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Organic Growth Supports M&T Bank (MTB) Despite Rising Costs

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M&T Bank Corporation (MTB - Free Report) benefits from robust 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.

The company’s revenues witnessed a compound annual growth rate (CAGR) of 10.2% over the last five years (2018-2023). Also, MTB operates as a solid and sustainable regional bank franchise, with a footprint spanning six Mid-Atlantic States and Washington, D.C., which is a positive. A decent lending scenario and high interest rates will likely support net interest income growth in the upcoming quarters despite rising funding costs.

It has been focused on acquiring the industry's best deposit franchise. Deposits recorded a five-year (2018-2023) CAGR of 12.6%. The company has also recorded solid loan growth in the past few years, witnessing a five-year CAGR of 8.6% (ended 2023). Its deposits are well-diversified in terms of clients and offerings.

M&T Bank is well-positioned to grow via acquisitions. In April 2022, it bought People's United for $8.3 billion, marking one of the major acquisitions by MTB. The acquisition expanded M&T Bank’s geographical footprint, given People's United’s large network of branches. Further, product and balance-sheet diversification, stemming from such buyouts, will likely support the company’s financials.

Though expenses decreased in 2020, the same witnessed a CAGR of 10.3% over the last five years (2018-2023). The rise was mainly attributable to the acquisition of People’s United. This expense base is likely to remain elevated in the near term, as management expects expenses (including intangible amortization) of $5.25-5.3 billion for 2024. This is likely to impede bottom-line growth in the upcoming period. Our estimate for total non-interest expenses suggests seeing a three-year CAGR of 1.2% by 2026.

Deteriorating credit quality is a major headwind for M&T Bank. While the company recorded a recapture of provision for credit losses in 2021, it built substantial reserves over the past few years. We expect provision for credit losses to rise 1.1% in the current year. Further, non-performing assets also disappointed with a five-year CAGR (ended 2023) of 17.8%. Given the fears of an economic slowdown, a worsening credit quality can be concerning for the company.

MTB currently carries a Zacks Rank #3 (Hold). Shares of the company have declined 11.6% over the past year compared with the industry’s growth of 7.9%.


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Stocks to Consider

Some better-ranked bank stocks are Avidbank Holdings, Inc. (AVBH - Free Report) and Zions Bancorporation (ZION - Free Report) .

Avidbank Holdings’ 2024 earnings estimates have moved 14.2% north in the past 30 days. The company’s shares have gained 15% over the past three months. At present, AVBH sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zions’ 2024 earnings estimates have been revised 8.8% upward in the past 30 days. The stock has gained 18% over the past three months. Currently, ZION carries a Zacks Rank #2 (Buy).

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