M&T Bank: Strong Credit Recoveries Power A Better Q2 (Rating Upgrade)

Core Viewpoint - M&T Bank reported strong Q2 earnings, surpassing consensus estimates, and showing improvement in credit quality, which alleviates some concerns regarding reserves [2][12]. Financial Performance - In Q2, M&T Bank earned $3.79 per share, exceeding consensus by$0.28, with revenue of $2.3 billion slightly above estimates [2]. - Earnings increased by$0.70 sequentially, indicating solid financial performance [2]. - Net interest income rose by $39 million to$1.73 billion, with a net interest margin (NIM) of 3.59%, up 7 basis points sequentially [9]. Credit Quality - The company experienced meaningful improvement in credit quality, with nonaccrual loans declining by $300 million from Q1 and$400 million from the previous year [11]. - M&T took $150 million in provisions for credit loss, down from$200 million last quarter, indicating a shift away from commercial real estate (CRE) [12]. - The bank's nonaccrual loans now total 2.0 billion, reflecting effective recovery efforts [11]. Deposit Trends - M&T Bank has 163.5 billion in deposits, down $600 million from the previous quarter but up 1.7% year-over-year [9]. - Deposit costs remained flat at 2.06%, despite a decline in noninterest-bearing deposits [10]. - Consumer deposits increased, while brokered deposits decreased, indicating a favorable deposit mix [10]. Market Position and Valuation - M&T's shares are viewed as fairly valued at approximately 11x earnings power, similar to peers like Fifth Third [13]. - The bank's common equity tier 1 (CET1) capital ratio stands at 11.4%, providing a buffer against lower reserves [12]. - The outlook for the year appears credible, with expectations for a normalized NIM of around 3.54% to 3.60% by year-end [12].