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

Yes. The way to think about what we're doing is we're revisiting all of our processes in the interest of speed and interest of simplicity and interest of the customer. So reengineering area by area. One of the big opportunities for us is to look at -- as we look at -- how do you look at credit and you think about credit underwriting. So we you would say, okay, well, you guys have a great track record. What are you trying to do there? It's really about actually speed to market. How fast can you make a credit decision? How best can you react on the front end? And on the back end, are you using the current capabilities like AI and reengineering your space so that you can do anomaly detection to understand something's happened in somebody's checking account and one of your commercial customers? And what does that mean for a credit event. So you'd be finding out about credit events much faster, which, of course, allows you to actually address problems that exist. So you'll begin to see like we've had -- we have -- we used to be very siloed. So we had great expertise in credit in indirect auto and some of the national businesses. We had great credit around home equity and mortgage. And then separately, we have private banking. And then separately, we have commercial but if you think about it, while those are all different, the themes of speed, anomaly detection, those things cut across all of them. And so what you're seeing happen at M&T is a modernization of all of that stuff and under a set of principles, which is what we call operational excellence. And we think if we can do that, we can simplify it, we can do a better job for the customer. 6 years ago, 5 years ago, we probably did 15,000 releases, new releases of things that affect the customer. This past year, we did 65,000. Like the productivity of the change is really, really high. And so you'll see that cut across most of the major operations of the bank. We'll serve a lot of money. The question is how much do we plow back into new investments. So this question, what's your 17%, 18% return. At some point, you start to get a little bit worried that the return is so high that you might be under investing in the franchise. And so it's -- when we talk about '17 it sort of is a bit of an optimal for us. But when we talk about -- would we want to be 20%? Well, the first question is how much do we want to flow back into the organization. And I think that number is high for a bank our size, competing with very large national banks.

Fair. Maybe I'd love to hear how you think about how M&T is kind of approaching AI, what are you doing there? And what do you think the biggest cases are in terms of is it lowering costs, improved service, enhance risk management or something entirely different?

The direct AI, we have like 3 sort of things we're focused on. We have awareness of AI. So we've got 22,000 employees, 16,000 have become proficient in using some form of AI, and we create environments and to continue to make that happen but relatively very controlled environments. This is what Mike Lister calls, we go really slow to go fast. We also then -- the second 1/3 of that is we're looking at all of our outsourced technology and making sure we have our arms around what that is doing for us. That's probably one of the fastest-growing channels because they're issuing lots of products and services, right, that we will logically absorb without necessarily having to use our engineering capacity to do it. And then the third thing is our experimental work around our own development using large language models. And there, you would see things like the credit that you actually see in the second category and the third category, things like credit. How do we speed up in those, everything we do would be fundamental. If you think AI today, it's -- we're using it in cybersecurity, we're using it in fraud. We're using it in credit. Just pick a fundamental. That's where we're concentrated. Maybe a little less customer-facing today, but I don't think that matters. I think we'll get there.

Got it. And maybe shift gears to capital. You're approaching your 10% CET1. Just how do you think about redeployment here from here, whether it's been organic balance sheet growth, returning capital to shareholders, buyback dramatic stock, maintaining flexibility.

Yes. I mean, last year, 2025, we bought back 9% of the bank kind of crazy. And I think we did that at $183, $184 but that was just disciplined if you can't make loans at the right returns, you need to start -- you need to slow things down and just not make the loans. But that changed. And so our first and foremost, we're trying to grow our business and so we got into a situation where loan growth has been -- has moved up significantly. But the thing that we keep talking about that we're generating a lot of money. It's almost just step back and think about -- when you think about returns, but just absolute dollars as well has allowed us to actually do both grow the balance sheet and give that capital that is in excess. So that capital generation rate, I think, sort of forces us in this place of doing something and the capital generation is growing faster than the bank, opportunity growth has been. So I don't know. It's not any different than we used to think about it ever. I do think that people underestimate the power of that capital deployment. We talk about what does Brian talk about the tangible capital growth plus the dividend, right? And you look at those numbers over time, that has an extraordinary, really extraordinary. And if you think about it, it's way undervalued in my mind, not just for us, but everybody is looking for growth stocks has been forever. We're not a growth stock, we're boring, but we're generating massive amounts of cash.

I guess on top of that, we're going to get this regulatory update with Basel III and game and the like. At some point, you guys actually pick up fair amount of capital because of that. Just how do you think about kind of deploying that pickup that you're going to get? And when do you deploy it? How do you think about the plan?

