M&T Bank

M&T Bank delivered OK results in the second quarter, with net interest income growing 2% sequentially. Shares traded up by around 1.8% in the morning following the release.

Why it matters: The bank raised 2026 loan guidance by $1 billion but kept net interest income guidance unchanged, implying net interest margin contraction in the second half of 2026, likely driven by higher deposit costs. This is consistent with our prior forecast for elevated deposit competition in the US banking industry. Management expects 2026 interest-bearing deposit beta in the low to mid 50s, indicating deposit costs could increase in the second half of 2026, given its current cumulative beta is around 56%. The bank's commercial real estate lending has turned the corner after being a headwind to balance-sheet growth over the past several quarters. Average CRE balances grew by $0.1 billion compared with the prior quarter.

The bottom line: As we incorporate the bank's latest results and updated guidance, we expect to raise our $232 fair value estimate for the narrow-moat-rated bank by around low-single digits. We assess the shares as roughly fairly valued with the contemplated update in our valuation. We expect to slightly lower our 2026 provisioning costs, given that first-half credit costs came in better than our prior expectations, along with an improvement in early credit indicators such as criticized balances in commercial and CRE lending. We also expect to increase our 2026 fee income growth to incorporate the updated guidance range of $2.8 billion-$2.85 billion (prior: $2.675 billion-$2.775 billion).

M&T Bank's flat-to-low-single-digit loan growth in much of 2024 and 2025 trailed some regional peers, but its strong commercial loan growth alongside the CRE turnaround is encouraging in the second quarter of 2026. Commercial lending grew 8% year over year, much stronger than our prior expectation of mid-single-digit growth for the full year. Management noted private credit was less aggressive in the quarter, allowing the bank to win back some market share. It is also developing new CRE loan products, which should be an additional balance-sheet growth driver.

We are increasing our fair value estimate for M&T Bank to $243 per share from $240, with $2 of the increase driven by the time value of money and $1 driven by our updated interest rate forecast. Our base case scenario now includes a 0.25% increase in the federal-funds rate in December 2026 as well as the 0.25% hike in September 2026, and we expect the Federal Reserve to start cutting short-term interest rates in the second half of 2027. More importantly, our long-term rate assumptions remain unchanged. We note the bank is not as rate sensitive as some of the smaller regional banks under our coverage. We now expect the bank to grow its net interest income at a CAGR of 2.8% from 2025-30, up by 0.1% from our previous model. Our $243 fair value estimate is equivalent to 2.1 times tangible book value at the end of the second quarter of 2026. We use a cost of equity assumption of 8.9%.

Consistent with other banks, key drivers of M&T’s valuation are growth in net interest income, crudely decomposed into net interest margin and balance sheet growth expectations, growth in fee income lines, and efficiency ratio expectations. Credit cost is also a key driver.

For M&T Bank, we project around 3.6% growth in net interest income in 2026, driven by around 3.1% growth in the balance sheet. We expect 2026's net interest margin to expand by about 1 basis point to 3.68%. Longer term, we project M&T’s net interest margin to normalize around 3.55%, which reflects our expectation of an upward-sloping yield curve and a mid-cycle Federal Funds Rate around 2.5%. For 2026, we expect 4.8% loan growth, with commercial lending being the major growth driver, and we also expect commercial real estate loan growth to turn positive after declining in double-digits from 2023 to 2025. We project loan growth of around 3.5% on average in the next decade, and deposit growth mostly in line with loan growth. Taken together, our forecasts anticipate a 2.9% growth in net interest income over the next decade for M&T. On the fee side, we forecast around 3.4% growth in 2026 after a strong performance of 13% growth in 2025. We expect a 10-year CAGR of 3.3% in fee income growth for the bank.

Turning into expenses, we forecast 2.0% growth in expenses in 2026, which is slower than the 2.5% growth in 2025 as the bank was investing in its back-office operation improvements and in its technology platform. Over the long run, we believe that M&T Bank should achieve a better operating efficiency ratio on a normalized basis, with the firm reaping the benefits of the aforementioned investments. As such, we expect the firm’s efficiency ratio to normalize at 56.5% by the end of our ten-year forecast, which is better than its historical ten-year average of 57.4%.

Finally, considering credit costs, we forecast M&T’s 2026 net charge-off ratio to clock in at 0.37%, better than the 0.40% in 2025. We expect the bank’s net charge-off ratio to normalize to 0.32% over the longer term. Overall, we expect the bank to earn an average return on tangible common equity of 16.5% over the next 10 years, much higher compared with our estimate of its 8.9% cost of equity.

We believe M&T Bank has carved out a narrow economic moat, based on durable cost advantages and switching costs that are consistent with our moat framework for banks. M&T Bank has consistently earned returns on tangible equity exceeding our estimated cost of equity of 8.9% over the past decade. We expect the bank to generate returns on tangible common equity of around 15% on a normalized basis, consistent with this view.

We believe bank moats are derived primarily from two sources: cost advantages and switching costs. We see cost advantages coming from three primary factors: a low-cost funding base, conservative underwriting culture, and excellent operating efficiency. Regulatory costs must also be considered.

