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.

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.

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

Driven by top-line strength, U.S. Bancorp’s (NYSE:USB) second-quarter earnings per share of $1.09 surpassed the Zacks Consensus Estimate of $1.07. Also, the reported figure came in 6.9% higher than the prior-year quarter reported tally. Higher interest and fee income were the driving factors. Further, loan and deposit growth was recorded. Nevertheless, escalating expenses and provisions were the undermining factors.

PNC Financial (NYSE:PNC) reported positive earnings surprise of 1.8% in second-quarter 2019. Earnings per share of $2.88 surpassed the Zacks Consensus Estimate of $2.83. Further, the bottom line reflects a 5.9% 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. Nonetheless, rise in costs and provisions were headwinds.

Driven by top-line strength, Synovus Financial (NYSE:SNV) reported a positive earnings surprise of 1.01% in the second quarter. Adjusted earnings of $1.00 per share beat the Zacks Consensus Estimate of 99 cents. Also, the reported figure comes in 8.4% higher than the prior-year quarter tally. Higher revenues, backed by strong loan balances, stoked organic growth. Notably, lower efficiency ratio and rising fee income were tailwinds. However, escalating expenses and provisions were undermining factors.

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