M&T Bank Corporation ("M&T")
GAAP Results of Operations. Diluted earnings per share measured in accordance with generally accepted accounting principles ("GAAP") for the first quarter of 2004 were $1.30, compared with $1.23 in the year-earlier period. GAAP-basis net income for the recent quarter was $159 million, up 37% from $117 million in the first quarter of 2003. On the same basis, net income for the recently completed quarter expressed as an annualized rate of return on average assets and average common stockholders' equity was 1.29% and 11.19%, respectively, compared with 1.43% and 14.46%, respectively, in the corresponding 2003 quarter.
M&T's results for the initial quarter of 2004 reflect the impact of operations obtained in the April 1, 2003 acquisition of Allfirst Financial Inc. ("Allfirst") and the related issuance of 26.7 million common shares on that date. Merger-related expenses incurred during 2003's first quarter were $4 million, after applicable tax effect, or $.04 per diluted share. Such amount represents costs for professional services, travel and other expenses associated with planning for the acquisition and the related integration of data processing and other operating systems and functions. There were no similar expenses in the first quarter of 2004. M&T's results of operations in 2004 reflect an after-tax effect charge of $7 million, or $.06 per diluted share, for possible impairment of capitalized residential mortgage servicing rights that resulted from a decline in mortgage loan interest rates late in the first quarter. There was no similar charge in 2003's first quarter.
Supplemental Reporting of Non-GAAP Results of Operations. Since 1998, M&T has consistently provided 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 associated with merging acquired operations into M&T, since such expenses 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. Amortization of core deposit and other intangible assets, after tax effect, was $13 million ($.11 per diluted share) in the recent quarter, compared with $7 million ($.07 per diluted share) in the year-earlier quarter.
Diluted net operating earnings per share, which exclude the impact of amortization of core deposit and other intangible assets and merger-related expenses, were $1.41 for the quarter ended March 31, 2004, compared with $1.34 in the first quarter of 2003. Net operating income for the recent quarter was $172 million, up 36% from $127 million in the year-earlier quarter. Expressed as an annualized rate of return on average tangible assets and average tangible stockholders' equity, net operating income was 1.48% and 26.02%, respectively, in 2004's initial quarter, compared with 1.62% and 24.68% in the corresponding quarter of 2003.
Reconciliation of GAAP and Non-GAAP Results of Operations. A reconciliation of diluted earnings per share and net income with diluted net operating earnings per share and net operating income follows:
Three months ended
March 31
2004 2003
---- ----
(in thousands,
except per share)
Diluted earnings per share $ 1.30 1.23
Amortization of core deposit
and other intangible assets(1) .11 .07
Merger-related expenses(1) - .04
-------- --------
Diluted net operating earnings
per share $ 1.41 1.34
======== ========
Net income $ 159,490 116,538
Amortization of core deposit
and other intangible assets(1) 12,933 7,094
Merger-related expenses(1) - 3,599
-------- --------
Net operating income $ 172,423 127,231
======== ========
(1) After any related tax effect
Reconciliation of Total Assets and Equity to Tangible Assets and Equity. A reconciliation of average assets and equity with average tangible assets and average tangible equity follows:
Three months ended
March 31
2004 2003
---- ----
(in millions)
Average assets $ 49,915 33,061
Goodwill (2,904) (1,098)
Core deposit and other
intangible assets (230) (112)
Deferred taxes - 33
-------- --------
Average tangible assets $ 46,781 31,884
======== ========
Average equity $ 5,732 3,267
Goodwill (2,904) (1,098)
Core deposit and other
intangible assets (230) (112)
Deferred taxes 67 33
-------- --------
Average tangible equity $ 2,665 2,090
======== ========
Taxable-equivalent Net Interest Income. Reflecting growth in average earning assets resulting largely from the acquisition of Allfirst, taxable-equivalent net interest income increased 33% to $424 million in the first quarter of 2004 from $320 million in the year-earlier quarter. Including the impact of $10.3 billion of loans obtained in the Allfirst acquisition, average loans outstanding increased 39% to $35.8 billion in 2004's initial quarter from $25.8 billion in the corresponding 2003 period. The recent quarter's average loan total was reduced by the impact of a fourth quarter 2003 transaction in which M&T converted residential real estate loans of $1.3 billion into mortgage-backed securities. Partially offsetting the favorable impact of the growth in earning assets was a lower net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, which declined to 3.92% in the recent quarter from 3.96% in the fourth quarter of 2003 and 4.32% in the year-earlier period. The decline in net interest margin from 2003's first quarter reflects the yields on earning assets and rates paid on interest-bearing liabilities obtained in the Allfirst acquisition and the impact of declining interest rates, which in recent quarters has resulted in a narrowing of M&T's net interest margin as the yields on earning assets declined more than the rates paid on interest-bearing liabilities.