Well, I think our capital levels are like we don't need to actually raise our capital levels. So my sense is all of that will be deployed one way or another, whichever is the most positive economic value that we can get from it. So I think that is all upside. I think -- I do think about more so about tangible capital and where we want to position ourselves. I wouldn't say I'm worried, but what I would spend most of my time watching is how much leverage is in the system. And I think the leverage in the system is high. And I think it might if you're using old traditional measures to look at that and that you might be missing something. We never had -- you think about somebody has an account and they're invested in industrials, and they decide to lever it, okay, you get that result. But now someone says, "Well, I'm going to put 50% of my stuff in loan funds. So you're actually investing in debt right? And then I'm going to put my margin on top of it. I don't think the world is wired to think about that level of leverage. And so one of the most difficult things is hidden leverage -- so it's probably the #1 thing that I watch for and try to learn more about as I think about our capital levels. I think we're high a little bit today. I think we have excess capital still. But the question is timing, what do you think about the economy because I just wouldn't want to end up with having any low capital, right, when there was an opportunity set. And you know most of our expansion has happened, right, when there's been a slight downturn or some uncertainty in the market, we tend to be a safe haven and it's where we grow.

I guess we [indiscernible] on that, right, the environment from an M&A standpoint, from a regulatory standpoint, it certainly feels a lot easier. And I think a lot of us came into this year thinking we see a pickup in just bank industry consolidation, we have been. I guess big picture for the industry overall, like why do you think we haven't seen more activity?

I think it's a catch 22. We're dealing with humans, right? -- so they say, "Well, okay, regulation is going to be easier. It's easier to get your application then and ever says, okay, is going to be great. And then -- but if you're a seller on the other side, you're thinking yourself like this is an easy environment. I can make a lot of money. I'll go another 2 years, right? I really think that if you're going to predict which institutions are going to be around and which ones will take a path of not being around it's probably the amount of investment they're making in new technologies and systems and those types of things. So I think today, I would be surprised people are sitting around probably looking at the midterms and trying to think if there's another 2 or 3 years of good growth and increases in the stock price, then everybody I would presume wants to sell at the high, right? So that would be my guess, right? The runway is sending 2 signals, one to buyers and one to sellers.

I guess you guys in the past have been very successful buying banks and adding them on to the platform, I guess, how's your appetite at the moment?

Yes. We're in very good shape, not only in terms of the numbers, but in terms of where we are operationally. And we've been talking about the boring stuff now for 5 years. We've done a tremendous amount of work all the way through our general ledger to our digital assets. So we're in a good place. If there's an opportunity to come up, it would not be hard to absorb a bank.

I guess when you think about it, kind of what fits, is it in market? Is it at a market and kind of what strategic and maybe what financial metrics kind of matter more to you?

Yes, you know them all. Ideally, end market would be fantastic. It would be in markets where we don't have #1, 2 or 3 shares. Those are places that are very attractive to us. and they're attractive because it helps us with local scale, helps us with advertising going further brand recognition. And what's happened over time since the franchise is growing, there are more of those places, right? In the Northeast, in the Southeast, Mid-Atlantic areas, there are ample opportunities for us to actually increase our density. And it's really important to us because I think that's what you're seeing on the balance sheet when you talk about our higher margins and those things, we're -- it's a reflection of how important are you and how dense are you in the markets that you choose to be in. If there was something that -- we look at everything, but most likely, those are the easy targets.

You mentioned hidden leverage earlier. I feel like that's a topic from upcoming annual letter. In prior annual letter, you talked about this whole NDFI situation, I expressed concerns. Just kind of what are you thinking about that currently?

Just to refine it, like I think the private loan market have been extraordinary -- extraordinarily beneficial to banking. And go back to when you started and I was in my early days, we couldn't securitize a commercial real estate loan, right? There were no middle market loan funds. There was nothing like that existed. So we've got lots and lots of liquidity. That's a big plus for the banking industry. The one I worry about is the spots where you can't see what's actually happening. And so my concern is lack of transparency more than anything else in complexity. And so you're always looking around corners to understand who's being really transparent. Do you want to -- who really understands their balance sheet? That would be my way I would think about it. When we talk about hidden leverage, the hidden part is like really important.

Got it. And just maybe just credit quality more broadly. It's I think criticized assets continue to come down for you guys, charge-offs or at the lower end of what we would have expected, yet you kind of built reserves in the last 2 quarters, I think more so than most other banks. So is that conservatism? Is there something directly in your portfolio you're kind of concerned about when your full year charge-off guidance implies an increase in losses in the back half of the year. I'm not sure if that's the right way to think about it?

