Q1 2021 M&T Bank Corp Earnings Call

Just participants through refer to our SEC filings and forms, 8-k 10-K and 10-q including the form. We filed in connection with the earnings release off for complete discussion to forward looking statements.

Darren King is not with us today and is recovering from the effects of the COVID-19 virus. He expects to rejoin a shortly his absence CEO Renee Jones will draw on his skills as former CFO and we'll do our primary speaker on today's call now. I'd like to introduce our chief executive Renee Jones.

Thank you. Good morning. Everyone. Thank you for using the word skills. When I ended over the CFL rancid are in five years ago. One of the things that I was happy that went with it was was off the call, but although Darren is doing well and we expect his return to action shortly. I boldly volunteered to handle the call today and just so you know, my life is that I I do a good job, but not such a good job that you won't be clamoring to have Darren back as soon as possible.

Joining me today.

All are Bob Boyd a car Chief credit officer and Mike's by cello or corporate controller. Whom I'm sure you both know, you know, both of them as we notice in this morning's press release. We're pleased with the strong demand Residential Mortgage Banking and our Wilmington Trust group of businesses outside of our usual seasonal first quarter Surge and salaries and benefits expenses remained well controlled and credit Chrome ones are indicative of the state of the loan portfolio and the forecasted improvements in the economy.

Diluted gaap earnings per common share with $3.33 for the first quarter of 2021 compared with $3.52 in the same quarter of 2020 and $1.93 in the in last year's first quarter that income for the quarter was $447 compared with $571 million in the linked quarter and $269 in the year-ago quarter on a gaap basis and Matthias first quarter results produced an annualized rate of return on average assets of 1.22% and an annualized return on average common Equity of 11.57% This Compares with rates of 1.50% and 12.7% respectively in the previous quarter included in gap results in the recent quarter. We're after tax expenses from the amortization of intangible assets amounting to 2 million.

Hours or two cents per common share little changed from the prior quarter also included in the quarter's results were merger-related charges of ten million dollars related to these proposed acquisition of people's United Financial this amounted to eight million dollars after tax or $0.06 per common share.

Consistent with our long-term practice M&T provides supplemental reporting of its results on a net operating or tangible basis from which we have only ever excluded the after-tax effect of amortization of intangible assets as well. As any games for expenses associated with mergers and acquisitions.

Net operating income for the first quarter which excludes and intangible amortization in the verge of related expenses.

Was $457 Million compared with $473 in a linked quarter and $272 in last year's first quarter diluted net operating income share with $3.41 for the recent quarter compared with $3.54 and twenty twenty fourth quarter and $1.95 in the first quarter of last year of of last year operating income yielded annualized rates of return on average tangible asset an average tangible common shareholders Equity of 1.29% and 17.05% for the recent quarter. The comparable returns were 1.35% and 17.53% in the fourth quarter of 2020.

accordance with the

The guidelines this morning's press release contains a tabular Reconciliation of gaap and non-gaap results, including tangible assets and equity.

So let's take a look at some of the underlying details taxable-equivalent that interest income was $985 million dollars in the first quarter of 2021 compared with $693 million dollars in the link to order this reflects a higher level of average interest earnings assets primarily cash equivalents and they shorter calendar quarter them for the past quarter was 2.97% down 3 basis points from 3% in the linked quarter. The primary driver of of the margin decline was the higher-level cash on deposit with the Federal Reserve, which we estimated reduced the margin by 5 basis points, and that was partially offset by a 2 basis-point benefit from the shorter quarter of generally the eight million dollar links quarter decline in net interest income reflects the loss of income from two fewer cruel days.

Changes in interest rates had a minimal effect on for the quarter.

Compared with the fourth quarter of 2020 average interest earnings assets increased by some 2% reflecting a 9% increase in Money Market placements including cash on deposit with the Federal Reserve an 8% Decline and investment Securities average loans outstanding grew nearly 1% compared with the previous quarter, excluding ptpp loans average loans grew 1.1 billion or over 1%

Looking at the loans by category on an average basis compared to the linked quarter commercial and Industrial loans were essentially flat with increased dealer floorplan balances and other cni loans monthly offset by lower average PPP loans due to timing of originations and the receipt of payments average ptpp loans declined $453 from the purchase order.

Commercial real estate loans declined less than a half percent compared to the fourth quarter indicative of very low levels of customer activity.

Residential real estate loans grew by 4% consistent with our expectations the increase reflects purchases from of of loans from Ginnie Mae pools that we sub service partially offset by off the run off of the acquired mortgage loans.

Consumer loans were up nearly 1% activity that that activity was consistent with recent quarters, where growth and indirect Auto and recreational Finance Loans has been outpacing defines and home equity lines and Loans on an end up. Basis ptpp loans totaled six point two billion dollars up from five point four billion at the end of the fourth quarter off.

Average Court customer deposits which exclude deposits received at Cayman Island office and CDs over 250,000 increased 4% off $5 billion dollars compared to the fourth quarter that figure includes four billion dollars of non-interest bearing deposits on an end-of-period basis core deposits were up nearly nine billion dollars.

For an office deposits increased 17% on an average basis, but were essential sorry decreased 17% on an average basis, but we're essentially flat on an end-of-period basis.

