Smart CEOs distinguish between the battles that they can fight and win and those that are beyond their control. In the case of banks, that means it's futile to rail against the flat yield curve, but Foolish indeed to focus on expense control and smart lending practices. As you might expect from a company in which Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) owns shares, the management at mid-Atlantic M&T Bank (NYSE:MTB) fits into the smart category.
M&T is one of the first banks of significant size to report its fourth quarter, and while results weren't stellar, they weren't bad either. Net income rose about 7% and earnings per share climbed 10%. Return on assets and equity both climbed slightly, and the company managed mid single-digits growth in book value for the year -- no mean feat in a tough environment for bankers.
Net interest income was up 2% for the quarter, as further shrinkage in the net interest margin (roughly speaking, the spread between lending rates and borrowing rates) offset respectable growth in average loan and deposit balances. The overall cost of M&T's interest-bearing funds was up more than 70% in the quarter; that's the sort of thing that makes life difficult for lenders.
More positively, non-interest income was up 5% on higher mortgage banking and advisory revenue, and charge-offs and non-performing loans both declined. While the efficiency ratio ticked up ever so slightly from the year-ago period, I'd still say that the company is doing an excellent job of expense control.
It's certainly not a perfect world for banks. Hikes from the Federal Reserve have raised short-term borrowing costs, but longer-term rates haven't moved so much. What's more, many banks are increasingly willing to compete aggressively for new deposits -- a state of affairs that certainly isn't good news for M&T. Last and not least, bad loans are at exceptionally low levels, and it's hard to believe that they will continue to improve.
M&T isn't cheap relative to your average bank, but it is a better-than-average operator trading at a bit of a discount to historical valuations. There are plenty of interesting banks out there, though, ranging from Citigroup (NYSE:C) to Lloyds (NYSE:LYG) to Bank ofAmerica (NYSE:BAC) and TCF Financial (NYSE:TCB). M&T certainly deserves consideration, but investors should remember to look around a bit before committing to one of them.
For more Takes to take to the bank:
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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).
