Release Date: April 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong C&I and consumer loan growth highlighted the quarter.
- PPNR was a solid $891 million, demonstrating robust pre-provision net revenue.
- Expense control remains a key focus, with adjusted expenses increasing only 0.6% compared to the first quarter of 2023.
- Diluted GAAP earnings per share were $3.02 for the quarter, indicating healthy profitability.
- The CET1 ratio remained strong, growing to 11.07% at the end of the first quarter, showing a solid capital position.
Negative Points
- Taxable equivalent net interest income was down 2% from the linked quarter.
- The net interest margin decreased by 9 basis points from the linked quarter due to various negative impacts.
- Nonaccrual loans increased by $136 million to $3.2 billion, with the nonaccrual ratio increasing 9 basis points to 1.71%.
- The provision for credit losses was $200 million compared to net charge-offs of $138 million, resulting in an allowance build of $62 million.
- Criticized loans are expected to be $12.9 billion, an increase from $12.6 billion at the end of December, indicating potential credit quality concerns.
Q & A Highlights
Q: Daryl, can you unpack the NII guidance for us in terms of the puts and takes in a higher for longer rate environment?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: We are neutral to interest rates, so whether we get 2 cuts, 3 cuts, or no cuts, we're comfortable with $6.8 billion plus in NII. Our margin has likely bottomed out this year and will probably be in the mid- to high 350s for the rest of the year. Our deposit franchise showed real value this quarter, with core deposits hardly budging in interest rates. We're seeing nice reactivity on our consumer loans and as we put money to work in the investment securities portfolio, we're managing our sensitivities and expect nice repricing on our investment portfolio.
Q: What duration are you putting on the securities book?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: We've been purchasing treasuries and CMBS with positive convexity coupled with some low convex MBS. The yields have been around 4.6% with a duration of a little over 3 years. With current rates, we could add another 30 to 40 basis points higher yield.
Q: Can you talk about the rationale for continuing to ratchet up the liquidity level?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: Anytime there's any scare in the industry, we're going to be conservative. We're comfortable letting some of this excess liquidity come out of our balance sheet, maybe down to $27 billion, $26 billion at the Fed over the year, unless there are other stresses in the industry.
Q: Can you elaborate on where you see demand in C&I loans and your outlook for growth in the coming quarters?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: Growth in C&I loans was broad-based, with increases in dealer financial services, middle market business, corporate and institutional, fund banking, equipment leasing, and mortgage warehouse. Regions like Massachusetts, New Jersey, Philadelphia, and Western New York were drivers of growth.
Q: What are you seeing on the CRE front in terms of NPA inflows?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: We saw good performance in CRE this quarter, with credit sizes coming down and health care and office going up a bit. We completed a construction review with limited incremental downgrades. We're seeing improvements in occupancy and staffing within health care, but reimbursement rate improvement has been uneven.
Q: How does the outlook for buybacks look, considering the current CRE exposure?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: We will reassess repurchases after the second quarter, considering macroeconomic environment, capital generation, stress test results, level of CRE loans, and overall asset quality. Buybacks are core to our capital distribution strategy and will be part of our future. We plan to use our capital for organic growth and growing new customer relationships in the meantime.
Q: Can you elaborate on deposits and the dynamic changing with the higher for long environment?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: We're focused on growing core deposits, with growth in trust businesses and commercial bank. Our bread and butter is getting the operating account, and once we get them, they tend not to leave us.
Q: Can you give us any color on your fixed rate loan repricing over the next year or two?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: In our consumer loan portfolio, we're seeing the benefit of higher rates on new originations compared to maturing balances, with yields increasing significantly in auto and RV loans.
Q: What percent of CRE loans that came due this quarter were able to refinance, and what happened with those that couldn't?
A: Daryl N. Bible - M&T Bank Corporation - Senior EVP & CFO: About $2.3 billion matured in the first quarter, with 56% extended, 9% upgraded, and 23% paid off. We work with clients to rightsize debt service coverage ratios and get more equity or tangible assets to protect us.
Q: What's the outlook for the margin and the increase in long-term borrowings?
A: Unidentified Company Representative: We're focused on growing customer deposits and paying down noncustomer funding. We might do more securitizations in our equipment leasing and auto businesses. We will prudently grow customer deposits and work down our broker deposits and Federal Home Loan Bank advances.
Q: How do you reconcile the issue of some portfolios under more weakness and yet you're also highlighting you're getting greater yields?
A: Unidentified Company Representative: The stress is in the floor planning business for non-auto, like RV and Marine. We also have an indirect business for RV, where we're getting the yield pickup on the consumer loan portfolio. The consumer loan credit box is very prime-based with high average FICO scores.
