It has been about a month since the last earnings report for M&T Bank Corporation (MTB - Free Report) . Shares have added about 1.5% in that time frame.
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 as 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 Q1 Earnings Improve Y/Y on Solid Revenues
M&T Bank reported net operating earnings of $2.26 per share in first-quarter 2018. The bottom line improved 5.1% year over year.
In addition, top-line growth was recorded. Moreover, improved credit quality was a positive factor. Further, pressure on margin eased. However, decrease in loan and deposit balances was a headwind. Also, results were affected by higher expenses.
Net operating income came in at $357 million, up around 1% year over year.
On a GAAP basis, M&T Bank’s earnings per share of $2.23 jumped 5% year over year. Net income inched up 1% year over year to $353 million. Notably, litigation reserve has been increased by $135 million. On an after-tax basis, reserve reduced net income by $102 million, or 68 cents per share.
NII & Fee Income Growth Boost Revenues, Expenses Flare Up
M&T Bank’s revenues came in at $1.44 billion comparing favorably with the year-ago figure of $1.37 billion.
Taxable-equivalent net interest income increased 6% year over year to $980 million in the quarter, driven by increased net interest margin, partly offset by lower average earning assets. Furthermore, net interest margin expanded 37 basis points year over year to 3.71%.
Supported by strong growth in trust income and distribution from Bayview Lending Group LLC, the company’s other income climbed 3% year over year to $459 million. These increases were partially offset by unrealized losses on investments in equity securities.
Non-interest expenses were $933 million, up 18% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $927 million, escalating 19% from the year-ago quarter. The rise reflected increased litigation reserve, elevated salaries, and employee-benefit costs and other expenses.
Efficiency ratio came in at 64% this quarter, up from 56.9% in the prior-year quarter. Rise in ratio indicates fall in profitability.
Loans and leases, net of unearned discount, edged down 1.8% year over year to $87.7 billion at the end of the reported quarter. Additionally, total deposits declined 6.3% year over year to $90.9 billion.
M&T Bank's net operating income highlighted an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.28% and 13.51%, respectively, compared with 1.21% and 13.05% recorded in the prior-year quarter.
Credit Quality Improved
M&T Bank reflected an improved credit quality picture in the reported quarter. Provision for credit losses shrunk 22% year over year to $43 million. Net charge-offs of loans came in at $41 million, down 5% year over year.
Further, the ratio of non-accrual loans to total net loans was 0.99%, down from 1.04% in the comparable period last year. Non-performing assets decreased 8% year over year to $966 million.
Strong Capital Position
M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules was around 10.59%. Tangible equity per share came in at $66.99, slightly down year over year from $67.16.
During first-quarter 2018, M&T Bank repurchased a total of 3.78 million shares of its common stock for a total cost of $721 million.
Outlook for 2018
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 reflecting the impact of the interest rate hedges, the company entered last year, along with the anticipation of another 25-bps rate hike in 2018, management expects NIM to expand 5-8 bps. Therefore, with these assumptions, modest NII growth is predicted.
Volumes and gain on sale margins of residential mortgage loan originations has been affected by the higher interest rate environment. Therefore, residential mortgage banking revenues might be under pressure. However, seasonal improvement in commercial mortgage banking revenues is anticipated as the year progresses. Notably, remaining fee businesses are likely to remain stable, with growth in low- to mid-single digits.
Nominal growth in operating expenses is likely to be witnessed on a year-over-year basis, excluding the addition to reserve for litigation matters. Notably, seasonally higher salaries and benefits in the first quarter is expected to normalize in the second quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. There have been six revisions higher for the current quarter compared to one lower.
M&T Bank Corporation Price and Consensus
At this time, MTB has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 value based on our styles scores.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise MTB has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.