M&T Bank Corporation (NYSE:MTB) M&T Bank and Peoples United Merger Announcement Conference Call February 22, 2021 8:00 AM ET

Company Participants

Don MacLeod - Director of Investor Relations
Ren?? Jones - Chairman & Chief Executive Officer
Darren King - Chief Financial Officer

Conference Call Participants

Ken Usdin - Jefferies
Ken Zerbe - Morgan Stanley
Frank Schiraldi - Piper Sandler
John Pancari - Evercore
Erica Carrion - Bank of America
Mike Mayo - Wells Fargo
Gerard Cassidy - RBC Capital Markets
Matt O'Connor - Deutsche Bank
Brian Klock - Keefe, Bruyette & Woods
Peter Winter - Wedbush Securities

Operator

Good morning and welcome to the M&T Bank-People's United Bank Merger Announcement. Today's call is being recorded. Currently all participants are in a listen-only mode. Following the prepared remarks, the floor will be open for your questions. [Operator Instructions]

It is now my pleasure to introduce Don MacLeod, Head of Investor Relations for M&T Bank Corporation. Please, go ahead.

Don MacLeod

Good morning and welcome to our Investor Conference Call to discuss the merger of M&T Bank Corporation and People's United Financial. Leading the call this morning are Ren?? Jones, Chairman and CEO of M&T; and Darren King, M&T's Chief Financial Officer.

Following our prepared remarks, we will have a question-and-answer session. The joint press release issued earlier this morning and a slide presentation we will be referring to today are available in both the M&T and People's United websites in the Investor Relations sections. A replay of this call will also be available on the website after the call.

During this conference call, some of the information discussed will contain forward-looking statements within the meaning of the Federal Securities laws. Those forward-looking statements which M&T and People's United do not assume any obligation to update are not guarantees and management cautions that a number of factors could cause actual results to differ materially from those statements. I also refer you to M&T's and People's United's filings with the SEC, including the risk factor disclosures and their respective Form 10-Ks and 10-Qs.

M&T and People's United will also be filing materials related to the proposed merger with the SEC. Investors are urged to read those materials once they're available. These additional materials can be obtained free from the SEC's website and from the respective companies' websites. In addition, M&T, People's United and their respective directors and executive officers may be deemed to be participants in any solicitation of proxies in connection with the proposed merger. Information regarding their interests can be found in each company's most recent proxy statement and additional information will be contained in the Joint Proxy Statement and perspectives to be filed with the SEC. For more information, please, please see Slide 1 at the Investor presentation.

At this time, I'd like to introduce Ren?? Jones. Ren???

Ren?? Jones

Thank you, Don, and good morning, everyone. Earlier this morning, we announced the definitive merger agreement between M&T Bank Corporation and People's United Financial. To start this call, I'd like to offer a few thoughts as to why we believe this merger is compelling. The combination of M&T and People's United benefit both firms providing additional growth opportunities beyond what either firm could achieve independently.

First, stepping back. This partnership has many similar characteristics to our 2003 merger with Allfirst Financial, where we added a new top 20 MSA complemented by many MSA continuities [ph] outside of the top 20, where our brand of banking resonates with customers. In addition to new geographies, we expanded the talent and capabilities in our organization, as well as the products that's available to our combined customers. We see People's United as a larger version of what we were able to accomplish with Allfirst.

On a pro forma basis, our combined company would be the 11th largest U.S. commercial bank holding company by both assets and market capitalization and our combined geographic footprint is concentrated, offering a distribution system across the Northeast, in the Mid-Atlantic states that represents over 20% of the U.S. population and over 25% of GDP and has attractive levels of household income.

The density of this combined franchise lets us leverage local market knowledge and scale our recently bolstered technology talent and infrastructure and our nationally recognized brands. We enjoy complementary top-tier deposit share. Both firms have at least the number three share in most of our respective top 10 markets. Maybe more important, People's United's outside proportion of core operating accounts making it among the most attractive franchises in New England. In our view, this is the most important characteristic of a stable, well-run franchise. Not only are our geographies complementary, so, too, are the talent, the product sets and the credit cultures, creating a solid platform that we can collectively build upon.

Finally, both M&T and People's United deliver top core tile return on assets and return on tangible common equity on a standalone basis, and this transaction will further generate incremental capital that can be invested to remain competitive for years to come. We trust that you'll [ph] share our enthusiasm for the potential this combination offers not just for our shareholders, but for our customers, our employees and certainly our community. Bridgeport, Connecticut will become M&T's New England regional headquarters. Not unlike the low Baltimore [ph] fields for us in the Mid-Atlantic today.

Now, I'd like to turn the call over to Darren who will review the transaction in more detail.

