For joining us for our next fireside chat. Many of you know M&T Bank Corporation, headquartered in Buffalo, New York, with about $208 billion in assets. When we look at this company, it's one of the premier companies I mentioned yesterday when we had Northern Trust here. It was M&T and Northern Trust were the only two banks during the financial crisis that didn't cut or eliminate their dividends, which says a lot about the quality of the balance sheet of M&T. The market cap, though, this was priced a few days ago, is about $32 billion. With us today is, many of you know Daryl, Daryl Bible, the Chief Financial Officer. He joined M&T in the summer of 2023. Prior to that, he was down at Truist and Legacy BB&T and has been in the banking industry now about 30 years. So, Daryl, welcome.
43 years, actually.
Oh, 43. Okay.
I didn't know.
We came right out of, yeah, right out of college.
Anyway, maybe, Daryl, we could start off with just some macro thoughts and macro questions in view of the fact of what's going on. And I know it's earlier in the year, but what are you guys seeing, aside from what we heard this week with tariffs, but what's the underlying economic trends that you're seeing in your franchise?
Yeah, from an economic perspective, you know, I think there's a lot of uncertainty with our customers that we're seeing right now, and whether it's tariffs, regulations, or whatever, I think a lot of people are on pause, but I think when you look out, you know, over the next quarter or two, I think that certainty will come more into the picture, and I think people will start making more investments in their companies would be my best take. Inflation's a real issue. You know, if you look at our consumer portfolio, we're mainly a prime portfolio, but you do see stress in the lower levels of consumer, which we're fortunate not to have much of on our books. So that's a reality, and there's maybe certain pockets like office. You still don't want to do office.
Skilled nursing is probably still a little bit sketchy and some of the highly leveraged transactions backed by PE. But net-net overall, our credit quality is improving every quarter. We're getting stronger. We're deploying our capital more and more. So I think we actually feel we're heading in a really good, positive direction as the year plays out. So we're actually pretty bullish about 2025 and beyond.
Daryl, we hear a lot about, you know, the expansion banks are doing in the Southeast or the Southwest, growth areas of our country. Obviously, M&T's footprint is the Northeast. And can you share with us some of the successes you have in building density and driving that profitability in an economy that doesn't grow as fast as other parts of the country?
Yeah, I mean, M&T, I view us as a regional champion. You know, we operate in 13 states plus the District of Columbia. And we really go to market each and every day to serve our customers and our communities to the best of our abilities. And we do, I think, a really good job. When you look at who we compete against in these markets, we compete against the three big guys that are out there. And we compete against some of our regional peers and then the smaller banks. But nobody really has the M&T model. When I look at our M&T model, we call it the community banking model. We have scale for good products and services. But we go to market like a small bank.
We have 27 regions, 27 regional presence that have decision-making and are empowered to kind of meet the needs of that community based upon what products and services are needed in those areas, and, you know, that's really how we compete and how we win each and every day, so I think that's really positive for us.
When you, and maybe it's the tariffs, but when you look at risk factors in your outlook for the economy, what are some of the ones you have identified? And again, maybe it's the tariffs because it's so new.
We did a study with some of our customers. We surveyed about 500-600 of our customers and said, what impacts would tariffs have on you? 17% came back and said they could potentially have a negative impact with tariffs. Didn't say they were having it, not real, but it said there's a possibility. There's also a group out there that actually says they will benefit from tariffs. It's not just one-sided. It goes both ways from that. What I would say is, if you look at, I think the reality of what's really happening right now is that DOGE, as they are cutting FTEs out of the government and cutting the spending, you're actually seeing, we're seeing, we don't have a huge exposure to this, but we're actually seeing some customers, basically some of their funding gets cut off.
You know, if they're a federal contractor type customer that they are dependent on, or if they're a nonprofit that's depending on grants, those are coming through very quickly. It's not a huge number on all that, but it's reality that's setting in right away from that.
Can you share with us, especially with René, your Chairman and CEO, being involved at the Bank Policy Institute, the regulatory landscape is changing. We're getting new folks as heads of these agencies. It appears that they're going to be more constructive in working with the banking industry. What's your guys' view of what you're seeing and hearing down in Washington?
You know, I think we're very positive, very bullish from what we're seeing. When you start with like the regulation piece of it, I think the Fed and the other regulators are right now really focused on stress testing. Powell's been very open about that and really pushing his team to be more transparent around scenarios and models, talking about, you know, potentially averaging, you know, results to kind of smooth the volatility in that whole process. I think that's real. That's probably going to happen, you know, maybe some this year and the rest maybe next year. I think the leverage numbers will probably get, you know, calculated and done in a relatively short period of time. I think that's a positive. Basel III is out there. You know, we've done two versions of Basel III now. The Fed's saying capital neutral.
