of 2009, which in M&T's case amounted to approximately $33 million, partially offset by a $13 million reduction of the allowance for impairment of capitalized residential mortgage servicing rights in the second quarter of 2009.  In comparison, a $2 million addition to the impairment allowance was recognized during the recent quarter.  After excluding the impact of the FDIC special assessment and the change in the allowance for impairment of capitalized residential mortgage servicing rights, noninterest operating expenses in the recent quarter were $3 million lower than in the year-earlier quarter.  The lower level of noninterest operating expenses in the recent quarter as compared with 2010's initial quarter was largely the result of a decline in personnel costs from seasonally higher first quarter stock-based compensation, payroll-related taxes and contributions for retirement savings plan benefits associated with incentive compensation payments.

The efficiency ratio, or noninterest operating expenses divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses associated with bank investment securities and merger-related expenses and gains), measures the relationship of operating expenses to revenues.  M&T's efficiency ratio improved to 53.1% in the second quarter of 2010 from 60.0% in the year-earlier period (56.0% excluding the FDIC special assessment) and 55.9% in the first quarter of 2010.  

Balance Sheet.  M&T had total assets of $68.2 billion at June 30, 2010, compared with $69.9 billion at June 30, 2009.  Loans and leases, net of unearned discount, were $51.1 billion at the recent quarter-end, compared with $52.7 billion a year earlier.  Total deposits rose to $47.5 billion at June 30, 2010 from $46.8 billion at June 30, 2009.  Reflecting a $1.6 billion or 13% rise in noninterest-bearing deposits, domestic office deposits increased $1.3 billion, or 3%, to $47.0 billion at the most recent quarter-end from $45.7 billion at June 30, 2009.  

Total stockholders' equity increased to $8.1 billion at June 30, 2010 from $7.4 billion a year earlier, representing 11.89% of total assets at the recent quarter-end and 10.58% a year earlier.  Common stockholders' equity was $7.4 billion, or $61.77 per share, at June 30, 2010, compared with $6.7 billion, or $56.51 per share, at June 30, 2009.  Tangible equity per common share rose to $31.15 at the recent quarter-end from $25.17 a year earlier.  In the calculation of tangible equity per common share, common stockholders' equity is reduced by the carrying values of goodwill and core deposit and other intangible assets, net of applicable deferred tax balances, which aggregated $3.7 billion at each of June 30, 2010 and 2009.  M&T's tangible common equity to tangible assets ratio was 5.75% at June 30, 2010, compared with 4.49% and 5.43% at June 30, 2009 and March 31, 2010, respectively.

Conference Call.  Investors will have an opportunity to listen to M&T's conference call to discuss second quarter financial results today at 10:30 a.m. Eastern Time.  Those wishing to participate in the call may dial (877)780-2276.  International participants, using any applicable international calling codes, may dial (973)582-2700.  Callers should reference M&T Bank Corporation or the conference ID# 87561125. The conference call will be webcast live through M&T's website at http://ir.mandtbank.com/conference.cfm.  A replay of the call will be available until Friday, July 23, 2010 by calling (800)642-1687, or (706)645-9291 for international participants, and by making reference to ID# 87561125.  The event will also be archived and available by 6:00 p.m. today on M&T's website at http://ir.mandtbank.com/conference.cfm.

M&T is a bank holding company whose banking subsidiaries, M&T Bank and M&T Bank, National Association, operate branch offices in New York, Pennsylvania, Maryland, Virginia, West Virginia, Delaware, New Jersey and the District of Columbia.

Forward-Looking Statements.  This news release contains forward-looking statements that are based on current expectations, estimates and projections about M&T's business, management's beliefs and assumptions made by management.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

Future Factors include changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; legislation affecting the financial services industry as a whole, and M&T and its subsidiaries individually or collectively, including tax legislation; regulatory supervision and oversight, including monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters; continued availability of financing; financial resources in the amounts, at the times and on the terms required to support M&T and its subsidiaries' future businesses; and material differences in the actual financial results of merger, acquisition and investment activities compared with M&T's initial expectations, including the full realization of anticipated cost savings and revenue enhancements.

These are representative of the Future Factors that could affect the outcome of the forward-looking statements.  In addition, such statements could be affected by general industry and market conditions and growth rates, general economic and political conditions, either nationally or in the states in which M&T and its subsidiaries do business, including interest rate and currency exchange rate fluctuations, changes and trends in the securities markets, and other Future Factors.

SOURCE M&T Bank Corporation