M&T Bank, which is looking to improve a sagging net interest margin, expects its balance sheet to look a bit different a year from now than it does today.
Executives said Thursday that they expect more commercial and industrial loans, fewer commercial real estate loans and a reduction in certain interest-bearing deposit accounts over the next year.
In addition, the last of the bank’s remaining Paycheck Protection Program loans — which once totaled $9.9 billion — are expected to run off. And a significant portion of the bank’s government-guaranteed mortgage servicing loans will be sold to investors, executives said.
The adjustments should lift M&T’s net interest margin, said Chief Financial Officer Darren King. At the end of December, that margin, which measures the difference between net interest received and net interest paid, was 2.58%, down 16 basis points from the prior quarter and 42 basis points year over year.
By the end of 2022, the changes to M&T’s balance sheet should result in a higher margin and position the company “to benefit from the rising-rate environment,” King said during the $155.1 billion-asset bank’s fourth-quarter earnings call.
With the exception of the fourth quarter of 2020, M&T’s net interest margin has been shrinking since the start of the pandemic. Many banks have experienced the same, but unlike at M&T, the industrywide margin increased modestly during the third quarter of last year, rising from a record low of 2.50% in the second quarter to 2.56% at the end of September, Federal Deposit Insurance Corp. data shows.
At M&T, the balance sheet changes should result in a net interest margin of 2.75% for 2022, King said.
King twice mentioned certain “moving parts” that will impact M&T’s balance sheet going forward. For one, the Buffalo, New York, company doesn’t expect $42 billion in excess cash to stick around, in part because of deposits in interest-bearing accounts and money market accounts that “don't make economic sense in this rate and liquidity environment,” King said.
In addition, M&T is looking to revamp the way it does commercial real estate lending by extending loan opportunities to third parties while retaining the loan servicing and customer relationships.
M&T previewed the change in strategy last fall when King said the company would “think more broadly” about its CRE portfolio, which includes hotel loans that were
The commercial real estate loan book, which had held steady in the $37 billion range for several quarters, declined to $35.4 billion during the fourth quarter, reflecting a 6% decrease year over year.
Overall, the company is targeting loan growth in the low-to-mid single digits for 2022, King said. Likewise, it is projecting operating expenses to rise in the low- to mid-single digits this year after increasing at an “uncharacteristically high rate” of 5.6% in 2021, King said.
The bulk of the anticipated increase in expenses will be tied to higher salaries and employee benefits, increased data processing and software costs and more advertising, according to King.
The bank plans to ramp up spending in the latter category if it completes its pending acquisition of People’s United Financial in Bridgeport, Connecticut. The $7.6 billion deal — which was
Meanwhile, M&T has more cash and capital on hand that it prefers, King said. The bank plans to pour about $1 billion into investment securities by the end of the year, he noted.
Some analysts questioned whether M&T should be more aggressive in deploying the capital, either by putting more of it into securities or by making acquisitions that would generate revenue.
But King defended the bank’s way of thinking, saying that M&T has opportunities to grow its assets. “And so it's just getting through some of these transitions that are happening on the balance sheet,” he said. “But underneath, I think things look really good.”
