M&T Bank Corp. said fourth-quarter profits soared 49 percent, as loans grew for the first time in a year, the bank set aside much less for loan losses and a wider profit margin generated more loan income.
The Buffalo-based banking company reported profits of $204 million, or $1.59 per share, up from $137 million, or $1.04 per share, a year ago.
Not counting merger-related gains and losses and accounting issues, net operating income rose 30 percent to $196 million, or $1.52 per share, from $151 million, or $1.16 per share.
Either way, that beat analysts' expectations of $1.45 per share.
For the full year, the bank earned $736 million, or $5.69 per share, up 94 percent from $380 million, or $2.89 per share, in 2009. Net operating income for the year, not counting special charges or gains, rose 66 percent to $755 million, or $5.84 per share, from $455 million, or $3.54 per share.
"M&T recorded strong fourth-quarter results, capping off a successful year," said Rene Jones, M&T's chief financial officer. He said credit costs "remained well below recent industry experience," and capital generation was "robust."
M&T and JPMorgan Chase & Co. were the first out of the gate among major banks to report earnings, so their results are being watched for clues about what others will say. Like M&T, JPMorgan said profits rose 47 percent, also because of lower credit losses.
"M&T is an impressive bank geared for superior performance over the long-term," wrote analyst Rick Weiss of Janney Montgomery Scott.
In the fourth quarter, M&T set aside $85 million for credit losses, down 41 percent from $145 million a year ago, and wrote off $77 million as uncollectible, down 43 percent from $135 million a year ago. For the full year, the bank's provision for credit losses fell 39 percent to $368 million, while loan losses fell 33 percent to $346 million.
Business loans and commercial real estate loans grew by a combined $1.2 billion from the third quarter, while average deposits rose by $1.7 billion or 4 percent.
"M&T's always had a very conservative and consistent culture, year in and year out. So it's not that surprising that we've done so well on the credit front," Jones said.
And not making those mistakes in the past "kept us clean [and] really positioned us very, very well in 2010 and for the future," he added. "The lion's share of our customers are healthy, and as they begin to invest and participate in the expanding economy, that bodes well for us, as well," he said.
During the quarter, M&T completed its purchase of the failed K Bank in Baltimore, adding to its presence in that city with another $500 million in deposits and $411 million in assets.
More significantly, it agreed to pay $351 million in stock to buy Wilmington Trust Corp., the largest bank in Delaware, instantly giving it the top market share in that state, enhancing its Mid-Atlantic presence, and adding one of nation's most respected money managers.
The deal is expected to close in the second quarter if shareholders and regulators approve, but Jones acknowledged that the bank has "a lot of work to do" on Wilmington Trust's loan problems. "We are pleased with the progress achieved to date on those transactions," he said.
M&T has $752 million in TARP funds and is gaining another $330 million from Wilmington Trust. Jones said the bank will "come up with some plan as to how we want to pay it back," but nothing has changed yet.
For the quarter, net interest income from taking deposits and making loans rose 3 percent to $580 million, driven by a wider profit margin on lending. For the year, net interest income rose 10 percent to $2.29 billion.
Total assets fell 1.3 percent to $68 billion, but deposits rose 5 percent to $49.8 billion and loans grew by $100 million to $52 billion. The loan growth was due to the $1.2 billion in commercial lending in the fourth quarter, largely in December, as borrowers rushed to close by year's end, Jones said.
"It was a little stronger than I expected," Jones said. "Would we see a billion dollars every quarter? Boy, that would be a lot. It was a little bit of an aberration. You'll see growth and continued growth, but maybe not at that same high level."
Specifically, during the quarter, business loans grew at a 19 percent annualized pace, including $258 million for auto dealer inventory loans and $344 million for other loans. Annualized means one quarter's pace multipled by four. Businesses also increased their use of credit lines.
Commercial real estate rose 12 percent annualized, and mortgages also rose 12 percent, reflecting the bank's decision to retain its new mortgage loans on its books instead of selling them. Consumer loans fell 6 percent annualized.
Average customer deposits rose 17 percent annualized, while core deposits rose 13 percent.
Loans not accruing interest fell 6.8 percent from a year ago to $1.24 billion, but that was up 13 percent from $1.1 billion at Sept. 30, because of two commercial real estate loans in Maryland and Pennsylvania: an $80 million loan to a residential builder and a $66 million credit to the owner and operator of an assisted-living facility.
Fee and other noninterest income rose 7.9 percent to $287 million, but that included net losses in investment securities and a $28 million merger-related gain from the K Bank purchase. Otherwise, fee income fell 4.7 percent to $286 million.
The 30 percent drop in mortgage income stemmed from M&T's decision to hold mortgages instead of selling them, plus $11 million in costs to buy back faulty loans that had previously been sold to investors.
Operating expenses fell 1.9 percent to $469 million, including the accounting and merger charges. Otherwise, expenses were flat at $455 million.
"While the rate of recovery is slow, the level of economic activity certainly appears to be improving," Jones said. "But we're not expecting anything dramatic. We remain cautious regarding top-line growth, so we'll continue to put the priority on operating efficiency."