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.

Check out our new investor-intelligence community, Motley Fool CAPS, to see how investors like you are rating thousands of stocks -- banking and otherwise. The service is free to use, so what are you waiting for?

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.