M&T Bank Corp. is feeling pressure on deposit costs despite boasting more non-interest-bearing accounts than the typical bank.
CFO Darren King said during an earnings call that the bank has not seen any variance geographically in terms of pressure on deposit costs. He said commercial clients have been engaged on the issue, driving up the bank's costs.
"We've started to see some pressure [in commercial]. We have some balances in commercial that are linked into an index. So as the index moves up, the price moves up there. But we continue to see corporate treasurers paying a lot more attention to their excess balances and considering moving them to interest checking," King said.
The bank on Oct. 17 reported third-quarter results that put the cost of interest-bearing liabilities at 82 basis points, up 11 basis points from the previous quarter and 25 basis points higher than the year-ago quarter.
King said the bank has seen movement on the consumer side of the business, too, with increased movement away from savings accounts and into certificates of deposit. And he said consumers are increasingly favoring 18-month and 24-month products as opposed to 1-year products, which had been favored a year ago.
An analyst asked King how the bank's net interest margin would be affected by the next 25-basis-point increase in the Federal Reserve's benchmark rate. King said the bank would stick with previous guidance, while allowing that rising deposit costs have dampened the benefit. The bank had previously issued guidance that a 25-basis-point Fed rate hike would translate to margin expansion of 5 basis points to 8 basis points. King said the bank was at the higher end of the range to start the year and is now at the lower end due to higher deposit costs. He also said the bank would be updating its models at year-end and plans to issue new guidance for 2019.
Analysts were also interested in the bank's portion of non-interest-bearing accounts and how much might migrate to interest-bearing alternatives. An analyst noted that the bank's non-interest-bearing portion of deposits was higher today than in years past, clocking in at mid-30%.
While King said he did not expect a mass migration, he did say there would be some movement. Looking ahead to 2019 and into 2020, King said analysts should consider where the bank was in 2008 and 2009 while adjusting for time deposits being a little higher.
"I would expect that that would be — I haven't looked at the math — but in that range of 25% to 30% of what our deposit balance base might look like," King said.