M&T Bank Corp. Reports Operating Results (10-Q)

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Nov 05, 2009
M&T Bank Corp. (MTB, Financial) filed Quarterly Report for the period ended 2009-09-30.

M&T Bank Corp is a bank holding company. They have two primary bank subsidiaries: Manufacturers and Traders Trust Company and M&T Bank National Association. The banks collectively offer a wide range ofcommercial banking trust and investment services to their customers. From time to time M&T Bank considers acquiring banks thrift institutionsbranch offices or other businesses within markets currently served or in other nearby markets. M&t Bank Corp. has a market cap of $7.19 billion; its shares were traded at around $60.95 with a P/E ratio of 20.2 and P/S ratio of 1.7. The dividend yield of M&t Bank Corp. stocks is 4.5%. M&t Bank Corp. had an annual average earning growth of 10.2% over the past 10 years. GuruFocus rated M&t Bank Corp. the business predictability rank of 4-star.

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Net income for M&T Bank Corporation (M&T) in the third quarter of 2009 was $128 million or $.97 of diluted earnings per common share, compared with $91 million or $.82 of diluted earnings per common share in the third quarter of 2008. During the second quarter of 2009, net income was $51 million or $.36 of diluted earnings per common share. Basic earnings per common share were $.97 in the recent quarter, compared with $.83 in the year-earlier quarter and $.36 in the second quarter of 2009. The after-tax impact of acquisition and integration-related gains and expenses (included herein as merger-related expenses) related to 2009 acquisition transactions resulted in income of $9 million ($15 million pre-tax) or $.08 of basic and diluted earnings per common share in the third quarter of 2009. Merger-related expenses in the second quarter of 2009 totaled $40 million ($66 million pre-tax) or $.35 of basic and diluted earnings per common share. There were no merger-related expenses during the third quarter of 2008. For the nine months ended September 30, 2009, net income was $243 million or $1.84 per diluted common share, compared with $454 million or $4.09 per diluted common share during the corresponding period of 2008. Basic earnings per common share were $1.84 for the first nine months of 2009, compared with $4.12 in the similar nine-month period of 2008. The after-tax impact of merger-related gains and expenses was $33 million ($54 million pre-tax) or $.28 of basic and diluted earnings per common share in the nine-month period ended September 30, 2009. Similar merger-related expenses associated with late-2007 acquisitions were $2 million ($4 million pre-tax) or $.02 of basic and diluted earnings per common share in the first nine months of 2008.

The Provident transaction has been accounted for using the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded by M&T at their estimated fair values as of the acquisition date. Assets acquired totaled $6.3 billion, including $4.0 billion of loans and leases (including approximately $1.7 billion of commercial real estate loans, $1.4 billion of consumer loans, $700 million of commercial loans and leases and $300 million of residential real estate loans) and $1.0 billion of investment securities. Liabilities assumed were $5.9 billion, including $5.1 billion of deposits. The transaction added $436 million to M&Ts stockholders equity, including $280 million of common equity and $156 million of preferred equity. In connection with the acquisition, the Company recorded $332 million of goodwill and $63 million of core deposit intangible. The core deposit intangible is being amortized over seven years using an accelerated method. The acquisition of Provident expands the Companys presence in the Mid-Atlantic area, gives the Company the second largest deposit share in Maryland, and tripled the Companys presence in Virginia. The previously described transaction to acquire certain assets and liabilities of Bradford was also accounted for using the acquisition method of accounting.

As a result of business combinations and other acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $3.7 billion at September 30, 2009, compared with $3.4 billion at each of September 30, 2008 and December 31, 2008. Included in such intangible assets was goodwill of $3.5 billion at September 30, 2009 and $3.2 billion at each of September 30 and December 31, 2008. Amortization of core deposit and other intangible assets, after tax effect, totaled $10 million ($.09 per diluted common share) during each of the third quarters of 2009 and 2008, and $9 million ($.08 per diluted common share) during the second quarter of 2009. For the nine-month periods ended September 30, 2009 and 2008, amortization of core deposit and other intangible assets, after tax effect, totaled $29 million ($.25 per diluted common share) and $31 million ($.28 per diluted common share), respectively.

