M&T Bank

M&T Bank Corporation Announces First Quarter Results

17 April 2017

BUFFALO, N.Y.—M&T Bank Corporation (“M&T”)(NYSE: MTB) today reported its results of operations for the quarter ended March 31, 2017.

GAAP Results of Operations.  Diluted earnings per common share measured in accordance with generally accepted accounting principles (“GAAP”) for the initial quarter of 2017 were $2.12, up 23% from $1.73 in the year-earlier quarter and 7% higher than $1.98 in the final quarter of 2016.  GAAP-basis net income in the recent quarter was $349 million, 17% higher than $299 million in the first quarter of 2016 and 6% above the $331 million recorded in the final 2016 quarter.  Net income for the initial 2017 quarter expressed as an annualized rate of return on average assets and average common shareholders' equity was 1.15% and 8.89%, respectively, compared with .97% and 7.44%, respectively, in the similar 2016 period and 1.05% and 8.13%, respectively, in the fourth quarter of 2016. 

During the first quarter of 2017, M&T adopted new accounting guidance for share-based transactions.  That guidance requires that all excess tax benefits and tax deficiencies associated with share-based compensation be recognized as income tax expense or benefit in the income statement.  Previously, tax effects resulting from changes in M&T’s share price subsequent to the grant date were recorded through shareholders’ equity at the time of vesting or exercise.  The adoption of the amended accounting guidance resulted in an $18 million reduction of income tax expense in the initial 2017 quarter, or $.12 of diluted earnings per common share.

Commenting on M&T’s first quarter results, Darren J. King, Executive Vice President and Chief Financial Officer, noted, “M&T’s financial performance for the first quarter was strong, led by a 26 basis point widening of the net interest margin that resulted in growth in taxable-equivalent net interest income of four percent as compared with the preceding quarter.  Expenses continued to be well-controlled, recognizing the seasonally higher costs traditionally seen in the first quarter for stock-based compensation and employee benefits, and credit quality factors remained stable.  In accordance with our capital plan, M&T repurchased $532 million of its common stock and increased the common stock dividend from $.70 to $.75 during the quarter.”
 
Earnings Highlights  
                                         
                            Change 1Q 2017 vs.  
($ in millions, except per share data)   1Q17     1Q16     4Q16     1Q16     4Q16  
                                         
Net income   $ 349     $ 299     $ 331       17 %     6 %
Net income available to common shareholders - diluted   $ 329     $ 276     $ 308       19 %     7 %
Diluted earnings per common share   $ 2.12     $ 1.73     $ 1.98       23 %     7 %
Annualized return on average assets     1.15 %     .97 %     1.05 %                
Annualized return on average common equity     8.89 %     7.44 %     8.13 %                


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 $2.15 in the first quarter of 2017, up 15% from $1.87 in the corresponding 2016 period.  Net operating income for the first three months of 2017 rose 11% to $354 million from $320 million in the year-earlier quarter.  Diluted net operating earnings per common share and net operating income in the fourth quarter of 2016 were $2.01 and $336 million, respectively. 

Expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity, net operating income was 1.21% and 13.05%, respectively, in the initial 2017 quarter, compared with 1.09% and 11.62%, respectively, in the year-earlier quarter and 1.10% and 11.93%, respectively, in the fourth quarter of 2016.

Taxable-equivalent Net Interest Income.  Taxable-equivalent net interest income totaled $922 million in the first quarter of 2017, up 5% from $878 million in the first three months of 2016.  That growth resulted predominantly from a widening of the net interest margin to 3.34% in the recent quarter from 3.18% in the initial 2016 quarter.  Taxable-equivalent net interest income in the fourth quarter of 2016 was $883 million. The $39 million improvement in the recent quarter’s taxable-equivalent net interest income as compared with the final 2016 quarter was largely due to a 26 basis point widening of the net interest margin from 3.08%.
                                         
