M&T Bank Corporation

Welcome to the M&T Bank Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute, listen only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star then the number 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. When posing your question, we ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance, please press star 0. Please be advised that today's conference is being recorded and I would now like to hand the conference over to Brian Clark, Head of Market of Investor Relations. Please go ahead.

Thank you, Ashley, and good morning. I'd like to thank everyone for participating in M&T Second Quarter 2024 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, .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 are included in today's earnings release materials and in the investor presentation, as well as our SEC filings and other investor materials. The presentation also includes non-GAAP financial measures as identified in the earnings release and investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning is M&T's Senior Executive Vice President and CFO Darrell Bible. Now I'd like to turn the call over to Darrell.

Thank you, Brian, and good morning, everyone. As you will hear on today's call, the second quarter results continue M&T's strong momentum for 2024. Turning to slide four, this April we released our fourth annual sustainability report. We are proud of our continued progress towards our sustainability goals. Our efforts are creating positive outcomes for our businesses, our customers, and our communities. Of note, in 2023, our total sustainability finance loans and investments totaled $3.1 billion. Turning to slide five, we continue to garner awards for our businesses, products, and employees, including the highest customer satisfaction for mobile banking apps among regional banks, according to JD Power, and the Securitization Trustee of the Year for Wilmington Trust from Global Capital. Turning to slide seven, which shows the results for the second quarter. As noted in this morning's press release, we are pleased with the second quarter results and the performance through the first half of the year. We continue to grow loans while also shifting the composition of our loan portfolio and reducing CRE. Custom deposits increase sequentially while total deposit costs have leveled off. Net interest income and net interest margin both inflected off the first quarter cyclical loan. Asset quality trends are performing as expected with reductions in non-accrual and criticized balances and net charge-offs in line with our full year outlook. Capital continues to build with a CET1 ratio increasing to over 11.4%. We continue to make progress on our capital return considerations and our stress capital buffer decreased 20 basis points to 3.8%, reflecting the strength of our core earnings power and ongoing risk management work. Now let's look at the specifics for the second quarter. Deluded gap earnings per share were $3.73 for the second quarter, improved from $3.02 in the first quarter. Net income for the quarter was $655 million compared to $531 million in the link quarter, an increase of 23%. M&T's second quarter results produced an ROA and ROCE of .24% and .95% respectively. The CET1 ratio remained strong, growing to .44% at the end of the second quarter and tangible book value per share grew 3%. Included in our gap results for the recent quarter were pre-tax expenses of $5 million related to the FDIC special assessment. This amounts to $4 billion after tax or $0.02 per share. As a reminder, results for this year's first quarter included $29 million related to the FDIC special assessment, amounting to $22 million after tax effect or $0.13 per share. Friday included supplemental reporting of M&T's results on a net operating or tangible basis, from which we have only ever excluded the after tax effect of the amortization of intangible assets as well as any gains or expenses associated with mergers and acquisitions. M&T's net operating income for the second quarter was $665 million compared to $543 million in the link quarter. Diluted net operating earnings per share were $3.79 for the recent quarter, up from $3.09 in the first quarter. Net operating income yielded an ROTA and an ROTCE of .31% and .27% for the recent quarter. Next, let's look a little deeper into the underlying trends that generated our second quarter results. Please turn to slide 9. Taxable equivalent net interest income was $1.73 billion in the second quarter, an increase of $39 million or 2% from the link quarter. Net interest margin was .59% and an increase of 7 basis points from the first quarter. The primary drivers for the increase to the margin were a positive 6 basis points from fixed rate asset repricing, primarily within the investment and consumer loan portfolios. Positive 5 basis points from sequentially higher or not accrual interest. Positive 1 basis point from lower interest varying deposit costs, partially offset by a negative 3 basis points from the impact of swaps and a negative 2 basis points from higher borrowing costs and balances. The second quarter included non-accrual interest of $30 million compared to an average of $14 million in the prior five quarters. If non-accrual interest was at the average run rate, the second quarter NIM would have been 3.56%. In total, swaps reduced NIM by 23 basis points in the second quarter. Turn to slide 11 to talk about average loans. Average loans and leases increased 1% to $134.6 billion compared to the link quarter. As have been the trend for the last several quarters, CNI and consumer growth outpaced the decline in CRE. CNI loans grew 2% to $58.1 billion driven by increases in middle market, dealer commercial services, mortgage warehouse lending, and fund banking. The CNI growth reflects an increase in line utilization and higher origination activity. CRE loans declined 4% to $31.5 billion reflecting continued low originations and elevated paydowns as we continue to manage our CRE concentrations. Residential mortgage loans