M&T Bank Corporation

Welcome to the M&T Bank fourth quarter and four-year 2024 earnings conference call. All lines have been placed on listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star, then the number one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. When posing your question, we ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance, please press star zero. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brian Klock, Head of Corporate Development and Investor Relations. Please go ahead.

Thank you, Todd, and good morning. I'd like to thank everyone for participating in M&T's fourth quarter 2024 earnings conference call, both by telephone and through the webcast. If you have not read the earnings release we issued this morning, you may access it along with the financial tables and schedules by going to our website, www.mtb.com. Once there, you can click on the investor relations link and then on the events and presentations link. Closed captioning has also been provided for webcast participants. Also, before we start, I'd like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information are included in today's earnings release materials and in the investor presentation, as well as our SEC filings and other investor materials. The presentation also includes non-GAAP financial measures as identified in the earnings release and in the investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning is M&T's Senior Executive Vice President and CFO, Darryl Vival. Now I'd like to turn the call over to Darryl.

Thank you, Brian, and good morning, everyone. First, I'd like to begin with our purpose on slide three. M&T's success continues to be driven by our purpose, making a difference in people's lives. We do this by not only empowering our customers to meet their financial needs, but by supporting the communities where we live and work. As M&T continues to grow, we remain committed to a relationship-based model. We believe our unique knowledge of customers, capital, and community allows us to deliver customized solutions that make an impact. In 2024, this impact was evident across the footprint. In addition to the positive social, environmental, and governance accomplishments highlighted on slide four, This December, M&T issued our first sustainability bond in conjunction with the publication of our sustainability financing framework, which will guide future issuances. As highlighted on slide five, M&T continues to garner awards for the work in 2024, including recognition from industry of our talent achievements and local charitable efforts. Now let's turn to slides seven and eight. Before we get into the fourth quarter, I want to pause and reflect on some of the highlights for 2024. First, I want to take a moment to recognize the hard work and dedication of our 22,000 colleagues who allowed us to have such a successful year. In 2024, we focused on four priorities, including building our New England and Long Island markets, optimizing our resources through simplification, making our systems and processes resilient and scalable, and continuing to develop and scale our risk management. The progress we made on these priorities and related enterprise initiatives will allow the bank to continue to grow and scale in coming years. Our focus on fundamentals is reflected in several of our financial accomplishments in 2024. We executed our financial plan for the year and the results met or exceeded the outlook we discussed last January for NII, fee income, expenses, and average loans and deposits. We made significant progress on our CRE concentration, reaching what we believe is a target level. Our capital levels continue to grow through the year and remain strong as we restarted our share repurchase program in the third quarter. We actively managed our interest rate sensitivity through our hedging program and securities portfolio to shift our balance sheet toward a more rate-neutral position. We manage credit risk, meaningfully reducing non-accrual and commercial-criticized balances and having net charge-offs come in largely in line with our expectations. This focus on the fundamentals positions M&T for 2025 and beyond and is reflected in our 2024 results with net operating earnings per share of $14.88, ROTA and ROTCE of 1.3% and 14.54%, and 11% growth in tangible book value per share. Turn to slide 9, which shows the results for the fourth quarter. Our fourth quarter results reflect the continuation of a strong performance we have through the year. There are several successes to highlight. NII was largely stable compared to the third quarter, even considering 100 basis points in rate cuts since the start of the easing cycle in September. Average total loans grew for the fifth consecutive quarter, demonstrating our ability to more than offset the planned reduction in our CRE concentration. Average total deposits grew by over $3 billion sequentially, while interest-bearing deposit costs declined 24 basis points reflecting the quality of our deposit franchise. We executed $200 million in share repurchases and grew CET1 ratio to 11.67%. Fee income, excluding notable items, reached another high point for the fourth quarter, aided by the strength in mortgage and trust. Asset quality continued to improve, with a $1 billion reduction in commercial criticized loans and $236 million reduction in non-accrual loans. Now let's look at the specifics for the fourth quarter. The alluded earnings per share were $3.86, down from $4.02 in the prior quarter. Net income for the quarter was $681 million, compared to $721 million in the linked quarter. M&T's fourth quarter results produced an ROA and ROCE of 1.28%, and 9.75% respectively. BET-1 ratio remained strong, growing to 11.67% at the end of the fourth quarter, and tangible book value per share grew 1%. The fourth quarter included several notable items. A securities gain of $18 million, or $0.08 per share, related to the sale of non-core investments. Expense