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M&T Bank (MTB) Q4 Earnings Beat Estimates on High Fee Income

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Zacks Equity Research
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M&T Bank Corporation MTB reported fourth-quarter 2020 earnings surprise of 19.6% on higher fee income. Net operating earnings per share of $3.54 beat the Zacks Consensus Estimate of $2.96. The bottom line, however, compares unfavorably with the $3.62 per share reported in the year-ago quarter.

Mortgage banking revenues drove fee income, supporting results. Moreover, rise in loan and deposit balances highlights a solid capital position. Nevertheless, net interest income disappointed on lower rates and margin pressure prevailed. Further, rise in provisions and expenses were undermining factors.

Net income (on GAAP basis) for the quarter was $471 million or $3.52 per share compared with the $493 million or $3.60 per share recorded in the prior year.

For full-year 2020, M&T Bank reported net income of $1.35 billion or $9.94 per share compared with the $1.93 billion or $13.75 in the previous year.

Revenues Up, Loans Rise, Expenses Escalate

For 2020, the company reported revenues of $5.97 billion, outpacing the Zacks Consensus Estimate of $5.88 billion. Yet, revenues were down 4% year over year.

M&T Bank’s quarterly revenues totaled $1.54 billion, slightly up from the year-ago quarter. Also, the revenue figure surpassed the consensus mark of $1.46 billion.

Taxable-equivalent net interest income declined 2% year on year to $993 million in the quarter. This fall stemmed from lower net interest margin, partially offset by higher average earning assets (up 19%). Net interest margin contracted 64 basis points (bps) to 3.00%.

The company’s non-interest income was $551 million, up 6% year over year. Higher mortgage banking revenues, brokerage services income and other income primarily resulted in this upsurge. These were partly negated by lower service charges on deposit accounts, along with reduced trading account and foreign-exchange gains.

Non-interest expenses totaled $845 million, up 3% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses were $842 million, up 2.8% year on year. This upsurge mainly stemmed from higher salaries and employee benefits, changes in the valuation allowance for capitalized residential mortgage servicing rights and planned transition charges to support M&T Bank’s retail brokerage and advisory business to the platform of LPL Financial. These were partly offset by lower professional and outside services, advertising and marketing, and travel and entertainment costs.

Efficiency ratio was 54.6%, up from the 53.1% recorded in the prior-year quarter. A higher ratio indicates a fall in profitability.

Loans and leases, net of unearned discount, were $98.5 billion at the end of the reported quarter, marginally up from the prior quarter. Also, total deposits rose 4% to $119.8 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 1.35% and 17.53%, respectively, compared with the 1.67% and 19.08% recorded in the prior-year quarter.

Credit Quality: A Concern

For M&T Bank, credit metrics deteriorated during the October-December period. Provision for credit losses flared up 39% on a year-over-year basis to $75 million. Net charge-offs of loans more than doubled on a year-over-year basis to $97 million.

The ratio of non-accrual loans to total net loans was 1.92%, up 86 bps year over year. Non-performing assets surged 84% to $1.9 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 10%, up from the year-earlier quarter’s 9.73%. Tangible equity per share was $80.52, up 6.7% year over year from $75.44 as of Dec 31, 2019.

Our Viewpoint

M&T Bank put up a decent performance during the December-end quarter. Lower rates and elevated expenses were headwinds. Nonetheless, higher fee income provided some respite. Apart from this, rise in loan and deposit balance continues to aid organic growth. Though we believe 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 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 New York Mellon Corporation’s BK fourth-quarter adjusted earnings per share of 96 cents were 5% lower than the prior-year quarter level. The Zacks Consensus Estimate for earnings was 93 cents. Results for the reported quarter reflect growth in asset balances. Also, lower expenses supported results to some extent. However, a decline in revenues was an undermining factor.

First Republic Bank FRC delivered an earnings surprise of 5.3% in the October-December period on solid top-line strength. Earnings per share of $1.60 surpassed the Zacks Consensus Estimate of $1.52. Additionally, the bottom line climbed 15.1% from the year-ago quarter. Results were supported by an increase in net interest income and fee income. Moreover, the company’s balance-sheet position was strong during the quarter. Nevertheless, higher expenses and elevated provisions were offsetting factors.

State Street’s STT fourth-quarter adjusted earnings of $1.69 per share outpaced the Zacks Consensus Estimate of $1.57. However, the figure came in 14.6% lower than the prior-year level. Results for the reported quarter reflected new investment servicing wins of $205 billion, improvement in fee income and lower expenses. Yet, a decline in net interest income mainly due to lower rates was a major headwind.

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