Trying to not interest income not interest income totaled $506 for the first quarter compared with $551 million in the linked quarter. The recent quarter included twelve million dollars of valuation losses on Equity Securities. Largely the remaining Holdings of our preferred stock while twenty twenties final quarter included $2,000 of games.

Over the past few years has received a distribution from Bayview Lending Group in the first quarter of the Year results for the first quarter of 2020 included a twenty-three Million Dollar Distribution.

And a change from the in the past timing as you may know you received a $30 distribution in the fourth quarter of 2020 as expected. No distribution was received in this year's first quarter Mortgage Banking revenues were $139 in the recent quarter down 1 million dollars from 1040 million dollars in the link border our Residential Mortgage business continued to perform well revenues from that business including both origination and servicing activities were a hundred and seven million the first quarter improved from $95 million in the prior quarter that increase reflects improved gain-on-sale margins Residential Mortgage Loans originated for sale were one point four billion dollars in the recent quarter up about 5% from the fourth quarter.

Commercial Mortgage Banking revenues but thirty two million in the first quarter reflecting the seasonal decline from 45 million and the linked quarter that figure was $30 in in in the year-ago quarter trust income Rose to $156 in the recent quarter improved from 151 million in the previous quarter. The increase is the result of growth in assets under management and wealth and institutional businesses service charges on deposits were 93 million dollars compared with ninety six million in the fourth quarter. The declined from the linked quarter is the result of how long customer balance is offsetting activity-based fees operating expenses during operating expenses for the first quarter which exclude the amortization of intangible assets and merger-related expenses where nine hundred and seven million dollars. The comparable Figures were 842 million in The Lakes border in nine hundred and three million dollars a month.

In in the year-ago quarter as is typical for this fiscal first-quarter results operating expenses for the recent quarter included approximately $69 of seasonally higher compensation costs relating to accelerated The Accelerated recognition of equity compensation expense for certain retirement-eligible employees VHS HSA contribution wage the impact of annual incentive compensation payouts on for one on the 401K match and FICA payments and unemployment insurance those same items amounted to an increase in salaries and benefits of approximately approximately 67 million in last year's first quarter as usual we expect those seasonal factors declined significantly as we enter the second quarter.

Cost of operations for the past quarter included a nine million dollar reduction in the valuation allowance on our capitalized mortgage servicing rights, you'll recall that there was a $3000000 additional ounce in twenty20s fourth quarter and a ten million dollar Edition in last year's first quarter.

The quarter's results also reflect an elevated contribution to the M&T charitable Foundation. The efficiency ratio would suggest is intangible amortization from the numerator and securities gains or losses from the denominator was 60.3% in the recent quarter compared with 54.6% in twenty20s, fourth quarter and 58.9% in the first quarter of twenty-twenty those ratios in the first quarters of 20 20 and 21 each reflect the seasonal elevated compensation expenses that we talked about

Next let's turn to credit the overall economy, of course continues to improve but some sectors such as Hospitality continue to face pressure as was the case over the course of twenty twenty months the recent quarter continued to highlight the differences between the former and current Los accounting method and the Cecil standard adopted at the beginning of last year previously reported to agencies and transition of loans from accruing to nonaccruals status evidenced by Financial stress delinquencies or defaults by borrowers preceded or accompanied the establishment of loss reserves under Cecil. We increased our loss reserves last year based on worsening projected economic scenarios, significant downgrades of specifically identical identifiable creme de non-accrual emerged in the fourth quarter.

And criticized in the recent quarter and to criticize in the recent quarter consistent with last year's Traditions to the allowance for credit losses.

The allowance for credit losses amounted to 1.6 billion at the end of the first quarter the hundred million dollar decline from the end of 2020 reflects a $25 recapture of previous provision for credit losses combined with $75 million dollars of net charge-offs in the first quarter.

The provision recapture and the resulting reduction in the allowance for the recent quarter continue to reflect the ongoing uncertainty as to the impact of the COVID-19 pandemic on economic activity employment levels and the ultimate collectability of loans that said the improving economic Outlook leaves us cautiously optimistic optimistic as to the ongoing effects of the pandemic compared with the greater levels of uncertainty in Prior quarters.

Are macroeconomic forecasts use uses a number of economic variables with the largest drivers being the unemployment rate and GDP our forecast assumes the national unemployment rate continues to to be at elevated levels on average 5.7% through 2021 followed by a gradual Improvement reaching 2.4% by the end of 22. I'm Sorry 4.2% by the end of 2022.

Forecast assumes that GDP grows at 6.2% annual an annual rate during 2021 resulting in a in GDP returning to prepay endemic levels during 21 our forecast considers improved government stimulus, but not any further fiscal or monetary actions.

Nonaccruals loans amounted to 1.9 billion or 1.97% of loans at the end of March. This was up slightly from 1.92% at the end of last December it snowed the charges for the recent quarter amounted to $75 annualized net charge-offs as a percentage of total loans with 31 basis points for the first quarter compared with thirty-nine basis points in the fourth quarter loan is 90 days past due on which we continue to include interest or 1.1 billion at the end of the recent quarter. Ninety 6% of those loans were guaranteed by Gulf related to

Turning to Capital Emmett's used common Equity Tier 1 ratio was an estimated 10.4% compared with 10.0% at the end of the fourth quarter and and which wage is a slight reduction in risk-weighted assets and earnings net of an earnings and dividends.

