M&T Bank Corporation Announces First Quarter Results
GAAP Results of Operations. Diluted earnings per common share measured in accordance with generally accepted accounting principles ("GAAP") for the initial quarter of 2016 were $1.73, up 5% from $1.65 in each of the first and fourth quarters of 2015. GAAP-basis net income in the recent quarter was $299 million, 24% higher than the $242 million earned in the year-earlier quarter and 10% above the $271 million recorded in the final 2015 quarter. Net income for the initial 2016 quarter expressed as an annualized rate of return on average assets and average common shareholders' equity was .97% and 7.44%, respectively, compared with 1.02% and 7.99%, respectively, in the corresponding 2015 period and .93% and 7.22% in the fourth quarter of 2015. M&T’s first quarter 2016 results reflect a full-quarter impact of its November 1, 2015 acquisition of Hudson City Bancorp, Inc. ("Hudson City").
Commenting on M&T's recent quarter performance, Rene F. Jones, Vice Chairman and Chief Financial Officer, noted, "Results in 2016’s initial quarter reflected strong growth in net interest income, solid loan growth, stable credit performance and well-controlled expenses, leading to an 11% rise in diluted net operating earnings per share, to $1.87, over the year-earlier period. The quarter was highlighted by the full integration of Hudson City’s operations through the successful conversion of the deposit system and branch network. Our entire banking franchise is now operating under the M&T flag, enabling us to extend to our new customers our unwavering commitment to outstanding service."
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" expense 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 $1.87 in the first three months of 2016, up 11% from $1.68 in the year-earlier period. Net operating income for the initial quarter of 2016 rose 30% to $320 million from $246 million in the first quarter of 2015. Diluted net operating earnings per common share and net operating income in the fourth quarter of 2015 were $2.09 and $338 million, respectively.
Expressed as an annualized rate of return on average tangible assets and average tangible common shareholders' equity, net operating income was 1.09% and 11.62%, respectively, in the first quarter of 2016, compared with 1.08% and 11.90%, respectively, in the year-earlier quarter and 1.21% and 13.26%, respectively, in the fourth quarter of 2015.
Taxable-equivalent Net Interest Income. Taxable-equivalent net interest income aggregated $878 million in the initial quarter of 2016, up 32% from $665 million in the year-earlier period. That growth resulted predominantly from a 31% rise in average earning assets, which grew to $111.2 billion in the recent quarter from $85.2 billion in the year-earlier quarter. The improvement reflects the Hudson City acquisition that added approximately $18.1 billion to average loans in the recent quarter plus growth of $2.9 billion in M&T’s other loan portfolios. The net interest margin in the first quarter of 2016 was 3.18%, improved slightly from 3.17% in the initial 2015 quarter. Taxable-equivalent net interest income in the fourth quarter of 2015 was $813 million. The $65 million improvement in the recent quarter as compared with the final 2015 quarter was largely due to the full-quarter impact of the Hudson City transaction, growth in commercial loans and commercial real estate loans and a 6 basis point widening of the net interest margin.
Provision for Credit Losses/Asset Quality. The provision for credit losses was $49 million in the first quarter of 2016, compared with $38 million in the year-earlier quarter. The provision in the final 2015 quarter was $58 million, reflecting a merger-related charge of $21 million associated with loans obtained in the Hudson City acquisition. Net charge-offs of loans during the recent quarter aggregated $42 million, compared with $36 million in each of the first and fourth quarters of 2015. Expressed as an annualized percentage of average loans outstanding, net charge-offs were .19% during the first three months of 2016, compared with .22% and .18% in the first and fourth quarters of 2015, respectively.
