M&T Bank Earnings Call Insights: Interest Income and Planned Fed Submission

M&T Bank Corp (NYSE:MTB) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Interest Income

Brian Klock – Keefe, Bruyette & Woods: Thanks for the color in the call related to the margin. Just want to make sure I get all the moving pieces here. So within the release, you guys talked about a $13 million impact in net interest income, which sounded to me that it’d be related to the $130 million you re-classed from the non-accretable. So is that – that’s something I think is – how does that kind of reconcile with the $6 million you talked about here this morning?

Rene F. Jones – Executive Vice President and Chief Financial Officer: Yes. Think about – when we report our Q, the table on accretable yield, it’s all of the yield on the acquired loans. So, you have that number coming down from quarter-to-quarter, right. We added our new estimate of our cash flows that we are likely to receive. So really when you look at the change from the quarter-to-quarter, the accretable yield from acquired loans, that actually increased by just $6 million, right, because the number is coming down over time.

Brian Klock – Keefe, Bruyette & Woods: So the $70.5 million you recorded in the first quarter, that number had gone down by $7 million and now you’ve added $6 million in, so…

Rene F. Jones – Executive Vice President and Chief Financial Officer: Yes. So I think that number is about $6.5 million higher than the last quarter, $70.5 million to $77 million, so…

Brian Klock – Keefe, Bruyette & Woods: So I guess going forward then, that $6 million, I mean, I guess if I had to run rate that, I was kind of assuming you’d have a level yield in that acquired portfolio that the accretable yield would go down, I should be adding somewhere about that $13 million impact to my, what I would have guessed would have been your normal accretable yields going forward? Is that a fair estimate?

Rene F. Jones – Executive Vice President and Chief Financial Officer: Well, I think if you were to reset yourself, right, you can kind of look back at those tables we provide and you can see how much that is coming down, so for example – well, I won’t give you the example, but you can kind of work your way through that. But the way I think about it Brian, is, so we’re left with about $4.9 million of acquired loans out of $60 billion. And if you look at the yield, the yield – the difference between our yields on loans with versus without those acquired loans, it’s about 15 basis points. And if you assume for a minute the average life is three years, you are going to lose about 5 basis points of that every year, basis points for the quarter. That’s embedded in when Don and I talk about 3 basis points of compression, that’s one of the things causing that compression. The assumption of level yield is that’s the way we look at it and that’s the appropriate way to look at it, I think.

Brian Klock – Keefe, Bruyette & Woods: So, ex-all of this, your guidance has been of saying what you should be back to sort of the 3 to 4 basis points of core compression. Then as assuming now that you take that what about $2 billion or so, $2.4 billion of interest bearing deposits that excess liquidity with the 9 basis point drag this quarter on the NIM, you’re going to put that back to work, or you are going to buy some securities or actually put that in organic loan growth?

Rene F. Jones – Executive Vice President and Chief Financial Officer: So, what I would say is, you got it right, so what our thought process is, 3 basis points of compression in the quarter was just sticking with that. One of the things that we do have is we do have the opportunity to reinvest that cash in sort of qualifying liquid securities as you start thinking about the new ratios that are coming out. So, that gives us some ability to us that – and I don’t know how to exactly think about that because as you know, we often think about match-funded. So, as we put on Ginnie Maes and those types of things economically, we think about the spread towards wholesale funding that we did go out and get. But you’re right. One of the sources of equity in the near-term have the margin be more stable is reinvesting that cash…

Brian Klock – Keefe, Bruyette & Woods: I am going to get in the queue, but just one last one. You haven’t reinvested that excess liquidity yet?

Rene F. Jones – Executive Vice President and Chief Financial Officer: We have invested some. So if you look at the investment securities portfolio you have got – so we sold $1.1 billion of the agencies that probably had an average impact of somewhere between $600 million and $700 million on the balance sheet. But we also purchased a little over $800 million of Ginnies and if you think about what we have been saying, our investment securities book has been shrinking in part because and this is my term. The rates seems to be a little artificial and so with the jump up of 100 basis points it was sort of a nice opportunity for us to say, okay, well let’s start buying some so that we can hold those qualifying securities as we go forward.

Brian Klock – Keefe, Bruyette & Woods: I guess the agencies you bought can you give us that yield and then I will get out in the queue?

Donald J. MacLeod – Administrative Vice President and Assistant Secretary: The Ginnies we bought, we committed to buy in 2Q but they all settle in July. So they are not on the balance sheet at June 30th.


Planned Fed Submission

Todd Hagerman – Sterne, Agee & Leach: Rene a couple of questions just in terms of the BSA issue as well as Hudson City. First off, can you give us a sense of what’s the timeline for the planned submission to the Fed?

Rene F. Jones – Executive Vice President and Chief Financial Officer: I mean, we clearly we really can give you this, as saw in the written agreement, the requirement is around 60 days for us to come up with our credible plan that would need to be proved by the regulators. And then, what’s probably most important is from there you actually have to go execute that plan, right. So, the way I think about it is, we are really focused on submitting that plan and then we’ll have our heads down for some time, trying to make sure that we have everything in place to execute it. So I think, sort of speculating on any timeline at least right now doesn’t make much sense for us. We’ll keep updating you as we move forward, but there’s not really much to say beyond that at this point…

Todd Hagerman – Sterne, Agee & Leach: Is only just my assumption that you guys obviously had kind of started that work prior to formally receiving the agreement based on what they had possibly communicated to you previously as you guys disclosed that last quarter.

Rene F. Jones – Executive Vice President and Chief Financial Officer: Yeah. I mean that’s true. I mean, I’d say two things. I feel that I’m happy. We’ve got a good jumpstart on the issue, and in the same tone, I think there’s lot of work to do. So, I think the way we think about is, once we get into something like that, like everything else, you want to build a first-grade process, not one that just sort of meets the hurdle, but that you can sort of use as an investment for the long term. So, I feel good and at the same time, I also feel like (indiscernible).

Todd Hagerman – Sterne, Agee & Leach: Then, I don’t know if you can answer this, but within the agreement, there’s not necessarily any prohibition in terms of asset purchases and so on and so forth. But I think as you mentioned in your remark, you want the plan and execution so to speak to be the satisfaction of not only the Fed but the Board as well. So, help me in kind of understand in terms of, again kind of process if you will, from a formal standpoint and how it may affect or influence your ongoing kind of evaluation of the Hudson City transaction, as I think about valuation and your ongoing review of that deal as time goes on?

Rene F. Jones – Executive Vice President and Chief Financial Officer: You got a couple of questions in there. I mean, I think, well, I’m going to repeat myself, I think, once we get through the work we have to do on BSA/AML, we get through the satisfaction of everybody. And then we’ll consider what we do with things such as Hudson City, but really not before that. In terms of the economic, I mean we have a good understanding Hudson City’s balance sheet. We think about, for example what the moves and rates will do to them. There is a lot of moving parts, but there is nothing that makes us uncomfortable about the economics of the transaction relative to where we were before. Obviously, all of that’s got to be revisited when we sort of get back at it, right.