M&T sitting on excess deposits — for now

Many deposit-rich banks are plowing excess liquidity into securities to get at least some return during a period of tepid loan demand, but M&T Bank in Buffalo, N.Y., is an outlier.

The bank is sitting on excess $20 billion of deposits that flowed during the pandemic as customers stashed away government stimulus checks. But it isn’t keen on investing the money in “low-return assets” when it’s still not clear just how long the deposits will stick around, Chairman and CEO René Jones said on M&T’s first-quarter earnings call Monday.

However, he said that the $150.5 billion-asset M&T could shift its position as it is starting to sense that the surge in deposits is not just a pandemic-era blip.

“I think we may see a higher level of cash balances for quite some time and as that becomes more clear to us, we would think of investing those dollars,” Jones said.

Deposits at M&T Bank have climbed by nearly 30%, to $128.5 billion, over past year.


M&T’s stance contrasts with that of other banks, which are choosing to deploy the cash into securities, fund new lending efforts or repay Federal Home Loan bank advances or other borrowings. Deposits at commercial banks — which totaled $16.8 trillion on April 7 — surged in the second quarter of 2020 and have continued an upward trajectory since.

At M&T, deposits rose to $128.5 billion as of March 31, up 28% from the same quarter in 2020.

Piper Sandler analyst Frank Schiraldi said M&T’s decision to sit on excess cash is not surprising, given the bank’s tendency to “focus on the long term.”

“The question is, is it a good risk-adjusted return? And the answer right now seems to be no,” he said. Plus, “determining how much of that will stick around is sort of a work in progress.”

M&T reported net income of $447.2 million for the first quarter, up 66% from the same quarter in 2020. Earnings per share were $3.33, topping by 33 cents the estimates of analysts polled by FactSet Research Systems. As at many banks, the year-over-year growth was driven largely by the release of loan loss reserves. M&T set aside $1.6 billion for loan losses in last year’s first quarter, but took a negative provision of $25 million in this year’s first quarter.

Expenses ticked up 1% year over year to $919 million, including $10 million in charges related to the bank paying $7.6 billion to acquire People’s United Financial in Bridgeport, Conn.

Loans and leases increased from $94.1 billion in the first quarter of 2020 to $99.3 billion at the end of March, driven upward by growth in commercial loans, including Paycheck Protection Program loans; residential real estate loans and consumer loans, reflecting higher balances in automobile and recreational vehicle and equipment loans, the company said.

A sore spot in the company’s fourth quarter earnings was nonaccrual loans. In the first quarter, they climbed 5.4% year over year to nearly $2 billion, largely due to weakness in its portfolio of loans to the hospitality sector.

The bank recorded a $1 billion increase in its book of classified loans, about half of which was tied to hotel properties, Jones said. In response, the bank is reappraising all of its hospitality properties above $5 million and listed as classified, roughly 100 properties accounting for $2.3 billion in exposure, he said.

Through February, the company conducted 62 such reappraisals, Jones said.

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