M&T Bank Corporation — 2013 Form 10-K
Business context and reporting period. This annual filing covers the year ended December 31, 2013, with comparisons to 2012 and 2011. M&T is a regional banking and financial-services holding company headquartered in Buffalo, New York. Its businesses include commercial and retail banking, commercial real estate lending, residential mortgage banking, trust and wealth management, and investment services. At year-end, consolidated assets were $85.2 billion, deposits $67.1 billion, loans and leases (net of unearned discount) $64.1 billion, and shareholders’ equity $11.3 billion.
Financial performance and condition
| Metric | 2013 | 2012 | Change or context |
|---|---|---|---|
| Net interest income, GAAP | $2.673 billion | $2.599 billion | Up 3%; taxable-equivalent net interest income was $2.698 billion, up 3%. |
| Other income | $1.865 billion | $1.667 billion | Up 12%, including securities gains and loan-securitization gains. |
| Net income | $1.138 billion | $1.029 billion | Up 11%; diluted EPS was $8.20 versus $7.54. |
| Provision for credit losses | $185 million | $204 million | Down 9%. |
| Net charge-offs | $183 million | $186 million | 0.28% of average loans and leases versus 0.30%. |
| Net interest margin | 3.65% | 3.73% | Down 8 basis points. |
| Efficiency ratio | 57.0% | 56.2% | Higher ratio reflects expense growth. |
| Operating cash flow | $932 million | $500 million | Investing cash outflow was $2.204 billion; financing cash inflow was $958 million. |
- Expenses and margins: Total other expense rose 5% to $2.636 billion. Noninterest operating expense, excluding specified amortization and merger costs, increased to $2.577 billion from $2.439 billion. Management cited higher salaries and professional-services costs, including compliance, capital-planning, stress-testing, and risk-management initiatives.
- Balance sheet and funding: Total assets increased 3% from 2012. Deposits rose 2% to $67.1 billion, while loans and leases declined 4% to $64.1 billion, partly due to 2013 loan securitizations and sales. Year-end short-term borrowings were $260 million and long-term borrowings $5.109 billion. Core deposits funded 88% of earning assets at year-end.
- Credit quality: Nonaccrual loans fell to $874 million, or 1.36% of loans and leases, from $1.013 billion, or 1.52%. Criticized commercial and commercial real estate loans declined to $1.8 billion from $2.4 billion. The allowance for credit losses was $917 million, or 1.43% of loans and leases, compared with $926 million, or 1.39%.
- Capital and shareholder returns: The year-end Basel I Tier 1 and total capital ratios were 12.00% and 15.07%; tangible common equity to tangible assets was 8.39%. Common dividends were $2.80 per share, unchanged year over year. No shares were repurchased under the announced buyback program.
Material changes versus the prior comparable period
- Net income improved, supported by higher net interest income, other income, and lower credit-loss provision. Average loans grew 4% during the year, even though year-end balances decreased following securitizations and sales.
- Net interest margin narrowed as asset yields fell; management cited lower loan yields and growth in lower-yielding cash balances and securities.
- Other income included $103 million of gains from selling Visa and MasterCard shares and $63 million of loan-securitization gains, partly offset by a $46 million pre-tax loss on sales of privately issued mortgage-backed securities. Mortgage-banking revenue declined 5% to $331 million; trust income rose 5% to $496 million.
- Fourth-quarter 2013 net income was $221 million, down from $296 million in fourth-quarter 2012; diluted EPS fell to $1.56 from $2.16. Fourth-quarter net interest margin was 3.56% versus 3.74%, while the efficiency ratio rose to 65.5% from 53.6%, reflecting higher operating costs and a $40 million increase in the litigation reserve.
Outlook, risks, contingencies, and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management said it believed M&T could meet the targeted capital ratios under the new rules; its estimated fully phased-in CET1 ratio at December 31, 2013 was approximately 8.98%. Management identified economic uncertainty, unemployment, real estate values, interest rates, and regional conditions as continuing concerns and potential headwinds in 2014.
- Regulatory and acquisition matters: In June 2013, M&T and M&T Bank entered a written agreement with the Federal Reserve Bank of New York requiring a revised Bank Secrecy Act/anti-money-laundering compliance program and other improvements. M&T said work was underway. The pending Hudson City Bancorp acquisition, estimated at $5.0 billion, remained subject to regulatory approval; the parties extended the termination date to December 31, 2014, with no assurance of completion.
- Legal and investigative matters: The SEC and Department of Justice investigations concerning pre-acquisition Wilmington Trust reporting and activities remained ongoing. The SEC issued a Wells Notice in August 2013. The company reported aggregate reasonably possible litigation losses of $0–$50 million beyond recorded liabilities, while noting particular-period results could still be materially affected. A $40 million increase to the litigation reserve followed a settlement relating to alleged pre-acquisition Wilmington Trust Company conduct.
- Regulatory capital and liquidity changes: Basel III capital rules were scheduled to apply beginning in 2015, with phase-ins; new liquidity requirements and enhanced prudential standards were also developing. M&T expected to redeem $350 million of 8.50% trust-preferred-related debentures in 2014 and issued $350 million of preferred stock qualifying as regulatory capital. The Volcker Rule could require divestiture of certain investments, though management did not expect a significant financial impact.
- Key risks: Interest-rate and spread changes, credit deterioration—particularly in real estate and consumer lending—deposit outflows or reduced funding access, regulatory and compliance costs, regional economic concentration, operational and cybersecurity incidents, and legal or enforcement outcomes. The filing’s modeled first-year net-interest-income sensitivity was +$134 million for a 100-basis-point increase and −$73 million for a 100-basis-point decrease; actual results could differ materially.
Important facts for investors to verify
- Progress and regulatory acceptance of the BSA/AML remediation program, and any consequences for the Hudson City transaction.
- Whether fourth-quarter expense growth, the litigation reserve increase, and the elevated efficiency ratio persist or normalize.
- Credit trends in commercial real estate, residential mortgages, home-equity lending, and commercial borrowers; also assess allowance adequacy against changing conditions.
- How the bank’s margin and earnings respond to interest rates, asset repricing, deposit mix, and required liquidity holdings.
- Implementation effects of Basel III and other regulatory rules on capital ratios, dividends, acquisitions, and shareholder returns.
- Resolution and potential financial impact of the Wilmington Trust investigations and other legal proceedings; the filing does not provide a precise estimate for all matters.