The Buffalo, New York-based regional bank outperformed the S&P 500, which was down 5.3% in January. It also had a higher gain that the average banking industry stock, which returned about 3% in January.
There weren't many stocks that were in positive territory in January given the market volatility that occurred. It was the worst January since 2009.
And there were few stocks that actually had double-digit returns in the month, but count M&T Bank as one of them. The momentum has continued into February as the stock price is up 15% as of Feb. 4.
M&T Bankʻs stock bounced around for the first few weeks of the month but then started moving up after the company posted solid fourth-quarter and year-end earnings on Jan. 20. Earnings per share were down 4%, and net income fell 3% year over year, but that was mainly due to higher expenses related to M&Tʻs acquisition of Peopleʻs United Financial.
Revenue was up 5% year over year to $597 million, and credit quality improved with net charge-offs dropping to .13% from .31% a year ago. Overall, M&T beat analystsʻ estimates.
The stock price also jumped following the Federal Reserve Board meeting on Jan. 26 when the Board said it expects to raise interest rates soon. Most economists speculate that the hike will come at their next meeting in March, and there will be multiple hikes this year given the high rate of inflation.
Higher interest rates are typically good for banks as they generate most of their income from interest income. So, this likely drove up M&Tʻs stock price further.
Also, M&T Bankʻs deal to buy Peopleʻs United Financial is expected to close in the first quarter, which should give the stock price another boost. Peopleʻs United, based in Bridgeport, Connecticut, is a well-run bank thatʻs a Dividend Aristocrat, having increased its annual dividend for 27 straight years.
The purchase will expand M&Tʻs footprint from Maine to Virginia, with more than 1,000 branches in 12 states, and is expected to be 10% to 12% accretive to earnings per share in 2023.
The efficiency ratio bumped up a little to 59.7%, up from 54.6% a year ago, but that accounts for higher expenses due to the merger and lower interest income. Those numbers should improve heading into a rising rate environment.