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M&T Bank Records a Win

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The New York-based M&T Bank (NYSE: MTB  ) has more to celebrate than just the Baltimore Ravens' advancement to the AFC Championships last week -- M&T owns the naming rights to the Ravens' stadium. Earlier today, the regional lender posted earnings for the fourth quarter and 2012 fiscal year that exhibited all the hallmarks of success.

Analyzing M&T's earnings
In what's becoming a pattern among banks this earnings season, M&T's earnings were up considerably for both the quarter and the year. For the three months ended Dec. 31, the bank reported earnings per share of $2.16. This was more than twice the figure in 2011. And for the year, it notched EPS of $7.54, up 19% from the preceding year.

These results are largely in line with what we're seeing from other banks that have reported thus far. As I discussed last week, on a year-over-year basis, Wells Fargo (NYSE: WFC  ) saw its earnings increase by 24% for the quarter and 19% for the year. And today, moreover, both JPMorgan Chase (NYSE: JPM  ) and US Bancorp (NYSE: USB  ) notched similar improvements, reporting quarterly earnings growth of 53% and 4%, respectively, compared to the same period in 2011.

M&T owes much of last quarter's success to improved revenues from mortgage operations. For the quarter, the figure came in at $116 million, compared to $41 million in the fourth quarter of 2011. This equates to an impressive 187% increase. For the year, mortgage banking revenues were $349 million, a 110% increase over 2011's $166 million.

As M&T's earnings indicate, despite the more conservative rise in housing prices and sales volumes, banks are raking money in from the ongoing mortgage refinancing boom. In Wells Fargo's case, for example, it originated a staggering $125 billion in residential mortgages in the fourth quarter, and a full 72% of home-loan applications related to refinancing as opposed to purchase money mortgages. Meanwhile, both JPMorgan and US Bancorp saw similar trends. JPMorgan originated $51.2 billion in home loans, up 33% on a year-over-year basis, and US Bancorp originated $29.1 billion.

Indeed, the only bank that appears to be left out in the cold here is Bank of America (NYSE: BAC  ) . As a recent Wall Street Journal article pointed out, Bank of America has been one of the few lenders to retreat from the mortgage market over the last two years -- ridding itself of both its correspondent and wholesale mortgage divisions. Consequently, while analysts expect B of A's mortgage origination volume to have improved last quarter, the gains likely won't be as impressive as, say, M&T's or JPMorgan's.

At the same time, however, M&T was largely able to sidestep the trap that many of its competitors, and Wells Fargo in particular, have fallen into. That is, its net interest margin -- the difference between yield on earning assets and cost of funds -- decreased by only three basis points on a sequential basis and stayed even on an annual basis. For those of you who have been keeping score, a 10-basis-point sequential drop in this figure is what caused Wells Fargo's shares to fall after the bank reported record earnings last week.

Also notable is the fact that M&Ts credit quality continued to improve. While both provisions and charge-offs fell, however, nonaccrual loans remain elevated, coming in at 1.52% of total loans. Dealing with toxic loans has been the biggest struggle for most banks in the wake of the financial crisis. The closer the industry gets to a more normalized sub-1% level, in turn, the better in terms of economic growth and credit provision.

Last but certainly not least, M&T's return on equity, the most important overarching profitability metric for a bank, improved to 12.1% in the quarter, compared to 6.12% in the fourth quarter of 2011. For the year, the figure came in at 10.96% compared to 9.67% in 2011. As I discussed in the earnings preview for M&T, the industry's ROE figure remained below 10% in the third quarter of last year. A figure of 12% to 15% is a more respectable normalized range.

Foolish bottom line
At this point, given the overarching positive nature of M&T's quarter and fiscal year, you're probably wondering why its shares are nevertheless down today. The reason is that the stock trades for 2.4 times tangible book value. For the uninitiated, that's an extremely high figure held up by remarkably high expectations. And while M&T's earnings for the fourth quarter and 2012 fiscal year may not have lived up to these precisely, if you're a shareholder in this company, rest easy. At the rate M&T is going, you'll be rewarded sooner rather than later.

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.

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