M&T Bank Corporation (MTB) Down 0.2% Since Last Earnings Report: Can It Recover?

A month has passed since M&T Bank Corporation’s (MTB) last earnings report. Shares lost about 0.2% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is M&T Bank Corporation due for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

M&T Bank’s third-quarter earnings exceeded estimates, revenues increased

M&T Bank posted an earnings surprise of 6.82% for the third quarter of 2021. Net operating earnings per share of $3.76 exceeded the Zacks Consensus Estimate of $3.52. Financial results also compare favorably with the $2.77 per share reported during the same period last year.

The main weakening factors were the decline in net interest margin and the increase in costs. However, the tailwind was the increase in non-interest income and recovery of reserves. Moreover, the results underline the company’s strong capital position in the quarter.

GAAP net income for the reported quarter was $495.5 million, or $3.69 per share, compared to $372.1 million, or $2.75 per share, reported in the prior year.

Revenues increase, expenses increase

M&T Bank’s quarterly revenue, excluding brokerage revenue, was $1.54 billion, topping the consensus estimate of $1.48 billion. The figure also compares favorably with the $1.47 billion figure from a year ago.

Taxable NII increased 3% year-over-year to $971 million in the third quarter. This improvement was driven by lower interest rates on deposit accounts, offset by the impact of a lower average outstanding loan balance. Net interest margin decreased 21 basis points (bps) to 2.74%.

The company’s noninterest income was $569 million, up 9% year-over-year. Growth in all components drove this improvement, partially offset by lower trade balances and exchange rate gains.

Non-interest expenses were $899 million, an increase of 9% compared to the prior-year period. Excluding certain non-operating items, non-interest operating expenses were $888 million, an increase of 8% year-over-year. This increase was mainly due to higher salaries, external data processing and software, and employee benefits and professional services.

The efficiency rate was 57.7%, compared to 56.2% recorded in the same quarter last year. A higher ratio means a decrease in profitability.

Loans and leases, net of unearned discounts, were $93.6 billion at the end of the reported quarter, down 3.6% from the prior quarter. Nevertheless, total deposits increased slightly to $128.7 billion.

Profitability indicators are strengthening

M&T Bank’s net operating income shows an annual rate of return on average fixed assets and average tangible equity of 1.34% and 17.54%, respectively, compared to 1.1% and 13.94% recorded in the prior-year quarter.

Credit Quality: Mixed

For M&T Bank, credit metrics were mixed in the July-September period. The company recorded loan loss reserve recoveries of $20 million, compared to reserves of $150 million in the prior-year quarter.

However, net loan write-offs increased 33.3% year-over-year to $40 million. The ratio of non-billing loans to total net loans was 2.4%, an increase of 114 basis points year-on-year. Non-performing assets increased 76% to $2.27 billion.

The capital position is improving

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

Outlook for 2021

Management forecasts that total loan growth will be stable or decline slightly year-over-year, with continued difficulties in the domestic auto dealer and mortgage markets.

Excluding PPP, NII is expected to decline year over year at a low single-digit rate.

Non-interest income is expected to grow at a low single-digit rate.

How have estimates changed since then?

It turns out that the estimate review has been trending downward over the past month.

VGM results

M&T Bank Corporation currently has a Poor Growth Rating of F, but its Momentum Rating is doing much better at C. Following the exact same trajectory, the stock is rated C on the Value side, placing it in the middle 20% for this investment strategy.

Overall, the company’s overall VGM score is F. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, M&T Bank Corporation carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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