M&T Bank Corporation (MTB) Q1 2023 Earnings Call Transcript

M&T Bank Corporation (NYSE: MTB) Q1 2023 earnings call dated Apr. 17, 2023

Corporate Participants:

Brian Klock — Executive Vice President and Head of Markets and Investor Relations

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Analysts:

Ebrahim Poonawala — Bank of America — Analyst

Manan Gosalia — Morgan Stanley — Analyst

John Pancari — Evercore ISI — Analyst

Dave Rochester — Compass Point — Analyst

Matthew O’Connor — Deutsche Bank — Analyst

Ken Usdin — Jefferies — Analyst

Gerard Cassidy — RBC Capital Markets — Analyst

Steven Alexopoulos — JPMorgan — Analyst

Brian Foran — Autonomous Research — Analyst

Presentation:

Operator

Welcome to the M&T Bank First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to Brian Klock, Head of Markets and Investor Relations. Please, go ahead.

Brian Klock — Executive Vice President and Head of Markets and Investor Relations

Thank you, Shelby [Phonetic] and good morning. I’d like to thank everyone for participating in M&T’s First Quarter 2023 Earnings Conference Call both by telephone and through the webcast. If you have not read the earnings release we issued this morning, you may access it along with the financial tables and schedules by going to our website www.mtb.com. Once there, you can click on the Investor Relations link and then on the Events and Presentations link.

Also, before we start, I’d like to mention that today’s presentation may contain forward-looking information. Cautionary statements about this information as well as reconciliations of non-GAAP financial measures are included in today’s earnings release materials as well as our SEC filings and other investor materials. These materials are available on our Investor Relations webpage and we encourage participants to refer to them for a complete discussion of forward-looking statements and risk factors. These statements speak only as of the date made and M&T undertakes no obligation to update them.

Now I’d like to turn the call over to our Chief Financial Officer, Darren King.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Thank you, Brian, and good morning, everyone. Our first quarter results reflect the strength of our balance sheet and liquidity position as well as the impact of our merger with People’s United Bank. Compared to last year’s first quarter, revenues have grown over $970 million, or 67%, translating into 24% positive operating leverage year-over-year. Pre-provision net revenues have more than doubled since last year to $1.1 billion. Credit remains solid with net charge-offs still below our long-term average. Capital levels remained strong with the CET1 ratio estimated to end the first quarter at 10.15%. During the quarter, we repurchased $600 million in common shares, which represented 2% of our outstanding common stock, and the board approved an 8%, or $0.10 per share, increase in the quarterly common dividend to $1.30 per share. Tangible common equity per share increased 3% to $88.81 per share.

In addition, April 1 marked the one-year anniversary of the closing of the People’s United acquisition. We’re pleased with the results of the largest acquisition in our company’s history. The tangible book value dilution was only 4% and has been earned back already. Merger costs were less than anticipated at the time of announcement. Our targeted expense synergies have largely been realized and are now in the run rate. As a result of the above, the return on investment and EPS accretion have exceeded those expected at the time the deal was announced.

Let’s take a look at the first quarter results. Diluted GAAP earnings per common share were $4.01 for the first quarter of 2023, down 7% compared with $4.29 in the fourth quarter of 2022. Net income for the quarter was $702 million, 8% lower than the $765 million in the linked quarter. On a GAAP basis, M&T’s first quarter results produced an annualized rate of return on average assets of 1.4% and an annualized rate of return on average common equity of 11.74%. This compares with rates of 1.53% and 12.59%, respectively, in the previous quarter. Included in GAAP results were after-tax expenses from the amortization of intangible assets amounting to to $13 million in the first quarter and $14 million in the sequential quarter, representing $0.08 per common share in both quarters. Pretax merger-related expenses of $45 million related to the People’s United acquisition were included in the fourth quarter’s GAAP results. These merger-related charges translate to $33 million after tax, or $0.20 per common share. There were no merger-related expenses in this year’s first quarter. In accordance with the SEC’s guidelines, this morning’s press release contains a reconciliation of GAAP and non-GAAP results including tangible assets and equity.

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 gains or expenses associated with mergers and acquisitions. We believe this information provides investors with a better picture of the long-term earnings power of the institution. M&T’s net operating income for the first quarter, which excludes intangible amortization and the merger-related expenses, was $715 million, down 12% from the $812 million in the linked quarter. Diluted net operating earnings per common share were $4.09 for the recent quarter compared with $4.57 in 2022’s fourth quarter. Net operating income yielded annualized rates of return on average tangible assets and average tangible common shareholders’ equity of 1.49% and 19% in the recent quarter. The comparable returns were 1.7% and 21.3% in the fourth quarter of 2022. As a reminder, GAAP and net operating earnings for the fourth quarter of 2022 were impacted by certain noteworthy events. This included a $136 million gain related to the sale of the M&T Insurance Agency, as well as a $135 million contribution to M&T’s Charitable Foundation. These items collectively netted and did not materially impact net income.

Next, we’ll take a deeper dive into the underlying trends that generated our first quarter results. Taxable net interest income was $1.83 billion for the first quarter of 2023, slightly below the linked quarter. The $9 million decrease was driven largely by $30 million in lower net interest income, reflecting the two-days shorter calendar quarter, partially offset by $13 million positive impact from our hedging program and $8 million from higher average earning asset volumes net of higher average interest-bearing liability volumes. The net interest margin for the past quarter was 4.4%, down 2 basis points from the 4.06% in the linked quarter. The primary driver of the decrease to the margin was the impact from a higher level of borrowing, which we estimate reduced the margin by 19 basis points. This was partially offset by the impact from higher rates on earning assets net of deposit funding, which we estimate added 18 basis points. All other factors had a negligible impact on the margin.

