M&T expects C&I lending to drive growth in 2019

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M&T Bank executives expect loan growth to be fairly modest in 2019, but they are bullish on one key segment: commercial and industrial lending.

Darren King, the chief financial officer at the Buffalo, N.Y., company, said during a Thursday conference call that C&I lending appears to be rebounding in several different industry sectors in all of the company’s markets in the Northeast and mid-Atlantic. The growth came from both existing and new customers, a trend that King sees continuing.

“It was new origination that drove a lot of the growth in the quarter,” King said. “As we enter 2019, the [loan] pipelines are reasonably consistent, maybe even slightly above where they were last year. We’re guardedly optimistic about C&I in 2019.”

C&I loans increased 5.7% to $22.9 billion from a year earlier. The gains were more pronounced on a quarterly basis, as total C&I loans rose 6.2% from the third quarter. Much of the growth was the result of a $275 million increase to automotive dealerships to finance new inventory.

Commercial real estate lending also increased, but at a slower pace.

CRE loans rose 2.9% to $34.4 billion from a year earlier. Residential mortgage loans fell 12.5% to $17.2 billion, as M&T is allowing many of the mortgage loans it inherited from its 2015 acquisition of Hudson City Bancorp to run off its books, King said.
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The uptick in C&I lending could help make up for declines in residential mortgages and other loan categories this year. If the 2019 trend of C&I loan growth continues in 2019, the bank could see total loan growth in the low single digits, King said.

And “If the improved pace of C&I lending that M&T experienced in the fourth quarter continues … we could exceed that rate,” King said.

A wild card could be the pace of borrower paydowns. Across the banking industry, many corporate borrowers have paid off floating-rate loans early, as interest rates rise. Banks derive early-payment fees from the payoffs, but they lose future interest payments on the loans.

M&T does not break out financial data on the amount or rate of loan paydowns.

Ken Zerbe, an analyst at Morgan Stanley, on Thursday morning asked King if M&T’s improved commercial lending in December was simply the result of factors that always provide a benefit at the end of the year.

“In terms of the very strong growth we saw in C&I lending this quarter, presumably was some of that just seasonal orders?” Zerbe asked during the conference call. “Or, where we stand today, is the environment changing? Is the dialogue with borrowers getting better?”

King responded that at least a portion of the growth was due to seasonal inventory restocking at automotive dealerships. But M&T also added significant new C&I clients in the quarter, he said. He declined to name the new clients or identify their industry sectors.

M&T also reported growth in its consumer loans, excluding residential mortgages. Consumer loans rose 5.3% to $13.9 billion from a year earlier. Indirect auto and recreational-vehicle loans led the way in the consumer category, King said.

King did not provide an outlook or forecast for consumer lending in 2019.

Overall, M&T’s net income in the fourth quarter rose 74% to $525 million from a year earlier. Earnings per share of $3.76 were 27 cents better than the mean estimate of analysts compiled by FactSet Research Systems.

Along with the loan growth, higher interest rates also helped drive earnings gains. The net interest margin improved 36 basis points to 3.92%. Higher interest rates contributed least 6 basis points of the improved margin, King said.

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