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What's in Store for M&T Bank (MTB) This Earnings Season?

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M&T Bank Corporation (MTB - Free Report) is scheduled to report second-quarter 2022 results on Jul 20, before the opening bell. Although the bank’s earnings are expected to have declined from the year-ago reported figure, its revenues are likely to have increased.

M&T Bank reported an earnings surprise of 20.8% in the prior quarter. A rise in non-interest income and a strong capital position were tailwinds. However, declines in the net interest income (NII) and the net interest margin (NIM), and a rise in expenses were the key undermining factors.

M&T Bank has a decent earnings surprise history, having surpassed estimates in three of the last four quarters and missing in the other. The company has a trailing four-quarter earnings surprise of 6.8%, on average.

M&T Bank Corporation Price and EPS Surprise

 

M&T Bank Corporation Price and EPS Surprise

M&T Bank Corporation price-eps-surprise | M&T Bank Corporation Quote

Key Developments During the Quarter

This April, M&T Bank completed the acquisition of People's United Financial, Inc. for $8.3 billion. The move is a strategic fit for M&T Bank since it increases the company’s footprint in 12 U.S. states, helping it reach more customers and expand into new regions. The combined company created a $200-billion banking franchise, serving clients in the attractive banking markets of the Northeast and Mid-Atlantic regions, from Maine to Virginia and Washington, DC.

This will offer M&T Bank additional growth prospects and strengthen the company's financials in the long term. The bank’s second-quarter results will also reflect benefits from the consolidation.

Key Factors to Note

NII: There was considerable strength in commercial lending in April and May, backed by commercial and industrial loans, and commercial real estate loans. Residential real estate loans and consumer loans also improved, per the Fed’s latest data. Given M&T Bank’s substantial exposure to commercial and commercial real estate loans, the company is likely to have seen a decent acceleration in loan balances.

Also, M&T Bankoperates as a solid and sustainable regional bank franchise, with a footprint spanning six Mid-Atlantic States. The acquisition of People’s United has increased M&T Bank’s loans by $36 billion. These are expected to have enabled the company to witness decent loan growth in the quarter.

The Zacks Consensus Estimate for second-quarter average interest-earning assets of $192.2 billion suggests a 38.7% rise from the prior quarter’s reported number.

Robust lending aside, higher interest rates are expected to have supported MTB’s NII. In the second quarter, the Fed hiked interest rates by 50 basis points (bps) in May and another 75 bps in June. With this, the level of the policy rate reached 1.5-1.75%, the highest since just before the March 2020 pandemic.This is likely to have driven MTB’s NIM and NII.

NII is estimated to be $1.42 billion, indicating a 58% jump from the prior quarter’s reported figure.

Fee Income: M&T Bankis anticipated to have witnessed a decline in trust revenues on disappointing equity market performance in the to-be-reported quarter. The Zacks Consensus Estimate of $186 million for the same implies a 10% sequential rise.

The company removed the non-sufficient fund fee and overdraft protection transfer charges from linked deposit accounts, as well as reduced overdraft fees to $15, in the second quarter. This is likely to have had an adverse impact on revenues from service charges on deposits.

Nonetheless, the deposit balance is expected to have increased in the second quarter due to the acquisition of People's United. The Zacks Consensus Estimate for the same of $119 million suggests a 16.7% increase from the prior quarter’s levels.

Residential mortgage production continued to reduce in the second quarter, as mortgage rates increased sequentially. Also, moderation in residential refinancing activity due to the rise in rates is expected to have weighed on mortgage banking income. The Zacks Consensus Estimate for the same of $97 million suggests a slip of 11% from the prior quarter’s reported level.

Expenses:  Given M&T bank’s ongoing investments in several areas, including operational infrastructure and technology, we expect the company’s expense base to have been under pressure in the second quarter.

Also, amid flaring inflation and a competitive labor market, compensation expenses are likely to have increased in the quarter. This is expected to have limited operational efficiency and bottom-line growth.

Here is what our quantitative model predicts:

M&T Bank has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat this time around.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for M&T Bank is +1.80%.

Zacks Rank: M&T Bank currently carries a Zacks Rank of 2 (Buy).

Estimate Trend

Prior to the second-quarter earnings release, the company is witnessing downward estimate revisions, reflecting the bearish sentiment of analysts. The Zacks Consensus Estimate for second-quarter earnings has been revised 4.5% south to $2.98 in the past month. However, the figure suggests a year-over-year fall of 13.6%.

The consensus estimate for revenues of $2.06 billion suggests a rise of 41.6% from the year-ago quarter’s levels.

Other Bank Stocks Worth a Look

Here are a couple of other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for Truist Financial (TFC - Free Report) is +0.53% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2022 results on Jul 19.

Over the past week, TFC’s Zacks Consensus Estimate for quarterly earnings has been revised marginally downward.

Citizens Financial Group (CFG - Free Report) is scheduled to release second-quarter 2022 earnings on Jul 19. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +4.98%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CFG’s quarterly earnings estimates have moved marginally downward over the past week.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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