Darren King

Great. Thanks Ren??, and good morning, everyone. Well, let's jump into the slide presentation where I will pause briefly on Slide 1. Just as a reminder to everyone and Don noted in his opening remarks, please review the disclaimer slide for information on forward-looking statements and where to find additional information when it becomes available.

Looking at Slide 2. As Ren?? mentioned in his remarks, there are many reasons both we and the team at People's United are excited about this combination. Starting off, both firms share a long history of being deeply committed to the customers and communities they serve with long standing track records of strong CRE ratings, charitable contributions and employee volunteerism. Those cultural characteristics are important because together, we would achieve top-tier deposit share in many of the top 100 markets in the country.

While expanding the geographic reach for each organization, the combination brings new capabilities to each customer base. Notably, the People's team brings equipment finance, mortgage warehouse lending and fund lending to the table, while M&T brings enhanced treasury management, cash management and payments capabilities, along with GSE multifamily lending and debt capital markets to the union.

As Ren?? points out, both organizations have a disciplined approach to credit, expense management and capital allocation, generating top quartile ROA and ROTCE and the capital needed to invest to remain competitive. The economics are compelling. Immediately, tangible book value per share accretion at closing, double-digit EPS accretion on a fully phased-in basis and an IRR above 18%.

Flipping to Slide 3. Just to summarize the key terms of the transaction. The merger agreement calls for a 100% stock consideration, with People's United shareholders receiving 0.118 shares of M&T common stock for each People's United share they own at closing. On a pro forma basis, M&T shareholders will own approximately 72% of the combined company, with People's United shareholders owning 28%.

Five members of the People's United Board of Directors including Jack Barnes and Kirk Walters will join M&T's Board. Assuming approval of the merger by M&T and People's United shareholders and receipt of the customary regulatory approvals, we would expect the deal to close in the fourth quarter of 2021. Based on our expected fourth quarter closing, our target for the operations and systems conversions, is in the first quarter of 2022.

Turning to Slide 4. We thought it made sense to spend a moment to introduce People's United to both M&T shareholders who might not be as familiar with them. Founded in 1842, People's United is a diversified, community-focused financial services company. People's has a leading market position and the best commercial banking markets in New England. That market position consists of 419 branches that represent $52 billion in deposits, primarily in the state of Connecticut, Massachusetts, New York and Vermont. The leadership team at People's has a solid track record of exceptional risk management and asset quality. The loan portfolio is well-diversified, with loans to small and middle market businesses, including equipment finance, representing approximately 38% of the balances.

While not noted on the slide, we would be remiss not to acknowledge the significant depth of experience and local market knowledge represented at People's management team right through to all the customer-facing staff.

On Slide 5, looking at the footprints of the of the two organizations. As Ren?? mentioned in his opening remarks, the combination of M&T Bank and People's United will create a leading community-focused bank in the Northeast and Mid-Atlantic. This footprint spans an economically diverse region that accounts for over 20% of the population and 25% of GDP.

Despite the size of the population and economic clench [ph], the footprint is relatively compact. In fact, the radius from the center of the footprint to the most distant branch is just under 300 miles. At close, the combined organization will have the second largest branch network in these Northeastern United States and notably well-ahead of the next largest super regional bank.

As was noted earlier, M&T enjoys the number one or two deposit market share and seven of our 10 largest markets, while People's United enjoys the top three share and six of their 10 largest MSAs. The merger will produce a bank with a leadership position in small and mid-sized markets throughout the Northeast, complemented by a strong presence in four of the 20 largest MSAs in the country, ranging from Washington DC to Boston, Massachusetts. Many of the People's United markets, which are new to M&T offer access to an affluent customer base, where leading wealth management capabilities can be leveraged through Wilmington Trust.

Turning to Slide 6. The transaction is immediately accretive to tangible book value per share. Factors that drive tangible book value accretion are the relatively modest credit mark, reflecting people's outstanding credit quality and M&T's own strong price to tangible book value ratio, combined with a positive interest rate mark and a markup of the securities portfolio. We expect double digit percentage earnings accretion. When the merger synergies are fully realized by early 2023, we expect mid-single digit, 5% to 6% that is, earnings accretion in 2022, the transition year for the conversion and cost rationalization.

We calculate an IRR of over 18%. The transaction enhances M&T's annual capital generation by some $600 million reflecting People's United current run rate plus the fully phased in minute merger synergies, less the dividends on the shares issued as merger consideration.

