M&T Bank Corp. said Monday that first-quarter profits rose by 36 percent, as income from lending rose, credit costs fell and noninterest income surged despite regulatory changes that dampened service fees for deposits.
The Buffalo-based bank reported profits of $206 million, or $1.59 per share, up from $151 million, or $1.15 per share, in the same period a year ago. Profits were flat from the fourth quarter, when the $67.9 billion-asset bank earned $204 million, or $1.59 per share.
Profits attributable to common shareholders rose by 39 percent, to $190 million. M&T has more than $700 million in federal government money through the Troubled Asset Relief Program, or TARP, so a portion of earnings is not available to be divided among regular investors.
Not including accounting changes and merger-related gains or costs, net operating income rose by 34.2 percent, to $216 million, or $1.67 per share, from $161 million, or $1.23 per share, in the first quarter of 2010. Profits rose by 10 percent from the fourth quarter, when the bank's net operating income was $196 million, or $1.52 per share.
Wall Street expected $1.40.
"Overall, our results for the first quarter of 2011 were consistent with the trends we've seen over the past several quarters -- that is to say, modest but steady improvement," said Executive Vice President and Chief Financial Officer Rene F. Jones.
"The trends for the quarter are generally in line with what we've seen in the last three or four quarters. We don't see anything to alter our outlook for the remainder of the year."
During the quarter, the area's No. 2 bank by market share recorded $24 million in after-tax gains from selling investment securities, particularly residential mortgage-backed securities guaranteed by Fannie Mae.
Jones said that was part of a deliberate move by M&T to "reposition" the size of its balance sheet and its capital, in response to strong loan growth in recent months and in anticipation of buying Delaware-based Wilmington Trust Corp. The bank wants to ensure that, even after the purchase closes, its capital ratios return quickly to previous levels.
This was also the second straight quarter in which the company increased its average loan balances, after four straight quarters of declines. Average loan balance rose by $830 million during the quarter, or 6 percent annualized -- one quarter's pace multiplied by four. That was led by commercial loans and resulted from a surge in activity late in the fourth quarter.
"M&T looks to have reported strong first-quarter results," analyst Joseph Fenech of Sandler O'Neill & Partners LP wrote in a research report. "The company looks to have turned the corner, given two consecutive quarters of loan growth."
M&T, which is one of the first large regional banks to report earnings, came through the financial crisis and recession virtually unscathed, in stark contrast to many of its peers. That's positioned it to continue to grow assets and earnings, including through acquisitions.
Three banks in Baltimore -- two that had failed -- were acquired by M&T, which is now in the process of buying Wilmington Trust for a discounted price of $351 million to capture the No. 1 market share in Delaware, as well as gain a prominent global money manager. Jones said the bank would be able to do other deals.
"We'll focus on Wilmington Trust. We've got to get it closed and then get it converted. That's our big task today," Jones said. "We can do it very quickly, so it doesn't take us off the table."
M&T, which will have $1.08 billion in TARP money after it buys Wilmington Trust, has not indicated a timetable for repaying the investment, but Jones indicated that the bank "would be able to address questions" about TARP "once we understand where we are with the Wilmington transaction."
"We would have hoped to have been able to talk about approval for the deal at this point, but these things are taking a little longer than expected," he said. "We would guess that we would hear something relatively soon, but we just haven't heard yet."
At M&T, net interest income from taking deposits and making loans rose by 2 percent, to $575 million, as the profit margin on lending widened from paying lower interest rates on deposits, even while average earning assets during the three-month period dropped by $900 million from the first quarter of 2010.
Credit quality continued to improve across industries, Jones said. The bank set aside $75 million for losses, down from $105 million a year ago and from $85 million in the fourth quarter, and wrote off $74 million as uncollectible, down from $95 million and $77 million, respectively.
"We are also encouraged by continuing improved credit quality, which resulted in lower credit costs in the recent quarter," Jones said. "We have seen some encouraging signs of improving economic conditions within M&T's footprint."
Fees and other noninterest income soared by 22 percent, to $314 million, including $23 million in gains from investment securities, compared with a loss of $26 million a year ago.