All right. Up next we have M&T Bank, and we're delighted to have with us today, René Jones, Chairman and CEO. René, thanks so much for joining us.
Happy to be here.
René, let's get right to it. In your annual letter, one of the things you highlighted was the bank's ability to generate record earnings despite an uncertain environment, and we're just seeing more of that uncertainty play out in the environment right now. Can you talk about the ways the business model has evolved over the years, particularly on the fee income side, and where you're most focused on investing now?
Yeah. Thanks. I've been at the bank for 34 years. It is really interesting to look back and think about sort of where we were. Very small community bank in Buffalo, N.Y., fourth largest bank in Buffalo. Over time, I think two important things is, in the early days we had very tight inside ownership management. The board employees owned 25% of the company. At that time, Warren Buffett owned 8% of the company. It was very closely held, and I think that sort of set the tone. Number two was that Robert Wilmers believed in talent. Immediately when he came, in 1983 to M&T, he brought pretty much all the JP Morgan training programs.
If there was ever a recession, instead of cutting them, he would double them because he would say that this is the only time we can get anybody to move to Buffalo. When you take the culture of ownership and you take the talent management, that has allowed us to get through challenges, but more importantly, adapt and take on new businesses. As I sit back and look today, there's very little that we don't do. We don't have a sort of hardcore investment banking unit. Other than that, all of the services that you could imagine would be there. Best way for me to talk about it is if you think about, we've been on this journey for a very long time, sometimes through acquisitions. Think of Wilmington Trust.
grabbing the institutional business, grabbing the wealth business. All those capabilities have come together. We were looking at the annual letter summarizing what we were doing, and the first draft of the financials I thought was really boring. I looked at it and I told the team, "Why does it look so boring?" Because it doesn't seem like anything happened. We didn't have very much loan growth. The balance sheet kind of stayed the same. We had a tremendous year. When you look back, it was all of those fee income businesses sort of kicking in in concert. We had, for example, we had overall 13% year-over-year growth in fees. We had high double-digit, maybe 20-something% growth, in mortgage banking, which is mostly servicing portfolios. Our commercial mortgage servicing was probably up high teens. Trust income was up 7%.
Our core capital markets, some of which are new businesses, including institutional, were up in teens. Right? All those businesses just had come along. If you think back to one example where instead of buy, we built it, is when we revisited all of our commercial real estate. Most of the markets sort of shortened that into where we're going to lower our concentration. What we actually said five years ago was that we're going to actually do more for the customer than we're doing today, and we're going to use less of our balance sheet to do it. You really begin to see that if you look at the numbers on how those businesses have matured.
As you think about the runway for the fee businesses from here-
It feels like there's more room to go as well. As you think about the environment and you think about the investments you're making there, I guess, what kind of a runway do you see here for the fee business?
It's almost like I said, it almost took you by surprise. We dive into each business. We look at the capabilities. One of the ones that we're looking at today, it already exists. It's running. It seems fine. In terms of can we do more, private banking, for example.
I think lots of people don't think of us as a place to do private banking, there isn't a product or service I can think of that we don't have. How have we packaged it? How have we brought it to bear against our best customers, right? Do people know that we have those services? That would be one example.
Do you need to have a middle-market investment bank?
No. We need to get really good execution for our customers who at the end of the life cycle are selling their businesses. We need to be there to continue to advise them. To the extent that, in that transition before that actually happens, as long as we have planning from Wilmington Trust and all that, helping them actually get through that period of time, then we're in good shape. We don't necessarily need to be the banker.
Got it. All right, perfect. The other aspect you mentioned in the annual letter was technology. That's been a big success story for the bank. I think you've tripled your tech spend since-
Yep
2017. AI is a big part of that, the next chapter for M&T's technology journey. How does that fit into your operational excellence initiative for 2026, and what are you doing on the AI side?
Yeah. The real reason why we went backwards seven and a half years in the letter to talk about the transformation is there's a couple of reasons. One, if seven and a half years ago we had sat here and told you what we were going to do, you would've shaken your head and probably sold the stock. We said, we spend $325 million today. We're going to spend $1.2 billion by 2025. You wouldn't have understood it. We wrote that section, which was much more about talent, culture, how we think about investing in technology. What place does technology have? Is it a support service or is it part of your strategy? That renovation has taken place over that period of time. We think about the future very similarly.