Turning to Slide 7. Both M&T and People's United maintain business models that are among the most efficient and profitable in the regional banking sector. The combination of the two franchises through realization of merger synergies alone will improve our already top quartile operating efficiency and profitability as measured by return on tangible assets and return on tangible common equity. The difference in the two banks, PPNR to risk weighted assets ratios illustrates the opportunity for repricing and/or remixing certain loan and deposit categories, as well as the opportunity to increase the penetration of the businesses within the customer base. The result will be enhanced PPNR through time.

Flipping to Slide 8. The combined company's total loan portfolio are well-diversified, with a good balance among commercial and industrial loans, commercial real estate loans and consumer loans, which include residential mortgages. On the deposit side, the company will have a stable, solidly core funded deposit base with a high proportion of transaction accounts. We see opportunity to improve the net interest margin over time by deploying our full breadth of products and services and by remixing the loan portfolio to better yields, consistent with M&T credit risk policies and while repricing or not renewing higher cost brokered deposits and time deposits.

Turning to Slide 9, and I'll comment that as I talk about Slide 9, I'll also refer to Slide 10 since these two slides kind of go together. When looking at the two organizations combined, we see a substantial opportunity to improve our pace of revenue growth although not factored into our estimates of pro forma earnings accretion. The combined company starts with about one-third of revenue and fee income and two-thirds in spread income.

From the M&T side, we see opportunity in small business banking, both through loan growth and through garnering more operating account relationships, which bring payment and treasury management fees along with low-cost deposits. M&T's more robust treasury management capability and capital markets products suite represent opportunity with People's United's large commercial customer base. M&T Realty Capital Corporation's ability to place multifamily loans with GSE and other investors represents a new fee opportunity for People's lenders [ph]. M&T's Wilmington Trust operations bring a wide set of wealth and investment products to the affluent markets where People's United operates.

On the People's side, they offer M&T small and middle-market business customers more equipment financing options, ranging from small tickets to larger commercial transactions and they also bring a well-run mortgage warehouse lending operation. On the consumer side, we expect to introduce the M&T-owned and branded credit card to the People's United customer base using M&T's credit criteria. In addition, M&T's products for underserved or underbanked customers, notably lightweight checking, and a secured credit card offering will be presented to People's united customer base as well. As we execute on these opportunities, this should lead to improved PPNR over time and results in the enhancement of our combined PPNR to risk weighted assets as presented on Slide 7.

Slide 11 highlights the consistent credit cultures in our two organizations. Both M&T and People's United have experienced lower credit losses than the regional bank group since the start of the financial crisis, which illustrates our cared conservative underwriting cultures. As a result, it shouldn't be surprising that the credit market is somewhat more modest than any of the other recently-announced regional bank mergers. Purchase accounting results in a small 25% increase in the allowance for credit losses versus increases as high as 50% seen in other mergers.

Turning to Slide 12 and focusing on commercial real estate. Both firms have about 30% of their loans in investor-owned commercial real estate, but the collateral mix is very different. People's United has a much lower concentration in construction loans and a lesser concentration in hotel, as well as New York City exposure. The combination enhances the diversity of the combined CRE portfolio and reduces risk. From an underwriting perspective. Our standards are well-aligned, featuring low LTVs for hotels and more broadly for the whole portfolio.

On Slide 13 we highlight some of the key components of the due diligence that has been performed over the last several weeks. Both M&T and People's United have extensive experience in executing and integrating with merger partners. In fact this will be M&T's 25th merger since 1987. Consistent with our historical practice, M&T dedicated over 200 employees to examining over 3,000 documents in a virtual data room. 2,000 loan files were examined by M&T's experienced credit teams. Some highlights of those credit reviews include the 100 largest loans, 77% of the construction portfolio, 94% of the hospitality portfolio, 77% of the senior housing portfolio, and 68% of the healthcare portfolio overall. Our review also included 100% of the criticized and watchlist credits over $5 million. We believe this is accurately inform [ph] the analysis behind our estimated credit markets.

Slide 14 provides an overview of the integration experience of our organizations and this merger is a little bit unique compared to many in the past, as both companies bring teams with extensive merger and integration experience to the process. The combined dedicated team will be assembled to complete the conversion process early in 2022. M&T already operates on single core systems and has experience with conversions from People's United's current IT provider onto the M&T's infrastructure. We think our meaningful investments in both technology and technology talent will serve as well in this integration effort. We take comfort in our knowledge of the People's United markets, given the contiguous or in some cases overlapping nature of the branch networks.

Turning to Slide 15. M&T has maintained the highest possible CRA rating from the Federal Reserve since 1982. M&T provides support to underserved communities across our footprint through participation in community development, and affordable housing investments and loans, mortgages and low-income housing tax credit investments. Both firms encourage employees to get back to the communities where they work and live and the two firms employees combined for some 270,000 hours of volunteering with local community organizations in 2019, prior to the isolation required as a result of the pandemic. The M&T Bank Charitable Foundation made grants totaling $34.9 million to not-for-profit agencies across our footprint in 2020 and such grants have totaled $263 million over the past decade.