Considering these in sequence, we believe that M&T Bank’s low-cost funding provides it with a major advantage compared with its peers attributable to its strong deposit franchise. The bank has a strong deposit market share in its home market, Buffalo-Cheektowaga MSA, where it maintains a deposit market share of over 60% (this market alone comprises around a quarter of the firm’s deposit base). In adjacent markets, the bank operates with a community banking approach, bolstered by its dense and efficient branch network. We estimate that M&T Bank has one of the highest weighted-deposit market share scores by MSA across our US bank coverage. While the bank’s footprint does not have the most attractive population growth potential, its disciplined focus has allowed it to capture a large share of operational deposits from its banking clients. We believe that the firm’s approach has allowed it to garner a higher mix of non-interest-bearing deposits than its peers, leading to a lower cost of deposits and lower cost of overall funding than those of its regional peers. We expect the bank to stick to its consistent strategy of deep focus within its productive footprint; thus, we are confident that the bank will maintain its funding cost advantage over peers in the future. The firm’s deep relationship with its clients also shows in customer switching costs. Reflective of this, M&T Bank has an average tenure of 17 years with its commercial clients, benefits from 61% of commercial deposits being lower-cost operational deposits, and its average retail client tenure is 16 years.

When it comes to operating costs, M&T’s historical operating efficiency has generally been in the range of mid to high 50s, within the range of narrow-moat-rated regional peers, and we expect the bank to operate in the same range going forward. We think the bank’s community banking approach and dense branch network help it control its cost base. M&T Bank’s over 900 branches are within a 300-mile radius of its Buffalo headquarters, and we see the bank sticking to its current strategy of pursuing profitable growth within its footprint. Since expenses do not scale with noninterest-bearing deposits, an efficient and dense branch network helps M&T Bank generate high profits per branch from a larger share of these deposits.

In terms of credit costs, we think that M&T Bank has demonstrated superb underwriting discipline compared with its peers. While M&T Bank has been acquisitive, we believe the bank has maintained a disciplined underwriting culture. During the global financial crisis, for example, M&T’s credit costs were much lower than its US peers, with its provisioning/net interest income ratio averaging around 17% from 2008-12, much lower than the peer average at 40%. Considering the more recent and ephemeral covid-related recession, M&T’s provisioning/NII of 9% on average from 2020 to 2021 was in line with peer averages. We think that the US banking industry’s underwriting has generally improved after the global financial crisis, and that M&T Bank’s edge in credit costs over its peers might be lower in future credit cycles. However, we still expect some edge to persist. Historically, the bank had a larger focus on commercial real estate, but it has been actively reducing this exposure since 2019, much earlier than outsize credit losses from commercial real estate hitting US banks’ profitability in 2023. M&T Bank had reduced its commercial real estate to 17% of its loan book from 39% by the end of the first quarter of 2026, from the year-end of 2019.

Lastly, regulatory costs matter both at the industry level and for M&T Bank specifically. The US banking system has improved over the last decade, with capital levels at all-time highs and stronger post-crisis regulation. Despite intense competition, the largest banks by assets have earned higher returns on equity for decades and still do. Our long-run outlook is positive given the US' stable democracy, steady GDP growth, and reserve currency status. M&T Bank is a Category IV bank and is only subject to biennial stress tests by the US Federal Reserve. It is not subject to any leverage ratio requirements and is also free from more stringent liquidity requirements. The bank must pass $250 billion in assets before triggering additional regulatory requirements. Based on our estimates, this threshold would not be reached until 2031, barring any acquisitions. We view the March 2026 Basel III endgame proposal and 2025 stress test changes as mostly positive. The key change for banks between $250 billion and $700 billion in assets is including accumulated other comprehensive incomein common equity Tier 1 capital, which M&T Bank should handle well, especially since the bank demonstrates some of the best management of securities duration across our US regional bank coverage, reducing its exposure to unrealized losses during the most recent interest rate hiking cycle. The bank already has an adjusted common equity Tier 1 ratio of 10.2% as of the second quarter of 2026, adjusted for AOCI, comfortably above its regulatory minimum of 7.2% (effective from Oct. 1, 2025).

M&T is working on driving more revenue growth from cross-selling fee income. We think the bank has deep relationships with its clients, and further success here could drive higher profitability.

Investments in the firm’s New England and Long Island markets following the People’s United acquisition could lead to faster growth than peers and higher returns from its community banking approach.

M&T Bank is a good acquirer, and with excess capital on its balance sheet, it’s feasible that the firm executes future value-additive deals.

M&T Bank’s size is much smaller than super-regional bank competitors and money center banks, which could see it struggle to keep up with technology investments as scale grows increasingly important.

M&T Bank's subsidiary, Wilmington Trust, is facing lawsuits related to Tricolor, as Wilmington Trust provided corporate trust services to Tricolor, which could result in unexpected legal provisioning expenses. Reputational damage could also lead to lower fee revenue growth.

M&T Bank has a larger exposure to commercial real estate loans than peers, and that might cause large credit costs.