M&T Bank Corporation Q1 2014 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian Klock - Keefe, Bruyette & Woods - Analyst : Good morning, Rene. So, I'm not sure. Maybe you can kind of let us know on the expense side things came in better than I was expecting, I think better than the Street was expecting, and you talked about achieving many significant BSA-related milestones. So is there any way LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. you can kind of gauge for us or say are you through the fourth inning or fifth inning or maybe kind of let us know I guess how much progress or how far along the way you guys are with the BSA/AML process?

Question: Brian Klock - Keefe, Bruyette & Woods - Analyst : Okay. Thanks. I appreciate the color. And I guess maybe thinking just one other question on expenses and I'll get back in the queue. You did talk about the highly compensated seasonal spike that you have, the professional services were down $34 million linked quarter, But remind me, isn't there usually in the second quarter the other miscellaneous expenses usually have sort of catch up after the sort of lower first quarter? Should we expect that same sort of ramp that we've seen in last second to first quarter changes in that other expense line?

Question: Brian Klock - Keefe, Bruyette & Woods - Analyst : Okay. And I guess just with that, can you actually give us the actual amount of the stock-based compensation expense here in the first quarter and the FICA [food] and insurance expense items?

Question: Brian Klock - Keefe, Bruyette & Woods - Analyst : All right. Thank you.

Question: Dan Delmar - - Analyst : Hi, guys. I have [Dan Delmar] on the call. Matt's not able to hop on. Couple questions. I just want to clarify on the NIM. NIM should have benefited this quarter from the TruPS redemption, so as we look forward in the printed NIM, are you still expecting about the same decline outside of the [tube of] core NIM compression?

Question: Dan Delmar - - Analyst : Okay, great. And just moving on to the fee income, you mentioned most of your businesses bounced back in March after a slow January and February which I'd assume is partly due to some of the extreme weather. Was there anything else to note that attributed to the weaker activity and also what drove the rebound in March as we try to look forward?

Question: Dan Delmar - - Analyst : All right. Appreciate it. Thank you.

Question: Ryan Nash - Goldman Sachs - Analyst : Good morning, Rene. Just first another followup on the expenses. You talked about a $34 million decline in the professional fees. Can you just give us a sense of what really drove the decline this quarter? Was it the completion of CCAR, a milestone in the systems? And then when you think out you're saying that we're going to see a decline post Q3. What is the milestones we're going to reach that are going to allow them to come down once we reach that point?

Question: Ryan Nash - Goldman Sachs - Analyst : Got it. Just to follow-up on the LCR. When you think about the additions that you've done over the past couple quarters, securities book is up almost 100% and I know you're saying that you'll likely be where you need to be by the end of the year, but can you give us a sense of the magnitude of how far you think you are in terms of the securities additions? Will we have another step-up from here or would you expect to continue at a pace similar to what we've seen the past couple of quarters? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Ryan Nash - Goldman Sachs - Analyst : Great. Thanks for taking my questions.

Question: Brian Foran - Autonomous Research LLP - Analyst : Hi. Good morning. Just following up on the January and February comments. Does it feel like all that activity was just lost and March is returning to kind of the run rate you had budgeted on these various metrics, or are there some line items that could have a doubling up effect in 2Q for lack of a better term, so stuff that would have normally happened in 1Q getting pushed into 2Q plus the normal volume that you would have expected in 2Q?

Question: Brian Foran - Autonomous Research LLP - Analyst : Fair enough. And then going back to the annual letter there were a couple stats on the New Jersey build out with 171 employees, $878 million in loans. I was wondering if you could just give us a general update. How's that going? How are those lenders progressing? And how's the business volume in New Jersey coming in this kind of interim period before Hudson City comes on board?

Question: Brian Foran - Autonomous Research LLP - Analyst : Thank you.

Question: Erika Najarian - BofA Merrill Lynch - Analyst : Good morning.

Question: Erika Najarian - BofA Merrill Lynch - Analyst : Just the umpteenth follow-up question on expenses, Rene, if I could. You mentioned that the expense base will remain elevated through 3Q 2014, so I guess two follow-up questions from there. First, is it too optimistic to assume or project that the fourth quarter expense base could go down to the mid $600 million level and, two, because of the staffing additions that you mentioned when you answered Brian's question, does the definition of a normal expense base for M&T, has it shifted from here and how much has it shifted?

Question: Erika Najarian - BofA Merrill Lynch - Analyst : Okay. That's very helpful. And just a quick followup question on the LCR. As we think about the full year, should earning asset growth continue to out pace the mid single digit loan growth that you mentioned? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Erika Najarian - BofA Merrill Lynch - Analyst : Got it. Thank you.

