01—Abstract
Summary
Summary of the 10-K filed February 20, 2019. Cited figures are marked; the original filing is the authoritative source.
M&T Bank Corporation (NYSE: MTB), headquartered in Buffalo, New York, reported net income of $1.92 billiona, or $12.74 of diluted earnings per common share, for 2018, up 36% and 46% respectively from $1.41 billion, or $8.70 per diluted share, in 2017.
Consolidated total assets were $120.1 billionb at December 31, 2018, with deposits of $90.2 billion and shareholders' equity of $15.5 billion. Net interest margin widened to 3.83% from 3.47%, driven by higher loan yields in a rising rate environment, while average earning assets declined 3% to $106.8 billion. The provision for credit losses fell 21% to $132 million, and the efficiency ratio improved to 54.8% from 55.1%.
The filing highlights several items affecting results. The company increased its reserve for legal matters by $135 millionc in the first quarter of 2018 in anticipation of settling a civil litigation matter related to Wilmington Trust Corporation's pre-acquisition periods, which reduced net income by $102 million after tax. The effective tax rate fell to 23.5% from 39.4% due to the Tax Cuts and Jobs Act's reduction of the federal corporate rate to 21%.
Management also disclosed ongoing Department of Labor investigations and lawsuits involving Wilmington Trust, N.A.'s ESOP trustee activities, with reasonably possible losses beyond recorded liabilities estimated between $0d and $50 million. Capital return remained significant. M&T repurchased 12,295,817 common shares for $2.2 billion during 2018, and the quarterly common dividend increased to $1.00 per share in the third quarter from $.75 at the start of the year.
The Federal Reserve did not object to M&T's revised 2018 capital plan, which authorized up to $1.8 billion of share repurchases over four quarters starting July 1, 2018. Common shareholders' equity was $102.69 per share at year-end.
02—Key points
Key Highlights
- Net income of $1.92 billion in 2018 versus $1.41 billion in 2017; diluted EPS of $12.74 versus $8.70.
- Net interest margin expanded to 3.83% from 3.47%, while average earning assets declined 3% to $106.8 billion.
- Provision for credit losses decreased 21% to $132 million; net charge-offs were $130 million, or .15% of average loans and leases.
- A $135 million addition to the legal reserve in Q1 2018 related to Wilmington Trust Corporation matters reduced 2018 net income by $102 million after tax.
- Effective tax rate declined to 23.5% from 39.4%, reflecting the Tax Cuts and Jobs Act's reduction in the federal corporate rate to 21%.
- Returned substantial capital: repurchased 12,295,817 shares for $2.2 billion and raised the quarterly common dividend to $1.00 per share in Q3 2018.
- Designated a Category IV firm under Federal Reserve tailoring proposals, with $100 billion to $250 billion in total consolidated assets subject to enhanced prudential standards.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 20, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.93B$5.63B | +5.3% |
| Interest Expense | $526.41M$386.75M | +36.1% |
| Net Income | $1.92B$1.41B | +36.2% |
| EPS (Basic) | $12.75$8.72 | +46.2% |
| EPS (Diluted) | $12.74$8.70 | +46.4% |
| Shares Outstanding (Basic) | 143.99M152.16M | −5.4% |
| Shares Outstanding (Diluted) | 144.15M152.55M | −5.5% |
05—Questions
Frequently Asked Questions
How did M&T's core profitability change in 2018?
Net interest income on a taxable-equivalent basis rose 7% to $4.09 billion, driven by a widening net interest margin to 3.83% from 3.47%, mainly due to higher loan yields in the higher rate environment. Other income was $1.86 billion, roughly flat with 2017, while other expense rose 5% to $3.29 billion, including higher salaries and legal-related costs.
What were the main one-time items affecting 2018 results?
The company added $135 million to its reserve for legal matters in the first quarter of 2018 for the Wilmington Trust Corporation civil litigation, which was later settled and reduced net income by $102 million after tax. In Q4 2018, a $15 million reduction in income tax expense from an IRS-approved change in loan fee treatment was recorded, and a $20 million charitable contribution reduced net income by $15 million.
How much capital did M&T return to shareholders in 2018?
M&T repurchased 12,295,817 common shares for $2.2 billion during 2018 and paid common dividends of $510 million, or $3.55 per share. The Federal Reserve did not object to the revised 2018 capital plan, which allowed up to $1.8 billion of repurchases over the four quarters beginning July 1, 2018, with $802 million remaining at year-end.
What regulatory risks does the filing identify?
M&T is subject to enhanced prudential standards because its total consolidated assets are between $100 billion and $250 billion. Under proposed Tailoring NPRs, M&T would be a Category IV firm, which would eliminate certain liquidity coverage and stress testing requirements. The filing also notes that the Federal Reserve's capital planning process must approve any capital distributions, and that resolution plan requirements and possible orderly liquidation fund assessments could affect the company.
What is the status of the Wilmington Trust ESOP-related legal matters?
Wilmington Trust, N.A. is responding to Department of Labor investigations and subpoenas, and to two DOL lawsuits filed in August 2017 relating to its role as trustee of ESOP transactions. It also faces four private party lawsuits. The company may be entitled to indemnification from ESOP plan sponsors. Reasonably possible losses beyond the existing recorded liability were estimated at between $0 and $50 million in the aggregate.
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