M&T Stung by Overhead, Compliance Costs

M&T Bank (MTB) reported fourth-quarter earnings well short of analysts' estimates, capping a challenging year in which regulatory troubles led to spiraling costs.

The $85.1 billion-asset company said Friday that it earned $254.7 million in the fourth quarter, down 17% from the same period in 2012. Per-share earnings of $1.74 were 17 cents below the estimates of analysts polled by Bloomberg.

Growing overhead costs held M&T back. Its noninterest expense rose by 12%, to $703.1 million, as compensation and real-estate-occupancy costs rose.

Reforms to M&T's anti-money-laundering and other Bank Secrecy Act controls also took a substantial toll. In June the Federal Reserve ordered M&T to implement a long list of fixes to its internal compliance and anti-laundering controls; these reforms added about $50 million to the company's operating costs in the fourth quarter compared with the year-prior period, leading to a 36% jump in "other" costs of operation, to $261.4 million.

These internal control problems have left M&T's planned purchase of Hudson City Bancorp, which it agreed to in August 2012, in limbo. The two companies recently extended the deadline to close the deal until Dec. 31.

M&T's fourth-quarter net interest income held steady at $666.5 million, less than 1% shy of its year-prior figure, as loan growth made up for a tighter margin. The company's total earning assets grew by 5%, to $75 billion, offsetting an 18 basis-point decline in net interest margin, to 3.56%.

M&T's noninterest income dipped by 2%, to $446.2 million, as its home-loan revenue cratered. Mortgage banking income dropped by 29%, to $82.2 million, while revenue from deposit service charges slipped by 2%. However, trading income grew by 32%, to $13.7 million, and trust income increased by 8%, to $125.9.

Better credit quality helped reduce the sting of M&T's higher costs. Its provision for loan losses dropped 14%, to $42 million, and nonaccrual loans dropped 14%, to $871.3 million.

Earlier this month, M&T announced a reshuffling of a handful of top executives, expanding the roles of Chief Financial Officer Rene Jones and Executive Vice President Kevin Pearson.