How Declining Interest Rates Are Reshaping M&T Bank's Net Interest Income Trajectory

M&T Bank Corporation MTB has demonstrated impressive momentum in net interest income expansion, with a five-year compound annual growth rate of 15.4% through 2024. The first nine months of 2025 showed year-over-year growth of nearly 1%, reflecting the bank’s adaptive capacity during a shifting rate environment. As the Federal Reserve has progressed through three rate cuts in 2025 following initial easing measures in 2024, the current interest rate corridor now sits between 3.50–3.75%.

The Mechanics of Rate Cuts and NII Growth

The relationship between declining rates and net interest income operates through multiple channels. As borrowing costs decrease, MTB’s funding expenses are expected to stabilize over time, creating a supportive environment for sustained NII expansion. Lower rate regimes typically enhance borrower creditworthiness by reducing debt servicing burdens, which in turn tends to improve delinquency metrics and minimize charge-off losses.

The net interest margin (NIM)—calculated using the standard NIM formula where NIM = (Interest Income - Interest Expenses) / Average Earning Assets—reflects the spread between what a bank earns on loans and what it pays on deposits. With funding costs stabilizing, this margin compression typically eases, supporting profitability. Simultaneously, declining rates incentivize increased borrowing activity from both consumers and enterprises, expanding MTB’s loan portfolio and generating incremental interest revenue.

Management Guidance and Near-Term Outlook

For the full year 2025, M&T Bank’s management has provided guidance of $7.05–$7.15 billion in net interest income (tax-equivalent basis), a notable step-up from $6.9 billion recorded in 2024. The projected net interest margin is expected to settle in the mid-to-high 3.60% range, compared with 3.58% in the prior year. Average loan and lease balances are forecasted between $135–$137 billion in 2025, representing modest growth from $134.7 billion in 2024.

Looking toward 2026, management commentary at the Goldman Sachs 2025 U.S. Financial Services Conference suggests that balance sheet expansion through coordinated loan and deposit growth will provide additional NII support. Margins are anticipated to remain in the low 3.70% range, indicating resilience even as rate trajectories normalize.

Peer Performance: FITB and USB in Focus

Fifth Third Bancorp FITB has sustained robust NII momentum, registering a five-year CAGR of 4.2% through 2024. For the initial nine months of 2025, the bank reported tax-equivalent net interest income of $4.4 billion, representing a 6.2% year-over-year increase. Fifth Third’s net interest margin expanded to 3.10% from 2.88% year-over-year, signaling positive margin expansion dynamics. The institution has guided for adjusted NII growth of 5.5–6.5% in 2025 compared with $5.6 billion in 2024, supported by stabilizing deposit costs and disciplined loan growth.

U.S. Bancorp USB has posted consistent NII development with a five-year CAGR of 4.4% covering 2019–2024. In the first nine months of 2025, tax-equivalent net interest income reached $4.251 billion, up 2% from the comparable prior-year period. The company’s net interest margin as of September 30, 2025 stood at 2.75%, marginally improved from 2.74% a year earlier. Going forward, a combination of normalizing funding costs, steady loan growth, and strategic repositioning of the investment portfolio are anticipated to fuel NII expansion.

Market Valuation and Investment Perspective

M&T Bank’s stock price has appreciated 6.9% over the past six months, trailing the broader banking sector’s advance of 20.3%. The company maintains a Zacks Rank #3 (Hold) rating. While the bank’s relative performance has lagged the industry peer group, the structural improvements in the NII outlook and margin stabilization suggest a foundation for future shareholder returns as the rate environment continues to normalize.