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.
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.