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Organic Growth Supports M&T Bank (MTB), Cost Woes Persist

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On Sep 25, we issued an updated research report on M&T Bank Corporation (MTB - Free Report) . The Buffalo, NY-based banking giant’s growth prospects look encouraging as it continues to display strength in several areas, including organic growth on rising loans and deposits, along with its inorganic growth strategies.  However, persistently rising non-interest operating expense, deteriorating credit metrics, and lack of diversification in its loan portfolio are concerns.

The company has been witnessing upward estimate revisions, reflecting analysts’ optimism about its growth prospects. Over the past 30 days, the Zacks Consensus Estimate for its 2020 and 2021 earnings moved north.

Shares of this Zacks Rank #3 (Hold) company have, however, lost 10.8% in the past three months compared with the industry’s decline of 3%.


Looking at its fundamentals, M&T Bank has managed to continue its growth in net interest income (NII) amid the competitive business scenario. Though the NII declined in the first half of 2020 on lower interest rates, over the last five years (ended 2019), it has witnessed a compound annual growth rate (CAGR) of 9.8%.

M&T Bank’s non-interest income is also impressive. Remarkably, the company witnessed 11% and slight year-over-year growth in 2019 and the first half of 2020, respectively, with the revival in the mortgage market and an improved trading environment. Therefore, continuation of such trend will likely aid top-line expansion in the quarters ahead.

M&T Bank is focused on acquiring the industry's best deposit franchise. Deposits reported a five-year CAGR of 1% (2015-2019), with some annual volatility. Further, the company has seen decent loan growth in the past few years, witnessing a five-year CAGR of 1% in 2019, with some annual volatility, mainly supported by rise in consumer loans. Both metrics continued to increase in the first half of 2020.

With the persistently rising non-interest operating expenses, M&T Bank is exposed to operational risks. Though expenses decreased in the first six months of the ongoing year, the same witnessed a CAGR of 5.3% over the last five years (2015-2019). Furthermore, given the ongoing investments in several areas including operational infrastructure and technology, the company’s expense base is likely to remain under pressure.

Deteriorating credit metrics are a headwind for the company. Provision for credit losses witnessed a five-year CAGR of 1% in 2019, with some annual volatility. In the first half of 2020, provisions rose significantly due to the adoption of a new accounting method and the coronavirus crisis. Also, the company’s substantial exposure to commercial and real estate construction loans shows the lack of diversification, which can be risky for the bank amid a challenging economy and the competitive markets.

Stocks to Consider

TD Ameritrade Holding Corporation (AMTD - Free Report) has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock has gained 6.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Morgan Stanley (MS - Free Report) has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have lost 0.4% in the past three months. At present, it carries a Zacks Rank of 2.

Independent Bank Corporation (IBCP - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has lost 14.3% in three months’ time. It currently carries a Zacks Rank #2.

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