Total average loans and leases were $132 billion during the quarter, up $2.6 billion, or 2% compared to the linked quarter. Looking at the loans by category, on an average basis compared to the fourth quarter, commercial and industrial loans and leases increased $2.4 billion, or 6%, to $42.4 billion, with $1.9 billion being broadly based and $453 million of growth in average dealer floorplan balances. During the first quarter, average commercial real estate loans decreased by $363 million, or 1%, to $45.3 billion. The decline was driven largely by lower permanent mortgages as average construction loan balances were essentially flat. Residential real estate loans increased by $435 million, or about 2%, to $23.8 billion, due largely to the timing of the retention of originations throughout the prior quarter. End of period balances were essentially flat sequentially.

Average consumer loans were up $144 million, or about 1%, to $20.5 billion. Recreational finance loan growth continues to be the main driver of increased balances and these average loans grew $178 million, or 2%. Average earning assets excluding interest-bearing cash on deposit at the Federal Reserve increased $4.9 billion, or 3%, due to the $2.6 billion growth in average loans and $2.3 billion increase in average investment securities. Although average interest-bearing cash balances have decreased $777 million to $24.3 billion during the first quarter of this year, they came in higher than our initial projections. The sequential quarterly decline in cash reflects loan growth and the drop in deposit balances, partially offset by the proceeds from long-term borrowings issued during the quarter. Consistent with our expectations and normal seasonal outflows deposits declined sequentially. However, the $1.9 billion, or 1% sequential average decline, was slightly better than our expectations at the January earnings call.

We remain focused on growing and retaining deposits. Our experience in prior rising rate environments remind us to expect increased competition for deposits and changing customer behavior, leading to a mix-shift within the deposit base. During the first quarter, average demand deposits declined $8.4 billion, savings and interest-bearing checking deposits increased $1 billion, and time deposits increased $5.4 billion. Average commercial deposits declined and net $2.4 billion as business owners shifted $6.3 billion out of operating demand deposit accounts and into both on- and off-balance sheet sweep accounts to earn a higher return on their excess balances as well as to make distributions. Almost two-thirds of the decline in non-interest-bearing deposits was offset by movement into on-balance sheet sweep accounts, where those average balances increased $3.8 billion during the first quarter of 2023.

Turning to consumer deposits, they declined a net $758 million in the first quarter as $2.5 billion in outflows were partially offset by $1.7 billion increase in average time deposits. Lower levels of activity in the capital markets and seasonal factors also impacted average balances for the following lines of business: Trust fund demand balances declined $1.2 billion; municipal deposits declined $789 million; and escrow deposits declined $684 million. Average brokered CDs increased $3.8 billion sequentially, due almost entirely from growth during the previous quarter.

Turning to non-interest income. Non-interest income totaled $587 million in the first quarter compared with $682 million in the linked quarter. M&T normally receives an annual distribution from the Bayview Lending Group during the first quarter of the year. This distribution was $20 million in 2023 and $30 million in last year’s first quarter. As noted earlier, the fourth quarter of last year included a $136 million gain from the sale of the M&T Insurance Agency. Excluding these two items, non-interest income was up $21 million, or 4% sequentially. Trust income of $194 million in the recent quarter was flat sequentially. Service charges on deposit accounts were $114 million, compared with $106 million in the fourth quarter. The increase primarily reflects a full quarter of service charges on acquired customer deposit accounts after these fees were waived in October and November of last year. Mortgage banking revenues were $85 million in the recent quarter, up 4% from the linked quarter. Revenues from our residential mortgage business were $55 million in the first quarter compared with $54 million in the prior quarter. Commercial mortgage banking revenues were $30 million in the first quarter compared to $28 million in the final quarter of 2022. Other revenue from operations, excluding the distribution from Bayview Lending Group in this year’s first quarter and the gain from the sale of the M&T Insurance Agency in the sequential quarter, were $140 million, up $9 million sequentially.

Turning to expenses. Operating expenses, which exclude the amortization of intangible assets and merger-related expenses were $134 billion in the first quarter of this year, little changed from the fourth quarter of last year. As is typical for M&T’s first quarter results, operating expenses for the recent quarter included approximately a Gretzky of seasonally higher compensation costs relating to accelerated recognition of equity compensation expense for certain retirement-eligible employees. The HSA contribution, the impact of annual incentive compensation payouts on the 401(k) match and FICA payments as well as the annual reset in FICA payments and unemployment insurance, those same items amounted to an increase in salaries and benefits of approximately $74 million in last year’s first quarter. As usual, [Technical Issues] net charge-offs for the recent quarter amounted to $70 million, including amounts that reflect updated appraisals of nonaccrual office loans. Annualized net charge-offs as a percentage of total loans were 22 basis points for the first quarter compared to 12 basis points in the fourth quarter. Loans 90 days past-due on which we continue to accrue interest were $407 million at the end of the recent quarter compared to $491 million sequentially. In total, 75% of these 90 days past-due loans were guaranteed by government-related entities.

Turning to capital. M&T’s Common Equity Tier 1 ratio was an estimated 10.5% compared with 10.4% at the end of the fourth quarter. The decrease was due in part to growth in risk-weighted assets and the impact of the repurchase of $600 million in common shares, which represented 2% of our outstanding common stock. Tangible common equity totaled $14.7 billion, up slightly from the end of the prior quarter. Tangible common equity per share amounted to $88.81 per share, up 3% from the end of the year.