Provision for Credit Losses/Asset Quality. Reflecting lower levels of net charge-offs both in dollar amount and as a percentage of average loans and a significant decline in the level of nonperforming loans as a percentage of loans outstanding, the provision for credit losses declined to $20 million in the recent quarter from $33 million in the first quarter of 2003. Net charge- offs of loans during 2004's initial quarter were $18 million, compared with $25 million in the year-earlier period. Net charge-offs of loans acquired from Allfirst during the recent quarter were not significant. Expressed as an annualized percentage of average loans outstanding, net charge-offs were .20% in 2004's first three months, compared with .39% in the corresponding 2003 period. Loans classified as nonperforming totaled $256 million, or .70% of total loans at March 31, 2004, compared with $230 million or .88% a year earlier. Loans past due 90 days or more and accruing interest were $144 million at the recent quarter-end, compared with $146 million at March 31, 2003. Included in the past due but accruing amounts were loans guaranteed by government-related entities of $117 million and $124 million at March 31, 2004 and 2003, respectively. Nonperforming loans and loans past due 90 days or more and accruing interest included loans obtained in the Allfirst acquisition of $64 million and $15 million, respectively. Assets taken in foreclosure of defaulted loans were $19 million and $17 million at March 31, 2004 and 2003, respectively.
Allowance for Credit Losses. The allowance for credit losses increased to $616 million, or 1.69% of total loans, at March 31, 2004 from $445 million, or 1.70%, a year earlier. The ratio of M&T's allowance for credit losses to nonperforming loans was 241% and 193% at March 31, 2004 and 2003, respectively. On the April 1, 2003 acquisition date, Allfirst had an allowance for credit losses of $146 million, or 1.43% of Allfirst's loans then outstanding. Immediately following the merger on April 1, the combined balance sheet of M&T and Allfirst included an allowance for credit losses of $591 million that was equal to 1.62% of the $36.5 billion of then outstanding loans.
Noninterest Income and Expense. Noninterest income in the first quarter of 2004 totaled $228 million, 72% higher than $133 million in the year-earlier quarter. Approximately $92 million of such income in 2004's initial three months was attributable to revenues related to operations in market areas associated with the former Allfirst franchise. Partially offsetting the impact of Allfirst-related revenues were lower mortgage banking revenues, largely the result of lower origination volumes.
Noninterest expense in the recent quarter totaled $390 million, 61% higher than $242 million in 2003's initial quarter. Included in such amounts are expenses considered to be nonoperating in nature consisting of the previously noted amortization of core deposit and other intangible assets of $21 million in 2004 and $12 million in 2003, and merger-related expenses of $5 million in 2003. There were no merger-related expenses in 2004. Exclusive of these nonoperating expenses, noninterest operating expenses were $369 million in the recent quarter, compared with $225 million in the first quarter of 2003. The increase in operating expenses was largely related to operations formerly associated with Allfirst. In addition, an $11 million (pre-tax) provision for the impairment of capitalized mortgage servicing rights was recorded during the recently completed quarter, reflecting changes in the estimated fair value of capitalized mortgage servicing rights. Such servicing rights were valued as of quarter-end, when mortgage interest rates had dropped to their lowest levels since the second quarter of 2003. As a result, the expected rate of residential mortgage loan prepayments increased, requiring the noted charge. There was no similar charge in 2003's first quarter. Capitalized residential mortgage servicing rights, net of impairment valuation allowance, are included in "other assets" in M&T's consolidated balance sheet and totaled $119 million and $106 million at March 31, 2004 and 2003, respectively.