associated with redemption of certain M&T trust preferred obligations amounting to $20 million or $0.09 per share. This action has a three-year earn-back. Corporate real estate optimization related to expenses amounting to $27 million or $0.12 per share and a pension-related credit within expenses amounting to $12 million or $0.05 per share benefit. Slide 10 includes supplemental reporting of M&T's results on net operating for a tangible basis. M&T's net operating income from the fourth quarter was $691 million, compared to $731 million in the linked quarter. The alluded net operating earnings per share were $3.92 for the recent quarter, down from $4.08 in the prior quarter. Net operating income yielded an ROTA and ROTCE of 1.35 percent and 14.66 percent for the recent quarter. Next, we look a little deeper into the underlying trends that generated our fourth quarter results. Please turn to slide 11. Taxable equivalent net interest income was $1.74 billion, largely unchanged from the linked quarter. NII for the fourth quarter was $25 million in non-accrual interest compared to $12 million in the third quarter. The net interest margin was 3.58%, a decrease of four basis points from the prior quarter. And the primary drivers of a decrease to the margin were a negative 10 basis points related to lower contribution of free funds, partially offset by a positive three basis points from the fixed asset fixed-rate asset repricing, and a positive three basis points from higher non-accrual interest. Turn to slide 13 to talk about average loans. Average loans and leases increased $1 billion to $135.7 billion. CNI and consumer growth continued to outpace the decline in CRE, similar to the trend in the past several quarters. CNI loans grew 2 percent to $60.7 billion, driven by strength in dealer commercial services, fund banking, and corporate and institutional. CRE loans declined 4% to $27.9 billion. CRE as a percent of Tier 1 capital and the allowance is estimated to be 136% at the end of the fourth quarter. Residential mortgage loans were relatively unchanged at $23.1 billion. Consumer loans grew 5% to $24 billion, reflecting increases in recreational finance and indirect auto loans. loan yields decreased 21 basis points to 6.17% as lower rates on variable loans were partially offset by fixed rate loan repricing, a smaller drag related to cash flow hedges, and higher non-accrual interest. Turning to slide 14, our liquidity remains strong. At the end of the fourth quarter, investment securities and cash, including cash held at the Fed totaled $54.8 billion, representing 26% of total assets. Average investment securities increased $2.7 billion. The yield on investment securities increased 18 basis points to 3.88%, as the yield on new purchases exceeded the yield on maturing securities. In the fourth quarter, we purchased over $3.3 billion in securities at an average rate of 4.96%. The duration of the investment portfolio at the end of the quarter was 3.7 years, and the unrealized pre-tax loss on the available-for-sale portfolio was $205 million, or 10 basis points ET1 drag, if included in regulatory capital. Turning to slide 15, we remain focused on growing customer deposits and saw a solid deposit growth in the fourth quarter. Average total deposits rose 3.1 billion, or 2%, to 164.6 billion, reflecting 2.6 billion increase in non-broker deposits. Deposit growth was concentrated in commercial, business banking, and institutional services, while consumer deposits declined, reflecting lower time deposit balances. Average non-interest-bearing deposits rose 0.4 billion to 46.5 billion, primarily related to trust-demand deposits within our institutional services segment. Non-interest-bearing deposits were largely stable in our other segments. Excluding broker deposits, the average non-interest-bearing deposit mix in the fourth quarter was 30.4%. Interest-bearing deposit costs decreased 24 basis points to 2.64%. Continuing on slide 16, Non-interest income was $657 million compared to $606 million in the linked quarter. Trust income increased $5 million to $175 million from higher sales and fees in corporate trusts and agency services. Mortgage banking revenues were $117 million compared to $109 million in the third quarter. Commercial mortgage banking revenues were the main driver, increasing $7 million in from the link quarter to $41 million, reflecting higher gains on the sale of commercial mortgage loans. Other revenues from operation increased $24 million to $176 million from a $23 million distribution from M&T's investment in DLG and strong syndication and other loan and letter of credit fees, which increased $5 million. Security gains of $18 million, mostly reflect the realized gains on the sale of non-core investments. Turning to slide 17, non-interest expenses were $1.36 billion, an increase of $60 million from the prior quarter. Salaries and benefits increased $15 million to $790 million, inclusive of higher incentive compensation. Equipment and occupancy increased $8 million to $133 million from our new data center starting to come online. Other costs from operations increased $40 million to $168 million, reflecting the redemption of certain M&T trust preferred obligations and expenses associated with corporate real estate optimization, partially offset by pension-related credit. The efficiency ratio was 56.8% compared to 55% in the third quarter. On an adjusted basis, when excluding notable items, the efficiency ratio was 55.3%. Next, let's turn to slide 18 for credit. Net interest charge-offs for the quarter totaled 160 million or 47 basis points, up from 35 basis points in the linked quarter. The two largest charge-offs totaled 34 million and more C&I loans in unrelated industries, one a marine dealer and the other in manufacturing. Overall, CRE-related charge-offs remain modest. Net charge-offs for the full year were 41 basis points, which is in line with our expectations. Non-accrual loans decreased $236 million, or 12%, to $1.7 billion. Non-accrual ratio decreased 17 basis points to 1.25%, driven largely by upgrades out of non-accrual as well as payoffs and charge-offs. In the fourth quarter, we recorded a provision of $140 million compared to net charge-offs of $160 million. The allowance to loan ratio decreased one basis point to 1.61%, partially related to the reduction in criticized loans, including those in non-accrual status. Please turn to slide 19. When we file our 10-K in February, we estimate that the level of criticized loans to be $9.9 billion compared to $10.9 billion at the end of September. The improvement from the link quarter was driven by a $302 million decline in CNI and $691 million decline in CRE-criticized balances. Within CNI, the decline in criticized was concentrated in services, health services, and dealer segments. The CRE-criticized decline was primarily within office, retail, outpatient, hotel, and construction. Improved cash flows in many of the portfolios that were impacted by COVID, namely healthcare, hotel, and retail, and active refinance markets helped drive the improvement in CRE criticized. Turning to slide 22 for capital. M&T's CET1 ratio at the end of the fourth quarter was an estimated 11.67% compared to 11.54% at the end of the third quarter. The increase was due to continued strong earnings, net of $200 million in share repurchases. At the end of the year, the negative AOCI impact in the CET1 ratio from the Available for Sale portfolio and the pension-related components combined would be approximately four basis points. Now, let's turn into slide 24 for Outlook. Let's begin with the economic backdrop. Economy again remained resilient to the end of the year. We estimate GDP growth will come in at 2.8% for 2024 once the fourth quarter data is published. Consumer spending remains solid, though we know challenges for some segments reflected by increasing credit delinquency. The labor market remained sturdy in the fourth quarter, while job growth and wage growth growth supportive of consumer spending and continued economic expansion. We continue to see a soft landing as a most likely outcome for the U.S. economy. Inflation ticked up a bit in the fourth quarter, but we expect it will deaccelerate going forward. With the economic backdrop, let's review our net interest income outlook. We expect the tangible equivalent net interest income to be $7.1 to $7.2 billion with the net interest margin increasing through the year and averaging in the mid-360s. Our interest rate sensitivity remains relatively neutral, aided by the balance sheet actions we took in 2024, including adding forward-starting hedges and building our securities portfolio. However, shifts in the shape of the yield curve will drive variability in the NII outlook. We expect full-year average loan and lease balances to be 137 to 139 billion. This reflects continued growth in CNI and consumer with more modest growth in residential mortgages. Full-year average commercial real estate balances are expected to decline in 2024, but we expect the balances to grow modestly in the second half of the year as we build the pipeline and begin to offset payoffs and paydowns with new originations. Full-year average deposit balances are expected to be $164 to $166 billion. We remain focused on growing customer deposits at a reasonable cost and expect to reduce our reliance on non-customer funding sources. Turning to fee income, we expect non-interest income Continued growth in non-interest income is driven by growth in our core businesses, which we expect will drive higher revenues in mortgage banking, merchant, trust, and service charges. Additional mortgage self-servicing, which is included in our outlook, adds to our ongoing growth. The interest rate environment remains dynamic. However, our diversified product set should help provide relative stability from our fee income businesses. Continuing with expenses, we anticipate total non-interest expense, including intangible amortization, to be 5.4 to 5.5 billion. The outlook includes our first quarter seasonal salary and benefit increase, which is estimated to be 110 million. Also included in the outlook is approximately 43 million for intangible amortization. Our business lines remain focused on closely managing their expenses, allowing the bank to make targeted investments in projects and business opportunities that support our enterprise priorities. Regarding credit, we expect net charge-offs for the full year to again be near 40 basis points, with continued normalization in the consumer portfolio and improvements in commercial credit costs. We expect taxable equivalent tax rate to be approximately 24.5%. As it relates to capital, we expect to reach 11% CET1 ratio in 2025. With our 11.67% CET1 ratio at the end of 2024 and the expectation for continued strong capital generation, quarterly share repurchases are expected to be higher than the third and fourth quarter of 2024. In 2025, we remain committed to our four priorities, including growing our New England and Long Island markets, optimizing resources through simplification, making our systems resilient and scalable, and continuing to scale and develop our risk management capabilities. Continued progress and completion of these priorities will enable the bank to continue to grow in the future, both organically and inorganically. To conclude on slide 25, Our results underscore an optimistic investment thesis. M&T has always been a purpose-driven organization with a successful business model that benefits all stakeholders, including shareholders. We have a long track record of credit outperforming through all economic cycles while growing within the markets we serve. We remain focused on shareholder returns and consistent dividend growth. And finally, we are a disciplined acquirer and prudent steward of shareholder capital. Now let's open the call to questions before which Todd will briefly review the instructions.

The floor is now open for your questions. If you would like to ask a question at this time, please press star then the number 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. As a reminder, we ask that you please pick up your handset to allow for optimal sound quality. Again, that's star 1. to ask a question. Our first question will come from Manan Gosalia with Morgan Stanley. Please go ahead. Hi, good morning.

Good morning, Manan.

Daryl, can you unpack your comments on capital and buybacks? I think you've said previously that you can stay above an 11% CET1 ratio and do about $2 billion in buybacks. I don't know if I should be reading too much into the tilde 11% guide on CET1. Does that imply you could do more than $2 billion this year and bring that capital ratio down from 11.7%?

We feel comfortable that we can basically operate our company at 11% where we are today and what the economy looks like and all that. Our plans are to bring our ratios down throughout the year. We'll be opportunistic from that, but it's also going to be driven by our RWA growth, how much our loan growth is and all that. We aren't going to push and make loans that don't make sense. We're going to do what we always do, serve our customers and communities. But it's fluid right now, whether we're going to have a strong loan growth in 25 or something maybe not as strong. So we'll have a lot of flexibility there to do that, but You know, if the plan came out, you know, and we actually hit our plan that we expect for 25, you know, we'd probably do a little bit over $2 billion with that loan growth. If we have less loan growth, we'll do more share repurchase. If we have more loan growth, we'll do less share repurchase.

