All right. Up next, we have M&T Bank, and we're delighted to have with us today, Rene Jones, Chairman and CEO. Rene, thanks so much for joining us.

Happy to be here.

So, Rene, 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. So I've been at the bank for 34 years and it is really interesting to look back and think about sort of where we were, very small community bank in Buffalo, New York, fourth largest bank in Buffalo. And over time, I think one of the most important things, two important things is in the early days we had very tight inside ownership management the board employees own 25% of the company at that time mr. Buffett owned 8% of the company so it was you know very closely held and I think that sort of set the tone and then number two was that Bob Wilmers believed in talent so immediately when he came in 1983 to M&T he brought pretty much all the JP Morgan training programs and you know 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 and so when you sort of take the culture of ownership and you take the the talent management that has allowed us to sort of you know get through challenges but more importantly adapt and take on new businesses so as I sit back and look today there's very little that we don't do you know we don't have a sort of hardcore investment banking unit but other than that you know know all of the services that you could imagine would be there best way for me to talk about it is that 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 and we were looking at the annual letter summarizing what we were doing and the first draft of the financials I thought was really boring and so I looked at the team like why does it look so boring because it doesn't seem like anything happened we didn't have very much loan growth you know the balance sheet kind of stayed the same but we had a tremendous year and when you look back it was all of those fee income businesses sort of kicking in in concert and so we had for example we had overall 13% growth year-over-year growth and fees we had high double-digit maybe 20 something percent growth in mortgage banking which is mostly servicing portfolios we had in our our commercial mortgage mortgage servicing was probably up high teens trust income was up seven percent and then our core capital markets some of which are new businesses including institutional we're up you know in you know teens right so so 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 you know sort of shortened that into where we're going to lower our concentration but 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 you use less of our balance sheet to do it and you really begin to see that if you sort of look at the numbers and how those businesses So, 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 businesses?

You know, 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, but 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, but there isn't a product or service I can think of that we don't have, but how have we packaged it? How have we brought it to bear against our best customers, right? And what is that? Do people know that we have those services? So 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. And we need to be there to continue to advise them. And then to the extent that, you know, 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. So, you know, 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 crippled your expense in 2017. So, you know, AI is a big part of that, the next chapter for Empty's technology journey. So how does that fit into your operational excellence initiative for 2026 and what are you doing on the AI side?

The reason, the real reason why we went backwards like seven and a half years in the letter to talk about the transformation is there's a couple of reasons. One, if we, seven and a half years ago, we had sat here and told you what we were going to do, you would have shaken your head and probably sold the stock. If I said, you know, we're going to spend $325 million today, we're going to spend $1.2 billion by 2025, you wouldn't have understood it. And so 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? And that renovation has taken place over that period of time. And we think about the future very similarly. So today, I think, you know, 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 and every time we do that you know we also put in a really robust data program it's probably in its third year of and maturing but every time we go in and soup to nuts change everything we're re-engineering how the flow works and 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 into the redesign of the system so all those things are preparation for whatever ai brings but if you

don't have your data right and you haven't got the basics right it becomes a i think a little bit unpredictable yeah so the the need for for high quality data is yeah a prerequisite for for for a good AI story going forward and you're already investing there. You know, maybe the last piece that you mentioned in your letter as well, that it's, and I call it, your duty to slow down is speed limits or road conditions demand. And, you know, 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. There's a bunch of ways I could go there. But, you know, that's what we do. That's our job. Right. And we recognize that we probably have, you know, three, four or 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, you know, with the right level of risk and return. But sometimes the market's just not offering that to you. Right. So you can use the capital in other places. you can look at efficiency, you can do buybacks. And we're constantly, in order to be able to do that, looking at these trends that we see. So today, it's not a big problem, but we have been running at credit spreads at really, really low levels for a fairly long time.

That could be a good thing or could be a bad thing.

