M&T Bank Earnings: Deposit Costs Rise but Remain Manageable; Expense Guidance Creeps Up

Key Morningstar Metrics for M&T Bank

• Fair Value Estimate: $169.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of M&T Bank’s Earnings

M&T Bank MTB reported decent results, with earnings per share coming in at $3.98, ahead of our forecast of $3.76 and FactSet consensus of $3.88. Net interest income, or NII, is trending toward the high end of the bank’s previous guidance, fees are trending as expected, and expenses are on the high end. Overall, these are minor differences. Deposit costs came in ahead of our expectations, and higher funding costs continue to be a pattern among the regional banks this quarter.

Even so, M&T is seeing enough repricing on assets that the overall NII outlook (which is what matters) is intact. As we incorporate this quarter’s results, we anticipate some minor increases to our expense outlook, which could lead to a slight decline in our fair value estimate of $169. We still view shares as undervalued. We like the bank’s position as a conservative lender with lower duration risk than its peers. We assess the bank could easily meet the requirements from the Basel III Endgame proposal, with accumulated other comprehensive income inclusion decreasing the common equity Tier 1 ratio by only 36 basis points—still giving it a buffer above regulatory minimum levels even if regulations changed today.

Deposit balances were up 1% from the past quarter. While this quarter’s deposit costs came in higher than our expectations, we note that M&T used brokered deposits to pay down some of the higher short-term funding from Federal Home Loan Bank. Based on the deposit pricing pressure, we might not see the bank’s NII bottoming out in the fourth quarter of 2023. We hope next quarter’s update on deposit trends will give us a better read-through for 2024 NII, which we believe remains key. Our forecasts leave plenty of room for additional NII declines from current levels, as we already projected NII declines in 2024 and 2025, so we think clarity could help the bank’s valuation.