Today, I think, if you think about what we've done over the last maybe three years, we've replaced our entire general ledger system. We've gone end-to-end on credit and redid all of commercial credit from beginning to end. Every time we do that, we also put in a really robust data program. It's probably in its third year, and maturing. Every time we go in and soup-to-nuts change everything, we're re-engineering how the flow works. Then, for example, take the general ledger. There was a specific effort to say, "Okay, we're going to work on data quality now as we actually get into the redesign of the system." All those things are preparation for whatever AI brings, if you don't have your data right, and you haven't got the basics right, it becomes, I think, a little bit unpredictable.
Yeah. The need for high-quality data is-
Yeah. Big
a prerequisite for good AI story going forward and you're already investing there.
Yeah.
Maybe the last piece that you mentioned in your letter as well, that it's, and I quote, "Your duty to slow down as speed limits or road conditions demand." Part of that is, okay, where are we in the cycle right now? What are you seeing in the environment? Any broader thoughts there?
Yeah. Well, look, there's a bunch of ways I could go there, but that's what we do. That's our job, right? We recognize that we probably have three, four, five different levers that we can pull to keep the bank healthy in any economy. Sometimes, you're fueled by high revenue growth that can be got with the right level of risk and return. Sometimes the market's just not offering that to you, right? You can use the capital in other places. You can look at efficiency. You can do buybacks. We're constantly, in order to be able to do that, looking at these trends that we see.
Today, it's not a big problem, but we have been running a credit spreads at really low levels for a fairly long time. That could be a good thing or could be a bad thing. You're tighter, you're priced for perfection in some ways. If you think about what happened with the private markets, we had these sort of initial concerns about liquidity. The capital markets have been so strong that a lot of those places have now actually gone to the capital markets, shored themselves up, kept more liquidity in those funds, and that time that it's taken, that's been allowed for that to happen has actually been really healthy. I think, versus the beginning of the year when we were looking at all that stuff, I feel much better about it. You are at abnormal times in terms of credit spreads. Everything is kind of priced to perfection.
Are you seeing any competition on structure right now, or is it mostly on spreads?
No, I think it's mostly on spread when we see it. We're seeing very healthy loan growth. We're seeing our customers begin to draw down. We were talking about this earlier. The typical cycle is if you're holding lots of cash at the beginning, then you see your opportunity to invest it, the cash comes down first. That's the deposit pressure that people are talking about. Utilization goes up, then expansion of lines, right? Those types of things in that cycle. It seems to be following that normal cycle.
Given the dynamic macro environment that we're in, it's not to say it's always dynamic, right? What are you hearing from your client base right now? Ability, willingness to invest, willingness to take on loans?
Todd, it's healthy. It's really healthy. We're not hearing negatives. As I said, people are drawing down on their lines. They're doing projects maybe more so than a year ago for us. I'm trying to think if there's anything else there. We are seeing if we get deep into our customers, I'm thinking of a customer who does gaming, entertainment. They're seeing at the low end, people spending less.
Less discretionary income at the low end. It's just not subtle. It's very noticeable. That hasn't sort of resulted in higher delinquencies or anything as we see today.
What are you seeing on the credit side?
Credit is improving. Non-performers have steadily come down. I don't know how many quarters it's been, Daryl says nine quarters in a row of improving credit trends. Things are headed in the right direction.
Commercial real estate is part of what's driving that improvement. Anything outside of CRE that you're seeing? Any areas of concern that you're focused on?
No, we really haven't. I think for a while we saw some slowness in consumer demand. Think RVs, think auto. Auto, for the entire auto industry has been soft for the last six months. We thought it would bounce back after the weather. It did for a month, and then it sort of tapered off again. As we sit here today, we still have growth in consumer, seeing good growth in home equity. People are active.
And-
It almost feels like 18 months ago, everybody was waiting for shoes to drop. They sat on the sidelines, as nothing has happened, right, they're like, "Well, I guess I got to go do this project.
Well-
It's very subtle.
I guess a lot has happened.
Yeah.
I think people have.
Yeah, the consequences haven't happened.
Right.
Yeah.
Fair enough. The one area that you spoke about constantly looking at places for hidden leverage and you highlighted some of the risk transfer trades that many of your peers are doing. Can you elaborate on what your focus is there and what you see as a risk?