Taxable-equivalent Net Interest Income  
                                         
                            Change 1Q 2017 vs.  
($ in millions)   1Q17     1Q16     4Q16     1Q16     4Q16  
                                         
Average earning assets   $ 112,008     $ 111,211     $ 114,254       1 %     -2 %
Net interest income - taxable equivalent   $ 922     $ 878     $ 883       5 %     4 %
Net interest margin     3.34 %     3.18 %     3.08 %                

Provision for Credit Losses/Asset Quality.  The provision for credit losses was $55 million in the first quarter of 2017, compared with $49 million in the year-earlier quarter and $62 million in the final 2016 quarter.  Net charge-offs of loans during the recent quarter aggregated $43 million, compared with $42 million and $49 million in the first and fourth quarters of 2016, respectively.  Expressed as an annualized percentage of average loans outstanding, net charge-offs were .19% during each of the first quarters of 2017 and 2016, compared with .22% in the fourth quarter of 2016.

Loans classified as nonaccrual totaled $927 million, or 1.04% of total loans outstanding at March 31, 2017, compared with $877 million or 1.00% a year earlier and $920 million or 1.01% at December 31, 2016.  The higher level of nonaccrual loans at the two most recent quarter-ends as compared with March 31, 2016 reflect the expected migration of previously performing loans obtained in the acquisition of Hudson City Bancorp, Inc. (“Hudson City”) that became past due over 90 days after March 31, 2016.  Nonaccrual Hudson City-related residential real estate loans aggregated $207 million, $79 million and $190 million at March 31, 2017, March 31, 2016 and December 31, 2016, respectively.  Assets taken in foreclosure of defaulted loans totaled $119 million at March 31, 2017, compared with $188 million a year earlier and $139 million at December 31, 2016.

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 $1.00 billion at March 31, 2017, compared with $963 million at a year earlier and $989 million at December 31, 2016.  The allowance expressed as a percentage of outstanding loans was 1.12% at March 31, 2017, compared with 1.10% at March 31, 2016 and 1.09% at December 31, 2016.
 
Asset Quality Metrics  
                                         
                            Change 1Q 2017 vs.  
($ in millions)   1Q17     1Q16     4Q16     1Q16     4Q16  
                                         
At end of quarter                                        
Nonaccrual loans   $ 927     $ 877     $ 920       6 %     1 %
Real estate and other foreclosed assets   $ 119     $ 188     $ 139       -37 %     -14 %
Total nonperforming assets   $ 1,046     $ 1,065     $ 1,059       -2 %     -1 %
Accruing loans past due 90 days or more (1)   $ 280     $ 336     $ 301       -17 %     -7 %
Nonaccrual loans as % of loans outstanding     1.04 %     1.00 %     1.01 %                
                                         
Allowance for credit losses   $ 1,001     $ 963     $ 989       4 %     1 %
Allowance for credit losses as % of loans outstanding     1.12 %     1.10 %     1.09 %                
                                         
For the period                                        
Provision for credit losses   $ 55     $ 49     $ 62       12 %     -11 %
Net charge-offs   $ 43     $ 42     $ 49       1 %     -13 %
Net charge-offs as % of average loans (annualized)     .19 %     .19 %     .22 %                
(1)      Excludes loans acquired at a discount.  Predominantly residential real estate loans.

Noninterest Income and Expense.  Noninterest income aggregated $447 million in the initial 2017 quarter, up 6% from $421 million in the year-earlier quarter.  Contributing to that improvement were higher trust income and credit-related fees. Noninterest income was $465 million in the final three months of 2016. The decline in such income in the recent quarter as compared with the fourth quarter of 2016 was largely due to lower commercial and residential mortgage banking revenues.
 
