I suppose I can understand why investors in AMD (NYSE:AMD) or Sirius (NASDAQ:SIRI) don't often cross over into the banking space. After all, there are precious few aggressive growth stories in banking, and what few there are seem to frequently be controversial (like Commerce Bancorp (NYSE:CBH)). And when some of your best options are steady performers like Buffalo's M&T Bank (NYSE:MTB), maybe the whole space just seems a bit too sleepy.
That said, investors who don't want to deal with the rock'em-sock'em world of technology might appreciate the steady performance at this Eastern bank. Net income rose another 8% this quarter, and EPS climbed 11%, while metrics like return on assets and return on equity did improve from the year-ago period. It's not a great grower, but it is a very good bank. And as soon as the Fed stops raising rates, M&T might get the helping hand it needs to start posting better net interest income growth.
Cost containment was once again one of the feature attractions. Net interest income growth was nonexistent, and while non-interest income rose 7%, a fair bit of that came from mortgage banking services -- something that may prove hard to sustain as the mortgage market slows. All that said, the efficiency ratio (a convenient measure of the aforementioned cost control) improved by nearly 200 basis points.
In contrast to Commerce Bancorp, which overlaps M&T in some markets, M&T is not growing its balance sheet all that quickly. Average loans were up just 4% this quarter, and deposits would have been down if not for growth in higher-cost time deposits (CDs). Interestingly, although the decision to reduce consumer lending (like auto lending) is affecting loan growth, it's actually improving the company's asset yield, as these were lower-yielding loans.
Not only does M&T still have the option to make the occasional purchase (including recently buying some branches from Citigroup (NYSE:C)), but it could still penetrate the reasonably attractive Mid-Atlantic market further. Even assuming that it does that, that doesn't leave a lot of headroom in the stock price. So while I can appreciate the virtues of M&T as a well-run bank and a less volatile investment option, it's not a particularly striking value today.
For more Foolishness you can take to the bank:
- Commerce Bancorp: Still Controversial
- M&T: Getting Rich the Boring Way
- Dividend Stocks Beat the Market
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
