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Fee Income Growth to Support M&T Bank's (MTB) Q3 Earnings

Zacks Equity Research

M&T Bank Corporation MTB is scheduled to report second-quarter 2019 results on Oct 17, before the opening bell. The company’s revenues and earnings will likely reflect year-over-year improvement.

M&T Bank’s second-quarter results missed the Zacks Consensus Estimate due to rise in expenses and deteriorating credit metrics. However, rise in net interest income and fee income was a driving factor.

Notably, M&T Bank has an impressive earnings surprise history, having delivered positive earnings surprises in three of the trailing four quarters, the average beat being 1.82%.

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

Factors at Play

Soft Net Interest Income Growth: A dismal lending scenario — mainly in the areas of commercial and industrial, and commercial real estate — during the third quarter is expected to have had an adverse impact on net interest income (NII), while decent consumer loan growth might have been an offsetting factor.

Further, the Fed’s accommodative-policy stance with decline in interest rates (two rate cuts — in July and September), flattening of the yield curve and steadily-rising deposit betas are likely to have hurt its net interest margin.

Fee Income Growth Might Impress: The company might have witnessed growth in trust revenues on the back of strong equity markets in the third quarter. Further, given the lower mortgage rates, M&T Bank is likely to have witnessed an improvement in mortgage loan refinancing activity, leading to rise in fee income.

Also, it is likely to have registered a rise in service charge on deposits, as deposit balance is expected to increase. Thus, overall growth in other income is projected for the to-be-reported quarter.

Notably, management expects fee income to have increased in low single-digit range with the exception of trust revenues, which might have grown in mid-single-digits.

Expenses Might Trend Higher: While the absence of considerable legal expenses is encouraging, increased investments in technology to improve digital offerings might have escalated costs moderately.

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.

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 +0.34%.

Zacks Rank: M&T Bank currently carries a Zacks Rank of 3, which increases the predictive power of ESP.

The Zacks Consensus Estimate for earnings of $3.61 reflects a 1.4% rise on a year-over-year basis. Further, sales projected at $1.53 billion suggest roughly 3% growth, year over year.

Other Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Cullen/Frost Bankers, Inc. CFR is slated to release results on Oct 24. The company has an Earnings ESP of +0.22% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated HBAN has an Earnings ESP of +0.60% and at present, holds a Zacks Rank of 3. It is slated to report quarterly figures on Oct 24.

The Bank of New York Mellon Corporation BK is scheduled to release results on Oct 16. The company, which currently carries a Zacks Rank of 3, has an Earnings ESP of +0.11%.

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