You're tighter, so you're priced for perfection in some ways. But if you think about what happened with the private markets, and we had these you know sort of initial concerns about um liquidity um the capital markets have been so strong that a lot of those places have now actually gone to the capital market shored themselves up kept more liquidity in those funds and that time that it's taken you know that's been allowed for that to happen has actually been really healthy so i think you know versus the beginning of the year when we were looking at all that stuff i feel much better about it but but you are at abnormal times in terms of credit spread everybody everything is kind of price to perfection are you seeing any competition on structure right now or is it mostly on spreads you know I think it's mostly on spread when we see it but you know we're seeing we're seeing very healthy long growth we're seeing our customers begin to draw down we were talking about this earlier you know the typical cycle is if you're holding lots of cash at the beginning and then you see your opportunity invested the cash comes down first that's the deposit pressure that people are talking about uh and then utilization goes up and then expansion of lines right and those types of things in that cycle and it seems to be following that normal cycle so given uh the dynamic macro environment that we're in and it's not to say it's never it's it's always dynamic right uh but what are you hearing from your client base right now ability willingness to invest willingness to to take on loans time I mean it's it's healthy it's really healthy I mean we're not hearing negatives as I said you know 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 you know we are seeing if we get deep into our customers thinking of a customer who does gaming entertainment you know they're seeing at the low end people spending less less discretionary income at the low end you know it's just not subtle it's very noticeable but that hasn't sort of resulted in higher delinquencies or anything as we see today so so what are you seeing on the credit side credit is improving I mean just continue non-performing just keep steadily come down I don't know how many quarters it's been but it's been a Daryl says nine quarters in a row of improving credit trends. So things are headed in the right direction.

And 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 is you know for the entire industry has been soft for the half for the entire auto industry has been soft for the last six months we thought it would bounce back after the the weather it did for a month then it sort of tapered off again but as we sit here today we still have growth in consumer thing good growth in home equity so people are active and it almost feels like 18 months ago everybody was waiting for shoes to drop so they sat on the sidelines and as nothing has happened, right? They're like, well, I guess I got to go do this project.

Well, I guess a lot has happened, but I think people have...

Yeah, the consequences haven't happened. Right, right.

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've been there for a long time, people who have joined, all have this curiosity for understanding like what's happening, why are we slower, why are we faster in different places. And so there are a number of places that we've sort of stepped back and looked into. Risk transfer trades is one. And the way I think about this, that's really a story about capital efficiency. And so 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. And what we believe we're really managing is tangible capital. And 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. And the reason that we didn't like them, I think we have 4%, the median is maybe 8, somewhere in there, and then the high is 15% of your loans in that space. um 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 1200 right percent and we just thought that that when an economy takes its turn you're going to get hit twice you get the delinquency and then you get more capital that you know unwind uh with the new capital regulations that are coming out it looks like that only goes to 100 risk weight right and so that changes it so either we will use that lever and we can buy back more and have a carry a lower tangible or we'll actually just keep our risk profile modest right so it'll be adjusted so 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 you know a risk adjusted view of our of buying M&T bank stock we we still get the stock credit for it but yeah I hear you I'm not looking for but there are lots of examples like that 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 we wouldn't be better

we'd just be using more leverage and that would provide a better return to the shareholders and so we're always thinking about whether we should or should not do that and the other area you're always thinking about is the risk that you're putting on the balance sheet as well Daryl, sitting in the front row here, you mentioned on the earnings call that M&T is choosing not to chase growth if a transaction doesn't meet underwriting standards. And I think, Rene, 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, and the volume is really high. So there's just more people in the market. I wouldn't characterize, particularly on the asset side, as like frothy or anything like that. On the deposit side, I think you're seeing more competition, but that just makes sense as well. I talked about the cycle. You know, 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, you know, the real value of deposits is super high.

So as we think about deposit competition overall, the value of deposits is high. I guess deposits are coming down as just corporates are spending down part of it. You also have, you know, value of the curve is higher. You could get rate hikes in the future.

And even if we don't, I guess, as a bank, you do have to prepare for that yeah so is I guess when you put everything together what are you you know seeing on the deposit competition side and and what are you doing to get ahead of it yeah I think I mean for a long-term measure for us it's like are you are you net growing more checking accounts right and forget about what the balances are in them are they as long as their quality counts that people are actively using. But I think that, how do I say it? I 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. And then we also have a lot more deposits than we have loans. And so we're in these national businesses like RV and indirect auto and so forth. And what we tend to do is we think as you get further away from home, so as you get into things like a 14th or 15th state, you're really actually pricing those things based on wholesale funding, right? So you're thinking about that, and 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, and that's because the market allows us to bear it. So you might actually see in that period of time, like on a relative basis, deposits actually going down. But 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.

So 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?