I mean credit is good. I mean you -- I don't know, have any more information than you know. I do think this increase in rates thing is really interesting. If we're going to -- the Fed is going to increase interest rates, it's because they want to slow inflation, which means they want to slow the economy. And so there's been so much robust growth across lots of industries, right? That you got to be careful because it's going to emerge. And it won't be one of the sort of like very direct things say do you have data centers and things like that. There's always the indirect issues like several years ago, it was natural gas -- natural gas in PA and you like, well, I don't have any of that. But yes, you happen to have all the trucks that carry the water to do the fracking, right? It's these indirect benefits. And so everything has been so healthy that I think you need to be a little bit conservative because when that does slow down, in fact, when the government tries to slow things down, there will be an impact, right? You just don't know where it's going to show up. So I'd call it general conservative business?

Yes. I guess any -- when you look at your C&I portfolio, any particular industries relative to more word about commercial real estate, any particular segments that you're paying particular attention to?

No. We -- I now have a weekly meeting where the credit guys take me through a different portfolio every single week. What that used to look like was we do what you said, which is what's going on in NDFI, what's going in, in this particular segment, and we pick the ones we were concerned -- more concerned about, now we're just going through as a routine everything. Just looking for a change, looking for something that's different than what we've seen in the past couple of years, but things seem pretty healthy today.

Got it. I'm not sure if you caught the presentation of the bank before you, but they expect to spend the bulk of it saying how the competitive landscape among banking has just gotten a lot more intensely, whether it's deposit pricing, whether it's loan pricing, how would you kind of -- you've been around this a long time, how would you characterize the competitiveness today, both within the banks and then kind of feeding in from nonbanks kind of relative to where it's been historically, is it accelerated in the last year or so or kind of just always been competitive in your view?

I think the biggest change has been the private loan markets going from very, very competitive in 2025. And then after those liquidity scares from funding withdrawal scarce, they had pulling back and getting more conservative. And I haven't heard a lot of them getting really aggressive, but if there's aggressive in the market, I wouldn't be surprised if it's there as people get more comfortable. One of the really interesting things is when we had those withdrawal -- that those nervous points around withdrawals. The capital markets were so strong that they could actually go outside and get funding, right? And so -- which is healthy. So that actually reduced that risk. And the question is, is that change in underwriting that we saw, which was dampening late 2025. Has that been a permanent effect on them? Or are they actually pushing price? I mean the banking industry is all competitive and you talk about it when you've bumped that you can't book loans over the cost of capital. We complain a lot about that. But the discipline is just trying to not do that, right.

And before you touched on kind of a longer-term target of a 17% ROE -- how do you balance kind of what's kind of profitability versus growth? And just how does it like you think about it?

I mean I think -- there's 2 kinds of growth. Like what's going to happen tomorrow, right? Am I going to make a loan? Is someone going to draw down on their lines or whatever. That's fine. The longer-term issue on growth is are you going to be able to take share, which means are you going to be able to have capabilities. And so all that investing in either infrastructure or technology solutions closer to the customer. You think we talked -- we've had it now for years, it's just been wildly successful, but our NOTA thing that helps solve prior lawyers get around the risk they have of managing these Noster accounts. And that's probably -- it's probably the fastest-growing deposit generator in our bank because it solves the problem for the customer. And so you're looking for those types of things, and they are not things that everybody can add the things that have to be really focused on the outcomes for your customers. So that's going to be our biggest demand for resources. Dale runs a very interesting tight shop where everybody comes in and says, "Here's all the stuff that I want. And then we make them talk about basically make them do a pitch to talk about, okay, who is it going to affect and what's going to -- and the biggest place where the demand is there. Think about cash management services on the commercial side and embedded banking, right? So how do we actually allow that customer to do business with us but not get in their way. So we made -- we're making some investment in those patients.

Got it. And then as we sit here today, 2 weeks ago in the quarter, back in July, you were thinking about the world runway kind of fast forward to today, any trends that may be different from what you thought?

Economy is strong. Not more to say. I mean I can't explain whether you got me so strong, but it is very strong on all fronts.

Does the Fed hike today change that?

I bet, it doesn't. And then the thing that's long proven long study, is it takes 12 to 15 months for an interest rate impact by raise or movement by the Fed to make its way into the economy. So you still have some time to think about even if they change their posture and they were raising rates, you might get an initial reaction by the stock market, but you won't see it in the companies for 12 months. And so then your antenna is up and you're trying to look for where the problems might be.

Perfect. On that note, please join me in thanking Rene for his time today.

Thank you.