M&T Bank Management Discusses Q1 2012 Results - Earnings Call Transcript

M&T Bank (MTB)

Q1 2012 Earnings Call

April 16, 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

Marty Mosby - Guggenheim Securities, LLC, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

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

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

Conor Fitzgerald

Ken A. Zerbe - Morgan Stanley, Research Division

Adam Chaim - Deutsche Bank AG, Research Division

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

Thomas Frick - FBR Capital Markets & Co., Research Division

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

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2012 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, everyone. This is Don MacLeod. I’d like to thank everyone for participating in M&T's First 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 related 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, René Jones.

René F. Jones

Thank you, Don. Good morning, everyone. Thank you for joining us on the call today to discuss the first quarter results. Let me begin by reviewing the highlights, after which Don and I will take your questions.

Turning to the specific numbers. Diluted GAAP earnings per common share were $1.50 in the first quarter of 2012 compared with $1.04 earned in the fourth quarter of 2011. Net interest income for the recent quarter was $206 million, up from $148 million in the linked quarter. Other than our normal seasonal uptick in compensation expense, there was very little in the way of unusual items in our first quarter results. However, there were a number of items from prior periods that I'd like to remind you of which impact the comparison to the linked quarter and the year ago quarter.

Last year's fourth quarter included a write-down of our investment in Bayview Lending Group, settlement of a lawsuit and the contribution to The M&T Charitable Foundation, which reduced earnings for the quarter by a net $33 million after tax or $0.26 per common share. Also, in last year's first quarter, we recorded $39 million of securities gains as a result of the repositioning of our securities portfolio in advance of last May's completion of the Wilmington Trust acquisition. Those gains amounted to $24 million after tax or $0.20 per common share. Excluding those gains, diluted earnings per share increased by 8% year-over-year.

Since 1998, M&T has consistently provided supplemental reporting of its results on a net operating or tangible basis from which we exclude after-tax -- the after-tax effect of amortization of intangible assets as well as expenses and gains associated with mergers and acquisitions. Included in GAAP earnings for the first quarter of 2012 were merger-related expenses related to the Wilmington Trust acquisition amounting to $2 million after tax or $0.01 per common share. This compares with $10 million after tax or $0.08 per common share in the prior quarter. After-tax expense from the amortization of intangible assets was $10 million or $0.08 per common share in the recent quarter, unchanged from the fourth quarter.

M&T's net operating income for the quarter, which excludes those items, was $218 million, up from $168 million in the linked quarter. Diluted net operating earnings per common share were $1.59 for the recent quarter compared with $1.20 in the linked quarter. Net operating income expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity was 1.18% and 16.79% for the recent quarter, improved from 0.89% and 12.36% in the fourth quarter of 2011.

In accordance with the SEC guidelines, this morning's press release contains a tabular reconciliation of GAAP and non-GAAP results, including intangible 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 $627 million for the first quarter of 2012, up an annualized 2% from the linked quarter. Net interest margin expanded during the first quarter, averaging 3.69%, up 9 basis points from 3.60% in the fourth quarter. All of the increase can be attributable -- excuse me, all of the entries can be attributed to a sizable change in the mix of average earning assets. The net interest-bearing -- the interest-bearing deposits at the Federal Reserve Bank, which had been in place for most of the third and fourth quarters, declined by $1.7 billion on a linked quarter basis and was largely offset by $1.4 billion of linked quarter increase in average loans.

Aside from the benefit of replacing the cash at the Fed with loan growth, there was approximately 3 to 4 basis points of margin compression as a result of new loans coming on the books at lower yields than those maturing -- than those of maturing loans. This pressure was offset by lower funding costs and a one-basis-point benefit from one less day in the first quarter. In other words, we still believe that we are positioned for slight downward pressure on loan yields with some modest offset on the funding side.

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