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Here's Why You Should Retain M&T Bank (MTB) in Your Portfolio
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M&T Bank Corporation (MTB - Free Report) is well-poised for organic growth, backed by deposit and loan growth that has been stoking its net interest income (NII).The company’s inorganic growth moves are backed by a sound liquidity position. Yet, high costs might affect the bottom line, while weak credit metrics remain major headwinds.
M&T Bank is focused on acquiring the industry's best deposit franchise. Further, the company has recorded decent loan growth in the past few years, witnessing a five-year compound annual growth rate (CAGR) of 1.3% in 2021.The acquisition of People’s United has further driven the momentum in loans and deposits.
Moreover, the company operates as a solid and sustainable regional bank franchise, with a footprint that spans six Mid-Atlantic States as well as D.C. This should allow the bank to continue generating a decent level of interest income in the upcoming quarters, with a gradual improvement in the lending scenario.
Increasing fee income is also likely to drive top-line growth. While higher rates are expected to put pressure on mortgage originations and gain on sale margins, growth in trust revenues should benefit from the recapture of money market fee waivers sooner than previously anticipated by management. With this, non-interest income is anticipated to increase 11-13% in 2022.
In April 2022, M&T Bank completed the acquisition of People's United for $8.3 billion, and expects to realize cost savings of $330 million by early 2023, with the deal to be accretive to earnings. Further, product and balance-sheet diversification stemming from such buyouts will likely support the company’s financials.
These are backed by a decent liquidity position. As of Mar 31, 2022, the company had a long-term debt of $3.4 billion, which is significantly less than its liquidity (including cash and due from banks, and interest-bearing deposits at banks) of $37.6 billion.
With continuously rising non-interest operating expenses, M&T Bank is exposed to operational risks. The company’s cost base is expected to remain under pressure amid higher expenses incurred on incentives and technology advancement. Such initiatives are expected to hurt the company’s bottom line in the near term.
Deteriorating credit metrics remain a major headwind for the company. Provision for credit losses increased significantly over the past few years and in the first quarter of 2022. Non-performing assets also disappointed with a five-year CAGR (ended 2021) of 12.7% and the rising trend continued in the first quarter.
M&T Bank has substantial exposure to commercial and commercial real estate loans. As of Mar 31, 2022, the company’s exposure to the loan portfolio was approximately 56% of the net loans. Such high exposure to commercial loans can be risky for the company amid a challenging economy and competitive markets.
Currently, MTB carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have declined 10.3% compared with the 30% fall recorded by the industry.
Old Second Bancorp’s Zacks Consensus Estimate for the current-year earnings has been revised 3.3% upward over the past week. Commerce Bancshares’s Zacks Consensus Estimate for current-year earnings has been revised marginally upward over the past month.
Over the past six months, shares of OSBC have gained 1.9%, while CBSH has lost 9.4%.
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Here's Why You Should Retain M&T Bank (MTB) in Your Portfolio
M&T Bank Corporation (MTB - Free Report) is well-poised for organic growth, backed by deposit and loan growth that has been stoking its net interest income (NII).The company’s inorganic growth moves are backed by a sound liquidity position. Yet, high costs might affect the bottom line, while weak credit metrics remain major headwinds.
M&T Bank is focused on acquiring the industry's best deposit franchise. Further, the company has recorded decent loan growth in the past few years, witnessing a five-year compound annual growth rate (CAGR) of 1.3% in 2021.The acquisition of People’s United has further driven the momentum in loans and deposits.
Moreover, the company operates as a solid and sustainable regional bank franchise, with a footprint that spans six Mid-Atlantic States as well as D.C. This should allow the bank to continue generating a decent level of interest income in the upcoming quarters, with a gradual improvement in the lending scenario.
Increasing fee income is also likely to drive top-line growth. While higher rates are expected to put pressure on mortgage originations and gain on sale margins, growth in trust revenues should benefit from the recapture of money market fee waivers sooner than previously anticipated by management. With this, non-interest income is anticipated to increase 11-13% in 2022.
In April 2022, M&T Bank completed the acquisition of People's United for $8.3 billion, and expects to realize cost savings of $330 million by early 2023, with the deal to be accretive to earnings. Further, product and balance-sheet diversification stemming from such buyouts will likely support the company’s financials.
These are backed by a decent liquidity position. As of Mar 31, 2022, the company had a long-term debt of $3.4 billion, which is significantly less than its liquidity (including cash and due from banks, and interest-bearing deposits at banks) of $37.6 billion.
With continuously rising non-interest operating expenses, M&T Bank is exposed to operational risks. The company’s cost base is expected to remain under pressure amid higher expenses incurred on incentives and technology advancement. Such initiatives are expected to hurt the company’s bottom line in the near term.
Deteriorating credit metrics remain a major headwind for the company. Provision for credit losses increased significantly over the past few years and in the first quarter of 2022. Non-performing assets also disappointed with a five-year CAGR (ended 2021) of 12.7% and the rising trend continued in the first quarter.
M&T Bank has substantial exposure to commercial and commercial real estate loans. As of Mar 31, 2022, the company’s exposure to the loan portfolio was approximately 56% of the net loans. Such high exposure to commercial loans can be risky for the company amid a challenging economy and competitive markets.
Currently, MTB carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have declined 10.3% compared with the 30% fall recorded by the industry.
Image Source: Zacks Investment Research
Stocks That Warrant a Look
A couple of better-ranked stocks in the banking space are Old Second Bancorp (OSBC - Free Report) and Commerce Bancshares (CBSH - Free Report) . OSBC currently sports a Zacks Rank of 1 (Strong Buy), whereas CBSH carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Old Second Bancorp’s Zacks Consensus Estimate for the current-year earnings has been revised 3.3% upward over the past week. Commerce Bancshares’s Zacks Consensus Estimate for current-year earnings has been revised marginally upward over the past month.
Over the past six months, shares of OSBC have gained 1.9%, while CBSH has lost 9.4%.