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    M&T Bank Corp (MTB)

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    Business Description

    MTB is a financial services company that operates through three main business segments, providing a range of banking and financial services. The company offers credit products and banking services to commercial customers, as well as deposit and credit services to consumers and small businesses . Additionally, MTB provides trustee, agency, investment management, and administrative services for corporations and high net worth individuals . Interest on loans and deposits at banks are significant sources of income, contributing to a diversified revenue base .

    1. Commercial Bank - Provides credit products and banking services to middle-market and large commercial customers, including commercial lending, leasing, and real estate loans, as well as deposit products and cash management services .
    2. Retail Bank - Offers services to consumers and small businesses, such as deposit products, credit services including auto and home equity loans, and residential mortgage loans .
    3. Institutional Services and Wealth Management - Provides trustee, agency, investment management, and administrative services for corporations and high net worth individuals, including investment products like mutual funds and annuities .

    Q3 2024 Summary

    Initial Price$151.74July 1, 2024
    Final Price$172.72October 1, 2024
    Price Change$20.98
    % Change+13.83%

    What went well

    • Strong Capital Position Enabling Increased Shareholder Returns: M&T Bank's CET1 ratio is a robust 11.5%, providing significant flexibility to increase share repurchases in 2025 and return more capital to shareholders.
    • Improving Asset Quality with Declining Criticized Loans: The bank is experiencing significant improvements in asset quality, with criticized loans decreasing by over $1 billion and 91% of criticized loans paying current, indicating strong credit performance and client commitment.
    • Diversified Growth in Loan Portfolio and Fee Businesses: M&T Bank is diversifying its loan portfolio, expanding in consumer and C&I loans, and expects to resume growth in CRE, enhancing revenue prospects. The bank also has strong fee businesses like wealth management and Institutional Client Services (ICS).

    What went wrong

    • Increase in consumer lending may lead to higher net charge-offs and higher allowance balances due to the higher risk associated with consumer loans . The shift in loan mix could impact future earnings as consumer loans typically have higher charge-off rates.
    • Uncertainty over future capital returns, such as share repurchases, due to potential economic slowdown . MTB's plans to return more capital to shareholders in 2025 depend on economic conditions, and a slowdown could impact these plans.
    • High level of criticized loans with potential risk if interest rates do not decline further . While criticized loans have decreased, 91% of them are still paying current, and further improvements may require interest rates to go lower.

    Q&A Summary

    1. Capital Return Plans
      Q: Will you increase share repurchases in 2025, and what is your optimal CET1 ratio?
      A: We have flexibility with a CET1 ratio of 11.5%. As we enter 2025, we expect to return more capital to shareholders, potentially increasing share repurchases while targeting a CET1 ratio above 11%. This depends on economic conditions and loan growth, but we believe we're well-positioned to enhance shareholder returns.

    2. Net Interest Income and Margin Outlook
      Q: Can NII and NIM continue to improve if rates decrease as projected?
      A: We believe net interest income and margin will continue to improve into 2025, driven by positive repricing in our fixed asset portfolios and strong core deposits. Even if rates remain flat or change, structural factors in our balance sheet support an upward trajectory in NII and NIM. We have locked-in hedges that will enhance yields, and a positively sloping curve would further benefit us.

    3. Criticized Loans and CRE Exposure
      Q: Are criticized loans expected to decline further, and do lower rates impact this?
      A: Our criticized loans have declined for two consecutive quarters, and we expect a strong decrease in the fourth quarter. Lower rates facilitate takeouts and paydowns, improving our criticized loan levels. While we anticipate continued downward trajectory in 2025, we don't expect to eliminate criticized loans entirely, as supporting our clients is part of our long-term strategy.

    4. Loan Growth Outlook
      Q: Will loan growth accelerate in 2025, particularly in CRE?
      A: We see pipelines building in CRE, but it may take a couple of quarters before balances grow. We expect to stop shrinking CRE and begin growing it in 2025, supporting revenue growth. Overall loan growth may average around 1% per quarter, but this depends on market conditions and prudent lending practices.

    5. Deposit Beta Trends
      Q: How do you see deposit betas evolving with rate cuts?
      A: Our deposit betas peaked at about 55% on the way up; we expect them to end up around the same level on the way down. We anticipate an initial 40% beta repricing down in the fourth quarter , and planning and execution should allow us to continue this trend into 2025.

    6. Funding and Deposit Growth
      Q: Can deposit growth fund loan growth, or will cash balances be utilized?
      A: We aim to grow deposits faster than loans, maintaining an "always on" approach to deposit gathering. We prefer to reduce noncore funding while focusing on customer deposits. We may invest more in securities, with plans to add $3 billion in the fourth quarter , and manage cash at the Fed to maintain flexibility.

    7. Expense Outlook and Operating Leverage
      Q: What operating leverage do you expect in 2025?
      A: We anticipate positive operating leverage in 2025, potentially in the range of 150 to 200 basis points. While expenses may rise due to projects and incentive payouts, we believe 2025 will be a better year, supported by momentum in revenue growth and efficiency improvements.

    8. Asset Mix and Charge-Off Expectations
      Q: How will changes in loan mix affect charge-offs and reserves?
      A: As we grow our lending categories, particularly in consumer loans, we expect higher net charge-offs due to the mix change. While our historical through-the-cycle charge-off rate is 34 basis points , the shift towards consumer lending may lead to a slightly higher charge-off rate. We're ensuring good returns on these assets and believe diversification benefits outweigh the impact.