Really, what is the definition of capital neutral? Because if one risk rate goes down a little bit, does that mean another one goes up a little bit? And how does that really settle out for everybody in the industry? Now, in the first two scenarios, M&T really wasn't impacted by Basel III significantly at all. We really don't have an AOCI issue at all. It might actually be above water right now when you look at our mark. So I think that's a positive. But, you know, in the operational risk, you know, what was a negative for us, but the credit side of that was a positive for us. So net-net, we really didn't have a negative impact with Basel III. So I think from our perspective, we're indifferent from that. But from an industry perspective, it's definitely moving in the right direction.
I think the interest around long-term debt is probably dimmed, if not vanished away and all that. I think from a regulation perspective, it is good. In supervision, I think we're also hopeful to see some positive movements there as well. I think the examiners maybe will have more flexibility in how they basically call issues and all that to kind of broaden it out to really focus on the more material issues rather than calling more minor issues the same thing as a more material issue. From that perspective, I think there could be, you know, more certainty around M&A acquisitions. You saw what Travis Hill did at the FDIC, but, you know, definitely getting people in the seats that you can talk to and be reasonable with.
And they can basically say, we can probably get a deal like this approved and actually get it done in a timely manner. I think we're moving back in that direction and all that. So I think that could be a positive. So we are really bullish and positive from a regulator perspective.
And coming back to the stress tests, you know, we hear about transparency. What should?
That's one of René's fundamentals. He talks about it in a letter.
Absolutely. And the transparency, what should, if you had to pick one or two areas that you'd like to see very transparent that you see and then all of us in this audience see from the stress tests, is there some particulars on how they calculate the losses through the cycle for commercial real estate? Or what would be your one or two transparency data points that you'd like to see?
You know, the transparency around the models, call it credit models, PP&R models, has been non-existent since we've been doing stress testing. I think having more visibility on those models, I think, is going to happen. That's a reality.
Yes.
And I hopefully that happens sooner rather than later. And we get to weigh in on if we agree with that or don't agree with how they're modeling from that perspective. But that would be one easy way you could see transparency from that. But there's other things out there that, you know, making sure that you kind of know how things, the rules around the Stress Capital Buffer versus what is your real capital requirement. You know, the convergence of Basel III and stress testing needs to get figured out. It can't be just a discussion with the Fed without actually having specific rules from that perspective. I think needs to be ironed out and decide, you know, follow the rules of actually what you have to do and all that rather than talk in meetings and not really follow something that's transparent.
Yep. You mentioned a moment ago about Travis Hill rolling back the FDIC 2024 M&A guidelines to something that's more parallel or equal to what we had, you know, two, three, four, five years ago. What's your view on the outlook for the consolidation of the industry? M&T, of course, has built a very strong franchise, not only through organic growth, through acquisitions, and has done them well. So what's your guys' view on that as we go forward?
Yeah, I say first and foremost, we're focused on our four priorities in our company, you know, and we're working hard to complete a lot of projects internally. That said, we have been acquisitive over time and believe that that is, you know, something that's really important to us. You know, as far as from an acquisition perspective, you know, we will do acquisitions when we think we're ready to do acquisitions. For us, it really comes down to, is it a good cultural fit is first and foremost, which is really important. If you look at making sure that they're a good credit bank, they have a good quality liability deposit franchise are really key things that we would look for as we move forward. You know, for us, it's trying to, one of our priorities is building out New England, Long Island. So that is definitely of interest.
And, you know, I get a lot of questions around that, but to be honest with you, we're spending zero time on it for the most part. And, you know, we are basically just working on trying to work our projects and get those finished through there. It will come in time when it happens. And M&T has a great track record. People want to partner with us long-term, and it will happen when it makes sense. But the last acquisition we did with People's was a perfect transaction because it had great culture, credit, liabilities, and actually had a lot of positive intangibles that made us all better.
Speaking of culture, when a deal is announced and is closed, and if you use the closing date as the starting point, how long does it take to culturally bring the acquisition target into the M&T culture in, you know, convincing everybody the M&T way is the best way to go?
