M&T Bank 1Q17 Earnings Call Notes

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Darren King – Executive Vice President and Chief Financial Officer

Still reason for optimism, but loan growth has not materialized

“Now turning to the outlook. As we’re now three months into 2017, there’s still reason for optimism. The Fed’s actions on interest rates came faster than we and the market were expecting back in January. The result was that margin expansion happened somewhat earlier than we expected, which in turn led to better growth in net interest income. Loan growth, despite the optimism for change in a more business-friendly administration, has yet to materialize in a meaningful way. And while the pace of loan growth in commercial and consumer categories has slowed somewhat as expected, the pace of pay-downs in residential real estate hasn’t slowed as customers look to lock in current rates in advance of any further increases in rates. The net result is that our outlook for loan growth for the full year of 2017 is a little lower than it was in January in the lower single-digits area, the lower end of our range. Absent any further rate actions by the Fed, there is modest upside to the net interest margin due to the fact that rates move late in the first quarter. ”

Higher interest rate environment challenges mortgage banking

“The higher interest rate environment continues to challenge mortgage banking, specifically with respect to residential mortgage loan originations. Consistent with other mortgage originators, we relaxed margins in the past quarters to sustain volume, which impacted gain on sale revenue. As we’ve noted previously, we have the capacity and the appetite for additional servicing or subservicing business should any opportunities present themselves. This could offer a potential offset for slower originations.”

Credit more of a downside risk than opportunity

“Our outlook for credit remains little changed. However, we must constantly remind ourselves that credit has been benign for several years and that we should view credit more as a downside risk than an upside opportunity. Despite some modest pressure on nonperforming and criticized loans, our outlook for credit losses remains relatively stable.”

Consumer transactions at banks have decreased at an 8-10% rate

“Sure. So if you look at what’s been going on, just to kind of step back and talk about what’s happening with customer behavior and transaction patterns at branches, we’ve seen a slowdown in teller-assisted transactions primarily for consumers over the course of the last four years. And that migration started actually four years ago, five years ago when we started to deploy image enabled ATMs. And the pace of decline for consumer transactions has averaged kind of 8% to 10% per year decrease for consumer teller-assisted transactions.”

Customers are in a wait and see mode

“Our pipeline of approved loans is approximately where it was in the first quarter of last year. So we haven’t seen the pipeline deteriorate materially, but we’ve seen people not following through to date and accepting those loans and moving forward. In general, when we talk to our RMs and talk to the customers, I think the general sentiment is one of optimism, but they’re in kind of a wait-and-see mode. And they’re just waiting, I think, for more certainty about which direction the administration is going to go and their ability to follow through on some of the promises around managing the costs of employees through things like the Affordable Care Act, but also some of the changes to minimum wage and overtime benefits from the FLSA. We are hearing things about fiscal policy and whether that will pull through and when, which I think it’s more a question of when and less a question of if. And it’s those kinds of things that tend to be on the minds of – the tax reform is another thing that’s on our customers’ minds. So it’s all the things that tend to be in the news. And the issue is – it isn’t that optimism has waned, maybe a little bit, but it’s more wait-and-see is kind of the feel that we get from our customers.”