The operator introduces the M&T Bank First Quarter 2024 Earnings Conference Call and hands it over to Brian Klock, Head of Market and Investor Relations. Klock thanks everyone for participating and directs them to the company's website for the earnings release and financial tables. He also mentions that the presentation may contain forward-looking information and non-GAAP financial measures, with appropriate reconciliations included. M&T's Senior Executive Vice President and CFO, Daryl Bible, joins the call and discusses the strong first quarter results and the company's commitment to making a difference in people's lives through community programs.

In this paragraph, the speaker shares examples of how the bank has put their values into action, such as providing funding for affordable housing and launching a small business program. They also discuss their sustainability efforts and the results of the first quarter, including loan growth, expense control, and financial ratios. They then delve deeper into the trends that contributed to their first-quarter results, including a decrease in net interest income and net interest margin.

The decrease in margin was primarily due to lower non-accrual interest and the impact of interest rate swaps, as well as higher liquidity and cash moving into securities. Average investment securities increased due to reinvestment and a shift of cash balances. Loans and leases grew by 1%, driven by increased line utilization and new origination activity in various business lines. Loan yields decreased but increased sequentially when excluding the impact of cash flow hedges. Consumer loans saw a 12 basis point increase in yield.

In summary, on Slide 11, the company's liquidity remains strong with investment securities and cash totaling $62.3 billion, representing 29% of total assets. The securities portfolio has a duration of 3.8 years and a small unrealized loss. On Slide 12, the company is focused on growing customer deposits, with average total deposits declining slightly and average customer deposits increasing. The company saw growth in institutional services and wealth management, stable deposits in commercial, and a slight decline in retail. The shift towards higher-yielding products has slowed down and noninterest-bearing deposits make up 30% of total deposits. Deposit costs have also increased at a slower pace compared to previous quarters.

Noninterest income for M&T increased slightly from the previous quarter, with a $25 million distribution from Bayview Lending Group contributing to the increase. Excluding this distribution, noninterest income decreased by $23 million, mainly due to lower commercial mortgage banking revenues and syndication fees. Noninterest expenses were $1.4 billion, with a $29 million FDIC special assessment in the first quarter and a $197 million assessment in the previous quarter. Adjusted noninterest expenses increased by $8 million from the first quarter of last year and by $114 million from the previous quarter, mainly due to seasonal higher compensation costs. The adjusted efficiency ratio was 59.6%. Net charge-offs for the quarter were $138 million, down from the previous quarter, largely due to the resolution of three office-related credits in the fourth quarter of last year.

In the first quarter, there was an increase in charge-offs and nonaccrual loans, primarily driven by C&I and CRE healthcare loans. However, loans 30 to 89 days past due decreased. The bank recorded a provision of $200 million and an allowance build of $62 million. The level of criticized loans is expected to increase in the upcoming 10-Q filing. The majority of the increase is in dealer and manufacturing industries, which have been impacted by higher rates and changes in consumer spending habits.

Slide 18 discusses the decrease in CRE criticized balances, with improvements in occupancy and staffing in healthcare but uneven reimbursement rates leading to a modest increase in criticized balances. Over 80% of the review of the construction portfolio has been completed with limited downgrades. Slide 19 covers capital, with an increase in CET1 ratio due to strong capital generation and a pause in share repurchasing. Slide 20 provides an outlook, with the economy performing well and a strong labor market. The economic outlook remains unchanged and there is a possible upside to NII for 2024.

M&T's outlook for fees and expenses remains unchanged, with net charge-offs expected to be around 40 basis points for the year. The tax rate is projected to be between 24% to 24.5%, excluding a discrete tax benefit in the first quarter. Share repurchases are currently on hold, but the company plans to reassess after the second quarter. M&T's strong balance sheet continues to differentiate them and their purpose-driven business model has a track record of outperforming in uncertain economic times.

The company is focused on providing returns to shareholders and consistently increasing dividends. They are careful with their acquisitions and overseeing shareholder capital. The operator then opens the floor for questions. The first question is about the company's net interest income (NII) guidance, which the speaker explains is not affected by interest rate cuts. The company's balance sheet is expected to be slightly smaller, but they are confident in their ability to maintain a margin in the mid to high 3.50s. The company's deposit franchise performed well this quarter, with core deposits remaining stable and only a slight increase in retail CDs.

The company is seeing positive results on their consumer loans and is investing in securities with a 4.6% yield and a duration of 3 years. They plan to continue this strategy in the second quarter for even higher yields. They are also increasing their cash reserves due to market uncertainty.

The speaker discusses the company's focus on maintaining strong capital and liquidity, with plans to decrease excess liquidity on their balance sheet. They also mention positive growth in various sectors and regions, including dealer financial services, middle market, corporate and institutional, fund banking, equipment leasing, and mortgage warehouse. Overall, two-thirds of their community bank regions are experiencing growth, with the highlights being in Massachusetts, New Jersey, Philadelphia, and Western New York.

The speaker discusses the positive performance of the commercial real estate sector in the previous quarter and notes a decrease in nonaccruals. They mention a construction review that was conducted and the stabilization of the sector. However, they also highlight the troubled sectors of office and healthcare. On the C&I front, the speaker mentions two credits that were impacted by higher interest rates and a decrease in demand for boats.