Similarly, two People's United charitable foundations have collectively made grants totaling $40 million since 2007. Through the foundations, M&T will use $90 million to support charitable activities in the communities currently served by People's United. Finally, both M&T and People's United share commitment to serving the needs of small business and our respective communities. During the first round of PPP lending, together, we supported over 75,000 business customers who were challenged by the economic impacts of the pandemic.

I'm going to turn the floor back to Ren?? for closing remarks before we open up the line for Q&A.

Ren?? Jones

Thanks, Darren. So, in summary, we're truly excited to join forces with People's United team. This transaction, which is immediately accretive to tangible book value per share to meaningfully EPS accretive when merger synergies are realized, will create the 11th largest commercial U.S. bank holding company by assets and market capitalization. We will be operating in states that represent over 20% of the U.S. population and 25% of U.S. GDP. That tight radius will allow us to leverage local management and market knowledge, technology infrastructure and investment and branding. Our franchises are highly complementary beyond geography. We both have top-tier deposit share, complementary product sets, credit underwriting and asset quality that is outstanding, commitment to expend discipline and deep talent pools including relationship bankers, software and design engineers and credit underwriters.

So in closing, both management teams are enthusiastic about this transaction and then enthusiasm has predicated on our understanding of the key drivers of success for community focus regional banks, and how they can win in local markets. We believe that local scale matters as much as absolute scale, the digital transformation is important, but it's really maximized when it's used to serve relationship bankers who are serving the customers and we believe that thoughtful underwriting combined with low cost locally-sourced deposits are the foundation for success, projecting capital and enhancing returns

Now we'd like to open up the line to questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Ken Usdin from Jefferies. Your line is open. Please, go ahead.

Ken Usdin

Thanks. Good morning, guys, and best of luck with the transaction. Just a couple of deal-related ones just to start. Can you help us understand what happens on the buyback front on the M&T side? And then what you're thinking the pro forma share count looks like when you look out to that 2022 year? Thanks.

Darren King

Sure. Good morning, Ken. I guess what we're anticipating is that the buyback, we won't be buying back shares in 2021 through the close. And once we were able to close the merger and assess the capital levels and where our jump off point will be for CCAR [ph] 2022. We'll look at what we think from a capital distribution perspective. When you look at the share count that we anticipate at the end of the year, kind of based on where close will be in the exchange ratio given us being out of the market, we think that we end up in around 175 million shares going into 2022 and then through 2022, we'll look to distribute capital based on our forward look in the capital plan and take the excess capital generated by the merger and start to deploy that either into business growth or back to shareholders depending on where the most activity is.

Ken Usdin

Great, thank you. And then on the second part on the balance sheet, just in terms of the immediate accretion to book value, can you just help us understand how much of the restructuring costs are included in that calculation and how you expect that trajectory to go over the next year or so?

Darren King

Yes, sure. The whole restructuring charge is contemplated in the in the calculation of the tangible book value per share in that accretion, obviously includes the credit marks as well as the loans and securities valuations as well. So, all the components are a part of that accretion calculation.

Ken Usdin

Okay, got it. Great. Thanks for that, Darren.

Darren King

My pleasure.

Operator

Your next question comes from Ken Zerbe from Morgan Stanley. Your line is open, please go ahead.

Ken Zerbe

Hi, Great, thanks. Just a clarification in terms of Slide 6, the 5% to 6% EPS accretion in 2022, is that the total amount of accretion that you expect to get in the full year? Or is that on a run rate basis by the end of the year?

Darren King

Yes. Good. Thanks for the clarification question, Ken. It is what we expect full year. If you look at the run rate and you see the middle bar there, that would be where you would kind of start to see if the cost saves were available for the whole year, what that might look like. And then the run rate obviously kicks in as we get into 2023 and that's where you get to that double-digit. And so that those are why we show those two components, but hopefully that clarifies it. If you still have questions, let me know.

Ken Zerbe

It does fine. And then just a second question. I want to make sure I understand the credit mark properly just given we're in this new CECL world. So, People's had the $425 million CECL reserve already. If I understand it right, you're taking a total $535 million, which includes the $425 million. If that's right. In Q2, also just talk about how -- because I see the $352 non-PCD reserve, which I guess implies at $183 of PCD reserves. Can you just talk about how the double-count would impact earnings or EPS? Thanks.

