The $138 billion asset M&T Bank (NYSE:MTB) based in Buffalo, New York, has had a challenging year as the coronavirus pandemic has hammered several of the industries and markets it lends in. Until recently, the stock was down more than 40% since the end of 2019. However, the recent news by Pfizer that its coronavirus vaccine has been more than 90% successful in early trials sent M&T's stock soaring more than 25% on the same day. While it's a tricky investment right now, the bank may have turned the corner. Here's why.

A top-performing bank

Prior to the pandemic, M&T Bank was considered a top-performing bank stock. It regularly produced strong returns for investors and was very good at managing expenses. It also has a strong deposit franchise with more than 36% of its deposits from non-interest-bearing sources, meaning the bank doesn't have to pay out any interest on them. At the start of the year, the bank was trading at 226% of tangible book value. 

But when the coronavirus hit in March, it struck New York City and several of M&T Bank's large markets hard. It also hurt sectors where M&T had a decent amount of loan exposure. The bank currently has 4% of its total loan book in the struggling hotel sector, 5% in retail, and another 5% in office space loans, which are holding up OK right now but could have a tough path forward if the work-from-home trend and coronavirus continue long term.

And although the bank is coming off its best quarter of the year, it still built reserves in the third quarter, and it saw non-accrual loans -- those that haven't received a payment for more than 90 days -- increase from the second quarter, which is not a trend most banks are seeing right now. Meanwhile, 68% of the bank's total hotel portfolio has been deferred, while 20% of the retail portfolio has been deferred as well.

The exterior of a bank.

Image source: Getty Images.

The good news is a lot of these loans have really strong loan-to-value (LTV) ratios, which show you how much money, or equity, the borrower has currently put into the loan. The total LTV in the hotel portfolio is 53%, which essentially means that borrowers have paid 47% of the total loan volume owed and have 53% left to pay off. The LTV for hotel loans in New York City, a market that a lot of investors are worried about right now, is 43%, meaning borrowers have collectively paid off more than half the loans in New York City. With that much already invested in the properties, borrowers will be incentivized to keep making payments because of the large investment they have already made. On the retail side, the LTV situation is similar and office loans seem to be holding up as well, with only 7% of M&T's office loan portfolio currently deferred.

Things are looking up

There is certainly some risk with M&T Bank, and there could still end up being significant losses in the hotel and retail portfolios. But the strong LTVs are a good sign, and this is historically a very well-run bank. Watch news regarding a COVID-19 vaccine carefully, because the sooner one can start to be distributed, the sooner the bank's hotel and retail borrowers can start to generate more business, and hopefully return to being current on their loan payments. But if it takes too long, those borrowers could find themselves in trouble. The huge surge in M&T's stock after the Pfizer news shows how much upside this stock has if the economy can start to meaningfully recover in 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.