M&T Bank Earnings Call Nuggets: Future Funding Costs and Interest Rates

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

Future Funding Costs

Kevin St. Pierre – Sanford C. Bernstein: Just a margin-related question. You had a 4 basis point decline in funding cost. Are there still levers that you can pull to continue to bring that down or maybe talk about funding cost looking forward?

Rene F. Jones – Executive Vice President and Chief Financial Officer: In terms of – I think the answer in terms of pulling levers, no. But what you’re seeing as you go back over the quarters, there’s still a little bit of migration of the time deposit portfolios and there’s from time-to-time some of our long-term borrowings are still rolling down. So I would say that it shouldn’t be zero, but the ability for us to kind of think about our strategy and change that number is pretty low.

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Kevin St. Pierre – Sanford C. Bernstein: On the strength on the non-interest bearing deposit growth, are you seeing a change in depositor behavior or is it all market share gains? You mentioned the disruptions in your markets and HSBC-related strength. Can you characterize how much of that growth is market share gains versus maybe any change in depositor behavior?

Rene F. Jones – Executive Vice President and Chief Financial Officer: Well, let me do this way. The lion share of the growth trends we’ve seen in deposits over the past several quarters – I mean, maybe eight quarters, right, has been on the commercial side, and that continues to be true. Looking into the numbers this quarter what I did notice is that we had pretty decent growth, particularly in December, in our consumer non-interest bearing. So, I think it’s a combination of both. I think, if you were to look at our deposit trends versus others, the differential is probably market share. But what I am surprised at is that despite the improvements in the economy, despite the fact that people are now clearly borrowing, we still haven’t seen a decline in that trend. So, I don’t know what you can gain from that, but that’s probably the best I could do for you.

Interest Rates

Brian Foran – Autonomous: I know Hudson City is still its own company, but just conceptually as I think about interest rates since August, the five-year swap rate is about flat, MBS yields are down, mortgage rates are down, and jumbo is down more than conforming. So, is it fair to just kind of think big picture the capital accretion from Hudson City should be better but the earnings, the net interest income, and loan portfolio coming over from Hudson City should be a little worse?

Rene F. Jones – Executive Vice President and Chief Financial Officer: I guess the way I think about it Brian is that, I am looking at when we announced the transaction and what prepayment fees we were looking at, maybe those prepayment fees are slightly lower but still high but slightly lower. But other than that we haven’t really seen any material change in the balance sheet that differs from the projections we made at close maybe slightly little more loan prepayments on securities have actually held up and maybe exceeding what we thought, but overall the balance sheet looks a lot the same. Are you thinking of just sort of the shape of the curve and then?

Brian Foran – Autonomous: No, I was actually thinking more along the lines of like Capital One closed ING Direct, the interest rates had come down from the time he announced the deal to (Indiscernible) the capital, it ended up being better and then they are out for some negative recordable yields going forward. Turning so I guess, maybe I’m over extrapolating, but I was thinking maybe the same things what happened here.

Rene F. Jones – Executive Vice President and Chief Financial Officer: I think you are coming directionally correct, but I don’t know that it’s significant. So, each one of those things that you mentioned is probably true. So, you are saying basically the mark on a loan maybe the premium markets are little less. So, that probably would be true given what’s happened to rates, the big question is what happens between now and the actual close you don’t really know.

Brian Foran – Autonomous: And then first quarter noisy or could be noisy comment, can you just remind us what the main areas of noise we should be thinking about are?

Rene F. Jones – Executive Vice President and Chief Financial Officer: Yes, so the way you think about it is if you look at the higher levels of securities funded by structured debt on Hudson City’s balance sheet. We all know today but that’s a negative trade if you look at the yield. And a big chunk of that should go away when you mark the portfolio, but having said that if you were to put that trade on today would still be underwater. So, until that position is unwound and as we will think about how much time do we take, so that will be driven by execution. That actually would lower your margin. So, that’s the way to think about. That trade isn’t just necessarily a problem when it’s not marked, once you market, it’s still an underwater trade, yield on securities would be lower than the borrowing cost.

Brian Foran – Autonomous: And the securities (when all be gone) when the deal closes there could be some of the portfolio repositioning could happen post the deal close?

Rene F. Jones – Executive Vice President and Chief Financial Officer: Yeah. Because we got to figure that out, right. So, I mean you don’t know what day will you get approval, right. So, the way I think about it is you’ll get a lot done, if we get approval at the beginning of the quarter and we’ll be able to get a lot done during the course of the quarter, but if it happens at the end of the quarter, right, you might see some distortion like at a whole month of just sort of low margin stuff on your balance sheet that you don’t intend to keep, but economically it’s not a big deal.