were relatively unchanged at $23 billion. Consumer loans grew 4% to $22 billion reflecting growth in recreational finance and indirect auto loans. Loan yields increased 6 basis points to .38% aided by sequentially higher non-accrual interest and fixed rate loan repricing, partially offset by a higher drag on our cash flow hedges. Turning to slide 12, our liquidity remained strong. At the end of the second quarter, investment securities and cash, including cash held at the Fed, totaled $56.5 billion representing 27% of total assets. Average investment securities increased by $1.1 billion. The yield on the investment securities increased 31 basis points to .61% as the yield on new purchases exceeded the yield on maturing securities. During the second quarter, we purchased over $3 billion in securities with an average yield of .16% and a duration of 2.9 years. Over the remainder of the year, we expect an additional $2.8 billion in security maturities with an average yield of .5% which we intend to reinvest at higher yields. The duration of the investment portfolio at the end of the quarter was 3.7 years and the pre-tax loss on AFS portfolio was only $239 million or 12 basis point drag on CET1. Turning to slide 13, we remain focused on growing customer deposits and are pleased with the stabilization of our yields. Average total deposits declined 0.6 billion or less than a half a percent to $163.5 billion, reflecting sequential growth and average customer deposits offset by a $1.2 billion decline in broker deposits. Average broker deposits of $12 billion reflects a decision to shrink non-customer funding sources. Consumer, mortgage, business banking, and institutional finance had stable to growing average deposits compared to the first quarter, while commercial deposits declined. Average non-interest bearing deposits declined $0.9 billion to $47.7 billion with lower commercial and business banking balances as a result of seasonally and continued but moderating disintermediation. Non-interest bearing deposits were relatively stable for all other business clients. Excluding broker deposits, the non-interest bearing deposit mix in the second quarter was 31.5 percent compared to 32.2 percent in the first quarter. Interest bearing deposit costs decreased three basis points to 2.9 percent while the total deposit cost was unchanged at 2.06 percent. This reflects more rational pricing in markets. Continuing on slide 14, non-interest income was $584 million compared to $580 million in the link quarter. Recall that the first quarter included $25 million Bayview distribution. Trust income increased $10 million to $170 million, reflecting approximately $4 million in tax preparation fees typically earned in the second quarter and strong sales performance across our institutional services business. Second quarter mortgage fees were $106 million compared to $104 million in the first quarter. Commercial mortgage fees increased $4 million from the link quarter to $30 million, reflecting an uptick in origination activity, while residential mortgage fees decreased $2 million to $76 million, reflecting lower servicing fees. Service charges increased $3 million to $127 million from higher consumer debit interchange fees. Other revenues from operation were unchanged at $152 million, with increases in merchant discount, credit card, letter of credit, and other credit related fees offsetting the $25 million first quarter BLG distribution. Security losses of $8 million primarily reflect realized losses on the sale of non-agency securities as we de-risked our portfolio. Turning to slide 15, non-interest expenses were $1.3 billion, a decrease of $99 million from the first quarter. As is typical for M&T's first quarter results, expenses in the quarter included approximately $99 million of seasonally higher compensation costs. Salaries and benefits decreased $69 million to $764 million, reflecting seasonally elevated expenses in the first quarter, offset by the full quarter impact of annual merit increases. The second quarter included $5 million related to the FDIC special assessment compared to $29 million in the prior quarter. Other costs of operations decreased $18 million to $116 million from lower supplemental executive retirement costs and lower losses on lease terminations. The adjusted efficiency ratio, excluding the impact of the FDIC special assessment, was .1% compared to .6% in the first quarter. Next, let's turn to slide 16 for credit. Net charge-offs for the quarter tortered $137 million or 41 basis points, down from 42 basis points in the late quarter. The three largest charge-offs were $40 million combined and represent C&I loans that span industries including services, manufacturing, and retail. The CRE charge-offs, including charge-offs within the office portfolio, remain at manageable levels through the first half of the year. Non-accrual loans decreased $278 million to $2 billion. The non-accrual ratio decreased 21 basis points to 1.5%, driven largely by a decrease in CRE, reflecting favorable resolutions with borrowers, including payoffs and paydowns. In the second quarter, we recorded a provision of $150 million compared to net charge-offs of $137 million. The -to-loan ratio increased one basis point to 1.63%. The provision for credit losses decreased $50 million compared to the first quarter, reflecting lower CRE loans, including criticized loans, and modest improvement in forecasted real estate prices, partially offset by growth in C&I and consumer portfolios. Please turn to slide 17. When we file our Form 10Q in a few weeks, we estimate that the level of criticized loans will be $12.1 billion compared to $12.9 billion at the end of March. The improvement for the link quarter was largely driven by a $987 million decrease in CRE-criticized loans. Slide 18 provides additional detail on &I-criticized balances. Total &I-criticized balances increased $98 million. The majority of the increase is concentrated within vehicle and recreational finance dealers and healthcare sectors, offset by declines in most