M&T Bank Corporation (MTB) Earnings Call Transcript & Summary

Good morning. Thank you for joining the Annual Meeting of Shareholders of M&T Bank Corporation. I'm Rene Jones, the Chairman and Chief Executive Officer of M&T. Our Board of Directors and our executive leadership team are connected virtually. Here in the room with me are Darren King, the Chief Financial Officer of the company; and Marie King, the company's Corporate Secretary. The Inspector of Election is John ZaK from the law firm, Hudgson Ross LLP. As indicated in the proxy materials for this meeting, the following individuals were appointed by the company to serve as proxies and to vote on behalf of the shareholders. Dr. Judy D. Olian, President of Quinnipiac University in Hamden, Connecticut; Mark S. Rosen, Vice Chairman of The Solomon Organization in Summit, New Jersey; and Kent Schwendy, President and Chief Executive Officer of the Corporation for Independent Living in Hartford, Connecticut. I'd like to thank each of you for your service this morning. And now I'd like to call the annual meeting to order. Madam Secretary, do you have a report?

Mr. Jones, I can report that proper notice of this annual meeting has been given to M&T's shareholders. I can also report that the Inspector of Election has executed his oath of office.

Thank you. Could the Inspector of Elections, please advise us whether a quorum is present?

Mr. Jones, a quorum is present, shareholders holding more than a majority of the outstanding shares of the common stock of the company are either present at this meeting or represented by proxies.

Thank you, John. The annual meeting is now formally convened for the transaction of business. Any shareholder who intends to vote during the meeting via the virtual meeting website rather than by proxy should follow the instructions provided on the meeting website. Shareholders are also invited to submit questions via the meeting website. We will address as many questions as we can time permitting. M&T's Market and Investor Relations department will respond after the meeting if there are any remaining questions that we are unable to get to. You can also review the meeting agenda and the rules of conduct on the meeting website. Now we'll turn to the 5 proposals that have been presented to shareholders as described in our proxy statement dated March 7, 2023. The first proposal to be considered is the election of 17 directors for a term of 1 year until their successors have been duly elected and qualified.

Mr. Jones, on behalf of the Board of Directors, I nominate for election as directors of the company to hold office until the next Annual Meeting of Shareholders and until their successors have been duly elected and qualified, the persons listed as nominees in the company's proxy statement.

Thank you, Marie. I declare the voting open on the election of directors. The second proposal to be considered is the approval of the 2022 compensation of M&T's named executive officers as described in the proxy statement.

Mr. Jones, on behalf of the Board of Directors, I move for the approval of the 2022 compensation of M&T's named executive officers as set forth in the proxy statement.

Thank you. Voting is now open on the second proposal. The third proposal to be considered is the frequency of future shareholder votes on the compensation of M&T's named executive officers as described in the proxy statement.

Mr. Jones, on behalf of the Board of Directors, I move for approval that future shareholder votes on the compensation of M&T's named executive officers occur every year as described in the proxy statement.

Thank you. Voting is now open on the third proposal. The fourth proposal to be considered is the approval of the amendment and restatement of M&T Bank Corporation's 2019 Equity Incentive Compensation Plan as set forth in the proxy statement.

Mr. Jones, on behalf of the Board of Directors, I move for approval of the amendment and restatement of the M&T Bank Corporation 2019 Equity Incentive Compensation Plan as described in the proxy statement.

Voting is now open on the fourth proposal. The fifth and final proposal to be considered is the ratification of the appointment of PricewaterhouseCoopers LLP as M&T's independent registered public accounting firm for the year ending December 31, 2023.

Mr. Jones, on behalf of the Board of Directors, I move for the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of M&T for the year ending December 31, 2023, as set forth in the proxy statement.

