M&T Bank Corporation ( MTB Quick Quote MTB - Free Report) benefits from strength in top-line growth, strategic acquisitions, and rising loan and deposit balances. However, mounting expenses are expected to continue hurting M&T Bank’s bottom-line growth.
MTB’s rising net interest income (NII) and non-interest income has been supporting its top-line growth. NII is likely to be aided by a decent lending scenario and high interest rates in the upcoming quarters. Going forward, bulk purchase of residential mortgage rights this year will support fee income partially offset by lower trust revenues due to the sale of its CIT business.
The company anticipates NII (tax equivalent basis) to rise in the range of $7-$7.2 billion in 2023. Also, management projects adjusted non-interest income to grow in the $2.25-$2.30 billion band. These are likely to drive top-line growth. Our model estimates revenues to rise 15.4% to $9.44 billion in 2023.
M&T Bank has a solid balance sheet position. Its deposit and loan balances increased in the past few years. Growth was supported by the acquisition of People’s United, which increased MTB’s loans by $36 billion and deposits by $53 billion.
It has been focused on acquiring the industry's best deposit franchise. Hence, the company is expected to continue enjoying decent balance sheet strength in the near-term. In fact, management also envisions average deposit balances to rise in the second half of 2023. Average loan and lease balances are estimated to be $133 billion this year. We predict average loans and leases, net of unearned discount, to grow 11.9% in 2023.
Given its solid balance sheet position, M&T Bank is well positioned to grow via acquisitions. One of the many acquisitions was made in April 2022, when M&T Bank bought People's United for $8.3 billion. The buyout was accretive to earnings. Further, product and balance sheet diversification, stemming from such buyouts, will likely support the company’s financials.
As of Jun 30, 2023, the company’s total debt (comprising short-term and long-term borrowings) was significantly lower than the cash and due from banks as well as interest-bearing deposits at banks. Thus, 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. Hence, its capital distributions seem sustainable and would, thus, enhance shareholders’ value.
However, M&T Bank’s escalating expenses over the years is exposed to operational risks. This uptrend is likely to continue in the near term, as management expects expenses excluding intangible amortization to rise to the higher end of $5-$5.1 billion band. Therefore, going forward, a rising cost base is likely to impede bottom-line growth. Our model suggests total non-interest expenses to rise at a compounded annual growth rate (CAGR) of 3.6% over the next three years.
Deteriorating credit quality remains a major headwind for MTB. It built substantial reserves over the past few years. Further, non-performing assets also disappointed with a five-year CAGR (ended 2022) of 20.6%. Management expects net charge-off ratio to increase and migrate toward its long-term average of 33 basis points.
M&T Bank has substantial exposure to commercial and commercial real estate loans. The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Thus, lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
Shares of this Zacks Rank #3 (Hold) companyhave lost 10.6% over the past six months compared with the
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