    9. Loan Repricing Benefits
      Q: What uplift are you seeing from loan repricing?
      A: Fixed-rate loans rolling on and off are yielding a net benefit of about 150 basis points. Specifically, C&I fixed-rate loans are up 1%, CRE up 1.3%, mortgages over 2%, and consumer loans up 1.4% , positively impacting net interest income and margin.

    10. Noninterest-Bearing Deposits
      Q: What is the outlook for noninterest-bearing deposits?
      A: We expect noninterest-bearing deposits to remain stable, averaging around 30% excluding brokered deposits. While there may be some volatility, particularly from our ICS business balances, we feel good about our position. As rates come down, the value of these deposits decreases, so we must work harder to maintain spreads and margins.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Renée F. JonesChairman of the Board and Chief Executive Officer2017Renée F. Jones has been the Chairman of the Board and Chief Executive Officer of M&T Bank Corporation since December 2017. He joined M&T Bank in 1992 and has over 30 years of experience in banking .
    Kevin J. PearsonVice Chairman2020Kevin J. Pearson is the Vice Chairman of M&T Bank Corporation, a position he has held since 2020. He began his career with M&T Bank in 1989 and has held various management positions .
    Daryl N. BibleSenior Executive Vice President and Chief Financial Officer2023Daryl N. Bible is the Senior Executive Vice President and Chief Financial Officer of M&T Bank Corporation since 2023. He previously served as CFO at Truist Financial Corporation and BB&T .
    Robert J. BojdakSenior Executive Vice President and Chief Credit Officer2004Robert J. Bojdak is a Senior Executive Vice President and Chief Credit Officer at M&T Bank, a position he has held since 2004. He joined M&T Bank in 2002 and is responsible for managing the bank's loan portfolio risk .

    Questions to Ask Management

    1. Given that you anticipate runoff in your CRE portfolio for at least a couple more quarters and don't expect CRE balances to grow until mid-next year, how do you plan to offset the potential impact on loan growth and net interest income, especially if CRE pipelines don't build as expected?

    2. You mentioned that your deposit betas on the way up peaked at about 55% and you expect a downward beta of at least 40% in the fourth quarter; how confident are you that deposit costs will reprice down as quickly as anticipated, and what are the risks that deposit betas remain higher, potentially compressing your net interest margin?

    3. With the shift in your loan mix towards consumer lending, which may have higher yields but also higher net charge-offs, how do you plan to manage the potential increase in credit losses, and are you comfortable with the current level of loan loss reserves given this mix change?

    4. Considering that your net interest income and margin are expected to improve due to roll-on and roll-off rates on fixed-rate assets, as well as hedging activities, what are the key risks that could prevent you from achieving these positive projections, especially in a volatile interest rate environment?

    5. As you plan to return more capital to shareholders in 2025 and potentially increase share repurchases, how do you balance this with maintaining a strong CET1 ratio above 11%, especially if economic conditions deteriorate or regulatory capital requirements change with the final Basel III implementation?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJuly 2022
    End Date/DurationN/A
    Total additional amount$3.0 billion
    Remaining authorization amount$1.0 billion
    DetailsManage capital and liquidity requirements, support future loan growth, and manage other balance sheet activities.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Net Interest Income (NII): At least $1.73 billion for Q4 2024 .
      2. Net Interest Margin (NIM): Low 3.60% range for Q4 2024 .
      3. Loan Growth: Average total loans approximately $136 billion .
      4. Deposits: At least $160 billion .
      5. Interest-bearing Deposit Beta: Approximately 40% .
      6. Security Balances: Expected to grow .
      7. Noninterest Income: About $600 million .
      8. Noninterest Expenses: About $1.32 billion .
      9. Net Charge-offs: Near 40 basis points for the full year .
      10. Tax Rate: About 24.25% .
      11. Preferred Dividends: Approximately $36 million .
      12. Share Repurchase: $200 million .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Remainder of 2024
    • Guidance:
      1. Net Interest Income (NII): $6.85 billion to $6.9 billion for FY 2024 .
      2. Balance Sheet: Total average assets closer to $208 billion .
      3. Fees and Expenses: Fees $2.3 billion to $2.4 billion; Expenses $5.25 billion to $5.3 billion .
      4. Net Charge-offs: Near 40 basis points for the full year .
      5. Tax Rate: 24% to 24.5% .
      6. Preferred Dividends: $47 million in Q3 and $36 million in Q4 .
      7. Share Repurchase: $200 million per quarter .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Interest Income (NII): $6.8 billion with possible upside .
      2. Net Charge-Offs: Near 40 basis points .
      3. Tax Rate: 24% to 24.5% .
      4. Capital: CET1 ratio above 11% .
      5. Expenses: Unchanged, excluding FDIC special assessment .
      6. Share Repurchases: On hold, reassessment planned after Q2 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: N/A
    • Guidance: The documents do not contain information about the Q4 2023 earnings call for M&T Bank (MTB). Therefore, I cannot provide the guidance they may have provided in that call.

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Commercial and other banks and thrifts
    • Private credit funds
    • Insurance companies
    • Mutual funds
    • Hedge funds
    • Securities brokerage firms
    • Financial technology companies
    • Credit unions
    • Personal loan companies
    • Sales finance companies
    • Leasing companies
    • Wealth and investment advisory firms