M&T Bank’s third-quarter profit increased only slightly from the same period last year as a recent settlement with the government over alleged misconduct at its Wilmington Trust unit weighed on the Buffalo company's overall results.

The company said Wednesday that it earned $356 million in the quarter that ended Sept. 30, up 2% year over year, as double-digit growth in net interest income largely offset a decline in fee income.

Earnings per share increased 5% to $2.21, but still came in 19 cents below consensus estimates of analysts polled by FactSet Research Systems. The miss was likely due to the company's decision earlier this month to pay $44 million to the federal government to settle allegations that former Wilmington Trust executives hid problem loans from regulators in 2009 and 2010.

M&T acquired Wilmington Trust in 2011 for $351 million.

M&T Bank branch.

“We believe the recently announced agreement between Wilmington Trust Corporation and the U.S. Attorney’s Office for the District of Delaware is in the company’s best interest and we are pleased to have that legal proceeding behind us,” Darren J. King, M&T’s chief financial officer, said in a news release.

Though loan demand was sluggish in the quarter, M&T still reported a 12% increase in net interest income year over year, to $966 million, as higher yields on earning assets helped to boost its net interest margin by 48 basis points, to 3.53%.

Noninterest income fell 6.5% year over year as higher trust income was offset by a decline in mortgage banking revenue. Fee income in last year’s third quarter also received a boost from a $28 million gain on sales of investment securities.

This year’s results were also aided by improved credit quality. Declines in chargeoffs and nonaccruing loans allowed M&T to reduce its provision for loan losses by 36% year over year to $30 million.

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Alan Kline

Alan Kline

Alan Kline is a senior editor at American Banker overseeing its consumer finance and national/regional banking coverage. He also helps direct coverage of the annual Most Powerful Women in Banking rankings.