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M&T Bank (MTB) Q3 Earnings Lag, Costs & Provisions Escalate

Zacks Equity Research

M&T Bank Corporation MTB reported a negative earnings surprise of 3.9% in third-quarter 2019, on account of higher expenses and provisions. Net earnings of $3.47 per share lagged the Zacks Consensus Estimate of $3.61. The bottom line also declined 2% year over year.

The company’s results were affected by rise in expenses and deteriorating credit metrics. However, rise in net interest income and fee income was a driving factor. Further, strong capital position remains a tailwind.

Net income came in at $480 million, down 9% from the $526 million recorded a year ago.

On an operating basis, M&T Bank reported third-quarter net income of $484 million or $3.50 per share compared with $531 million or $3.56 in the prior-year quarter.

Revenues Increase, Deposits Climb, Expenses Escalate

M&T Bank’s revenues came in at $1.54 billion, marginally up from the year-ago quarter. Also, it surpassed the consensus estimate of $1.53 billion.

Taxable-equivalent net interest income slightly increased year over year to $1.04 billion in the quarter, driven by higher average earning assets, mostly offset by lower net interest margin and. However, net interest margin contracted 10 basis points (bps) to 3.78%.

The company’s non-interest income came in at $528 million, up 15% year over year. Higher mortgage banking revenues, trust income, trading account and foreign exchange gains, along with service charges on deposit accounts, primarily led to this upsurge.

Non-interest expenses came in at $878 million, flaring up 13% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $873 million, up 13.4%. This upside mainly stemmed from rise in almost all components of expenses, partly mitigated by lower FDIC assessments charges and amortization of core deposit and other intangible assets.

Efficiency ratio came in at 55.9%, up from the 51.4% recorded in the prior-year quarter. A higher ratio indicates fall in profitability.

Loans and leases, net of unearned discount came in at $89.8 billion at the end of the reported quarter, almost in line with the prior quarter. Also, total deposits were up 3.7% to $95.1 billion.

M&T Bank's net operating income indicated an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.66% and 18.85%, respectively, compared with 1.89% and 21% recorded in the prior-year quarter.

Deteriorating Credit Quality

For M&T Bank, credit metrics deteriorated during the July-September period. Provision for credit losses more than doubled on a year-over-year basis to $45 million. Also, net charge-offs of loans came in at $36 million, significantly up from the prior-year quarter.

The ratio of non-accrual loans to total net loans was 1.12%, up 12 bps year over year. Non-performing assets increased 13% year over year to $1.09 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were around 9.81%. Tangible equity per share came in at $74.93, up 10.8% year over year from $67.64.

Share Repurchase

During the September-end quarter, M&T Bank repurchased a total of 1.93 million shares of its common stock for a total cost of $300 million, at an average price of $155.18 per share.

Our Viewpoint

M&T Bank’s results displayed a disappointing performance in the quarter. Deterioration in credit quality was a major headwind. Additionally, rise in expenses and fall in margin were concerns. Nevertheless, rise in deposit balance continues to aid revenues. We believe the company, with its sturdy business model and strategic acquisitions, is well poised for growth.

M&T Bank Corporation Price, Consensus and EPS Surprise

M&T Bank Corporation Price, Consensus and EPS Surprise

M&T Bank Corporation price-consensus-eps-surprise-chart | M&T Bank Corporation Quote

Currently, M&T Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

PNC Financial PNC reported positive earnings surprise of 5% in third-quarter 2019. Earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.80. Further, the bottom line reflected a 4.3% jump from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. However, rise in costs and provisions were headwinds.

Goldman Sachs’ GS third-quarter results posted a negative earnings surprise of 4.8%. The company reported earnings per share of $4.79, missing the Zacks Consensus Estimate of $5.03. Further, the bottom-line figure compared unfavorably with earnings of $6.28 per share recorded in the year-earlier quarter.

Wells Fargo’s WFC third-quarter earnings of 92 cents per share lagged the Zacks Consensus Estimate of $1.15 on lower net interest income. The figure also came in lower than the prior-year quarter earnings of $1.13 per share. Results include discrete litigation accrual (not tax-deductible) worth 35 cents per share, and gain from the sale of Institutional Retirement and Trust (IRT) business worth 20 cents. Also, the partial redemption of Series K Preferred Stock decreased earnings by 5 cents.

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