Thank you, Marie. Voting is now open on the fifth and final proposal. We will give 5 additional minutes for voting to be completed on the 5 proposals at which point voting will be closed. Shareholders may also use this time to submit any final questions on the meeting website after which questions submissions will be closed. Thank you. [Voting]

As part of the annual meeting, it is customary for me as Chairman to deliver remarks on the performance and state of the bank. This year, I'm very excited to share a conversation that I had yesterday afternoon with Meghan Shue. Meghan is the Head of Investment Strategy at Wilmington Trust, a subsidiary of M&T and the leading provider of wealth and institutional services. Meghan is also a frequent contributor on CNBC, sharing her expertise and perspectives on the markets. We discussed the past year, one that we won't soon forget and the state of the banking industry, here's that conversation. Meghan, thanks so much for being part of our shareholder meeting this year. I feel like we're flipping the tables a little bit. I think you're usually the interviewee.

That is true. This is a new seat for me to sit in, but I'm going to have fun with that.

You're going to have a lot of fun asking the questions.

Absolutely. So thank you for having me here today to talk about the bank's performance and your view on the state of the industry. Let's start with last year, which in your letter, you noted that 2022 was an extraordinary year on many levels. Can you talk about some of the financial items that you think shareholders as well as investors and other stakeholders should be aware of?

Sure. Sure. I think to do that, I have to kind of step back and think about the economic environment that we were in. If you think about unemployment, 53-year low caused -- part of the contributor to the high inflation, 9.1% CPI index, highest in 40 years. And then we hadn't seen the Fed hike rates at a pace like this since 1980. And so as I said in my letter, even the most tenured bankers and investors -- only the most tenured bankers and investors had seen this before. And to give you some perspective, I started my banking experience in 1986. So right -- but I think against that backdrop, we completed our largest merger in the history of the bank, expanded into 5 states, grew our balance sheet by 40%. So a tremendous accomplishment. And then from a financial perspective, some of the numbers where that we had 2% growth in earnings per share, which really doesn't seem like much until you realize that our peer group of 12 banks, it was the highest growth of any of the banks in our peer group. We had the -- ended the year with the highest capital ratio and we posted a return of just below 17%, which is our long-term target going forward. So I think really extraordinary year from all perspectives. I'm not sure that I would ask to repeat it. But I think we did a great job getting through it.

And this year has started off in a similarly interesting, challenging way. Inflation is still sticky. The Federal Reserve is still tightening policy. We have had accelerated funding costs and pressure on deposit funding that resulted in 2 bank failures in the month of March. M&T just released first quarter results. What are some of the insights that you'd like to share on those results as well as how the bank is positioned going forward?

Sure. Yes, sure. So we did. We just -- Darren King, our Chief Financial Officer, just reported the earnings this morning. If you sort of step back first and take a look at it, we earned earnings per share of $4.01 on a GAAP basis, which was up significantly, a 53% increase over the prior year. And if you do it on an operating basis, it was [ $4.09 ], which just adjusts for the impact of mergers, our earnings were up 50% year-over-year. We posted a 19% return on tangible common equity. So 2 points above our long-term target. Charge-offs and credit costs were pretty well managed. We were 22 basis points. Our long-term average is about 35% in that range. And we actually also grew our tangible common equity, capital growth in capital and the strength in capital per share by a pace linked quarter that was annualized 10%. And finally, we increased our dividend by $0.10. So I think it was a really strong quarter. I think it sets us up pretty nicely for the rest of the year. And I think principally, the thing I would say is that while there's some uncertainty out there, the underlying customer base, which I'm sure we'll talk about is really strong and it's healthy. And they've done the right things leading up to this time that gives them strength. So my sense is that we probably will see some moderation of loan growth and those types of things. I can't tell you how long it's going to last, but my overall outlook is pretty positive because of the strength of those customers.

I think that's a good transition. I'd like to go back specifically to some of that stress in the banking sector. What did you take away from that series of events? And what is your outlook for small and midsized banks going forward?