other industries. We saw additional migration to criticize within non-auto dealer portfolio, continuation from we discussed in the first quarter. However, there has been limited incremental migration within the portfolio since early in the second quarter. Turning to slide 19 includes the detail on CRE-criticized balances. Total CRE-criticized balances decreased $987 million from the last quarter. Upgrades and payoffs of criticized loans outpaced downgrades into criticized. The decline was across multifamily, retail, health services, hotel, and construction, though we did see modest increases in office and industrial. The decrease reflects the effects to work with borrowers to find favorable resolutions. We are actively working through our criticized population for favorable outcomes. Turning to slide 20 for capital, M&T CET1 ratio at the end of the second quarter was an estimated .44% compared to .08% at the end of the first quarter. The increase was due in part to the continued pause in repurchasing shares and strong capital generation. At the end of the second quarter, the negative AOCI impact on the CET1 ratio from AFS securities and pension related components would be approximately 19 basis points. Now turning to slide 20 for output, the economy is slowing a bit but remains in good health. Job growth, wage growth, and spending have slowed to more sustainable levels. We see the so-called soft landing scenario as having the highest probability but the possibility remains for a mild recession brought on by the lagged impact of rate hikes. Consumer spending has slowed to a pace consistent with job and wage growth, alleviating inflation pressure for many goods and services. The labor market remains positive but is clearly slowed, in turn keeping a lid on wage pressure and leading to longer spells of unemployment. We expect that to continue for the rest of 2024. Inflation figures remain above the Fed's target of 2% chiefly because of rent and home prices. We expect the weaknesses seen in rent listings to play through the official inflation data helping bring the headline inflation figures down. Inflation in the second quarter slowed and encouraging development after higher readings in the first quarter. Shifting to 2024 outlook, we expect net interest income to be 6.85 billion to 6.9 billion. Our outlook incorporates the latest forward curve that has one rate cut in September and another in December. However, we expect the level of rates to have a limited direct effect on net interest income outlook as we have taken steps to reduce our asset sensitivity and are now more neutral. Higher for longer rates in the first half of the year allowed us to take additional actions to protect NII from lower interest rate environments. For example, in the first half of year we shifted 3 billion of cash into securities and added 5 billion in forward starting cash flow hedges which became active in 2025. Further, we expect that the downside in interest bearing deposit data will be approximately 30 to 40% in the first couple of rate cuts. For the remainder of the year, MNT's balance sheet will be smaller with total average assets closer to 208 billion. We expect average cash to be approximately 25 billion and securities to be 30 billion with modest growth in loans and deposits. Our outlook for fees and expenses is unchanged with fees excluding any security gains or losses of 2.3 to 2.4 billion and expenses excluding the amounts related to the FDIC special assessment are expected to be 5.25 billion to 5.3 billion. We continue to expect charge-offs for the full year to be near 40 basis points. The allowance level will be dependent on many factors including changes in the macroeconomic outlook, portfolio mix, and underlying asset quality. Our outlook for the tax rate is 24 to .5% excluding the discrete tax benefit in the first quarter. Preferred dividends are expected to be approximately 47 million in the third quarter and 36 in the fourth quarter reflecting our series J issuance in May and the upcoming series E redemption in August. Finally, as it relates to capital, last quarter we laid out five factors for consideration as we assessed our capital return plans for the rest of the year. The macroeconomic environment remains healthy. M&T continues to generate significant capital for then growing tangible common equity by over 500 million in the second quarter. We continue to manage our CRE concentration with CRE as a percent of tier one capital and allowance of 151% as of the end of the second quarter. Asset quality continues to improve with declines in non-accrual and criticized loans and net draw jobs in line with expectations we laid out in the first quarter. M&T's preliminary stress capital buffer declined 20 basis points to .8% reflecting many of the factors just mentioned. Given the improvements in these factors, we plan to begin our share repurchase in the third quarter at a pace of 200 million per quarter through the end of the year. We expect to maintain our ratios at least at the current levels for the remainder of the year. We will continue to monitor the previously discussed factors as well as the revised Basel III proposal once made public and will adjust our capital return plans if necessary. Our capital will also be used to support organic growth and grow new customer relationships. Our strong balance sheet will continue to differentiate us with our clients, communities, regulators, investors, and rating agencies. To conclude on slide 22, our results underscore an optimistic investment thesis. M&T has always been a purpose driven organization with a successful business model that benefits all stakeholders including shareholders. We have a long track record of credit outperforming through all economic cycles while growing within the markets we serve. We remain focused on shareholder returns and consistent dividend growth. Finally, we are a disciplined acquirer and prudent steward of shareholder capital. Now let's open up the questions before which Ashley will briefly review the instructions.