Turning to the outlook. As we look forward to the rest of this year, we believe we’re well-positioned to navigate through the challenging economic conditions. However, the rapidly changing interest rate expectations, combined with continued pressure on funding, affect our outlook for the full year of 2023. As a reminder, the acquisition of People’s United closed on April 1, 2022, and thus, the outlook for 2023 includes four quarters of operations in balances from the acquired company compared to only three quarters during 2022. Our 2023 outlook also reflects the sale of the M&T Insurance Agency that closed in October of last year. And even though the sale of the Collective Investment Trust business is expected to close in the first half of this year, our outlook includes the full year of operations from this business.

First, let’s talk about net interest income outlook. The outlook for interest rates and the economy continues to change frequently. Since March 8, the 10-year U.S. government bond yield has dropped 46 basis points and the forward curve has changed meaningfully as well. We expect taxable net interest income to grow in the 20% to 23% range when compared to the $5.6 billion during 2022. This range reflects different rates of deposit balance growth, deposit pricing, and loan growth. Consistent with the current forward curve, our forecast incorporates two 25 basis-point cuts in the final quarter of this year.

As we noted on the first quarter call, a key driver of net interest income in 2023 will be the ability to efficiently fund earning asset growth. We expect continued intense competition for deposits in the face of industry-wide outflows. Full-year average total deposit balances are expected to be down low-single-digits. Compared to the $158.5 billion average during 2022. During the first quarter, we issued $3.5 billion in senior debt and we’ll utilize the combination of FHLB funding and senior debt over the course of this year as needed to ensure that we can continue to meet the long demands of our customers. We continue to expect the deposit mix to shift toward higher-cost deposits with declines expected in demand deposits and growth in time and on-balance sheet sweep. This is expected to translate to a through-the-cycle interest-bearing deposit beta in the high-30% to low-40% range. Taking all these factors into account, we anticipate the net interest margin to be slightly below 4% for the full year of 2023 and to continue to migrate towards the long-term range we have been discussing for the past couple of quarters.

Next, let’s discuss the drivers of earning asset growth. We currently plan to grow the securities portfolio by $2 billion compared to the $28 billion balance at the end of March of this year with the addition of longer duration mortgage-backed securities throughout the year. Looking at average loans, we expect average loan and lease balances during 2023 to grow in the 10% to 12% range when compared to the 2022 full-year average of $119.3 billion. We anticipate growth to continue in the second quarter and then for average balances to be flat to slightly down over the second half of the year. This implies total average loan and lease balances in the fourth quarter of 2023 to be up 1% to 3% from the $129.4 billion average during the fourth quarter of 2022. The mix of C&I, CRE, and consumer loans, inclusive of consumer real estate, is almost one-third each as of the end of March. We expect this trend to shift slightly as C&I growth outpaces CRE. As we’ve seen over the past three quarters, higher levels of interest rates are expected to slow down the growth in our consumer loan book in 2023. After these average loans grew 2% in the first quarter, we expect the indirect portfolio to be relatively flat over the remainder of the year.

Turning to fees. Excluding the $136 million gain on the sale of the M&T Insurance Agency in the fourth quarter of 2022, as well as securities losses, net interest income — sorry, non-interest income was $2.23 billion in 2022. We expect 2023 non-interest income growth to be in the 7% to 9% range compared to the $2.23 billion in 2022. This outlook for non-interest income includes the impact of a bulk purchase of residential mortgage servicing rights which we completed at the end of this year’s first quarter.

Turning to expenses. We anticipate expenses excluding merger-related costs, the charitable contribution, and intangible amortization to be up 11% to 13% when compared to the $4.52 billion during 2022. Recall that approximately half of this increase reflects an extra quarter of People’s United expenses. In addition, this outlook for net operating expenses includes the impact of the previously noted mortgage servicing rights purchase. We do not anticipate incurring any material merger-related costs in 2023 and intangible amortization is expected to be in the $60 million to $65 million range during 2023.

Turning to credit. We expect credit losses to migrate towards M&T’s long-term average of 33 basis points although the quarterly cadence could be lumpy. Provision expense over the year will follow CECL methodology and will be affected by changes in the macroeconomic outlook as well as loan balances. For 2023, we expect the taxable equivalent tax rate to be in the 25% range.

Finally, turning to capital. M&T’s Common Equity Tier 1 ratio of 10.15% at March 31, 2023 comfortably exceeds the required regulatory minimum threshold, which takes into account our stress capital buffer, or SCB. We believe the current level of core capital exceeds that needed to safely run the company and to support lending and our communities. We plan to return excess capital to shareholders at a measured pace over the long term. However, in the near term, we plan to maintain a CET1 ratio slightly above the current level until the current economic uncertainty abates.

With that, let’s open up the call to questions, before which Shelby will briefly review the instructions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] To get as many questions as possible, we ask that you please limit yourself to one and one follow-up. We’ll take our first question from Ebrahim Poonawala from Bank of America.

Ebrahim Poonawala — Bank of America — Analyst

Hey, good morning.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Good morning.