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 from sales of bank investment securities), measures the relationship of operating expenses to revenues. M&T's efficiency ratio was 56.8% in the first quarter of 2004, compared with 49.8% in the year-earlier period. The higher ratio in 2004 reflects the impact of the acquired Allfirst operations that are now part of M&T and the mortgage servicing rights impairment charge.
Reflecting on M&T's first quarter results, Michael P. Pinto, Executive Vice President and Chief Financial Officer, noted, "The recent quarter reflected mixed results for M&T. We are encouraged by the resumption of growth in our commercial loan portfolios and the improvement of our overall credit quality, including lower levels of net charge-offs. Our residential mortgage banking business, as expected, experienced declines in revenue from both the first and fourth quarters of 2003. Those declines, coupled with the mortgage servicing rights impairment charge recognized in the recent quarter, reduced that segment's contribution to M&T's first quarter results. At this time, subject to the impact of future economic and political conditions, we believe that GAAP-basis diluted earnings per share for 2004 will be in line with our prior guidance."
Balance Sheet. M&T's total assets rose 52% to $50.8 billion at March 31, 2004 from $33.4 billion a year earlier. Loans and leases, net of unearned discount, rose 39% to $36.5 billion at the recent quarter-end from $26.2 billion at March 31, 2003. Deposits were $33.3 billion at March 31, 2004, up from $21.9 billion a year earlier. Total assets, loans and deposits as of April 1, 2003 obtained in the Allfirst transaction were $16 billion, $10 billion and $11 billion, respectively. Total stockholders' equity was $5.7 billion at March 31, 2004, representing 11.28% of total assets, compared with $3.3 billion or 9.91% a year earlier. Common stockholders' equity per share was $48.17 and $35.81 at March 31, 2004 and 2003, respectively. Tangible equity per common share was $22.47 at March 31, 2004, compared with $23.13 at March 31, 2003. In the calculation of tangible equity per common share, 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 $3.1 billion and $1.2 billion at March 31, 2004 and 2003, respectively.
In February 2004, M&T announced that it had been authorized by its Board of Directors to purchase up to 5,000,000 shares of its common stock. Through March 31, 2004, M&T had repurchased 400,000 shares of common stock pursuant to such plan at an average cost of $91.73 per share. Also in February, M&T completed a previously authorized repurchase plan that had been announced in November 2001. In total, during 2004's first quarter M&T repurchased 1,767,900 shares of its common stock at an average cost per share of $91.73.
Conference Call. Investors will have an opportunity to listen to M&T's conference call to discuss first quarter financial results at 3:00 p.m. Eastern Time today, April 20, 2004. 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. The conference call will be webcast live on M&T's website at http://ir.mandtbank.com/conference.cfm. A replay of the call will be available until April 21, 2004 by calling 877-519- 4471, code 4677410 and 973-341-3080 for international participants. The event will also be archived and available by 5:00 p.m. today on M&T's website at http://ir.mandtbank.com/conference.cfm.
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; credit losses; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock options to be issued in future periods; legislation affecting the financial services industry as a whole, and M&T and its subsidiaries individually or collectively; regulatory supervision and oversight, including required capital levels; 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, including environmental regulations; 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; 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 and acquisition 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, including interest rate and currency exchange rate fluctuations, and other Future Factors.
