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M&T Bank Posts Higher Profit

Earnings from lending are relatively flat.

M&T Bank

(MTB) - Get M&T Bank Corporation Report

, one of the first major banks to report fourth-quarter earnings, said Wednesday that its profits rose 7% in the period due to a combination of cost-controls and reduced loan losses.

The Buffalo, N.Y.-based regional lender earned $205 million, or $1.78 a share, up from $192 million, or $1.66 a share. Earnings came in 3 cents ahead of the Thomson First Call consensus estimate.

In the quarter, net interest income rose a scant 2% to $450 million. Non-interest income rose 5% to $249 million, with most of the gains coming from a catch-all line item called "other revenues from operations."

Net interest income is the difference between what a bank makes on its investments and loans and the money it pays out to depositors. That's how most regional and small banks make money.

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M&T's net interest margin, a measure of the profitability of a bank's deposit and investment operation, declined substantially in the quarter, to 3.77% from 3.88% in the prior year.

The narrowing spread between short- and long-term interest rates has squeezed profit margins at many banks that depend heavily on net interest income to drive earnings. The so-called flattening of the yield curve has limited the ability of banks to borrow money on the cheap and reinvest it into long-term, higher-yielding securities.

One thing that helped M&T in the quarter was its ability to control expenses. Non-interest expense, which includes salaries, rose a mere 2% in the quarter to $369 million.

The bank also set aside less money in the quarter to cover the cost of loans in its portfolio going sour. The bank's provision for credit losses declined 18% to $23 million in the period.

"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,'' M&T CFO Rene Jones said in a press release.

M&T Bank, which has 662 branches in New York, Pennsylvania, Maryland and Delaware, has seen its shares rise nearly 5% this year. The bank's biggest shareholder is Allied Irish Bank, which owns 23% of the company's shares.