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.

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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.)

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