Darren King

Sure. So, what happens is, as you pointed out, you got the math exactly right, that the PCD loans, which would be part of the reserve, so it's $183 million that you talked about, will be added to the reserve and it's the non-PCD loans that is what's affectionately referred to as the double-count. And so on day two, we set up an equal $352 million reserve, that then gets accreted back into earnings over the life of the loan. And so, you start to see that $352 million come back into earnings. It's starting in the fourth quarter, assuming we complete the merger, we do the close in the fourth quarter as we've assumed and then starts to show up in earnings over the next several years. And given the life of loans and the fact that it's primarily driven off of commercial loans that tend to be shorter dated, you would get that accretion, predominantly over the first five years.

Ken Zerbe

All right, great, thank you.

Darren King

On that point, it's important to keep in mind the accretion, intangible book value per share includes the interest rate marks and securities mark ups. Right? So, on the flip side of that income or that accretion of the double-count, so to speak, coming back into earnings, it's in large part offset by the amortization of those premiums over that time period as well. The basis of amortization is slightly different. And so, you get a little bit of noise, but in in reality, the best way to think about it is that they basically offset each other.

Operator

We'll take our next question from Frank Schiraldi from Piper Sandler. Your line is open, please go ahead.

Frank Schiraldi

Good morning. Darren, just a follow up on the accretion, the 78% you have for 2022 that assumes the fully phased-in cost saves. Can you talk about the ramp up from there to the 10% to 12% in 2023 and beyond?

Darren King

Yes. Thanks, Frank. The big difference really is just the impact of timing in the full year. So, as we go through 2022, you'll see those cost saves ramp up as we go through the second half of the year. And when you look at 2023, it's really just the impact of the full run rate going into 2023. So we should be looking at that kind of a number towards fourth quarter of 2022.

Frank Schiraldi

Got you. All right. Thanks for that. And then just Secondly, you talked about, the potential synergies, you talked about potential fee opportunity in multifamily, just wondering if there's any targeted or we should think about any sort of runoff portfolios that may serve to offset organic loan growth in the near term, the Hudson city deal?

Darren King

Yeah, I guess I wouldn't call them runoff per se. Franklin [ph], when I think about it. If you look at the mortgage banking business that people does, it's retail oriented, very much like ours, you know, they make portfolio, a little bit higher percentage of the loans they underwrite. And we'll look to have maybe a slightly different mix of what we originally sell verses what we portfolio. And -- but there's also given their geographies, a decent set of jumbo mortgages in there as well. And so those might end up in the portfolio, a little bit more than end gain on sale. The other place that is worth thinking about and talking about is the commercial mortgage portfolio.

And if you look at our commercial mortgage portfolio, we see the benefit of the two franchises in the concentration change that happens, but with the addition of the commercial mortgage portfolio that comes with people. But that's also an opportunity to use our MT [ph] RCC the Realty Capital Corp capabilities to play some of those mortgages with the GSD [ph] or with insurance providers. And it's a way to drive some fee income and also help improve the margin and drive PP&R [ph]. And so that's a place where you'll probably see a little bit of a mix change over time that you'll see work its way through the balance sheet but it'll be gradual.

You know, the other thing just to keep in mind, as we talk about loans, and in order to be for the combined company, is we're both have a number of PPP loans on our balance sheet. And as we go through 2021 and into 2022, we will see some movements up and down, and they can be some large volumes and so just remind you to account for that as we think about where our loan growth might be.

Darren King

I'll just add that it's really important to just keep in mind with MMT, that we are always focused on maximizing risk adjusted return returns. So to the extent that it makes more sense for us to use our realty capital markets, and from our return about our cost of capital, and then distribute that capital back to our shareholders, we would do that even if it makes the loan growth smaller. I think this is something that sometimes we miss. We're not really focused on size, we're focused on maximizing returns.

Frank Schiraldi

Okay, great. Thank you.

Operator

Next question comes from John Pancari from Evercore. Your line is open. Please go ahead.

John Pancari

Thanks. Good morning. Want to see if you could give comment a little bit more on the cost savings? The $330 million, I know that's about 30% of people's expense base or 27% extra stop and shop impact. Could you just talk about the potential that could come in above that just given the amount of overlap you guys have in the potential for real estate rationalization. Want to get your thoughts on can we be looking at a number as you go along that could exceed at $330 million? Thanks.