I guess I have to start begin by saying my old phrase, which is I spend 35% of all of my energy staying calm. And I keep in my office a chart that shows the history of banks and the number of banks out there, and it also shows all the bank failures, it goes back to 1800. So the first failure that I'm looking at are at 1810. It puts me in the right perspective. And I think there's really -- throughout history, there are a couple of attributes that you see in bank failures that happen time and time again. And those are that the institutions usually are unique business models or novel business models that actually grew rapidly in a very short period of time. And the second part of it is that they were accommodated by certain long-term economic environment, right, that people expect it to continue. And in this particular case, that changed, right? So you had easy money, rates were at 0. And when the Fed started raising rates very rapidly, those business models, which are untested sort of bore themselves out. So I think when you step back for a minute and you look over that time, what I noticed is that we don't see the depositors lose money. And I mentioned that because that's where a lot of the uncertainty comes from in the market. But if you think about it, there's a really logical reason why depositors have been protected, whether we've had to increase the FDIC insurance or not, it's because a strong -- U.S. economy is dependent upon us having a strong financial system and not just strong, but strong relative to the other countries around the world. And to the extent that we were to let people think, right, that their money is not safe, it tends to weaken that whole system. So I think depositors can sort of rest assured that they'll be fine.

I think one of the most powerful observations that I have when I go around the footprint and I meet with our Wilmington Trust and M&T clients is the fierce loyalty that our banking clients have for M&T in many cases, because the bank was there in the early days, and some of the hardest days. So my question to you is how can M&T continue to be there for our clients in an environment where monetary policy specifically seems destined to -- or intent on restricting access to credit, tightening financial conditions and slowing economic growth?

Yes. I think there are a couple of things that when you get either tightening or loosening in cycles, they've done all the same. And we talked about in our annual report, the health of the customers by looking at their deposit data. And so if you recall what we talked about, in particular, was this one category which we call the most vulnerable. And what we observed was that this is a group that had $2,500 or less in their accounts before the pandemic. On average, they had $930 in their accounts. So these are very vulnerable individuals. By the end of 2021, because of stimulus and all the things that came about from the pandemic, that went to $3,300. And we had expected that to actually come down. But when we looked at the end of this year 2022, it had actually gone up. And the reason for that, I think, is that when we saw the rise in wages, what we hadn't noticed was that a disproportionate share was actually going to the lower income wage earners. And so what you see is that they actually got a big boost, even though they were paying more for goods, they got a big boost. So that turned out to be true for the people above $2,500 as well. It's true for -- and it's true for the businesses. Not only do they have more cash, but they were -- a lot of our businesses and middle-market companies were able to actually take advantage of the low rates and lock in long-term funding for a very, very long time. So again, underlying these companies are really strong. And my sense of what will happen is as we -- as credit does tighten, the first thing you're going to see is that other than sort of a deterioration in those customers, they're going to have to start to draw down their cash. And you're going to see that first. And we just haven't seen that yet. So it's the one thing that sort of gives me a lot of comfort, right, that we're still not -- we still could get to a soft landing.

Very, very interesting. So in 2022, in your letter and in all of the conversations that we've heard from you, an intent focus was on the People's United merger, the largest in M&T's history. Mergers are very complicated beasts, right? It's a complex combination of cultures and people and communities and business models. Even for the simplest of business model switch banking is not well you know that. Can you talk about the strategic rationale for the merger as you sit here today?

Yes, sure, sure. If you step back, I think the first thing that we saw was really similar cultures. We tend to bank in small and mid-tier cities predominantly. We do have a couple of larger cities that we're in, but most of our franchise are in the smaller type of communities. And that was also true of People's United. We also tend to try -- we had models that were not about trying to become national. So no -- I have no visions of becoming national. Really, we're about actually doubling down in the communities that we serve, getting lots of density and being really relevant to those individual communities. So part of being relevant to those individual communities is sort of -- is really a couple of things that we do. Think about the scale that we have. So we have over 1,100 branches, over 2,200 ATMs that are from Buffalo to Portland, Maine, all the way down to Richmond, Virginia. It's the second largest physical footprint, #1 being [indiscernible], right? So we punch way, way above our weight and it allows us to be super relevant in those particular communities. And then when you look at that footprint, it's 22% of the U.S. population and 25% of GDP. So we don't need to go anywhere else. We're fine and leaning into those communities. And then the other thing that we tend to do is we focus on making generational investments, which are really important. So there's a number of them that we were able to do that help us with our process of building trust, and we'll probably talk about those in a few minutes.