Great. Very clear. Thank you. And on criticized loans that were done nicely, about $1 billion. The question is, what is driving that the most right now? And what matters most for that to continue to come down in 2025? Is it the short end, the long end? Is it getting updated financials from your borrowers and the upgrades that come from that? What's most important from here?

Yeah, so for the fourth quarter, what really drove it was If you remember, the yield curve really dropped in August, September timeframe, and we were able to get a lot of placements with a lot of our customers through our RCC business. So the highest percentage of reduction in our criticized balances was basically full payoffs. The next largest high was upgrades. So we still have a lot of businesses still curing and getting better. We talked about it in prepared remarks. Some of the COVID industries that were impacted now have much stronger P&Ls, and that's impacting. And then finally, we did have some partial paydowns and some charge-offs. But the biggest driver was the yield curve. Now, as you look into 2025, right now the yield curve is a lot steeper than it was back at the end of the third quarter. So if it stays in that neighborhood, and we're up 90-plus basis points, or probably have less loans being cured by permanent placements from that perspective. So I think some of the curing and the criticize might slow down a bit. The pace of the Fed reductions, you know, right now it's one or two reductions in 2025. That really helps our C&I portfolio, mainly in the leveraged lending area. And if that continues to come down more than that, that would be more positive. So we still expect to have improvement in our criticized commercial loans, but from what we see today based upon the projections of the Fed and based upon where the yield curve is today, we'll have a much more modest reduction than what we had in 2024. But the good news is we got basically out of a lot of credits that were higher risk, and our criticized balances that we have left on the books right now are a better quality So we feel really good at where we are.

So it sounds like from a credit perspective, from a charge-off perspective, your outlook hasn't really changed. And I know in the past you've said that you've been a lot more punitive on classifying those criticized loans. So as the base of importance of decline in the criticized loan slows, does that change how you're thinking about the actual impact of the income statement from the credit of the portfolio, or is that still pretty much in line with how you thought about it before?

Yeah, so from a charge-off perspective, I know that's not, you know, through the income statement, you know, our retail consumer portfolios are normalizing, so we think that's going to be a little bit higher than what it was in 24, but we believe that our commercial credits, both CNI and CRE, will continue to come down in net charge-offs. Now, from a provision perspective, I think provision-wise, we feel really good at our current allowance levels. And when you look at what we could see in the future, we would expect allowance levels to basically, based upon the growth that we have in loans, coupled with the economic conditions that basically impact these industries. Right now, the economic conditions and what we're seeing from the models and the projections are pretty tame, but we're having some long growth, so we're providing to it from that perspective. Depending on long growth, we'll provide more on day one. If we have less long growth, we'll have less provision.

Great. Thank you.

Thank you. Our next question will come from Bill Carcacci with Wolf Research. Please go ahead.

Thanks. Good morning, Daryl. Good morning. I wanted to start off on the progress you've made in reducing your CRE exposure. It's been well reflected in your declining stress capital buffer, but as you reflect on that improvement, what's been the response from the client side? you're there for them, but have they noticed a difference as you've actively taken that concentration ratio from 136% down to 136 from 183?

I would say Peter Darcy and his team have done a tremendous job really managing through what we've been going through the last couple of years. We have been basically doing some replacements with some of our customers. We did a few sales as well over the last couple of years. But those have been more what I would call non-core customer-related relationships for the most part. So our core customer base is still intact. Even though we weren't really lending much in CRE over the last couple of years, they now know that the pipeline is open and we're now working with them. If you actually look at the pipeline in CRE, we have about $1.5 billion in pipeline now. there, which is starting to build, which is nice. But I say overall, I think our core customers are still very loyal and support M&T. And the ones that haven't been supportive of their credits or were more financial oriented were the ones that we kind of were more aggressive on trying to put them out of the bank.

As a follow-up on your earlier credit comments, Darrell, could you frame stress in the portfolio if we were to get no more cuts from here versus two to three more? Is it going to be enough relief for some of your borrowers if we didn't get any more cuts from here?