Loans classified as nonaccrual totaled $877 million or 1.00% of total loans outstanding at March 31, 2016, compared with $791 million or 1.18% a year earlier and $799 million or .91% at December 31, 2015. Loans obtained from Hudson City that were over 90 days past due as of the acquisition date are reported as purchased impaired loans and, in accordance with GAAP, interest continues to accrue on those loans despite their delinquency status. Those acquired loans have not been reported as nonaccrual as of either March 31, 2016 or December 31, 2015. The higher level of nonaccrual loans at the recent quarter-end reflects the normal migration of $80 million of previously performing loans obtained in the acquisition of Hudson City that became over 90 days past due during the recent quarter and, as such, were not identifiable as purchased impaired as of the acquisition date. Assets taken in foreclosure of defaulted loans totaled $188 million at March 31, 2016, compared with $63 million a year earlier and $195 million at December 31, 2015. The higher level of such assets at the two most recent quarter-ends resulted from residential real estate properties associated with the Hudson City acquisition.
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 $963 million at March 31, 2016, compared with $921 million a year earlier and $956 million at December 31, 2015. The allowance expressed as a percentage of outstanding loans was 1.10% at March 31, 2016, compared with 1.37% at March 31, 2015 and 1.09% at December 31, 2015. The decline in those ratios at the two most recent quarter-ends as compared with March 31, 2015 reflects the impact of residential mortgage loans obtained in the Hudson City acquisition.
Noninterest Income and Expense. Noninterest income totaled $421 million in the initial 2016 quarter, $440 million in the year-earlier quarter and $448 million in the fourth quarter of 2015.
As compared with the first quarter of 2015, residential mortgage banking revenues declined in the recent quarter, reflecting lower loan origination volumes and loan servicing income, and trust income decreased predominantly from the April 2015 sale of M&T’s trade processing business within its retirement services division. As compared with the final quarter of 2015, noninterest income in the recent quarter reflected lower levels of credit-related fees and commercial mortgage banking revenues.
Noninterest expense in the first quarter of 2016 aggregated $776 million, compared with $686 million and $786 million in the first and fourth quarters of 2015, 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 $741 million in the first quarter of 2016, $680 million in the year-earlier quarter and $701 million in the fourth quarter of 2015. The most significant factor for the higher level of operating expenses in the recent quarter as compared to the initial 2015 quarter was the impact of operations obtained in the Hudson City acquisition. The rise in operating expenses from 2015’s final quarter reflected the full-quarter impact of the Hudson City acquisition, along with seasonally higher stock-based compensation and employee benefits expenses offset, in part, by lower professional services costs.
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. Notably, M&T's efficiency ratio improved to 57.0% in the first quarter of 2016 from 61.5% in the year-earlier quarter.
Balance Sheet. M&T had total assets of $124.6 billion at March 31, 2016, up 27% from $98.4 billion a year earlier. Investment securities at the recent quarter-end were $15.5 billion, up $1.1 billion or 7% from March 31, 2015. Loans and leases, net of unearned discount, rose 31% to $87.9 billion at March 31, 2016 from $67.1 billion a year earlier. Total deposits were $94.2 billion at the recent quarter-end, up 28% from $73.6 billion at March 31, 2015.
Reflecting $3.1 billion of common equity issued in the acquisition of Hudson City, total shareholders' equity rose $3.8 billion or 31% to $16.4 billion at March 31, 2016 from $12.5 billion at March 31, 2015, representing 13.12% and 12.73%, respectively, of total assets. Common shareholders' equity was $15.1 billion, or $95.00 per share at March 31, 2016, up from $11.3 billion, or $84.95 per share, a year earlier. Tangible equity per common share rose 13% to $65.65 at March 31, 2016 from $58.29 a year earlier. Common shareholders' equity per share and tangible equity per common share were $93.60 and $64.28, respectively, at December 31, 2015. 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 11.06% at March 31, 2016.
M&T’s Board of Directors authorized the purchase of up to $254 million of shares of common stock through the end of the second quarter of 2016. During the first quarter, M&T purchased 948,545 shares of common stock under that authorization at an average cost per share of $105.42, for a total cost of $100 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 #88263531. 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 Thursday, April 21, 2016 by calling (800)585-8367, or (404)537-3406 for international participants, and by making reference to the ID #88263531. 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.