M&T reports 41% increase in profits for third quarter
M&T Bank Corp. said Tuesday that third-quarter profits rose by 41 percent, fueled by a pair of acquisitions in Maryland, below-average loan losses, a higher profit margin and more fees.
The Buffalo-based bank reported net income of $127.7 million, or 97 cents per share, up from $91.2 million, or 82 cents per share, in the same three-month period a year ago.
That included an after-tax gain of $18 million, or 15 cents per share, from its government-assisted takeover of failed Bradford Bank in the Baltimore area, a transaction through which the Federal Deposit Insurance Corp. will reimburse M&T for most loan losses. M&T assumed $361 million in deposits and purchased $469 million in assets, including $302 million in loans.
On the other side, M&T incurred $9 million in after-tax expenses from that acquisition and its purchase in the second quarter of Baltimore-based Provident Bankshares Corp. And it incurred $29 million in after-tax “other-than- temporary impairment” charges on investments, or $47 million before taxes, with $45 million of that tied to privately issued mortgage-backed securities.
But it reversed a $10 million tax reserve of money previously set aside for potential tax liabilities in certain jurisdictions.
In all, the one-time gains and charges reduced earnings by $9 million, or 8 cents per share, but the acquisitions also added 8 cents per share to earnings. Net operating income, without the special items, rose by 28 percent to $128.8 million, or 98 cents per share, from $100.8 million, or 91 cents per share.
Wall Street had expected about 66 cents, based on the consensus of analysts. Shares closed at $67.32, up $1.05.
M&T “continues to stand out among its peers for remaining profitable through the downturn and not having reduced its dividend,” research analyst Joseph Fenech of Sandler O’Neill & Partners LP wrote in a re- search report. “The improved capital position also bolsters management’s claim that the company is not in need of additional capital.”
Bank officials credited the performance—which is in contrast to many peers and the nation’s biggest banks—to M&T’s conservative operating philosophy.
Credit losses were “below current industry experience,” while the profit margin and the ratio of common equity to assets rose noticeably, said Rene F. Jones, the bank’s executive vice president and chief financial officer.
“We thought it was a very solid quarter,” Jones said. “Our results were steady, very consistent with what we had been expecting. A lot of the strength of our earnings is that we continue to focus on the customers in our footprint and have not been far-reaching from our mission.”
Revenues rose in both lending and fees.Net interest income from taking deposits and making loans rose by 12 percent from a year ago and 9 percent from the second quarter, to $553.5 million. The increase stemmed from a higher profit margin on lending because the bank paid less interest on deposits and borrowings, as well as the impact of additional loans and other assets from the two deals.
Net loans and leases rose by 7 percent, to $52.2 billion, at quarter’s end, but the quarter’s average loans without the acquisitions fell, compared with the second quarter. There was a $218 million decline in auto floor plan lending because of unusually low inventories at car dealers. Use of credit lines is also down.
“It’s not because the companies are unhealthy. They’re producing significant amounts of cash,” Jones said. “I think small businesses and middle-market businesses in our footprint seem to be cautious about making new investments.”
Deposits rose by 10 percent, to $46.9 billion, including a 24 percent gain domestically, to $45.5 billion. Not counting the acquisitions, core customer deposits still rose by 18 percent, to $38.4 billion, driven by a 42 percent gain — to $11.8 billion — in noninterest deposits.
M&T set aside $154 million for loan losses, up from $101 million a year ago, and wrote off $141 million as uncollectible during the quarter, up from $94 million a year ago. The higher figure for charge-offs was mostly due to a partial write-off of a $42 million loan to a retirement community operator. Both the provision and losses were comparable to the second quarter.
Loans not accruing interest nearly doubled from a year ago, to $1.23 billion, while foreclosed real estate was unchanged at $85 million, for a total of $1.3 billion in bad assets. Newly classified loans included two business loans and a residential homebuilder. “While credit costs remain elevated as the current credit cycle continues to play out, our loss experience continues to be very manageable,” Jones said on a conference call with analysts.
M&T has modified $276 million in residential mortgages, largely in its Alt-A portfolio of low-documentation loans. Out of that, $109 million are not accruing interest, while the rest are paying according to the renegotiated terms. Jones noted that M&T has been modifying loans that were still paying on schedule, but loans that missed payments before modification must be current for six months before being considered performing.
Fee or noninterest income increased by 11 percent, to $296 million, mostly from higher mortgage banking revenues of $48 million, service fees on acquired deposit accounts and loan fees. Operating expenses rose by 11.9 percent, to $469 million, mostly from the acquired banks and higher deposit insurance assessments.
Jones said the bank will consider additional FDIC-assisted deals, as well as other acquisitions, but is not in a hurry. “It’s hard to change our DNA,” he said. “We tend to think about things pretty long-term.”
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