Average loans and leases rose $3.8 billion, or 8%, to $52.3 billion in the recently completed quarter from $48.5 billion in the third quarter of 2008. Included in average loans and leases in the recent quarter were loans obtained in the Provident acquisition, which added approximately $3.9 billion to the average loan and lease total. The impact of the loans obtained in the Bradford transaction on average loan and lease balances in the recent quarter was not significant. Average commercial loan and lease balances were $13.8 billion in the recent quarter, compared with $13.9 billion in 2008s third quarter. The impact of such loans acquired from Provident added approximately $600 million to the recent quarters average total. Offsetting that impact was a decline in average automobile floor plan loans of approximately $386 million, along with generally lower demand for commercial loans. Commercial real estate loans averaged $20.8 billion in the third quarter of 2009, up $2.3 billion or 12% from $18.6 billion in the year-earlier quarter, and reflected loans obtained from Provident averaging approximately $1.7 billion in the recent quarter. Average outstanding residential real estate loans increased $465 million or 9% to $5.4 billion in the recently completed quarter from $5.0 billion in the third quarter of 2008. Included in that portfolio were loans held for sale, which averaged $613 million in the recent quarter, compared with $493 million in the third quarter of 2008. Residential real estate loans acquired in the Provident transaction averaged approximately $266 million in the third quarter of 2009. Consumer loans averaged $12.2 billion in the third quarter of 2009, $1.2 billion or 11% higher than $11.1 billion in the year-earlier quarter. That growth was due to loans obtained from Provident, which averaged approximately $1.4 billion (largely home equity loans and lines of credit), and higher outstanding balances of home equity lines of credit, partially offset by declines in average outstanding automobile and home equity loan balances.

Domestic time deposits of $100,000 or more, deposits originated through the Companys offshore branch office, and brokered deposits provide additional sources of funding for the Company. Domestic time deposits over $100,000, excluding brokered certificates of deposit, averaged $2.5 billion in the third quarter of 2009, compared with $2.4 billion and $2.7 billion in the year-earlier quarter and the second quarter of 2009, respectively. Offshore branch deposits, primarily comprised of balances of $100,000 or more, averaged $1.4 billion, $3.8 billion and $1.5 billion for the three-month periods ended September 30, 2009, September 30, 2008 and June 30, 2009, respectively. Brokered time deposits averaged $1.1 billion in the recent quarter, compared with $1.5 billion in the third quarter of 2008 and $697 million in 2009s second quarter. Reflected in average brokered time deposits in the two most recent quarters were deposits obtained in the Provident transaction, which added approximately $1.0 billion and $500 million to average brokered time deposits during the quarters ended September 30 and June 30, 2009, respectively. In connection with the Companys management of interest rate risk, interest rate swap agreements have been entered into under which the Company receives a fixed rate of interest and pays a variable rate and that have notional amounts and terms substantially similar to the amounts and terms of $25 million of brokered time deposits. The Company also had brokered NOW and brokered money-market deposit accounts, which in the aggregate averaged $709 million during 2009s third quarter, compared with $179 million and $842 million during the corresponding quarter of 2008 and second quarter of 2009, respectively. The significant increase in such average brokered deposit balances in the two most recent quarters as compared with the third quarter of 2008 was the result of demand for such deposits, largely resulting from the uncertain economic markets and the desire of brokerage firms to earn reasonable yields while ensuring that customer deposits were fully insured. Offshore branch deposits and brokered deposits have been used by the Company as alternatives to short-term borrowings. Additional amounts of offshore branch deposits or brokered deposits may be added in the future depending on market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time.

The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks (FHLBs), the Federal Reserve and others as sources of funding. Short-term borrowings averaged $2.7 billion in the recently completed quarter, compared with $5.4 billion in the third quarter of 2008 and $3.2 billion in the second quarter of 2009. Included in short-term borrowings were unsecured federal funds borrowings, which generally mature daily and averaged $1.8 billion in the third quarter of 2009, $4.4 billion in the year-earlier quarter and $1.6 billion in the second quarter of 2009. Overnight federal funds borrowings represent the largest component of short-term borrowings and are obtained daily from a wide variety of banks and other financial institutions. Average short-term borrowings during the recent quarter included $673 million of borrowings from the FHLBs of New York and Atlanta, compared with $239 million and $902 million in the third quarter of 2008 and second quarter of 2009, respectively. Also included in short-term borrowings were secured borrowings with the Federal Reserve through their Term Auction Facility (TAF). Borrowings under the TAF averaged $11 million in each of thRead the The complete ReportMTB is in the portfolios of Warren Buffett of Berkshire Hathaway, Bill Gates of Bill & Melinda Gates Foundation Trust, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.