It’s a good time for banks to make mortgages and seek customers in upstate New York.
It turns out the low interest era can be very good for some big banks, which are reporting strong profits from making and then selling mortgages and other loans.
And in Buffalo, it has been a bountiful time for banks to gain market share, as the disruption caused by the sale of the HSBC branch network has sent depositors and customers looking elsewhere.
M&T Bank Corp. has benefited from both circumstances. Wednesday, it reported third-quarter profits shot up 60 percent from a year ago, joining big banks like Wells Fargo & Co. and J.P. Morgan Chase & Co. with higher mortgage revenues, plus higher income from lending and lower losses and expenses.
The Buffalo-based bank reported net income of $293 million, or $2.17 per share, up from $183 million, or $1.32 per share, in the 2011 third quarter.
The results easily topped Wall Street’s expectations of $1.85 per share, and investors rewarded the company by pushing its shares up $5.68 to a five-year high of $103.07, the first time in five years it has broken $100. M&T employs about 5,000 locally.
“The company looks to have exceeded our expectations in nearly every area,” Sandler O’Neill & Partners’ Joseph Fenech said, calling it a “blowout quarter” in mortgages.
M&T cited much more mortgage lending, as consumers flocked to banks to refinance existing loans or buy homes, taking advantage of the Federal Reserve’s continued policy of keeping interest rates unusually low for at least a couple more years in a bid to prime the economic recovery. Mortgage banking revenues rose 54 percent from the second quarter to $106.81 million, as M&T locked in $1.8 billion in new mortgages, up from $850 million in the second quarter. Mortgage banking revenues jumped an astonishing 180 percent from last year’s third quarter.
An extended period of low interest rates would normally be difficult for banks and typically is for community banks. But the current low rates are driving a flurry of refinancings by consumers, and consolidation in the mortgage industry has meant less competition and more ability by lenders to charge more than they otherwise might be able to. On top of that, the banks sell the bundled mortgages for a profit and may continue to get paid for servicing them for investors.
M&T also profited from HSBC’s sale in May of its 195 upstate offices to First Niagara Financial Group and from First Niagara’s subsequent sale over the summer of 64 offices to three other banks. That led to the biggest changes in the banking landscape in the region in more than 20 years, which M&T and other banks seized upon to go after customers unhappy with the disruption.
That was reflected in a higher average balance of business, commercial mortgage and consumer loans, as well as deposits, for M&T across the upstate region during the third quarter, said M&T Chief Financial Officer Rene Jones. In fact, upstate New York was the only region within M&T’s empire that saw any consumer loan growth, and more than half of the growth in small- and middle-market business lending came from upstate. M&T operates in seven states.
“We’ve seen just a lot of interest in coming to M&T,” Jones said in an interview. “You’re seeing the full benefit of that now... It’s not that the economy is moving faster here. It’s that more customers are choosing to bank with us and find a new home.”
M&T is reaping the full benefits of its May 2011 purchase of Wilmington Trust Corp., the largest bank in Delaware and one of the country’s most prominent names in wealth management and corporate financial services. The retail and commercial banking operation had already been integrated last year, but M&T waited until a few months ago to wrap up the systems conversion for the wealth management and corporate lines.
With that complete, M&T’s expenses fell 7 percent from a year ago. Jones said officials also have been surprised how well M&T has retained those businesses and customers, and has grown revenues. “One of the biggest things we’re pleased about is all the work we’ve done over the last year, bringing Wilmington Trust into the fold, and the fact that that’s running very smoothly, it’s a sense of relief,” Jones said. “There’s a lot of work that a lot of people put in.”
Also in the third quarter, M&T agreed in late August to buy Paramus, N.J.-based Hudson City Bancorp for $3.7 billion in cash and stock, capturing the No. 4 market share in New Jersey. The deal includes 135 branches in three states, with $43.6 billion in assets and $25 billion in deposits. That deal has yet to be approved by regulators.
M&T got out of the federal government’s Troubled Assets Relief Program investment after the Treasury Department sold its remaining $381.5 million in preferred stock in M&T through a public offering.
Net interest income from taking customer deposits and making loans rose 7.4 percent from a year ago, driven by a $3.4 billion increase in average earning assets during the recent quarter compared with the same period last year, and a wider profit margin on lending. Net operating income, which doesn’t include special one-time items, rose 44 percent to $302 million, or $2.24 per share, from $210 million, or $1.53 per share.
The bank set aside $46 million to cover loan losses during the quarter, down 21 percent from $58 million a year ago, and it wrote off $42 million as uncollectible, down from $57 million.