So let's just go there. In your letter, you talk about first impressions, which we all know in our own lives are very powerful and often lasting. How do you see M&T continuing to build trust amongst its communities, employees and customers?

Yes. I think there are really 2 big areas of focus that we have, and we've had them for a very, very long time. We think it's important to be and building trust is to be really relevant in the difficult times. We often say anybody can make [ feel long ] and the economy is really going well, but it's that ability to actually do a good job when nobody else is around for you. And that starts with, again, where we bank. We're banking in these communities that tend to -- where we tend to be outsized in terms of importance, maybe because a lot of other institutions have left. And so it allows us, particularly like times like this to be there. There's one stat that we talk about, which is that think about the idea that 50 -- in 55 ZIP codes, we are the only bank branch in that ZIP code, right? So while you might think, okay, that's slow growth, you might think I could save costs, what you're missing, right, is that you're really important to that community, and that importance is really -- is key to building trust. The second thing is that you have to be candid and transparent when things don't go well. I mean it's just really important for us to think about it that way and to be transparent and to do that time and time again over time. And then finally, I mentioned the generational investments. We do a couple of things. Like if you think, right, we're sitting across the street here from the Tech Hub, and you could think that the Tech Hub is really about a large investment for -- to house our technologies. But the way we think about it is it's a community asset. So we wanted to -- it's really a workforce development asset to train technologists that could go work for anybody in the particular community. If you go to Bridgeport, there, we've decided to make Bridgeport our New England regional headquarters. It doesn't mean that we're just going to put the name on the building. It means that we're really going to activate that building. If you look at Bridgeport, there's higher levels of unemployment than they would be in the rest of the state of Connecticut and it's a place where, again, we're really needed. I could point out that we're doing our multicultural innovation labs. And you might say that the customers that we're doing it for really can't -- aren't bankable at this stage. They're really early stage, but we think of them as a generational investment. So we just launched that in Harlem with Carver Bank, right? It's a long-term commitment. And why that's so important is that you just can't build credibility and trust overnight. It's built over a long period of time and a sustained effort.

Yes. What I'm hearing and I've heard it in a number of different forums. We had a senior leadership offsite in Boston a few weeks ago. It's certainly coming through in our conversation here is the intent focus on keeping the community in community bank. And I think -- I'd love for you to flesh out a little bit more how M&T is going to do that as it continues to grow and scale the business?

Well, so I'll use the reference to one of your favorite shows, CNBC. And a couple of weeks back, they had a commentator on and she was just talking about how the community banks are really healthy, some of the noise is a little bit overblown. But then -- it is Dominic Chu, who I think you've been interviewed by, came on, and he made this really simple point, which was that regional banks and community banks are really, really important to a small business. And if I could step back a minute and I go back 31 years to when I started at M&T Bank. At that time, roughly 60% of residential mortgages and all consumer loans were supplied by the banking industry. Today, those numbers are 44% and 40%. So a lot is being supplied by the private lending markets. In fact, if you look at all loan categories, there's not a single one where the banking industry represents more than 50%, right? So it's actually diminished. But within the banking industry, the regional banks and the small community banks are hugely dominant. We're 50% of C&I loans, 80% of CRE loans, 60% of residential mortgages. If you look at SBA 7 loans, which we are the fifth largest lender in the U.S. of those loans that support small business, the big 4 only represent 3%. And so they do a different thing. Over 60% of all small business lending takes place at regional banks and community banks. So our bankers are really relevant. They play a role, and there's way too much discussion about which banks are better? Is it stronger to be too big to fit? They all play a different role in the economy, and we have to be really, really careful to keep those bankers that are in those communities really relevant, and so they're able to actually continue to stimulate growth in our economies, our local economies.