Obviously, if rates stay where they are, there will be some stress in the system. We still are concerned with office, but office is going to play out over a longer time period. We had a nice reduction in our office criticized this quarter, but that doesn't remove all the risks that you have out there. But the fundamentals are still really getting better. Our construction book seems to be on track, doing really well. Our other parts of CRE, if you look at it from a hotel, retail, multifamily basis, all seem to be performing well and as expected. So I'm not going to say we aren't going to have any more increases to criticized or no more charge-offs. But from what we see today and what we've basically were able to move off the balance sheet already, we think a much better criticized book that we have and it will have less of an impact moving forward on our financials.

If I could squeeze in one last one. Your comments on capital return are very clear and the relationship between whether we get faster or slower, loan growth being a driver of the level of a buyback. But if we did get any kind of acceleration in loan growth, how much of that would you expect to drop to the bottom line and ultimately drive greater positive operating leverage versus the level that you'd look to reinvest in the business?

I'm basically just going to tell you, we're going to basically be at 11% CET1 ratio. It's going to be driven by our RWA growth And depending on that, we'll determine how many share repurchases we do this year.

Very helpful. Thanks for taking my questions, Daryl.

Thank you.

Thank you. Our next question will come from Ibrahim Poonawalla with Bank of America. Please go ahead.

Hey, good morning. Good morning. I guess a couple of follow-up questions. When we think about the margin outlook and your margin guidance, If we don't see any move from the Fed and if you can remove loan growth, how do you think the trajectory of the NIM plays itself out from here? Should we think about it as the back book repricing should continue to be a tailwind and deposit costs are stable to lower or is that not the right framework in how to think about what NIM would do in a static balance sheet?

Yeah, so high level, Ibrahim, we feel pretty good that our net excess margin should continue to increase throughout 2025. If you look at where we are and what makes us say that, you know, when you look at our received swap portfolio, we already have locked in and it's going to increase. If you start with the fourth quarter of 2024 and look at the fourth quarter of 2025, we have over a 50 basis point increase in that book, and that's a given. If you look at our fixed rate repricing assets on the asset side of the balance sheet, the investment portfolio, consumer loans, and residential mortgage loans, it's going to be dependent on what the shape of the curve is there. But I feel pretty good that the investment portfolio from point to point, from fourth quarter to fourth quarter, should be up 20 to 25, 30 basis points depending on the shape of the curve. Consumer loans, and residential mortgage loans up maybe 10 to 20 basis points over that time period. So that's all really good. You look at the other side of the balance sheet. We ran our models with two Fed cuts out there. So these are really driven by Fed actions. We still believe that we will have good repricing going down in our non-maturity deposits. Successfully, we think our deposit paydays will reach 50%. In 2025, time deposits will have almost 100 basis point improvement point to point in that cost, which is really positive. And wholesale funds will also have a nice large improvement. So I feel pretty good with the trends that we see and this projectory of where our net interest margin is going to go. But a lot depends on the shape of the curve. And you saw yesterday, there's a big move back down on all that. So it's a volatile environment. But we're really neutral from a short end perspective, from a Fed move, and really just really looking at the longer end. But, you know, truly trying to manage through and do things that make sense for our balance sheet and our customers.

That's helpful. And this is a separate question on the four priorities you lay out on slide 23. As we think about the expense outlook for this year, you have some larger tech projects going on. Does that set the stage for sort of lower expenses, more efficiencies? over the next few years? Or do you think the level of investment spend is likely to continue for the medium term as we think about where efficiency ratio or OPLIB are headed?

Yeah, so when you look at our expenses, you know, first I want to just thank all my colleagues in the company. You know, we had 2024 and, you know, we spent, you know, a fair amount of money on some significant projects. We're doing the same thing again in 2025. But we're very disciplined here and doing what's best for the corporate good of the company. So I really appreciate everybody taking that sentiment and doing that. When I look at 2025 and beyond, right now we have six, I would say, major investments going on in the company. Out of those six investments, I call three of them as really big investments that will happen once every several decades. So if you look at cloud and data center, there have been three new data centers. You don't do that very often. That's probably every 10 to 20 years. We're putting in a new general ledger system, a financial system. That's also probably every 10 or 20 years. From a commercial perspective, we're really close to finishing up our corporate services and fulfillment of how we manage risk in that area, still working on commercial services. But once we get that done and completed, that won't get changed probably for another decade or so.