So as you think of, OK, so 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 so can you talk a little bit about that and why why is it only existing markets you know when you when you go to a new estate initially you're probably paying wholesale funding but i guess over the longer run is that does that still make things you know as we as it's i'll try to do this way as we look over time and how we've 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. So think Hudson City and New Jersey. New Jersey was a big hole in our market. We had to go there, but we went there. We had a market that actually didn't have as much, I would say, market power, right, because it was thin. and if you did that over and over again and you took on too many of those things it would it would actually affect the entire franchise and so we're it's why we have a bias for in-market deals for fill-in deals a bias for adjacent deals so it's not that we wouldn't go to another state it would just have to be the right economics right in the right situation and we've done that time and time again but our bias is not that not to leave behind a set of markets that are under penetrated right because we think that over time that produces a pretty weak franchise.

Baltimore has also been a big success story.

Yeah, incredible.

So 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?

Yeah, I think the playbook is pretty clear. First of all, we tend to be relatively patient. So 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. And 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 sort of bring them to bear for the customers. But we are in a steady role from we entered in 2020, I'm sorry, in 2003. The crisis provided us the ability to actually expand more. and then at some point in the maybe 10 years ago we were looking at the numbers and although we had good share we were losing ground to one to one very mega bank and on the retail side and to and to another regional bank on the on the loan side and 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 and we sat down and talked about it and we said well what do you think it is and they said well it's one two three four five we said well there are five things why haven't you done it and they said oh because we didn't know we had we didn't have permission to do it like crazy things like like um you know we'd look every three years at the branch network and figure out the timing of you know flows and how it should be staffed but in baltimore they already knew that they were going to lunch at the time when p customers were coming in and and so that way right that and so so we basically said wait a second you guys run Baltimore you know 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 and that that resulted in just a massive ramp up and so today two two fun things if if it's Sunday and you turn the radio on and someone's going to the football game and they ask where you're going the the the person on the radio says I'm driving to the bank the bank uh 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 like that's how integrated it is and so when we talk about places like boston you know you're thinking loan growth you're thinking balances we're thinking relationships and how do we have perceptive scale where we're much bigger than we appear and most of that comes from massive amounts of community engagement right and being there after five o'clock in the places that matter so and it tends to work and it tends to give us huge amounts of density and then we become a preferred choice amongst you know scarce choices that you have today because the number of banks are getting smaller how how long does that take um in terms of developing the relationships bringing in the customer set especially as you get it i think i'm like i think in in um uh what are we in we're we're four years in on uh on people's bank and really moving to new england And I feel like this last six months, this year, we're starting to get lots of traction. You know, the volume is up. People know us. You know, but I think the work continues to be done, right? We're still not, we're probably number two, one or two in Connecticut and Cher. We're number one probably in Vermont, but we're probably five or six, six maybe in Massachusetts and then the surrounding areas, right? We're not in Rhode Island. So we have a great playing field, right, to do the work. It just takes time.

So another of your priorities is teaming for growth. And, you know, that helps you deepen wallet share as well with clients. Can you just dig into the opportunity there? And, you know, what is the opportunity across the franchise, especially in business units like business banking, commercial and wealth?

So it's important to talk about how we got there. So this last year, we started asking the executive team individually, what did they see in the markets in terms of opportunity? And what really struck a couple of us was that the group was seeing the same things, but they weren't talking about it. And so 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. and then we pushed them to say okay what would you do with it and that's where that's where operational efficient effectiveness came but also most importantly that's where teaming for growth came and so 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 was using business banking but they wouldn't even know that M&T owned Wilmington Trust right and so 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? And 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. And so we're beginning to shift those things, right, to bring the full bank to the customer. And it's in the early stages, but there's some really simple things that we could be doing much better around, you know, when someone shows up for a mortgage, what do we 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? All right. So, so that's a program that existed, but it wasn't linked to actually introducing ourselves to new customers.

So your, um, I guess how you changing that? Is it incentivizing employees to do more of it?

