M&T Bank (MTB)

Q3 2011 Earnings Call

October 19, 2011 11:00 am ET


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


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

Matthew O'Connor - Deutsche Bank AG, Research Division

Kevin J. St. Pierre - Sanford C. Bernstein & Co., LLC., Research Division

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

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

John G. Pancari - Evercore Partners Inc., Research Division

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

Matthew T. Clark - Keefe, Bruyette, & Woods, Inc., Research Division

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

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



Ladies and gentlemen, thank you for standing by and welcome to the M&T Bank Corporation Third Quarter 2011 Earnings Call. [Operator Instructions] 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. This is Don MacLeod. I'd like to thank everyone for participating in M&T's third quarter 2011 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 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.

René F. Jones

Thank you, Don, and good morning, everyone, thank you for joining us on the call today. As you know, M&T's results this quarter reflect Wilmington Trust for the entire quarter, as opposed to a partial period during the second quarter.

In some ways, this is a baseline from which you can understand where M&T is prior to any synergies realized from the merger and also where we're headed.

Let's cover the highlights on the earnings release and then I'll take your questions.

Turning to the specific numbers, for the third quarter 2011, net income was $183 million or $1.32 per diluted common share, compared with a $192 million or $1.48 per share in last year's third quarter.

Net income for the linked quarter was $322 million or $2.42 per common share. Recall that the second quarter's results included $51 million of after-tax securities gains amounting to $0.41 per common share.

These gains were the result of our program to reposition the balance sheet so as to enhance both capital ratios and the liquidity profile for the combined M&T and Wilmington Trust.

M&T's results for the recent quarter included $16 million or $0.13 per common share of after-tax merger-related expenses arising from the acquisition of Wilmington Trust. Recall that M&T's second quarter results included the net after-tax gain of $42 million or $0.33 per common share related to the merger. That gain was comprised of a nontaxable gain of $65 million, which was partially offset by after-tax merger-related expenses of $23 million. There were no merger-related expenses in the third quarter of 2010.

Also included on our GAAP earnings for this year's third quarter was after-tax expenses from the amortization of intangible assets amounting to $11 million or $0.08 per common share. This compares with $9 million or $0.07 per common share in the linked quarter, an $8 million or $0.07 per common share in the year ago quarter.

Net operating income, which excludes the amortization of intangibles, as well as the merger-related items I mentioned, was $210 million in this year's third quarter, up 5% from $200 million in last year's third quarter.

Diluted net operating earnings per common share were $1.53 for the recent quarter, down 1% from $1.55 in last year's third quarter.

Net operating income was $289 million or $2.16 per diluted share in the previous quarter. In accordance with the SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results including tangible assets and equity.

The annualized rate of return on tangible assets and average tangible common equity was 1.14% and 16.26% for the recent quarter, compared with 1.69% and 24.4% in the second quarter of 2011. Those figures were 1.24% and 19.58%, respectively, in last year's third quarter.

Next, I'd like to cover a few highlights from the balance sheet and income statement. Taxable equivalent net interest income was $623 million for the third quarter of 2011, up 5% from $593 million in the second quarter of 2011, primarily reflecting the impact of the Wilmington Trust merger. Excluding the impact from that merger, we estimate that net interest income for legacy M&T, increased by about 1% unannualized. Driven by a 1% linked quarter increase in average earning assets, which is also not annualized.

The net interest margin was 3.68% during the quarter, compared with 3.75% in the sequential quarter. We estimate that 3 basis points of the decline are attributable to the full quarter impact of the merger. This excludes the impact from high level of excess liquidity that we've held since the acquisition date back on May 16th.

The higher combined levels of cash held at the Fed and resale agreements resulted in a net negative impact of about 2 basis points. Those balances rose from $1.4 billion on average in the second quarter to $1.49 billion in the third quarter.

The day count of 92 days in the third quarter versus 91 days in linked quarter accounted for an approximate 1 basis point of the decline, and the remaining 1 basis point decline is attributable to core margin compression.

At this point in time, we believe the balance sheet is positioned for a very slight downward pressure on the margin based on the forward curve. However, our ability to deploy cash into loan growth or additional purchase of investment securities should tend to mitigate that pressure.

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