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M&T Bank (MTB) Q1 Earnings Improve Y/Y on Solid Revenues

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M&T Bank Corporation MTB reported net operating earnings of $2.26 per share in first-quarter 2018. The bottom line improved 5.1% year over year.

In addition, top-line growth was recorded. Moreover, improved credit quality was a positive factor. Further, pressure on margin eased. However, decrease in loan and deposit balances was a headwind. Also, results were affected by higher expenses.

Net operating income came in at $357 million, up around 1% year over year.

On a GAAP basis, M&T Bank’s earnings per share of $2.23 jumped 5% year over year. Net income inched up 1% year over year to $353 million. Notably, litigation reserve has been increased by $135 million. On an after-tax basis, reserve reduced net income by $102 million, or 68 cents per share.

NII & Fee Income Growth Boost Revenues, Expenses Flare Up

M&T Bank’s revenues came in at $1.44 billion comparing favorably with the year-ago figure of $1.37 billion.

Taxable-equivalent net interest income increased 6% year over year to $980 million in the quarter, driven by increased net interest margin, partly offset by lower average earning assets. Furthermore, net interest margin expanded 37 basis points year over year to 3.71%.

Supported by strong growth in trust income and distribution from Bayview Lending Group LLC, the company’s other income climbed 3% year over year to $459 million. These increases were partially offset by unrealized losses on investments in equity securities.

Non-interest expenses were $933 million, up 18% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $927 million, escalating 19% from the year-ago quarter. The rise reflected increased litigation reserve, elevated salaries, and employee-benefit costs and other expenses.

Efficiency ratio came in at 64% this quarter, up from 56.9% in the prior-year quarter. Rise in ratio indicates fall in profitability.

Loans and leases, net of unearned discount, edged down 1.8% year over year to $87.7 billion at the end of the reported quarter. Additionally, total deposits declined 6.3% year over year to $90.9 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 1.28% and 13.51%, respectively, compared with 1.21% and 13.05% recorded in the prior-year quarter.

Credit Quality Improved

M&T Bank reflected an improved credit quality picture in the reported quarter. Provision for credit losses shrunk 22% year over year to $43 million. Net charge-offs of loans came in at $41 million, down 5% year over year.

Further, the ratio of non-accrual loans to total net loans was 0.99%, down from 1.04% in the comparable period last year. Non-performing assets decreased 8% year over year to $966 million.

Strong Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was around 10.59%. Tangible equity per share came in at $66.99, slightly down year over year from $67.16.

Share Repurchase

During first-quarter 2018, M&T Bank repurchased a total of 3.78 million shares of its common stock for a total cost of $721 million.

Our Viewpoint

M&T Bank’s results display an impressive performance in the quarter. We believe 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 retail network of the former, as well as product and balance-sheet diversification.

However, regulatory issues and escalating costs remain headwinds for the bank.

M&T Bank Corporation Price, Consensus and EPS Surprise

M&T Bank Corporation Price, Consensus and EPS Surprise | M&T Bank Corporation Quote

Currently, M&T Bank carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Wells Fargo WFC recorded positive earnings surprise of 4.7% in first-quarter 2018. Earnings of $1.12 per share surpassed the Zacks Consensus Estimate of $1.07. Moreover, results improved from the prior-year quarter earnings of $1.03.

Notably, results are preliminary which might be impacted on resolution of matters with Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC) related to the bank’s compliance risk-management program with a charge of $1 billion in civil money penalties.

Lower provisions and higher interest income aided results. However, elevated interest expense and reduced non-interest income, with lower mortgage revenues, were the undermining factors. Moreover, expenses soared. Further, reduction in loans and deposits acted as headwinds for the quarter.

Driven by top-line strength, Citigroup C delivered a positive earnings surprise of 4.3% in the first quarter. Earnings per share of $1.68 for the quarter easily outpaced the Zacks Consensus Estimate of $1.61. Also, earnings compared favorably with the year-ago tally of $1.35 per share.

Overall top-line strength was reflected, driven by higher banking, equity markets and consumer banking revenues, along with loan growth. However, expenses escalated on ongoing investments.

Among other major banks, U.S. Bancorp USB is scheduled to report first-quarter results on Apr 18.

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