Darren King

So John, we obviously we spent a bunch of time going through and looking at the operations and how we'll combine them. When you look at the degree of geographic overlap, it's actually not quite as much as you might think. And from a branch perspective, and also when you take into account the fact that the people seem have already made the decision to change their posture with the stop and shop relationship. What's nice is that many of our traditional branch locations are within five miles of a stop and shop. But I think that's helpful, you know, from a customer perspective, but you look at the cost savings, just to give you context, when we talk about 27% excluding the impact of stop and shop, we take out the saves from both the numerator and the denominator. And so when you look at the bank, that the changes that we've contemplated, they really are what will happen with the rest of the bank and that 30% change. And it's really it's the combination of the operations areas, the combination of the staff areas, there'll be some overlap in some of the geographies where customer facing folks, but what we really found was not a great degree of overlap in the customer bases. And so because of that, we don't anticipate any changes, to speak up to the folks to talk to customers. And that's really, as we go into these, our number one priority is protecting those relationships.

You know, the last part of the cost savings that I'll mention, is just some of the operations that the technical operations areas, and that there's a number of systems that people operate on today that are with outside vendors and contractors. And as we bring those systems onto MT's core, that those expenses will go away. And so those have less impact on employees, obviously. So those are some of the big ones are. I'll, I'll pass it over to Ren?? to add color.

Ren?? Jones

Hey, John, it's Rene. Yeah, I think if you step back and think about your question, it's a market extension deal. And all of the upside in small business and equipment, leasing all the areas that Darren mentioned, we haven't factored in. And so the way to think about it is that if there were more ways to become efficient through the value chain, and deliver products to our customers faster that would probably be offset by the growth opportunities that we have and meeting that expense for people, you know, distribution. So either way you look at the question is how you capture the value. We think this is more of a growth story than it is expense issue.

Operator

Next question comes from Erica Carrion from Bank of America. Your line is open.

Erica Carrion

Hi, good morning. My first question is for you Rene. In talking about is this deal as more of a growth story rather than an expensive story. I'm wondering if you could talk to us a little bit about what you may have identified as potential investments that you would have to put in to people united, and whether or not that's contemplated in that $740 million in onetime merger expenses. And the reason I asked this question is, in some recently closed deals, I think investors were a little bit surprised to see cost saving, targets still on track, but onetime expenses growing relative to the first, presentation and announcement. So that's really why I'm asking the question.

Ren?? Jones

Great question. And I'll start by stepping back and look back at the last three years. You know, there has been some question early on about how much we were spending on infrastructure, particularly our tech and innovation infrastructure. We've made those investments. And so this is part of extending that infrastructure to people. So if you think about it, before they passed, the new regulatory regime was thinking about, how could they actually come up and be well with now $100 billion bank, but that time was you're going over $50 billion. And so a lot of what we've done on tech, a lot of what we've done, invested in our risk infrastructure is now really leverageable across that franchise. Second thing is people's a well-run institution. So they're not behind in things and spending and they have strong staff. My sense is that the numbers are what they are exactly as Darren presented them in a classic MMC [ph] fashion. And as we go forward, I think there are places particularly like small business and business banking, where there'll be opportunity. And that will mean that we would have to add staff to capture that opportunity. But that would be its own NPV. Think of it as its own NPV, which will do as it makes sense so that the numbers are as they are, Derek can change its DNA and so pretty straightforward.

Erica Carrion

Got it. Thank you. And my second question is, how does this deal impact, how you're thinking about stress test participation this year, if at all, or is your participation in this year's fast really dependent upon know whether or not the Fed cements the December test stress capital buffer as the new stress capital buffer versus from the June test?

Ren?? Jones

This combination doesn't affect our thought process about the shear stress test. No, as part of the application, we'll go through. And we'll prepare a combined stress test that we'll be looking at the two organizations, obviously, stand alone. And then combine them what that means. And as we through the next little while, we'll determine whether or not we choose to participate this year, it will finalize that decision yet. But if that decision is by no means linked to this merger.

Darren King

But I would say it is helpful that again, as getting prepared for things there is a stress test infrastructure at people. So we're able to kind of see their work, their governance, and what they're thinking around stress in their portfolio. So that is helpful.

Erica Carrion

Thanks.

Operator

Next question comes from Mike Mayo from Wells Fargo. Your line is open. Please go ahead.

Mike Mayo

Rene, if you could help me reconcile two competing thoughts. On the one hand, you know, clear positive is the improved density in New England. And I just checked Google Maps, it's a seven hour drive, either from Baltimore to Boston, Baltimore to Buffalo, or Buffalo to Boston. So you've made the point about 300 miles from the middle of your, I guess, triangle, so to speak. So that density certainly can help and that's a positive. On the other hand, the negative I think, is that people's has a much slower growth footprint in terms of expected population growth. And it's even less than the existing M&T footprint. So can you help me? You know, I guess I'm thinking I'd rather be in Florida than Connecticut right now. Maybe it's because it's so cold and here in the northeast? Can you help me reconcile? Like, when you think of these acquisitions density versus your growth markets, how do you reconcile that? And of all the banks out there M&T, I mean, over the last 30 years, slow growth Buffalo, and you've had long term success. But does that still apply in today's world? Thanks.

