M&T Bank Corp (MTB)

MTB is New York based holding company primarily operating though its subsidiaries in New York, Pennsylvania, Virginia, West Virginia, Maryland and Delaware.

Recent acquisition of Citibank’s 21 upstate New York branches has not only expanded the market share but also provided low cost deposits to the tune of $1 billion, which have been used to retire wholesale borrowings and marginally improve the deteriorating net interest margin. Cheap sources of funding has been difficult to come by with more than 60% of its deposits are in the Western and Central New York, where the manufacturing hub is in a state of recession and no signs of comeback

Around 35% of the total revenue is generated through fee income making it less dependent on spread income. The loan portfolio is diversified with a balanced mix of asset class and approximately 50% of its loan portfolio is in real estate. Home equity lines of credit and consumer loan categories remain slow and are vulnerable to the current yield environment.

Huge potential is seen in the branches of Mid Atlantic region where only 2% and 22% of the customer use its mortgage and merchant services compared to 10% and 37% for other region. Historically the attitude of the bank has been to shun of risky loans thereby forgoing growth for better credit standards. But of late there has been a dent in the same with non-performing loans creeping to 0.52% from 0.39%. However the metrics are satisfactory when compared to its peers and has adequate loss reserves to support it.

The management feels the year 2007 to have modest revenue growth, as signs of excess liquidity remain visible that would pressurize loan pricing. The fundamentals look good and its superior operating performance has helped it find a place even in Warrant Buffet’s Berkshire Hathaway’s portfolio. However there is a general feeling in the market that the stocks current price already reflects the future growth prospects. Unfavorable interest rate scenario with the stock trading at a premium makes the future of the bank uncertain and chances of beating the market looks dim.