M&T Bank Corporation’s (MTB) fourth quarter 2011 operating earnings of $1.20 per share were significantly below the Zacks Consensus Estimate of $1.46. Earnings also lagged earnings of $1.53 per share in the prior quarter and $1.52 in the year-ago period.
For full year 2011, operating earnings surged 12% to $6.55 from $5.84 in 2010. However, the figure was below the Zacks Consensus Estimate of $6.76 per share.
Quarterly results were aided by an increase in net interest income and non-interest income coupled with lower provision for credit losses. However, an increase in expenses related to the Wilmington Trust acquisition was on the downside.
However, on a GAAP basis, in the fourth quarter M&T Bank reported net income available to common shareholdersof $129.8 million or $1.04 per share, down from $189.7 million or $1.59 per share in the prior-year quarter. Quarterly results included a number of special items such as investment write-downs, impairment charges and other items.
For full year 2011, M&T Bank’s net income available to common shareholders came in at $781.8 million or $6.35 per share, up from $675.9 million or $5.69 per share in the prior year.
Quarter in Detail
M&T Bank’s net interest income came in at $625 million, up 8% year over year. The growth stems from rise in average earning assets, which was partially offset by 25 basis points contraction in the net interest margin that deteriorated to 3.60% from 3.85% in the year-earlier quarter.
Contraction in the net interest margin reflected the impact of the Wilmington Trust acquisition. Moreover, higher earning balances on deposit with the Federal Reserve also contributed to the decline.
Loans and leases, net of unearned discount, were $60.1 billion at the end of 2011, up 16% from $52.0 billion a year earlier. Total deposits increased 19% to $59.4 billion at December 31, 2011 from $49.8 billion at the end of the prior-year quarter.
M&T Bank’s non-interest income increased 39% year over year to $398 million. Excluding specific items, non-interest income came in at $368 million, showing an improvement of 29% from $286 million reported in the year-earlier quarter. The improvement was driven by the Wilmington Trust transaction.
M&T Bank’s non-interest expense was $740 million, up a whooping 58% from the year-earlier quarter. Excluding non-operating expenses and other merger-related costs, non-interest operating expenses came in at $706 million, representing a 55% increase year over year.
The surge in expenses reflected the impact of operations from the Wilmington acquisition in May 2011, impairment charges related to BLG, a charitable contribution and a rise in FDIC assessments. Efficiency ratio deteriorated to 67.4% from 52.5% in the year-earlier quarter.
Credit metrics improved during the quarter, witnessing a 13% year-over-year decline in provision for credit losses to $74 million and a 4% reduction in net charge-offs to $74 million. Net charge-offs as a percentage of average loans outstanding were 0.50%, down from 0.60% in the year-ago quarter. Moreover, the ratio of nonaccrual loans to total loans moved down to 1.83% from 2.19% a year earlier.
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 0.89% and 12.36%, respectively, compared with 1.20% and 18.43% in the comparable prior-year period. M&T Bank's tangible common equity to tangible assets ratio was 6.40% as of December 31, 2011, compared with 6.19% as of December 31, 2010.
Our Take
Similar to M&T Bank, Citigroup Inc.’s (C) fourth-quarter 2011 earnings per share of 38 cents missed the Zacks Consensus Estimate of 50 cents. JPMorgan Chase & Company (JPM), which came up with its fourth quarter earnings release last Friday, reported earnings per share of 90 cents that marginally missed the Zacks Consensus Estimate of 92 cents. With a number of Wall Street biggies missing the estimate, the overall mood remains subdued.
While the tepid economic recovery, modest loan growth, pressure on net interest margin and regulatory issues remain headwinds for the stock, a sound capital position, strategic acquisitions with a growing core deposit will uphold the bank in the long run.
M&T Bank currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis Report
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