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M&T Bank (MTB) Beats Q4 Earnings Estimates, Costs Increase

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M&T Bank Corporation’s (MTB - Free Report) delivered a positive earnings surprise of 10.8% in fourth-quarter 2017.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 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 reflectedan 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 1bps from the prior-year quarter.

However, allowance for credit losses to total loans was 1.16%, up 7 bpsfrom 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.

Our Viewpoint

M&T Bank’s eased margin pressure supported the rise in net interest income. We believe that the company, with its solid business model and strategic acquisitions, is well poised for growth. However, rising expenses weigh on its topline.

M&T Bank Corporation Price, Consensus and EPS Surprise

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

Amid an expected trading weakness, strong investment banking results and higher rates drove JPMorgan’s (JPM - Free Report) fourth-quarter 2017 earnings of $1.76 per share, which handily surpassed the Zacks Consensus Estimate of $1.69. Results exclude one-time tax-related charge of $2.4 billion or 69 cents per share.

Wells Fargo’s (WFC - Free Report) fourth-quarter 2017 adjusted earnings of 97 cents per share improved from the prior-year quarter earnings of 96 cents. Results included $3.35 billion after-tax benefit related to the Tax Cuts & Jobs Act, $848 million pre-tax gain from the sale of Wells Fargo Insurance Services and $3.25 billion pre-tax expenses related to litigation accruals.

Though fixed income trading income slumped as expected, Citigroup’s (C - Free Report) fourth-quarter 2017 adjusted earnings of $1.28 per share were driven by prudent expense management and strong consumer banking. The figure easily outpaced the Zacks Consensus Estimate of $1.19. Results included non-recurring non-cash charge of $22 billion related to the tax reform.

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