M&T Bank Corporation Announces First Quarter Results
16 April 2018
GAAP Results of Operations. Diluted earnings per common share measured in accordance with generally accepted accounting principles (“GAAP”) for the initial quarter of 2018 were $2.23, up from $2.12 in the similar 2017 quarter and $2.01 in the fourth quarter of 2017. GAAP-basis net income in the recent quarter aggregated $353 million, compared with $349 million in the first quarter of 2017 and $322 million recorded in the final 2017 quarter. GAAP-basis net income for the first quarter of 2018 expressed as an annualized rate of return on average assets and average common shareholders' equity was 1.22% and 9.15%, respectively, compared with 1.15% and 8.89%, respectively, in the year-earlier quarter and 1.06% and 8.03%, respectively, in the fourth quarter of 2017.
During the recent quarter, M&T increased its reserve for litigation matters by $135 million to reflect the status of pre-existing litigation. That increase, on an after-tax basis, reduced net income by $102 million, or $.68 of diluted earnings per common share. In addition, income tax expense in the first quarter of 2018 reflects the reduction of the corporate Federal income tax rate from 35% to 21% by the Tax Cuts and Jobs Act (“the Tax Act”) that was enacted on December 22, 2017. Incremental income tax expense recorded in the fourth quarter of 2017 related to provisions of the Tax Act was $85 million, representing $.56 of diluted earnings per common share.
Darren J. King, Executive Vice President and Chief Financial Officer, commented on M&T’s financial performance, “M&T’s results for the first quarter reflected several positive factors – a continued widening of the net interest margin, favorable credit results, and limited core expense growth. We continued with our capital plan by repurchasing $721 million of common stock during the quarter, while maintaining our regulatory capital levels far in excess of minimum requirements. M&T is off to a good start in 2018.”
|Change 1Q18 vs.|
|($ in millions, except per share data)||1Q18||1Q17||4Q17||1Q17||4Q17|
|Net income available to common shareholders - diluted||$||333||$||329||$||302||1||%||10||%|
|Diluted earnings per common share||$||2.23||$||2.12||$||2.01||5||%||11||%|
|Annualized return on average assets||1.22||%||1.15||%||1.06||%|
|Annualized return on average common equity||9.15||%||8.89||%||8.03||%|
Supplemental Reporting of Non-GAAP Results of Operations. M&T consistently provides 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 items are considered by management to be “nonoperating” in nature. The amounts of such “nonoperating” expenses are presented in the tables that accompany this release. 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.
Diluted net operating earnings per common share were $2.26 in the first quarter of 2018, $2.15 in the year-earlier quarter and $2.04 in the fourth quarter of 2017. Net operating income for the first three months of 2018 was $357 million, compared with $354 million in the year-earlier period and $327 million in the final quarter of 2017. Expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity, net operating income was 1.28% and 13.51%, respectively, in the recent quarter, compared with 1.21% and 13.05%, respectively, in the initial quarter of 2017 and 1.12% and 11.77%, respectively, in the fourth quarter of 2017.
Taxable-equivalent Net Interest Income. Net interest income expressed on a taxable-equivalent basis aggregated $980 million in the first quarter of 2018, up 6% from $922 million in the first three months of 2017. That growth resulted from a widening of the net interest margin to 3.71% in the recent quarter from 3.34% in the initial 2017 quarter. The widening was offset, in part, by lower average earning assets of $4.8 billion, including a decline in average loans and leases of $2.0 billion, as compared with the year-earlier quarter. Taxable-equivalent net interest income in the fourth quarter of 2017 was also $980 million. A 15 basis point widening of the net interest margin in the recent quarter was offset by a decline in average earning assets of $2.2 billion as compared with the final 2017 quarter. Average loans and leases in the recent quarter were little changed from the fourth quarter of 2017.
