M&T Bank (MTB) Q4 Earnings, Revenues Improve

M&T Bank Corporation’s MTB fourth-quarter 2015 net operating earnings of $2.09 per share increased 7% year over year. The Zacks Consensus Estimate was of $1.98.

Results were primarily aided by higher net interest income. Continued growth in loan balances and a strong capital position were among other positives for the quarter. However, on the flip side, the quarter recorded increases in provisions and expenses.

Net operating income of $337.6 million in the final quarter of 2015 was up 20% year over year.
 
On a GAAP basis, M&T Bank reported earnings per share of $1.65, compared with $1.92 per share in the prior-year quarter. GAAP earnings included impact of expenses related to M&T Bank’s merger with Hudson City Bancorp., which was completed on Nov 1, 2015. Net income declined 2% year over year to $271 million.

For the year ended 2015, operating earnings per share were $7.74, outpacing the Zacks Consensus Estimate of $7.55. Also, the reported figure was up from $7.57 per share recorded in the prior year. Net operating income increased 6% year over year to 1.16 billion in 2015.

For the year-ended 2015, GAAP net income was $1.08 billion or $7.18 per share, compared with $1.07 billion or $7.42 per share reported in the prior year.

Performance in Detail

Revenues for full-year 2015 were $4.68 billion, which marked a year-over-year increase of nearly 5%. The Zacks Consensus Estimate was $4.70 billion.

M&T Bank’s net revenue of $1.26 billion for fourth-quarter 2015 compared favorably with the year-ago number of $1.13 billion. The Zacks Consensus Estimate was $1.25 billion.

M&T Bank's net interest income came in at $813 million for fourth quarter of 2015, up 18% on a year-over-year basis. Notably, the company recorded 18% year-over-year growth in average earning assets, primarily led by the Hudson City acquisition that added around $14.6 billion to average earning assets in the reported quarter.  Also, the acquisition drove improvement in net interest margin that increased 2 basis points (bps) year over year to 3.12%.

M&T Bank’s other income declined 1% year over year to $448 million. The decrease was mainly due to lower income from several categories including mortgage banking income, trust fees and service charges on deposit accounts. However, the quarter experienced higher trading account & foreign exchange gains and other revenues.

Non-interest expenses were $786 million, up 18% year over year. Excluding certain non-operating items, expenses came in at $701 million, up 6% year over year. Notably, the reported quarter witnessed increased costs in several overheads including professional services, salaries and employee benefit expenses and FDIC assessments.

As of Dec 31, 2015, loans and leases, net of unearned discount, rose 31% year over year to $87.49 billion and total deposits increased around 25% year over year to $92.0 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 1.21% and 13.26%, respectively compared with 1.18% and 13.55% recorded a year ago.

Credit Quality

Credit quality was a mixed bag in the reported quarter. Provision for credit losses increased 76% year over year to $58 million. Notably provisions included $21 million related to the merger. Further, net charge-offs of loans came in at $36 million, up 12% year over year.  Further, non-performing assets increased 15% year over year to $994 million.

However, net charge-offs as a percentage of average loans outstanding were 0.18%, down from 0.19% in the year-ago quarter. Also, the ratio of non-accrual loans to total net loans was 0.91%, down from 1.20% in the prior-year quarter.

Capital Position

M&T Bank’s capital ratios were strong during the quarter. The company's estimated Common Equity Tier 1 to risk-weighted assets under the transitional capital rules effective on Jan 1, 2015 was around 11.06%. Tangible equity per share came in at $64.28, 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. Three years since the announcement of the deal, M&T Bank finally managed to complete the acquisition of Hudson City in Nov 2015.  The acquisition expanded the company’s retail branch network in eastern U.S., by gaining access to 135 Hudson City branches situated primarily in New Jersey. The company managed to enhance its balance sheet with deposits and loans worth $18 billion and $19 billion, respectively. Further, product and balance-sheet diversification stemming from the acquisition, will likely support the company’s top line.

We believe the company, with a solid business model, sturdy capital position and strategic acquisitions, is well poised for future growth. However, we remain cautious owing to regulatory issues and mounting expenses.

Performance of Other Major Wall Street Firms

Banking major JPMorgan Chase & Co. JPM kick started the fourth-quarter 2015 earnings season with earnings of $1.32 per share that beat the Zacks Consensus Estimate of $1.26. The figure shows a 10.9% improvement over the year-ago period, which had seen lower-than-usual earnings of $1.19 per share. However, the earnings number indicates the impact of tough market conditions. Weak trading and asset management dented the results, but a decent decline in expenses and increased revenues helped the company see improved earnings on a year-over-year basis.

U.S. Bancorp USB reported fourth-quarter 2015 earnings per share of 79 cents, in line with the Zacks Consensus Estimate as well as the prior-year quarter earnings. Including a gain on sale of a deposit portfolio, which was partially offset by legal accruals, earnings per share was 80 cents.

The PNC Financial Services Group, Inc. PNC reported another impressive quarter with an earnings surprise of 3.9%. The company’s fourth-quarter 2015 earnings per share of $1.87 outpaced the Zacks Consensus Estimate of $1.80. Moreover, the bottom line compared favorably with $1.84 earned in the prior-year quarter. Better-than-expected results were primarily driven by a fall in expenses, which was, however, partially offset by lower revenues and higher provisions.

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