M&T Bank Corporation’s
(MTB) has reported third quarter earnings of 97 cents per share. Excluding a series of special items in the quarter, the company earned 89 cents per share. The results were well ahead of the Zacks Consensus estimate of 68 cents. The company had earned 82 cents per share in the year-ago quarter.

While acquisitions and improvements in interest margin have contributed to the upside, we note that the credit quality still remains a matter of concern.

Taxable-equivalent net interest income totaled $553 million, up 12% year-over-year. Results reflected improvements in the net interest margin. Net interest margin improved 22 basis points year-over-year to 3.61%, which resulted from lower interest rates paid on deposits and long-term borrowings. Results also included impact of the earning assets obtained in the Provident transaction.

Loans and leases, net of unearned discount, were $52.2 billion at Sept. 30, 2009, up 7% from the year-ago quarter. Total deposits aggregated $46.9 billion compared with $42.5 billion at Sept. 30, 2008.

Credit quality continued to deteriorate in the quarter, reflecting the difficult economic environment faced by businesses and individuals. Provision for credit losses increased to $154 million from $101 million reported in the year-ago period. Net charge-offs of loans totaled $141 million compared with $94 million in the prior-year quarter.

Net charge-offs increased 30 basis points year-over-year to 1.07% of average loans outstanding. Results reflect a partial charge-off associated with a commercial relationship. The allowance for credit losses was $868 million at Sept. 30, 2009, compared with $855 million at June 30, 2009 and $781 million at Sept. 30, 2008.

Non-interest income – excluding gains and losses from investment securities and the gain from the Bradford transaction in the latest quarter – totaled $296 million, compared with $266 million in the year-ago period. The year-over-year increase was driven by higher mortgage banking revenues, service charges on acquisition-related deposit accounts and credit-related fees. However, mortgage banking revenues declined sequentially.

Non-interest expense totaled $500 million, up 15% year-over-year, reflecting costs related to acquisitions and higher deposit insurance assessments. However, excluding the non-operating costs, non-interest operating expenses were $469 million compared with $419 million in the year-ago quarter. Efficiency ratio was 55.2%, same as in the prior-year quarter.

Return on average assets and average common stockholders’ equity was 0.73% and 6.72%, respectively, compared with 0.56% and 5.66% in the year-ago quarter. Tangible common equity to tangible assets ratio was 4.89% at Sept. 30, 2009, compared with 4.93% at Sept. 30, 2008.

With assets of $69.0 billion, M&T Bank Corp. has been on an acquisition spree. The company acquired all deposits and certain assets of Bradford Bank in the reported quarter, subsequent to the takeover of Provident Bankshares Corp. in the previous quarter.

Credit quality, though still strong, has deteriorated during the last few quarters. However, we expect a recovery of the credit metrics in the near future with the gradual improvement of the economy.
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