So I have never done it with an M&T, but haven't done it a fair amount in other places. So I think it's relatively consistent. But depending on the size of the transaction, it's easily, you know, probably two to four years depending on it. And it's not one and done. It's a consistent repetition of why we're doing it, what is our purpose, explaining, you know, how we do stuff and all that. You know, we have now People's performance in our branch system. Business bankers are now at the M&T legacy production levels. You know, but that's three plus years of getting that there. But we're there now and all that. So I think it's just a matter of working on that. It's repetitive and a lot of training and getting people to understand the why, I think, is really important and all that.
But it's, I think, we're really good at that. We excel when we acquire people and bring them on board and get them on top with us.
Daryl, you just touched on the four pillars that you're, that's what you're focused on. Can you remind us what those four pillars are and how you're executing on them?
I talked about building out New England, Long Island. Next one is building out our risk framework throughout the company. You know, and that's basically involving getting consistency in our risk system so that we can manage risk throughout the company, credit risk, operational risk, and all that consistently throughout the whole company. We're making really good progress with that. I think that's positive. We are working on resiliency. So we have some aged platforms that we're currently updating, one of them being in my world. We have an older general ledger system that we're replacing. When we are successful sometime in the early part of 2026, we'll be the first major bank in the U.S. that will be all on the cloud. We'll be an Oracle Cloud financial system, which would be really good to have, very easy to scale with a system like that.
And the last one is optimization, trying to get better serving our clients from a revenue perspective and also working in the back office and making them more efficient and more automated and all that. So all those are going on at the same time and making really good headway in all the projects.
M&T has seen some nice average loan growth for the last three or four quarters. Can you share with us what your views are on loan growth this quarter and into 2025? And maybe it is a good time you had an 8-K filing last night, gave an update on the quarter and the outlook for the year. Maybe touch on that as well.
Yeah. So the last four quarters, we've been able to actually grow loans all through 2024 in the midst of still shrinking our CRE book. We did that by growing C&I and our consumer book. I think when you look at 2025, at least the early start of it is C&I is still growing, consumer is growing, but we've had larger payoffs in CRE and our CRE balances are actually falling. And, you know, we opened up in the fourth quarter the ability to start booking more CRE and we have a pipeline of $2 billion coming in. That sounds relatively good, but for a company our size, for CRE not to run off, we need to have a pipeline of $4 billion-$5 billion from that. So we're still targeting more middle of the year before that grows.
But our hope is that we can get balances and CRE to level off and then maybe get the whole total loan book to start growing second half of the year. That would be really helpful from that perspective. On the deposit side, I think, you know, the disintermediation with non-interest bearing has basically stabilized. You know, kind of bottomed out kind of where we thought it would be. About 30% of our deposits are non-interest bearing. And that's kind of where we are. We've had good growth in both sides of that this quarter and we'll continue to grow that. So that's actually performing nicely. But if you look at our balance sheet that we have versus what we said we might have, we're a smaller balance sheet because, you know, we're behind significantly on the lending side.
If you remember in January, one of the things I said is if our loan growth or RWA growth doesn't happen, we would repurchase more shares, which is exactly what we're doing. It's what we said we would do is what we're executing too from that perspective. From the fee side, fees and expenses are both on track, doing really well, following plan as expected. We have a lot of momentum in our corporate trust and loan agency business. We won some sub-servicing business with Bayview. We've specialized in the FHA lending, which is something that we believe we have a really good niche in that we're positive in. We're adding more resources in our wealth area that are growing nicely. You know, we have added resources in both residential and commercial mortgage because of the level of rates. You aren't seeing volumes there.
But as rates have come down a fair amount and all that, you could see a pickup in that activity come second quarter, which would be really positive for us. So I actually am very positive and have a, I think, really strong outlook from a fee perspective.
Yep. And coming back, it's unique what you said about commercial real estate since I know you've downsized it, but now you're starting to, like you said, see originations come in. Can you give us some color? Is it what types of commercial real estate projects? Is it construction versus mortgage? Is it healthcare versus retail versus office, et cetera?
Yeah, so for what we're adding?
Yeah.
Yeah. So we're pretty much open to most CRE categories, office with the exclusion. When you look at what we're attracting in our pipeline, it's a good mix of construction loans. Construction loans don't really fund for probably 12 to 15 months, but we're supporting our customers that we've supported for many years. We think that's really important. We continue to do that. And then it's permanent loans. Permanent loans are multifamily, retail, industrial, healthcare. All those areas I think are positive.
And coming back to the outlook, when you think about the net interest margin for the year, how is that tracking, do you think? And what do you think might end up at the end of the year?
So from a margin perspective, we gave guidance in the mid-360s.
