The M&T Bank Second Quarter 2024 Earnings Conference Call began with an introduction from the operator and a reminder that the call is being recorded. Brian Klock, Head of Market and Investor Relations, then took over and thanked everyone for participating. He directed listeners to the company's website for access to the earnings release and financial information. He also mentioned that the presentation may contain forward-looking information and non-GAAP financial measures. M&T's Senior Executive Vice President and CFO, Daryl Bible, then spoke about the company's strong momentum and progress towards sustainability goals.

In 2023, the company's sustainability finance loans and investments totaled $3.1 billion and they have received awards for their businesses, products, and employees. Their second quarter results show growth in loans and customer deposits, with stable deposit costs and improved net interest income and margin. Asset quality is performing as expected and capital continues to build. Second quarter diluted GAAP earnings per share were $3.73, with net income of $655 million. The company's CET1 ratio is strong at 11.44%, and tangible book value per share grew 3%. Pre-tax expenses of $5 million related to the FDIC special assessment were included in their GAAP results for the quarter.

In the second quarter, M&T Bank reported $4 billion in after-tax income, with a net operating income of $665 million and a diluted net operating earnings per share of $3.79. The net interest margin increased by 7 basis points, primarily due to fixed-rate asset repricing and higher non-accrual interest. However, the impact of swaps and higher borrowing costs partially offset this increase. If non-accrual interest was at the average rate, the net interest margin would have been 3.56%. Swaps reduced the net interest margin by 23 basis points in the second quarter. Average loans also saw an increase.

The average loans and leases for the bank increased by 1% in the second quarter, with C&I and consumer loans growing while CRE loans declined. Loan yields also increased, aided by higher non-accrual interest and fixed-rate loan repricing. The bank's liquidity remains strong, with investment securities and cash totaling 27% of total assets. The yield on investment securities also increased, and the bank plans to reinvest maturing securities at higher yields. The bank is focused on growing customer deposits and is pleased with the stabilization of their yields.

In the second quarter, average total deposits declined slightly due to a decrease in broker deposits. However, average customer deposits increased. Noninterest-bearing deposits decreased, with lower balances in commercial and business banking. Interest-bearing deposit costs decreased, reflecting more rational pricing. Noninterest income remained relatively stable, with an increase in trust income and mortgage fees offset by a decrease in servicing fees. Service charges also increased due to higher consumer debit interchange fees.

In the second quarter, M&T Bank saw no change in their other revenues from operations at $152 million, with increases in various fees offsetting a $25 million distribution. Noninterest expenses decreased by $99 million due to seasonally higher compensation costs. Credit charge-offs totaled $137 million, with the three largest ones coming from C&I loans. Non-accrual loans decreased by $278 million, resulting in a non-accrual ratio of 1.5%. The bank recorded a provision of $150 million for the quarter.

The allowance to loan ratio increased slightly, while the provision for credit losses decreased due to lower CRE loans and improved real estate prices. The level of criticized loans also decreased, with the majority of the improvement coming from a decrease in CRE criticized loans. C&I criticized balances increased, but there was limited migration within the portfolio. CRE criticized balances decreased, reflecting efforts to work with borrowers for favorable resolutions. M&T's CET1 ratio increased due to a pause in share repurchasing and strong capital generation.

The second quarter had a negative impact on the CET1 ratio due to AFS securities and pension-related components. The economy is slowing but remains healthy. There is a possibility of a mild recession due to rate hikes. Consumer spending has slowed, keeping inflation pressure in check. The labor market has also slowed, leading to longer spells of unemployment. The 2024 outlook includes a net interest income of $6.85 billion to $6.9 billion, taking into account two expected rate cuts. The bank has taken steps to protect NII from a lower interest rate environment, such as shifting cash into securities and adding cash flow hedges.

M&T expects a 30-40% decrease in interest-bearing deposit beta in the first couple of rate cuts. Their balance sheet will be smaller, with $25 billion in cash and $30 billion in securities, and modest growth in loans and deposits. Fees and expenses are expected to be $2.3-2.4 billion and $5.25-5.3 billion respectively. Charge-offs are expected to be 40 basis points for the year. The tax rate is expected to be 24-24.5%, excluding a discrete tax benefit in the first quarter. Preferred dividends are expected to be $47 million in the third quarter and $36 million in the fourth quarter. M&T continues to generate significant capital and manage their CRE concentration. Asset quality is improving, with declines in non-accrual and criticized loans and net charge-offs in-line with expectations. The preliminary stress capital buffer declined to 3.8%.

The company plans to begin share repurchase in the third quarter and expects to maintain its capital ratios. The capital will also be used for organic growth and new customer relationships. The company has a strong balance sheet and is focused on shareholder returns and dividend growth. They are also a disciplined acquirer and steward of shareholder capital. The company beat on NII this quarter and expects it to remain relatively flat in the back half of the year. There may be some conservatism and timing differences in the drivers of NII.