One of the things I'm really proud of, and I guess it's our culture, but it's not just people who have been there for a long time, people who have joined, all have this curiosity for understanding what's happening, why are we slower, why are we faster in different places. There are a number of places that we've sort of stepped back and looked into. Risk transfer trades is one. The way I think about this is that's really a story about capital efficiency. If you look at our capital structure, where we're a little bit different is we have a really high tangible relative to our regulatory capital. What we believe we're really managing is tangible capital.
When you look at why that is, there's a number of reasons, but one of the reasons is that we don't do a lot of the risk transfer trades. The reason that we didn't like them, I think we have 4%, the median is maybe eight, somewhere in there, then the high is 15% of your loans in that space. We didn't like them because if there was a delinquency, it would go from low risk-weighted capital, let's say 20% or something like that, up to dollar for dollar, so 1,200%. We just thought that when an economy takes a turn, you're going to get hit twice. You get the delinquency and then you get more capital that unwinds. With the new capital regulations that are coming out, it looks like that only goes to 100% risk weight. Right? That changes it.
Either we will use that lever and we can buy back more and have it carry a lower tangible, or we'll actually just keep our risk profile modest, right? It'll be adjusted. I think one of the things we don't get a lot of credit for, which you guys years ago used to give us lots of credit for, was sort of a risk-adjusted view of buying M&T Bank stock.
We still give the stock credit for it, yeah, I hear you.
I'm not looking for it.
Yeah.
There are lots of examples like that we can do things, but we're sort of looking at the economy, thinking about whether we really should. It's all a game of leverage, right? We wouldn't be better.
We'd just be using more leverage. That would provide a better return to the shareholders, we're always thinking about whether we should or should not do that.
The other area we're always thinking about is the risk that you're putting on the balance sheet as well. Daryl's sitting in the front row here. You mentioned on the earnings call that M&T's choosing not to chase growth if a transaction doesn't meet underwriting standards. I think, René, the question for you is, as you see competition intensifying, why are you seeing competition intensifying? Do you think it's because everyone is freeing up capital and trying to deploy that capital, or are there other factors that are driving competition higher?
Well, I mean, the market's much more dynamic. You just think of the private credit space, the volume is really high. There's just more people in the market. I wouldn't characterize, particularly on the asset side, as frothy or anything like that. On the deposit side, I think you're seeing more competition, that just makes sense as well. Talked about the cycle. There's more leverage out there in the system. The more leverage you have, the more funding you need. We're just at that part of the cycle where the real value of deposits is super high, right?
As we think about deposit competition overall, the value of deposits is high. I guess deposits are coming down as corporates are spending down part of it. You also have value of the curve is higher. You could get rate hikes in the future, even if we don't, I guess as a bank, you do have to prepare for that.
Yeah.
I guess when you put everything together, what are you seeing on the deposit competition side, and what are you doing to get ahead of it?
I think for a long-term measure, for us, it's like are you net growing more checking accounts, right? Forget about what the balances are in them. As long as they're quality accounts that people are actively using. I think that, how do I say it? I'd do it this way. If you look at internally the way that our structure works, we have these 13 states that we bank in. They provide the depositories. If we're doing middle market lending or commercial real estate, that funding source is the source. We also have a lot more deposits than we have loans, we're in these national businesses like RV and indirect auto and so forth.
What we tend to do is we think as you get further away from home, as you get into things like a 14th or 15th state, you're really actually pricing those things based on wholesale funding.
Right? You're thinking about that really comes to bear when there's a really tight space in liquidity. You will see us go 100% to wholesale funding on auto loans, on anything that's out of state or that's national. That's because the market allows to bear it. You might actually see in that period of time, like on a relative basis, deposits actually going down. It's not, how do I say? Economically, we've actually considered that already.
From a funding perspective, you're saying it's just the same.
The balance is going up or down. Over a long period of time don't matter as much as are you growing your customer base? Do you have more customers that are providing the inventory in?
