M&T Bank Earnings: Deposit Base Intact, Dispelling Fears of Funding Armageddon

M&T Bank Stock at a Glance

• Fair Value Estimate: $163.00
• Star Rating: 4 Stars
• Uncertainty Rating: High
• Economic Moat: Narrow

M&T Bank Earnings Update

Narrow-moat-rated M&T Bank MTB gave us our second look at a regional bank this quarter. It reported decent first-quarter results that we believe support our “some stress but manageable” thesis for the banks. The bank’s full-year outlook was only modestly changed while deposit outflows roughly matched pre-March expectations.

We viewed the sector as undervalued heading into first-quarter earnings, and the two regionals that have reported so far (PNC and M&T Bank) have outperformed. While we will not know for sure how each regional is doing until it reports, we think the read-through so far has been positive relative to what stock prices implied earnings. As we incorporate slightly less drastic increases in funding costs, we expect our $163 fair value estimate to increase by a low- to mid-single-digit percentage; we view the shares as undervalued.

M&T now expects net interest income, or NII, of 20%-23% (down from 23%-26% previously), while it expects average deposit balances to be down by a low-single-digit percentage for the year (unchanged from previous guidance). The bank’s through-the-cycle deposit beta and net interest margin, or NIM, range were also unchanged from previous guidance, although management did steer expectations toward the lower end of the 3.6%-3.9% NIM range by 2024.

Given that NII and NIM guidance was down while average loans are expected to grow a bit more than previous guidance, this implies that earnings are coming under a bit more pressure than pre-March expectations. However, the bigger picture remains that despite the recent banking turmoil, the deposit base is intact and a much more severe crunch in profitability was likely already being priced into the stock.