CONTACT: Michael S. Piemonte
(716) 842-5138
M&T BANK CORPORATION
Financial Highlights
Three months ended
March 31
Amounts in thousands, ------------------------
except per share 2004 2003 Change
---------- ---------- --------
Performance
Net income $ 159,490 116,538 37 %
Per common share:
Basic earnings $ 1.33 1.26 6 %
Diluted earnings 1.30 1.23 6
Cash dividends $ .40 .30 33
Common shares outstanding:
Average - diluted (1) 122,316 95,062 29 %
Period end (2) 119,031 92,503 29
Return on (annualized):
Average total assets 1.29 % 1.43 %
Average common stockholders'
equity 11.19 % 14.46 %
Taxable-equivalent net interest
income $ 423,533 319,590 33 %
Yield on average earning assets 5.10 % 5.94 %
Cost of interest-bearing liabilities 1.43 % 1.89 %
Net interest spread 3.67 % 4.05 %
Contribution of interest-free funds .25 % .27 %
Net interest margin 3.92 % 4.32 %
Net charge-offs to average total
net loans (annualized) .20 % .39 %
Net operating results (3)
Net operating income $ 172,423 127,231 36 %
Diluted net operating earnings per
common share 1.41 1.34 5
Return on (annualized):
Average tangible assets 1.48 % 1.62 %
Average tangible common equity 26.02 % 24.68 %
Efficiency ratio 56.81 % 49.81 %
At March 31
------------------------
2004 2003 Change
---------- ---------- --------
Loan quality
Nonaccrual loans $ 248,188 222,334 12 %
Renegotiated loans 7,637 7,630 -
---------- ----------
Total nonperforming loans $ 255,825 229,964 11 %
========== ==========
Accruing loans past due 90 days or
more $ 144,345 146,355 -1 %
Nonperforming loans to total net
loans .70 % .88 %
Allowance for credit losses to total
net loans 1.69 % 1.70 %
-----------------------------------------------------------------------
(1) Includes common stock equivalents.
(2) Includes common stock issuable under deferred compensation plans.
(3) Excludes merger-related expenses and amortization and balances
related to goodwill and core deposit and other
intangible assets which, except in the calculation of the
efficiency ratio, are net of applicable income tax effects.
A reconciliation of net income and net operating income is included
herein.
M&T BANK CORPORATION
Condensed Consolidated Statement of Income
Three months ended
March 31
----------------------
Dollars in thousands 2004 2003 Change
---------- ---------- --------
Interest income $ 546,132 435,559 25 %
Interest expense 126,829 119,592 6
---------- ----------
Net interest income 419,303 315,967 33
Provision for credit losses 20,000 33,000 -39
---------- ----------
Net interest income after
provision for credit losses 399,303 282,967 41
Other income
Mortgage banking revenues 28,258 34,464 -18
Service charges on deposit
accounts 88,325 43,349 104
Trust income 33,586 14,199 137
Brokerage services income 13,853 10,048 38
Trading account and foreign
exchange gains 5,123 641 699
Gain on sales of bank investment
securities 2,512 233 -
Other revenues from operations 56,494 29,913 89
---------- ----------
Total other income 228,151 132,847 72
Other expense
Salaries and employee benefits 200,750 124,074 62
Equipment and net occupancy 47,372 27,151 74
Printing, postage and supplies 9,892 7,013 41
Amortization of core deposit and
other intangible assets 21,148 11,598 82
Other costs of operations 110,805 72,442 53
---------- ----------
Total other expense 389,967 242,278 61
Income before income taxes 237,487 173,536 37
Applicable income taxes 77,997 56,998 37
---------- ----------
Net income $ 159,490 116,538 37 %
========== ==========
Summary of merger-related expenses
included above:
Salaries and employee benefits $ - 285
Equipment and net occupancy - 96
Printing, postage and supplies - 42
Other costs of operations - 5,022
---------- ----------
Total merger-related
expenses $ - 5,445
========== ==========
M&T BANK CORPORATION
Condensed Consolidated Balance Sheet
March 31
------------------------
Dollars in thousands 2004 2003 Change
----------- ---------- ------
ASSETS
Cash and due from banks $ 1,827,401 841,827 117 %
Money-market assets 316,643 59,229 435
Investment securities 7,655,890 4,146,303 85
Loans and leases, net of unearned
discount 36,515,308 26,224,113 39
Less: allowance for credit losses 615,640 444,680 38
----------- ----------
Net loans and leases 35,899,668 25,779,433 39
Goodwill 2,904,081 1,097,553 165
Core deposit and other intangible
assets 219,683 107,342 105
Other assets 2,009,114 1,412,104 42
----------- ----------
Total assets $50,832,480 33,443,791 52 %
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits at U.S.