As previously noted that the People's United merger is pending. We don't plan to engage in any stock repurchases activity pre-purchase activity while that is pending now, he's turning to the Outlook while the economy continues to improve and funds from stimulus programs reach our commercial and consumer clients. We haven't seen enough change in our outlook for 20 21 in any significant way from from what we shared on the January call aside from the improved credit Outlook as evidenced by The Reserve release this quarter. I don't intend to provide any updates Palm Terrace remarks as to net interest income loan growth fees and expenses still hold and of those of course are a pre-date our merger announcement and don't contemplate any impact from the merger month. We supplied the the merger-related comments at the time of announcement.

Of course, as you're aware of our projections are subject to a number of uncertainties and various economic various assumptions regarding National and Regional economic growth changes in interest rates political events and other macroeconomic factors, which may differ materially from what actually unfolds in the future.

So now let's open up the call to questions before which Maria will briefly review the instructions. Thank you. The floor is now open for questions in order to ask a question. Simply Press Club SAR. The number one on your telephone keypad. Would you ask that you please limit yourself to one question and then re-enter the queue for your second question.

My first question comes from one of ten serving of Morgan Stanley. Hey Renee. It's like you never left in terms of them prepared remarks. All right, maybe just to start off in terms of the reserve release the the way the press release red and and even your comments. It sounds like you guys are still applying a fair amount of qualitative overlays that are fairly negative or that you're you know, there's a lot of uncertainty in the market but you still released reserves pretty meaningfully this quarter is it fair to assume that if the economy continues to get slowly better and some of those qualitative overlays come off that we could actually see a more material negative provision expense next quarter.

The way I I think about it is if you look at how our allowance works at the end of the quarter, we saw releases in of commercial cni book and then the consumer book and those are largely reflective of the of the GDP and unemployment projection improvements that you've seen and I think the thing to think about is, you know that I'm one of the unique things about this period of time is that it's uneven right? So so while we're having a good projections and unemployment's coming down we've got get directions from GDP. It's not even everywhere and so some of the places that are affected by travel and entertainment right are still lagging behind. So while we've seen things for example, like dead higher scheduled bookings for the summer and the fall we've really yet to see the Improvement particularly in our in our in our hotel old hotel exposures wage.

So without using the word overlays, I think that we're we're looking for signs of improvement in those particular areas, which would be required before we would would see any reduction in life on those portfolios. Okay, that makes sense. And then just as a follow-up question, you're obviously building up a fairly sizable cash position given all the deposit growth time. Are you thinking about investing some of that cash into higher-yielding Securities potentially?

It's a great question. We give a lot of thought I think our first you know, thought is starts with the idea that we probably at the end of the quarter probably had twenty billion dollars worth of excess liquidity beyond what we would use and use you know for our liquidity position. And you know, I think a huge portion of that is is clearly need to uh, what I would call transitory now the big issue is how long is the transition and so when we first thought that we have is that we hate to invest in in lower and assets so we don't think it's our job to invest for you all of that cash insecurities because you could go do that off on your own or returns are too low having said that you know, we do have one of the smallest Securities book out there. And so we're sort of constantly monitoring this idea of of you know, you know, how low do we want to make that go so, you know, I think

Maybe the more interesting thing long-term is what's really hard to see is the growth in activity that that may be permanent that's happening over time the account growth those types of things and the behavior of customer. So I think when we do see which maybe four may not be for a while because of more infrastructure spending and things like that, but when we do see it return I think we may see a higher wage of cash balances for for quite some time. And as that becomes more clear to us, we would think about investing the, you know, investing those dollars, but but I think it's a little too early today.

All right. Great. Thank you very much.

our next question comes from one of John Kerry of evercore is I

Jon Benet, I just wanted to maybe touch on loan demand if you can talk a little bit about where you're seeing any Improvement at all on the commercial side really interested in like you're seeing on the pipeline front and you seeing any signs of pick up and capex activity and then separately on the consumer side as well where you saved. Thanks alot God. Yeah, so they in the in the space. I think it I don't know if it's a change, but if you look in if you look in the areas of of m&a activity, if you look in the areas of manufacturing we've seen some some some progress. They're working on that. It's very slow utilization was flat to slightly down this quarter. We're in a very limited if any growth really declines in in in the segment because there's just no demand because of the state of things. They're having said that it's interesting as as particularly commercial birth.

Volumes remain low if you look back as I did over four or five quarters, you do see a steady increase in the role on margin. So the activity that is getting done is is is a dead higher return level. So that that should have some impact as we move further, you know, not not immediate impact, but as we is that continues that's just have some positive impact on the margin things remain still remained really robust on the consumer side with the exception of HELOC loans.

Okay. Thanks. That's all pulling then separately on the credit quality side want to see if you get updated on the commercial real estate portfolio. I know you indicated the areas of stress by industry, but I know I'm also noted that there wasn't necessarily a release there on the commercial real estate side. So if you could just remind us the size of that reserved as well when you give this update on the trends Bangkok. Yeah. So what I'll say is, you know, no surprise hotels continue be the property type that are that are under the greatest amount of stress in our in our portfolio and hotel CRV loans. We're we're the largest contributor to the increase in our in both in our criticized book and I think to think think about is given the duration of endemic and its impact on things like travel. It's really not surprising that the hotels kind of face greater stress. So you'll remember that although performance were sick.

some slight Improvement

give him give me one second. See some slight Improvement. Most of our hotel portfolios really can't support the contractual Debt Service payments without an In-Place modification off maybe as important support from their sponsors. So would that mean is that while you've seen an increase in classified? So this quarter we've seen about a billion dollar increase in our classifieds about half of that was in the hotel space really what that is is just that the length of time having said that we don't expect that those downgrades will contribute to increased risk of loss because it just really depends on other factors like beyond the credit great like the strength of the sponsors and the value of the underlying collateral you you'll notice that we didn't have much of an increase to nonperformers. For example, in terms of those two factors the strength of our collateral first, you know, what we've been doing is we've been on a mission to a to reappraise all of our Hospitality team

properties that are in

Just a five million dollars in that are in the classified status. So that reflects a little over a hundred hundred properties and that accounts for about two point three billion dollars and exposure. So I'm sixty-two of those appraisals so far through February have shown as his values that have declined about 15% and stabilized values that reflect about a 6% of its keep that in mind that we're starting with 56% ltvs. And then if you jump to New York City, we've seen a 24% as is declined with a 5% stabilize decline, but that starts with an l t v about 47, right? So that gives you a sense that the migration we're seeing in classifieds in this space is pretty much pretty normal or what we would have expected wage, but it's not necessarily an indication of lost lost content. And then finally last thing I'd say is you know in talking to all of our sponsors, they they seemed to remain strong and capable of supporting the pig.

Parties until conditions improve and we really have a low number of properties maybe something like twelve thirteen percent that come do this year and a significant portion that are 2023 and Beyond, you know, in excess of sixty percent that are further out. So we think we're in a good position to kind of watch this stuff change. I don't know if I have the numbers on the specific reserve for you.

Yeah, no problem. I can get that later on. Okay. Okay. Great. Okay. All right. Thanks Rene. Appreciate it.

Our next question comes from one of the Rochester of compass point.

Hey, good morning. Good morning. I know you mentioned no updates on the guidance front for twenty Twenty-One, but the interest rate backdrop does with a little bit better today versus a few months ago. So just wondering if I could you talk about how your factory Matt in I know you'd mentioned and down even the low-to-mid single-digit range for the year at that point. So just curious what the offsets might be there if it's week or loan growth or some other area or maybe you're thinking that range is still good, but maybe it's better into that range more likely just any color layer would be great. Yeah. No, it's good question. You know, I think you know what we're looking at low single-digit year-over-year change in the margin decline in the margin, but I would say that you know after a good start if you think about how how do you how do you outperform that you kind of your first quarter is probably the toughest because you were on a declining Trend and so we're excited that we actually performed there and I think if you know the things that were not sure how long they last month.

But things like the extended foreclosure moratorium means that will be do doing less refueling of the Ginnie Maes. It means they'll be on the balance sheet longer, right? So that'll produce some results page and then the cash balances are relatively high. So, you know, I just say we feel good and optimistic about about at least at least meeting our projections.

Okay.

Great, and maybe just what did the loan growth front you you mentioned the the chain made by us is just wondering you just talk about how that opportunity looks they're going forward and then maybe just on the overall. Uh, it just said the PCP production for the quarter and then if we recognize these would be great. Thanks. So the last part again last part. Oh sure the the office in the quarter and then what you guys realized, uh, uh an advertised fee perspective as for yeah. Okay. So on the ginnies, you know ginnies it would be hard to to continue to find places to purchase ginnies. We we we keep working on it, but at the end of the day particularly again because of the Foreclosure modification and the extension going out we think they're just going to be fewer fewer opportunities to do that in terms of the PPP loans two and a half million. Yeah. We we booked 2.5 billion + PPP to wage.

During the quarter most of that in March and and then we had about 1.8 of repayments. So the the repayments did push the the income up a bit, but in total interest income from the PPP was relatively flat to slightly down a couple of million bucks from last quarter.

How much fees how many in the way of these do you have now?

It's left in terms of total. We haven't disclosed that number. I don't think I'm not sure but we you know, we were modestly didn't almost no change. Maybe it was down three million and we don't expect a significant change, you know, that'll that'll progressively move. But by next quarter, we don't expect a significant change on it. Yeah. It depends on the pace of repayments right, but I will tell you but I will tell you is that often you take step back and think about the margin of that we have, you know, the excess cash if you take the $20 that I talked about before if you didn't have that that essentially takes your printed margin up at 5:50 basis points. And if you also exclude all of the PDP activity balances and all the income that has about a nine basis-point impact in the other direction. So what really is interesting to me is that aside from those two factors are margin has held up really really well compared to historical terms, but it's just a little noisy. You can't see it because of those two items.

Yep, right. All right. Thanks for the call.

Our next question comes to the line of Gerard Cassidy of RBC Gerard. Hi Renee. How are you? I'm doing well. Good. You haven't lost your touch. Just like riding a bicycle home. I don't know. I'm doing slightly better than Darren. There you go. Got a question for you is you touched on already about the high amounts of liquidity that you have on your balance sheet with the cash sitting at the Federal Reserve being up so dramatically, you know, like the entire industry because of quantitative easing a such I guess. One of the questions I have for you is I can understand why JPMorgan Chase than some of our big money center banks have seen such a surge in deposits because of quantitative easing. Can you walk through for us how the flow is coming into your organization in terms of the deposits that you know forcing you now to you know, increase your

Basel in your reserves up to the central bank.

Yeah, that's a great question. I what you have to do is have to kind of go back prior to the pandemic and think about our operating model we mortgage and I mean more than most focus on core operating accounts, right? So we we have never had a need to actually do a national, you know a wage. What do they call those things internet bank that raises money, you know across the network. We're always raising money predominantly in our customer businesses with operating accounts. And so what you're going to see when that happens with operating accounts all of the cash from the stimulus all of the cash from the monetary events that have taken place are actually going into customer accounts and because our proportion of customer accounts and Juice core operating accounts are higher than than most institutions. You see the the impact on T is outsized now, that means that we got to manage it very closely. So today for wage.

Making sure that sort of nobody's renting our balance sheet for free and and and and you know, just parking money that nobody else wants again or operating a Concepts off, but that's the principle reason and you can actually draw a comparison between a percentage of both DDA and let's say transaction accounts if you get that information across institutions and Thursday before the crisis, and then look today, you'll see that that's the differentiator.

Very good and then to bring those balances down. It's not necessarily going to take higher interest rates where they would maybe move the money out. It would be more business activity picking up where they utilize the cash to grow their businesses. Exactly. Exactly. So so that's one of the things that you'll begin to see you'll see I think you're going to see both on the consumer side and business more spending money. I think it might be one of the factors which gives us the most uncertainty about loan growth because there's so much cash that's been built up and then if you start looking at certain factors, if not just sentiment remember for example with large was with middle-market companies, you know, the supply chains are still not fully unlocked and back to normal, right? So that's preventing me from maybe building up in inventories, you know, very classic example would be that with the Auto industry so forth so but you've got that exactly right? I I would expect to see that a fair portion of the Dead.

Starts to increase spending both from consumers and Commercial. I also think this is my own opinion that events like pandemics linger for a very long time and the idea that customers are going to keep higher ongoing levels of cash as a permanent way of doing business makes a lot of sense to me.

Very good and there's a follow-up question and you touched on it in the answer. You just gave me your one of the you know, better floor plan financers financiers, you know throughout the Northeast wage orders. Can you talk to us to the very issue about the supply chain? There's quite a bit written about the shortage of semiconductor chips, you know affecting the production of automobiles What's your deal is telling you and how are they doing right now?

well

I think the dealerships are all doing fine. Right because the activity there is that it's very difficult to get new cars but having said that there's a search around right for for used cars and so as things for example as your your car comes off lease, right if if if you don't actually take on and buy that car there they had some nice source of cars into the into the dealers and this is one of the principal reasons why you know, the prices are so high right if you're thinking about the third quarter of last year. We thought were sort of record highs on used car prices off. What and we thought that by the fourth quarter that would start to come down. But those Supply chains really haven't unlocked and the prices are just continuing to go up which means the dealers are really healthy, you know this sort of a nice natural offset for them. Very good and if Darren's listening get quick get better quickly during thank you for joining.

Thanks, Sarah.

Our next question comes from another Network owner. Eubanks. Hey, Matt, good morning, just to push maybe one last time here on the cash part of the discussion. So, you know, you definitely seem more confident that some of the cash is going to stick we've seen a pretty material Rising rates, although off of a really low level and your your loan Trends are are better than peers which I want to ask for my second question, but it's still just very modest growth. Like what are you waiting for them to buy some Securities and if if you had loaded up on Securities, I'd ask you why you're buying so much. So I asked at the extremes because we took all your cash put it in like some other Banks. I think it adds about 10% to earnings. So what are you waiting for? So this is how it goes. This is how it goes internally, right? So I call up. Yep.

Scott Warman we ask that exact question every month. What are you waiting for? And and then what we find out is we're really really happy when the ten year olds that it slows that he he didn't respond to us off and you know, but when when the 10-year got its self up to the 170s rains, you know, we've dipped our tow back in the market but not significantly because we just kind of look through and I think that you know, these bond prices don't don't make much much sense from a long-term perspective and we know that right so while we could make a little bit more money we're constantly focused on on risk-adjusted returns. Are we making the right decision? So so while we might purchase a few more Securities, I don't see it being a meaningful move or a meaningful change in the way home position it unless we see better risk-adjusted Returns on on those portfolios Matt the option adjusted spread on pass-throughs turn negative again, so you're not being paid to take the negative control.

You risk another bank think differently. But yeah, it's a 10-year asset that you're logging in.

Agreed. Yeah, so just separate question, you know, the loans picked up a little bit this quarter. I think the industry overall was down to 3% your yearly touched on like the Ginnie Mae purchases, you know ppnr big swing Factor. You're probably benefiting from not having as much card run off but it still feels like wage everything loan Trends are a little more resilient and I'm wondering if you would agree and and what's driving that and then of course when things pick up, you know usually doesn't lead the pack in terms of loan growth. But how do you think you'll fare versus the industry from here? I think I think that our customers are more optimistic than they were last quarter and the quarter before

I think that sentiment will continue to change I think you're going to see more activity and the question will be a matter of timing, you know, do they use their cash and do they do they come up but we do the transfer you look at this quarter. It's actually been pretty decent on on the on the C and I see a nice Pace when you you net out the PPP effect. So commercial real estate. I don't expect to do much for you know for the near-term. I think there's a logical obviously a lot of pain there but there's also a lot of reset setting going on the the one place where I think we've talked about everybody's talked about wage house and Industrial the issue there though is because it's the only class in real estate that the that that prices begin pricing in economics have been completed away. So it doesn't make any sense just an economic perspective for us to lean into that space. So I you know, I think we're optimistic about loan growth for the long term, but it's just going to take some time to to log.

to start moving in the right direction

Okay. Thank you very much.

Our next question comes from one of Bill carcache e of Wolfe's research. Thanks. Thanks. Good morning. It's good to hear you on the call. Again Renee. I know Revenue synergies weren't included name and your initial guidance post the People's United acquisition. But Renee how much Focus there is ahead of closing on doing everything. You can to really hit the ground running in 2020 to page. You're looking at some of the opportunities that I'm in t will have in their legacy markets and vice versa.

Yeah, well, you know it's kind of funny that actual just the whole process of integration is really getting at that, right, you know, we've what I would start by saying is we sort of set up our our our our our our transition teams everybody on each side of the organization. Both organizations have met with everything that we've seen particularly on, you know on on the businesses that we're not really part of have confirmed everything that we saw and due diligence number to Thursday. We're super impressed with their talent and their people, you know, we've done a lot of Acquisitions among all of them. This one's sort of stands out where the people running the business has. The business are are really capable including the you know, the couple of businesses that we don't have so there's a lot of dialogue going on just around exactly what you're talking about. And yep.

just remind you that you know, we think for

Example from the M&T side some of the the capabilities that we have with small business banking our key treasury management Capital markets expertise extending that to their customer base is going to prove a significant opportunity. We have M&T Realty Capital court court which allows us to meet the needs of real estate clients, but not necessarily use our balance sheet for that. That's a new capability for them. Then of course Wilmington Trust combined with their wealth. I think we're going to bring a lot more capabilities combined than we would individually to the New England markets. If you go the other way, we're very exciting continued to be excited about the equipment Finance business and being able to offer that those services to M&T small business and middle-market customers and suck. You know, it. It's it's not a short list, right which is sort of one of the principal reasons that that we felt that we could do a better job for our our Collective customers together than than than separately dead.

Understood just to follow up on not to beat a dead horse, but the follow-up on on the excess liquidity discussion your rationale a ton of sense, you know, but but I guess, you know, just just looking at the numbers we've seen the the Securities portfolio go from over 14% of of your average or any assets in 2017 to just under 5% this quarter at some point and you've talked to around this, but but maybe could you just give a little bit of color on you know the extent to which you're worried that at some point your competitively disadvantaged wage. You have nothing else from from the opportunity that you're for going, you know, even if if it if it comes with some some some interest rate risk, but maybe you know a little bit of of color around that point.

I'll just simply say Bill you're thinking about it the right way, right? I think that you know, we're very disciplined in that we look at almost every trade but you really have to step back and look at the overall balance sheet, you know, we're below seven billion in insecurities, right? And so at some point you're you're really only going to go solo but if you compare that to when you make that decision and think on average where the 10-year has been not today, but we're it's been we're really happy with our our decision. But the same time you're totally right like you gotta look at it as a portfolio and we as and we do believe and we're getting more and more evidence particularly as new programs come in like the you know, the infrastructure bill that they're talking about next, right? It gives us some sense that the risk is lowering that you know in the cash maybe around a lot longer than a bit longer. So so we'll have to look at that that overall portfolio and realize how you know, how small can the Securities portfolio get. It's very helpful. Thank you.

our next question comes from line of Peter winter or what the Security's

Good morning, Renee. I wanted to ask about acid sensitivity in Prior calls. Darren had said for each 25,000. This point rate hike Nim benefits 6 to 10 basis points, but the balance sheet has gotten so much more assets sensitive. And so I was wondering can you just give an update to the impact to the name from. Hikes and then secondly, are there any plans to maybe reduce asset sensitivity with layering in some swamps?

So first of all, the the the numbers are guaranteed Erin gave like that you decided last court haven't changed much at all. We're we're we're pretty much the same positions wage, but it's sort of the same topic, right? I mean so, you know by by putting on swaps you're turning a floating-rate acid into a fixed rate asset set another way you're adding to your fixed rate exposure and you can do the same things with Securities, right? But what really cautious about doing that and it's on said locking in, you know, negative economic returns. So it's a good thing. I mean those other way to say is that if you're worried about the negative economic returns one offsetting factor is that you're actually neutralizing yourselves, right? Because I think that race can't go below zero, but that's not true. And and so there is some added benefits of that but the swap issue is the same as the Securities issue to me.

Okay, and then can I just ask about the the credit Outlook? Just how are you thinking about net charge-off the remainder of the Year, especially with you know, not expecting much loss content in the hospitality portfolio.

