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M&T Bank Stock Climbs 22.5% in 6 Months: Will the Momentum Continue?
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M&T Bank Corporation (MTB - Free Report) shares have gained 22.5% in the past six months, outperforming the industry’s growth of 6.5%. The stock has also outperformed its close peers like Bank of America Corporation (BAC - Free Report) and Comerica Incorporated (CMA - Free Report) in the same time frame.
Six-Month Price Performance
Image Source: Zacks Investment Research
After a strong rally, investors are now faced with a critical question: Is it the right time to buy MTB stock, or should they wait for a more favorable entry point? Let’s explore the options.
Factors Expected to Drive MTB Stock
Fed’s Interest Rate Cut: The Federal Reserve announced a 50-basis point cut in interest rates on Sept.18 and indicated plans for two additional cuts this year, followed by four more in 2025. This is a positive development for banks, including MTB, BAC and CMA.
M&T Bank’s net interest income (NII) witnessed a compound annual growth rate (CAGR) of 11.7% over the five years ended 2023 on the back of higher rates. Net interest margin (NIM) increased to 3.83% in 2023 from 3.39% in 2022 and 2.76% in 2021. However, NII and NIM declined in the first half of 2024 due to rising funding costs.
As the interest rates come down, the demand for loans will improve. This, in turn, will lead to a growth in NII and NIM. This is expected to result in greater profitability for MTB as it earns more interest on these loans.
Management projects NII (tax equivalent basis) between $6.85 billion and $6.90 billion for 2024 compared with $7.2 billion reported in 2023. The company expects 2024 NIM to be around mid to high 3.50% compared with 3.83% in 2023.
Strong Organic Growth: The company is committed to growing organically, with a focus on acquiring the industry's best deposit franchise. Deposits recorded a five-year (2018-2023) CAGR of 12.6%.
The company also recorded solid loan growth in the past few years, witnessing a five-year CAGR of 8.6% (ended 2023). This growth was supported by the acquisition of People’s United in 2022. The momentum continued for both metrics in the first half of 2024.
Management expects average total deposit balances for 2024 in the band of $162-$164 billion, rising from $162 billion in 2023.
The company anticipates average loan and lease balances between $134 billion and $136 billion for 2024 compared with $132.7 billion reported in 2023. This increase is likely to be driven by growth in commercial and industrial and consumer lending. However, commercial real estate and residential mortgage lending are expected to decline in 2024.
Manageable Debt Level: As of June 30, 2024, the company’s total debt of $16.08 billion was significantly lower than the cash and due from banks and interest-bearing deposits at banks of $26.57 billion.
The company’s senior debt enjoys an investment-grade rating of BBB+ from Standard & Poor’s, A from Fitch and Baa1 from Moody’s, positioning it to access the debt market at favorable rates.
Therefore, the company seems well-positioned in terms of its liquidity profile and is likely to be able to continue meeting debt obligations if the economic situation worsens.
Impressive Capital Distribution: The company rewards its shareholders handsomely. MTB hiked its dividend by 4% to $1.35 per share in May 2024. The company has increased its dividend four times in the past five years, with a five-year annualized dividend growth of 5.52%. Similarly, its close peers like BAC also hiked its dividend four times in the past five years, while CMA increased its dividend payout only twice.
Currently, MTB has a 39% dividend payout ratio, which boosts investors’ confidence and enhances shareholder value.
MTB is well-capitalized as its capital ratios remain well above the regulatory requirements. As of June 30, 2024, the Common Equity Tier 1 ratio was 11.44% and a total capital ratio was 14.87%.
Given the strong capital position, its capital distribution activities seem sustainable in the long run.
Deteriorating Credit Quality: While MTB recorded a decline in provision for credit losses in 2021, it built substantial reserves over the past few years. The metric witnessed a CAGR of 37.3% over the past five years (2018-2023). During the same period, non-performing assets (NPAs) witnessed a CAGR of 17.8%.
Similarly, net-charge offs (NCOs) have remained elevated for the past few years. Although NCOs declined in 2021 and 2022, the metric witnessed a CAGR of 27.7% over the past five years (2018-2023). While NPAs decreased in the first half of 2024, the upward trend in provisions for credit losses and NCOs persisted during the same period.
Given the concerns related to the current volatility of the market, MTB’s credit quality is likely to remain under pressure in the near term.
Lack of Loan Portfolio Diversification: M&T Bank has substantial exposure to commercial and commercial real estate (CRE) loans. As of June 30, 2024, these loans constituted 66.6% of total loans and leases, net of unearned discount.
The current rapidly changing macroeconomic backdrop is straining commercial lending. Moreover, in case of any economic downturn, the asset quality of these loan categories might deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials.
Analyst Estimates for MTB
Analysts seem to be pessimistic about the company’s growth prospects. In the past seven days, the Zacks Consensus Estimate for 2024 and 2025 earnings has moved downward.
Estimate Revision Trend
Image Source: Zacks Investment Research
Though MTB’s earnings are expected to decline 11.9% in 2024, it is expected to rebound and increase 14.7% in 2025.
Parting Thoughts on MTB
The bank’s increasing loan and deposit balances, along with the Fed’s recent rate cut, is likely to support growth in the upcoming period. However, huge commercial and CRE loan exposure and weakening asset quality are major near-term concerns that can drag the MTB stock down.
Image: Bigstock
M&T Bank Stock Climbs 22.5% in 6 Months: Will the Momentum Continue?
