Slow loan growth and lower-than-expected fee income weigh on M&T

M&T Bancorp's weaker-than-expected third-quarter results drove the regional bank's stock to its lowest level in three months.

The Buffalo, New York, company reported earnings per share of $3.53, well below estimates of $4.01. Revenue of $2.24 billion fell short of estimates of $2.29 billion. M&T's stock price fell more than 14% to $162.36 on Wednesday afternoon, its lowest price since July.

Average loans and leases totaled $127.5 billion between July and September, roughly flat from the previous quarter. M&T said it expects loans to stay near this average during the fourth quarter.

Higher interest rates helped boost M&T's net interest margin 3.68%, up from 3.01% in the second quarter. Net interest income increased to $1.69 billion from a year earlier but still missed expectations by close to $40 million. 

The company stashed away about $50 million of additional reserves, pointing to growth in its consumer portfolio and worsening forecasts for the global economy, specifically "indicators that our reserve methodology is most sensitive to, including the unemployment rate, GDP growth and residential and commercial real estate values," Chief Financial Officer Darren King said on a call with analysts.

Meanwhile, noninterest income fell about 1% to $563 million from the third quarter of 2021, driven largely by a decline in revenue from the company's mortgage business. Fee income is unlikely to increase in the fourth quarter, the company said. 

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M&T said it spent $53 million on merger-related expenses in the third quarter, up from $9 million in the same quarter last year. Merger expenses typically include fees associated with conversions and those paid for ending current bank contracts. The company completed its systems conversion last month, adding close to 1 million customers from its acquisition of People's United Bank. 

Even excluding merger costs, the company's EPS was $3.75, still well shy of estimates.

M&T agreed to buy People's United for $7.6 billion in February 2021. After a notable delay during which regulators took an extra-close look at proposed deals, the Federal Reserve gave the banks the green light in March.

The acquisition helped boost total assets about 30% from a year earlier. Total assets stood at almost $198 billion at the end of the third quarter.

Deposits fell $7.4 billion in the third quarter, down about 4% from the second quarter. That resulted from the purchase of investment securities, a decrease in deposits related to mortgage warehousing and reduced trust deposits. King said M&T has yet to see "huge pressure" on consumer deposit accounts.

M&T restarted share buybacks in the second quarter and has now bought back about $1.2 billion in common stock this year.