M&T Bank (MTB) Q2 Earnings Lag On Higher Costs & Provisions

M&T Bank Corporation (NYSE:MTB) delivered a negative earnings surprise of 9.7% in second-quarter 2019, on account of higher expenses and provisions. Net earnings of $3.34 per share lagged the Zacks Consensus Estimate of $3.70. The bottom line, however, improved 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 $473 million, up around 4.1% from the $493 million recorded a year ago.

On an operating basis, M&T Bank reported second-quarter net income of $477 million or $3.37 per share compared with $498 million or $3.29 in the prior-year quarter.

Revenues Increase, Loans & Deposits Climb, Expenses Escalate

M&T Bank’s revenues came in at $1.56 billion, up 6.1% from the year-ago figure of $1.47 billion. Also, it surpassed the consensus estimate of $1.53 billion.

Taxable-equivalent net interest income increased 3% year over year to $1.05 billion in the quarter, driven by higher net interest margin and average earning assets. Furthermore, net interest margin expanded 8 basis points (bps) to 3.91%.

The company’s non-interest income came in at $512 million, up 12% year over year. Higher mortgage banking revenues, trust income, trading account and foreign exchange gains along with gain on bank investment securities primarily led to this upsurge.

Non-interest expenses were $873 million, up from the prior-year quarter’s 12.4%. Excluding certain non-operating items, non-interest operating expenses came in at $868 million, up 12.7%. This upside mainly stemmed from rise in almost all components of expenses, partly mitigated by lower FDIC assessments charges.

Efficiency ratio came in at 56%, up from 52.4% recorded in the prior-year quarter. A higher ratio indicates fall in profitability.

Loans and leases, net of unearned discount, registered 1.5% sequential growth to $89.9 billion at the end of the reported quarter. Also, total deposits inched up 1.3% to $91.7 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 1.68% and 18.83%, respectively, compared with 1.79% and 19.91% recorded in the prior-year quarter.

Deteriorating Credit Quality

For M&T Bank, credit metrics deteriorated during the April-June period. Provision for credit losses surged 57.1% year over year to $55 million. Also, net charge-offs of loans came in at $44 million, up 25.7%.

The ratio of non-accrual loans to total net loans was 0.96%, up 3 bps year over year. Non-performing assets increased 2% year over year to $938 million.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were around 9.84%. Tangible equity per share came in at $73.29, up 8.9% year over year from $67.29.

Share Repurchase

During the June-end quarter, M&T Bank repurchased a total of 2.45 million shares of its common stock for a total cost of $402 million, at an average price of $164.08 per share. Further, the company paid $135 million as dividends.

Our Viewpoint

M&T Bank’s results display a disappointing performance in the quarter. Deterioration in credit quality was a major headwind. Additionally, rise in expenses was a concern. Nevertheless, expansion of margin and rise in loans balance continues to boost interest income. We believe the company, with its sturdy business model and strategic acquisitions, is well poised for growth.