Following a rise in non-interest expenses, M&T Bank Corporation's (MTB) fourth-quarter 2013 operating earnings of $1.79 per share lagged the Zacks Consensus Estimate of $1.91. Moreover, this compared unfavorably with $2.23 per share reported in the prior-year quarter.
Despite positive market sentiment, shares of M&T Bank declined around 1% in the pre-market session, indicating that investors have been bearish on the results. The price reaction during the trading session will give a fair idea whether M&T Bank has been able to meet market expectations.
Lower-than-expected earnings primarily resulted from undisciplined expense management. However, top-line growth, improved credit metrics and a strong capital position were the tailwinds.
For the year ended 2013, operating earnings per share were $8.66, up significantly by 78 cents compared with the prior year. Results also outpaced the Zacks Consensus Estimate by 16 cents.
On a GAAP basis, M&T Bank reported net income of $246 million or $1.74 per share, compared with $296 million or $2.16 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.
For the year-ended 2013, GAAP net income was $1.16 billion or $8.38 per share, up from $1.03 billion or $7.54 per share reported in the prior year.
Performance in Detail
M&T Bank's total revenue was recorded at $1.1 billion, almost in line with the prior-year quarter. Additionally, it was in line with the Zacks Consensus Estimate.
Revenues for the year-ended 2013 were $4.6 billion, which marked a year-over-year increase of 7%. Moreover, it surpassed the Zacks Consensus Estimate of $4.5 billion.
M&T Bank's taxable-equivalent net interest income came in at $673 million, down slightly on a year-over-year basis. Further, net interest margin declined to 3.56% from 3.74% in the prior-year quarter.
M&T Bank's other income decreased 2% year over year to $446 million. The fall was mainly due to lower mortgage banking revenues, partially offset by elevated trust income.
Non-interest expenses were $703 million, up 12% from the prior-year quarter. Excluding certain non-operating expenses, expenses came in at $693 million, up 13.2% from the prior-year quarter. The rise in non-interest operating expenses in the said quarter was mainly due to rise in other costs of operations.
Efficiency ratio deteriorated to 61.9% from 53.6% in the prior-year quarter. A rise in efficiency ratio indicates fall in profitability.
Loans and leases, net of unearned discount, dropped 3.8% year over year to $64.1 billion at the end of the reported quarter. However, total deposits rose 2.3% year over year to $67.1 billion as of Dec 31, 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 1.22% and 14.12%, respectively, compared with 1.56% and 20.46% recorded in the prior-year quarter.
Credit Quality
Credit quality significantly improved at M&T Bank in the final quarter. Provision for credit losses decreased 14.3% year over year to $42 million. The provision was equal to net charge-offs in the fourth quarter of 2013, and exceeded net charge-offs in the fourth quarter of 2012 by $5 million.
Net charge-offs, as a percentage of average loans outstanding were 0.26%, down from 0.27% in the year-ago quarter. Moreover, the ratio of non-accrual loans to total net loans was 1.36%, down from 1.52% in the prior-year quarter. Further, non-performing assets decreased 16% year over year to $938 million.
Capital Ratios
M&T Bank’s capital ratios were strong during the quarter. As of Dec 31, 2013, tangible common equity to tangible assets ratio was 8.42%, improving from 7.20% as of Dec 31, 2012.
The company's estimated Tier 1 common ratio was 9.25% up from 7.57% as of Dec 31, 2012. 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 9.01% as of Dec 31, 2013.
Performance of Other Major Banks
The fourth-quarter earnings season kick started with Wall Street biggies such as Wells Fargo & Company (WFC) and JPMorgan Chase & Co. (JPM). Wells Fargo achieved the sixteenth consecutive quarter of earnings growth by reporting earnings of $1.00 per share. Results improved from 99 cents earned in the prior quarter and 91 cents in the year-ago quarter. Also, the results beat the Zacks Consensus Estimate by 2 cents.
Moreover, JPMorgan returned to its earnings story in the fourth quarter after covering its legal costs. The banking giant came out with earnings of $1.30 per share, beating the Zacks Consensus Estimate of $1.25. However, earnings deteriorated from the year-ago number of $1.39.
The strength of JPMorgan’s legal reserves made a return to positive earnings surprise possible. The company remained in good shape despite resolving the legal issues related to Global RMBS, Gibbs & Bruns and Madoff.
M&T Bank and Hudson City Merger Delayed
M&T Bank’s proposed acquisition of Hudson City Bancorp Inc. (HCBK) in a cash and stock deal worth $3.7 billion – the largest deal in 2012 – has being delayed further. The companies anticipate regulatory approvals to take more time, which would consequently push back completion of the proposed merger.
M&T Bank believes that the approval is not likely before the second half of 2014. Therefore, M&T Bank and Hudson City have planned to extend the deal’s closure date from Jan 31, 2014 to Dec 31, 2014, after which either of the two companies may terminate the merger agreement if it is still not complete.
M&T Bank and Hudson City plan to complete the merger at the earliest, following the sanction of regulatory bodies and shareholders as well as fulfillment of other customary criteria.
Our Viewpoint
Following the financial crisis, the market witnessed a rise in the number of distressed banks ready to be taken over by their stronger counterparts. M&T Bank capitalized on such opportunities. In fact, strategic acquisitions have been a part of M&T Bank’s business expansion policy. The deal with Hudson City will expectedly provide upside to M&T Bank’s top line by leveraging the former’s retail network as well as product and balance sheet diversification.
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, improving credit quality and growing core deposit bode well in the long run.
M&T Bank currently carries a Zacks Rank #4 (Sell).
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment