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Companies are hesitant to make investments amid market volatility and policy uncertainty, constraining loan growth, M&T Bank said Monday. Still, the Buffalo, New York-based company isn't worried about its credit quality fading.
As banks report their first-quarter earnings, they aren't yet showing the full effects of the Trump administration's recent tariff policies that roiled markets, but their guidance is leaning cautiously confident.
M&T Chief Financial Officer Daryl Bible said on a call with analysts that his company feels sure of its credit quality, and "[has] a lot of 'knowns' on the balance sheet" that are boosting comfort in its future profitability.
"If things get really bad in the economy — which I don't think is going to happen — but if they do, then we can adjust accordingly," Bible said. "But right now, I think we're just seeing a slowdown for the most part."
The $208 billion-asset company reported tepid loan growth in the first quarter, and it doesn't expect a huge takeoff anytime soon, projecting loan growth of just 1% in 2025. One reason for the sluggishness is that competition for commercial real estate loans has picked up after many lenders took a hiatus from the sector.
M&T had started scaling back its exposure to CRE in 2021 — before a rapid rise in interest rates, work-from-home policies and increased scrutiny from regulators and investors fueled fears of a credit collapse. But in a turn for the sector, financial institutions are showing they're ready to ease back into the business following a hiatus, Bible said.
Brian Foran, an analyst at Truist Securities, wrote in a note after the earnings call that the comeback of CRE competition was a surprise.
"We had to do a double take that we were talking about commercial real estate — seems like only yesterday no one wanted to touch this stuff!" he wrote.
M&T's commercial debt portfolio continued to get healthier in the last 12 months, with total criticized commercial loans down more than 25% from a year ago, helped by payoffs and paydowns to multifamily, office, health care and construction loans in the CRE portfolio.
The bank announced last fall that its CRE loan shop was back open for business. But Bible said Monday that many lenders are offering debt with aggressive pricing and structure, making it difficult to beat out competition.
"At the end of the day, we aren't going to put loans on that aren't structured properly," he said.
In the first quarter, M&T's CRE loan book shrunk by 20% from the same period a year earlier. But Bible said the contraction is "not all bad," as the bank has been able to pull back from the riskier office segment while upping its exposure to multifamily and industrial building loans.
M&T expects the bank's CRE portfolio to hit its bottom around the fourth quarter. Criticized loans should continue to improve, Bible said.
Experts still see the CRE segment as a big risk for banks in 2025, as old debt matures at a time when interest rates have risen substantially from when many of the loans were made. But they also say that newly originated loans are in a different, better place.
M&T's bottom line for the first quarter was $584 million in net income, up from $531 million in the year-ago quarter, beating analyst estimates of $563 million, according to S&P. M&T's first-quarter diluted earnings per share, $3.32, missed estimates of $3.40.
The bank lowered its net interest income for the year to $7.05 billion-$7.15 billion, down from its previous guidance of $7.1 billion-$7.2 billion.
While M&T has grown its commercial and industrial loans some in the middle-market space, Bible said business clients who want to make investments are still in stasis.
"They are just really on pause right now," he said. "I think it's just a lack of confidence. They don't know what the rules of the road are right now. Things keep changing in D.C., and until that settles out a little bit, I think they're going to be on hold."
Uncertainty has plagued industrywide loan growth since before the election, and the recent market turmoil induced by President Donald Trump's tariff policies has made the picture murkier. There had been hope after Trump was elected that business-friendly policies would pump some life into the market, but the latest policy roller coaster and panic on Wall Street has kept folks sitting on their hands.
The administration's priorities have also led M&T to downgrade two smaller credits in its government contractor book, and one loan to a nonprofit specializing in immigration, Bible said. The Trump administration has been seeking to slash federal expenditures and has also prioritized an immigration crackdown.
Still, Bible expects banks to see certain benefits from the new administration. Leaders of financial institutions are hopeful that financial regulators under Trump issue new guidelines regarding capital requirements and reporting policies, to reduce administrative burdens.
"I think it's an opportunity-rich environment to actually make some improvements and be more efficient," Bible said.