One is a massive amount of awareness on the issue. Number two is actually meeting, like really your meeting routines. So 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 the within mortgage for example so we brought them to bear in that way and now you 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 right that that engaged in providing more services for customer that the kicker and so we didn't have that so if Baltimore did really well we didn't actually say Baltimore did really well you there's a you know there was a team effort it was a compilation of individual businesses so we have to change all those things and though it takes time but it's pretty logical I think it's I think about it is really low risk risk adjusted growth that's in front of us so that that's still in progress I'll be in progress for a long time so these two these sort of two priorities are everything else we do has to be in service of those two things either we're getting super super efficient data capture all that stuff right or or we're actually just bringing more to bear for the customers so that helps you on the lending side deposit side and visa it's a yes the whole thing yeah right okay okay maybe we'll we'll pivot over to the capital you you you brought that up earlier you know excess capital has been for M&T one of 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 just 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, and that has been reduced to share buybacks. but i think i think we think about capital the same capital thought processes in every decision that we make so 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 it really is a fairly consistent method over over time so it gives us choices as to what we can do with the capital and if none of those things actually are you know available to us then we give the share 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 and you know for us I think it gives us a boost of 1% or a one percentage point on the capital ratios and that's fine you know that that has some economic value but the real value is on every incremental decision you make from today on. So 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. So you look at a mortgage, that mortgage actually needs less capital. It doesn't mean that 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. So 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 to the private markets you're seeing a slight shift back right so it should produce growth and we underestimate that that growth potential we tend to look at just the you know the the point in time how much capital are you able to free up and give to me but it's actually more powerful than that there's a part of it you pass on to the customer part of it is your own rot see and in your own returns as well um when you're thinking about i guess you know tangible versus regulatory capital um not not not many talk about that i guess do you anticipate that being uh more of a focus among the investor community or or other stakeholders at this point we talk about it because we're just an outlier right we 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? So our ALCI is minimal, if any. And so I think people don't, when they're talking just about the ratios, they don't. But everybody's actually managing return on intangible common equity, right? And so you have to be consistent all the way through. So 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 did we finish the quarter in 10.3. 8.6, yeah. You know, so some are thinking, oh, well, now you're down to 10, so you're done. Not, 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. So that's an asset that we've got to figure out how to deploy in a safe way.

And 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? But you're always trying to make prudent individual decisions all along the way. And 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. And then at the top of the house, we'll figure out how to optimize the balance sheet.

So 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, I mean, it's a relief and it's more of a relief for residential mortgages than real estate. And then it changes the quality, right, because now it's based on LTV and the quality. So 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.

So, you know, I guess you spoke about returns as well. And, you know, 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. but has more and more banks free up capital, whether it's for the new rules, whether it's creating more capital. How do you think about just competition overall, a lot of those, you know, the benefits of that improving Rothsee with the new capital rules being competed away, you know, 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 uh capital centered uh decision making process right and so the question is what are we going to continue to do things at capital that are relatively prudent and i think they are i don't worry too much about you know it's better for everybody if the if we're more capital efficient as an industry but at the end of the day, we just want to be the best bank for shareholders. So we just want to make prudent decisions and find those and not stretch, you know, for example, for a couple of extra basis points when the downside risk is really high. So, and it works that way in our compensation structure. You know, if we, if we get a 17% return over, 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 anymore because we don't want to underinvest in our franchise. So we're plowing it back most recently into technology and if it goes below that it's because and it's because the industry is having a difficulty we look at our performance where we in the first second third fourth quartile right and that's all built into our structure so 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 in fact in industry-wide returns and you know is everyone please have more capital just more capital getting deployed at lower I think it's all I know I don't I think I I don't think they're low returns. I think, step back. We were at a place where there was a proposed rule that would have had the largest banks have 20% capital. Like, that just got reversed. That's essentially what happened, right? So 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. And two, it went lower, right? So it means the banking industry is more competitive.

Got it. Maybe to end, you're also chair of the BPI and you have a more unique- For a couple more days. A couple more days.

Well, you still are. Charlie's taking over.

I hear you. And I guess maybe talk a little bit more about the broader changes to the regulatory environment. There's growing discussion around liquidity regulation. 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, you know, the original capital stuff. It's been tremendous. I think all very, 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 because of liquidity is sort of the discount window idea of how do we make, get rid of the stigma for that? How do we, it's a source. So how do we actually use that in our inventory of weapons, you know, around liquidity? And I think it's particularly important because we're talking about AI reengineering speed, speed at which decisions are made. And so if you think about the rapid increase in speed that you could get for a run on a bank, then you have to do something structurally in the system as well, right? and actually bringing maybe the discount window in a safe way back into its original purpose would be a positive. So there's a discussion out there about that. I think it's a really prudent one to have. And 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, then I think we'd be in a better place more safe and sound place got it all right with that word out of time Renee thanks so much for joining us thanks for having me