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

A month has gone by since the last earnings report for M&T Bank Corporation (MTB). Shares have lost about 0.2% in that time frame, 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 how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

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

M&T Bank reported an 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 $2.77 per share reported in the year-ago period.

Fall net interest margin, along with a 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 was $495.5 million or $3.69 per share compared with $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 NII improved 3% year over year to $971 million in the third quarter. This upside resulted from lower rates paid on deposit accounts, offset 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 higher ratio indicates a decline 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.

Profitability Ratios Strengthen

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 114 bps year over year. Non-performing assets surged 76% to $2.27 billion.

Capital Position Improves

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.

2021 Outlook

Management projects total loans growth flat to down slightly on a year-over-year basis, with ongoing headwinds on the national auto dealer and residential-mortgage front.

Excluding PPP, NII is anticipated to decline in the low-single-digit rate on a year-over-year basis.

Non-interest revenues are projected to grow at a low single-digit rate.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, M&T Bank Corporation has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, M&T Bank Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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