M&T Bank Corporation MTB reported net operating earnings of $3.29 per share in second-quarter 2018, surpassing the Zacks Consensus Estimate of $3.17. Also, the bottom line improved 38% year over year.

In addition, top-line growth was recorded. Moreover, improved credit quality was a positive factor. Further, pressure on margin continued to ease. However, decrease in loan and deposit balances was a headwind. Also, results were affected by higher expenses.

Net operating income came in at $498 million, up around 30% year over year.

On a GAAP basis, M&T Bank’s earnings per share of $3.26 jumped 39% year over year. Net income inched up 29.3% to $493 million.

Higher Revenues Partially Offset by Elevated Costs

M&T Bank’s revenues came in at $1.47 billion comparing favorably with the year-ago figure of $1.41 billion. Also, it surpassed the Zacks Consensus Estimate of $1.46 billion.

Taxable-equivalent net interest income increased 7% year over year to $1.01 billion in the quarter, driven by increased net interest margin, partly offset by lower average earning assets. Furthermore, net interest margin expanded 38 basis points year over year to 3.83%.

The company’s non-interest income declined 1% from the year-ago quarter to $457 million. The decrease was primarily due to lower brokerage services income and other revenues, partially offset by higher trust income and mortgage banking revenues.

Non-interest expenses were $777 million, up 3% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $770 million, escalating 3.6% from the year-ago quarter. The rise reflected increased advertising and marketing expenses along with outside data processing and software.

Efficiency ratio came in at 52.4%, down from 52.7% in the prior-year quarter. Lower ratio indicates rise in profitability.

Loans and leases, net of unearned discount, fell 1.5% year over year to $87.8 billion at the end of the reported quarter. Additionally, total deposits declined 4.5% to $89.3 billion.

M&T Bank’s net operating income highlighted an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.79% and 19.91%, respectively, compared with 1.33% and 14.18% recorded in the prior-year quarter.

Credit Quality Improves

M&T Bank reflected an improved credit quality in the reported quarter. Provision for credit losses shrunk 33% year over year to $35 million. Net charge-offs of loans came in at $35 million, down 22%.

Further, the ratio of non-accrual loans to total net loans was 0.93%, down from 0.98% a year ago. Non-performing assets decreased 6% year over year to $918 million.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was around 10.52%. Tangible equity per share came in at $67.29, slightly down year over year from $68.20.

Share Repurchase

During second-quarter 2018, M&T Bank repurchased a total of 2.61 million shares of its common stock for a total cost of $475 million.

Our Viewpoint

M&T Bank’s results display an impressive performance in the quarter. We believe the company, with its sturdy business model and strategic acquisitions, is well poised for growth. Further, easing margin pressure and relaxed regulations will be favorable.

However, despite improving economic conditions, M&T Bank’s declining loans and deposits balance remain a concern. Also, consistently rising expenses due to ongoing investments is a headwind.

M&T Bank Corporation Price, Consensus and EPS Surprise

Currently, M&T Bank carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

First Republic Bank’s FRC second-quarter 2018 earnings per share came in at $1.20, outpacing the Zacks Consensus Estimate of $1.15. Moreover, the reported figure climbed 13.2% from the year-ago tally.

Riding on high revenues, The PNC Financial Services Group PNC delivered a positive earnings surprise of 5.4% in second-quarter 2018. Earnings per share of $2.72 beat the Zacks Consensus Estimate of $2.58. Moreover, the bottom line reflected a 30% increase from the prior-year quarter.

Driven by top-line strength, Citigroup C delivered a positive earnings surprise of 5.2% in second-quarter 2018. Earnings from continuing operations per share of $1.62 for the quarter easily outpaced the Zacks Consensus Estimate of $1.54. Also, earnings were up 28% year over year.

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