M&T Bank’s Loan Growth Came With Higher Credit Costs

M&T Bank’s third-quarter numbers show a regional lender growing its balance sheet without yet converting that growth into stronger net income. Average loans increased by $2.6 billion from the second quarter to $143.3 billion, while taxable-equivalent net interest income edged up by only $1 million to $1.805 billion.

The loan expansion was broad. Commercial real estate balances increased by $1.6 billion, consumer loans by $634 million and residential real estate loans by $367 million on an average basis. Deposits also grew to an average $166.8 billion from $163.5 billion in the previous quarter. That combination matters because loan growth is more valuable when a bank can fund it with stable customer deposits rather than costlier wholesale borrowing.

Official results show net income of $775 million, down from $818 million in the second quarter and $792 million a year earlier. Diluted earnings per common share were $5.04, compared with $5.32 in the prior quarter and $4.82 a year ago. The original report cited an adjusted result above analyst expectations, but the company’s release provides the cleaner basis for comparing periods.

Credit costs moved higher. The provision for credit losses rose to $135 million from $120 million in the second quarter and $125 million a year earlier. At the same time, annualized net charge-offs were 0.35% of average loans, below 0.42% a year ago but above 0.23% in the second quarter. Nonaccrual loans declined as a share of total loans compared with last year.

Expenses were another pressure point. Noninterest expense reached $1.393 billion, up from $1.349 billion in the second quarter, reflecting higher data-processing, software, professional-services and personnel costs. The efficiency ratio increased to 54.4% from 52.8%, meaning a larger share of revenue was consumed by operating expense.

M&T repurchased 1.3 million shares for $323 million while its estimated Common Equity Tier 1 ratio finished at 10.16%. That capital action supports per-share value, but it also makes the direction of credit losses important because capital must absorb unexpected loan deterioration.

The quarter was solid, not unqualified. Loan and deposit growth improved the franchise base, while higher provisions and costs limited earnings conversion. The next test is whether new balances lift net interest income faster than credit and technology expenses rise.