M&T Bank’s ( MTB Quick Quote MTB - Free Report) rising loans and deposit balances are likely to continue aiding revenue growth. Moreover, the bank’s inorganic growth strategies enhance its profitability. However, elevated expenses and poor credit quality remain near-term woes.
Looking at the fundamentals, the company’s deposits and loans witnessed a compound annual growth rate (CAGR) of 5.8% and 1.9%, respectively, over the last five years (2016-2020). Additionally, while its net interest income (NII) declined in 2020, the metric witnessed a CAGR of 9.8% over the five-year period ended 2019. Both loans and deposits are expected to continue to rise in the near term, catering to customers’ liquidity needs. Thus, a sustained rise in demand for loans will likely support the top line in the upcoming quarters.
Acquisitions remain another major contributor to the company’s revenue growth. The bank has significantly expanded its operations in and out of the United States in the last several years. This February, it announced an all-stock deal worth $7.6 billion to acquire People's United. The merger is expected to result in earnings accretion of 10-12% in 2023 and annual cost synergies of $330 million.
M&T Bank’s capital-deployment activities also seem impressive. The company had increased its quarterly dividend by 10% in November 2019. Notably, its debt/equity ratio compares favorably with that of the broader industry, highlighting that such dividend hikes are sustainable for the future. Moreover, this January, management authorized $800 million worth of share repurchases. Thus, given the company’s strong capital base and liquidity positions, its robust capital-deployment activities seem sustainable.
On the flip side, M&T Bank is exposed to operational risks with persistently rising non-interest operating expenses. While expenses declined in 2020, the same rose at a five-year (2015-2019) CAGR of 5.3%. Costs are likely to be elevated, given the company’s investments in operational infrastructure and technology, thus hurting the bottom line to an extent.
Apart from this, provision for credit losses has risen substantially in the last few years on account of adoption of a new accounting method and the coronavirus mayhem. Worsening credit metrics is a concern for the company and is likely to impact the bottom line.
Notably, analysts are not very optimistic regarding the company’s earnings growth potential. Over the past 30 days, the Zacks Consensus Estimate for M&T Bank’s current-year earnings has declined by 1%. Thus, the company currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of the company have gained 62.7% marginally, outperforming the
industry’s rally of 62.4%. Stocks Worth Considering
A few better-ranked stocks from the finance space are mentioned below:
Flagstar Bancorp, Inc. ( FBC Quick Quote FBC - Free Report) has recorded an upward earnings estimate revision of 77% for 2021 over the past 60 days. Its shares have gained 57.9% over the past six months. Currently, it sports a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here Limestone Bancorp, Inc.’s ( LMST Quick Quote LMST - Free Report) ongoing-year earnings estimate has moved 56% north over the past 60 days. The company’s shares have appreciated 53.7% in six months’ time. At present, it flaunts a Zacks Rank #1. Lakeland Bancorp, Inc. ( LBAI Quick Quote LBAI - Free Report) has witnessed an upward earnings estimate revision of 21% for the current year in the past 60 days. It currently sports a Zacks Rank of 1. The stock has rallied 71.1% over the past six months. Time to Invest in Legal Marijuana
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