BUFFALO, N.Y. — All the warning signs are there: falling earnings, rising regulatory costs and a big merger deal that will be more than two years old before it gets done — if it gets done.

But M&T Bank (MTB) Chief Executive Robert Wilmers stuck by his long pending acquisition of Hudson City Bancorp (HCBK) at M&T's annual meeting Tuesday.

The deal remains sound although expenses have skyrocketed because of it, he told investors and others packed into a 10th-floor room at M&T's headquarters in downtown Buffalo. Higher costs, plus weakness in its mortgage business, caused M&T to report disappointing first-quarter results this week.

"No one … would call these the best of times for the banking industry," Wilmers said.

The $89 billion-asset M&T has twice delayed the closing of its deal for Hudson City because of issues related to Bank Secrecy Act compliance. The deal for Hudson City, in Paramus, N.J., was first announced in September 2012, and it's now expected to close by yearend.

"Regulators said they were not going to approve our merger [with Hudson City] until we had a [Bank Secrecy Act/anti-money laundering] system that they felt comfortable with," Wilmers said.

"Although to my knowledge we have not done anything wrong, the [regulators] feel our system needed upgrading," Wilmers said.

The upgrade was a major factor in the 10% rise of noninterest expenses, to $702 million, last quarter compared with a year earlier. Most of the costs were tied to services related to capital planning and stress testing, risk management and regulatory compliance.

"All these and many other new rules, regulations and requirements have caused us to multiply our spending on regulatory, compliance and risk-related infrastructure," Wilmers said.

M&T spent about $265 million in that category last year, amounting to about 10% of its total operating expense, Wilmers said.

The deal has taken longer to close than Wilmers would have expected, he said. But when asked if he'd do things differently, Wilmers declined to take the chance to express second thoughts.

"Would I have thought that when we were told we had to do this it would take two years? No. It's more complicated than I would have thought," Wilmers said.

"There are a lot of good reasons why, even in the face of challenges and disappointments, we have decided to stick with it," he said.

Wilmers used his annual letter to shareholders, released last month, to defend how much money M&T has spent to upgrade its compliance technology, as a result of Hudson City. He reiterated that theme at the annual meeting.

"We're always working on improvements across the bank, and we were working on improvements [in BSA and anti-money laundering compliance] and we realized we had to make improvements of those dimensions," he said Tuesday.

The level of weakness in M&T's core banking business, reported during first-quarter earnings results Monday, was surprising, Wilmers said Tuesday. Noninterest income fell 3% from a year ago, to $420 million, primarily because of declines in mortgage revenue and in service charges on deposit accounts. Net interest income was little changed at $656.4 million.

"I'm hopeful there will be more progress, but these are difficult economic times," he said. "Would I have expected it to be that slow in January and February? No."

Still, shareholders seem pleased with Wilmers' job performance. After all, as Wilmers noted during Tuesday's meeting, M&T has posted an annualized total shareholder return of 10.1% since Dec. 31, 2007.

In what was perhaps a sign of support for Wilmers, only one shareholder asked a question. And it was far from a tough line of questioning.

Paul Durnan, of Burlington, Ontario, Canada, asked Wilmers if he planned to "gobble up" smaller New Jersey banks after the Hudson City deal finally closes.

"I think it would be audacious of us to think about doing anything more," Wilmers responded.

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