Legal expenses eat into M&T's 1Q profits

Litigation expenses took a bite out of first quarter earnings for M&T Bank, which otherwise saw growth in net interest income and improving credit quality.

First-quarter net income at the Buffalo, N.Y., company totaled $353 million, up 1% from the same period in 2017. Earnings per share came in at $2.23, missing the mean estimate of $2.76 according to analysts polled by FactSet Research Systems.

"M&T's results for the first quarter reflected several positive factors — a continued widening of the net interest margin, favorable credit results, and limited core expense growth,” Chief Financial Officer Darren King said in a press release. “We continued with our capital plan by repurchasing $721 million of common stock during the quarter, while maintaining our regulatory capital levels far in excess of minimum requirements. M&T is off to a good start in 2018."

M&T, with $118.6 billion of assets, increased its litigation reserve by $135 million in the first quarter for pre-existing litigation related to its Wilmington Trust unit. This was the biggest item affecting the company’s noninterest expenses, which increased to 18% year over year to $933 million.

M&T did not offer details on the litigation. In October, M&T agreed to pay $44 million to the Justice Department to settle allegations that Wilmington Trust and some executives understated past-due loans in 2009 and 2010. As a condition of the settlement, the Justice Department agreed to drop criminal charges against the bank, but a class-action securities fraud suit tied to the alleged concealing of loan troubles is still ongoing.

Net interest income increased 6% to $980 million in the first quarter, boosted by higher loan yields. The net interest margin expanded 37 basis points to 3.71%.

Loans and leases declined 1.7% to $87.7 billion. M&T said the decline was a result of acquired residential mortgage loan repayments and offset by growth in commercial real estate loans.

Total deposits declined 6% to $90.9 billion, due to declines in time and trust-related deposits.

Noninterest income increased 2.6% to $459 million, driven by higher trust income and a $23 million distribution from Bayview Lending Group, in which M&T owns a stake. That was offset by declines in mortgage banking revenues and gains on the sale of investment securities.

Net chargeoffs declined to $41 million from $43 million a year ago and represented 0.19% of total loans. The company also decreased its provision for credit losses to $43 million from $55 million in last year's first quarter.