Question: Todd Hagerman - Sterne, Agee & Leach, Inc. - Analyst : Good morning, everybody. Rene, just a couple questions going back to the CCAR program. Number one, as you referred to in your remarks I think you're pretty much done on the preferred side, but I'd like to get a little bit more insight if you could just in terms of the net new capital issuance, if you will, with the Hudson City deal. Theoretically, the equity component moved up to 70% from 60%, so I'm just wondering how we should think about that net new capital issue and with the fed's calculation on capital actions your number went from 6.2 to 6.7. I was just wondering if you could just provide a little more perspective behind that?

Question: Todd Hagerman - Sterne, Agee & Leach, Inc. - Analyst : Okay. So just to be clear, as you mentioned, this is not unusual that you would go into the deal with 100% equity assumption if you will, but then with that incremental 10% you're talking more about or you still haven't figured out necessarily that incremental 10% financing in terms of the structure that might take, if you will?

Question: Todd Hagerman - Sterne, Agee & Leach, Inc. - Analyst : Okay, great. And then just if I could on the mortgage side. You mentioned a couple of the items related to the mortgage this quarter. I was just wondering again and just with the volumes coming down in the quarter you guys have actually been able to keep your numbers high

Question: Todd Hagerman - Sterne, Agee & Leach, Inc. - Analyst : MSR. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Todd Hagerman - Sterne, Agee & Leach, Inc. - Analyst : So, with the applications up, the pipeline has actually improved from year-end going into April it sounds like?

Question: Todd Hagerman - Sterne, Agee & Leach, Inc. - Analyst : Great. Terrific. Thanks so much.

Question: Ken Zerbe - Morgan Stanley - Analyst : Great, thanks. Rene, can you just -- seems like you were pretty negative on the CRE competition this quarter from the I think you said the conduits and life insurers. What caused that to change and do you expect it to change? And also do you need it to change to get to your I think it was mid single digit loan growth or is most of that being pulled by C&I?

Question: Ken Zerbe - Morgan Stanley - Analyst : Okay, great, thank you.

Question: Keith Murray - ISI - Analyst : Just on the C side, you mentioned the mid single digit fee income growth outlook. What's the base that you're starting that from, the dollar amount?

Question: Keith Murray - ISI - Analyst : So, full year 2013?

Question: Keith Murray - ISI - Analyst : The core fees, okay. And then within the trust fees, just curious given the market back drop what's holding it back there? Is it fee waivers on the money market fund side? What's the right way to think about that line item going forward? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Keith Murray - ISI - Analyst : Okay, and then back on loan pricing, you were just talking about it. Given Basel III LCR, et cetera, do you guys feel like you're pricing loans today for the current regulatory environment? Meaning do you feel like you're ahead of the industry and how much catch up do you feel the industry has to play and how long will that take?

Question: Keith Murray - ISI - Analyst : Thanks. And then just last one. I don't know if you've had much back and forth with the Fed post the CCAR results, but just curious if you've gotten any color on the RWA difference between your forecast and what the Fed had in their numbers?

Question: Keith Murray - ISI - Analyst : Thanks a lot, Rene. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Bob Ramsey - FBR & Co. - Analyst : Good morning, Rene. Really almost everything has been asked but I'm just curious on the trading account and FX gains line that seemed particularly light this quarter. Was there anything unusual on a go-forward basis. When you talk about your full year fee income guidance, does that kind of bump back into an $8 million to $10 million a quarter range?

Question: Bob Ramsey - FBR & Co. - Analyst : Okay. And on the deposit service fees, they were obviously down year-over-year. I know you mentioned NSF. Is it as you sort of build to the mid single digit growth in all fee income year-over-year is the expectation deposit service fees are lighter this year than last as this quarter was lighter than last or do you get some sort of bounce back on that line?

Question: Bob Ramsey - FBR & Co. - Analyst : Great, thank you, Rene.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Bob mentioned in his letter to shareholders the regulatory costs now represent just over 10% of your total operating expenses. Is that a number that we should kind of keep in mind going forward that it will remain that elevated into the indefinite future?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Sure, yes and as he also pointed out I think there's still hundreds of regulations part of Dodd-Frank that still need to be implemented. Can you share with us you mentioned how the securities book increased obviously for LCR. What's the duration of your total investment portfolio today?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Do you guys do stress testing of that portfolio should long-term rates rise by 100 basis point, what the duration extension would be and what it does to the value of the portfolio?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Right.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Oh, yes, I agree. Unfortunately, all of the banks are going to have to mark that securities portfolio through capital should rates ever rise. That was really the question, but I understand looking at the whole balance sheet, absolutely.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Okay. M&T over the years has been a very strong manager of their capital, now we of course have Dodd-Frank and you've got to carry a lot more capital similar to your peers, and with the Tier 1 common ratio today well over 9% even when you went through your stress test I think you came out with about a 6.7% stress ratio. What's the ideal Tier 1 common ratio that you think once all this is behind us, you've got your BSA/AML all taken care of, Hudson City is on board, so if we look out a couple years where's the comfortable level on capital?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : And then finally, I know you guys touched upon it in your, or Bob did, in the shareholder letter about the amount of money you're spending on technology and for customer service, the ATM machines, et cetera, the upgrades there. Can you share with us on the mobile channel that you're using, a metric or two on how many people are using it? Some of your competitors, for example, will give us the amount of deposits they are taking through the mobile channel. Do you have a similar number available?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Great, appreciate all your time, thank you.

