M&T Bank Corporation (MTB – Free Report) recorded a positive earnings surprise of 10.8% in first-quarter 2017. The company reported net operating earnings of $2.15 per share which surpassed the Zacks Consensus Estimate of $1.94. Also, the bottom line improved 15% year over year.
Better-than-expected performance resulted from top-line growth, aided by consistent growth in loan and deposit balances. Further, pressure on margin eased. However, results were affected by higher expenses and provisions.
Net operating income came in at $354 million, up 11% year over year.
On a GAAP basis, M&T Bank’s earnings per share of $2.12 also jumped 23% year over year. Net income climbed 17% year over year to $349 million.
NII & Fee Income Growth Boost Revenues, Expenses Flare Up
M&T Bank’s revenues came in at $1.36 billion, outpacing the Zacks Consensus Estimate of $1.34 billion. In addition, it compared favorably with the year-ago figure of $1.29 billion.
Taxable-equivalent net interest income increased 5% year over year to $922 million in the quarter, driven by increased net interest margin. Furthermore, net interest margin expanded 16 basis points year over year to 3.34%.
Supported by strong growth in credit-related fees and rise in trust income, the company’s other income climbed 6% year over year to $447 million.
Non-interest expenses were $788 million, up 1.5% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $779 million, escalating 5.1% from the year-ago quarter. The rise reflected elevated salaries and employee benefits costs.
Efficiency ratio improved to 56.9% in this quarter from 57.0% in the prior-year quarter. Improvement in ratio indicates rise in profitability.
Loans and leases, net of unearned discount, inched up 1.6% year over year to $89.3 billion at the end of the quarter. Moreover, total deposits rose 3% year over year to $97.0 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 1.21% and 13.05%, respectively, compared with 1.09% and 11.62% recorded in the prior-year quarter.
Credit Quality Deteriorated
M&T Bank reflected a mixed credit quality in the reported quarter. Provision for credit losses increased 12.2% year over year to $55 million. Net charge-offs of loans came in at $43 million, up 2.4% year over year.
Further, the ratio of non-accrual loans to total net loans was 1.04%, up from 1.00% in the comparable period last year. Additionally, allowance for credit losses to total loans was 1.12%, up from 1.10% in the year-ago quarter. However, non-performing assets decreased 2% year over year to $1.05 billion.
Strong Capital Position
M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was around 10.66%. Tangible equity per share came in at $67.16, up 2.3% year over year.
During first-quarter 2017, M&T Bank repurchased a total of 3.23 million shares of its common stock for a total cost of $532 million.
M&T Bank’s results display an impressive performance in the quarter. 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.
However, regulatory issues and escalating costs remain headwinds for M&T Bank.
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
Citigroup Inc. (C – Free Report) delivered a positive earnings surprise of 8.9% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.35 for the quarter outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10 per share. Notably, results reflect one-time adjustments of 1 cent.
Driven by net interest income, Wells Fargo & Company’s (WFC – Free Report) first-quarter 2017 earnings recorded a positive surprise of about 3.1%. Earnings of $1.00 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, the figure compared favorably with the prior-year quarter’s earnings of 99 cents per share.
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