Darren King

Thanks, Mike, a great question. And I'm really glad that you asked Florida because you won't be competing with us in New England. So I think you kind of said it, we have this long history of being focused on small towns, mid-tier cities, across our footprint. And I think what tends to get missed is that by having dominant local share, it produces outside ability to be close to your customer, it increases the value proposition between the bank and the customer. And it obviously, our results and excess rents for higher return. And interesting enough, when you think about the basics of banking, I think what happens is because we're so close to those customers in those small towns, we end up being more important to them, so we get their operating accounts. And you know, as competitors, you know, move to warmer weather places where there's growth doesn't always mean that it's higher returns an excess rents that you can achieve.

I think the other way to say it is that no matter where we are, regardless of whether the population is growing, those are the communities that actually need financing, and a bank the most. And it's really hard for people to understand. But the last thing that comes with that is stability. And in 2005, I remember when I became the CFO, all the analysts would ask me, why don't you just double down on Baltimore, and get rid of Buffalo. When we went through the financial crisis, there was nothing more rock solid in Buffalo, and the people that you bank there, and that that stability extends to your franchise, and as you know, most of our expansions have come in difficult times in the economy. So I think we like our model, although banking is not a growth industry, we believe that you can actually do it the right way you can get significant growth over time. This represents a realization of that.

Mike Mayo

All right, that's crystal clear. One follow up; this is the first announcement for a deal in nine years. So I guess why now and what's the impact on M&T tech investments, including the tech campus in the Buffalo market will remain there going forward. And one of your competitors said the main reason for their merger was tech. Is that the main reason for this merger or how would you frame that?

Ren?? Jones

I say no, it's not the main reason. You know, step back to the earlier question. You know, we spent a fair amount of time building our risk infrastructure. I've been in this role for three years, and it was really important for us to revisit our competitiveness, how nimble we could be, which part of the results that was the tech hub, and the new ways of working. So, we've invested a lot in sort of becoming faster, more nimble, think PPP in our ability to flip that on and become one of the largest lenders in America even though we're in a smaller footprint. And then that resulted in the ability and the thought process of how do you leverage that. So, it's really, really clear that it's difficult at some point, because you need a modern infrastructure to be able to have better customer experiences and meet the needs and improve the quality of lives of your customers. So, what's really great about this particular transaction is just -- I'll say it again, we said it a couple times, but Jack Barnes and his team know their customers. So now, we're able to seamlessly export everything that we do in the tech hub, everything that we do around customer journeys and the service to those customers without an increased investment.

Darren King

Ren??, I might just pick up on some of the conversations. We talked a lot about local scale and the importance of that and the stability of these geographies. That gives us the platform to pick our spots in other places. And one of the things we try to do through time is choose where we compete in geography, in customer base, in asset class. And so, we've got those core markets that we're operating in, the so-called 'low-growth' ones. We love them. But then we've got some of these larger MSAs where we could pick our spots and choose to play and we found even in larger MSAs our brand of banking is valued. And then we've got some specialty businesses that we have in that the People's United brings to the table that also provides some of that opportunity to grow. And so, we like the combination of how the local deposits and the stability of them set you up to do those other things. And then just on the investments, to Ren??'s point, when you look at the people's operating platform with the exception of a few specialty businesses that run on their own tech platform. Everything else is coming on to existing M&T. And so, all the investments that we've made are completely scalable onto those platforms and every investment that we make in those on a go-forward basis is now leverageable across just a bigger, larger customer base. So, I think it makes it makes a ton of sense.

Ren?? Jones

I have to add one more thing. I don't want to belabor the point. But, when Jack and I were having discussion about whether this may have made sense or not, one of the things that we both saw was that this creates multiple paths to achieving a scale presence in all of the key New England markets. It's the fastest path for either one of us to gain share over time. And that was one of the things that was really compelling.

Operator

Your next question comes from Gerard Cassidy from RBC. Your line is open, please go ahead.

Gerard Cassidy

Hi, Ren??. Hi, Darren.

Darren King

Hi, Gerard.

Ren?? Jones

Good morning, Gerard.

Gerard Cassidy

Congratulations. Darren, can you share with us what kind of interest rate assumptions are you guys using to make the marks that you took in this deal through the end of the year? And whether it's long-term interest rates or short-term interest rates? And what if the long-term interest rates go up higher than your assumptions, what kind of changes does that do to the marks?