|Taxable-equivalent Net Interest Income|
|Change 1Q18 vs.|
|($ in millions)||1Q?18||1Q17||4Q17||1Q17||4Q17|
|Average earning assets||$||107,231||$||112,008||$||109,412||-4||%||-2||%|
|Net interest income - taxable-equivalent||$||980||$||922||$||980||6||%||—|
|Net interest margin||3.71||%||3.34||%||3.56||%|
Provision for Credit Losses/Asset Quality. The provision for credit losses was $43 million in the initial 2018 quarter, compared with $55 million in the corresponding 2017 quarter and $31 million in 2017’s fourth quarter. Net charge-offs of loans were $41 million during the recent quarter, compared with $43 million and $27 million in the first and fourth quarters of 2017, respectively. Expressed as an annualized percentage of average loans outstanding, net charge-offs were .19% in each of the first quarters of 2018 and 2017 and .12% in the fourth quarter of 2017.
Loans classified as nonaccrual totaled $865 million or .99% of total loans outstanding at March 31, 2018, improved from $927 million or 1.04% a year earlier and $883 million or 1.00% at December 31, 2017. Assets taken in foreclosure of defaulted loans were $101 million at March 31, 2018, compared with $119 million at March 31, 2017 and $112 million at December 31, 2017.
Allowance for Credit Losses. M&T regularly performs detailed analyses of individual borrowers and portfolios for purposes of assessing the adequacy of the allowance for credit losses. As a result of those analyses, the allowance for credit losses totaled $1.02 billion or 1.16% of loans outstanding at each of March 31, 2018 and December 31, 2017, compared with $1.00 billion or 1.12% at March 31, 2017.
|Asset Quality Metrics|
|Change 1Q18 vs.|
|($ in millions)||1Q18||1Q17||4Q17||1Q17||4Q17|
|At end of quarter|
|Real estate and other foreclosed assets||$||101||$||119||$||112||-15||%||-9||%|
|Total nonperforming assets||$||966||$||1,046||$||995||-8||%||-3||%|
|Accruing loans past due 90 days or more (1)||$||235||$||280||$||244||-16||%||-4||%|
|Nonaccrual loans as % of loans outstanding||.99||%||1.04||%||1.00||%|
|Allowance for credit losses||$||1,020||$||1,001||$||1,017||2||%||—|
|Allowance for credit losses as % of loans outstanding||1.16||%||1.12||%||1.16||%|
|For the period|
|Provision for credit losses||$||43||$||55||$||31||-22||%||39||%|
|Net charge-offs as % of average loans (annualized)||.19||%||.19||%||.12||%|
Noninterest Income and Expense. Noninterest income totaled $459 million in the recent quarter, compared with $447 million in the first quarter of 2017 and $484 million in the final quarter of 2017. The recent quarter’s improvement as compared with the initial 2017 quarter reflects higher trust income and a $23 million distribution from Bayview Lending Group LLC (“BLG”), partially offset by unrealized losses on investments in equity securities that, beginning in 2018, are reflected in the income statement. As compared with the fourth quarter of 2017, the recent quarter’s distribution from BLG was more than offset by a decline in mortgage banking revenues and gains realized from the sale of investment securities in 2017.
|Change 1Q18 vs.|
|($ in millions)||1Q18||1Q17||4Q17||1Q17||4Q17|
|Mortgage banking revenues||$||87||$||85||$||96||3||%||-9||%|
|Service charges on deposit accounts||105||104||108||1||%||-2||%|
|Brokerage services income||13||17||13||-23||%||5||%|
|Trading account and foreign exchange gains||5||10||10||-52||%||-56||%|
|Gain (loss) on bank investment securities||(9||)||—||21||—||—|
|Other revenues from operations||127||111||106||14||%||19||%|
|Total other income||$||459||$||447||$||484||3||%||-5||%|
Noninterest expense totaled $933 million in the first quarter of 2018, $788 million in the year-earlier quarter and $796 million in the fourth quarter of 2017. Excluding expenses considered to be nonoperating in nature, such as amortization of core deposit and other intangible assets, noninterest operating expenses were $927 million in the recent quarter, $779 million in the year-earlier period and $789 million in 2017’s final quarter. The most significant factor associated with the rise in noninterest operating expenses in the recent quarter as compared with the earlier quarters was a $135 million increase in the reserve for litigation matters. The increase in noninterest operating expenses from the fourth quarter of 2017 also reflected seasonally higher stock-based compensation and employee benefits expenses, partially offset by a decrease in contributions to The M&T Charitable Foundation.