Ebrahim Poonawala — Bank of America — Analyst

I guess, I just wanted to go back to the deposit beta in the NII guidance. So, high-30%-s to low-40%-s deposit beta. If you can unpack that a little bit in terms of how has your view around deposit pricing behavior changed today relative to January and that could be because Fed funds is at 5% events of the last one month post SVB, can you give us a flavor of commercial versus retail? Are you seeing differences? And has one changed a lot more than the other? Would appreciate any color there.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Sure, Ebrahim. The deposit betas are largely moving consistent with how we thought they would. When we think about the cumulative through-the-cycle beta, we really haven’t changed our thought process there. What happens is kind of from quarter to quarter you might see the pace at which we get from where we are today to that terminal, cumulative beta shifts a little bit depending on the competition. And obviously, the first quarter, there was a lot of disruption going on in the market. But generally, the most elastic deposits are the commercial and the wealth deposits. And when we look underneath the hood there, we see that the betas of the commercial deposits are in kind of the mid-60%-s to low-70%-s. And that will be hiring commercial, if we add in small business, that comes down a little bit because those deposits tend to be a little bit less price-sensitive. And then when you get into the consumer space, you’re in kind of the mid-teens deposit beta so far. And with that number, that includes the impact of time deposits. If we didn’t include the impact of time deposits on those consumer deposit betas, they’d be pretty low. But we tend to include the time when we think about the beta because we see time for consumers as a substitute product in rising rates for money market savings and savings accounts. And so, we try to think about the all-in funding cost, which includes time deposits, which is which is why we include those.

And so, when we look at the quarter and we look at the decline, for me, a couple of things kind of jump out. First is that the decline in deposits this first quarter versus last year’s first quarter are almost identical. And so, given that last year was kind of a more normal year and this year had a lot of activity going on, for those numbers to be about the same when you look at as at, that’s — that gave us a lot of — we felt really good about that. And the other thing is just a little bit about there’s a normal seasonal decline that happens in the first quarter as commercial customers tend to make their distributions to principals to pay taxes. But underneath the surface, it’s important to keep in mind that there are a couple of things that affected deposit flows for us this quarter. One was trust demand balances were down about $1 billion too, right? So, 20% of those balances were trust demand balances which moved with economic activity and another $700 million odd was escrow and with mortgage rates moving, there’s less activity and so a little bit less action in the escrow accounts. And so, outside of that, I see it as very typical seasonal decline in commercial balances offset by folks moving — commercial folks in particular, moving some of their balances and into on-balance sheet sweep or interest-bearing. And so, we kind of look at those two categories together as one. And when rates go down, we see deposits flow into non-interest-bearing and when rates go up, there’s a different mix of interest-bearing and non-interest bearing. But nothing that we’re seeing that’s outside of our history, our expectations. So, hopefully that — I said a lot, gives you a little color.

Ebrahim Poonawala — Bank of America — Analyst

It was a lot, and thank you so much. And just in a separate question, I think you mentioned you provided some — you made some reserves against office CRE. Obviously, a lot of focus there. Give us a perspective of, is there a pool within your office CRE book that you view within the CRE book as higher risk? And how do you frame the loss content if some of these buildings end up in foreclosure and you had to have a distressed sale around that? Is it easy to handicap that right now and just your thought process in managing that portfolio? Sure. Office obviously is getting a lot of attention in the world and we’ve been focused on it for quite some time. When we go through it and we look at what we think the loss content is, it’s a little bit tricky to estimate right now only because there hasn’t been a lot of asset sales. I think in talking to our team prior to the call, they suggested that there were four properties that’s sold nationwide outside of Manhattan and three in Manhattan in the first quarter. So, that’s not a lot of activity to get a market price. So, everything that’s happening is everyone’s looking at cash flows and NOIs. And so, when you think about the cash flows as we think about our clients, it’s — one of the things that’s really important to keep in mind is about two-thirds of our clients in real estate in general have put on fixed floating to fixed swaps on their loans. And so, the impact of the interest rate increases hasn’t really affected their ability to carry the loan and then we start looking at what’s coming due. And so, you worry about maturities and the ability to — for folks to refi and the pace at which those loans might come due. And so, when I look forward — when we look forward into the next couple of quarters, in aggregate, we have about $200 million of office maturing each quarter for the next two, and it actually drops down in the fourth quarter. And when we look at the LTVs of what’s maturing, we’re in the neighborhood of 80% of those maturing loans have an LTV of 60% or less. And again, it’s important to keep in mind that not all of those LTVs are calculated off a brand-new appraisals, some of them are — will be a little bit dated. But when you look at some of the protections in place, there’s a bunch of room there. So, that’s not to suggest that there will be no losses. As you can see in our results for the quarter, we did take some partial charge-offs on a couple of office properties as we did get new appraisals on on things that we’re troubled. But there is still room there. And I think for us, we keep looking at what’s the pace at which the loans are maturing. And I think what you’ll see, certainly for M&T, and I would expect although I don’t know other people’s portfolios, that the office story is one that will play itself out over multiple quarters, if not multiple years, because of the maturities, because of the fact that most people will hedge if they got a floating rate note. And a lot of the leases are still not maturing because office leases tend to be longer-dated than residential. When we look at our office leases, the numbers something in the neighborhood of 75% don’t come due until after 2024. So, lots — I guess, the long-winded way of saying it’s a concern. We’re watching it. Our portfolio is pretty broadly spread across our footprint. And it will play itself out over the next several quarters. That’s great color. Thank you so much.

Operator

And we’ll take our next question from Manan Gosalia with Morgan Stanley.

Manan Gosalia — Morgan Stanley — Analyst

Hey, good morning.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Good morning.

Manan Gosalia — Morgan Stanley — Analyst

Just on the deposit side, I mean, it’s not surprising that deposits ended the quarter below the average. Can you talk a little bit about the trajectory of deposits in the second half of March? How much — I guess, how much the deposits balance has changed through from Feb 28 through the impact from SVB through quarter end? And even if you have, what’s been happening quarter-to-date this quarter?

