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M&T Bank Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 9, 2011 03:25PM

M&T Bank Corp. (MTB) filed Quarterly Report for the period ended 2011-09-30. M&t Bank Corp. has a market cap of $9.27 billion; its shares were traded at around $73.83 with a P/E ratio of 10.8 and P/S ratio of 2.4. The dividend yield of M&t Bank Corp. stocks is 3.8%. M&t Bank Corp. had an annual average earning growth of 0.6% over the past 10 years.



Highlight of Business Operations:

M&T Bank Corporation (“M&T”) recorded net income in the third quarter of 2011 of $183 million or $1.32 of diluted earnings per common share, compared with $192 million or $1.48 of diluted earnings per common share in the year-earlier quarter. During the second quarter of 2011, net income totaled $322 million or $2.42 of diluted earnings per common share. Basic earnings per common share were $1.32 in the recent quarter, compared with $1.49 in the third quarter of 2010 and $2.43 in 2011’s second quarter. The after-tax impact of net acquisition and integration-related gains and expenses (included herein as merger-related expenses) resulted in expenses of $16 million ($26 million pre-tax) or $.13 of basic and diluted earnings per common share in the third quarter of 2011, compared with income of $42 million ($28 million pre-tax) or $.33 of basic and diluted earnings per common share in the second quarter of 2011. The income in the second quarter reflected a non-taxable gain of $65 million and after-tax expenses of $23 million (pre-tax of $37 million). Merger-related gains and expenses related to M&T’s May 16, 2011 acquisition of Wilmington Trust Corporation (“Wilmington Trust”) headquartered in Wilmington, Delaware. There were no merger-related expenses during the third quarter of 2010. For the nine months ended September 30, 2011, net income was $712 million or $5.32 per diluted common share, compared with $532 million or $4.10 per diluted common share during the corresponding period of 2010. Basic earnings per common share were $5.34 and $4.12 for the first nine months of 2011 and 2010, respectively. During the first nine months of 2011, M&T recorded merger-related gains and expenses associated with Wilmington Trust and with the November 5, 2010 purchase and assumption agreement between M&T Bank, M&T’s principal banking subsidiary, and the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits (except certain brokered deposits) and acquire certain assets of K Bank, based in Randallstown, Maryland, in an assisted transaction with the FDIC. The after-tax impact of such gains and expenses was income of $23 million ($2 million of net expenses pre-tax) or $.18 of basic and diluted earnings per common share during the nine-month period ended September 30, 2011. That income consisted of a non-taxable gain of $65 million and after-tax expenses of $42 million (pre-tax of $67 million). There were no merger-related expenses during the first three quarters of 2010.

Net interest-free funds consist largely of noninterest-bearing demand deposits and shareholders’ equity, partially offset by bank owned life insurance and non-earning assets, including goodwill and core deposit and other intangible assets. Net interest-free funds averaged $19.5 billion in the recent quarter, compared with $14.4 billion in the third quarter of 2010 and $17.3 billion in the second quarter of 2011. The rise in average net interest-free funds in the two most recent quarters as compared with the third quarter of 2010 was largely the result of higher average balances of noninterest-bearing deposits. Such deposits averaged $18.2 billion, $13.6 billion and $16.2 billion in the quarters ended September 30, 2011, September 30, 2010 and June 30, 2011, respectively. In connection with the Wilmington Trust acquisition, the Company added noninterest-bearing deposits totaling $2.0 billion at the acquisition date. During the first nine months of 2011 and 2010, average net interest-free funds were $17.5 billion and $14.1 billion, respectively. Goodwill and core deposit and other intangible assets averaged $3.8 billion in the recent quarter, compared with $3.7 billion in each of the quarters ended September 30, 2010 and June 30, 2011. Core deposit and other intangible assets added from the Wilmington Trust acquisition were $176 million on May 16, 2011. There was no goodwill recorded as a result of the acquisition. The cash surrender value of bank owned life insurance averaged $1.5 billion during each of the quarters ended September 30, 2011, September 30, 2010 and June 30, 2011. Increases in the cash surrender value of bank owned life insurance are not included in interest income, but rather are recorded in “other revenues from operations.” The contribution of net interest-free funds to net interest margin was .25% in each of the third quarters of 2011 and 2010, compared with .24% in 2011’s second quarter. That contribution for each of the first nine months of 2011 and 2010 was .25%.

