M&T Bank, in which AIB has a 22.5 per cent interest, has announced that its profits rose by 38 per cent in the second quarter, helped by growth in lending and a drop in bad loans. Jane O'Sullivan, Markets Correspondent, reports.

The Buffalo, New York-based bank said net income rose to $184.4 million (€148.68 million) or $1.53 per share, from $134 million, or $1.10 per share, a year earlier. This was around 5 per cent ahead of market expectations of earnings of $1.45 per share.

The bank, which numbers investment guru Warren Buffett among its biggest shareholders, said loans classified as non-performing totalled $190 million, or 0.5 per cent of total loans, at the end of June compared to $319 million or 0.86 per cent of the total at the same period last year.

"The substantial decrease in non-performing loans at the recent quarter-end as compared with a year earlier was largely the result of several large commercial loans that are no longer in M&T's loan portfolio due to a combination of sales, pay-offs or charge-offs, including a net reduction of non-performing loans associated with the former Allfirst franchise," M&T said.

However, the bank said its net interest margin narrowed to 3.92 per cent in the second quarter from 4.12 per cent a year earlier. mainly due to a lower interest rate environment.

M&T said it incurred no merger-related expenses in the second quarter this year, having run-up $22 million in expenses related to the acquisition of AIB's US subsidiary Allfirst in the same quarter in 2003. It provided little detail on the integration of Allfirst, saying only that it was exceeding expectations.