M&T Bank Outperforms, Revenue Upped - Analyst Blog
October 17 2012 - 11:14AM
Zacks
M&T Bank Corporation’s (MTB) third quarter
2012 operating earnings of $2.24 per share were significantly above
the Zacks Consensus Estimate of $1.84. In addition, it surpassed
the prior-quarter earnings of $1.82 per share.
The results were aided by bolstered net interest and non-interest
income as well as lower operating expenses. Mortgage banking
revenues posted a decent rise in the quarter. Moreover, improved
capital ratios reflected the company’s strong capital position and
enhanced credit quality was a tailwind for the quarter.
On a GAAP basis, M&T Bank reported net income of $293 million
or $2.17 per share, escalating from $233 million or $1.71 per share
in the prior quarter. Results of the reported quarter included a
number of special items, such as the impact of amortization of core
deposit and other intangible assets as well as merger-related gains
and expenses.
Quarter in Detail
M&T Bank’s total revenue was recorded at $1.2 billion, up 9.1%
from the previous quarter. Moreover, revenue results also surpassed
the Zacks Consensus Estimate of $1.1 billion.
M&T Bank’s net interest income came in at $669 million, up 2.1%
from the previous quarter. The improvement was primarily due to
increase in average earning assets. The growth also stems from a
hike in the net interest margin, which improved to 3.77% from 3.74%
in the prior quarter.
M&T Bank’s non-interest income elevated 13.8% sequentially to
$446 million and included pre-tax losses on investment securities.
Excluding gains and losses from investment securities, non-interest
income came in at $451 million, exhibiting an improvement of 10.5%
from $408 million, reported in the last quarter. The sequential
hike was primarily attributable to higher mortgage banking
revenues.
M&T Bank’s non-interest expense was $616 million, down 1.8%
from the prior quarter. Excluding non-operating expenses and other
merger-related costs, non-interest operating expenses came in at
$602 million, down 0.3% from the prior quarter. The sequential
decline primarily reflected the continued realization of synergies
from the integration of the operations from Wilmington Trust
Corporation. Efficiency ratio improved to 53.7% from 56.9% in the
previous quarter.
Loans and leases, net of unearned discount, were $64.1 billion at
the end of the third quarter, up 1.9% sequentially from $62.9
billion. Total deposits increased 2.4% sequentially to $64.0
billion as of September 30, 2012 from $62.5 billion at the end of
the prior quarter.
Credit quality reflected an improvement during the quarter under
review. Provision for credit losses declined 23.3% to $46 million
and net charge-offs dipped 19.2% to $42 million. Net charge-offs,
as a percentage of average loans outstanding, were 0.26%, down from
0.34% in the preceding quarter. Moreover, the ratio of non-accrual
loans to total net loans moved down to 1.44% from 1.54% in the
previous quarter.
M&T Bank’s net operating income, expressed as an annualized
rate of return on average tangible assets, and average tangible
common shareholders' equity was 1.56% and 21.53%, respectively,
compared with 1.30% and 18.54% recorded in the earlier quarter.
M&T Bank's tangible common equity to tangible assets ratio was
7.04% as of September 30, 2012, improving from 6.65% as of June 30,
2012. The company’s Tier 1 common ratio stood at 7.47% as of
September 30, 2012 compared with 7.15% as of June 30, 2012.
Acquisition
Recently, M&T agreed to takeover Hudson City Bancorp
Inc. (HCBK) in cash and stock deal worth $3.7 billion,
based on M&T’s closing stock price on August 24, 2012. The bank
deal, the largest this year, would lead to an expansion of M&T
Bank’s franchise in the eastern U.S. and give it the fourth largest
deposit share in New Jersey. Under the terms of the agreement,
M&T will gain Hudson City’s 135 branch offices sited at New
Jersey, New York and Connecticut, which will lead to a combined
network of 870 branches ranging from Connecticut to Virginia.
Our Viewpoint
With a solid business model and strategic acquisitions, the company
is well poised for future growth. While the sluggish economic
recovery, regulatory issues and low interest rates remain the
headwinds for M&T Bank, we believe that a sound capital
position, along with a growing core deposit, will uphold it in the
long run.
M&T Bank currently retains its Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we
also maintain our long-term ‘Neutral’ recommendation on the
stock.
Among M&T Bank’s peers, KeyCorp (KEY) and
Fifth Third Bancorp (FITB) are scheduled to
announce their third quarter 2012 results on October 18.
FIFTH THIRD BK (FITB): Free Stock Analysis Report
HUDSON CITY BCP (HCBK): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis Report
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