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Sure. I guess, I would just caution on drawing cause and effect that the numbers are the numbers, but whether the decline that happened in March was specifically attributable to the SCV or signature challenge is difficult to say, just because there’s normal activity that happens in the first quarter, right? As we mentioned, the trust demand balances move based on capital markets, not activity, not necessarily because of an exogenous event. But roughly, when you look at the decline in total deposits over the quarter, it was about 60% happened before March and 40% happened in March, but a little bit heavier March, but as you get into that March time frame, that’s when we got our distribution from Bayview, which is when distributions often get paid right in front of taxes for commercial clients. And so, when we look at the effect on the bank of the changes that happened, what we tended to see was we opened up more accounts in our business and middle-market space than we would typically in a month. And we saw balances come onto our balance sheet as people sought to diversify. And there were some cases where that went the other way. But net-net, we were flat to slightly up from what our expectations were given all the activity that was happening in the marketplace.

So, from our perspective, we were in line with what we thought for the quarter and pleased with how the client base and our teams reacted to everything that was going on in the world in the month of March.

Manan Gosalia — Morgan Stanley — Analyst

Got it. And, I guess, how confident are you at this stage that deposit balances stabilized? And to the extent, we noticed that the — this CDs essentially doubled on a Q-on-Q basis? So, how confident are you that, A, the deposit balances has stabilized, and then, B, given that you’ve kept your deposit beta assumptions, what would cause you to increase your deposit rates as we went through the middle of the year? And maybe if you have it, what were your spot deposit rates as of March 31? Thanks.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

I’ll start with — I don’t have the spot deposit rates in front of me and we can follow up with that. But in terms of the stability of deposits, did — again, keep in mind that it’s the action that we’re seeing right now is really a non-interest-bearing and that’s really being driven by commercial deposits. When we look at consumer balances outside of some outflow in January and when when I say that, I mean, non-interest-bearing, they’ve been relatively stable through February and March. And when you look in the consumer space, what you’re seeing is shift between interest-bearing categories. And so, we’re seeing movement from savings and money market into time, which is pretty typical during rising rates. And the net is some small outflow in DDA, which, again, is pretty standard in the first quarter of the year. In the commercial space, outside of the normal seasonal activity, what will happen is deposits — non-interest-bearing deposits will start to stabilize as customers get down to the level of deposits they need to keep in their operational accounts to make payroll to pay accounts payable and the like. And excess will not necessarily leave the balance sheet; it will just shift into some form of interest-bearing. It could be interest-checking or it could be an on-balance sheet sweep. And so, there will be some decline and there always is for M&T in these environments. When we look through the past, we see that when rates have gone down to zero, we tend to have an increase of about 4 or 5 percentage points in the percentage of our deposit base that sits in non-interest-bearing. As rates rise, that goes back the other direction. And that’s just exactly what we’re seeing now and what’s happening. And so, over time, if you went all the way back into pre-global financial crisis for banks, not just for M&T, but for the industry, non-interest-bearing deposits were in the kind of 20% range of total deposits. And they peaked at 45% for us and about 30% for the industry. And so, dependent — and that was the last time Fed funds was anywhere near the rates that they are today.

On the flip side, time deposits were a huge percentage of total deposits in the industry in that time period, upwards of 25%, 30%, and they’ve come all the way down into the 5% to 10% range. I’ll give you that as context to say what’s going to happen — what we think will happen is you’ll continue to see some outflow of deposits, but it will stabilize as rates start to stop increasing. And what you’ll see is less movement out and more movement across categories. And again, for consumers, we think that will be from interest products like money market and savings in a time and for commercial customers. It will be from non-interest-bearing DDA into interest-bearing, things like sweep and commercial checking. And so, for us, for the rest of the year, we think things start to stabilize as we get into the second quarter and second half and the build-back in commercial checking balances will start in anticipation of next year’s first quarter. It’s a cycle that it follows itself pretty predictably every year.

Manan Gosalia — Morgan Stanley — Analyst

Great. Thanks so much. Very helpful.

Operator

And we’ll take our next question from John Pancari with Evercore.

John Pancari — Evercore ISI — Analyst

Good morning.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Good morning, John. How are you doing?

John Pancari — Evercore ISI — Analyst

All right. Want to see if you can give us a little more color on the updated loan growth guidance, the 10% to 12%. Where are you seeing some of the better trends coming from, because it looks it was upwardly revised from where you had expected it coming out in the last quarter? Thanks.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Yeah. So, John, keep in mind that that 10% to 12% includes four quarters of People’s this year in the averages just as three quarters last year, right? So, some of that is in there. I think we noted in the outlook that if you look based on the average balances in just the fourth quarter of last year, we’re more in the 1% to 3% range. And if you look at that, a lot of that’s happened already in the first quarter. And based on where the first quarter loan balances ended, just the averaging effect of that should carry a little bit of growth through the second quarter. And then we expect things to kind of flatten out a little bit as we go through the back half of the year. And that’s how you — that’s just the math that gets the average into that range. And really, I think the challenge that you’re seeing is pipelines have been robust but they’re starting to slow down a little bit and we’re managing them to focus our liquidity on our best customers and our relationship customers. And then in some instances, some of the consumer space as it is indirect and recfi with rates going up, you’re seeing a little less demand from the clients, and therefore a little bit of a slowdown that will keep balances flat to slightly down in that space just as the duration of that portfolio is pretty short. And so, you need to continue to originate new to keep it flat or to grow it. Within the commercial world, there’s not a lot of activity that’s really happening in CRE, there’s not a lot of new construction. And so, what we would expect as you see for us and for the industry as loans mature, a lot of capital and liquidity is devoted to those clients and keeping them around. And then in the C&I space, we’ve seen fairly broad-based growth whether it’s by geography or by industry type. We did note that the dealer floorplan balances have grown. There’s still maybe half of their long-term average which is better than they work, but there’s some upside there, and obviously, you get a slowdown in indirect, you’ll likely see an uptick in the dealer floorplan balances. But those are those are kind of those spaces where we’re seeing activity and how we expect the rest of the year to play itself out.