Daryl Bible, speaking on behalf of the company, states that their position on rate sensitivity is neutral. They saw a positive impact of 5 basis points on non-accrual interest in the second quarter, which was double their average for the last five quarters. This resulted in a NIM of 3.56%, in line with their expectations. The 5 basis points is above their normal run rate of 3.52%.

The speaker, Daryl Bible, is discussing the drop in commercial real estate on a period-end basis, which has decreased by about 9%. He mentions that this is due to their aggressive efforts to work down their asset quality and criticized loans. He also notes that they have made great progress in shrinking their CRE concentration and expect to continue making progress in the next few quarters.

The speaker, Daryl Bible, explains how the company was able to bring down its CRE concentration numbers and improve its processes through a finance transformation. This has resulted in some loans being reclassified as C&I owner occupied, which has helped to reduce criticized loan balances. Additionally, there has been more liquidity in the marketplace, which has allowed some clients to find alternative financing options. In regards to the all other income line, Bible mentions that there were some positive factors contributing to the $152 million in fees, but it may also be subject to fluctuations.

Daryl Bible discusses the company's efforts to reduce interest-bearing deposit costs, which has been successful due to a mix of factors such as a decrease in brokered deposit CDs and more rational pricing in the marketplace. However, there is still some disintermediation occurring and the company expects to continue to see runoff in brokered CDs.

The speaker discusses the impact of various factors on the net interest income (NII) of the company, such as disintermediation and rational pricing in the market. They also address the question of how to think about the future of the company's capital and returns, given its current earnings power and the desire to reduce CRE concentration and improve criticized loan balances.

The speaker discusses their plans to continue reducing their concentration in commercial real estate and their conservative approach to returning capital to shareholders. They also mention their progress in reducing CRE concentration and improving credit quality.

Daryl Bible, a company executive, believes that the commercial real estate (CRE) market is close to returning to normal levels. The company has been successful in managing their CRE loans and has seen improvements in their credit team's efforts. They have a process in place to work with clients whose loans are maturing and have seen some loans being refinanced or placed with government-sponsored enterprises. The company is focused on reducing the number of criticized loans and is confident in their ability to continue driving down these numbers. When it comes to loan modifications, the company is asking for more recourse or capital from clients in order to give them more time to work through their higher interest rates. These modifications are actually improving the company's position.

Daryl Bible, CFO of M&T Bank, discusses the bank's approach to working with clients and their modifications of loans. He mentions that they are giving clients more time and in return, receiving more capital liquidity. He also notes that their criticized loans may decrease in the first half of next year if rates continue to lower, as they saw a short window of success in December when rates dropped.

Daryl Bible, the speaker, is answering a question about the company's commercial real estate (CRE) portfolio. He mentions that the company has a history of strong credit performance and low loan-to-value ratios (LTVs) in the CRE portfolio. He also notes that half of the non-accruals do not have a specific reserve because the collateral value is stronger than the loan value. He believes that the loss content in the portfolio is lower than expected. The speaker also discusses the increase in securities repricing, which was 31 basis points, and explains that the company is being disciplined in their approach to security purchases and keeping durations short.

The company aims to maintain a balanced portfolio with a mix of positively and negatively convex securities, with a focus on three-year duration instruments. The current yields are around 5%, with the negatively convex securities yielding slightly higher. The company plans to continue dollar averaging and increasing yields as securities mature. The company also has a healthy amount of cash and expects to keep it at around 30% of total assets.

In the paragraph, Daryl Bible, a representative from M&T Bank, discusses their efforts to reduce wholesale funding and shrink their balance sheet. He mentions that this should not impact their net interest income (NII) and that they aim to maintain a balance sheet of around $25 billion. He also mentions that they have exceeded their buffer and are being conservative in case of a recession. In response to a question about future improvements, Bible expresses confidence in their plans to continue reducing risk and potentially increasing share repurchases. Overall, he is pleased with their recent decrease in the stress capital buffer and believes their efforts will continue to have a positive impact in the future.

M&T is focused on reducing criticized levels and seeking a lower stress capital buffer in the next year. They have a history of successful acquisitions, but are currently focused on their four priorities: building out their markets, enhancing risk areas, improving resiliency, and optimizing revenue and expenses. They are not actively pursuing depository acquisitions at this time.

The company has seen double-digit growth in treasury management revenues due to their focus on C&I. Expenses are being managed well, with a decrease in headcount and on track to meet plan numbers. The company has an "owner's mindset" when it comes to spending money and is fortunate to have a great team that understands how to run the company.

During the conference call, Daryl Bible, the CFO of the company, discussed the increase in outside data processing and professional services expenses, which are related to the upgrade the company is undergoing. He mentioned that these expenses may continue to increase in the second half of the year due to ongoing projects, but the company is making progress and has a lot of momentum. Brian Klock, the CEO, thanked the participants and invited them to contact the Investor Relations Department for any clarifications. The call concluded after the Q&A session.

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