M&T Puts Focus on Cost Control as Margins Shrink

M&T Bank Corp. here saw its earnings rise 12% to $6.73 per share in 2005, and net income rose 8% to $782 million for the year. But the company's stock price hasn't soared as of late, and that may reflect the market's skepticism about the ability of the banking industry to keep turning in stellar results. The bank said that recouping value from its mortgage servicing rights helped offset higher fixed costs in the most recent quarter.

M&T's senior vice president and chief financial officer, Rene Jones, told investors that the bank had another successful year, reflecting improved credit quality.

"Given the challenging interest rate environment and the resultant slow revenue growth that we had forecasted a year ago, it was extremely important for M&T to focus on controlling costs to maintain an acceptable spread between the growth in revenues and expenses," he said.

Merrill Lynch analyst Edward Najarian said in a report that M&T's results might highlight trends that will affect the entire regional banking universe of stocks for the fourth quarter and for 2006. "We think industrywide revenue growth could prove to be more challenging than currently anticipated," he said. Mr. Najarian believes that pressure on net interest margins is "not over" and that loan and deposit growth are slowing for the sector.

And while M&T's mortgage banking fee income held up stronger than expected during the fourth quarter, Mr. Najarian said he expects mortgage-banking fees to decline throughout the banking industry this year.

M&T said that mortgage banking contributed to a slight rise in non-interest income last year, as did higher revenues from corporate financing advisory services, gains on the sales of commercial lease equipment and other fees. Mortgage banking was particularly important to M&T's fee income in the fourth quarter of last year, when non-interest income totaled $249 million, up 5% from the corresponding quarter a year earlier.

In terms of controlling "operating" expenses, M&T said that recovery in the value of its mortgage servicing rights helped to offset higher health care and retirement costs.

The bank said that net operating income reflected a 1.60% return on average tangible assets and a 19% return on average stockholders' equity.

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