Mid-cap bank stocks occupy the sweet spot between stability and growth, offering investors a rare mix of resilience and untapped potential. These banks, known for their regional dominance, often outpace the broader market during recoveries. Companies like M&T Bank Corporation (MTB) and East West Bancorp, Inc. (EWBC) tend to exemplify this strength. Yet, the sector has recently faltered, with bank stocks dipping 15% since their November peaks.
Morgan Stanley views this downturn as a window of opportunity. Analysts are calling for several positive catalysts in the near term, including strengthened core deposit growth, easing deposit pricing, and efforts to retire high-cost funding. Promotional certificate of deposit rates have dropped by 0.65% since June, signaling relief in funding costs.
The brokerage firm forecasts surging fixed-rate loan and security values through 2025, fueled by favorable long-term rates. Slower loan growth enables cost-cutting, while a projected loan demand spike in mid-2025 could elevate net interest income - comprising 80% of mid-cap bank revenues. Enhanced M&A activity may further amplify valuations, driving growth into 2026.
To that end, dividend-paying bank stocks MTB and EWBC emerge as undervalued gems. Despite recent declines, Morgan Stanley has "Overweight" ratings on both names.
Bank Stock #1: M&T Bank
New York-based M&T Bank Corporation (MTB) is a financial titan, boasting a market capitalization of $31.8 billion and origins dating back to 1856. Incorporated as First Empire State Corporation in 1969, it adopted its current name in 1998.
From small businesses to high-net-worth clients, its tailored offerings span loans, deposits, and wealth management. Shares of the regional bank have returned 42.3% over the past 52 weeks. But the rally cooled, and shares have slipped over 15% from November’s $225.70 peak and have dropped 10.6% in the last month alone.
MTB offers a compelling blend of value and reward. Priced at 11.50 times forward earnings and 3.49 times sales, it trades below rival PNC Financial Services Group, Inc. (PNC).
On Dec. 31, 2024, M&T Bank paid a quarterly cash dividend of $1.35 per share, translating to an annualized $5.40 per share and a yield of 2.79%. With a 36.3% payout ratio, M&T Bank underscores its commitment to expansion while maintaining shareholder trust.
M&T Bank’s third-quarter results ignited a 5% surge in its shares on Oct. 17, buoyed by stronger-than-anticipated earnings. Net interest income climbed to $1.7 billion, driven by higher yields on loans and securities, offsetting a dip in average earning assets. Non-GAAP EPS edged up to $4.08, topping Wall Street's estimates, thanks to robust interest income and reduced credit costs.
Credit quality showcased resilience, with provisions for credit losses dropping to $120 million, while net charge-offs fell to 0.35% of average loans. The Common Equity Tier 1 (CET1) capital ratio reached 11.54%, marking its sixth consecutive quarter of growth.
Managing $211.8 billion in assets, M&T’s revenue streams are diverse - loans contribute 63.5%, investment securities 8%, deposits at other banks 10%, and non-interest income 18%.
M&T Bank is gearing up to release its fiscal Q4 earnings results before the market opens on Thursday, Jan. 16. Management projects Q4 taxable equivalent NII of at least $1.73 billion, propelling full-year NII to the high end of guidance. Loan growth should hit $136 billion, fueled by consumer and C&I gains, while deposits are expected to exceed $160 billion, highlighting core deposit expansion.
Non-interest income is forecast for $600 million. With expenses pegged at $1.32 billion, M&T positions itself for solid performance, balancing growth and financial discipline.
Analysts tracking the company anticipate its Q4 EPS to rise 32% year over year to $3.71. Its profit is projected to be $14.62 per share in fiscal 2024, and surge by 12.2% to $16.41 per share in fiscal 2025.
Given its achievements, Wall Street analysts are cautiously bullish on the stock's prospects. With a “Moderate Buy” rating from the 19 analysts covering the stock, nine recommend a “Strong Buy,” one suggests a “Moderate Buy,” eight analysts advise a “Hold,” and one firmly back a “Strong Sell” rating.
As of writing, the average price target of $229.87 implies upside of 20% from current price levels. Yet, the Street-high target of $269, set by Morgan Stanley's Manan Gosalia, suggests this mid-cap stock could rally as much as 40.4%.
Bank Stock #2: East West Bancorp
Founded in 1973, California-headquartered East West Bancorp, Inc. (EWBC) has become a key player in banking. Through its flagship East West Bank, it serves businesses and individuals with a diverse range of services - from personal and business loans to wealth management and foreign exchange.
The company excels in connecting U.S. and Asian markets, offering everything from commercial loans to mobile banking, cementing its role as a bridge between East and West in financial services. Its market cap currently stands at $13.2 billion.
After peaking at an all-time high of $113.95 on Nov. 25, EWBC stock has lost about 16.2% of its value. Yet, the stock returned 35.4% over the past 52 weeks.
EWBC is trading at a bargain, priced at 10.91x forward adjusted earnings, below the financials sector median.
For two decades, East West Bancorp has been a reliable dividend payer, with seven consecutive years of growth. On Nov. 15, the bank paid a quarterly dividend of $0.55 per share, equating to an annualized $2.20 per share, providing a solid 2.30% yield. With a modest payout ratio of 25.79%, the bank’s consistent performance underscores its stability and shareholder-friendly approach.
East West Bancorp's fiscal Q3 earnings results, reported on Oct. 22, sent the stock soaring 5.8% in the subsequent trading session. Revenues hit $657 million, up 3% sequentially, surpassing forecasts. Adjusted and diluted EPS rose 1.5% to $2.09, topping expectations by 2%.
Both net interest income (NII) and fee income showed significant growth. NII reached $573 million, up 4%, while the net interest margin stood at 3.24%. Fee income surged 6% to a record $81 million, with solid lending fees and deposit activity. Additionally, foreign exchange income and wealth management fees also saw upticks, driven by favorable market conditions and increased customer activity.
Moreover, as of Sept. 30, total assets were $74.5 billion, with loans at $53.3 billion and deposits at $61.7 billion. The results underscored East West's solid business model and its strong financial position.
East West Bancorp's fiscal Q4 earnings results is due on Thursday, Jan. 23. Management anticipates loans to grow between 2% and 4% year-over-year for fiscal 2024.
Analysts tracking East West Bancorp anticipate its Q4 EPS to rise 5.5% year over year to $2.13. Its profit is projected to be $8.37 per share in fiscal 2024, and surge by 3.5% to $8.66 per share in fiscal 2025.
EWBC enjoys strong support on Wall Street, rated “Strong Buy” overall. Among the 13 analysts covering the stock, nine are highly bullish with a “Strong Buy,” one advises a “Moderate Buy,” and the remaining three suggest a “Hold.”
Manan Gosalia set a target price of $127 on the regional banking stock, which suggests upside of 33%.
The average analyst price target of $116.54 indicates potential upside of 22% from the current price levels. Meanwhile, the Street-high target of $128 suggests that the stock could surge as much as 34%.
