M&T Bank Corporation (MTB) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Momentum in 2024: M&T Bank continues its strong performance in 2024, with significant growth in loans and a strategic shift in the loan portfolio composition.
• Sustainability Goals Progress: Achieved notable progress towards sustainability goals with $3.1 billion in sustainability finance loans and investments in 2023.
• Awards and Recognitions: Received awards for highest customer satisfaction in mobile banking apps among regional banks and Securitization Trustee of the Year for Wilmington Trust.
• Net Interest Income and Margin Growth: Net interest income and net interest margin both saw increases, with a positive outlook for future performance.
• Capital Strength: Capital continues to build with a CET1 ratio increase to over 11.4%, and a decrease in the stressed capital buffer to 3.8%.

Pessimistic Highlights

• Economic Slowdown Concerns: Acknowledged the possibility of an economic slowdown or mild recession due to the lagged impact of rate hikes.
• Challenges in Commercial Real Estate (CRE): Despite reducing CRE exposure, ongoing management and reduction of CRE concentration remain a challenge.

Company Outlook

• Economic Outlook: Anticipates a "soft landing" scenario with job, wage growth, and spending slowing to more sustainable levels. Inflation remains above the Fed's target, primarily due to rents and home prices.
• 2024 Financial Outlook: Expects net interest income between $6.85 billion to $6.9 billion, with plans to begin share repurchase in the third quarter at $200 million per quarter through the end of the year.

Q & A Highlights

• Q: Can you unpack the drivers for NII in the back half of the year? (Manan Gosalia, Morgan Stanley)

  A: Our position from rate sensitivity is quite neutral. The NIM this quarter was on track, and we expect to be in the high-3.50%s for the third and fourth quarter. (Daryl Bible)

• Q: What do you need to see before you accelerate the pace of buybacks? (Manan Gosalia, Morgan Stanley)

  A: We need to continue making progress on reducing our criticized loans and non-performing assets. The economy and the finalization of Basel III will also be factors. (Daryl Bible)

• Q: Can you elaborate on the big drop in commercial real estate? (Matt O'Connor, Deutsche Bank)

  A: We've made tremendous progress in reducing CRE concentration, aided by more liquidity in the marketplace and better processes for classifying loans. (Daryl Bible)

• Q: Is the all other income line sustainable? (Matt O'Connor, Deutsche Bank)

  A: It's at a relatively high level, possibly down 5% or 10% on a run rate. (Daryl Bible)

• Q: Could you give us a sense of interest-bearing deposit costs going forward? (Erika Najarian, UBS)

  A: Brokered CDs will continue to run off, and we see more rational pricing in the marketplace. Deposit costs are flat and may decrease as the year progresses. (Daryl Bible)

• Q: How should we think about returns and the appropriate capital floor? (Erika Najarian, UBS)

  A: Capital will be returned to shareholders in a conservative manner. We're focused on reducing criticized loan balances and managing the company conservatively. (Daryl Bible)

• Q: Where do you see the CRE risk-based capital percentage going? (John Pancari, Evercore ISI)

  A: We're getting close to where CRE will be at a more normal space for us, around 151% of Tier 1 capital. (Daryl Bible)

• Q: Can you talk about the role of loan modifications in addressing commercial real estate? (John Pancari, Evercore ISI)

  A: Modifications are enhancing our position by asking for more recourse or capital from clients in exchange for more time. (Daryl Bible)

• Q: Could there be a step function decline in criticized loans next year? (Ebrahim Poonawala, Bank of America)

  A: Lower rates would definitely help us lower our criticized balances sooner and faster. (Daryl Bible)

• Q: What's driving the improvement in credit this quarter? (Ebrahim Poonawala, Bank of America)

  A: Our teams are working diligently with clients to right-size loans and get them upgraded off of criticized. Liquidity in the marketplace has also helped. (Daryl Bible)

• Q: How are you looking at securities yields going forward? (Ken Usdin, Jefferies)

  A: We're being disciplined, aiming for a duration around three years and a blended yield around 5%. (Daryl Bible)

• Q: What are your thoughts on depository acquisitions? (Gerard Cassidy, RBC)

  A: We haven't been focusing on acquisitions, instead prioritizing building out markets from the People's acquisition and enhancing risk areas. (Daryl Bible)

• Q: Can you provide some color on expenses and headcount going forward? (Chris Farr, Wells Fargo)

  A: We're on track with our expense guidelines and have seen a reduction in FTEs. We manage expenses with an owner's mindset. (Daryl Bible)