M&T Bank (MTB) Q2 Earnings Miss Estimates, Provisions Up

M&T Bank Corporation MTB has reported second-quarter 2020 negative earnings surprise of 7.9% on higher provisions. Net operating earnings per share of $1.76 missed the Zacks Consensus Estimate of $1.91. The bottom line also compares unfavorably with the $3.37 per share reported in the year-ago quarter.

The company’s results were impacted by a substantial rise in provisions related to the adoption of the accounting method of Current Expected Credit Losses and the coronavirus crisis. Moreover, revenues disappointed on lower rates and decline in fee income. However, prudent expense management was visible. Moreover, rise in loan and deposit balances highlights a strong capital position.

Net income (on GAAP basis) for the quarter was $241 million or $1.74 per share compared with the $473 million or $3.34 per share recorded a year ago.

Revenues Decline, Loans Rise, Expenses Down

M&T Bank’s revenues were $1.45 billion, down 7.1% from the year-ago quarter. Also, it lagged the consensus estimate of $1.47 billion.

Taxable-equivalent net interest income declined 8% year over year to $961 million in the quarter. This fall stemmed from lower net interest margin, partially offset by higher average earning assets (up 15%). Net interest margin contracted 78 basis points (bps) to 3.13%.

The company’s non-interest income was $487 million, down 5% year over year. Lower service charges on deposit accounts, brokerage services income, trading account and foreign exchange gains, along with other non-interest income, primarily resulted in this decline. These were partly offset by higher trust income and mortgage banking revenues.

Non-interest expenses totaled $807 million, down 8% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses were $803 million, down 7.5% year over year. This decline mainly stemmed from lower advertising and marketing costs, reduced amortization of core deposit and other intangible assets, along with other costs.

Efficiency ratio was 55.7%, down from the 56% recorded in the prior-year quarter. A lower ratio indicates a rise in profitability.

Loans and leases, net of unearned discount, were $97.8 billion at the end of the reported quarter, up 3.9% from the prior quarter. Also, total deposits rose 14.8% to $115 billion.

M&T Bank's net operating income displays an annualized rate of return on average tangible assets and average tangible common shareholder equity of 0.74% and 9.04%, respectively, compared with the 1.68% and 18.83% recorded in the prior-year quarter.

Deteriorating Credit Quality

For M&T Bank, credit metrics deteriorated during the second quarter. Provision for credit losses rose significantly on a year-over-year basis to $325 million. Also, net charge-offs of loans were $71 million, up 61.4%.

The ratio of non-accrual loans to total net loans was 1.18%, up 22 bps year over year. Non-performing assets increased 30% to $1.22 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 9.51%. Tangible equity per share was $78.62, up 7.3% year over year from $73.29 as of Jun 30, 2019.

Our Viewpoint

M&T Bank put up a disappointing performance in the quarter. Lower rates and decline in fee income were headwinds. Nonetheless, expense management provided some respite. Moreover, rise in loan and deposit balance continues to aid organic growth. Though we believe that the company, with its sturdy business model and acquisitions, is well poised for growth, deterioration in credit quality is a major concern.

MT Bank Corporation Price, Consensus and EPS Surprise

MT Bank Corporation Price, Consensus and EPS Surprise

MT Bank Corporation price-consensus-eps-surprise-chart | MT Bank Corporation Quote

Currently, M&T Bank carries a Zacks Rank #4 (Sell).

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

 

Performance of Other Banks

Bank of New York Mellon Corporation’s BK second-quarter 2020 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 94 cents. The figure was on par with the prior-year level. The company benefited from growth in fee income and improvement in assets balance. However, significantly higher provisions and a slight rise in operating expenses were the undermining factors.

First Republic Bank’s FRC earnings per share of $1.40 surpassed the Zacks Consensus Estimate of $1.20 in the second quarter. Also, the bottom line climbed 12.9% from the year-ago quarter. The results were supported by an increase in net interest income. However, higher expenses, decline in fee income and elevated provisions were the offsetting factors.

Regions Financial RF reported adjusted loss of 23 cents per share in the April-June quarter, as against the earnings of 39 cents per share recorded in the prior-year period. The Zacks Consensus Estimate was pegged at 7 cents. Results were negatively impacted by higher provisions for credit losses on increasing economic uncertainty due to coronavirus woes. Moreover, rise in expenses is a major drag. Nevertheless, higher revenues aided by rising loans and deposit balances provided some respite.

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