CMA Comerica Inc

We have reiterated our Neutral recommendation on the shares of M&T Bank Corporation (MTB) on the back of a detailed analysis of its fundamentals, the completion of the of the acquisition of Wilmington Trust Corporation in May, the subsequent partial repay of the TARP dues and the current economic environment.

M&T’s first quarter operating earnings of $1.67 per share exceeded the Zacks Consensus Estimate of $1.41. Earnings significantly expanded from $1.23 earned in the prior-year quarter, aided by an increase in the net interest income on the back of net interest margin expansion coupled with substantially lower provision for credit losses.

Going forward, we believe that the strategic acquisitions should help to augment earnings. The acquisitions of Provident and Bradford in the Mid-Atlantic region have proved to be meaningful, both in terms of the customer base and profitability.

Recently, the company has also completed the acquisition of Wilmington Trust Corp. The deal added 55 branch locations, 225 ATMs and $10.7 billion in assets, and is expected to be accretive to the company’s earnings going forward.

The repayment of the bailout money, though in part, is essentially a positive step as upon full repayment, M&T can escape restrictions on both financial and executives’ pay package flexibility that it was subject to upon being a bailout receiver. The Treasury holds remaining outstanding M&T CPP preferred shares totaling $381.5 million.

However, the tepid economic recovery remains a headwind. As a result, we expect the top line of M&T to experience a somewhat limited growth in the upcoming quarters. In addition, we are also concerned about the regulatory issues. The overdraft legislation is expected to result in a decline in service charges on deposit accounts.

Additionally, though many aspects of the Dodd-Frank Act remain subject to rulemaking and will take effect over several years, we think that the provisions in the legislation, which affect deposit insurance assessments, payment of interest on demand deposits and interchange fees, could increase the costs associated with deposits as well as place limitations on certain revenues that these deposits may generate.

Hence, risk-reward seems balanced for the stock and the Neutral recommendation is retained. Additionally, shares of M&T Bank Corp. currently retain the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Currently, M&T Bank Corp.’s peers such as Comerica Inc. (CMA) and Fifth Third Bancorp (FITB) also retain the Zacks #3 Rank.

 
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