Brian Klock welcomes everyone to M&T Bank's Second Quarter 2023 Earnings Conference Call and mentions that the call is being recorded. He then introduces Daryl Bible, the Senior Executive Vice President and CFO, and Darren King, the Senior Executive Vice President and former CFO. Klock mentions that the presentation may contain forward-looking information and non-GAAP financial measures. Bible expresses his appreciation for King's help with his transition and for everyone at the bank who has welcomed him and helped him get up to speed quickly.

M&T Bank has a strong financial history, consistent operating philosophy, and conservative community focused banking principles. They have 28 community-led regional presidents that make decisions about loans and community activities, which has led to superior credit performance, top deposit share, and higher operating and capital efficiency. Their purpose is to make a difference in people's lives by focusing on the communities they serve, and they do this through their investments in customer experience and impactful products.

M&T Bank has made significant strides this year, including the designation of over 119 multicultural banking branches across its footprint, as well as supporting small business owners and investing in affordable housing projects. The bank has also invested in renewable energy and reduced its electricity consumption since 2019, and its second quarter results reflect the strength of its core earnings power, balance sheet, and liquidity position. Revenues have grown 20%, pre-provision net revenues have increased 35%, and net income for the quarter was up 24%.

M&T's net operating income increased 23% from the linked quarter, producing an annualized return on average assets and return on average common equity of 1.7% and 14.27% respectively. Taxable equivalent net interest income was $1.81 billion, slightly below linked-quarter, resulting in a net interest margin of 3.91%, down 13 basis points. Capital levels remained strong with the CET1 ratio at 10.58%.

In the second quarter, average earning assets increased by $1.9 billion due to a $1.5 billion increase in average loans and a $1 billion increase in average investment securities. Commercial and industrial loans increased 5% to $44.5 billion, while commercial real estate loans decreased 1% to $44.9 billion. Average consumer loans were down 1% to $20.3 billion due to rising interest rates, and average investment securities increased to $28.6 billion. Deposit outflows during the second quarter accounted for $2.1 billion or 1.3%, with demand deposits declining $5.7 billion.

In the second quarter, savings and interest-bearing checking deposits decreased $843 million while time deposits increased $4.4 billion. This was due to a decline in corporate trust balances and customers seeking higher yields. Non-interest income totaled $803 million in the second quarter, which included a $225 million gain from the sale of the CIT business and an annual distribution from Bayview Lending Group of $20 million. Excluding these two items, non-interest income increased $11 million compared to the first quarter. Mortgage banking revenues were up 26% from the linked-quarter, driven by additional servicing revenues. Service charges on deposits were also up 5% compared to the first quarter.

In the second quarter of this year, M&T's trust income decreased from $194 million in the first quarter to $172 million due to lower fee income from the sale of the CIT business. Operating expenses decreased by $64 million, due to seasonally higher compensation costs in the first quarter and higher compensation and benefit costs, partially offset by lower CIT related expenses. The efficiency ratio was 48.9%, compared to 55.5% in the first quarter excluding the gain from the sale of the CIT business.

At the end of the second quarter, the allowance for credit losses was $2 billion, up $23 million from the previous quarter. The reserve build was largely due to anticipation of declining commercial real estate values and loan growth. Non-accrual loans were $2.4 billion, a decrease of $122 million compared to the prior quarter. Net charge-offs for the recent quarter amounted to $127 million, while annualized net charge-offs as a percentage of total loans were 38 basis points for the second quarter. In order to identify emerging issues that could lead to loan grade adjustments, the company continues to perform ongoing rate risk, resizing risk, and tenant sensitivities on commercial real estate portfolios. Loans 90 days past due on which the company continues to accrue interest totaled $380 million, and 43% of these loans were guaranteed by the government or government-related entities.

M&T Cet1 ratio increased in the second quarter of 2023 due to higher net income and share repurchasing. Tangible common shareholder equity and tangible book value per share also increased. The Federal Reserve's annual bank stress test resulted in a preliminary stress test capital buffer of 4%, and M&T expects net interest income to be in the $7 billion to $7.2 billion range for 2023. There will be intense competition for deposits due to industry-wide outflows.

M&T Bank expects their deposits to shift towards higher cost deposits, with time deposits and balance sheet sweeps increasing and demand deposits decreasing. Loan growth is expected to be stable, with C&I growth outpacing CRE. Noninterest income is expected to be in the range of $2.25 billion to $2.3 billion, while expenses excluding intangible amortization are expected to trend near the higher end of $5 billion to $5.1 billion. Intangible amortization is expected to be in the range of $60 million to $65 million, and loan losses are expected to be near M&T's long-term average of 33 basis points.

M&T has a strong balance sheet that has been a safe haven for clients and communities, and they take their responsibilities to manage shareholders' capital seriously. They are positioned to use their capital for organic and inorganic growth, as well as buybacks in the future. Their long track record of credit outperforming through all economic cycles, as well as 15-20% return on average tangible common equity and robust dividend growth, underscores their optimistic investment thesis.

Daryl Bible discussed People's United's strategy for increasing liquidity on their balance sheet and growing their deposits. They have been taking down Federal Home Loan Bank advances and accessing the broker CD market, which increased their deposit beta. They are aiming for a deposit beta in the low to mid-40s.

Daryl Bible of a company discussed the company's liquidity and how they are planning to use three sources of funding: Federal Home Loan Bank Advances, broker deposits, and unsecured debt. He stated that the Federal Home Loan Bank Advances are the best option in a crisis because they are available quickly and in large amounts. He also mentioned that the company will use broker deposits and unsecured debt to fund their bank over time, while ensuring that their core funding is growing.

