A month has gone by since the last earnings report for M&T Bank (MTB). Shares have added about 5.6% 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 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 Q4 Earnings Beat Estimates, Expenses Rise

M&T Bank reported net operating earnings of $3.79 per share in fourth-quarter 2018, surpassing the Zacks Consensus Estimate of $3.51. Also, the bottom line improved 85.8% year over year.

The company recorded rise in net interest income with support from margin expansion and loan growth. However, deterioration of credit quality and higher expenses were some negative factors. Also, fall in deposit balances was a headwind.

Net operating income came in at $550.2 million, up around 68.4% from $326.7 million recorded in year-ago quarter.

On a GAAP basis, M&T Bank’s fourth-quarter earnings per share of $3.76 jumped 87% year over year. Net income soared 69.6% to $546 million.

For full-year 2018, the bank reported net operating earnings of $1.94 billion or $12.86 per share, up from $1.43 billion or $8.82 per share in the prior year.

Revenues Increase, Loans Climb, Expenses Rise

For 2018, the bank reported revenues of $5.95 billion, up 4.9% from the previous year. Also, it outpaced the Zacks Consensus Estimate of $5.89 billion.

M&T Bank’s revenues came in at $1.54 billion, comparing favorably with the year-ago figure of $1.46 billion. Also, it surpassed the Zacks consensus estimate of $1.50 billion.

Taxable-equivalent net interest income increased 9% year over year to $1.07 billion in the quarter, driven by higher net interest margin, partly offset by lower average earning assets. Furthermore, net interest margin expanded 36 basis points (bps) to 3.92%.

The company’s non-interest income came in at $481 million compared with $484 million in the year-ago quarter. Lower gain on bank investment securities and mortgage banking revenues were partially offset by higher trust, brokerage services and other income.

Non-interest expenses were $802.2 million, up nearly 1% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses came in at $797 million, rising 1%. The rise was attributable to higher salaries and employee benefits expenses in the recent quarter, partially offset by lower charitable contributions and FDIC assessments.

Efficiency ratio came in at 51.7%, down from 54.7% in the prior-year quarter. Lower ratio indicates rise in profitability.

Loans and leases, net of unearned discount, rose 1% year over year to $86.5 billion at the end of the reported quarter. However, total deposits declined 2.4% to $90.2 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 1.93% and 22.16%, respectively, compared with 1.12% and 11.77% recorded in the prior-year quarter.

Credit Quality Deteriorates

Provision for credit losses rose 22.6% year over year to $38 million. Also, net charge-offs of loans came in at $38 million, up 40.7%.

The ratio of non-accrual loans to total net loans was 1.01%, up 1 bp. Non-performing assets increased 1.4% year over year to $972 million.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were around 10.13%. Tangible equity per share came in at $69.28, up 0.3% year over year from $69.08.

Share Repurchase

During the December-end quarter, M&T Bank repurchased a total of 3.06 million shares of its common stock for a total cost of $500 million.

Outlook for 2019

Management expects continued runoff of the residential real estate portfolio mostly at low double-digits.

In 2019, average total loans are likely to grow on a full-year basis at a low single-digit pace. Further, the company expects to exceed this pace if C&I portfolio continues to grow like in fourth-quarter 2018 and slowdown in paydown continues.

Management foresees slight benefit to NIM in case Fed doesn’t announces further rate hikes. However, better upside is expected if the Fed continues to raise interest rates in 2019.

Based on margin assumptions, the company expects year-over-year growth in net interest income. The higher interest rate environment will likely to challenge residential mortgage banking in 2019, specifically with respect to residential mortgage loan originations.

Fee income is expected to grow in low single-digit range with the exception of trust revenues, which have been growing in a mid-single-digit or better pace.

Low nominal growth in total operating expenses for 2019 is expected. This includes the full-year benefit of approximately $40 million from the elimination of the FDIC surcharge.

Seasonal increase in salaries and benefits in first-quarter 2019, which primarily reflects annual equity incentive compensation as well as a handful of other items, is likely to impact expenses.

Effective tax rate for 2019 in the range of 25% to 26% is expected.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, M&T Bank has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise M&T Bank has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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