M&T Bank (MTB) Q4 Earnings Beat Estimates, Expenses Rise

M&T Bank Corporation (NYSE:MTB) reported net operating earnings of $3.79 per share in fourth-quarter 2018, surpassing the Zacks Consensus Estimate of $3.51. Also, the bottom line improved 85.8% year over year.

The company recorded rise in net interest income with support from margin expansion and loan growth. However, deterioration of credit quality and higher expenses were other negative factors. Also, fall in deposit balances was a headwind.

Net operating income came in at $550.2 million, up around 68.4% from $326.7 million recorded in year-ago quarter.

On a GAAP basis, M&T Bank’s fourth-quarter earnings per share of $3.76 jumped 87% year over year. Net income soared 69.6% to $546 million.

For full-year 2018, the bank reported net operating earnings of $1.94 billion or $12.86 per share, up from $1.43 billion or $8.82 per share in the prior year.

Revenues Increase, Loans Climb, Expenses Rise

For 2018, the bank reported revenues of $5.95 billion, up 4.9% from the previous year. Also, it outpaced the Zacks Consensus Estimate of $5.89 billion.

M&T Bank’s revenues came in at $1.54 billion, comparing favorably with the year-ago figure of $1.46 billion. Also, it surpassed the consensus estimate of $1.50 billion.

Taxable-equivalent net interest income increased 9% year over year to $1.07 billion in the quarter, driven by higher net interest margin, partly offset by lower average earning assets. Furthermore, net interest margin expanded 36 basis points (bps) to 3.92%.

The company’s non-interest income came in at $481 million compared with $484 million in the year-ago quarter. Lower gain on bank investment securities and mortgage banking revenues were partially offset by higher trust, brokerage services and other income.

Non-interest expenses were $802.2 million, up nearly 1% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $797 million, rising 1%. The rise was attributable to higher salaries and employee benefits expenses in the recent quarter, partially offset by lower charitable contributions and FDIC assessments.

Efficiency ratio came in at 51.7%, down from 54.7% in the prior-year quarter. Lower ratio indicates rise in profitability.

Loans and leases, net of unearned discount, rose 1% year over year to $86.5 billion at the end of the reported quarter. However, total deposits declined 2.4% to $90.2 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 1.93% and 22.16%, respectively, compared with 1.12% and 11.77% recorded in the prior-year quarter.

Credit Quality Deteriorates

Provision for credit losses rose 22.6% year over year to $38 million. Also, net charge-offs of loans came in at $38 million, up 40.7%.

The ratio of non-accrual loans to total net loans was 1.01%, up 1 bps. Non-performing assets increased 1.4% year over year to $972 million.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were around 10.13%. Tangible equity per share came in at $69.28, up 0.3% year over year from $69.08.

Share Repurchase

During the December-end quarter, M&T Bank repurchased a total of 3.06 million shares of its common stock for a total cost of $500 million.

Our Viewpoint

M&T Bank’s results display a decent performance in the quarter. We believe the company, with its sturdy business model and strategic acquisitions, is well poised for growth. Further, easing margin pressure and relaxed regulations will be favorable.

However, despite improving economic conditions, M&T Bank’s declining deposits balance and lower fee income remain key concerns. Also, rise in expenses came as a headwind.

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Riding on higher revenues, U.S. Bancorp’s (NYSE:USB) fourth-quarter 2018 adjusted earnings per share of $1.07 outpaced the Zacks Consensus Estimate by a penny. Results were also up 10.3% from the prior-year quarter.

PNC Financial (NYSE:PNC) reported fourth-quarter 2018 earnings per share of $2.75, which lagged the Zacks Consensus Estimate of $2.77. However, the bottom line reflected a 20.1% jump from the prior-year quarter, on an adjusted basis.

Backed by lower expenses, Wells Fargo (NYSE:WFC) delivered a positive earnings surprise of 3.4% in fourth-quarter 2018. Earnings of $1.21 per share surpassed the Zacks Consensus Estimate of $1.17. Also, the bottom-line compared favorably with $1.16 recorded in the prior-year quarter.

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