Updated from 12:33 p.m. EDT
seemed to sail above first-quarter financial turmoil on Tuesday, as it posted a 15% jump in profit.
Those gains were provided by a boost from
and a push toward commercial loans and away from the tanking housing market. But the Buffalo, N.Y.-based bank isn't out of the woods yet.
M&T earned $202.2 million, or $1.82 per share, last quarter, up from $176 million, or $1.57 per share, a year ago. Its operating earnings also rose 15% to $215.6 million from $187.2 million.
M&T took in $29 million, or 26 cents per share, related to Visa's IPO last month and a reserve for pending litigation Visa set up for member banks.
Excluding those gains, M&T's profit would have fallen slightly to $173.2 million, or $1.56 per share, in line with Street expectations. Analysts were predicting $1.56 per share, on average, according to Thomson Financial. Those estimates usually exclude special items.
CFO Rene Jones also cited a "certain resilience to the ongoing disarray in the financial markets." M&T has made a point to tell investors that it's focused on commercial real estate loans and has gotten rid of most assets related to the troubled housing market.
Jones said that core deposit balances rose at a "healthy rate" and fee income increased as well.
M&T shares closed up $5.11, or 6.3%, to $85.86 in recent trading.
But there are clear signs that housing turmoil and debt-laden consumers are placing unwanted strains on M&T. Without the Visa gains, the company's profit would have dropped slightly.
M&T's nonperforming loans made up 1% of total loans last quarter, compared with 0.63% a year ago and 0.93% at the end of last year. That's because M&T has more nonperforming residential loans to owners, builders and developers than it did before. The hike was also due to a change in classification of "nonaccrual" loans that cut the timeframe to 90 days past due from 180.
The company more than doubled its provision for shaky assets in the housing market and bad consumer debt. It also increased its allowance for credit losses due to decreased home values and more borrower delinquencies.
Jones sounded a cautious tone in an afternoon conference call, saying that the turbulent market "makes forecasting essentially a fool's game" and that the company will suspend buybacks until its capital ratio is back in a range of 5.2% to 5.6% of tangible assets. It was at 4.94% at the end of last quarter.
Loan growth will be "tempered somewhat" in the second quarter, Jones said, with gains in the mid-to-upper single digits. The CFO expects little to no growth in consumer loans and residential mortgages, with stronger gains in commercial loans. He also said margins will "remain under modest pressure" in the near term.
Nonetheless, M&T's exposure to the credit and housing risks was better than some analysts had been predicting and better than some of its mid-cap peers.
M&T's credit quality "is not expected to deteriorate like others in the industry," Fox-Pitt analyst Albert Savastano said in a note Tuesday morning. Its focus on commercial loans provided a "bright spot," as did improved fee income and loan growth, he wrote.
"I think it was a good quarter, all things considered," Sandler O'Neill analyst Joseph Fenech said in an interview. He added that "investors this quarter are paying attention to two things -- credit and capital -- and the company seems to be fine on both counts."
Fenech also noted M&T's lower margins due to higher wholesale borrowings, acquisition expenses and offerings of debt and preferred stock. While some of those costs won't be present next quarter, the margins are something investors will keep an eye on, Fenech said.
Several analysts on the call asked about the future of Bayview Lending, the struggling commercial-mortgage outlet that M&T acquired a $300 million stake in last year. The Florida-based company has reportedly cut hundreds of jobs as its business took a turn for the worse. M&T lost $1.3 million from its Bayview equity investment last quarter.
When asked whether M&T will have to write down its Bayview investment if the markets do not improve within a year, Jones said the company will have to develop "an alternative business plan."