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Why Is M&T Bank Corporation (MTB) Up 9.7% Since Last Earnings Report?
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A month has gone by since the last earnings report for M&T Bank Corporation (MTB - Free Report) . Shares have added about 9.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is M&T Bank Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
M&T Bank Q1 Earnings Beat on Recapture of Provisions
M&T Bank reported first-quarter 2021 positive earnings surprise of 15%. Net operating earnings per share of $3.41 beat the Zacks Consensus Estimate of $2.96. Also, the bottom line compared favorably with the $1.95 per share reported in the year-ago quarter.
Fall in revenues on lower non-interest income, despite solid mortgage banking revenues, along with rise in expenses were key undermining factors. However, rise in loan and deposit balances highlights a solid capital position. Further, recapture of provisions was a tailwind.
Net income (on GAAP basis) in the quarter was $447.2 million or $3.33 per share compared with the $268.8 million or $1.93 per share recorded in the prior year.
Revenues Decline, Expenses Rise
M&T Bank’s quarterly revenues totaled $1.49 billion, down 1% from the year-ago quarter. However, the top line surpassed the consensus mark of $1.47 billion.
Taxable-equivalent net interest income increased slightly year over year to $985 million in the quarter. This rise stemmed from higher average earning assets (up 24%). Net interest margin contracted 68 basis points (bps) to 2.97%.
The company’s non-interest income was $506 million, down 4% year over year. Lower service charges on deposit accounts, along with reduced trading account and foreign-exchange gains, resulted in this downside. These were partly negated by higher mortgage banking revenues and trust income.
Non-interest expenses totaled $919 million, up 1% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses were $907 million, up slightly year over year. This upsurge mainly stemmed from higher salaries and employee benefits and professional services.
Efficiency ratio was 60.3%, up from the 58.9% recorded in the prior-year quarter. A higher ratio indicates a fall in profitability.
Loans and leases, net of unearned discount, were $99.3 billion at the end of the reported quarter, marginally up from the prior quarter. Also, total deposits rose 7% to $128.5 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 1.29% and 17.05%, respectively, compared with the 0.94% and 10.39% recorded in the prior-year quarter.
Credit Quality: A Mixed Bag
For M&T Bank, credit metrics remained a mixed bag during the January-March period. The company recorded a recapture of provision for credit losses of $25 million compared with provisions of $250 million.
However, net charge-offs of loans increased 53% on a year-over-year basis to $75 million. The ratio of non-accrual loans to total net loans was 1.97%, up 84 bps year over year. Non-performing assets surged 73% to $1.99 billion.
Capital Position
M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 10.3%. Tangible equity per share was $82.35, up 6% year over year from $77.6 as of Mar 31, 2020.
Outlook
PPP loans on the balance sheet amounted to $5.4 billion at the end of 2020. Management expects substantially all of those loans will be repaid or forgiven in 2021, with the bulk of that occurring in the first half of the year, which will be beneficial to net interest income and net interest margin in the coming quarters. Notably, the bank has begun accepting customer applications for PPP round 2. Therefore, these new loans are likely to offset the decline in the original PPP balances to a certain extent.
Management projects total loans to be relatively flat in 2021. Commercial and industrial loans, excluding PPP, are expected to be flat to up slightly as increased economic activity leads to higher line utilization. Commercial real estate loans are expected to be flat to slightly down with a subdued outlook for new originations and slowing draws on pre-pandemic loans. Consumer loans are estimated to grow at a mid-single digit pace.
Low- to mid-single-digit year-over-year decline in net interest income is anticipated, primarily due to the challenging year-over-year rate environment. Low single-digit decline in net interest margin is expected.
Low single-digit year-over-year growth is anticipated in non-interest revenues, similar to 2020. Management believes the strong originations trends in mortgage banking will continue, but with prevalent pressures on gain on sale margins.
Trust income should be flattish with the full-year impact of money fund fee waivers, offset by growth in other categories. This also assumes some growth in assets managed, combined with some stability in market values. Service charges are likely to reflect the run rate in the fourth quarter and to improve on a full year-over-year basis.
Based on the expectations for growth in some fee revenue categories, primarily mortgage banking revenues and trust income, management expects expenses tied directly to those businesses will grow as well. Outside of those increases, all other expense categories in the aggregate are estimated to be generally flat with the prior year. Overall, expenses are projected to be flat to up less than 1%.
Per management, the trend in credit provisioning will reflect improvement, in line with the macroeconomic outlook. Charge-offs, given the nature of the portfolio and the sectors most impacted by the pandemic, will be lumpy and likely take longer to emerge. Therefore, it anticipates charge-offs to be higher in 2021 and to be likely higher than long-term average.
Given the uncertainty, management focuses on credit outlook in the near term. For the first quarter of 2021, currently charge-offs higher than what was recorded in fourth-quarter 2020 is not expected.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 10.53% due to these changes.
