Driven by lower expenses M&T Bank Corporation (MTB) delivered a positive earnings surprise in fourth-quarter 2014. Net operating earnings of $1.95 per share marginally beat the Zacks Consensus Estimate of $1.94. Moreover, this compared favorably with $1.61 per share reported in the prior-year quarter.
Our proven model predicted that M&T Bank may post an earnings beat as it did have the right combination of two key ingredients – positive Earnings ESP and a Zacks Rank of #3 (Hold) or better. It had a Zacks Rank #3 (Hold) and Earnings ESP of +0.52%.
Results were aided by an improved top line, lower expenses and decrease in provision for loan losses. Further, higher loan and deposit balances, improved credit metrics and a strong capital position were among the other positives for the quarter.
Net operating income for the quarter came in at $282 million, up from $228 million in the prior-year quarter.
On a GAAP basis, M&T Bank reported net income of $278 million or $1.92 per share, compared with $221 million or $1.56 per share in the prior-year quarter.
For the year ended 2014, operating earnings per share were $7.57, outpacing the Zacks Consensus Estimate of $7.44. However, the reported figure was down from $8.48 per share in the prior year. Net operating income was 1.09 billion for the year compared with $1.17 billion in the prior year.
For the year-ended 2014, GAAP net income was $1.07 billion or $7.42 per share, down from $1.14 billion or $8.20 per share reported in the prior year.
Performance in Detail
M&T Bank’s revenues came in at $1.13 billion, slightly lower than the Zacks Consensus Estimate of $1.14 billion. However, it compared favorably with the year-ago number of $1.11 billion.
M&T Bank’s net revenue on a taxable-equivalent basis was recorded at $1.14 billion, compared with $1.12 billion in the prior-year quarter.
Revenues for the year-ended 2014 were $4.5 billion, which marked a year-over-year increase of 1.8%. However, it came slightly lower than the Zacks Consensus Estimate of $4.6 billion.
M&T Bank's taxable-equivalent net interest income increased 2% year over year to $688 million in the fourth quarter, driven by increased average earning assets. However, net interest margin declined to 3.10% from 3.56% in the prior-year quarter.
M&T Bank's other income increased 1% year over year to $452 million. The rise was driven by increased residential mortgage banking revenues related with loan servicing activities. Notably, mortgage banking revenues stood at $94 million, up 14% year over year.
Non-interest expenses were $680 million, down 8% from the prior-year quarter. Excluding certain non-operating items, expenses came in at $673 million, down 8% from the prior-year quarter. The decline in non-interest operating expenses in the reported quarter was mainly due to a decrease in costs related to professional services and a $40 million litigation-related accrual in fourth-quarter 2013.
Efficiency ratio decreased to 59.1% from 65.5% in the prior-year quarter. A fall in efficiency ratio indicates improvement in profitability.
Loans and leases, net of unearned discount, rose 4% year over year to $66.7 billion at the end of the quarter. Moreover, total deposits rose around 10% year over year to $73.6 billion.
M&T Bank's net operating income reflected an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.18% and 13.55%, respectively compared with 1.11% and 12.67% recorded in the prior-year quarter.
Credit Quality
Credit quality exhibited continued improvement in the reported quarter. Provision for credit losses decreased 21% year over year to $33 million. Net charge-offs of loans came in at $32 million, down 24% year over year.
Net charge-offs as a percentage of average loans outstanding were 0.19%, down from 0.26% in the year-ago quarter. Moreover, the ratio of non-accrual loans to total net loans was 1.20%, down from 1.36% in the prior-year quarter. Further, non-performing assets decreased 8% year over year to $863 million.
Capital Ratios
M&T Bank’s capital ratios were strong during the quarter. As of Dec 31, 2014, the company's estimated Tier 1 common ratio was 9.83%, up from 9.22% as of Dec 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 9.59% as of Dec 31, 2014.
Our Viewpoint
M&T Bank concluded the year with decent results in the final quarter. The company delivered positive earning surprises in three quarters of 2014 while it missed in the remaining quarter.
We believe 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 for the long run.
M&T Bank currently carries a Zacks Rank #3 (Hold).
Performance of Other Large Wall Street Firms
Wells Fargo & Company’s (WFC) fourth-quarter 2014 results met expectations. The financial bigwig came out with earnings per share of $1.02, meeting the Zacks Consensus Estimate.
Citigroup Inc. (C) reported fourth-quarter adjusted earnings per share of 6 cents, missing the Zacks Consensus Estimate of 9 cents.
Bank of America Corporation’s (BAC) fourth-quarter 2014 adjusted earnings of 32 cents per share came a penny ahead of the Zacks Consensus Estimate. However, after considering certain non-recurring items, earnings per share stood at 25 cents compared with 29 cents earned in the year-ago quarter.
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