2024-04-15 11:56:22 ET
Summary
- M&T Bank Corporation's stock offers a 4% yield and a growing dividend, but lacks meaningful growth in the current macro environment.
- Rate cuts are expected to have a slight negative impact on net interest income, but the timeline for rate cuts has changed dramatically since last quarter.
- Loan loss provisions and asset quality remain concerns, but the bank's efficiency ratio has improved sequentially.
We continue our critical Q1 earnings coverage of regional banks today with a large regional bank in M&T Bank Corporation ( MTB ). The stock here is attractively valued but comes with a lack of meaningful growth in this macro environment. However, shareholders who are patient waiting for improving conditions for banks (i.e. more manageable rates) can enjoy a 4% yield, with a growing dividend over time, to wait. We believe that at first, rate cuts will have a slight negative impact on net interest income, though we expect the cost of funds to fall while loan yields hold up over the longer term. However, the timeline of said cuts has changed dramatically since last quarter. Now the first rate cut is in H2 2024, and this is the time period we stated over a year ago at our service is when the first cut would come. Consensus has now fallen in line with our view. However, there is a chance that if things are this strong, we might not get any cuts. As rates are cut, both sides of the margins' equation will come down, though we expect the interest on deposits longer-term to outpace the declines in yields on new loans. That said, in the current environment, margins remain under pressure....
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M&T Bank: Margins Still Under Pressure, Solid Name For Income