Northern New York and Pennsylvania are often associated with the dispiriting trends of population decline and economic stagnation. That should make the region a lousy place to locate a bank.
But M&T Bank
The secret of M&T's success is solid execution. Keeping costs low and maintaining high credit standards might not be as sexy as building branches in fast-growing states like Florida and Texas, but it has made the bank more profitable than many of its peers. Compare M&T's efficiency ratio, which measures operating expenses in relation to net interest and fee income, to that of Commerce Bancorp
Of course, Commerce incurs high expenses building slick branches and maintaining long banking hours in the markets of Philadelphia, New York, and the surrounding suburbs in its attempts to compete in the backyard of the megabanks. Yet isn't that the point? M&T recently bought 21 branches in upstate New York from the Citibank unit of Citigroup
Credit quality is the other component of M&T's strong performance. Net chargeoffs were just 0.16% of loans outstanding in the third quarter, and the bank has consistently demonstrated a commitment to prudent lending. It has a well-diversified loan portfolio, and it has forsaken certain growth opportunities, such as financing additional real estate projects in New York City, so as to manage its risk exposure more conservatively.
In 2003, M&T took over Allfirst Financial in a transaction that gave Allied Irish Banks
On the other hand, investors concerned about the risks lurking in other financial-services stocks might consider an investment in M&T stock as an investment in quality. In addition, the concentrated ownership of M&T reduces the volatility of M&T's share price: Nearly 50% of the outstanding shares are owned by the bank's executives, Allied Irish Banks, and Berkshire Hathaway
Lots of banks, including Bank of America, pay out dividends to their shareholders. If you like stocks that pay you back, try out James Early's Income Investor newsletter free for 30 days.
Fool contributor Michael Leibert welcomes your feedback. He does not own shares in any of the companies mentioned in this article.