With a Dec. 31 deadline looming that would allow either M&T Bank or Hudson City Bancorp to walk away from its $3.7 billion merger, M&T’s vice chairman said Friday that the Buffalo-based bank’s efforts to upgrade its anti-money laundering systems remain on track but won’t be completed before year’s end.

Rene F. Jones, M&T’s vice chairman and chief financial officer, said the bank’s efforts to strengthen its anti-money laundering program are progressing as bank officials expected.

“We’re both very committed to the transaction,” Jones said during a conference call after M&T reported a 7 percent drop in its third-quarter earnings, largely stemming from its increased spending to upgrade the anti-money laundering programs that the Federal Reserve is seeking for the acquisition of New Jersey-based Hudson City to move forward.

“It’s been a long dance, and we all still like each other,” Jones said. “We’ll just have to see what happens.”

M&T expects to spend $150 million this year to bolster its Bank Secrecy Act program, on top of the $60 million the bank had spent through the end of 2013. M&T has 613 employees devoting most of their time to compliance work, up from 571 during the second quarter.

“I think we’re fully staffed, in my mind,” Jones said. “We firmly believe that our decision to invest in these initiatives is money well-spent.”

M&T and Hudson City have twice extended the merger deadline. While M&T won’t have completed all of the upgrades to its compliance system that the Fed is seeking before Dec. 31, Jones said the date was set to gave the bank enough time to show that it was making sufficient progress in improving its systems.

“We really have made a lot of progress. We feel like we’re on track,” he said.

Jones’ comments came as M&T’s profits fell to $275 million, or $1.91 per share, down from $294 million, or $2.11 per share a year earlier. Analysts had been expecting M&T to report flat profits, with earnings per share of $1.98.

M&T’s earnings also were hurt by a narrowing spread between the interest it earns on the loans it makes and the interest it pays out on deposits. That spread narrowed by 38 basis points over the past year to 3.23 percent during the third quarter, as the bank faced downward pressure on the interest rates it can charge on loans, while more deposit money was held in low-yielding vehicles as M&T bolstered its buffer of liquid assets in advance of new liquidity requirements that will take effect in January 2016, Jones said.

One bright spot was M&T’s growing loan portfolio, which grew by 5 percent over the past year. While residential loan volumes fell by 5 percent, that was offset by a 10 percent increase in consumer loans.

“The lending environment remains very difficult, particularly on the commercial side,” Jones said.

The quality of M&T’s loan portfolio also improved by almost all measures during the third quarter. The bank set aside $29 million for loan losses during the third quarter, down from $49 million a year ago. The value of loans that the bank classified as non-accruing during the third quarter dropped to $848 million, or 1.29 percent of its total portfolio, down from $916 million, or 1.44 percent of its portfolio, a year ago.

The bank’s fee income fell by 6 percent to $451 million from $477 million a year ago, mainly because last year’s fee income was inflated by $56 million in pre-tax gains from loan securitization transactions. Excluding those gains, fee income rose by 7 percent.

The bank’s operating expenses rose by 4 percent to $672 million from $648 million a year ago, mainly because of the increased spending on the anti-money laundering program. “That elevated spending has produced good results,” Jones said.