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Loan Growth Supports M&T Bank (MTB) Despite Rising Costs
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M&T Bank’s (MTB - Free Report) acquisitions help it grow its balance sheet. Higher interest rates will drive net interest income (NII) in the upcoming quarters, whereas growth and trust revenues should benefit from the recapture of money market fee waivers.
However, persistently rising expenses will likely hurt the company’s bottom line. Deteriorating credit quality is another concern.
Also, analysts are less optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for MTB’s 2023 earnings has been revised marginally downward over the past 30 days.
Over the past year, shares of MTB have lost 14.3% compared with the industry’s 12.8% decline.
Image Source: Zacks Investment Research
Thus, the company currently carries a Zacks Rank #3 (Hold).
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. The acquisition increased M&T Bank’s loans by $36 billion and deposits by $53 billion.
Looking at its fundamentals, the company’s NII witnessed a compound annual growth rate (CAGR) of 9% over six years (2017-2022). It operates as a solid and sustainable regional bank franchise, with a footprint that spans six Mid-Atlantic States, as well as DC. This should allow it to continue generating a solid increase in NII in the upcoming quarters on the decent lending scenario and rising interest rates.
Also, non-interest income saw a five-year CAGR of 4.9% (2017-2021), supported by growth in brokerage service income and trust income. Going forward, growth in trust revenues should benefit from the recapture of money market fee waivers.
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 liquidity strength also supports its impressive capital deployment activities.The company expects to buy back $600 million worth of shares quarterly.
However, with continuously rising non-interest operating expenses, M&T Bank is exposed to operational risks. Though expenses decreased in 2020, the same witnessed a CAGR of 10% over the last six years (2017-2022). In the near term, the company’s cost base is expected to remain under pressure amid higher expenses incurred on elevated professional services, and advertising and promotion costs.
Deteriorating credit quality remains a major headwind for M&T Bank. Provision for credit losses has increased significantly over the past few years and in 2022, while the company recorded a recapture of provision for credit losses in 2021. Management expects credit costs this year to be higher than the 2022 level.
Lastly, high exposure to commercial loans can be risky for the company amid a challenging economy and competitive markets.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are The Bank of New York Mellon (BK - Free Report) and State Street (STT - Free Report) .
The Zacks Consensus Estimate for BNY Mellon’s current-year earnings has moved 1.7% higher over the past 30 days. Its shares have gained 20.8% in the past six months. Currently, BK carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
State Street currently carries a Zacks Rank #2. Its earnings estimates for 2023 have been revised 2.1% upward over the past 30 days. In the past six months, STT’s shares have rallied 26.9%.
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Loan Growth Supports M&T Bank (MTB) Despite Rising Costs
M&T Bank’s (MTB - Free Report) acquisitions help it grow its balance sheet. Higher interest rates will drive net interest income (NII) in the upcoming quarters, whereas growth and trust revenues should benefit from the recapture of money market fee waivers.
However, persistently rising expenses will likely hurt the company’s bottom line. Deteriorating credit quality is another concern.
Also, analysts are less optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for MTB’s 2023 earnings has been revised marginally downward over the past 30 days.
Over the past year, shares of MTB have lost 14.3% compared with the industry’s 12.8% decline.
Image Source: Zacks Investment Research
Thus, the company currently carries a Zacks Rank #3 (Hold).
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. The acquisition increased M&T Bank’s loans by $36 billion and deposits by $53 billion.
Looking at its fundamentals, the company’s NII witnessed a compound annual growth rate (CAGR) of 9% over six years (2017-2022). It operates as a solid and sustainable regional bank franchise, with a footprint that spans six Mid-Atlantic States, as well as DC. This should allow it to continue generating a solid increase in NII in the upcoming quarters on the decent lending scenario and rising interest rates.
Also, non-interest income saw a five-year CAGR of 4.9% (2017-2021), supported by growth in brokerage service income and trust income. Going forward, growth in trust revenues should benefit from the recapture of money market fee waivers.
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 liquidity strength also supports its impressive capital deployment activities.The company expects to buy back $600 million worth of shares quarterly.
However, with continuously rising non-interest operating expenses, M&T Bank is exposed to operational risks. Though expenses decreased in 2020, the same witnessed a CAGR of 10% over the last six years (2017-2022). In the near term, the company’s cost base is expected to remain under pressure amid higher expenses incurred on elevated professional services, and advertising and promotion costs.
Deteriorating credit quality remains a major headwind for M&T Bank. Provision for credit losses has increased significantly over the past few years and in 2022, while the company recorded a recapture of provision for credit losses in 2021. Management expects credit costs this year to be higher than the 2022 level.
Lastly, high exposure to commercial loans can be risky for the company amid a challenging economy and competitive markets.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are The Bank of New York Mellon (BK - Free Report) and State Street (STT - Free Report) .
The Zacks Consensus Estimate for BNY Mellon’s current-year earnings has moved 1.7% higher over the past 30 days. Its shares have gained 20.8% in the past six months. Currently, BK carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
State Street currently carries a Zacks Rank #2. Its earnings estimates for 2023 have been revised 2.1% upward over the past 30 days. In the past six months, STT’s shares have rallied 26.9%.