M&T Bank Corporation (MTBFree Report) reported second-quarter 2021 negative earnings surprise of 6.76%. Net operating earnings per share of $3.45 lagged the Zacks Consensus Estimate of $3.70. The bottom line, however, compares favorably with the $1.76 per share reported in the year-ago quarter.

Fall in net-interest income, net interest margin, along with rise in expenses were the key undermining factors. However, 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 $458 million or $3.41 per share compared with the $241 million or $1.74 per share recorded in the prior year.

Revenues Climb, Expenses Rise

M&T Bank’s quarterly revenues, excluding brokerage services income totaled $1.46 billion, beating the consensus mark of $1.49 billion, by 1.99%. The reported figure also compares favorably with the year-ago revenues of $1.10 billion.

Taxable-equivalent net interest income edged down 1.5% year over year to $946 million in the second quarter. This downside resulted from the narrowing of net interest margin, which contracted 36 basis points (bps) to 2.77%.

The company’s non-interest income came in at $514 million, up 5.5% year over year. Higher service charges on deposit accounts, merchant discount, credit card fees, and trust income resulted in this upside.

Non-interest expenses totaled $865 million, flaring up 7% from the prior-year period. Excluding certain non-operating items, non-interest operating expenses were $859 million, up 7% year over year. This upsurge mainly stemmed from higher salaries, outside data processing and software and employee benefits and professional services.

Efficiency ratio was 58.4%, up from the 55.7% recorded in the year-earlier quarter. A higher ratio indicates a fall in profitability.

Loans and leases, net of unearned discount, were $97.1 billion at the end of the reported quarter, down 2.2% from the prior quarter. Also, total deposits fell marginally to $128.3 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 1.27% and 16.68%, respectively, compared with the 0.74% and 9.04% recorded in the prior-year quarter.

Credit Quality: A Mixed Bag

For M&T Bank, credit metrics was a mixed bag during the April-June period. The company recorded a recapture of provision for credit losses of $15 million compared with provisions of $325 million in the year-ago quarter. Also, net charge-offs of loans plunged 35% on a year-over-year basis to $46 million.

However, the ratio of non-accrual loans to total net loans was 2.31%, up 113 bps year over year. Non-performing assets surged 85% to $2.27 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 10.7%. Tangible equity per share was $84.47, up 7% year over year from $78.6 as of Jun 30, 2020.

Our Viewpoint

M&T Bank put up a mixed performance during the June-end quarter. Contraction of margins and elevated expenses were headwinds. Fall in loan and deposit 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.

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 (BACFree Report) second-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 (PNCFree Report) pulled off a second-quarter 2021 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 (JPMFree Report) second-quarter 2021 earnings of $3.78 per share. The bottom line comfortably outpaced the Zacks Consensus Estimate of $3.05.

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