offices $ 7,959,025 3,901,172 104 %
Other deposits at U.S. offices 22,843,169 16,111,791 42
Deposits at foreign office 2,538,686 1,911,259 33
----------- ----------
Total deposits 33,340,880 21,924,222 52
Short-term borrowings 4,955,615 2,387,043 108
Accrued interest and other
liabilities 1,053,893 424,887 148
Long-term borrowings 5,747,951 5,394,920 7
----------- ----------
Total liabilities 45,098,339 30,131,072 50
Stockholders' equity (1) 5,734,141 3,312,719 73
----------- ----------
Total liabilities and stockholders'
equity $ 50,832,480 33,443,791 52 %
=========== ==========
(1) Reflects accumulated other comprehensive income, net of applicable
income taxes, of $57.4 million at March 31, 2004 and $49.4 million at
March 31, 2003.
M&T BANK CORPORATION
Condensed Consolidated Average Balance Sheet
and Annualized Taxable-equivalent Rates
Three months ended
March 31
---------------------------------
Dollars in millions 2004 2003
---------------- ---------------- Change in
Balance Rate Balance Rate balance
--------- ------ --------- ------ -------
ASSETS
Money-market assets $ 85 .98 % 577 1.28 % -85 %
Investment securities 7,516 4.09 3,638 5.41 107
Loans and leases, net of
unearned discount
Commercial, financial, etc 9,100 4.07 5,340 4.59 70
Real estate - commercial 12,521 5.71 9,687 6.57 29
Real estate - consumer 3,083 5.95 3,181 6.47 -3
Consumer 11,139 5.66 7,581 6.30 47
--------- ---------
Total loans and leases,
net 35,843 5.32 25,789 6.11 39
--------- ---------
Total earning assets 43,444 5.10 30,004 5.94 45
Goodwill 2,904 1,098 164
Core deposit and other
intangible assets 230 112 104
Other assets 3,337 1,847 81
--------- ---------
Total assets $ 49,915 33,061 51 %
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
NOW accounts $ 1,114 .36 789 .36 41 %
Savings deposits 14,755 .62 9,623 .96 53
Time deposits 6,591 2.22 5,877 2.63 12
Deposits at foreign office 2,833 .98 1,052 1.20 169
--------- ---------
Total interest-bearing
deposits 25,293 1.07 17,341 1.51 46
--------- ---------
Short-term borrowings 4,771 1.02 3,490 1.30 37
Long-term borrowings 5,566 3.44 4,838 3.67 15
--------- ---------
Total interest-bearing
liabilities 35,630 1.43 25,669 1.89 39
Noninterest-bearing deposits 7,563 3,737 102
Other liabilities 990 388 156
--------- ---------
Total liabilities 44,183 29,794 48
Stockholders' equity 5,732 3,267 75
--------- ---------
Total liabilities and
stockholders' equity $ 49,915 33,061 51 %
========= =========
Net interest spread 3.67 4.05
Contribution of interest-free
funds .25 .27
Net interest margin 3.92 % 4.32 %
CONTACT:
Michael S. Piemonte
+1-716-842-5138
Web site: http://www.mandtbank.com/