Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- M&T Bank Corp (MTB, Financial) reported a strong third quarter with a 10% increase in net income, reaching $721 million compared to $655 million in the previous quarter.
- The bank's net interest margin and net interest income grew sequentially, driven by loan growth and a reduction in CRE concentration.
- M&T Bank Corp (MTB) successfully managed funding costs, with a 4-basis-point decline in the cost of interest-bearing liabilities.
- The bank restarted its share repurchase program, executing $200 million in share repurchases, and grew its CET1 ratio to over 11.5%.
- Asset quality improved with reductions in non-accrual balances and commercial criticized loans, and net charge-offs were below the full-year outlook.
Negative Points
- Average non-interest-bearing deposits declined by $1.6 billion, reflecting a decrease in trust demand deposits and continued disintermediation.
- CRE loans declined by 8% to $29.1 billion, indicating continued low originations and paydowns.
- The allowance-to-loan ratio decreased slightly, reflecting improvements in asset quality but also indicating potential pressure on reserves.
- The bank's efficiency ratio remained largely unchanged at 55%, suggesting limited improvement in operational efficiency.
- M&T Bank Corp (MTB) faces potential challenges from a softening economic environment and the possibility of a mild recession impacting future growth.
Q & A Highlights
Q: Can you share your thoughts on the optimal CET1 ratio and potential for increased share repurchases in 2025?
A: Daryl Bible, CFO, stated that M&T Bank has flexibility with a CET1 ratio of 11.5% and strong capital generation. The bank plans to return more capital to shareholders in 2025, potentially targeting a CET1 ratio above 11% for share repurchases, depending on loan and RWA growth. Long-term targets will be discussed in the next quarter.
Q: With the forward curve suggesting rate cuts, how do you see net interest income and margin evolving in 2025?
A: Daryl Bible noted that M&T Bank is well-positioned with neutral net interest income as the Fed lowers rates. The bank expects positive repricing in fixed asset portfolios and stable core deposits, with hedges improving cash flow. Loan growth and a positive mix benefit should support continued improvement in net interest income and margin.
Q: Do you need rates to go much lower for CRE criticized loans to decline, and how does this affect your CET1 and reserve ratio?
A: Daryl Bible explained that while lower rates can aid takeouts and paydowns, the bank is already seeing upgrades in criticized loans, particularly in healthcare. With 91% of criticized loans paying current, M&T Bank expects a continued downward trajectory in criticized loans, positively impacting CET1 and reserves.
Q: How do you expect deposit betas to behave with potential rate cuts, and will they match the upward cycle?
A: Daryl Bible anticipates deposit betas to eventually reach around 55%, similar to the upward cycle, but the pace will vary. The bank is seeing a 40% beta repricing down in the fourth quarter, with continued progress expected into 2025.
Q: What is the outlook for loan growth, particularly in CRE, and how will it be funded?
A: Daryl Bible mentioned that CRE pipelines are building, with growth expected in 2025. M&T Bank aims to grow deposits faster than loans, focusing on core customer deposits while reducing non-core funding. The bank plans to continue investing in its securities portfolio, maintaining flexibility with cash at the Fed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