M&T Bank Corporation (MTB - Free Report) shares have gained 22.5% in the past six months, outperforming the industry’s growth of 6.5%. The stock has also outperformed its close peers like Bank of America Corporation (BAC - Free Report) and Comerica Incorporated (CMA - Free Report) in the same time frame.
Six-Month Price Performance
Image Source: Zacks Investment Research
After a strong rally, investors are now faced with a critical question: Is it the right time to buy MTB stock, or should they wait for a more favorable entry point? Let’s explore the options.
Factors Expected to Drive MTB Stock
Fed’s Interest Rate Cut: The Federal Reserve announced a 50-basis point cut in interest rates on Sept.18 and indicated plans for two additional cuts this year, followed by four more in 2025. This is a positive development for banks, including MTB, BAC and CMA.
M&T Bank’s net interest income (NII) witnessed a compound annual growth rate (CAGR) of 11.7% over the five years ended 2023 on the back of higher rates. Net interest margin (NIM) increased to 3.83% in 2023 from 3.39% in 2022 and 2.76% in 2021. However, NII and NIM declined in the first half of 2024 due to rising funding costs.
As the interest rates come down, the demand for loans will improve. This, in turn, will lead to a growth in NII and NIM. This is expected to result in greater profitability for MTB as it earns more interest on these loans.
Management projects NII (tax equivalent basis) between $6.85 billion and $6.90 billion for 2024 compared with $7.2 billion reported in 2023. The company expects 2024 NIM to be around mid to high 3.50% compared with 3.83% in 2023.
Strong Organic Growth: The company is committed to growing organically, with a focus on acquiring the industry's best deposit franchise. Deposits recorded a five-year (2018-2023) CAGR of 12.6%.
The company also recorded solid loan growth in the past few years, witnessing a five-year CAGR of 8.6% (ended 2023). This growth was supported by the acquisition of People’s United in 2022. The momentum continued for both metrics in the first half of 2024.
Management expects average total deposit balances for 2024 in the band of $162-$164 billion, rising from $162 billion in 2023.
The company anticipates average loan and lease balances between $134 billion and $136 billion for 2024 compared with $132.7 billion reported in 2023. This increase is likely to be driven by growth in commercial and industrial and consumer lending. However, commercial real estate and residential mortgage lending are expected to decline in 2024.
Manageable Debt Level: As of June 30, 2024, the company’s total debt of $16.08 billion was significantly lower than the cash and due from banks and interest-bearing deposits at banks of $26.57 billion.
The company’s senior debt enjoys an investment-grade rating of BBB+ from Standard & Poor’s, A from Fitch and Baa1 from Moody’s, positioning it to access the debt market at favorable rates.
Therefore, the company seems well-positioned in terms of its liquidity profile and is likely to be able to continue meeting debt obligations if the economic situation worsens.
Impressive Capital Distribution: The company rewards its shareholders handsomely. MTB hiked its dividend by 4% to $1.35 per share in May 2024. The company has increased its dividend four times in the past five years, with a five-year annualized dividend growth of 5.52%. Similarly, its close peers like BAC also hiked its dividend four times in the past five years, while CMA increased its dividend payout only twice.
Currently, MTB has a 39% dividend payout ratio, which boosts investors’ confidence and enhances shareholder value.
MTB is well-capitalized as its capital ratios remain well above the regulatory requirements. As of June 30, 2024, the Common Equity Tier 1 ratio was 11.44% and a total capital ratio was 14.87%.
Given the strong capital position, its capital distribution activities seem sustainable in the long run.
M&T Bank Corporation Dividend Yield (TTM)
M&T Bank Corporation dividend-yield-ttm | M&T Bank Corporation Quote
Key Challenges Faced by MTB
Deteriorating Credit Quality: While MTB recorded a decline in provision for credit losses in 2021, it built substantial reserves over the past few years. The metric witnessed a CAGR of 37.3% over the past five years (2018-2023). During the same period, non-performing assets (NPAs) witnessed a CAGR of 17.8%.
Similarly, net-charge offs (NCOs) have remained elevated for the past few years. Although NCOs declined in 2021 and 2022, the metric witnessed a CAGR of 27.7% over the past five years (2018-2023). While NPAs decreased in the first half of 2024, the upward trend in provisions for credit losses and NCOs persisted during the same period.
Given the concerns related to the current volatility of the market, MTB’s credit quality is likely to remain under pressure in the near term.
Lack of Loan Portfolio Diversification: M&T Bank has substantial exposure to commercial and commercial real estate (CRE) loans. As of June 30, 2024, these loans constituted 66.6% of total loans and leases, net of unearned discount.
The current rapidly changing macroeconomic backdrop is straining commercial lending. Moreover, in case of any economic downturn, the asset quality of these loan categories might deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials.
Analyst Estimates for MTB
Analysts seem to be pessimistic about the company’s growth prospects. In the past seven days, the Zacks Consensus Estimate for 2024 and 2025 earnings has moved downward.
Estimate Revision Trend
Image Source: Zacks Investment Research
Though MTB’s earnings are expected to decline 11.9% in 2024, it is expected to rebound and increase 14.7% in 2025.
Parting Thoughts on MTB
The bank’s increasing loan and deposit balances, along with the Fed’s recent rate cut, is likely to support growth in the upcoming period. However, huge commercial and CRE loan exposure and weakening asset quality are major near-term concerns that can drag the MTB stock down.
Thus, investors should not rush to buy M&T Bank stock at the current level. Rather, they should wait for a better entry point. The stock’s Zacks Rank #3 (Hold) supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.