The meltdown in the banking sector has had some interesting consequences. Nimble banks with fairly clean balance sheets like Bank of the Ozarks (Nasdaq:OZRK) have taken advantage of FDIC assistance to significantly expand their footprint by acquiring failed banks. Once-respected giants like Wells Fargo (NYSE:WFC) and U.S. Bank (NYSE:USB) have seen investors apply major haircuts to their future earnings power, and former winners like Washington Mutual and Wachovia were basically gutted.

TUTORIAL: 20 Investments To Know

Curiously, M&T Bank (NYSE:MTB) has come through this mess relatively unscathed. While sound underwriting certainly helped limit the financial damage, a strong reputation with investors has buoyed the stock price as well. Consequently, it's one of the rare banks out there that does not look like a tremendous bargain at current prices.

A Messy Second Quarter
Due in large part to the impact of some gains on security sales and the integration of Wilmington Trust, M&T Bank reported a quarter with a lot of gains and charges that have to be backed out of the final number. At the bottom line, M&T's true earnings were not the $2.16 per share of reported earnings, but more like $1.68 per share - still good enough to beat estimates by about 10%.

The inclusion of Wilmington clearly interferes with some comparisons, but it looks like M&T had an unspectacular (but not bad) quarter. Operating revenue rose 16% sequentially, but net interest income growth was more on the order of 3%, as a lower net interest margin offset an increase in earning assets.

Loan growth is still not especially strong (2% annualized, excluding Wilmington), but commercial loan demand is picking up. Equally important, credit quality continues to improve as the company sees lower non-performing asset and non-accrual loan balances. It is also worth mentioning that operating expenses will likely be trending higher than usual for a while as management works to integrate Wilmington and bring its operations in line with the parent.

Still Some Opportunity in Its Core Markets
At times, it seems as though banks are spending a lot of time and money trying to diversify away from banking (particularly by buying or building insurance, wealth management and payment services businesses). This is especially true for banking in the Northeast. After all, local rival PNC (NYSE:PNC) recently acquired RBC's (NYSE:RY) U.S. ops in the interests of adding to its Southeast exposure.

And yet, there are still millions of consumers and businesses in the Northeast and Mid-Atlantic, and they still need and want banking services. Moreover, they seem to like the services and customer service that M&T Bank provides, as this company has never had to pay much for deposits and has been able to fund a sizable loan book with a very attractively priced funding base.

Of course, plenty of banks are still active in M&T's regions. Smaller banks like Valley National (NYSE:VLY), First Niagra (Nasdaq:FNFG), New York Community (NYSE:NYB), Signature Bank (Nasdaq:SBNY) and Hudson City (Nasdaq:HCBK) all have their own plans to recover through prudent loan growth and deposit gathering, and they cannot all win - at least not absent major blunders from huge banks like HSBC (NYSE:HBC) or Citigroup (NYSE:C).

The Bottom Line
There are very few quibbles with the quality of M&T Bank. The issue for investors is the valuation. Even in those wacky days before the housing bubble popped, M&T's ROE largely hung out in the 12-14% range. Regaining that level may be more difficult now that regulators have stripped away some of the lucrative non-interest income items, but the stock seems priced as though it will surpass those old levels.

Said differently, on a return-to-equity basis, M&T Bank looks fairly valued, if not slightly expensive. Likewise, running a screen of price-to-tangible-book shows MTB as a premium-priced alternative relative to its group. Consequently, while M&T Bank is likely to remain a very good bank, it's not so appealing as a bank stock these days. (For additional reading, also check out 4 Tips For Buying Stocks In A Recession.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!