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M&T CFO: Higher-than-anticipated expense growth 'very atypical' for the bank

M&T Bank Corp.'s expenses for 2019 are growing faster than initial forecasts due to growth in its mortgage business and increased technology investments, CFO Darren King said.

On a call to discuss the company's third-quarter earnings, King said the year's higher-than-anticipated expenses are "very atypical" for the bank. The executive attributed higher costs to higher expenses with M&T's mortgage servicing and subservicing acquisitions and compensation expenses related to strong mortgage originations. M&T in January purchased servicing rights for residential real estate loans, with the principal balance tallied at around $13.3 billion as of that time.

The Buffalo, N.Y.-based superregional bank has also increased its investments in technology to compete with larger banking peers, King said. As M&T brings its tech support in-house, the bank is looking to bring on 100 to 150 people about every quarter. M&T will bear double the cost during that personnel transition, King said. The bank expects to see benefits from the reorganization in 2021.

Increased investment in its IT staff will likely result in lower contractor and consulting expenses in the fourth quarter. For example, King flagged manual licensing expenses, which he does not expect to incur again, and increased expenses for professional services. The bank saw some projects extended 30 to 45 days longer than anticipated, which raised costs. As those projects finish, the bank will start to see the impact of lower expenses in the fourth quarter and into 2020, King said.

The company expects overall fourth-quarter expenses to be lower than the previous quarter, the CFO said. The bank reported noninterest operating expenses of $872.5 million in the recent quarter, compared with $868.0 million in the previous quarter and $769.8 million in the year-ago period.

King forecasts fourth-quarter expenses will be around $830 million to $835 million. Management will provide its expectations for 2020 expenses on the fourth-quarter call in January.

The current quarter includes $10 million of expenses the CFO does not expect to incur again in the upcoming quarter. M&T posted an additional $20 million in expenses related to its mortgage business, which it had not accounted for because of the uncertainty with where interest rates were headed, King said. However, the executive noted that those unforeseen expenses also came with an additional $30 million in revenue.