Question: Matt Burnell - Wells Fargo Securities, LLC - Analyst : Good morning, gentlemen. Hi, how are you?

Question: Matt Burnell - Wells Fargo Securities, LLC - Analyst : Just wanted to follow-up on your commentary on commercial lending. First of all, you mentioned you'd seen some strength both in New York metro and in Pennsylvania. Just curious if you would provide some color relative to some of the other markets both upstate New York and maybe closer to the DC area? And any update on your commercial lending utilization rate would be appreciated.

Question: Matt Burnell - Wells Fargo Securities, LLC - Analyst : Okay. And then we constantly hear at least media reports suggesting that mid size business and smaller businesses are being a little bit left behind in terms of C&I growth. Are you seeing greater demand from those types of borrowers across your markets than you saw perhaps 6 to 12 months ago?

Question: Matt Burnell - Wells Fargo Securities, LLC - Analyst : Okay. That's helpful. Thanks for taking my questions.

Question: Ken Usdin - Jefferies & Company - Analyst : Hi, Rene. A couple of quick ones. Can you quantify for us what the preferred dividend will look like going forward after this issuance run rates?

Question: Ken Usdin - Jefferies & Company - Analyst : I can follow up offline on that.

Question: Ken Usdin - Jefferies & Company - Analyst : So, importantly if it steps up with this one now starting to pay in the second?

Question: Ken Usdin - Jefferies & Company - Analyst : And the second question is, Rene, you've got $3 billion of cash on both an average and period end and I'm wondering just how do we think about that cash and then also your securities to earning assets ratio? Where do you think it should level out as you continue the LCR, when you think about securities to earning assets and whether or not you're just living with an extra amount of cash that may or may not get invested over time?

Question: Ken Usdin - Jefferies & Company - Analyst : Yes, I was just wondering more if -- I know you're saying you're still building, but you used to have the lowest amount of loans to earning assets, highest amount of loans to earning assets, now we're growing. The follow-up question I just want to ask is you mentioned a couple basis points of core -- of the pricing compression. In this quarter with had the 4 basis points from the LCR, and so again if we're presuming we're still kind of growing into the LCR does that presume all things equal we're kind of still seeing this 6 basis points of margin compression until that investment is complete?

Question: Ken Usdin - Jefferies & Company - Analyst : Okay, got it. Thanks, Rene.

Question: Sameer Gokhale - Janney Capital - Analyst : Thanks for taking my question. Actually, most of them have been answered but just a couple of ones. In terms of commentary, Rene, about loan growth and competition. And it sounded like you said some competitors were extending loan terms and the like, and it just seemed a little surprising to me in light of the regulatory environment that competitors are able to do that. It seems like regulators should have most banks in the box dictating how much they can grow, so I'd like to get your perspective on that and also I know you run your bank pretty conservatively in the past, so I'm assuming haven't changed LTVs much particularly in the C&I side, so if you could just talk about that also that would be helpful.

Question: Sameer Gokhale - Janney Capital - Analyst : Okay, and then you'd also talked about how conduits and insurance companies seeking yield were essentially driving some of the price competition in the CRE market and clearly the conduits are real estate investment conduits of some sort, but is there anything that precludes structurally these insurance companies from being a greater competitive force on the C&I side or is that something that could happen going forward? Just trying to get a sense for if it's just a matter of a yield differential, any color on that?

Question: Sameer Gokhale - Janney Capital - Analyst : Okay, that's helpful. And then just my last question. I know you've been asked this question about BSA/AML probably 10 different ways, so I'll ask it the 11th time in a different way. In thinking about your expenses there in light of the fact you went through the stress test and passed, and I know you were saying there's more work to be done there. But the fact you've passed a stress test, doesn't that sort of imply that, not to put a number out there but I will, but doesn't it imply that [you seem] 90% of the way done simply because if you weren't that far along in the process that could have been one of the issues regulators could have balked at on the qualitative front. So, why would that be the wrong way of thinking about it and doesn't it suggest that you're being conservative when you thinking about expenses related to BSA/AML, expecting somewhat of a benefit in Q4. Could we see a benefit before that?

Question: Sameer Gokhale - Janney Capital - Analyst : Okay, great. Thanks, Rene.

Question: Jennifer Thompson - Portales Partners - Analyst : Hi good morning. Thanks, but all of my questions have already been answered.