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M&T Bank (MTB) Q1 Earnings Beat Estimates, Provisions Rise

Zacks Equity Research

M&T Bank Corporation MTB has pulled off first-quarter 2020 positive earnings surprise of 26% on higher mortgage banking revenues. Net operating earnings per share of $1.95 surpassed the Zacks Consensus Estimate of $1.55. However, the bottom line compares unfavorably with $3.35 per share reported in the year-ago quarter.

The company’s results were supported by higher fee income and improved loan balance. Further, strong capital position was a tailwind. However, results were affected by a substantial rise in provisions related to the adoption of the accounting method of Current Expected Credit Losses and the coronavirus-related crisis.

Net income (on GAAP basis) for the quarter was $269 million, down 44% from the $483 million recorded a year ago.

Revenues Decline, Loans Rise, Expenses Escalate

M&T Bank’s revenues were $1.51 billion, down 2.9% from the year-ago quarter. However, it surpassed the consensus estimate of $1.48 billion.

Taxable-equivalent net interest income declined 7% year over year to $981.9 million in the quarter. The fall stemmed from lower net interest margin, partially offset by higher average earning assets. Net interest margin contracted 39 basis points (bps) to 3.65%.

The company’s non-interest income was $529 million, up 6% 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 the upsurge.

Non-interest expenses totaled $906 million, up 1.3% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses were $903 million, up 1.6% year over year. The upside mainly stemmed from rise in almost all components of expenses, partly mitigated by lower amortization of core deposit and other intangible assets.

Efficiency ratio was 58.9%, up from 57.6% recorded in the prior-year quarter. A higher ratio indicates a fall in profitability.

Loans and leases, net of unearned discount, were $94.1 billion at the end of the reported quarter, up 3.5% from the prior quarter. However, total deposits rose 5.7% to $94.8 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 0.94% and 10.39%, respectively, compared with 1.76% and 19.56% recorded in the prior-year quarter.

Deteriorating Credit Quality

For M&T Bank, credit metrics deteriorated during the first quarter. Provision for credit losses rose significantly on a year-over-year basis to $250 million. Also, net charge-offs of loans were $49 million, up 22.7%.

The ratio of non-accrual loans to total net loans was 1.06%, up 7 bps year over year. Non-performing assets increased 19% to $1.15 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 9.2%. Tangible equity per share was $75.44, up 8.9% year over year from $71.19 as of Mar 31, 2019.

Share Repurchase

During the March-end quarter, the company repurchased 2.58 million shares of its common stock for a total cost of $374 million.

Our Viewpoint

M&T Bank’s results displayed a decent performance in the quarter. Rise in loan balance continues to aid revenues. However, deterioration in credit quality was a major headwind. Additionally, rise in expenses and a fall in margin were concerns. Nevertheless, we believe that the company, with its sturdy business model and 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 #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

KeyCorp’s KEY first-quarter 2020 earnings of 12 cents per share surpassed the Zacks Consensus Estimate of 6 cents. The figure takes into account the Current Expected Credit Losses accounting methodology, the impact of the coronavirus outbreak and market-related valuation adjustments.

The Bank of New York Mellon Corporation’s BK first-quarter 2020 earnings per share of $1.05 surpassed the Zacks Consensus Estimate of 90 cents. Moreover, the figure reflects a rise of 11.7% from the prior-year quarter.

PNC Financial PNC reported first-quarter 2020 earnings per share of $1.95, surpassing the Zacks Consensus Estimate of $1.38, amid coronavirus concerns. The bottom line, however, reflects a 25.3% decline from the prior-year quarter’s reported figure.

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M&T Bank Corporation (MTB) : Free Stock Analysis Report
 
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