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M&T Bank Stays Evenly Poised

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We have reaffirmed our Neutral recommendation on M&T Bank Corp. (MTB - Free Report) based on its fundamentals in light of the recent economic environment.

M&T Bank Corp.’s first quarter 2012 operating earnings of $1.59 per share were significantly above the Zacks Consensus Estimate of $1.47 and also surpassed the prior-quarter earnings of $1.20 per share.

Quarterly results were aided by an increase in net interest margin and lower non-interest expenses. Moreover, improved credit quality in the quarter was on the positive side, though a decrease in non-interest income acted as a headwind. Improved capital ratios also depicted a better capital position.

With a solid business model, we believe that M&T Bank Corp. is well poised for future growth. The company managed to post solid quarters even during the financial crisis. It has been increasing its net interest income for the past couple of years.

Moreover, strategic acquisitions have been part of the company’s endeavour to grow its business. The purchases of Provident and Bradford in the Mid-Atlantic region have proved to be meaningful, both in terms of customer base and profitability.

In 2011, the company also completed the acquisition of Wilmington Trust. The deal added 55 branch locations, 225 ATMs and $10.7 billion in assets to M&T.Benefits from the Wilmington Trust acquisition is further expected to augment its earnings in the years ahead.

M&T Bank Corp. also maintained its dividend through the recent crisis. The company has generated compounded annual growth in net operating earnings per share of 17% from 1983 to December 31, 2011 and achieved compounded annual growth in dividend of 16%.

Notably, earlier in the year M&T Bank Corp. announced that it was a part of the Federal Reserve Board's limited Capital Plan Review of 11 bank holding companies. The Fed allowed M&T Bank Corp. to continue paying its current common stock dividend at the annual rate of $2.80 per share, subject to its board’s approval.

This review was conducted in parallel with its Comprehensive Capital Analysis and Review of the nineteen largest bank holding companies such as Citigroup Inc. (C - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) and Wells Fargo & Co. (WFC - Free Report) .

Though there were no concerns regarding M&T Bank’s current capital position, the company would need to submit another capital plan to the Fed if it wishes to hike its common stock dividend, buy back common shares or repay its remaining $381.5 million in TARP preferred stock. This restricts any augmentation in its capital deployment measures.

Moreover, going forward we believe the sluggish economic recovery, low rate environment and consequent pressure on margin as well as regulatory issues will remain overhangs on the stock. Though lower funding costs are expected to benefit net interest margin, pressure on it is still likely to persist with new loans and securities foraying into balance sheet at lower yields than those maturing.

Therefore, the risk-reward profile seems balanced for M&T Bank Corp. and we have reaffirmed our Neutral recommendation.

Moreover, M&T Bank Corp. shares currently retain the Zacks #3 Rank, which translates into a short-term Hold rating.

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