Morningstar | Increasing Our FVE to $166 as M&T Prioritizes Operational Excellence
M&T Bank is a midsize bank under excellent management that has consistently prioritized shareholder returns through a combination of excellent underwriting, efficient operations, and savvy acquisitions. M&T has historically been a quality company; even Warren Buffett’s Berkshire Hathaway has taken a stake in it. We expect that this bank will continue to improve its already stellar business over our explicit forecast period.Our short-term outlook is that asset sensitivity will increase returns on tangible equity. The company derives about two thirds of its income from interest income on loans. Much of the company’s loan book is composed of commercial loans, which tend to be the fastest to reprice in a rising interest-rate environment. We think that increased yields on commercial loans will drive net interest margin expansion. We expect that increased credit costs and deposit costs will partially offset the additional interest income, but this moaty bank has traditionally been able to control these costs.The remaining one third of revenue comes from nonbanking businesses like wealth management or deposit service fees, which tend to scale well and are less tethered to interest rates. We think that M&T has a comfortable barrier to entry in these operations due to its scale as well as its strong relationships with depositors and customers. The company’s mortgage banking operation, which is inherently cyclical and is facing headwinds today, should perform better as the economy strengthens and if rates stabilize or decrease. We think that the scale M&T has built for these fee businesses is attractive, and we are impressed that M&T continues to control the costs associated with them.We like M&T’s acquisition style of purchasing distressed banks at reasonable prices. M&T has done a good job of using mergers to gain access to worthwhile regions and customers and has been effective in integrating operations. Though we are not explicitly forecasting any acquisitions, we think that in the event of a bank crisis, M&T's credit advantages would probably put the company in a good position to purchase.M&T Bank is a bank holding company. Through its subsidiaries, the company provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, including loans and deposits, trust, mortgage banking, asset management, insurance and other financial services. Banking activities are primarily focused on consumers residing in New York State, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia and the District of Columbia and on small and medium-size businesses based in those areas. Certain subsidiaries also conduct activities in other areas.
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