Bank on M&T

M&T Bank (NYSE: MTB) turned in disappointing second-quarter results in July. Its struggles have recently depressed the stock, meaning this could be a good time for interested investors to buy.

Consumer lending is seeing more momentum these days than commercial lending, and M&T is mainly a commercial lender. Its credit quality has deteriorated lately, too — its nonaccrual loans, those that have gone 90 days without receiving a payment, climbed 15% year over year in the second quarter.

But M&T Bank is growing noninterest-bearing deposits nicely, so it’s currently paying no interest on roughly 43% of total deposits. Also promising is M&T’s upcoming acquisition of Connecticut-based bank People’s United. Its addition will significantly enlarge M&T and its tangible book value (TBV). Banks trade based on TBV, so a growing TBV typically helps the stock. The deal is also expected to boost M&T’s earnings per share by 10% to 12% in 2023. It should open up new revenue opportunities as well; People’s United has many small business commercial customers to whom M&T can cross-sell products and services. Meanwhile, People’s United brings a solid equipment financing business that it can expand to M&T customers.

While M&T Bank may face some short-term pain, this is an opportunity to buy a long-standing, strong-performing bank stock at a historically low price-to-tangiblebook-value ratio — with a dividend recently yielding around 3.2%.