Certainly at this time if you would like to ask a question please press star one on your telephone keypad. You may withdraw your question at any time by pressing star two. Once again that is star and one for your questions. We'll take our first question from Manan Ghassali with Morgan Stanley. Please go ahead.

Hey good morning Daryl.

Good morning Manan.

So you know I wanted to ask on NII. So you beat on NII this quarter and then your new guide for NII implies that quarterly NII will be relatively flat from two Q levels. And you did see a noticeable increase quarter on quarter this quarter in NII. So can you just unpack the drivers in the back half? Is there some conservators in there or you know is there some timing difference in you know being neutral to rates but maybe perhaps being a little bit more sensitive with the first rate card if you can just unpack those drivers there?

Yeah no thanks Manan. Our position from rate sensitivity is really quite neutral. You know it's based on assumptions but I feel we are really neutral there. If you look on the slide deck where we had net interest income in one of the bullets there we highlight that we had a five basis point positive in fact impact on non-acro interest. So let me explain that to you. So when loans go into non-acro we basically when we still receive payments both principal interest all that goes to principal and then if the loan is basically resolved favorably and they pay us off obviously we pay off the principal balance and then anything left over goes into net interest income. So what we saw in the second quarter was basically a large amount of loans that basically came out favorably out of our non-acro portfolio. So what we put on there and what I talked about in the prepared remarks is that if you look at our average non-acro interest for the last five quarters has been running around 15 million. This quarter we got double that. So I would basically say our NEN this quarter was actually on track because if you adjust the 15 million out we were 5.56 NIM and I said that we would be mid 350s for the second quarter. So we're really on path to what I said you know mid 350 second quarter and high 350s for third and fourth quarter is really where we wanted to be and expect to be. So I think we're just on track Manan.

Got it and just to confirm that basis points is where you are above normal right the five basis points isn't the total impact.

It's three is what I would say be normal to the run rate. Yeah so and go ahead

and you are five basis points above that?

No no no we were three so we were 352 we said we'd be in the mid 350s. I say we really came in at 356 if you back out the extra above non-acro interest that we normally get. I mean we're going to get non-acro interest every quarter you know we've been averaging you know a couple basis point benefit every quarter because of that that's going to continue for a long time.

Got it all right perfect and then maybe you know you can put this in the category of no deed goes unpunished but on the on the buyback assumption your message in the deck is that capital levels should at least stay at current levels of around 11.5 percent. You know just given that the SCB went lower given the excess capital position what do you need to see before you accelerate the pace of buybacks and bring that capital ratio lower?

