Thursday, March 28, 2013

Top picks 2013: M&T Bank


Our top pick for more conservative investors is a stock everyone can feel safe about owing, without sacrificing above-market returns and a steady, substantial dividend.

M&T Bank Corp. (MTB) is a financial holding company headquartered in Buffalo, New York. M&T has been profitable in each and every quarter for the last 37 years.

It is the only major American bank that didn�t cut its dividend in 2008 - 2009.� Dividend growth has been nil since 2007 while it integrated acquisitions of banks it bought at fire sale prices during the banking crisis, but for the prior 5 years, dividend growth was a spectacular 22.9% per annum, compounded.
Third quarter earnings clearly showed the benefits of the acquisitions, so I don't mind the temporary stall in dividend growth. The current yield on the shares is 2.8%, but there's a chance it will break the 3% barrier on a pullback, if the market continues to struggle.

Here's a partial list of M&T's great Q3 results:
  • Average core deposits were up 13% compared to last year's third quarter.
  • Fully diluted EPS were $2.17 up 64% from 2011.
  • Earnings rose 27% just from Q2 to Q3 2012.
  • Average return on equity was 21.5%. Warren Buffett likes stocks with an ROE above 15%. This is comfortably above that mark, which is probably why Buffett owns so much M&T stock.
  • Net interest margin expanded during the third quarter, increasing to 3.77% from 3.74% in Q2. These are both excellent numbers, particularly in the current low interest rate environment.
As for the balance sheet, loans grew at an annualized 10% rate. This runs circles around the other big banks. M&T's write-offs and non-performing loans, which were already among the lowest in the industry, continued to improve.

All this is what happens when good old-fashioned, smart, responsible bankers run a company for the benefit of its shareholders. Goldman Sachs, Morgan Stanley and JP Morgan should take a lesson from this.

Super bank analyst Meredith Whitney and Bloomberg economist Tom Keene both say that M&T is the best run large American bank. I agree. M&T Bank Corp. is a buy up to $104.



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