M&T's profit falls 5.3% as bad loans double


October 12, 2007|By Bloomberg News

M&T Bank Corp., one of the first lenders to disclose that defaults were spreading beyond subprime mortgages this year, said yesterday that its third-quarter profit fell 5.3 percent as bad loans doubled and the company lost money on its investment in a Florida financial firm.

Net income declined to $199 million, or $1.83 a share, from $210 million, or $1.85 a share, in the third quarter last year, M&T said in a statement. Analysts had expected the Buffalo, N.Y., bank to earn $1.93 a share, based on the average estimate of 13 analysts surveyed by Bloomberg. M&T's Mid-Atlantic operations are based in Baltimore

Rising defaults and the declining value of mortgages have curbed profits at the largest U.S. banks, which begin reporting third-quarter results next week.

M&T said in March that higher defaults and lower-than-expected bids from mortgage investors had cut profit, one of the first indications that loans made to borrowers with good credit were souring faster than in past years. The disclosure helped slow some mortgage markets.

M&T fell 47 cents to $104.84 in New York Stock Exchange trading yesterday. The stock has declined 14 percent this year.

M&T offered Alt-A mortgages, an alternative for borrowers who fall short of standards for top-rated prime mortgages.

The bank's total non-performing loans, those no longer paying interest, rose to $371 million, more than double the $180 million at the end of last year's third quarter. The company set aside $34 million to cover bad loans, double last year's $17 million.

Mortgage banking revenue fell 14 percent to $31.6 million from a year ago. The bank's trading revenue rose 43 percent to $7.3 million. The biggest contributor to non-interest income was deposit service charges, which rose 4 percent to $104 million.

In February, M&T invested in Bayview Lending Group LLC, a closely held commercial lender in Coral Gables, Fla. The investment reduced net income by $9 million, or 9 cents per share, the company said in the statement.

"Higher credit costs, slow revenue growth and the impact of our investment in BLG hindered M&T's performance," said Chief Financial Officer Rene F. Jones in the statement.

M&T's net interest margin - the difference between what the bank pays on deposits and charges for loans - narrowed to 3.65 percent from 3.67 percent in the second quarter and 3.68 percent in the third quarter of 2006.

Net interest income, what the bank makes on lending and borrowing money, rose 2.4 percent to $473 million from $462 million.

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