|Change 1Q18 vs.|
|($ in millions)||1Q18||1Q17||4Q17||1Q17||4Q17|
|Salaries and employee benefits||$||463||$||450||$||403||3||%||15||%|
|Equipment and net occupancy||75||74||71||1||%||5||%|
|Outside data processing and software||49||44||50||9||%||-3||%|
|Advertising and marketing||16||16||19||1||%||-16||%|
|Printing, postage and supplies||9||10||9||-4||%||9||%|
|Amortization of core deposit and other intangible assets||7||9||7||-21||%||-6||%|
|Other costs of operations||294||156||213||88||%||38||%|
|Total other expense||$||933||$||788||$||796||18||%||17||%|
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 bank investment securities), measures the relationship of operating expenses to revenues. M&T's efficiency ratio was 64.0% in the first quarter of 2018, 56.9% in the year-earlier quarter and 54.7% in the fourth quarter of 2017.
Balance Sheet. M&T had total assets of $118.6 billion at March 31, 2018, compared with $123.2 billion at March 31, 2017. Loans and leases, net of unearned discount, were $87.7 billion at March 31, 2018 and $89.3 billion a year earlier. That decrease reflects the continuing repayment of acquired residential mortgage loans. Loans and leases outstanding at December 31, 2017 were $88.0 billion. The decline from the 2017 year-end to March 31, 2018 reflected acquired residential mortgage loan repayments, partially offset by growth in commercial real estate loans. Total deposits were $90.9 billion at the recent quarter-end, compared with $97.0 billion at March 31, 2017, largely the result of lower time and trust-related deposits. Deposits outstanding at December 31, 2017 totaled $92.4 billion.
Total shareholders' equity was $15.7 billion at March 31, 2018 and $16.2 billion a year earlier, representing 13.24% and 13.16%, respectively, of total assets. Common shareholders' equity was $14.5 billion, or $98.60 per share, at March 31, 2018, compared with $15.0 billion, or $97.40 per share, a year-earlier. Tangible equity per common share was $66.99 at March 31, 2018, compared with $67.16 at March 31, 2017. Common shareholders’ equity per share and tangible equity per common share were $100.03 and $69.08, respectively, at December 31, 2017. In the calculation of tangible equity per common share, common shareholders' equity is reduced by the carrying values of goodwill and core deposit and other intangible assets, net of applicable deferred tax balances. M&T estimates that the ratio of Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was approximately 10.59% at March 31, 2018.
In accordance with its capital plan, M&T repurchased 3,783,282 shares of its common stock during the initial 2018 quarter at a total cost of $721 million.
Conference Call. Investors will have an opportunity to listen to M&T's conference call to discuss first quarter financial results today at 11:00 a.m. Eastern Time. 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. Callers should reference M&T Bank Corporation or the conference ID #4268699. The conference call will be webcast live through M&T's website at http://ir.mandtbank.com/events.cfm. A replay of the call will be available through Friday, April 27, 2018 by calling (800) 585-8367, or (404) 537-3406 for international participants, and by making reference to ID #4268699. The event will also be archived and available by 7:00 p.m. today on M&T's website at http://ir.mandtbank.com/events.cfm.
M&T is a financial holding company headquartered in Buffalo, New York. M&T's principal banking subsidiary, M&T Bank, operates banking offices in New York, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia and the District of Columbia. Trust-related services are provided by M&T's Wilmington Trust-affiliated companies and by M&T Bank.
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; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; the impact of changes in market values on trust-related revenues; legislation affecting the financial services industry as a whole, and M&T and its subsidiaries individually or collectively, including tax legislation; regulatory supervision and oversight, including monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; 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; 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, including tax-related examinations and other matters; 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, acquisition and investment 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, either nationally or in the states in which M&T and its subsidiaries do business, including interest rate and currency exchange rate fluctuations, changes and trends in the securities markets, and other Future Factors.