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Will Higher Costs Weigh on M&T Bank’s (MTB) Q3 Earnings?


M&T Bank Corporation MTB is scheduled to report its third-quarter 2016 earnings on Wednesday, Oct 19, 2016, before the market opens.

In the last quarter, M&T Bank’s net operating earnings of $2.07 per share lagged the Zacks Consensus Estimate by a penny. Higher expenses and a rise in provision for loan losses were primarily responsible for the earnings miss. Nevertheless, revenues experienced growth driven by increase in net interest income, which benefited from the Hudson City Bancorp acquisition.

Nonetheless, the company has a decent earnings surprise history, as evident from the chart below:

M&T BANK CORP Price and EPS Surprise

M&T BANK CORP Price and EPS Surprise | M&T BANK CORP Quote

Will M&T Bank be able to overcome challenges this time and post an earnings beat? Or will a challenging backdrop hurt its financials this earnings season? Let’s see how things have shaped up for this announcement.

What to Expect in Q3?

Higher Expenses: The Federal Deposit Insurance Corporation has imposed a surcharge on large banks to recapitalize the deposit insurance fund, which started in the third quarter. Therefore, management estimates such surcharge to increase the assessment expense by $5 million per quarter, starting in the third quarter itself. Moreover, the company is also expected to have incurred escalated legal expenses during the quarter.

Nonetheless, M&T Bank intends to keep core expenses relatively controlled, despite continued investment spending, including technology investment. Also, the company is focused on recording a positive operating leverage.

Net Interest Income to Remain Stable: Including the acquired loans from the Hudson City merger, M&T Bank expects total loans to grow. The increase will be likely driven by a higher growth rate in commercial and consumer loan portfolios, partially offset by the narrowing of the residential mortgage loan portfolio, as the company expects the Hudson City portfolio to be continued to be paid down. As such, management does not anticipate any growth in net interest income in the quarter.

NIM May Improve: M&T Bank projects net interest margin (NIM) to be stable or slightly improve year over year, due to reduced cost of funding the assets and continued growth in commercial loans.

Non-interest Income to Benefit from Mortgage Business Strength: Non-interest income might get a lift, driven by improvement in the company’s mortgage banking revenues. This in turn is projected on the back of normal seasonality in the third quarter and strength in the housing sector.

Notably, activities of M&T Bank during the quarter were inadequate to win the analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at $2.04 per share over the last seven days.

Earnings Whispers

Our proven model does not conclusively predict that M&T Bank is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for M&T Bank is 0.00%. This is because the Most Accurate estimate of $2.04 is on par with the Zacks Consensus Estimate.

Zacks Rank: M&T Bank’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive Earnings ESP to be sure of an earnings beat.

Stocks That Warrant a Look

Here are some finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Raymond James Financial, Inc. RJF is slated to release results on Oct 26. The company has an Earnings ESP of +2.04% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks Rank #1 stocks here.

The Earnings ESP for T. Rowe Price Group, Inc. TROW is +0.85% and it carries a Zacks Rank #3. The company is scheduled to release its third-quarter results on Oct 27.

Lazard Ltd. LAZ has an Earnings ESP of +3.90% and carries a Zacks Rank #2. It is scheduled to report results on Oct 27.

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