When we're talking about the 13 states, you've mentioned that there's a lot of advantages that you see of increasing density within existing markets. Can you talk a little bit about that and why is it only existing markets? I know when you go to a new state, initially you're probably paying wholesale funding. I guess over the longer run, does that still make things
I'll try to do it this way. As we look over time and how we've done things, most of our decisions have been to try to get us to one, two, or three deposit share in the places that we bank. At times, we'll go into a new market where we won't have that. Think Hudson City and New Jersey. New Jersey was a big hole in our market. We had to go there. We went there. We had a market that actually didn't have as much, I would say, market power. It was thin.
If you did that over and over again, and you took on too many of those things, it would actually affect the entire franchise. It's why we have a bias for in-market deals, for fill-in deals, a bias for adjacent deals. It's not that we wouldn't go to another state. It would just have to be the right economics and the right situation, and we've done that time and time again. Our bias is not to leave behind a set of markets that are under-penetrated. Because we think that over time, that produces a pretty weak franchise.
Baltimore has also been a big success story.
Yeah. Incredible.
Can you talk about what worked in Baltimore, and how you're thinking of applying that to some of your other key markets in New England?
I think the playbook is pretty clear. First of all, we tend to be relatively patient. I often said, and sometimes got in trouble with my boss, that it takes seven years to actually effectuate an acquisition and have it be an M&T Bank region. That sort of bears itself out. People have to get to understand the culture, they understand the new products and services that we have, and are able to bring them to bear for the customers. We are on a steady roll from, we entered in 2003. The crisis provided us the ability to actually expand more. At some point, maybe 10 years ago, we were looking at the numbers, and although we had good share, we were losing ground to one very mega bank on the retail side, and to another regional bank on the loan side.
We just decided to convene and figure out why. It's really interesting. We get a group of people in from Baltimore to come to Buffalo, we sat down and talked about it. We said, "Well, what do you think it is?" They said, "Well, I think it's one, two, three, four, five." We said, "Well, there are five things. Why haven't you done it?" They said, "Oh, because we didn't know we didn't have permission to do it.
Like crazy things. We'd look every three years at the branch network and figure out the timing of flows and how it should be staffed. In Baltimore, they already knew that they were going to lunch at the time when peak customers were coming in. We-
That wasn't changing.
Right. We basically said, "Wait a second. You guys run Baltimore. You guys can go address all the customer needs, make the changes you need to, and we'll try to step out of the way." That resulted in just a massive ramp-up. Today, two fun things. If it's Sunday and you turn the radio on and someone's going to the football game and they ask, "Where are you going?" The person on the radio says, "I'm driving to the bank." The bank. Two years ago, when Lamar wouldn't sign, people started coming into the branches and saying, "When are you guys going to get that done?" That's how integrated it is. When we talk about places like Boston, you're thinking loan growth, you're thinking balances. We're thinking relationships. How do we have perceptive scale where we're much bigger than we appear?
Most of that comes from massive amounts of community engagement. Being there after 5:00 in the places that matter. It tends to work, and it tends to give us huge amounts of density, and then we become a preferred choice amongst scarce choices that you have today because the number of banks are getting smaller.
How long does that take in terms of developing the relationships, bringing in the customer set, especially as you get into-
I think in, what are we in? We're four years in on People's Bank and really moving to New England.
I feel like this last six months, this year, we're starting to get lots of traction. The volume is up. People know us. I think the work continues to be done. We're probably number one or two in Connecticut in share. We're number one probably in Vermont, but we're probably five or six maybe, in Massachusetts. Then the surrounding areas. We're not in Rhode Island. We have a great playing field to do the work. It just takes time.
Another of your priorities is teaming for growth.
That helps you deepen wallet share as well with clients. Can you just dig into the opportunity there and what is the opportunity across the franchise, especially in business units like business banking, commercial, and wealth?
It's important to talk about how we got there. This last year, we started asking the executive team individually, what did they see in the markets in terms of opportunity. What really struck a couple of us was that the group was seeing the same things, but they weren't talking about it. We then said, "Well, why don't you guys get together and share your ideas with each other, because I think you'd be surprised." Then we pushed them to say, "Okay, what would you do with it?" That's where operational effectiveness came. Also most importantly, that's where teaming for growth came.
The teams just felt like while they were performing well by historical standards, they were leaving lots of things on the table because they would run into somebody who was using business banking, but they wouldn't even know that M&T owned Wilmington Trust. This idea came up from them, which was how do we actually bring to a single customer to bear all the resources that we have to solve any problem? It's a deep problem because our management systems were built 40 years ago to run as fast as you could in mortgage, to run as fast as you could in any other space. We're beginning to shift those things, to bring the full bank to the customer.
