M&T Bank Corporation’s (MTB - Analyst Report) net operating earnings of $1.68 per share missed the Zacks Consensus Estimate of $1.76. However, this compared favorably with $1.66 per share reported in the prior-year quarter.

Higher provision for loan losses was primarily responsible for an earnings miss. While non-interest operating expenses remained stable, revenues improved. Also, increased loan and deposit balances and a strong capital position were the tailwinds for the quarter.

Net operating income for the quarter came in at $245.8 million, up 5% from the prior-year quarter.

On a GAAP basis, M&T Bank reported net income of $242 million or $1.65 per share, compared with $229 million or $1.61 per share in the prior-year quarter.

Quarter in Detail

M&T Bank’s net revenue on a taxable-equivalent basis was recorded at $1.11 billion, compared with $1.08 billion in the prior-year quarter.

M&T Bank's taxable-equivalent net interest income increased slightly year over year to $665 million in the quarter, driven by increased average earning assets. However, net interest margin declined to 3.17% from 3.52% in the prior-year quarter.

M&T Bank's other income increased 5% year over year to $440 million. The rise was driven by increased residential and commercial mortgage banking revenues. Notably, mortgage banking revenues stood at $102 million, up 27% year over year.

Non-interest expenses were $686 million, down 1% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $680 million, stable with the prior-year quarter. Non-interest operating expenses in the reported quarter reflected decrease in costs related to professional services, FDIC assessments and equipment and net occupancy expense, offset by increased salaries and employee benefits expenses.

Efficiency ratio decreased to 61.5% from 62.8% in the prior-year quarter. A fall in efficiency ratio indicates improvement in profitability.

Loans and leases, net of unearned discount, increased 5% year over year to $67.1 billion at the end of the quarter. Moreover, total deposits rose 7% 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 1.08% and 11.90%, respectively, compared with 1.15% and 12.76% recorded in the prior-year quarter.

As of Mar 31, 2015, the company's estimated Common Equity Tier 1 to risk-weighted assets ratio was 9.78%, under the transitional capital rules that went effective for the company on Jan 1, 2015.

Credit Quality

M&T Bank reflected a mixed credit quality in the reported quarter. Provision for credit losses increased 19% year over year to $38 million. Net charge-offs of loans came in at $36 million, up 13% year over year.

Net charge-offs as a percentage of average loans outstanding were 0.22%, up from 0.20% in the year-ago quarter. However, the ratio of non-accrual loans to total net loans was 1.18%, down from 1.39% in the prior-year quarter. Further, non-performing assets decreased 10% year over year to $853 million.

Our Viewpoint

Though M&T Bank failed to deliver a positive earnings surprise, results reflect a decent performance in the quarter. We believe the company, with its solid business model and strategic acquisitions, is well poised for growth. While regulatory issues and a 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.

Also, we remain optimistic about the closure of the long awaited merger deal with Hudson City Bancorp, Inc. Recently, the closing date of the proposed merger was been further extended from Apr 30, 2015 to Oct 31, 2015.

M&T Bank currently carries a Zacks Rank #3 (Hold).

Performance of Other Large Wall Street Firms

Banking majors – Wells Fargo & Co. (WFC - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report) kick started the first-quarter earnings season.

Wells Fargo’s first-quarter 2015 earnings of $1.04 outpaced the Zacks Consensus Estimate of 98 cents. However, the reported figure fell a penny below the year-ago figure. JPMorgan’s earnings of $1.45 per share beat the Zacks Consensus Estimate of $1.39. The bottom line also improved 13.3% over the year-ago earnings of $1.28 per share.

Driven by lower expenses and absence of substantial legal costs, Bank of America Corp.’s (BAC) first-quarter 2015 results marked a year-over-year improvement. Earnings of 27 cents per share were up from a loss of 5 cents in the prior-year quarter. However, it was below the Zacks Consensus Estimate of 29 cents.