John Pancari — Evercore ISI — Analyst

Got it. All right. Thanks, Darren. And then just secondly, back to the office portfolio, just to get a few things around that. What percentage of the office book is criticized? I believe, last quarter, you indicated about 20% of it was criticized. And in that 60% LTV that you mentioned for what is maturing coming up, do you have some granularity on what the refreshed LTVs look like as part of that. And then lastly, did you add to the commercial real estate reserve this quarter?

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Okay. A lot in there. Let me try and make sure I get it all. So, the office criticized, it is still right around 20%. It’s up slightly, but not up dramatically. And the hotel criticized continues to come down. So, it’s important to keep that in mind because as we talk about the CRE increase that you’re asking about, there’s an offset within the whole CRE allowance, right? We’ve seen some improvement in hotel and retail offset by some decline in office. But we did add to the CRE allowance in the quarter. If you think about dollar amount, it’s probably half to two-thirds of the $50 million provision was allocated towards the — net towards the CRE portfolio and the rest was — would be driven by growth in other portfolios. When you look at the LTVs, what we’ve seen in the ones that we have updated so far is we’re seeing somewhere between 15% and 20% decline in some of the updated values of the of the properties that we’ve reappraised. And so, that’s why you didn’t hear me talk much about 80% or 70% LTVs because those ones are getting closer perhaps to where these properties might reappraise. But 60% LTVs and sub-50% LTVs would seem to still have a lot of cushion before you’re into any material loss content. And so, when we look at that, we feel good about where we are. It doesn’t mean that we were taking our eye off the ball, but we feel good about where we are. And again, just to give a little bit more color on New York City office, next quarter — this quarter we’re in right now, there’s five loans that are maturing with a principal balance of $30 million.

John Pancari — Evercore ISI — Analyst

Got it. All right. Thank you, Darren.

Operator

And we’ll take our next question from Dave Rochester with Compass Point.

John Pancari — Evercore ISI — Analyst

Hey, good morning, guys.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Good morning.

Dave Rochester — Compass Point — Analyst

On capital buyback going forward, it sounds like you’re pretty much saying no buyback for 2Q, or is that too strong a statement, or is the thought just that you’ll wait to get your CCAR results and then hope that the market is more stable at that point and go from there?

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Yeah. I think that zero is a strong statement. When we look through the quarter and what we see with the pace of risk-weighted asset growth, we see the potential actually for kind of a trifecta and that we should see a little bit of risk-weighted asset growth. As rates are rising and liquidity is constrained, we think that we’ll start to see some increased margin and profitability of new lending activity, which usually happens at this point in the cycle. So, we’ll deploy capital to those opportunities first. We will — we do anticipate closing the sale of the CIT business in this quarter, which will create a gain, which will help with our capital ratios which should allow us to be in the market and repurchase some shares, and at the same time maintain this kind of capital level that gives us a really nice cushion given the uncertainty in the market and while we wait for the SCB. From our perspective, if we run a little light for a quarter, it doesn’t mean that the capital is gone. It just means it comes back a little bit later in the year. But we think we’re in that you’ve talked about. That is correct.

Matthew O’Connor — Deutsche Bank — Analyst

And then in terms of, I guess, like the timing of getting there and what are some of the obvious, like if rates go to zero, it will be the low end. But what are some of the kind of puts and takes like the 3.6% versus 3.9%? And then lastly, just to be in, like any thoughts on the jumping-off point for the end of this year? Thanks.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Yeah. So, Matt, the biggest driver of the change in our posture and thoughts on NIM has really been the shift in funding sources, right? And so, if you look at the work that we did in the first quarter, the $3.5 billion that we issued, we had talked about issuing wholesale over the course of the year, the markets were very receptive when we went out in January. And so, we pulled forward a bunch of that funding, which had a big impact. We talked about 19 basis points on the NIM. And so, where we stand today when you look at our asset sensitivity, you can see we’re kind of plus or minus 2%, which is where we try to run the bank.

And so, we’ll see — when we go through and we look at those factors and expectations that Fed funds are starting to top out and likely based on the forward curve, we see a decline in the end of the year. That’s why you start to see that deposit — or that margin start to come back down.

But as I mentioned, with our asset sensitivity where it is, it’s not going to drop precipitously because of the things that we’ve done with some of the forward starting swaps with the securities portfolio build, with the mix of fixed rate assets on the balance sheet and what have you. And so, it will start to grind down into that range but given over the long run, the reason we’ve talked about that range is because we expect over the long run that things “normalize” and what we mean by that is that the mix of deposits on the balance sheet looks more like what you would see in a normal rate environment. It’s not extreme, like where we had 45% of the deposits in noninterest-bearing. That’s not normal. As that changes, the margin comes down.

We’ll see a different — or a mix of time deposits and what the rates are on time deposits, and that will affect the margin. We’ll look at what percentage of the balance sheet sits in cash and securities and as those start to normalize you’ll see an improvement in the margin. And so, it’s the shift in all of those categories that became very extreme through the pandemic that as they start to come back into what we would consider normal ranges, that’s why we think that 3.60% to 3.90% is a normal long-term range for our bank and our balance sheet, just kind of based on history. And so, we’ll start to see that migration happen. We started to see it, obviously, this quarter and at the end of last year, and it will continue through 2023.