The speaker explains that they had to put a reserve and take a charge-off on two large C&I credits, one in the energy sector and one in healthcare. These credits had the biggest impact on their numbers. The speaker also mentions that their company tends to have a higher level of criticized loans because they prioritize working with their clients to get through tough times. This conservative approach is reflected in how they handle capital and credit. They believe that working with clients is better for both shareholders and the company in the long run.

In this paragraph, Daryl Bible from Bank of America discusses the potential impact of rising interest rates on the commercial real estate portfolio. He mentions that they ran a scenario last quarter and found that a 100 basis point increase would have minimal impact, as the majority of the portfolio is fixed rate or has synthetic swaps. However, the C&I book, which is mostly floating, could see a larger impact.

The speaker explains that a subset of their leverage book is worth $5 billion, with only half of them still being leveraged. If rates go up by 100 basis points, there will be minimal impact on their credit performance. They also mention five factors that could affect buybacks, including macroeconomic environment, capital generation, stress test results, CRE levels, and overall asset quality.

The speaker discusses the company's plans for evaluating their capital and potentially repurchasing shares. They mention the uncertainty in the market and wanting to be responsible with their investors' capital. They plan to review the situation in three months and make a decision on share repurchases. They also discuss their focus on growing their core deposits and the impact of the current interest rate environment.

The speaker discusses the growth and success of their trust businesses, which have had recent wins and added deposits. They also mention the focus on growing deposits in the commercial and retail bank, with a strong track record of retaining customers once they have their operating account. The speaker then gives examples of how yields are increasing in the auto and RV loan portfolios, leading to higher overall yields in those areas. They also mention that competition is high in the middle market.

In the first quarter, about $2.3 billion of the CRE portfolio matured. Of that, 56% was extended, with 9% being upgraded and 23% being paid off. The remaining portion is still being worked on. There was a small increase in the criticized portion. The company is hopeful that this trend will continue for the rest of the year.

Daryl Bible explains that when they extend loans, they try to negotiate for more equity and tangible assets from the customer. For the rest of the year, they expect their margin to be in the mid to high 3.50s, despite having room for earning assets to increase. The behavior of deposits, especially non-maturity deposits, is a major factor in interest rate sensitivity. They are seeing growth in retail CD deposits, but are also paying off some brokered deposits. It is difficult to predict how disintermediation will affect their modeling.

The speaker discusses the recent action by S&P to lower their ratings to a negative outlook. They assure that they are actively meeting with all rating agencies and have strategies in place to decrease their CRE exposure and credit risks. They also mention that they are working hard to manage their 2.3 billion maturities in the first quarter with minimal impact.

Daryl Bible, the speaker, is discussing the company's trust fees and their potential as a driver of revenue. He mentions that the trust business has over 20 different products and services, some of which are fee-based and others are fee and funding-based. He also notes that the business can be lumpy at times, but overall, they are investing in and focusing on this space. The speaker expresses confidence in the business and its potential for growth in the future.

Daryl Bible, CFO of American Airlines, responds to a question about the company's 11% capital level, stating that it may be the new normal due to uncertain and risky times. He also mentions that the company will be cautious with repurchasing stock and that their cash position of $26 billion may be considered excess liquidity. However, he notes that a new liquidity proposal from regulators may change their approach and that their minimum operating cushion is $15 billion.

Daryl Bible, speaking on behalf of the company, discussed the increase in criticized loans on the C&I side, attributing it to issues in the non-auto dealer, healthcare, and trucking and freight industries. He also mentioned that they are looking to lower the CRE as a percent of capital reserves to about 160%, but did not specify how long it will take to reach this goal.

Daryl Bible, speaking on a conference call, discusses the reduction in criticized balances in the commercial real estate (CRE) portfolio. He attributes this to strong operating performance in all areas except for office and healthcare, and credits good client selection as a key factor in working through any issues. He also mentions that customers are supportive and willing to put capital into projects.

The speaker discusses their company's commitment to managing CRE and working closely with others. They also mention their limited expense growth and investments. A question is asked about the jump in criticized loans and how it compares to previous peaks. The speaker is unsure and asks for assistance.

The speaker, John Taylor, is the Corporate Controller and he discusses the company's credit performance in 2008 and 2009, stating that there were pockets of criticized loans on the residential side, but the current increase in criticized C&I loans is higher. The speaker expresses confidence that the company will maintain its historical track record of outperforming peers in terms of credit losses. Another speaker, Daryl Bible, explains that the increase in long-term borrowings is due to recent Federal Home Loan Bank advances and an unsecured issuance in March.

The focus for the rest of the year is on growing customer deposits and paying down noncustomer funding, with a possibility of more securitization in the future. The company is working to decrease broker deposits and Federal Home Loan Bank advances and increase other types of funding. The spike in criticized loans in the motor vehicle and RV portfolios is due to stress in the floor planning business, but the company is seeing a yield pickup in the indirect consumer loan portfolio with a prime-based credit box and an average FICO score of 790.

The speaker thanks the participants for joining the call and invites them to contact the Investor Relations department for any clarifications. The call has now ended.

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