A month has gone by since the last earnings report for M&T Bank Corporation (MTB Quick QuoteMTB - Free Report) . Shares have added about 3.8% 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 Corporation 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, Fee Income Escalates

M&T Bank reported fourth-quarter 2020 earnings surprise of 19.6% on higher fee income. Net operating earnings per share of $3.54 beat the Zacks Consensus Estimate of $2.96. The bottom line, however, compares unfavorably with the $3.62 per share reported in the year-ago quarter.

Mortgage banking revenues drove fee income, supporting results. Moreover, rise in loan and deposit balances highlights a solid capital position. Nevertheless, net interest income disappointed on lower rates and margin pressure prevailed. Further, rise in provisions and expenses were undermining factors.

Net income (on GAAP basis) for the quarter was $471 million or $3.52 per share compared with the $493 million or $3.60 per share recorded in the prior year.

For full-year 2020, M&T Bank reported net income of $1.35 billion or $9.94 per share compared with the $1.93 billion or $13.75 in the previous year.

Revenues Up, Loans Rise, Expenses Escalate

For 2020, the company reported revenues of $5.97 billion, outpacing the Zacks Consensus Estimate of $5.88 billion. Yet, revenues were down 4% year over year.

M&T Bank’s quarterly revenues totaled $1.54 billion, slightly up from the year-ago quarter. Also, the revenue figure surpassed the consensus mark of $1.46 billion.

Taxable-equivalent net interest income declined 2% year on year to $993 million in the quarter. This fall stemmed from lower net interest margin, partially offset by higher average earning assets (up 19%). Net interest margin contracted 64 basis points (bps) to 3.00%.

The company’s non-interest income was $551 million, up 6% year over year. Higher mortgage banking revenues, brokerage services income and other income primarily resulted in this upsurge. These were partly negated by lower service charges on deposit accounts, along with reduced trading account and foreign-exchange gains.

Non-interest expenses totaled $845 million, up 3% from the prior-year quarter. Excluding certain non-operating items, non-interest operating expenses were $842 million, up 2.8% year on year. This upsurge mainly stemmed from higher salaries and employee benefits, changes in the valuation allowance for capitalized residential mortgage servicing rights and planned transition charges to support M&T Bank’s retail brokerage and advisory business to the platform of LPL Financial. These were partly offset by lower professional and outside services, advertising and marketing, and travel and entertainment costs.

Efficiency ratio was 54.6%, up from the 53.1% recorded in the prior-year quarter. A higher ratio indicates a fall in profitability.

Loans and leases, net of unearned discount, were $98.5 billion at the end of the reported quarter, marginally up from the prior quarter. Also, total deposits rose 4% to $119.8 billion.

M&T Bank's net operating income displays an annualized rate of return on average tangible assets and average tangible common shareholder equity of 1.35% and 17.53%, respectively, compared with the 1.67% and 19.08% recorded in the prior-year quarter.

Credit Quality: A Concern

For M&T Bank, credit metrics deteriorated during the October-December period. Provision for credit losses flared up 39% on a-over-year basis to $75 million. Net charge-offs of loans more than doubled on a year-over-year basis to $97 million.

The ratio of non-accrual loans to total net loans was 1.92%, up 86 bps year over year. Non-performing assets surged 84% to $1.9 billion.

Capital Position

M&T Bank’s estimated Common Equity Tier 1 to risk-weighted assets under regulatory capital rules were 10%, up from the year-earlier quarter’s 9.73%. Tangible equity per share was $80.52, up 6.7% year over year from $75.44 as of Dec 31, 2019.

Outlook

PPP loans on the balance sheet amounted to $5.4 billion at the end of 2020. Management expects substantially all of those loans will be repaid or forgiven in 2021, with the bulk of that occurring in the first half of the year, which will be beneficial to net interest income and net interest margin in the coming quarters. Notably, the bank has begun accepting customer applications for PPP round 2. Therefore, these new loans are likely to offset the decline in the original PPP balances to a certain extent.

Management projects total loans to be relatively flat in 2021. Commercial and industrial loans, excluding PPP, are expected to be flat to up slightly as increased economic activity leads to higher line utilization. Commercial real estate loans are expected to be flat to slightly down with a subdued outlook for new originations and slowing draws on pre-pandemic loans. Consumer loans are estimated to grow at a mid-single digit pace.

Low- to mid-single-digit year-over-year decline in net interest income is anticipated, primarily due to the challenging year-over-year rate environment.

Low single-digit year-over-year growth is anticipated in non-interest revenues, similar to 2020. Management believes the strong originations trends in mortgage banking will continue, but with prevalent pressures on gain on sale margins.

Trust income should be flattish with the full-year impact of money fund fee waivers, offset by growth in other categories. This also assumes some growth in assets managed, combined with some stability in market values. Service charges are likely to reflect the run rate in the fourth quarter and to improve on a full year-over-year basis.

Based on the expectations for growth in some fee revenue categories, primarily mortgage banking revenues and trust income, management expects expenses tied directly to those businesses will grow as well. Outside of those increases, all other expense categories in the aggregate are estimated to be generally flat with the prior year. Overall, expenses are projected to be flat to up less than 1%.

Per management, the trend in credit provisioning will reflect improvement, in line with the macroeconomic outlook. Charge-offs, given the nature of the portfolio and the sectors most impacted by the pandemic, will be lumpy and likely take longer to emerge. Therefore, it anticipates charge-offs to be higher in 2021 and to be likely higher than long-term average.

Given the uncertainty, management focuses on credit outlook in the near term. For the first quarter of 2021, currently charge-offs higher than what was recorded in fourth-quarter 2020 is not expected.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 14.88% due to these changes.

VGM Scores

At this time, M&T Bank Corporation has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

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

Outlook

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