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M&T Bank Q3 Earnings Outperform

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M&T Bank Corporation's (MTB - Free Report) third-quarter 2013 operating earnings of $2.16 per share beat the Zacks Consensus Estimate of $2.08. However, this was down 4% from $2.24 earned in the prior-year quarter.

Better-than-expected earnings were primarily aided by rise in both net interest income and non-interest income. Moreover, an improvement in capital ratios was a positive. However, a rise in expenses was the headwind.

On a GAAP basis, M&T Bank reported net income of $294 million or $2.11 per share, compared with $293 million or $2.17 per share in the prior-year quarter. Results for both the quarters include amortization of core deposit and other intangible assets.

Quarter in Detail

M&T Bank's total revenue was recorded at $1.2 billion, almost in line with the prior-year quarter.

M&T Bank's net interest income came in at $673 million, up 2% year over year. Further, net interest margin declined to 3.61% from 3.77% in the prior-year quarter.

M&T Bank's other income increased 7% year over year to $477 million, due to higher trust income, partly offset by decrease in residential and commercial mortgage banking revenues.

M&T Bank's non-interest expense was $659 million, up 7% from the prior-year quarter. Excluding amortization of core deposit and other intangible assets as well as merger-related expenses, non-interest operating expenses came in at $648 million, up 8% from the prior-year quarter. The rise in non-interest operating expenses in the said quarter was mainly due to increase in costs for salaries and professional services.

Efficiency ratio declined to 56.0% from 53.7% in the prior-year quarter.

Loans and leases, net of unearned discount, dropped 0.6% year over year to $63.7 billion at the end of the reported quarter. However, total deposits rose 4% year over year to $66.6 billion as of Sep 30, 2013 from $64.0 billion at the prior year quarter-end.

M&T Bank's net operating income reflected an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.48% and 17.64%, respectively, compared with 1.56% and 21.53% recorded in the prior-year quarter.

Credit Quality

Credit quality was a mixed bag at M&T Bank. Provision for credit losses increased 4% year over year to $48 million. The provision was equal to net charge-offs in the third quarter of 2013, and exceeded net charge-offs in the third quarter of 2012 by $4 million. Net charge-offs, as a percentage of average loans outstanding were 0.29%, up from 0.26% in the year-ago quarter. However, the ratio of non-accrual loans to total net loans remained stable at 1.44% year over year.

Capital Ratios

M&T Bank's tangible common equity to tangible assets ratio was 8.11% as of Sep 30, 2013, improving from 7.04% as of Sep 30, 2012. The company's Tier 1 common ratio was 9.07% as of Sep 30, 2013, compared with 7.46% as of Sep 30, 2012.

Performance of Other Banks

Among other major regional banks, The PNC Financial Services Group, Inc.'s (PNC - Free Report) third-quarter 2013 earnings per share of $1.79 outpaced the Zacks Consensus Estimate of $1.61. Better-than-expected results were primarily driven by decrease in both operating expenses and provision for credit losses.

Similarly, Comerica Inc. (CMA - Free Report) reported third-quarter 2013 earnings per share of 78 cents, beating the Zacks Consensus Estimate of 71 cents and above 76 cents earned in the prior quarter. Comerica's results came on the back of increased non-interest income and lower provisions for credit losses.

Our Viewpoint

The company, with its solid business model and strategic acquisitions, is well poised for growth. While the sluggish economic recovery, regulatory issues and low interest rate environment remain headwinds for M&T Bank, we believe that its sound capital position and growing core deposit bode well in the long run.

In Aug 2012, M&T agreed to take over Hudson City Bancorp Inc. in a cash and stock deal worth $3.7 billion, based on M&T Bank's closing stock price on Aug 24, 2012. However, in Apr 2013, the Federal Reserve detected several loopholes in M&T Bank's efforts to fight money laundering and put a hold on the acquisition.

Nevertheless, in Jun 2013, the bank successfully reached an agreement with the Fed to improve compliance with respect to risky activities. Hence, it has managed to overcome all regulation hurdles.

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

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