No More Surprises From M&T

M&T Bank (NYSE: MTB) isn't in such terrible shape after all. Two weeks ago, M&T announced that it was lowering earnings expectations for its first quarter, because of difficulties selling Alt-A mortgage loans, previously sold mortgage loans not performing as well as expected, and a couple of other smaller charges. But those problems might be in the rearview mirror now -- the shares are moving up on the actual results.

When M&T lowered expectations, it thought it would earn between $1.50 and $1.60 per share. Today, earnings came in toward the higher end of that range at $1.57 per share. Factoring in non-cash amortization and depreciation charges, earnings were $1.67 a share. No matter how you slice it, it's a decline from last year, but it's not the end of the world.

Couple the decline in earnings and net income with increases in assets and equity, and you get a decline in return on assets and return on equity -- two of the more important ratios that investors consider. In specifics, return on assets declined to 1.25% compared with last year's 1.49%, and return on equity fell to 11.38% compared with last year's 13.97%.

M&T also saw credit quality decrease slightly, as it charged off more loans than last year and saw non-performing assets increase as well. Given the news surrounding residential lending, this isn't a big surprise. Declining credit quality is never good news, but the last couple of years were historically abnormal in how low charge-offs were. It is also worth noting that M&T's credit quality overall is still very good and that the bank has reserves for 1.52% of its loans outstanding. 

While M&T is a diversified bank that has probably put a great deal of the bad news in its riskier residential lending behind it, I'm not as optimistic about all banks. Other diversified banks such as Wells Fargo (NYSE: WFC) will be fine in the long term, though it should be noted that Wells Fargo also saw its credit quality weaken. Banks with a heavy focus on alternative lending, such as Indymac Bancorp (NYSE: NDE), are likely in for a bumpier ride.

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At the time of publication, Nathan Parmelee had no financial position in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.