Yeah, I think I think what Darren has talked about is is that you know will will continue remain or maybe slightly above our our historical average. I think our long-term Average Joe's in the mid-30s 30 range. I think that you know, if you think about just to give you a sense if you if you think about gross to charge us back out of recoveries were were about a hundred and twenty two million last quarter 123 million Discord pretty steady. What was different about this that brought us down to thirty thousand points does that we had about twenty twenty-three twenty-four million dollars more of recoveries. One of those for example was on a company that the supplier to the energy business with a fracking businesses like mr. Flyer of services there and but the rest of them were, you know, across-the-board smaller smaller number of recoveries. So the the consistent Trend I think is dead.

Their underlying that it's hard to predict what's going to happen with recovery. But but you know, I think I think Darren's comments right makes sense. Maybe a door let maybe slightly above and for some period of time off our long-run average.

Got it. Thanks for that.

Jeffrey

Hi, good morning. Hey Renee. Just a one one question on the side. I think you mentioned in your prepared remarks that the residential related fees were up and helped by higher gain on sale. Marja is a nice bucking of the trend versus most industry peers. Can you just talk us through was that about timing or about mix re securitization just and and you're you're forward thoughts on just how the Home Mortgage business should should act going forward. Thanks. Yeah, you got it right timing and next that's perfect statement. You know, I think if you were to look at underlying margins as you think life surely margins of the customer those were flat to slightly down, but there was a lot of noise and volume and rates moving around in between and so that sort of Market sensitivity allowed us to capture more economics. And so the overall gross margin was higher if I saw something that was slightly encouraging it. Was that while we had maybe a just under 4% off.

in applications

Pipeline at the end of the quarter was up 5.5% So we kind of, you know ended the quarter with the same momentum that we had or maybe slightly better than we did during the quarter off. So, you know, that should help as we move into next quarter. I I mean I hard to predict what's going to happen with margin, but but that's core. Underlying Trend was slightly negative.

Okay, got it. And then just on the trust income line another, you know good performance. They're up. Sequentially. Did you have any incremental burden from money-market fee waivers? And if so, do you know the where the wage stands right now in an aggregate? Yeah, so it's a good point. So when you look at those numbers, they we had a nice growth. But but there was an offset from the money off waivers. I think the total amount of waivers that we have are around twelve or thirteen dollars that are embedded in that today and I think that increased by a million bucks quarter of

Okay, last Quick One in the S4. It mentioned that you guys will eventually give 25 million dollar donation. That would be I think you said at or prior to closing. Is that more of a closing quarter number that was was that in this quarter is that more of a closing quarter type of thing that you would do on the donation know so go what what what we did this quarter was suffered from what we will do for people's which will decide at the at the time of the close. So what we did this quarter is I think you know, we just had a slightly elevated number we were off. I think we're we made contributions of twelve million dollars and we typically have been doing about three. I think last quarter was around 3.

Okay, got it. So that twenty-five you mentioned would be more closer and and contiguous with with the closing itself. Exactly. Exactly. Separate got it. Okay. Thank you.

Our next question comes from one of the material and thank you America America. Good morning Renee in Darien if you're listening. I hope you feel better Renee my question. I've been asking and answered. Thank you.

Any other questions, there's still several more to do.

Our next question comes from a friend shortly as Piper Sandler. Hi Frank. Let me guess you're going to ask about cash know I was going to but after the fact decided to describe but I only have yeah, I mean just just on on how much you know, trying to figure out how much Capital might still be locked up in reserves not only for M&T but you know further down and so just following up on the potential for additional Reserve release is the best way to think about where the reserve will cross it out in a more normal environment. Just look back at you know, the Cecil day one marked for you guys and for others and so for an empty, you know, maybe one 1.3% I think is where you guys took is that still the most reasonable, you know place to to put it. I mean, I I think I think

I'll say this I don't.

I don't disagree with what you said, but what it comes down to is what's your loan mix and what's the quality of your underwriting and that that for us really hasn't changed. So the you know, if I were to sit here to say answer the question, could we get back to you know our our where we were in Arlo's or a normal short? You know, we're going to still see the same cycle be sharper. But in a Kamar more neutral environment we would have you know, we would probably look like we did in the past.

Okay, and then just a quick follow-up on Triple P forgiveness, you know, you still have a significant level of twenty-twenty triple P loans on the books and and just wondering your thoughts on there's a majority of them went off the books contain the current quarter actually think about that for modeling know we haven't running down sort of, you know over time it it there's no sort of sharp sharp drop in that in that space. So I mean as you're thinking about quarter-over-quarter and getting your way through the year and into next that's what I would think about it We Be Steady drop off did you mind I think if you take Mike's comments

You kind of get a sense of the ins and outs. And so I think we on the on the original loans are we 50% of the way through has been run off of 50% of the original TV loans, which started at about 7 billion six and half billion were were are now gone and 50% over there. So that should give you some sense.

Okay. Thank you.