Darren King

Yes, Gerard, when we put the two banks together and we look at the loan portfolios and the security portfolio, we look at the forward curves and only kind of look at where they are and have been for leading into the due diligence discussions and then through them. And as much as possible, what we try to do is put the two banks on equal footing from a from a recurve perspective. And when you go through those and you look at where things are right now, obviously that led to the marks that we've talked about today. If rates go up, the impact on the marks will be a little bit less-positive by the time we close and it could bring the tangible book value closer to neutral as opposed to slightly accretive. But keep in mind that the offset happens on the other side. So if the marks are less-positive, then the offset we will increase EPS accretion, because you won't have the amortization on the other side. And so, it might affect the IRR slightly, but overall, when we look at it, we sort of look at the tangible book value position that will end up in the earnings accretion will end up in the IRR. And so, go take a look at the numbers around a little bit, but they don't materially change the positive financial aspects of this combination.

Operator

Your next question comes from Matt O'Connor from Deutsche Bank. Your line is open, please go ahead.

Matt O'Connor

Good morning.

Ren?? Jones

Good morning, Matt.

Matt O'Connor

A couple of follow up questions. So now do you think kind of post-integration you'll be bigger, you'll be more diversified? What capital level do you think you can run at historically? You've talked about this kind of 10% CET lines if you still offer to focus on TCE, but how are you thinking about capital longer term?

Darren King

Yes, I guess our thought process on capital really hasn't changed and doesn't change. We think about the bank and making sure it's well-funded and well-capitalized and in a position to support the growth. We always try to invest first in the franchise and then in the customers and supporting on growth. And then looking at opportunities. As Ren?? mentioned a few minutes ago, just looking at this opportunity, and the investments that we can see in growing in the New England markets by adding bankers and with them, obviously, customers will be a use of capital. And if we don't find places to make those investments then we'll look to distribute it as we always have through dividends that are well-managed, and a reasonable percentage of earnings and through buybacks. And that philosophy we think it served us well in the past and will continue to in the future.

Ren?? Jones

I would just add. The other thing is -- it's not static question. Right? So even today, our capital levels where they are today, it's really just simply a reflection of the pandemic -- looking at portfolios, being conservative, which you're required to do and as economic environments change, they become more stable, but the answer is going to be different. So, I hope that helps.

Operator

Next question comes from Brian Klock from Keefe, Bruyette & Woods. Your line is open, please go ahead.

Brian Klock

Thank you, and good morning, Ren??, Darren and Don. Congratulations.

Darren King

Thanks, Brian. Good morning.

Brian Klock

On Slide 18, where you give some of the pro forma operating income numbers. Darren, I guess I'm just wondering, can you describe or discuss what that transitional transaction adjustment is to the People's consensus number?

Darren King

Yes, sure. As we go through 2022 and we think about how the merger, integration will work. It's been our experience that in those time periods, we asked the customer facing folks to focus more on retention of the existing client base and the growth. And we're also expecting that we will do some, repositioning and remixing of the People's balance sheet, moving out of some lower yielding, earning assets and some higher cost deposits and the combination of those things will lead to a little bit of a slowdown in asset growth compared to -- and earning balances compared to what might be in consensus than People's in standalone. And so, it's really just that stuff going on in that time period. And obviously, what we do because of who we are and how we think about things, we look at that in the most conservative way that the timing on those things could turn out different than what we've modeled. And if they did, there's probably a little bit of room to the upside there.

Operator

We'll take our final question from Peter Winter from Wedbush Securities. Your line is open, please go ahead.

Peter Winter

Great. Good morning. Congrats also on the deal. Darren, I just wanted to follow up on an earlier question on the EPS accretion on Slide 6. Can you just clarify the point about what drives the EPS accretion in 2023 of 10% to 12% versus the 7% to 8%, which has the fully phased-in cost savings? What's the difference?

Darren King

The difference between them is the timing. If you think about the -- we talked about the conversion, or the closing at the end of this year and the system's conversion being in the first quarter of 2022, so once you make that change to the systems and you get them stabilized, that you start to have those costs come out. And so, what we're trying to show there is that what we think will actually happen in 2022 is that's like the gap number of what those cost savings would lead to in terms of accretion. If you had the full year of those cost savings, you would bump up to that higher number. And then the math of timing in 2023, of having the full-year and the growth in those savings, basically to think of it as the fourth quarter run rate that goes into 2023, that's kind of the progression there and what the numbers are.

Operator

[Technical Difficulty] I will now turn the program back over to Don for any additional [Technical Difficulty].

Don MacLeod

Again, thank you all for participating today. And as always, if any clarification of any of the items on the call or the news releases necessary, please contact our Investor Relations department at 716-842-5138. Thank you and goodbye.

Operator

That concludes today's program. Thank you for your participation. You may disconnect at any time.