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 (NYSE:MTB) has done very well for its shareholders by focusing on retail and commercial lending, primarily in the New York and Pennsylvania swath of the Rust Belt. Since 1980, M&T has delivered a total return to shareholders averaging more than 24% per year. The bank's market capitalization has now reached $13.6 billion.

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 (NYSE:CBH). M&T's ratio has ranged between 50% and 55% in recent years, while Commerce tops 70%.

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 (NYSE:C), a move that allowed M&T to extend its dominance of a market it knows well and to further consolidate expenses.

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 (NYSE:AIB) a large stake in M&T. The deal also expanded M&T's geographic footprint with branches in Maryland, Virginia, D.C., West Virginia, and Delaware. These new markets promise opportunities for revenue growth and expense reduction. Nevertheless, at a recent price of $122 and a P/E multiple of 17, M&T's shares seem neither cheap nor overpriced.

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 (NYSE:BRK-A) (NYSE:BRK-B).

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Fool contributor Michael Leibert welcomes your feedback. He does not own shares in any of the companies mentioned in this article.