Yeah I think it's you know pretty simple. I think you know we are aggressively working down you know our asset quality our criticized loans on performing assets. I think we need to continue to make progress on that as we make progress on that you could see us decide to increase our you know repurchase shares potentially. Obviously the economy is a factor and my prepared remarks you know we said we don't think it's likely but it's possible and maybe you go into recession so if that were to happen I think we'd have to view that and you know just be a little bit more defensive if that made sense or not. You know I still want to see the impacts of Aslifery. I know you know we are hearing in more favorable things but until we actually see it in writing you really don't know what's what's going on but those are the probably the primary things that we're working on. We continue to shrink our CRE concentration make great progress there. I have no doubt we will continue to make great progress in the next couple quarters as well there.

Great thank you.

Thank you we'll take our next question from Matt O'Connor with Deutsche Bank. Please go ahead.

Good morning. I was hoping to collaborate on the big drop in the commercial real estate on a period end basis. I think it's down about nine percent obviously you know great job bringing that down and I know you touched on some of the kind of opportunities to offload that but it's just a bigger drop than I would have thought and I didn't know if there was any reclass into CNI as you kind of improve some of those like guarantees and things like that. So just elaborate on all that in terms of how you're able to bring it down so much. Thank you.

Yeah no happy to answer that Matt. So we are very focused and working really hard both the first line and second line of working hard and made tremendous progress and bringing our CRE concentration numbers down. You know we did see a lot more liquidity in the marketplace this quarter you know and we were able to see you know some of our clients that we had actually in criticized multifamily be able to do government placements out into the marketplace for liquidity. So as we continue to have that liquidity that helps us basically cure some of our criticized loan balances. The other thing that I would tell you is that you know we are doing a finance transformation. You know finance transformation is basically you know putting in new general ledger system subledgers which you know we are doing really well and we're about halfway through that process now but it's also improving and changing processes. So as we improve and change processes we are putting in better controls and more ways of actually how we put loans on the books and that is causing some grading to go from what CRE would be into CNI owner-occupied because it really comes down to the source of repayment. Source of repayment you know is from an operating entity it's basically not a CRE loan it is a CNI owner-occupied loan.

Okay that makes sense I think that's how others do that too and then just separately on the all other income line you pointed to a couple of kind of positives there. Is that on a sustainable level or I know it could be lumpy but how do you think about that that all other feeds of like 152 banks?

You know it is at a relatively high level you know I probably trim you know maybe you know five or ten percent out of that potentially on a lot of that other revenue that we talked about is the merchant fees and we had good quarter there more activity that could continue as we continue activity. The other is on loan demand and we're having loan syndication fees and all that and that's going to be lumpy. We had a good quarter this past quarter in that area you know we are seeing maybe a little bit of softening in some of the commercial areas so it might be a little light but yeah I'd say you know at that same level to maybe down five or ten percent.

Okay thank you so much.

Thank you we'll take our next question from Eric and the Jerrian with GBS please go ahead.

Yes hi two follow-up questions please. Daryl the company clearly did a great job in terms of interest bearing deposit costs coming down. I know some of that is a mix of a broker being actively taken down in terms of exposure. Could you give us a sense before the rate cuts and we appreciate the downside beta guide that you gave us but if we don't rate cuts how do you do you feel like this level of progress is sustainable and maybe break it down in terms of what you're observing with client deposit rates versus you know the continued runoff in broker CDs?

Yeah so broker CDs will continue to run off. We have another big chunk coming off in third and fourth quarter so we'll be pretty much out of broker deposit CDs at least by the end of the year. As far as the betas go and rates you know we continue to just see more rational pricing in the marketplace and we're able to maybe offer specials but the specials that we're offering just aren't as high as what they were before so you're still seeing that there is still some disintermediation. You know it is slowing down but there's still continued dismediation. The one that impacts NI the most is obviously the one that goes to DDA to interest bearing deposit balances. You know we're capturing any disintermediation but it's still seeing a little bit in the commercial area. The other thing is on the retail side as long as rates are at this level you know you're going to see a little bit of attraction of you know money going out of the non-majority bucket into the CD deposits. You know but we feel pretty good that our deposit costs are you know flat you know and maybe down you know as the years progresses and into next year. I think it's just more rational pricing in the marketplace right now.