Right.
I would say we are a smaller balance sheet, so that means we have less earning assets, but we have a really good net interest margin. We're getting good repricing activity in the first quarter, so I'm very positive in how the direction of NIM is going, and I think that will play out well. You know, I think our guidance is still mid-360s, but it could be better than that as the year plays out if it continues to do that, but the NII is just off because we're $2 billion shorter in earning assets right now, but, you know, we run a very efficient, very profitable balance sheet. We have a lot of capital flexibility. We're displaying that now as we do that with our share repurchases, so I think it's all coming into what we thought would happen, and the loan growth is going to happen.
It's just a matter of when it's going to happen. And when it happens, we will be able to participate and do that. But right now, it's not there. So we're buying back a little bit more stock, which, as I said.
Yep. Speaking of buying back the stock, can you remind us from the capital standpoint, your CET1 ratio, what you're comfortable with? And then if it continues to grow because of your earnings, does that then lead you to even buy back maybe more stock? And just remind us the authorization that you have today.
Yeah. So the board authorized in January the ability to repurchase $4 billion worth of stock, which should last us probably for a year and a half, you know, plus from that perspective. You know, we target in January, we targeted 11% CET1 ratio. That's really what we're looking for in 2025. We think, believe our long-term target for CET1 is 10%. Our board confirmed that in January. We think that's kind of where we end up long-term from that. Recall that we did opt into stress testing.
Yep.
You know, and we originally opted into stress testing because our exposures to both CRE and criticized loans had dropped all through 2024, and those are one of the higher categories that get losses when you go through stress testing, and we thought our PP&R is performing better and we get credit, so we opted in in the belief that we would actually drop in our stress capital buffer again in 2025. We were one of three banks out of 30 that actually dropped in 2024, so that's why we did it. Now that we got the scenarios, the scenarios are not as harsh as what they were last year. They actually stress CRE from 40% losses to 30% losses. That will be a significant line item.
Sure.
So, you know, we're hopeful that we're going to have a nice adjustment to Stress Capital Buffer when we see the results in June.
Does management want to keep a certain, obviously you're required CET1? Is there a comfortable level that you like to run with? Because nobody wants to run at the required level.
Yeah. So the way we look at it is 10% is our long-term target. 10% is what we feel we need long-term for M&T to operate. There is a level below 10% that is our hard limit. That's 8.75. So once we get under 10, you know, we have to earn and try to get back to that to stay above that target level. But the hard stop is at 8.75. That's approximately 50 basis points under the stress capital level and all that. So if that stress capital level comes down, potentially you can adjust that limit down.
Sure. Yep. Let's move over to credit. As I mentioned in the opening comments, M&T has really distinguished itself on managing credit very effectively. In your investor deck that you put out last night, you show how through the cycle, how well the company has done. What are you guys seeing on the credit front in terms of potential delinquencies or criticized loans, all the different metrics you look at?
So back in January, you know, we had a great 2024. We dropped a lot of criticized and our non-accruals dropped significantly. We signaled in January's earnings call that we would continue to have that drop, but maybe at a slower pace just because interest rates were a little bit higher and wasn't sure how that would play out. You know, from what I've seen to date, I feel very confident that we're on path of that. Maybe we'll exceed a little bit over that. I think that's a positive. So we're still seeing lower criticized, lower non-accruals coming through our books to date so far this year, which is a positive. I think that will continue. Hopefully now with rates lower, that will maybe facilitate that even more. So I think that that's really good.
If you look at, like from a loss perspective, you know, losses in CRE last year was pretty de minimis. So far this year, it's been pretty low. You know, we really scrubbed the book backwards and forwards and believe we've pulled out all the really tough credits. And while we still will have some losses in some CRE categories, we don't think it's going to be significant losses there. In 2024, we did have some large losses in C&I. Five out of the six largest charge-offs that we had in the company came from a leveraged lending book that was backed by private equity. We have since reorganized, you know, how we structure the leveraged lending book. So it's all centralized. We had pockets that weren't centralized. That's now centralized. And usually when they're centralized, we'll get on top of it when we see things happen faster.
So we feel much better that we can be ahead of that, which is really, really positive. Consumer side, we're still seeing normalization. I'm still seeing higher losses. You know, people at the lower end of the consumer are still struggling significantly. We don't really have much of that on our books at all, but you're still seeing normalization in the RV book, the auto books, even in our small little credit card portfolio. So we guided to the same charge-off number that we had in 2024 and 2025, 40 basis points, but the mix is different. We're going to have more consumer losses. Some of it is just because consumers have more losses, but also because of the normalization. And then we'll have less C&I and CRE losses as we can basically as the year plays out.
