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M&T Bank's (MTB) Q3 Earnings Beat Estimates, Revenues Up

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M&T Bank Corporation (MTB - Free Report) reported a negative earnings surprise of 6.82% in third-quarter 2021. Net operating earnings per share of $3.76 surpassed the Zacks Consensus Estimate of $3.52. The bottom line also compares favorably with the $3.45 per share reported in the year-ago period.
Fall in net-interest income, net interest margin, along with rise in expenses, were the key undermining factors. However, a rise in non-interest income and recapture of provisions were tailwinds. Further, results highlight the company’s strong capital position during the quarter.

Net income (on GAAP basis) in the reported quarter came in at $495.5 million or $3.7 per share compared with the $372.1 million or $2.75 per share recorded in the prior year.

Revenues Climb, Expenses Rise

M&T Bank’s quarterly revenues, excluding the brokerage services income, totaled $1.54 billion, beating the consensus mark of $1.48 billion. The reported figure also compares favorably with the year-ago tally of $1.47 billion.

The taxable-equivalent net interest income improved 3% year over year to $971 million in the third quarter. This upside resulted from lower rates paid on deposit accounts offset, in part, by the impact of lower average outstanding loan balances. The net interest margin contracted 21 basis points (bps) to 2.74%.

The company’s non-interest income came in at $569 million, up 9% year over year. Rise in all components resulted in this upside, partly offset by lower trading account and foreign exchange gains.

Non-interest expenses totaled $899 million, flaring up 9% from the prior-year period. Excluding certain non-operating items, non-interest operating expenses were $888 million, up 8% year over year. This upsurge mainly stemmed from higher salaries, outside data processing and software and employee benefits and professional services.

Efficiency ratio was 57.7%, up from the 56.2% recorded in the year-earlier quarter. A lower ratio indicates a rise in profitability.

Loans and leases, net of unearned discount, were $93.6 billion at the end of the reported quarter, down 3.6% from the prior quarter. Nonetheless, total deposits rose marginally to $128.7 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 1.34% and 17.54%, respectively, compared with the 1.1% and 13.94% recorded in the prior-year quarter.

Credit Quality: A Mixed Bag

For M&T Bank, credit metrics was a mixed bag during the July-September period. The company recorded a recapture of provision for credit losses of $20 million compared with the provisions of $150 million in the year-ago quarter.

However, net charge-offs of loans rose 33.3% on a year-over-year basis to $40 million. The ratio of non-accrual loans to total net loans was 2.4%, up 9 bps year over year. Non-performing assets surged 76% to $2.27 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 11.1%. Tangible equity per share was $86.88, up 8.9% year over year from $79.85 as of Sep 30, 2020.

Our Viewpoint

M&T Bank put up a mixed performance during the September-end quarter. Contraction of margins and elevated expenses were headwinds. The fall in loan balance might hurt organic growth in the days to come. Though we believe the company, with its sturdy business model and acquisitions, is well poised for growth, deterioration in credit quality is a key 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

Bank of America’s (BAC - Free Report) third-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with the 37 cents earned in the prior-year quarter.

PNC Financial (PNC - Free Report) pulled off a third-quarter earnings surprise of 42.4% on substantial reserve release. Adjusted earnings per share of $4.50 surpassed the Zacks Consensus Estimate of $3.16.

Large reserve releases, solid investment banking performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) third-quarter 2021 earnings of $3.78 per share. The bottom line comfortably outpaced the Zacks Consensus Estimate of $3.05.