On Dec 22, 2015, we issued an updated research report on one of the major regional banks – M&T Bank Corporation MTB. Though the company exhibits decent fundamentals amid a competitive banking environment, several issues keep us apprehensive about the growth prospects of the company.
With continuously rising non-interest operating expenses, M&T Bank is exposed to operational risks. Expenses surged at a CAGR of 9.4% over the last 5 years (2010–2014) and the increasing trend continued in the first nine months of 2015 as well. Escalating costs limit operational efficiency and remain a hindrance for bottom-line growth.
Further, M&T Bank continues to encounter many investigations and lawsuits from investors and regulators. Though the company resolved certain litigations, many of the cases are yet to be resolved, which may result in increased litigation provisions in the near term.
Additionally, M&T Bank’s financials were negatively impacted in the past few years due to a series of new regulations, resulting in higher assessments by the FDIC and lower fee income. Going forward, we expect the company’s profitability to bear a lingering effect from stringent regulations, which are likely to lower its flexibility with respect to its business investments.
Over the past 30 days, the Zacks Consensus Estimate declined slightly to $7.58 per share and $8.58 per share for 2015 and 2016, respectively.
Nevertheless, we remain encouraged owing to M&T Bank’s several positive traits including growing net interest income, increasing deposits, solid capital position and improving asset quality. Notably, management remains confident about achieving loan growth of 4% in 2015.
Further, three years since the announcement of the deal, the company finally managed to complete the acquisition of Hudson City Bancorp in Nov 2015, which expanded the company’s retail branch network in eastern U.S.
M&T Bank currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the finance space include Franklin Financial Network, Inc. FSB, National Bank Holdings Corp. NBHC and New York Community Bancorp Inc. NYCB. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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