Thank you and my second question is a follow-up to Manon. So last quarter and during the quarter I think you guys are telling us oh don't back into this 11% CET1 when you know thinking about buybacks. Listen to what we're saying on the total amount of what we're buying back and then of course you had a pretty strong you know pretty strong progress in terms of CET1 this quarter and the floor went up even more. And I appreciate your response to Manon's question and I know that's part of the you know conservatism of this company and why long-onlys value you guys so highly. I guess I'm wondering you know how should we think about the future? I get that there's still uncertainty there's still a willing a desire to take down CRE concentration, a desire to see the economy play out but at this level of earnings power with 200 million you're going to continue to build capital especially if you know the CNI loan growth is engulfed by CRE declines. So I guess as we as your long-term shareholders think about you know forget buybacks for a second returns and what that appropriate capital floor is how would you help them frame that Darryl?

You know from a floor perspective obviously we are much higher than where we have to run the company long term for for M&T. You know we do have elevated criticized loan balances and we're really working hard our teams are working their butts off to basically bring those balances down and we hope and plan to that to continue through the rest of this year into next year. So that that is definitely one of the key things that we're looking at. We are conservative what I've said you know in prior quarters the capital is not going anywhere Erica we will return it we promise you that we aren't going to be wasted or do anything stupid and all that it will come back to the shareholders at some point down there we're just going to do it in a very conservative manner because that's just who we

are.

So I guess you know to you know to compare it to what how Jamie says it I guess the better way for shareholders and to think about it is earnings in store. All right thanks guys.

Thank you we'll take our next question from John Big Harry with AVOCOR ISI please go ahead.

Morning Darryl. Morning John.

On the back to CRE I know you mentioned the ongoing focus to reduce the concentration of CRE where do you see the CRE the risk-based capital percentage going I believe in the past you've indicated you wanted to see it into the 150 percent range so when we get that update and then separately in terms of the the improvement that you saw in credit this quarter in terms of the past two declines non-accruals and the credit size can you just talk about what specifically you saw that is driving that and broadly those trends can continue in that direction. Thanks.

Yeah sure so you know we've made tremendous progress over the last three plus years on getting our CRE concentration down the plans that we you know put into place at that point and continue to execute and you saw the benefits in our stress capital buffer because of that and that will hopefully continue when we continue to you know submit the stress capital super test you know I would say we're getting close John you know you know we are at 151 now you know I think we're in the neighborhood of being close to where you know CRE will be much more normal space for us you know we're at a level that we think is makes sense for the size company we are and serving our communities and clients so we're probably maybe a quarter or two away but I think that's not too far off as far as non-accruals go you know I tell you this quarter everything kind of worked came together really strong our first line credit team was working with our clients we have a process in place where we're looking at all the CRE loans that are maturing and trying to see you know where and how we can you know work with our clients to either get it right size to get it upgraded off of criticized we are seeing you know some of our criticized loans getting refinanced by others in the industry and I talked earlier that we're seeing you know some of our criticized loans getting placed in the agencies with our programs with the GSEs so we're basically you know really focused on that the teams are diluting working hard and you know we plan to have those numbers continue to drive down and and be really positive

great thanks to all that helps and then related to that maybe could you just talk about the role that loan modifications have played here as you've addressed commercial real estate maybe help us with the trajectory of your financial difficulty modifications they continue to rise and maybe if you could just talk about the concerns out there that you know they're simply kicking the can down the road and we a year from now we can see these these pressures rear drug we had again

so when you look at loan modifications you know when we are working with our clients loan modifications you know we are asking for you know more type of recourse or capital to be put into the transactions for them to get more time to work through their the higher interest rates that we have so the modifications we are doing are actually enhancing our position so we're giving them more extension on time and they're giving us more capital liquidity recourse for that time so we're actually in a better spot so yes our modifications are going up you know this is our history of an mnt we work with our clients if our clients support us we're going to support them that's what we do and that's