Our next question comes from line of Mike mayo and Wells Fargo security. I hate Renee your CEO letter talks about new approaches with business banking and you know from Baltimore-Washington Philly, Delaware, Virginia, and I I heart radio and interviews with the hundred thirty local CEO. So it seems like, you know revising your approach locally. My question is what metrics do you track to to monitor your progress and have those metrics changed and where do you hope those banks will go. I know you're not talking about the People's United transactions, but it would give a you know, better sense for you know, are you looking at market share by MSA? Are you looking at home average fees for business customer or what else? Are you looking at to monitor your progress? I think you'll be happy to know it's not fancy of yep.

I sure the amount of checking accounts business banking checking accounts. We open every month against the amount of checking accounts that we close on the ones that we close. We're trying to find find the friction points off and make things easier so that so that you know, they're they're not, you know, leaving and transitioning out and it's really interesting that you ask the question because I mean we've seen them just

I would just

I'll just use the words. I mean, let's see how permanent is but we've seen a dramatic increase in our business banking DDA production primarily driven by a new customer acquisition. And I think what's happening is that's a combination of this idea that we've been introduced as a trusted partner through the PPP program. We've been introduced to a lot more customers and at the same time we now, you know, it's not been that long since we launched our Small Business Online origination Channel. And so what we're seeing is that you know, the combination of those two things. I guess people's awareness about our capabilities and what we do have actually increased so really simple every quarter, you know, what's happening with checking accounts. We opening them are they from existing customers new customers what stage they're working in? I have a real big bent on empowering.

Our teams in the individual communities. So the way in which we do things in you know, Boston or New Hampshire might be different than Baltimore, but the expectation on the metrics are going to be all the same how many qualities uh, checking accounts. Are we opening? Not necessarily how much lending we're doing because we think all that leads to apathy company will will will end up in the end doing loans and things like that with it.

And just to follow-up. Do you have any aggregate metrics that you expect that called out from the approach? Like I said, it could be Ms. Market share by Ms. A or a used or just the the level of growth or is one region lagging behind. Another region is like the southern portion a little behind. Well, I mean a couple of things we look at we we we we look at we've talked about a lot we're doing a lot around Net promoter score. We do a lot around the Greenwich work and if you think about the Greenwich work underneath it doesn't show me tell you that you know made a lot of loans and tells you how do they survey your customers and they tell you where you stack up. So, you know far do you do business with us off your lead Bank? We sort of measure those things religiously and and yeah, I I think what you'll see is usually it's the most volume of thing that we have is ranked we talk.

About it all the time. Are we the number one number two S D A lender if we're not the number one or two in our markets then then why and what's happening in those spaces?

Even that not a pure thing cuz it doesn't cover everything but it's a huge indicator of the activity and how engaged our our workforces if they're not in the number 1 2 or 3 spot in the community.

All right. Thank you.

Oh, yeah there a mute.

Oh, sorry about sorry about that. I was on mute. Thanks for taking my question. But how much in hedging come did you did you earn this quarter from Georgia swamp book? I think you said $275 million for the Ford year, but I don't think you you gave a number unless I make $99,000 million. Okay. Yeah, I will say I'm sure sure you know, I'm in this little temporary I get the stage for 411 morning. But you know, I tend not to worry about too much about looking at Hedges on their own because the heads only matters in the context of the rest of the portfolio. And so to the extent that we decided not to slow down our hedging or or stop the hedging what what basically you're left with is you're moving away from you know, you've turned floating-rate assets into fixed rate assets your move.

Back basically and the question is what's happening with the rest of the portfolio in in past recessions.

We would see much higher margin on our role on Commercial loans, and that would be replacing.

The Rundown in the hedges

And so the real issue is longer in my mind. That's how I think right now the change that next week. So you you only have 30 days to think the way I do watch TV is good. Got it. Just if I could pick a bit over to Capital and ask how you're thinking about your your your optimal Capital position wage once the deal closes and you know, I think you've talked about about a 10% see if you won, you know, you'll be subject now to the June twenty result of seemingly gives you a healthy cushion and I believe you talked in the past about being sort of at the lower end of your peer group. So putting all that stuff together. Like, how are you thinking, you know about Capital returns and the capital optimization optimal capital and you know, as we had in the twenty-two now is is is right. We think you know, ultimately our desire is to run, you know towards the loan. No,

Under our peers. I think the context to think about is, you know, we went under a really really hard stress test last fall to read the redo last fall and break into that test around 9 for and we were able to survive, you know, pretty severe space particularly in the real estate space, which we have high, high concentration and we're a hundred basis points above that today, right? So that tells you you know that starts to tell you the excess part of the other thing is, you know, I think we're going to see a change not immediately but over time around our state exposure and how we think about those things because to the extent that they're sort of a de facto Assumption of losses on real estate in the teens when you booked it, right when that begins to change the economics and we have to think about our portfolios because we believe just being efficient use of capitals really important. So we've got a lot about how we might do certain things differently in the commercial real estate space into the extension.

we do that means that that

Will be even position us better to be at the lower end of our our our peers.

Got it's really worth. It's helpful, right? That's helpful. Thank you.

And ladies and gentlemen, that was our final question. I'd like to turn the floor back over to domican for an additional or closing remarks.

Again, thank you all for participating today. And as always if clarification of any of the items on the call, or the news release is necessary. Please contact our investor relations department at 716-842-5138. Thank you, and goodbye.

Thank you. Ladies and gentleman. This does conclude today's conference call. You may now disconnect.

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