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M&T Bank Corporation’s (MTB - Analyst Report) fourth-quarter 2012 operating earnings of $2.23 per share beat the Zacks Consensus Estimate of $2.17. However, it compared unfavorably with the prior quarter earnings of $2.24 per share.

For full year 2012, operating earnings surged 20.3% year over year to $7.88 per share. The figure surpassed the Zacks Consensus Estimate of $7.55 per share.
Better-than-expected results were aided by increased net interest and non-interest income. Mortgage banking revenues posted a decent rise in the quarter. Moreover, capital ratios showed improvement. However, an increase in expenses and deterioration in credit quality metrics were the headwinds for the quarter.
On a GAAP basis, M&T Bank reported net income of $296.2 million or $2.16 per share, compared with $293.5 million or $2.17 per share in the prior quarter. Results for both the quarters included the impact of amortization of core deposits and other intangible assets.
For full year 2012, M&T Bank’s net income available to common shareholders came in at $1.0 billion or $7.54 per share, up from $859.5 million or $6.35 per share in the prior year.
Quarter in Detail
M&T Bank’s total revenue was recorded at $1.2 billion, almost in line with the previous quarter. Moreover, revenues also surpassed the Zacks Consensus Estimate of $1.1 billion.
For full year 2012, M&T Bank reported total revenue of $4.6 billion, up 4.5% year over year and substantially above the Zacks Consensus Estimate of $2.5 billion.
M&T Bank’s net interest income came in at $674 million, up 0.7% from the previous quarter. The improvement was attributable to a hike in average earning assets, notably a $1.6 billion rise in average loans and leases. This was partly offset by a decline of 3 basis points in net interest margin to 3.74% in the reported quarter, compared with 3.77% in the prior quarter.
M&T Bank’s non-interest income elevated 1.6% sequentially to $453 million and included pre-tax losses on investment securities. Also, included in non-interest income in the fourth quarter of 2011 was the $55 million favorable litigation settlement related to M&T's 2007 investment in certain collateralized debt obligations.
Excluding losses from investment securities, non-interest income came in at $468 million, up 3.8% from $451 million reported in the previous quarter. The sequential hike was primarily due to higher mortgage banking revenues.
M&T Bank’s non-interest expense was $626 million, up 1.6% from the prior quarter. Excluding non-operating expenses and other merger-related costs, non-interest operating expenses came in at $612 million, up 1.7% from the prior quarter. The sequential rise primarily reflected hike in salaries and employee benefits as well as other costs of operations. Efficiency ratio improved to 53.6% from 53.7% in the previous quarter.
Loans and leases, net of unearned discount, were $66.6 billion at the end of the fourth quarter, up 4.0% sequentially. Total deposits increased 3.0% sequentially to $65.6 billion as of Dec 31, 2012 from $64.0 billion at the end of the prior quarter.
Credit quality deteriorated during the quarter under review. Provision for credit losses increased 6.5% to $49 million and net charge-offs increased 4.8% to $44 million. Net charge-offs, as a percentage of average loans outstanding were 0.27%, up from 0.26% in the preceding quarter. Moreover, the ratio of non-accrual loans to total net loans increased to 1.52% from 1.44% 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 20.46%, respectively, compared with 1.56% and 21.53% recorded in the earlier quarter.
M&T Bank's tangible common equity to tangible assets ratio was 7.20% as of Dec 31, 2012 improving from 7.04% as of Sep 30, 2012. The company’s Tier 1 common ratio stood at 7.57% as of Dec 31, 2012 compared with 7.46% as of Sep 30, 2012.
Our Viewpoint
The company, with a solid business model and strategic acquisitions, 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 Rank #3 (Hold).
Among M&T Bank’s peers, Fifth Third Bancorp (FITB - Analyst Report), which carries a Zacks Rank #2 (Buy),  is scheduled to announce its fourth-quarter 2012 results on Jan 17.

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