By Staff Reporter
BUFFALO — M&T Bank’s profit dipped in the third quarter as the cost of holding deposits climbed, and the Buffalo-based bank’s finance chief told analysts that the higher interest rates now working through the economy will slow home lending and could put new strain on commercial real estate borrowers next year.
M&T reported net income of $775 million, or $5.04 a diluted share, for the quarter ended Sept. 30, down from $818 million, or $5.32, in the second quarter and $792 million a year earlier, according to the company’s Oct. 16 earnings release. Earnings per share were still up from $4.82 a year ago, helped by share buybacks: the bank repurchased 1.3 million shares for $323 million during the quarter.
Loans up, margins thinner
Average loans grew $2.6 billion to $143.3 billion, driven by commercial real estate, which rose $1.6 billion, or 7 percent, to $24.9 billion, and consumer lending. Deposits rose $3.3 billion to $166.8 billion, which let the bank cut its short-term borrowing.
But the price of those deposits went up. Interest-bearing deposit costs rose 10 basis points to 2.05 percent, partly because of a certificate of deposit promotion and partly because of the Federal Reserve’s September rate increase, Chief Financial Officer Daryl Bible said on the bank’s earnings call, according to a transcript published by Benzinga. Net interest margin fell 5 basis points to 3.65 percent.
Expenses rose $44 million to $1.39 billion, driven by data processing, software and professional services, and the bank’s efficiency ratio worsened to 54.4 percent from 52.8 percent.
What higher rates mean
Mr. Bible was direct about the effect of rising rates on borrowers.
“Higher interest rates on the yield curve are definitely going to slow down our residential mortgage business. And you’re seeing that now, obviously, with new home rates above seven and a half to eight, in that range, bouncing along,” he said.
On commercial real estate, where M&T’s portfolio has now grown for two straight quarters, he said higher rates “are going to make it more challenging for projects” to pencil out, though the bank still expects growth “maybe mid-single-digit, plus or minus.”
He also flagged credit risk. Nonaccrual loans rose $90 million to $1.3 billion, driven by office and assisted living loans, and criticized loans rose $245 million to $6.1 billion. Net charge-offs were $127 million, with five credits accounting for about $40 million.
“As you go out into next year, you know, and if rates stay higher, that could put pressure on debt service coverage ratios and that could have some creep maybe starting back into the portfolio there,” Mr. Bible said of commercial real estate. He added that because the bank stress tests borrowers at much higher rates, “we aren’t concerned about losses coming in with this higher interest rates, but you might see a little creep in the criticized side.”
A hometown bank’s view of the economy
M&T is headquartered in Buffalo and is one of the region’s largest employers, so its read on the economy carries weight here. Mr. Bible described a labor market in a “low-hire, low-fire environment, with slow job growth and low unemployment rate, with very little wage pressure,” and said high gasoline prices had forced households to cut spending elsewhere.
That squares with the state Labor Department’s September figures for Buffalo Niagara, which showed modest job gains.
The bank also told analysts it is leaning on artificial intelligence to “automate, augment, and reinvent work across the bank,” with “hundreds of tracked use cases.” It did not say how that might affect staffing, a question that matters in the bank’s home city.
Asked about acquisitions, Mr. Bible said the bank is “still actively talking to a lot of people in our footprint, and something may happen at some point down the road,” but that “there’s nothing imminent.”
The outlook
For the fourth quarter, M&T expects taxable-equivalent net interest income of $1.83 billion to $1.85 billion, average loans of $145 billion to $146 billion, and net charge-offs of 35 to 40 basis points. Its forecast assumes one more Federal Reserve rate increase in December.
The bank said its common equity Tier 1 capital ratio was an estimated 10.16 percent and that it plans to stay between 10 and 10.25 percent through year’s end. It also moved $8.3 billion of mortgage-backed securities from available-for-sale to held-to-maturity, a step Mr. Bible said protects tangible capital if regulators begin counting unrealized securities losses against capital.
The Buffalo Chronicle has asked M&T how many people it employs in Western New York and whether its AI initiatives are expected to change local staffing. This story will be updated with any response.
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