what we're going to continue to do

great thanks darryl

thank you we'll take our next question from ibrahim punawala with bank of america please go ahead

hi darryl good morning

i

just wanted to go back to the criticized cni and cre so a lot of decision making on capital revolves around how some of this plays out if you don't mind give us a sense of when you think about criticized loans if rates go lower i think you mentioned soft landing base case probability most likely for you is there a point in time if rates are lower you get the financials maybe in march of next year we could see a meaningful reset lower from this 12 billion going down by a couple billion like i'm just wondering could there be a step function decline in criticized loans at some point in the first half of next year based on macro clarity yeah

so ibrahim that's a great question we saw a short window in the fourth quarter in december when the tenure dropped four percent or a little bit under that and we had huge volume that we were able to place our clients out with the agencies our rcc business was able to place a lot of loans out because of that so i think our tenure last time i looked was 418 so i think we're getting closer to more of a pivot point or more volume where actually happened so i think lower rates would definitely help us lower our criticized balances sooner and faster from that perspective that would be even more liquidity in the marketplace than what we saw this this past quarter

that's helpful and i guess the other question on theory given all the work you've done over the past year stress testing etc on the cre book just give us your perspective on the loss content in these loans as they maybe some of these go into non-accrual based on what you know today what's already been deserved and as we think about like charge-offs relative to the 40 bips that you've guided for this year

yeah you know we have a long-term history of our great strong credit performance so if you look at our ltvs that we have for the cre portfolio you know even office you know we're still under 60 ltv there so you know if you and a great thing to look at if you look at our non-accruals half of our non-accruals don't have a reserve against it you know and typically you'd have a specific reserve on non-accruals that's because we have a lot of credit performance that's stronger than what the loan value is today so it's really the strength of how we underwrite and that credit performance is really what shows through in times of stress so yes we have you know a higher level of criticized and non-accrual we're working those down but we think the loss content is still a lot lower

got it that's great color thanks yeah

Thank you we'll take our next question from Ken Ustin with Jeffery please go ahead.

Thanks good morning hey Darryl you had a great amount of securities repricing this quarter up 31 basis points on a bigger book and I can imagine some of that was just a switch from cash but I think you had talked about 15 to 20 going forward so maybe can you just give us a little color on what drove that 31 and then how you're looking at what securities yields could look like from an incremental perspective going forward thanks

yeah so you know we are being very disciplined in and how we're approaching our security purchases you know we're trying to keep our durations relatively short we really don't want to have an negatively convex portfolio so when we go to market when we buy securities you know we are basically balancing our securities between positively convex securities like treasuries and CMBS agency securities coupled with some negative convex securities which could be some agency CMOs or MVS so we're being very balanced from there so we're trying to keep our duration around three years because of that you know our yields if you look at where rates are today are blended to be around five percent that is a negative or positive or negative five percent so we're living in you know three year type duration type instruments overall is kind of what we're focused on that said though we're still going to have a nice benefit if you look at what's maturing in the third and fourth quarter the average yield of what's maturing is about two and a half percent you know so we'll depending on where rates go but right now we're getting 250 basis point still increase in that yield portfolio as that turns and turns over so i think we feel really good we're just being very disciplined i'm not good at timing rates so we kind of do dollars averaging over time we've done that now for the last year we're going to continue to do that going forward and we're just going to do it over time and average in and hopefully continue to average up higher

okay and then obviously for a long time M&T has had a really healthy amount of cash and i think cash and earning assets together is about cash is like 30 something percent still low 30s percent and do you still anticipate given that conservatism keeping cash and securities at you know over 30 percent as you look forward what would change that if anything

yeah so on the prepared call notes what i mentioned is that right now our investment portfolio is about 30 billion we believe that the cash at the fed is closer to mid-20s so closer to 25 billion we're basically just trying to get out of some wholesale funding and just shrinking the balance sheet a little bit so our balance sheet size is coming down as well so where i have a smaller balance you shouldn't really impact nii just because of the cost of the borrowings and what we earned on the fed balance kind of cancelled each other out but you know we've just filled 20 mid-25s good we do have limits in place of how low we go that be in the mid to high teens so we have a well above that buffer that we're operating right now but just want to be here again conservative you know if we could go into a recession which we don't what happened but if we do this will be really conservative balance sheet

