M&T Bank Rises On Organic Growth; High Expenses A Worry?

On Dec 8, 2014, we issued an updated research report on M&T Bank Corporation MTB. Shares of this major regional bank have recorded a year-to-date return of 8.4%.

We believe this growth story has been aided by the company's continued focus on organic growth among several other positives including a strong capital position, steady capital deployment activities and an improving credit quality.

M&T Bank is focused on acquiring the industry's best deposit franchise. As of Sep 30, 2014, deposits rose 10.7%. Moreover, loan balances increased around 2.4% primarily driven by increased lending activity in its real estate commercial portfolio. Therefore, both loan and deposit balances are poised to grow in an improving economy.

Given its robust liquidity position, M&T Bank is well positioned to grow via acquisitions. The growth has been reflected in the company's accomplishment of several major acquisitions in and out of the U.S in the last several years.

The Hudson City Bancorp, Inc. HCBK deal, though delayed, is expected to open up significant opportunities for M&T to augment its top line by leveraging on Hudson City's retail network as well as product and balance sheet diversification and expanding its franchise in eastern U.S.

The company has been experiencing decent improvement in its credit quality over the last few years with a decline in provision for credit losses and net charge-offs. Notably, over the last few years, these metrics have declined significantly. Moreover, with the gradual recovery of the overall economy, we expect the company to be able to deal with challenges related to credit issues.

However, impacted by higher expenses, M&T Bank's third-quarter 2014 net operating earnings of $1.94 per share lagged the Zacks Consensus Estimate of $1.98. Moreover, this compared unfavorably with $2.16 per share reported in the prior-year quarter. Notably, expenses increased 9% year over year in the first nine months of 2014. With continuously rising non-interest operating expenses, the company is exposed to operational risks.

Despite strong fundamentals, we believe there are certain issues that may create pressure on the company's financials in the near term. These include top-line pressure due to the low interest rate environment, expanding cost base and the prevailing stringent regulatory landscape.

The Zacks Consensus Estimate over the past 30 days decreased by a penny to $7.45 for 2014, while it increased slightly to $8.65 for 2015. Hence, M&T Bank currently carries a Zacks Rank #3 (Hold).

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Some better-ranked finance stocks worth considering include Enterprise Financial Services Corp. EFSC and Baylake Corp. (BYLK), both with a Zacks Rank #1 (Strong Buy).