It's in the early stages, but there's some really simple things that we could be doing much better around, when someone shows up for a mortgage, do we introduce them to the retail bank side? If we sign up a new middle-market customer, did anybody ever mention that we could actually do bank at work and do the direct deposit and open up accounts for your employees? That's a program that existed, but it wasn't linked to actually introducing ourselves to new customers.
I guess, how you change that. Is it incentivizing employees to do more of it, more training?
One of them is a massive amount of awareness on the issue. Number two is actually meeting, like literally your meeting routines. If you go into the Springfield office or the Boston office or the Hartford office, there are routines where people are meeting across divisions to talk about opportunities that we just didn't do before. We did them within mortgage, for example. We've brought them to bear in that way. Now, as you move forward, it's closer to how do you change the incentive system and the reward system, such that in addition to saying you had a great year in commercial real estate, you were part of a region that engaged in providing more services per customer. That's a kicker. We didn't have that. If Baltimore did really well, we didn't actually say Baltimore did really well. It was a team effort.
It was a compilation of individual businesses. We have to change all those things. It takes time, but it's pretty logical. I think about it as really low risk-adjusted growth that's in front of us.
That's still in progress.
It'll be in progress for a long time. These sort of two priorities are everything else we do has to be in service of those two things. Either we're getting super efficient, data capture, all that stuff. We're actually just bringing more to bear for the customers.
That helps you on the lending side, deposit side, and the fee side.
Yes, the whole thing. Yeah.
Right.
The whole thing.
Okay, perfect. Okay, maybe we'll pivot over to capital. You brought that up earlier. Excess capital has been, for M&T, one of the highest in the group. Can you talk about how you approach capital management and how do you think about, you mentioned tangible versus regulatory capital. Can you dig in a little bit more there?
Yeah. Well, I'll start with those comments. You see the way we think about capital is really about tangible capital. We've gone through a period where we were carrying excess just because there was a lot of uncertainty. That has been reduced through share buybacks. We think about capital, the same capital thought process is in every decision that we make. If we're buying a bank and the way that model looks and providing free cash flows to shareholders is the same way it looks for a loan or buying a branch, right? We're really is a fairly consistent method over time. It gives us choices as to what we can do with the capital. If none of those things actually are available to us, then we give the capital back to the shareholders. If you think about the new capital rules.
For example, people are asking the question, okay, what does that do to your risk weights? For us, I think it gives us a boost of 1% or a one percentage point on the capital ratios. That's fine. That has some economic value. The real value is on every incremental decision you make from today on. We're about to launch internally our new capital scheme that should the rules get approved the way they are, which I think they will. It changes the decision on every loan. You look at a mortgage, that mortgage actually needs less capital. It doesn't mean that whole thing is going to come to us, but what it means is that some portion of that's going to go to a lower price to the customer so we can hurdle. Step back.
Really what you're seeing with the capital rule is we saw a massive shift because of a lot of excess capital that was put in by the rules to the private markets. You're seeing a slight shift back.
Right? It should produce growth. We underestimate that growth potential. We tend to look at just the point in time how much capital you're able to free up and give to me. It's actually more powerful than that.
It's a part of it you pass on to the customer, a part of it is-
Yeah
your own ROTCE and your own returns as well.
You're thinking about tangible versus regulatory capital. Not many talk about that. I guess, do you anticipate that being more of a focus among the investor community or other stakeholders at this point?
Well, we talk about it because we're just an outlier, right? We just have a high tangible. One of the reasons we have a high tangible is we didn't put on long-dated securities, right? Our AOCI is minimal, if any. I think people when they're talking just about the ratios, they don't. Everybody's actually managing return on tangible common equity, right? You have to be consistent all the way through. When we look at that, we think apples to apples. It's not just that we're at, I think, 10.3 or something. Where'd we finish the quarter in T? 10.3. 8.6, yeah. Some are thinking, "Oh, well, now you're down to 10, so you're done." No, not really. We can look at our balance sheet. We can look at the risk transfer trades that I talked about, right?
