M&T Bank Corp.'s credit problems eased dramatically in the first quarter as more overdue commercial borrowers started making payments again.
For the first time in several quarters, new overdue loans were matched equally by those that were "cured," or taken off nonperforming status, according to Rene Jones, the Buffalo lender's chief financial officer.
Though declining to give specific numbers, Jones said the improvements occurred across all commercial loan categories.
"It gives you some sense that we're in a different stage of the cycle," Jones said. "You're probably seeing this in all institutions — as the economy gets better, companies that were having some difficulties, some of them are actually starting to get better."
Lower credit costs and higher net margins tied to two recent acquisitions drove M&T to its most profitable quarter in nearly two years. First-quarter profits were $151 million, up 10.3% from the fourth quarter.
The results reaffirmed M&T's status as one of the country's strongest banking companies.
M&T, which counts Warren Buffett as a shareholder, has stayed profitable through the financial crisis due to its conservative underwriting. The company, which has more than 750 branches along the east coast from New York to Virginia, began backing away early from problem loan categories like auto loans and less-than-prime mortgages.
It has experienced its fair share of pain through the downturn, booking nearly $1 billion of loan losses in the last nine quarters on credits to homebuyers and home builders.
Still, it seems to be returning to a sound financial footing ahead of most of its peers by several measures: Chargeoffs fell nearly 30% from the prior quarter, and loss provisions declined nearly 28%.
"The latest results showed a 64% drop in net new problems," said Matthew Clark, an analyst at Keefe, Bruyette & Woods Inc. There was "stabilization across the board."
M&T's net interest margin widened thanks to its purchases of Provident Bankshares Corp. in May 2009 and of the failed Bradford Bank in August 2009.
Those deals added $5.5 billion of profitable new assets to its books.
But as at most other banking companies, M&T's commercial and consumer loan books are shrinking on lackluster demand.
"No one is borrowing money," Jones said.
Acquisitions are a bank's best tool for expanding earnings right now, and Jones said M&T would be open to doing an assisted deal but only if the failed bank operated in a market where M&T already is.
In other company news, Jones said M&T will wait for a better sense of where regulatory capital guidelines are going before considering repayment of its $600 million in federal aid under the Troubled Asset Relief Program.
He also said he does not know when Allied Irish Banks PLC will move on its announced plan to sell its 22.6% stake in M&T, and he could not say whether M&T is interested in buying some or all of that stake.