How fast we get there? It seems like things are moving pretty quickly right now just given quantitative tightening and how balances are shifting around the industry. As we get to the end of the year and the jumping-off point for the margin, you’re probably migrating towards the 3.60% range for the last quarter of the year but there’s a lot of factors that can get us there between now and then that would be kind of the low end of where I think we would end the year. For the whole year, we’re in the ballpark of high three’s just based on that trajectory.

And then when — as we go through the year and the balances — the deposit balances price you see some migration down, but it starts to level off as we get towards the back half of the year and you operate in that range through most of 2024 would be our expectation right now but keep in mind, there’s a lot of assumptions that go into that, not the least of which is what the forward curve looks like.

Matthew O’Connor — Deutsche Bank — Analyst

Okay. That was a lot of detail. But just to summarize, you think you get to the kind of lower end of the 3.6% to 3.9% range by the end of the year. but that’s kind of relatively stable for next year with all the caveats that you have highlighted.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Yeah, I would just alter that slightly and say that the bottom end of the range, you probably don’t see until the first half of next year of that 3.60% to 3.90%, but you’re slowly moving down as we go through the year but as we get towards the end of the year, the rate of decline slows, and you kind of stabilize and hold flattish as we go through 2024.

Matthew O’Connor — Deutsche Bank — Analyst

Okay. That’s helpful. Thanks so much.

Operator

And we’ll take our next question from Ken Usdin with Jefferies.

Ken Usdin — Jefferies — Analyst

Hey, Darren. Darren, how’s it going? Just a quick one on — the fee guide going to 7.9% from 5% to 7% growth, is the entirety of that just the MSR add that you mentioned you did at the end of the quarter?

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Pretty much, yeah.

Ken Usdin — Jefferies — Analyst

Okay. And then if I could just sneak in the same one on the cost side. Do you — in terms of like the expected sale of the corporate trust business, you gave us the revenue number in the press release. Do you have an approximate idea of like when that’s going to close so we can just kind of think about taking out the fees and the expenses relative to that over the — as the course of the year goes on?

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Yeah, sure. The — we expected to close this quarter for safety for you guys, I would assume that it’s out of the run rate for the second half of the year. And you’ve got the revenue, the expenses are not quite the same as revenue, but they’re not far off, which is one of the reasons why we’re contemplating this move.

Ken Usdin — Jefferies — Analyst

Okay. Got it. Right. And you were pretty clear that the rest of the cost guide is inclusive of the MSR, any cost related to the MSR adds.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

That’s correct, right? And so, in the guide, we have both the full year of the CIT business right now just to try and keep it apples-to-apples year-over-year as well as to let you know that we made that MSR purchase. But other than that, there are a few things that were kind of pulled forward in this quarter, some advertising expense, some of the item’s costs related to that divestiture that won’t repeat themselves to try and just to give you guys a little bit of color as to why we still feel good about the full year guide.

Ken Usdin — Jefferies — Analyst

Got it. Thank you.

Operator

And we’ll take our next question from Gerard Cassidy with RBC Capital Markets.

Gerard Cassidy — RBC Capital Markets — Analyst

Hi, Darren.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Good morning, Gerard.

Gerard Cassidy — RBC Capital Markets — Analyst

We are going to miss you. congratulations on your run-in as CFO, I guess when you started in 2016. So, I know you’ve got a heavy hit of replacing you, but good luck in the new role.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Thank you. I appreciate it. It’s been a run. There’s a lot that we’ve seen. We love Bob and Mark. We went through a pandemic at the largest bank and went through a couple of bank failures. So, it’s been an eventful time.

Gerard Cassidy — RBC Capital Markets — Analyst

It sure has. Helping new role your spot rate on your — my choice money market account is three basis points for under $10,000 in the account and over 10,000 adjusted for 2.96%.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

I’m just trying to help out the new CFO so that he has good numbers to report. They will be chastising me about what balances are leaving, but don’t forget, that’s the offer rate, not the portfolio, rate, but I appreciate it.

Gerard Cassidy — RBC Capital Markets — Analyst

Oh, God, yes. No, no, I know. Absolutely. But here’s my question. Speaking of deposit rates, can you share with us, and that you’ve alluded to this in some of your answers, if the Fed reaches its terminal rate on Fed funds in June, let’s say, 5%, 5.5%? And does not cut even though I know you’re looking at the forward curve, that includes two cuts in the fourth quarter. Say they don’t cut until maybe the first half of ’24. When does your deposit betas go flat after reaching the terminal rate, and second, if they go flat 60 days afterwards or whatever you think the number would be, do you then benefit from reinvesting the cash flows off of the securities portfolio into a higher rate environment, assuming the Fed doesn’t cut the Fed funds rate.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

So, when you stop start seeing a slowdown in deposit repricing. History has been it’s typically one to two quarters after the Fed stops. And so, I would expect even if the Fed stopped in the summer and cut in the fourth quarter, you might not — you wouldn’t see a change in deposit betas in all likelihood until sometime in next year. If you get into the space where they stop and then hold and it goes into 2024, the same thing would be true in terms of you’d see deposit betas go up for a quarter or two after and then start to level off. In all of these things in the pricing, in the ultimate beta, there’s a couple of factors to keep in mind, right? We’ve always talked about it in terms of where Fed funds is. But as we look at the bank and the balance sheet, there’s a bunch of trade-offs that are being made, right? And so, for interest-bearing deposits, there’s a cost that is born that you need to offer to the customers. But then there’s other alternatives that you can look at to meet those funding needs at the brokered money market, it’s brokered CD, it’s self-funding, right?

