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Analyst Blog

On Mar 11, we reiterated our Neutral recommendation on M&T Bank Corporation (MTB - Analyst Report) based on its healthy mortgage banking revenues, rising net interest income and healthy capital position. However, deteriorating credit metrics, rising expenses and unsettling macro economic issues remain the major causes of concern. M&T Bank retains a Zacks Rank #3 (Hold).

Why Neutral?

M&T Bank’s fourth quarter 2012 earnings came in at $2.23 per share, beating the Zacks Consensus Estimate by 6 cents. Total revenues came in at $1.2 billion, unchanged from the prior quarter. Moreover, revenues surpassed the Zacks Consensus Estimate of $1.1 billion. Further, M&T Bank has delivered an average earnings surprise of 6.75% last year.

Over the last 60 days, the Zacks Consensus Estimate for 2013 hiked by 1%, on the back of upward movement of a number of estimates. Further, an improving net interest income, even during the financial crisis and opportunistic acquisitions, helped the company sustain the Neutral recommendation. Further, healthy capital position and a timely exit from the TARP are the positives for the stock. Extensive capital deployment activities also continue to reinforce investors’ confidence in the stock.

However, the low interest rate environment and changing regulatory landscape are expected to be the headwinds in the future. Further, we remain concerned about the bank’s significant amount of commercial and industrial loans in areas that has experienced less economic growth. In addition, we remain wary of the continuously rising regulatory expenses, which will lead to higher cost of compliance and may temper profitability in the near-to-mid term. In addition, we believe that the company’s flexibility with respect to its investments and lending volumes would be limited in the medium term, given the stricter capital norms.

Other Stocks to Consider

Other banking stocks that are currently performing well include First Defiance Financial Corp. (FDEF - Snapshot Report), Flagstar Bancorp Inc. (FBC - Snapshot Report) and Meta Financial Group, Inc. (CASH - Snapshot Report). All these carry a Zacks Rank #1 (Strong Buy).

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