M&T Bank (MTB) Q2 Earnings Beat on Higher Revenues - Analyst Blog
Driven by higher revenues, M&T Bank Corporation's MTB second-quarter 2015 net operating earnings of $2.01 per share outpaced the Zacks Consensus Estimate of $1.96. However, this compared unfavorably with $2.02 per share reported in the prior-year quarter.
Our proven model predicted that M&T Bank will post an earnings beat as it has the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold).
Better-than-expected results reflected organic growth aided by higher revenues and rise in loans and deposits. However, higher expenses were on the downside.
On a GAAP basis, M&T Bank reported net income of $287 million or $1.98 per share, compared with $284 million or $1.98 per share in the prior-year quarter. Results for the reported quarter included certain non-recurring items.
M&T Bank Corporation - Earnings Surprise | FindTheBest
Quarter in Detail
M&T Bank's net revenue was recorded at $1.18 billion, up 4.4% from the prior-year quarter. Moreover, the figure surpassed the Zacks Consensus Estimate of $1.14 billion.
M&T Bank's net interest income came in at $683 million, up 2% on a year-over-year basis. Further, net interest margin declined to 3.17% from 3.40% in the prior-year quarter.
M&T Bank's other income increased 9% year over year to $497 million. Notably, the reported quarter included $45 million pre-tax gain recorded from the sale of the trade processing business. Moreover, increased mortgage banking revenues were on the positive side.
Non-interest expenses were $696.6 million, up 4% from the prior-year quarter. Excluding certain non-operating items, expenses came in at $691 million, up 5% from the prior-year quarter. Notably, the reported quarter included contribution to The M&T Charitable Foundation. Efficiency ratio increased to 58.2%, in line with the prior-year quarter.
Loans and leases, net of unearned discount, rose 5% year over year to $68.1 billion at the end of the quarter. Moreover, total deposits rose around 4% year over year to $69.8 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 1.24% and 13.76%, respectively compared with 1.35% and 14.92% recorded in the prior-year quarter.
Credit Quality
Credit quality exhibited continued improvement in the reported quarter. Provision for credit losses remained stable at $30 million. Net charge-offs of loans came in at $21 million, down 27.6% year over year.
Net charge-offs as a percentage of average loans outstanding were 0.13%, down from 0.18% in the year-ago quarter. Moreover, the ratio of non-accrual loans to total net loans was 1.17%, down from 1.36% in the prior-year quarter. Further, non-performing assets decreased 8% year over year to $860.9 million.
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 the transitional capital rules effective on Jan 1, 2015 was around 9.92%. Tangible equity per share came in at $59.39, up 6% 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 a part of M&T Bank’s business expansion policy. The deal with Hudson City Bancorp Inc. HCBK will expectedly provide upside to M&T Bank’s top line by leveraging the former’s retail network as well as product and balance sheet diversification.
The company, with its solid business model and strategic acquisitions, is well poised for growth. While the sluggish economic recovery, regulatory issues and low interest rate environment remain headwinds for M&T Bank, we believe that its sound capital position, improving credit quality and growing core deposit bode well for the long run.
M&T Bank currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Wall Street Firms
The second-quarter earnings season kick started with Wall Street biggies – Wells Fargo & Company WFC and JPMorgan Chase & Co. JPM. Impacted by higher expenses and reduced mortgage banking income, Wells Fargo’s earnings of $1.03 per share in second-quarter 2015 missed the Zacks Consensus Estimate by a penny. However, results were above the year-ago quarter earnings of $1.01 per share.
JPMorgan once again proved its caliber to turn the odds in its favor by delivering an earnings beat by a wide margin. While industry-wide weakness in the key operating segments was palpable in the second quarter, the bank came out with earnings of $1.54 per share, beating the Zacks Consensus Estimate of $1.44. The bottom line also improved 5.5% over the year-ago earnings of $1.46 per share.
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