And so, our preference is if we’re going to give rate, we’d rather give it to our customers than to the capital market but at the end of the day, you’re always making those trade-offs and then it’s the mix shift that happens. For our clients, as they are a reflection of the economy, just as any bank’s clients are. Consumers are going to keep some amount of money in their checking account that they’re comfortable with and every person has their own number, but they won’t go below it unless they’re in dire circumstances.

Businesses are the same way. And so, there’s a certain amount of deposits that are going to be on each bank’s balance sheet and then within each category, the market is pretty perfect and we can’t pay materially less for money market savings in Buffalo than our competitors can and the same thing is true for time in the other categories. And so, there’s a natural governor in the market that gets all of these different deposit categories to their normal — what I would call, their normal pricing, right? And then what kind of differentiates one bank from the next is their mix and our advantage has always been that we tend to focus on operating accounts, whether it’s consumers or commercial customers, and we have a slightly higher mix of those in our funding, which ultimately helps our cost of funds. And so those will be the things that will determine where we end up and how big our beta is perhaps compared to others but we think it’s — the betas continue after Fed fund stops for a little bit and the terminal amount is as much a function of your mix of deposits as how high the absolute number goes.

Gerard Cassidy — RBC Capital Markets — Analyst

Very good. Again, congratulations. Will talk to you in the future in your new role.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Thanks, Gerard.

Operator

And we’ll take our next question from Steven Alexopoulos with JPMorgan.

Steven Alexopoulos — JPMorgan — Analyst

Hey, Darren. Thanks for squeezing me in.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Good morning, Steven.

Steven Alexopoulos — JPMorgan — Analyst

I’m curious, in the aftermath of SVB, which was obviously all over the news, what are you hearing now from your large deposit customer right? Are they looking to diversify that you guys lose balances to larger banks, has the storm now passed? Just — any color you could provide how this is impacting a bank like yours would be really helpful. Thanks.

Darren J. King — Senior Executive Vice President, Chief Financial Officer

Yeah. No, happy to. The long story short was that the change was a positive for us for adding clients and adding accounts. And so, we’re hopeful that we were able to serve as a source of strength and to help some of these folks out when these changes happened. And we were, I would say, a net slightly positive as a result of all the disruption that happened in these various markets. For our clients, when we look at particularly our commercial clients and the average tenure, their 20, 25-year relationships.

And so, they know us well, and they tend to worry a little bit less. That said, there were some people who chose to move some money into some of the money funds for diversification for rates, as well as some of their comfort level. We didn’t lose a ton to be honest with you to the larger organizations but what I would say is, in some of those shifts, we were a recipient of balances as much as we saw an outflow. And so, when you add in some of the accounts that we opened, during the crisis, the net was a slight positive.

And so, for us, it wasn’t the big shift in balances that many were anticipating more, I would say, as much a continuation of the trend that we’ve been talking about of as quantitative tightening happens as rates are moving up in the money, the rates paid on the money funds always moves faster than the deposit accounts on the balance sheet. That normal migration is happening and over time, we expect it will come back as those other rates start to match what you can get in the funds.

Steven Alexopoulos — JPMorgan — Analyst

Great. Thanks for taking my question.

Operator

And we’ll take our last question from Brian Foran with Autonomous Research.

Brian Foran — Autonomous Research — Analyst

Hi, I guess just quickly on lending, it sounds like any underwriting changes on your end are only marginal if I got that comment about focusing liquidity on our best customers, right? So, I just wanted to confirm that. And then just more broadly, definitely appreciate the point that the rollover in commercial real estate in particular is fairly slow but do you think some of your peers will change underwriting more significantly, as people worry about a credit crunch and lending and care in particular? Do you think that’s a valid concern or do you think that’s overblown right now?

Darren J. King — Senior Executive Vice President, Chief Financial Officer

So, I can’t speak to what others will do. I think there’s a big difference between the banks and the REITs and the CMBS, and how they underwrite and how they’ve underwritten, and how they think about things. For us, in particular, we don’t move our credit standards very much at all. And I think we’ve talked about this for a while that we’ve, we’ve had two Chief Credit Officers since 1983. Our viewpoint on underwriting is pretty consistent and we try to be the same through good times and bad, right, because what our client’s value is consistency and knowing what they need to have, in terms of a profile of the loan for us to be there.

I think for us and the industry is you look at what’s maturing, there’s a question of how many alternative sources of funds are available for those loans, particularly in the real estate space. And so as loans mature, one of the questions will be, is there another bank or a fund or someone out there who is ready to take that loan on, which obviously will be a function of the debt service coverage and the loan to value? What likely happens though is, as prices are challenged in the short-term is, you will see some sponsors will have the ability to put in some extra equity, which will help with the underwriting. You might see some A-node and B-node structures. You might see some outside private equity money come in the form of efforts or mezz debt to help with some of those shortfalls.

So, I think what’s typical within real estate is its nuance, right? It’s hard to give a blanket statement about what will happen. It’s more client-by-client and property-by-property that you work through these things. And so, like I said for us, we preserve our capital and our liquidity for our best customers and many of these ones, particularly in real estate, have been around for a long time. Like we are in the second or third generation of supporting them and we will continue to do that but there is always opportunity when this kind of disruption occurs and we will be paying close attention to that as well.

Brian Foran — Autonomous Research — Analyst

I appreciate all that. Thank you very much.

Operator

And it appears that we have no further questions at this time. I will now turn the program back over to Brian Klock for closing remarks.

Brian Klock — Executive Vice President and Head of Markets and Investor Relations

Yeah, thank you all for participating today. And as always, if clarification of any of the items in the call or news release is necessary, please contact our Investor Relations department at area code 716-842-5138. Thank you and have a great day.

Operator

[Operator Closing Remarks]