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M&T Bank (MTB) Q1 Earnings Beat on Revenue Strength

Driven by higher revenues, M&T Bank Corporation's MTB first-quarter 2016 net operating earnings of $1.87 per share outpaced the Zacks Consensus Estimate by a penny. Moreover, this compared favorably with $1.68 per share reported in the prior-year quarter.

The strong results reflected organic growth which has been aided by higher revenues and rise in loans and deposits. However, higher expenses were a major drag. Notably, results reflected a full-quarter impact of the acquisition of Hudson City Bancorp, Inc.

On a GAAP basis, M&T Bank reported net income of $299 million or $1.73 per share compared with $242 million or $1.65 per share in the prior-year quarter. Results for the reported quarter included certain non-recurring items.

Quarter in Detail

M&T Bank's taxable-equivalent net revenue was recorded at $1.30 billion, up 17.5% from the prior-year quarter. The figure was almost in line with the Zacks Consensus Estimate.

M&T Bank's net interest income came in at $878 million, up 32% on a year-over-year basis. Further, net interest margin increased to 3.18% from 3.17% in the prior-year quarter.

M&T Bank's other income decreased 4.3% year over year to $421 million. A decline in mortgage banking revenues and trust income proved to be a drag.

Non-interest expenses totaled $776.1 million, up 13% from the prior-year quarter. Excluding certain non-operating items, expenses came in at $741 million, up 9% from the prior-year quarter. Efficiency ratio improved to 57% from 61.5% in the prior-year quarter. A fall in ratio indicates a rise in profitability.

Loans and leases, net of unearned discount, rose 31% year over year to $87.9 billion at the end of the quarter. Moreover, total deposits improved around 28% year over year to $94.2 billion.

M&T Bank's net operating income reflected an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.09% and 11.62%, respectively, compared with 1.08% and 11.90% recorded in the prior-year quarter.

Credit Quality

Credit quality metrics deteriorated in the reported quarter. Provision for credit losses was $49 million, up 28.9% year over year. Net charge-offs of loans came in at $42 million, up 16.7% year over year.  

Net charge-offs, as a percentage of average loans outstanding, were 0.19%, down from 0.22% in the year-ago quarter. Moreover, the ratio of non-accrual loans to total net loans was 1.00%, down from 1.18% in the prior-year quarter. Further, non-performing assets increased 25% year over year to $1.06 billion.

Capital Ratios

M&T Bank’s capital ratios were strong during the quarter. The company's estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was around 11.06%. Tangible equity per share came in at $65.65, up 13% year over year.  

Our Viewpoint

Following the financial crisis, the market witnessed a rise in the number of distressed banks ready to be taken over by their stronger counterparts. M&T Bank capitalized on such opportunities. In fact, strategic acquisitions have been part of M&T Bank’s business expansion policy. The deal with Hudson City has in all probability provided an upside to M&T Bank’s top line by leveraging the former’s retail network as well as product and balance sheet diversification.

While the company’s sound capital position, improving credit quality and growing core deposit bode well for the long run, the sluggish economic recovery, regulatory issues and low interest rate environment are potent headwinds.

M&T Bank currently carries a Zacks Rank #4 (Sell).

Performance of Other Major Wall Street Firms

JPMorgan Chase & Co. JPM – which kick-started the first-quarter earnings season, reported earnings of $1.35 per share surpassing the Zacks Consensus Estimate of $1.26, which was pretty conservative given the number of downward revisions over the last couple of months. However, the figure reflects a 7% decline from the year-ago quarter, indicating the impact of challenging market conditions.

Buoyed by strong top-line growth, Wells Fargo & Company’s WFC first-quarter 2016 earnings recorded a positive surprise of about 1%. Earnings of 99 cents per share beat the Zacks Consensus Estimate by a penny. However, it compared unfavorably with the prior-year quarter’s earnings of $1.04 per share.

A fall in operating expenses drove Wall Street banking giant Citigroup Inc. C to deliver a positive earnings surprise of more than 6% in first-quarter 2016. The company’s earnings from continuing operations per share of $1.11 for the quarter outpaced the Zacks Consensus Estimate of $1.04. However, earnings declined 26% on a year over basis.

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