M&T Bank Outpaced Ests, Exps Down - Analyst Blog

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M&T Bank Corporation's ( MTB ) first quarter 2012 operating earnings of $1.59 per share were significantly above the Zacks Consensus Estimate of $1.47. Earnings also surpassed the prior-quarter earnings of $1.20 per share.

Quarterly results were aided by an increase in net interest margin and lower non-interest expenses. Moreover, improved credit quality in the quarter was on the positive side, though a decrease in non-interest income acted as a headwind. Improved capital ratios also depict strong capital position of the company.

On a GAAP basis, M&T Bank reported net income of $206 million or $1.50 per share, up from $148 million or $1.04 per share in the prior quarter. Quarterly results included a number of special items such as the impact of amortization of core deposit and other intangible assets as well as merger-related gains and expenses along with other items.

Quarter in Detail

M&T Bank's net interest income came in at $627 million, up 0.3% sequentially. The growth stems from a 9 basis points hike in the net interest margin that improved to 3.69% from 3.60% in the prior quarter.

Expansion in net interest margin reflects an increase in average loans outstanding in the reported quarter, which was partially offset by a fall in lower yielding balances with the Federal Reserve.

M&T Bank's non-interest income decreased 5.3% sequentially to $377 million, including pre-tax losses from investment securities of $11 million. Excluding gains and losses from investment securities in all periods and income recorded from the litigation settlement in the prior quarter, non-interest income came in at $388 million, showing an improvement of 5.4% from $368 million, reported in the previous quarter.

The sequential decline was attributable to appreciably lower other revenues from operations, partly offset by a rise in mortgage banking revenues.

M&T Bank's non-interest expense was $640 million, down 13.5% from the prior quarter. Excluding non-operating expenses and other merger-related costs, non-interest operating expenses came in at $620 million, down 12.2% sequentially, primarily due to lower other costs of operations, partly offset by high salaries and employee benefits expenses. Efficiency ratio improved to 61.1% from 67.4% in the prior quarter.

Loans and leases, net of unearned discount, were $60.9 billion at the end of the first quarter, up 1.5% sequentially from $60.1 billion. Total deposits increased 2.5% sequentially to $60.9 billion at March 31, 2012 from $59.4 billion at the end of the prior quarter.

Credit metrics improved during the quarter, witnessing a 34% sequential decline in provision for credit losses to $49 million and a 35% reduction in net charge-offs to $48 million. Net charge-offs as a percentage of average loans outstanding were 0.32%, down from 0.50% in the last quarter. Moreover, the ratio of nonaccrual loans to total net loans moved down to 1.75% from 1.83% in the previous quarter.

M&T Bank's net operating income, expressed as an annualized rate of return on average tangible assets, and average tangible common shareholders' equity was 1.18% and 16.79%, respectively, compared with 0.89% and 12.36% in the prior quarter.

M&T Bank's tangible common equity to tangible assets ratio was 6.51% as of March 31, 2012, improving from 6.44% as of December 31, 2011. The company's Tier 1 common ratio stood at 7.04% as of March 31, 2012 compared with 6.86% as of December 31, 2011.

Our Take

Among M&T Bank's peers, JPMorgan Chase & Co. ( JPM ) reported first-quarter earnings per share of $1.31, topping the Zacks Consensus Estimate of $1.17. JPMorgan's better-than-expected earnings signal appreciable performance of the sector as it has exposure in almost all banking businesses. Marked recovery of the bond and equity market as well as a consequent revenue growth, which helped JPMorgan to bounce back, should lift the results of other mega-banks during the quarter.

While the tepid economic recovery and regulatory issues remain headwinds for the stock, a sound capital position, with a growing core deposit will uphold the bank in the long run.

M&T Bank currently retains its Zacks #3 rank, which translates into a short-term "Hold" rating. Considering the fundamentals, we also maintain our long-term 'Neutral' recommendation on the stock.

JPMORGAN CHASE ( JPM ): Free Stock Analysis Report

M&T BANK CORP ( MTB ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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