M&T Bank's (MTB) new fee engine may have finally kicked into gear in the first quarter.
Wilmington Trust helped more than it hurt M&T's bottom line for the first time since the Buffalo bank completed its $350 million purchase of the Delaware corporate and wealth advisory powerhouse in May.
M&T's profits rose 40% from the prior quarter, to $206 million, thanks in part to sharply lower merger expenses and increased trust fees. Profits rose less than 1% from a year earlier.
The biggest drivers of M&T's profits in the first quarter were increased lending, fewer credit provisions and better mortgage production.
But Wilmington Trust, which advises wealthy people and corporations on money management, helped on both sides of M&T's income statement: Merger expenses fell 84% to $2.7 million from the prior quarter, while trust income rose nearly 3% to $117 million after being flat in the fourth quarter.
M&T had a small trust business before Wilmington Trust. Its long-term strategy is to offer Wilmington Trust's high-end wealth advisory services to customers M&T serves at 774 branches from New York to Maryland, particularly business owners nearing retirement.
However, the first-quarter results show that Wilmington Trust does more than just advise millionaires on tax matters, says Rene Jones, M&T's chief financial officer.
"This is a very, very diverse business," he said in an interview."The diversity of the business gives us time to build the wealth management practice."
Trust income improved in three key areas in the first quarter, Jones says. Retirement services picked up because of stronger stock prices, and demand rose for corporate trustee services because there were more debt offerings and securitizations. Also, its corporate default administration and restructuring business benefited from a handful of important engagements, including Eastman Kodak and MF Global.
Wall Street was disappointed when Wilmington Trust dragged down M&T's profits in the second half of 2011; higher merger expenses and soft trust revenue were to blame. Is Wilmington Trust finally on its way to being a big-time moneymaker for the company?
M&T wants steady growth from its new subsidiary, not periodic monster gains, Jones says.
"The addition of Wilmington is more about the diversification of the business, which makes us stronger," he says. "As a result you'll see that performance over long periods of time."
M&T's total noninterest income — excluding securities gains and losses, as well as a litigation settlement gain in the fourth quarter — was $388 million, up 5% from the prior quarter and 33% from a year earlier.
In other matters, M&T can do more acquisitions but does not have to, as its top focus is integrating Wilmington Trust and growing organically, Jones says.
M&T's improvement in revenue also speaks well about the state of the economy, he says. M&T posted higher net interest income, deposit services fees, mortgage banking revenue and brokerage services fees, among other things.
"It was nice across the board," Jones says. "That can't really happen unless the underlying economy is moving in the right direction."