Got it. When you take a look at credit cycles, you and I have been through a few of them, there's crazy lending that's being done before you get to it, you know, foolish underwriting. Is there any evidence that you're seeing yet that some of competitors or non-bank competitors are making loans that just don't make sense today? And, you know, in a credit cycle, it could be the first round of loans that, you know, get into trouble.
Yeah. From a structuring perspective, you know, we're going to use our structures. So, I mean, there's always people out there that will do structures at a higher risk than we will do. And that happens each and every day. I think what we're seeing right now, though, is on the CRE side, early into the year, you know, there wasn't a lot of good production of CRE, you know, possibilities that we could lend to. Rates were higher. And the ones that we did like were super competitive such that it was going to make our hurdle from a return perspective and all that. So the pricing and the competitiveness is really ferocious out in the marketplace. So there's just not a lot of supply.
With rates coming down where they have in the last week or two, that definitely frees up more ability for people to do more CRE projects potentially. That continues to come down more. You maybe have more volume. That might ease up a little bit. Early on, it's been brutal from a competition perspective from pricing.
Moving to an area, René in his letter talked about private credit and, you know, regulation. You just touched on leveraged lending with PEs. What are you guys seeing in the private credit space? Do you bump into it where some of your customers actually normally would have taken down the loan from you, but rather have gone to the private credit?
Yeah. So when we see private credit, we compete against them, but we also, there's our clients as well. So I actually call them frenemies from that perspective. From a competition perspective, it's definitely clear that they do win and get some loans from our middle market customers. That's real. That's out there. Their type of lending is different than bank lending, though. They tend to be more longer term, more permanent, maybe more subordinated. Tend to live with maybe rates 300-400 basis points higher than what we would do at the bank side. We're much more on the shorter end, more senior position, kind of more like a revolver. So sometimes we are both in the transaction. Sometimes they take the bank out totally. It goes both ways.
But even when you're both in there, you know that customer is a higher risk entity because there's more leverage in that company and all that. So that's out there. From a customer perspective, you know, we lend to those entities. We have really good relationships with them. And from a corporate trust loan agency business, you know, some of the growth and success that we've had in that space is basically directly driven by private credit because of the servicing fees that we get there. So, you know, they're really good core customers of us as well from that perspective.
Most of the lending or the lending you do to them as customers, is it working lines of credit for them or do they take your loan and go out and buy a portfolio company or do they use it to pay themselves dividends? What genera?
Typically, we'll fund an entity for them to basically use to deploy to make, you know, investments or acquisitions from that perspective. So it's, we're actually giving them the capital to. And we're in a more senior position. A lot of times when we do those transactions, we actually have more equity in the structure than if we were to lend directly to the middle market guy.
Right.
So we actually end up maybe in a stronger position.
Sure.
But then we turn right around and compete against them too for that business.
Sure. We're running out of time here. Maybe one last question is when you and René and senior management get together about creating long-term shareholder value, what are some of the metrics and focus points that you guys talk about to create that long-term shareholder value?
You know, I go with kind of, if you look at René's shareholder letter, we talk a lot about fundamentals, you know, really how a bank should be run and how you operate. We focus on how we allocate capital. So, you know, we first start with supporting our customers and communities first and foremost. Then we make sure that we pay good, strong, consistent dividends. We highlighted that in the beginning, you know, not having to adjust our dividend down during the great financial crisis. Next, I think we'd look for acquisitions if it made economic sense for all constituencies and was good. And then we do share repurchases. So I think we're good stewards of how we allocate capital, having good liquidity both on balance sheet and then as a potential funding source and being able to liquidate. I think you see that in the system.
You know, in the letter, he gets into talking a little bit about, you know, as more and more loans move off of the bank balance sheets to these private credit balance sheets, that's really limiting the Fed's ability to actually put liquidity in the system in times of stress because those assets aren't pledged to anything within the Fed system. We're big believers in how we.
You know, do and go to work each and every day and being very transparent in what we do and why we do it and all that. So I think that's really good. When you look at the key measures that we really look at for how we run a company, it's three measures. One is return on tangible common equity. Second is return on tangible assets. And the last one is growth and tangible book value plus dividends. I think those three measures are really the right way to make sure that we're getting a good return for shareholders as well as others in the company.
Great. Please join me in a round of applause. Thank you, Daryl, for coming.