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M&T Bank (MTB) Q1 Earnings Beat on Recapture of Provisions

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M&T Bank Corporation (MTB - Free Report) reported first-quarter 2021 positive earnings surprise of 15%. Net operating earnings per share of $3.41 beat the Zacks Consensus Estimate of $2.96. Also, the bottom line compared favorably with the $1.95 per share reported in the year-ago quarter.

Fall in revenues on lower non-interest income, despite solid mortgage banking revenues, along with rise in expenses were key undermining factors. However, rise in loan and deposit balances highlights a solid capital position. Further, recapture of provisions was a tailwind.

Net income (on GAAP basis) in the quarter was $447.2 million or $3.33 per share compared with the $268.8 million or $1.93 per share recorded in the prior year.

Revenues Decline, Expenses Rise

M&T Bank’s quarterly revenues totaled $1.49 billion, down 1% from the year-ago quarter. However, the top line surpassed the consensus mark of $1.47 billion.

Taxable-equivalent net interest income increased slightly year over year to $985 million in the quarter. This rise stemmed from higher average earning assets (up 24%). Net interest margin contracted 68 basis points (bps) to 2.97%.

The company’s non-interest income was $506 million, down 4% year over year. Lower service charges on deposit accounts, along with reduced trading account and foreign-exchange gains, resulted in this downside. These were partly negated by higher mortgage banking revenues and trust income.

Non-interest expenses totaled $919 million, up 1% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses were $907 million, up slightly year over year. This upsurge mainly stemmed from higher salaries and employee benefits and professional services.

Efficiency ratio was 60.3%, up from the 58.9% recorded in the prior-year quarter. A higher ratio indicates a fall in profitability.

Loans and leases, net of unearned discount, were $99.3 billion at the end of the reported quarter, marginally up from the prior quarter. Also, total deposits rose 7% to $128.5 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 1.29% and 17.05%, respectively, compared with the 0.94% and 10.39% recorded in the prior-year quarter.

Credit Quality: A Mixed Bag

For M&T Bank, credit metrics remained a mixed bag during the January-March period. The company recorded a recapture of provision for credit losses of $25 million compared with provisions of $250 million.

However, net charge-offs of loans increased 53% on a year-over-year basis to $75 million. The ratio of non-accrual loans to total net loans was 1.97%, up 84 bps year over year. Non-performing assets surged 73% to $1.99 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 10.3%. Tangible equity per share was $82.35, up 6% year over year from $77.6 as of Mar 31, 2020.

Our Viewpoint

M&T Bank put up a mixed performance during the March-ended quarter. Contraction of margins and elevated expenses were headwinds. 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.

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 - Free Report) pulled off first-quarter 2021 positive earnings surprise of 49.1% on substantial reserves release. Earnings per share of $4.10 surpassed the Zacks Consensus Estimate of $2.75. Also, the bottom line compared favorably with $1.59 in the prior-year quarter.

Citizens Financial Group (CFG - Free Report) has reported first-quarter 2021 adjusted earnings per share of $1.41, surpassing the Zacks Consensus Estimate of 97 cents. Also, the bottom line compares favorably with the year-ago quarter’s 9 cents.

Truist Financial’s (TFC - Free Report) first-quarter 2021 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.12. Results excluded restructuring and BB&T-SunTrust Banks merger-related charges, and incremental operating expenses related to the merger. Compared with the previous quarter, the bottom line improved 42%.

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