Noninterest Income  
                                         
                            Change 1Q 2017 vs.  
($ in millions)   1Q17     1Q16     4Q16     1Q16     4Q16  
                                         
Mortgage banking revenues   $ 85     $ 82     $ 98       3 %     -14 %
Service charges on deposit accounts     104       102       105       2 %     -1 %
Trust income     120       111       122       8 %     -2 %
Brokerage services income     17       16       15       9 %     14 %
Trading account and foreign exchange gains     10       8       7       30 %     26 %
Gain on bank investment securities                 2              
Other revenues from operations     111       102       116       9 %     -4 %
Total other income   $ 447     $ 421     $ 465       6 %     -4 %

Noninterest expense in the first quarter of 2017 totaled $788 million, compared with $776 million and $769 million in the first and fourth quarters of 2016, respectively.  Included in such amounts are expenses considered to be nonoperating in nature consisting of amortization of core deposit and other intangible assets and merger-related expenses.  Exclusive of those expenses, noninterest operating expenses were $779 million in the first three months of 2017, $741 million in the year-earlier period and $760 million in the final 2016 quarter.  The higher level of operating expenses in the recent quarter as compared with the initial 2016 quarter was largely the result of increased salaries and employee benefits costs, reflecting merit increases and higher incentive-based compensation.  As compared with the final three months of 2016, the higher level of operating expenses in the recent quarter was predominately due to seasonally higher stock-based compensation and employee benefits expenses offset, in part, by the effect of a $30 million contribution to The M&T Charitable Foundation in the final 2016 quarter.
 
Noninterest Expense  
                                         
                            Change 1Q 2017 vs.  
($ in millions)   1Q17     1Q16     4Q16     1Q16     4Q16  
                                         
Salaries and employee benefits   $ 450     $ 432     $ 393       4 %     14 %
Equipment and net occupancy     74       74       70             6 %
Outside data processing and software     44       43       44       3 %     1 %
FDIC assessments     29       25       29       14 %     -1 %
Advertising and marketing     16       22       21       -25 %     -24 %
Printing, postage and supplies     10       12       9       -19 %     12 %
Amortization of core deposit and other intangible assets     9       12       9       -32 %     -7 %
Other costs of operations     156       156       194             -19 %
Total other expense   $ 788     $ 776     $ 769       2 %     2 %
                                         
Memo: Merger-related expenses included in above   $ -     $ 23     $ -                  

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 56.9% in the first quarter of 2017, compared with 57.0% in the year-earlier quarter and 56.4% in the fourth quarter of 2016.

Balance Sheet.  M&T had total assets of $123.2 billion at March 31, 2017, compared with $124.6 billion a year earlier.  Investment securities at the recent quarter-end were $16.0 billion, up from $15.5 billion at March 31, 2016.  Loans and leases, net of unearned discount, rose $1.4 billion to $89.3 billion at March 31, 2017 from $87.9 billion a year earlier.  Total deposits were $97.0 billion at the recent quarter-end, up 3% from $94.2 billion at March 31, 2016.

Reflecting the impact of repurchases of M&T’s common stock, total shareholders' equity was $16.2 billion at March 31, 2017, down from $16.4 billion at March 31, 2016, representing 13.16% and 13.12%, respectively, of total assets.  Common shareholders' equity was $15.0 billion, or $97.40 per share, at March 31, 2017, compared with $15.1 billion, or $95.00 per share, a year-earlier.  Tangible equity per common share increased to $67.16 at March 31, 2017 from $65.65 a year-earlier.  Common shareholders’ equity per share and tangible equity per common share were $97.64 and $67.85, respectively, at December 31, 2016.  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 10.66% at March 31, 2017.
In accordance with its capital plan, M&T repurchased 3,233,196 shares of its common stock during the initial 2017 quarter at a total cost of $532 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 #1401624.  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 until Monday, April 24, 2017 by calling (800)585-8367, or (404)537-3406 for international participants, and by making reference to ID #1401624.  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.

Investor Contact:
Donald J. MacLeod
(716) 842-5138

Media Contact
C. Michael Zabel
(716) 842-5385

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