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M&T Bank (MTB) Up 3% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for M&T Bank Corporation MTB. Shares have added about 3% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is MTB due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

M&T Bank Beats Q4 Earnings Estimates, Costs Increase

M&T Bank delivered a positive earnings surprise of 10.8% in fourth-quarter 2017. Its adjusted net operating earnings of $2.66 per share surpassed the Zacks Consensus Estimate $2.40.

Fourth-quarter results reflected rise in revenues and lower provisions. Eased margin pressure and a solid capital position were the other positives. However, elevated expenses were a headwind.

After considering the impact of tax reform of $85 million or 56 cents per share, net operating income came in at $327 million, down 3% year over year.

For 2017, the bank reported net operating earnings of $1.43 billion or $8.82 per share, up from $1.36 billion or $8.08 per share in the prior year.

On a GAAP basis, M&T Bank’s earnings per share were $2.01, up 2% year over year. Net income fell 2.7% to $322 million.

Rise in Revenues Partially Offset by Higher Costs

M&T Bank’s revenues for the fourth quarter came in at $1.46 billion, surpassing the Zacks Consensus Estimate of $1.42 billion. Also, it compared favorably with the year-ago quarter figure of $1.35 billion.

For 2017, the bank reported revenues of $5.6 billion, up 6.4% from previous year. Also, it came in line with the Zacks Consensus Estimate.

Taxable-equivalent net interest income increased 11% year over year to $971.5 million in the quarter. Further, net interest margin expanded 48 basis points (bps) to 3.56%.

The company’s other income climbed 4% year over year to $484.1 million due to higher trading account and foreign exchange gains, trust income and service charge on deposit accounts.

Non-interest expenses were $795.8 million, up 3% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $789 million, up 3.8% from the year-ago quarter. The rise was driven by increased outside data processing and other costs.

Efficiency ratio decreased to 54.7% from 56.4% in the prior-year quarter. Generally, a fall in ratio indicates improvement in efficiency.

Loans and leases, net of unearned discount, were flat sequentially at $88 billion. Moreover, total deposits declined 1.2% from the prior quarter to $92.4 billion at the end of the fourth quarter.

M&T Bank's net operating income reflected an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.12% and 11.77%, respectively, compared with 1.10% and 11.93% in the prior-year quarter.

Credit Quality: A Mixed Bag

M&T Bank reflected a mixed credit quality in the reported quarter. Provision for credit losses declined 50% year over year to $31 million. Net charge-offs of loans came in at $27 million, down 44.9% year over year. Further, non-performing assets decreased 6% to $995 million. Additionally, the ratio of non-accrual loans to total net loans was 1%, down 1 bp from the prior-year quarter.

However, allowance for credit losses to total loans was 1.16%, up 7 bps from the year-ago quarter.

Strong Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was around 10.93%. Tangible equity per share came in at $69.08, up 2% year over year.

Share Repurchase

During the fourth quarter, the company repurchased 1.3 million shares of common stock for a total cost of $224 million at an average cost per share of $166.9. In 2017, M&T Bank repurchased 7.4 million shares at a total cost of $1.21 billion.

Outlook

Management expects mortgage loan portfolio runoffs to continue in double digits in 2018. With attractive pricing and underwriting standards in the consumer area, loans balance is expected to either remain flat or grow in low single-digits with paydowns and payoffs playing a major role.

Based on the current level of rates and anticipating another 25 bps rate hike in 2018, management expects NIM to expand 5-8 bps.

Modest growth in NII is anticipated. Also, fee income in expected to remain stable with trust revenues rising by low-to-mid single digits. Nominal growth in expenses is likely to be witnessed on a year-over-year basis.

Management anticipates to invest some of the savings from lower taxes into employees, technology and communities. On an average basis, it is expected to amount to nearly 15-20% of the benefit from lower taxes spread over the next couple of years.

Effective tax rate in the range of 25-26% is expected for 2018.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been four revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been six moves up in the last two months. In the past month, the consensus estimate has shifted by 13.1% due to these changes.

M&T Bank Corporation Price and Consensus

 

M&T Bank Corporation Price and Consensus | M&T Bank Corporation Quote

VGM Scores

At this time, MTB has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

The company's stock is suitable solely for momentum investors based on our style scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. It comes with little surprise MTB has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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