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Loan Growth Supports M&T Bank (MTB) Despite Rising Costs

M&T Bank Corporation’s MTB diversified deposit base and loan growth expectations will drive balance sheet strength and net interest income (NII) growth in the upcoming period. A solid liquidity position indicates that the bank’s capital deployments are sustainable.

However, mounting expenses are expected to continue hurting M&T Bank’s bottom-line growth. Significant exposure to commercial real estate loans and worsening credit quality are other woes.

The bank’s focus on acquiring the industry's best deposit franchise, along with the acquisition of People’s United in April 2022, which increased M&T Bank’s loans by $36 billion and deposits by $53 billion, have fortified its balance sheet strength. Encouragingly, management expects average loan and lease balances to be up 10-12% this year.

NII (tax equivalent basis) witnessed a compound annual growth rate (CAGR) of 9% over the six years (2017-2022). The rising trend continued in first-quarter 2023. A solid increase in NII in the upcoming quarters is expected on the decent lending scenario and high interest rates. Per our estimates, net interest income (NII) (FTE) is estimated to rise 20.3% in 2023.


This, along with fee income growth in the upcoming quarters, will propel the top-line rise.

As of Mar 31, 2023, the company’s total debt of $14.45 billion was significantly lower than its cash and due from banks, and interest-bearing deposits at banks of $24.12 billion. Therefore, the company seems well-positioned in terms of its liquidity profile and is likely to be able to continue meeting debt obligations in the near term if the economic situation worsens.

This also supports the company’s capital deployment activities. It repurchased 3.8 million shares in first-quarter 2023 for $600 million, and had $1.2 billion of remaining authorization. While share repurchase activity for the second quarter is expected to decline sequentially, the company continues to pay quarterly dividends, which were sequentially hiked by 8.3% in February 2023. Such moves are expected to drive shareholder value in the upcoming period.

With continuously rising non-interest operating expenses, M&T Bank is exposed to operational risks. Expenses witnessed a CAGR of 10% over the last six years (2017-2022). The rising trend continued in first-quarter 2023. We expect the metric to increase 5.1% in 2023.

Deteriorating credit quality has been a major headwind for M&T Bank. While the company recorded a recapture of provision for credit losses in 2021, it built substantial reserves over the past few years and in first-quarter 2023. Non-performing assets also disappointed, with a five-year CAGR (ended 2022) of 20.6%. The rising trend continued in first-quarter 2023. Given the concerns of an economic slowdown/recession, a worsening credit quality can be concerning.

Lastly, with 66.8% of the loan portfolio concentrated in commercial and commercial real estate loans, the company is exposed to asset quality deterioration amid a challenging economy.

Shares of this Zacks Rank #3 (Hold) company have lost 26.6% in the past six months compared with the industry’s decline of 14.7%.


Zacks Investment Research
Zacks Investment Research

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Banks Worth a Look

A couple of better-ranked stocks from the banking space are Bar Harbor Bankshares BHB and Pathward Financial Inc. CASH, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings estimates for BHB have been unrevised for 2023 over the past 30 days. The company’s shares have declined 21.3% over the past six months.

The consensus estimate for CASH’s fiscal 2023 earnings has been revised 1.8% upward over the past 60 days. Over the past six months, the company’s share price has increased 7.1%.

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