It's earnings season, when financial sector aficionados can really delve into the details of their favorite bank's fiscal profile. My Fool colleagues have been busy discussing the finances of banking giants such as JP Morgan Chase (NYSE: JPM ) , Wells Fargo (NYSE: WFC ) , and Bank of America (NYSE: BAC ) , all of whom reported earnings recently.
Personally, I'll be taking a look at the earnings of the megabanks' up-and-coming cousins, the regional banks. Today, it's northeastern regional M&T Bank (NYSE: MTB ) , which presented an earnings picture that blew past analysts' estimates in a big way. Let's take a look at three factors that strongly influenced M&T's spectacular showing: its recent acquisition of Hudson City Bancshares (Nasdaq: HCBK ) , increased mortgage activity, and wider net interest margins.
What a difference one year can make
When I wrote about my expectations for M&T's Q3 report here recently, I noted that a continued improvement over previous quarters was something I was strongly anticipating -- and I was not disappointed.
M&T reported an astounding 60% increase in net income from a year ago, when the bank was dealing with a depressed earnings picture due to lower loan originations and expenses connected to its acquisition of Wilmington Trust. While I have an inkling that the bank's year-ago report may have accounted for a more conservative estimate on the part of analysts for this past quarter's earnings, a rise of this caliber is definitely admirable in my book.
How did M&T accomplish this feat? Basically, by working hard, and being proactive when it saw the opportunity to grow and take on banking activity that could plump its bottom line.
The Buffalo, New York-based bank is truly a sum of its parts, and has grown steadily by mergers and acquisitions. Its recent purchase of Hudson City Bancshares will increase M&T's footprint by an additional 135 branches, reaching from New England into Virginia -- for an incredible total of 870 branch locations. This addition to M&T's family is expected to be immediately accretive to value, as well.
Another big plus: Income from mortgage origination skyrocketed, totaling nearly $107 million compared with a mere $38 million in Q3 last year, up 180%. At the same time, the bank was able to cut its provisions for credit losses from $58 million to $46 million, and net interest income rose 7%.
Lastly, but importantly, the bank's net interest margin grew by three basis points to 3.77%, a pretty amazing feat considering that biggies JPMorgan and Wells Fargo, two banks that also saw an increase in loan activity, reported contractions of 4 bps and 25 bps, consecutively.
One Fool's take
Can M&T go any higher? I expect that it will. The management team appears to be stellar, and those spanking-new branch locations, courtesy of Hudson City, will spread the bank's presence further than ever before. Just as impressive is the way M&T has grown its mortgage business, and been able to widen its margin despite the low interest rate environment.
Investors seem happy, too: By the close of yesterday's market, M&T has surpassed its 52-week high, rising nearly 6% to a little over $103 per share -- while poor Bank of America saw its shares drop. Maybe bigger isn't always better, after all.
Despite B of A's less-than-stellar report, the bank has a lot going on that is of critical interest to investors. To learn more about the most talked-about bank out there, check out our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.