And that's dynamic, that's pretty unique to the U.S. economy, if I'm not mistaken?

That's right. That's right. We've got our 5,000 banks, still will be less, but we still need to make sure that we have ones that serve each purpose. So maybe we'll flip the tables, and I'll get a chance to ask you a question. And first, I think what I want to do is I want to start off with a story. So it's the pandemic. You got to bring yourself all the way back to 2020, we're all at home, which is really unusual because that never happened at any other time in our career. And so I'm at home, I've got a halftime report on the television somewhere in my house. And I hear this familiar voice, and I walk around and I look and that's you. So I decided, okay, I've never seen Meghan on TV before. So I sat down and my daughter who at the time was 14 or 15, Sofia, sat with me. And you don't know half time, it's this crazy space where there all these traders trying to talk about why their recommendations are better. It's mostly men, and it's a very noisy proposition. And Sofia noticed this -- made this observation, which was that, "Hey, Dad, everybody talks over everybody on the show, but whenever Meghan speaks, everybody else is really quiet." And I just thought that was like a great perspective that even I don't think I would have picked up, but she caught on to. So I just wanted to ask you, like your head of Wilmington Trust investment strategies. I don't know if that's what you thought you would be doing years ago. But it'd be really interesting to hear your perspective on what that means for you? What does it like to help people understand the complex economy?

Yes. Well, it's a privilege really. It is to be able to represent the firm's views to go around and meet some of those loyal clients who, in many cases, the unique thing about Wilmington Trust and M&T is that Wilmington trust many times gets to work with clients who have been bank clients for many, many years. And so it's a very special thing to be able to step into that role and help with the transition of their life or business or wealth, whatever that might be. But we learned a lot. And actually, you'd think being out on the road, 80% of the time, I wouldn't get any real work done. But I actually -- I learn a lot from our clients and our business owners who we work with. And there's 2 things in particular that over the last few weeks have really stood out. One is on the labor market and one is on really just the diversity of our economy. And so a quick story of my own. I have 2 young children, a 5-year-old son and a 7-year-old daughter. And my 7-year-old daughter, she's a good reader, but she likes to point out when she doesn't know what something means. So we were headed into the supermarket. And she said, "mommy, what does that sign mean?" And it said, we're hiring. And I said well, that means that the grocery store needs to find workers to help with the business? Well, I think I'd like to work in the grocery store, and I said, "Okay, you know what, when you get old enough, you can definitely do that."

I was a bagger in the grocery...

It's a good way to start. A few days later, we're headed into library to return some books. And she said, "Mommy, there's that sign again, everybody's hiring." And I just thought that was a really interesting observation from her because it's also consistent with a lot of what we hear around the footprint. For all of the talk and the hand wringing that it's part of my job to do around recession risks and what the future holds. We hear that our business owners are still looking for workers, which to me definitely tells you something about the resilience of the economy going forward. It also tells us, I think, as we're post pandemic, we've had a wave of retirements. I think we're going to be dealing with a little bit of a structural deficit in the labor market for many years to come. And that's challenging because there's not too many ways out of that. You can create new workers. You can bring in workers from outside of the country. Or you can make the workers you have more productive and other means. And I can tell you, as a mom of 2 young children, the first of those, creating the worker is by far the hardest, by far the most exhausting and that says a lot because we know how difficult immigration reform is in Washington.

I'm sure you're doing a great job -- based on that story, you did an excellent job.