okay thanks darryl

thank you we'll take our next question from gerard cassidy with rbc please go ahead

hey darryl hey gerard

darryl you obviously did a good job with the you know the stress capital buffer coming down i guess a couple questions first is when you when you look at the improvement and and you touched on it you know what you've obviously done do you think that improvement can be as large next year as you guys continue you know to reduce these risks to mnt as we look out into 2025

yeah so our plans right now gerard we were really pleased you know that we were down 20 basis points in our peer group we were one of three banks that had a lower scb so we were really excited to have have that outcome but by us really focusing on and pushing down our criticized besides share repurchase maybe increasing it's also going to help us in our stress capital buffer when we go through the stress test so we're really focused in trying to bring down our criticized levels to as much as we can and working with our clients over the next couple quarters so that when we do seek our next year if we decide to do it which we may or not probably well though we'll continue to try to get a lower stress capital buffer

got it and then when you you know when you look at mnt's history obviously the organic growth has always been complemented very successfully with acquisitions and when you look out over the landscape over the 12 to 24 months can you give us your views on you know depository acquisitions not to say that you're going to do anything you know near term but just how are you guys thinking about depository acquisitions and i know there's changes and we've got a presidential election coming up which could influence as well what have you guys been thinking in that you know in that strategy

so mnt has a long-term history of doing acquisitions successful acquisitions and that is one of the reasons you know how how we grow here but to be honest with you we haven't really been talking about acquisitions you know we're working on our four priorities that we have in the company right now our four priorities that we have are basically building out you know our markets in from the people's acquisition in new england and long island i think that's really important continue to build out that's a great opportunity for us and we think the mnt bank will be really good in the markets that we serve theirs i think just they need a bank like us in those markets and we want to deliver to those clients you know we're enhancing our risk areas throughout the company making great progress in those areas we will continue to focus on that we're also improving resiliency to some of the transformations that we're doing we're putting in data centers you know things up into the cyber or applications into the cloud so all that is going forward and then lastly you know we're continuing to optimize revenue and expenses you know we put some money into treasury management this past year and we're now growing our treasury management revenues at double digit pace is 13 percent right now so they're doing really good and you know continue to gain more momentum there in that treasury management as we push more into cni that's a growth opportunity for us and that's really what we're focused on and trying to grow and serve our clients

great thank you

thank you we'll take our next question from chris far with the wells fargo please go ahead

good morning so my question is just a little bit on expenses the just wondering about headcount what you thinking about it going forward and since salaries expenses were up four percent year per year which seems pretty good overall yeah

i mean we're right on track from our expense guidelines actually we're doing a little bit better than you know what was in plan so you might see a little bit of shift and that in the second half of the year but we're right on track we're going to hit our plan numbers on expenses i have no doubt about that fte's we are down a couple hundred million in fte's from the start of the year so you know that's just being managed by all the leaders and their groups and all that so you know i think from an expense perspective we really have an owner's mindset at m&c they really take to heart you know how we spend money and make sure how we're spending money in the right places and getting the right outcomes from that so i'm really fortunate to have a really great company that really understands you know how to run a company both from a revenue and expense side basis so it's all really good

and just to clarify down a couple hundred not a couple hundred million correct

no no no a couple hundred fte's yeah yeah okay

all right

sorry sorry and then

um yeah no worries and then just on the uh outside data processing a big delta is and how much is that related to this upgrade that you've been talking about and will some of that run off are you kind of now at a higher operating plateau on tech expense

uh you know i would say second half of the year you might see elevations and outside data processing and professional services as a we have now seven projects in our investment council are ramped up those probably will be areas of increase will still come into our target that we set on expenses so i i feel really good about that you know some of the projects are just larger and takes time to ramp up but you know as we get into 25 you know you see some projects start to complete and you know whether we reinvest in other areas or not we'll talk to you at that time right now but overall the company is making tremendous progresses on many fronts and we got a lot of momentum going and we're going to continue to press on

that

thank you

all right there are no further questions at this time i'll turn the call back over to brian clock for any closing remarks

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