M&T Bank (MTB 0.23%) had a rough week, with its stock plunging 13% — from $185.56 a share when the market closed on Friday to $161.40 a share at the close on Thursday. It was up about 1% on Friday at 1:30 p.m. ET and is up about 6% so far this year.
The bank was far behind the major indexes, which all rose this week. The S&P 500 and that Dow Jones Industrial Average jumped about 2.2% over the same time frame, while Nasdaq was up 3.2 percent.
Although many of the big banks reported better-than-expected results in recent weeks, this has not been the case for some smaller banks. That was certainly the case for M&T, a Buffalo, NY-based regional bank.
In the third quarter, M&T reported $621 million in diluted net income, up 31% year-over-year, but diluted earnings per share of $3.53 were 4% lower than a year ago and well below estimates of 4, 04 USD per share.
Revenue rose 46% year-over-year to $2.2 billion, but that was below analysts’ consensus of $2.3 billion.
Earnings declined in part because of higher provisions for loan losses — $115 million compared with a $20 million reserve a year ago. However, the bank also had a $242 million provision for loans carried over from the acquisition of People’s United Financial earlier this year. Additionally, $53 million in expenses related to the acquisition of People’s United had a drag on earnings.
The loan balance, at $126.3 billion, was down slightly from the previous quarter, but was up 37% year over year. The small decline in loans may have also weighed on investors, as many of the major banks reported loan increases. Nevertheless, due to higher interest rates, net interest income increased by 19% from the previous quarter and 74% compared to the previous year.
Additionally, net write-offs increased 58% year-over-year to $63 million, while impaired assets increased 9% year-over-year, but decreased 7% from the prior quarter.
Overall, the earnings report is not nearly as bad as the market reaction. Much of it is related to the costs associated with the integration of People’s United.
Financials remain a concern, but the bank should continue to generate high net interest income and has improved its efficiency ratio to 53.6% from 57.7% a year ago. The M&T share is attractively valued with a low forward price of around 8 and is thus still a pretty good buy.
Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.