We can think about the mix and the balance sheet. We have a lot more to go to be capital efficient because we have such a high. We're probably at least a point higher than everybody on tangible. That's an asset that we've got to figure out how to deploy in a safe way.
How quickly do you think that can get, I guess, freed up or deployed?
It just depends on what the opportunity is. It gets freed up pretty quickly, and you can do it pretty quickly if you do an acquisition because you're restructuring everything, right? You're always trying to make prudent individual decisions all along the way. If we were to sort of say, "Well, temporarily, we're going to put on a bunch of mortgages," it changes the culture and the psyche of the firm.
You don't really want that to happen. You want people to make the same sound decisions loan by loan, customer by customer, right? Then at the top of the house, we'll figure out how to optimize the balance sheet.
How does it change in terms of how you allocate capital under the new rules, whether it's more in mortgage, more in different areas? How does that change? Even if it's over time, how does that change?
Yeah, it's a relief and it's more of a relief for residential mortgages than real estate, right? It changes the quality, right? Because now it's based on LTV and the quality. It's just more aligned with the capital rules and all of it should be net more growth in the industry. It's a better position.
I guess you spoke about returns as well, and part of the debate is that as several banks free up capital, right? Like you were an outlier with a strong capital position maybe a couple of years ago. As more and more banks free up capital, whether it's with the new rules, whether it's creating more capital, how do you think about just competition overall? A lot of those, the benefits of that improving ROTCE with the new capital rules being competed away. Just big picture, how do you think about that?
Let me rewrite your question.
Fair enough.
Now that we're past it, what you could basically say is that we didn't go long, we didn't lose hundreds of millions of dollars, and we gave you that capital back. That's what all the buybacks were.
Right.
They were from just a very prudent, capital-centered decision-making process, right? The question is, are we going to continue to do things at capital that are relatively prudent? I think they are. I don't worry too much about, it's better for everybody if we're more capital efficient as an industry. At the end of the day, we just want to be the best bank for shareholders. We just want to make prudent decisions and find those, not stretch, for example, for a couple of extra basis points when the downside risk is really high. It works that way in our compensation structure. If we get a 17% return over a three-year period, we get paid a certain amount, which is more than the base.
If it goes to 19, we don't get paid any more because we don't want to under-invest in our franchise. We're plowing it back, most recently into technology. If it goes below that, and it's because the industry's having a difficulty, we look at our performance, were we in the first, second, third, fourth quartile, right? That's all built into our structure. We're just trying to be the best bank over long periods of time.
Yeah. I guess my question was more for the industry. Do you worry about that impacting industry-wide returns and, as everyone frees up more capital, just more capital getting deployed at lower returns?
I don't think they're lower returns. Step back. We were at a place where there was a proposed rule that would've had the largest banks have 20% capital. Like that just got reversed. That's essentially what happened, right? We were going to see a big slowdown in the banking industry, and it was probably all going to be picked up by the private markets. That didn't happen. That's a good thing.
Two, it went lower, right? It means the banking industry is more competitive.
Got it. All right. Perfect. Maybe to end, you're also chair of the BPI and you have a more unique lens.
For a couple more days.
Well, you still are.
Charlie's taking over.
I hear you. I guess maybe talk a little bit more about the broader changes to the regulatory environment. There's growing discussion around liquidity regulation.
Yeah.
What are the main things that the BPI has been focused on?
Well, you've seen there's been a lot of change right down to the original capital stuff. It's been tremendous. I think all very positive. I don't worry about any of them. I don't think we've pushed anything too far. I do think in the remaining space, the probably most important thing or the prudent thing to keep talking about is, or because of liquidity, is sort of the discount window idea of how do we get rid of the stigma for that? It's a source. How do we actually use that in our sort of inventory of weapons around liquidity? I think it's particularly important because we're talking about AI re-engineering speed. Speed at which decisions are made.
If you think about the rapid increase in speed that you could get for a run on a bank, then you'd have to do something structurally in the system as well, right? Actually bringing maybe the discount window in a safe way back into its original purpose would be a positive. There's a discussion out there about that. I think it's a really prudent one to have. If we could figure out how to lower the stigma but not get rid of this idea that you can't have 100% of your funding be the window-
I think we'd be in a better place, more safe and sound place.
Got it. All right. With that, we're out of time. René, thanks so much for joining us.
Thanks for having me. Yeah. Good to see you