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M&T Bank Corporation's (MTB - Analyst Report) first-quarter 2014 net operating earnings of $1.66 per share outpaced the Zacks Consensus Estimate of $1.61. However, this compared unfavorably with $2.06 per share reported in the prior-year quarter.

Shares of M&T Bank increased more than 1% in opening trading, indicating that investors are bullish on the results. However, the price reaction during the full trading session will give a fair idea whether M&T Bank has been able to meet market expectations.

The quarter reflected improved credit metrics and a strong capital position. However, lower top line and increased expenses were the headwinds.

On a GAAP basis, M&T Bank reported net income of $229.0 million or $1.61 per share, compared with $255.1 million or $1.98 per share in the prior-year quarter. Results for both the quarters include amortization of core deposit and other intangible assets along with merger-related gains and expenses.

Quarter in Detail

M&T Bank's total revenue was recorded at $1.14 billion, down 1.7% from the prior-year quarter. However, the figure outpaced the Zacks Consensus Estimate of $1.10 billion.

M&T Bank's taxable-equivalent net interest income came in at $662.4 million, down slightly on a year-over-year basis. Further, net interest margin declined to 3.52% from 3.71% in the prior-year quarter.

M&T Bank's other income decreased almost 3.0% year over year to $420.1 million. The decline was mainly due to lower mortgage banking revenues and lower income from trading account and foreign exchange gains, partially offset by brokerage service income.

Non-interest expenses were $702.3 million, up 10% from the prior-year quarter. Excluding certain non-operating items, expenses came in at $692 million, up 12.0% from the prior-year quarter. The rise in non-interest operating expenses was mainly due to an increase in costs related to professional services, capital planning and stress test, risk management and other costs of operations.

Efficiency ratio increased to 63.9% from 55.9% in the prior-year quarter. A rise in efficiency ratio indicates fall in profitability.
Loans and leases, net of unearned discount, dropped around 3.0% year over year to $64.1 billion at the end of the quarter. However, total deposits rose around 6.0% year over year to $68.7 billion from $65.1 billion as of Mar, 31, 2013.

M&T Bank's net operating income reflected an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.15% and 12.76%, respectively compared with 1.48% and 18.71% recorded in the prior-year quarter.

Credit Quality

Credit quality significantly exhibited continued improvement in the reported quarter. Provision for credit losses decreased 16.0% year over year to $32 million. Net charge-offs of loans came at $32 million, down 13.5% year over year.  

Net charge-offs as a percentage of average loans outstanding were 0.20%, down from 0.23% in the year-ago quarter. Moreover, the ratio of non-accrual loans to total net loans was 1.39%, down from 1.60% in the prior-year quarter. Further, non-performing assets decreased 17.2% year over year to $950.3 million.

Capital Ratios

M&T Bank’s capital ratios were strong during the quarter. The company's estimated Tier 1 common ratio was 9.45%, up from 7.93% as of Mar 31, 2013. Further, the company’s estimated common equity Tier 1 to risk-weighted assets ratio under the new capital rules, approved in Jul 2013, on a fully phased-in basis was 9.22% as of Mar 31, 2014.

Our Viewpoint

After posting dismal earnings in the final quarter of 2013, M&T Bank started 2014 with a positive note. We remain encouraged owing to the company’s continuous efforts in improving capital levels and asset quality. Moreover the company exhibited a strong deposit base.

Further, the successful stress test clearance and subsequent approval of 2014 capital plan under CCAR raised investors’ confidence. Additionally, we look forward to the completion of the proposed acquisition of Hudson City Bancorp Inc. (HCBK - Analyst Report) in the upcoming quarters.

However, the sluggish economic recovery, regulatory issues and low interest rate environment remain headwinds for M&T Bank. Moreover, absence of credible improvement in the mortgage market remains a concern.

M&T Bank currently carries a Zacks Rank #3 (Hold).

Performances of Other Large Wall Street Firms

The first-quarter earnings season kick started with Wall Street biggies such as Wells Fargo & Co. (WFC - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report). Wells Fargo achieved the seventeenth consecutive quarter of earnings growth by reporting earnings of $1.05 per share. Results improved from $1.00 earned in the prior quarter and 92 cents in the year-ago quarter. Also, the results beat the Zacks Consensus Estimate by 8 cents.

However, JPMorgan failed to override the tough backdrop that banks have been enduring since the year started and delivered a negative earnings surprise of 9.2%. The banking giant came out with earnings of $1.28 per share, missing the Zacks Consensus Estimate of $1.41 by a wide margin. This is also a massive deterioration from the year- ago number of $1.59.

Read the Full Research Report on MTB
Read the Full Research Report on JPM
Read the Full Research Report on HCBK
Read the Full Research Report on WFC

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