Revenues from servicing residential mortgage loans for others were $20 million in each of the third quarters of 2011 and 2010 and $19 million in the second quarter of 2011. Included in such servicing revenues were amounts related to purchased servicing rights associated with small balance commercial mortgage loans which totaled $6 million in the two most recent quarters and $7 million in third quarter of 2010. Residential mortgage loans serviced for others totaled $28.1 billion at September 30, 2011, $21.3 billion at September 30, 2010, $21.6 billion at June 30, 2011 and $21.1 billion at December 31, 2010, including the small balance commercial mortgage loans noted above of approximately $4.7 billion at the recent quarter-end, $5.4 billion at September 30, 2010, $4.8 billion at June 30, 2011 and $5.2 billion at December 31, 2010. Capitalized residential mortgage servicing assets, net of a valuation allowance for impairment, were $159 million at September 30, 2011, compared with $115 million at September 30, 2010, $111 million at June 30, 2011 and $118 million at December 31, 2010. The valuation allowance for possible impairment of residential mortgage servicing assets totaled $1 million and $6 million at September 30, 2011 and September 30, 2010, respectively. There was no valuation allowance at June 30, 2011 or at December 31, 2010. On September 30, 2011, the Company purchased servicing rights associated with residential mortgage loans having an outstanding principal balance of approximately $6.7 billion. The purchase price for such servicing rights was $54 million and has been included in capitalized residential mortgage servicing assets as of September 30, 2011. Of that amount, $38 million will not be paid to the seller until the conversion of data and other processing functions is transferred from the seller to the Company. That transfer is expected to occur during the fourth quarter of 2011. Because the purchase closed on September 30, 2011, the transaction had no impact on mortgage banking revenues or amortization of capitalized servicing rights during the recently completed quarter. Included in capitalized residential mortgage servicing assets were $18 million at September 30, 2011, $29 million at September 30, 2010, $21 million at June 30, 2011 and $26 million at December 31, 2010 of purchased servicing rights associated with the small balance commercial

Commercial mortgage banking revenues were $14 million in the third quarter of 2011, compared with $16 million in the year-earlier quarter and $17 million in the second quarter of 2011. Included in such amounts were revenues from loan origination and sales activities of $8 million in the third quarter of 2011, compared with $12 million in each of the third quarter of 2010 and the second quarter of 2011. Commercial mortgage loan servicing revenues were $6 million in the recent quarter, compared with $4 million in the year-earlier quarter and $5 million in the second quarter of 2011. Capitalized commercial mortgage servicing assets totaled $50 million at September 30, 2011, $39 million at September 30, 2010 and $43 million at December 31, 2010. Commercial mortgage loans serviced for other investors totaled $8.8 billion, $7.7 billion and $8.1 billion at September 30, 2011, September 30, 2010 and December 31, 2010, respectively, and included $1.8 billion, $1.5 billion and $1.6 billion, respectively, of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectible. Commitments to sell commercial mortgage loans and commitments to originate commercial mortgage loans for sale were $141 million and $56 million, respectively, at September 30, 2011, $261 million and $158 million, respectively, at September 30, 2010 and $276 million and $73 million, respectively, at December 31, 2010. Commercial mortgage loans held for sale at September 30, 2011 and 2010 were $85 million and $103 million, respectively, and were $204 million at December 31, 2010.

Service charges on deposit accounts declined 4% to $351 million during the first nine months of 2011 from $367 million in the corresponding 2010 period. That decline resulted predominantly from the previously noted new regulations that went into effect during the third quarter of 2010, partially offset by the impact of the Wilmington Trust acquisition. Trust income rose 139% to $219 million from $92 million a year earlier, due to $132 million of revenues associated with the Wilmington Trust acquisition. Reflected in trust income were $23 million and $14 million of fee waivers during the first nine months of 2011 and 2010, respectively, related to proprietary money-market funds. Brokerage services income rose 13% to $43 million during the first nine months of 2011 from $38 million in the similar 2010 period. That improvement was largely due to higher fees from the sale of annuity products and additional sales associated with the Wilmington Trust acquisition. Trading account and foreign exchange activity resulted in gains of $19 million and $15 million for the nine-month periods ended September 30, 2011 and 2010, respectively. The higher gains were due to increased revenues from interest rate contract and foreign exchange transactions conducted on behalf of customers. M&T’s investment in BLG resulted in losses of $19 million for the nine months ended September 30, 2011, compared with losses of $18 million in the year-earlier period. Investment securities gains and losses totaled to net gains of $98 million during the first nine months of 2011 compared with net losses of $57 million in the nine month period ended September 30, 2010. Included in those amounts were other-than-temporary impairment losses of $52 million in 2011 and $59 million in 2010. In addition to the $111 million of gains realized during the second quarter of 2011 noted earlier, the Company sold residential mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac during the initial 2011 quarter having an amortized cost of $484 million, resulting in a gain of $39 million.

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