And then the second takeaway is just really on this idea of when I go on CNBC or talk to financial press or even talk to some of our clients, there is a real desire to kind of put us in a box. Are you going -- are we going to have a recession? Or are we going to not have a recession in the year ahead? While that's a very black-and-white question, the answer is not black and white. And we really get a sense of that when we go around the footprint and we meet with different business owners, who are facing different dynamics in their business cycle or different regions that have different drivers. And while there's certainly some business owners that are seeing some challenging times ahead, there's actually many more who are very optimistic about the short-term and long-term prospects for the economy, which might tell us something about what's to come. I think it tells us more about the passion and the drive and the ingenuity of our clients. And I think it brings home to me how special it is to be part of that engine of the U.S. economy as part of M&T Bank.

That's a great -- it's a great, great point. I think oftentimes, we -- it's easy to be on the major networks and to hear the stories that go back and forth but sort of getting out with the clients sitting in their shops, understanding what they're doing is really -- [ U.S. ] on the ground is really the way we understand the economy.

It's in value for sure.

I am so site that you are part of our family. Thank you so much for coming and being part of the Annual Shareholders' Meeting. Maybe we'll get you to come back next year and do.

Thank you so much for having me. I would be honored.

We are now back live. Thank you, Mr. Jones and Ms. Shue for the insightful discussion. Let's now turn to the rest of the formal agenda. At this time, we will respond to questions received from shareholders.

Our first question is from Ed Durkin. Could the Chair of the Audit Committee or a representative of PwC, which has been the company's audit firm since 1984 describe the lead audit partner rotation process and indicate who makes the decision in the selection of the new lead partner?

Thank you, Mr. Durkin. I spoke this morning to Denis Salamone, who's the Chair of our Audit Committee, and I thought I'd convey the answer on his behalf. Each year, our Audit Committee of the Board of Directors performs an evaluation of our independent audit firm, currently PricewaterhouseCoopers LLP. The Audit Committee's evaluation includes assessing the independent auditors' independence, integrity, its reputation, professional capabilities and industry expertise, also quality of professional services and fees. But separately, the audit firm itself is responsible for the independent requirements, its own independence requirements. Every 5 years, at least, a new audit partner is chosen by the audit firm. And then our Audit Committee in its annual assessment of the accounting firm considers the professional capabilities and industry expertise of the audit team overall. Really appreciate your question.

Thank you. Our next question is from Jeffrey M. Becker. I'm a lifelong people's customer and live just miles from the former people's headquarters. What is M&T leadership going to do to address disruption and complications as a result of the merger?

Mr. Becker, thank you for your question. As I talked about in my annual letter to shareholders, which covered the merger, mergers are inherently complex. And it's not because of the asset size or the computer systems, it's because first impressions really matter. And I think -- and in this case, what's most important is that we acknowledge our mistakes when they occur and that we really work hard to rebuild trust over time. In my mind, there are 2 things that I actually just mentioned in my interview with Meghan, which were being there when our customers need us most. We try to build our firm to be there in the most difficult economic challenges, and we continue to expect to do that as we move forward. That means keeping the bank strong in terms of capital liquidity in all of its capabilities. Second, though, we also believe in making generational investments in each of the communities that we serve and trying to become part of those communities. In the case of [ Bridgeport, we made Bridgeport, our New England headquarters. We embraced the downtown headquarters ] building in the surrounding areas and are making generational investments to make sure that we improve the quality of lives in those areas. We know that it takes time to build trust and that we also know that it's earned over time. And by making generational investments, we're committed to doing that hard work to rebuild the trust that [ you so deserve. Thank you again for your question. Much appreciate it. ]

Mr. Jones, we do not have any more questions to present.

Thank you. Would the Inspector of Election please give his report on the results of the 5 proposals?

Mr. Jones, I can report that all of the nominees for Director were elected. Proposal 2, 4 and 5 each were approved, and the action of every year was approved for Proposal 3.

Thank you. This concludes our agenda. Our annual meeting might be concluding, but our work is just beginning and our commitment to our colleagues, our customers and our communities remain steadfast. There being no objection, the 2023 Annual Meeting of Shareholders of M&T Bank Corporation is adjourned. Thank you for your participation today and be well.