Q1 2024 Earnings Summary
- MTB reported broad-based growth in C&I loans across multiple sectors, including dealer financial services, middle market, corporate and institutional, fund banking, equipment leasing, and mortgage warehouse. Two-thirds of their 28 community bank regions are growing positively, with highlights in Massachusetts, New Jersey, Philadelphia, and Western New York.
- MTB is making tremendous progress in reducing Commercial Real Estate (CRE) exposure, expecting to lower CRE as a percent of capital reserves to mid- to low-160% by the end of the year, down from 260% four years ago.
- Management is confident in maintaining M&T's historical track record of outperforming peers in terms of credit losses, despite an increase in criticized loans, emphasizing their long-term history of strong credit performance in both good and stress times.
- Significant increase in criticized loans, particularly in the C&I (Commercial and Industrial) sector, with total criticized C&I loans increasing by $641 million , raising concerns about credit quality.
- High exposure to Commercial Real Estate (CRE), with plans to reduce CRE as a percentage of capital to 160% by year-end, indicating current elevated levels which could pose risks in a deteriorating CRE market.
- S&P revised M&T Bank's outlook to negative due to concerns over CRE concentration, suggesting potential future credit challenges or downgrades.
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CRE Sensitivity
Q: If rates stay high for 2 years, how sensitive is CRE portfolio?
A: We stress-tested the CRE portfolio with a 100 basis point rate increase and found minimal impact. Since most CRE loans are fixed-rate or hedged, with only 29% floating, a 100 bps rise might add approximately $500 million to criticized loans. Overall, we believe it's very manageable even if rates rise further. -
NII Guidance
Q: Is $6.8B NII achievable without rate cuts?
A: We're neutral to interest rates and feel comfortable with the $6.8 billion NII guidance even without rate cuts. Our margin has likely bottomed out and should be in the mid to high 350s basis points for the rest of the year. Deposits are stable, and asset yields are improving, supporting our NII outlook. -
Share Buybacks
Q: Will CRE levels affect potential share buybacks?
A: We are considering five factors before resuming buybacks: macro environment, capital generation, stress test results, CRE levels, and overall asset quality. We'll evaluate at the end of Q2, aiming to be prudent stewards of capital. If we proceed, we'd start modestly, keeping a CET1 ratio above 11%. -
Credit Quality
Q: Why are your criticized loans higher than peers?
A: We intentionally maintain higher criticized loans to work closely with clients through stress times, fostering loyalty and better long-term outcomes. Our conservative approach in capital, liquidity, and credit management reflects how we operate the bank for shareholders' benefit. -
Liquidity Levels
Q: Why increase liquidity by 150 bps this quarter?
A: Due to industry stress, we acted conservatively to ensure strong capital and liquidity. We're comfortable letting excess liquidity reduce to around $26–$27 billion at the Fed over the year, absent further stresses. -
Deposit Flows
Q: How are deposit dynamics changing now?
A: We're focused on growing core deposits. Our trust business saw significant wins, adding deposits in late Q1 and early Q2. Both commercial and retail banks are concentrating on deposit growth. Our strength in securing operating accounts helps retain deposits. -
NIM Outlook
Q: Why isn't NII outlook more robust despite higher asset yields?
A: Deposit behavior, especially non-maturity deposits, drives interest rate sensitivity. While deposit costs are slowing, retail CDs are still growing due to rates over 3%. Disintermediation is hard to model, so we prefer to underpromise and overdeliver on NII projections. -
Loan Yields
Q: What's the outlook for fixed-rate loan repricing?
A: We're seeing higher yields in auto and RV loans, with spreads up 24 bps in auto and 63 bps in RV. Incremental yields are 192 bps higher in auto and 140 bps higher in RV compared to loans rolling off. Other businesses also show improved yields. -
CRE Maturities
Q: How did Q1 CRE loan maturities play out?
A: Of the $2.3 billion maturing in Q1, 56% were extended (with 9% upgraded), about 23% paid off. We're working through the remainder to extend or pay off. Very little moved into criticized loans. -
C&I Loans Growth
Q: Where do you see demand in C&I loans?
A: Growth was broad-based across sectors like auto floor planning, middle market, corporate and institutional, fund banking, equipment leasing, and mortgage warehouse. Regions like Massachusetts, New Jersey, Philadelphia, and Western New York drove growth.