M&T Bank's priorities for capital deployment are organic growth to serve their clients and communities, followed by dividends, share buybacks, and potential acquisitions. Currently, they are keeping extra capital due to the turbulence in the market, but their business is performing well and they are gaining new clients.

Daryl Bible gives Darren credit for predicting the impact of falling margins and being ahead of the curve in messaging the over-earning on deposits. He also mentions that they will continue to have margin pressure due to disintermediation and the movement of balances from nonmaturity buckets to CDs. Daryl believes that CDs will eventually reach the mid-teens before the cycle is over and that this is the right thing to do for clients and the bank.

M&T Bank had one of the highest increases of surplus balances proportionally before the COVID-19 pandemic and had a high DDA percentage of total deposits. Despite this, they are still expecting a decline in DDA balances and are working to get primacy in operating accounts in their consumer, business banking, business and commercial businesses.

Daryl Bible explains that the allowance for commercial real estate loans increased due to a change in the macro variable value in the model from 6 to 11. The unemployment rate assumed in the total reserve is 4%, and the GDP and HPI were both around 1% and 6%, respectively. The reserve on commercial real estate loans is 11%.

Daryl Bible is discussing the potential of Basel III end game, which may include banks with assets as low as $100 billion, and the possibility of higher risk-weighted asset assumptions for residential mortgages. He explains that they are staying in their core businesses to serve their clients, and if capital requirements increase, the market will likely adjust by raising pricing.

M&T Bank is waiting to see what changes will come from long-term debt and TLAC. They are using Federal Home Loan Bank advances, broker deposits, and unsecured debt to optimize their balance sheet and liquidity position. They have one of the lowest AOCI adjustments in the industry at 55 basis points. Gerard Cassidy then asked a follow-up question about the commercial real estate portfolio and the loan to values that had to be written down. Daryl Bible answered that they are still in the process of reviewing the portfolio.

Daryl Bible explains that the process for dealing with CRE loans in Manhattan is case-by-case and depends on the unique characteristics of each borrower, such as tenant occupancy, market conditions, and interest rate. Western New York is taking charge-offs in the downtown area, but they also work with their clients to restructure loans and take other measures to ensure their portfolio is being monitored and stress tested.

Daryl Bible emphasizes the importance of client selection in CRE business, noting that most of their clients are long-term oriented. He also explains that their clients are generally financially sound, and that their team's experience gives him confidence in their processes.

Daryl Bible and Kenneth Usdin discussed how the company's decision to issue broker deposits impacts their deposit beta. The total interest-bearing deposits for the quarter was $103 billion, with $10 billion of that in broker deposits, of which $8 billion was CDs and $2 billion was money market. The treasury team will use all three pieces - broker deposits, Federal Home Loan Bank Advances, and unsecured debt - to make the best decision for the company.

Daryl Bible states that they don't want to be outsized in the use of broker deposits and a couple more billion is all they're going to use. Ebrahim Poonawala inquires about the risk of being blindsided on reserve levels due to lack of visibility on appraisals. Bible explains that there aren't many sales in the marketplace, so they use discounted cash flow method and assume a three-year vacancy for properties to get sold up and a twelve-month vacancy for properties turning over.

Daryl Bible discussed the shift of noninterest-bearing deposits, noting that it could go down by 2-3% by the end of the year due to a mix change. He also mentioned that Corporate Trust is a growing business that could offset the noninterest-bearing shift.

Daryl Bible explains that Corporate Trust will be a big benefit to the noninterest-bearing side as market activity increases. He also states that loan growth outlook for C&I is growing, while CRE is becoming a smaller percentage of the balance sheet. Consumer loan performance is doing well, and there may be asset sales or securitizations later this year.

Daryl Bible is excited to be part of the leadership team at M&T and is impressed with the work ethic and performance of the company. He believes that the challenge is to maintain the community touch and client service while also having the necessary controls and processes in place as the company grows. He sees a lot of potential to help the company perform better as it continues to expand.

Daryl Bible states that Rene is a dream come true for him in his career and that the company is focused on giving great returns to shareholders. He mentions that the return on average tangible common equity is a good metric to focus on, and that the company has seen great returns from the Peoples acquisition. He also suggests that there will be more acquisitions in the future.

Daryl Bible of M&T Bank discussed the bank's rate sensitivity to a potential 100 basis point decrease in interest rates. He noted that the bank has implemented hedging strategies to become less asset sensitive, and that a 25 basis point decrease in rates would only result in a decrease of 3-5 basis points in the net interest margin. He also discussed the bank's acquisition strategy, noting that it takes two to four years for the performance of acquired entities to reach the M&T standard.

Daryl Bible explains that the noninterest-bearing mix of 34% could go down 2-3%, though not necessarily to the pre-pandemic level, due to the broker deposits that Bank of America has put on, which dilutes the percentage. He also states that the margin could stabilize in the mid-3s if things normalize and they start to pick up higher spreads on the asset side.

Daryl Bible of M&T Bank discussed the bank's outlook for the second half of 2023, which implies modest growth. He noted that the bank has a lot of surplus deposits and a focus on getting primacy on operating accounts, which gives them a lot to work with. He expects growth from their core businesses such as retail, business banking, commercial, and capital markets in their corporate trust and wealth areas. He concluded by inviting clarification from the Investor Relations Department.

This summary was generated with AI and may contain some inaccuracies.