VGM Scores
At this time, M&T Bank Corporation has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise M&T Bank Corporation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is M&T Bank Corporation (MTB) Up 9.7% Since Last Earnings Report?
A month has gone by since the last earnings report for M&T Bank Corporation (MTB - Free Report) . Shares have added about 9.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is M&T Bank Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
M&T Bank Q1 Earnings Beat on Recapture of Provisions
M&T Bank reported first-quarter 2021 positive earnings surprise of 15%. Net operating earnings per share of $3.41 beat the Zacks Consensus Estimate of $2.96. Also, the bottom line compared favorably with the $1.95 per share reported in the year-ago quarter.
Fall in revenues on lower non-interest income, despite solid mortgage banking revenues, along with rise in expenses were key undermining factors. However, rise in loan and deposit balances highlights a solid capital position. Further, recapture of provisions was a tailwind.
Net income (on GAAP basis) in the quarter was $447.2 million or $3.33 per share compared with the $268.8 million or $1.93 per share recorded in the prior year.
Revenues Decline, Expenses Rise
M&T Bank’s quarterly revenues totaled $1.49 billion, down 1% from the year-ago quarter. However, the top line surpassed the consensus mark of $1.47 billion.
Taxable-equivalent net interest income increased slightly year over year to $985 million in the quarter. This rise stemmed from higher average earning assets (up 24%). Net interest margin contracted 68 basis points (bps) to 2.97%.
The company’s non-interest income was $506 million, down 4% year over year. Lower service charges on deposit accounts, along with reduced trading account and foreign-exchange gains, resulted in this downside. These were partly negated by higher mortgage banking revenues and trust income.
Non-interest expenses totaled $919 million, up 1% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses were $907 million, up slightly year over year. This upsurge mainly stemmed from higher salaries and employee benefits and professional services.
Efficiency ratio was 60.3%, up from the 58.9% recorded in the prior-year quarter. A higher ratio indicates a fall in profitability.
Loans and leases, net of unearned discount, were $99.3 billion at the end of the reported quarter, marginally up from the prior quarter. Also, total deposits rose 7% to $128.5 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 1.29% and 17.05%, respectively, compared with the 0.94% and 10.39% recorded in the prior-year quarter.
Credit Quality: A Mixed Bag
For M&T Bank, credit metrics remained a mixed bag during the January-March period. The company recorded a recapture of provision for credit losses of $25 million compared with provisions of $250 million.
However, net charge-offs of loans increased 53% on a year-over-year basis to $75 million. The ratio of non-accrual loans to total net loans was 1.97%, up 84 bps year over year. Non-performing assets surged 73% to $1.99 billion.
Capital Position
M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 10.3%. Tangible equity per share was $82.35, up 6% year over year from $77.6 as of Mar 31, 2020.
Outlook
PPP loans on the balance sheet amounted to $5.4 billion at the end of 2020. Management expects substantially all of those loans will be repaid or forgiven in 2021, with the bulk of that occurring in the first half of the year, which will be beneficial to net interest income and net interest margin in the coming quarters. Notably, the bank has begun accepting customer applications for PPP round 2. Therefore, these new loans are likely to offset the decline in the original PPP balances to a certain extent.
Management projects total loans to be relatively flat in 2021. Commercial and industrial loans, excluding PPP, are expected to be flat to up slightly as increased economic activity leads to higher line utilization. Commercial real estate loans are expected to be flat to slightly down with a subdued outlook for new originations and slowing draws on pre-pandemic loans. Consumer loans are estimated to grow at a mid-single digit pace.
Low- to mid-single-digit year-over-year decline in net interest income is anticipated, primarily due to the challenging year-over-year rate environment. Low single-digit decline in net interest margin is expected.
Low single-digit year-over-year growth is anticipated in non-interest revenues, similar to 2020. Management believes the strong originations trends in mortgage banking will continue, but with prevalent pressures on gain on sale margins.
Trust income should be flattish with the full-year impact of money fund fee waivers, offset by growth in other categories. This also assumes some growth in assets managed, combined with some stability in market values. Service charges are likely to reflect the run rate in the fourth quarter and to improve on a full year-over-year basis.
Based on the expectations for growth in some fee revenue categories, primarily mortgage banking revenues and trust income, management expects expenses tied directly to those businesses will grow as well. Outside of those increases, all other expense categories in the aggregate are estimated to be generally flat with the prior year. Overall, expenses are projected to be flat to up less than 1%.
Per management, the trend in credit provisioning will reflect improvement, in line with the macroeconomic outlook. Charge-offs, given the nature of the portfolio and the sectors most impacted by the pandemic, will be lumpy and likely take longer to emerge. Therefore, it anticipates charge-offs to be higher in 2021 and to be likely higher than long-term average.
Given the uncertainty, management focuses on credit outlook in the near term. For the first quarter of 2021, currently charge-offs higher than what was recorded in fourth-quarter 2020 is not expected.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 10.53% due to these changes.
VGM Scores
At this time, M&T Bank Corporation has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise M&T Bank Corporation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.