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M&T Bank (MTB) Beats Q2 Earnings Estimates, Revenues Rise

M&T Bank Corporation’s MTB reported a positive earnings surprise of 4.4% in second-quarter 2017. Net operating earnings of $2.38 per share surpassed the Zacks Consensus Estimate of $2.28. Also, it increased 15% on a year-over-year basis.

Better-than-expected results were driven by higher revenues. Eased margin pressure and a solid capital position were the other positives. However, deteriorating credit quality was a major headwind.

Shares of M&T Bank gained slightly in the pre-market trading reflecting investors optimism. Nonetheless, the actual picture will emerge in the full day’s trading session, with investors and analysts considering the core results.

Net operating income came in at $386 million, up around 10% year over year.

On a GAAP basis, M&T Bank’s earnings per share of $2.35 also jumped 18.7% year over year. Net income climbed 13.4% year over year to $381 million.

Net Interest Income & Fee Income Growth Boost Revenues, Costs Fall

M&T Bank’s net revenue came in at $1,399 million, lagging the Zacks Consensus Estimate of $1,401.6 million. However, it compared favorably with the year-ago quarter figure of $1,312 million.

Taxable-equivalent net interest income increased 9% year over year to $947 million in the quarter. Further, net interest margin expanded 11 basis points to 3.45%.

Supported by growth in trust income and other revenues, the company’s other income climbed 3% year over year to $461 million.

Non-interest expenses were $751 million, marginally down from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $743 million, improving 2.3% from the year-ago quarter. The rise was driven by increased legal costs, FDIC assessments, outside data processing and software expenses.

Efficiency ratio improved to 52.7% from 55.1% in the prior-year quarter. Generally, a lower ratio indicates increased efficiency.

Loans and leases, net of unearned discount, decreased slightly sequentially to $89.1 billion at the end of the quarter. Moreover, total deposits dropped 3.6% from the previous quarter to $93.5 billion.

M&T Bank's net operating income highlighted an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.33% and 14.18%, respectively, compared with 1.18% and 12.68% in the prior-year quarter.

Credit Quality Deteriorates

M&T Bank reflected a mixed credit quality in the reported quarter. Provision for credit losses increased 63% year over year to $52 million. Net charge-offs of loans came in at $45 million, up 86% year over year. However, non-performing assets decreased 4% year over year to $977 million.

Further, the ratio of non-accrual loans to total net loans was 0.98%, up from 0.96% in the prior-year quarter. Additionally, allowance for credit losses to total loans was 1.13%, up 3 bps from the year-ago quarter.

Strong Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was around 10.8%. Tangible equity per share came in at .20, up 1.9% year over year.

Share Repurchase

During the second quarter, the company repurchased 1.4 million shares of common stock for a total cost of $225 million at an average cost per share of $159.52.

Our Viewpoint

M&T Bank’s results reflect impressive performance in the quarter. Further, eased margin pressure and and lower expenses were the tailwinds .We believe that the company, with its sturdy business model and strategic acquisitions, is well poised for growth. The Hudson City acquisition has, in all probability, provided an upside to M&T Bank’s top line by leveraging on the former’s retail network as well as product and balance-sheet diversification.

M&T Bank Corporation Price and EPS Surprise

Currently, M&T Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Rising interest rates and loan growth drove JPMorgan Chase & Co.’s JPM second-quarter 2017 earnings of $1.82 per share, which easily surpassed the Zacks Consensus Estimate of $1.57. Also, the figure reflects a 17% rise from the year-ago period. Notably, the results included a legal benefit of $406 million.

Riding on higher revenues, The PNC Financial Services Group, Inc. PNC reported a positive earnings surprise of 4.5% in second-quarter 2017. Earnings per share of $2.10 easily beat the Zacks Consensus Estimate of $2.01. Moreover, it reflects a 15% increase from the prior-year quarter.

Citigroup Inc. C delivered a positive earnings surprise of 5.0% in second-quarter 2017, riding on higher revenues. The company’s income from continuing operations per share of $1.27 for the quarter outpaced the Zacks Consensus Estimate of $1.21. Also, earnings compared favorably with the year-ago figure of $1.25 per share.

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