So those are

really big investments, but once we get them done, I think those will fall off. I think you have other investments that we're making as well at the same time as we invest in data analytics. We're always going to be investing in data analytics. That's just core to the customers, how we serve our customers and all that. That is critical of what we do. Our digital is basically table stakes. We have to continue to improve and offer really good digital services and all that, so that's good. Treasury management, and other things that support our clients are things we will continue to invest in over time. So what I look at it is we've got a big hump we're going through right now with some major projects, and there's other projects we're also doing at the same time that will probably linger on into the expense run rate.

Thank you for taking my questions.

Thank you.

Thank you. Our next question will come from Gerard Cassidy with RBC. Please go ahead.

Good, thanks. I'd like you to see if you could frame out for us the expansion. You talked about the focus on New England and Long Island. Through organic growth, how long do you think it will take you to get to the levels or the contribution to the consolidated numbers that you've targeted for these areas? In saying that, how big do you think they could get as a percentage of the total pie? What's the ideal kind of exposure?

Yeah, well, Gerard, what I would look at is what we had in Baltimore. We got into the Baltimore market with the all-first transaction about 20 years ago. And if you look at that and where we are today 20 years later, we're a dominant player in the city of Baltimore. So our plans are to be very similar to that in the markets in New England. You know, whether it takes 20 years or whether it's something shorter, that really depends on if we have inorganic growth in those periods. But right now, you know, we're increasing our business bankers, we're increasing commercial lenders, increasing wealth managers, and people are starting to notice us there. We actually were one of the larger players in SBA in 2024, even with a really small branch distribution. So we're having an impact, but I think our impact will continue to increase and grow as we continue to put more investments there. And then if we have opportunities at some point to do inorganic, that will just speed up the process there as well.

Very good. And then obviously you've got some great years of experience and you've seen how regulatory changes have taken place over the years. Any thoughts on what to expect? As we all know, with the incoming administration, there will be a new controller of the currency, new head of the FDIC, as well as the Consumer Financial Protection Bureau. And then the big news, in my view at least, was the resignation of the vice chair of safety and soundness at the Fed. Any thoughts or comments on the way you guys are looking at all of this?

Yeah, Gerard, I think we're very optimistic. I think we're hopeful that the new administration puts people in place that basically are more balanced, really focus on their true risks of the industry. You look at Governor Bowman's speech that she gave last week in California. Her priorities that she believes right now is prioritizing safety and soundness risks, which is really critical and important. Committing to tailoring still making sure that happens, and also making sure we have increased transparency, you know, throughout the industry and how things are done, specifically stress testing, but other things there. So, you know, I think if, you know, at M&T, you know, we have our fundamentals of how we run the company very, very much aligned with that type of thinking, you know, and we think, you know, you can run a really good, successful bank if you just focus on the fundamentals. And that's what we try to do each and every day, and we think that's really important. So we're optimistic and feel really good about it, and we'll just see what happens when the president gets in office Monday and starts making some decisions on regulatory people in these spots.

Great.

Appreciate the color. Thank you, Daryl. Thanks.

Thank you. Our next question will come from John Pancari with Evercore. Please go ahead. Morning, Darrell.

Morning, John. Just on credit, if I could just go back to that, I appreciate the color you gave on that front. Just based upon your outlook, if credit trends play out, as you had noted, you expect a bit more stress in office, but some improvement elsewhere. Do you expect that you could see continued reserve releases through 2025? I know you're The reserve declined about a bit this quarter, very modest, but could you expect continued release if credit plays out as you had described?

We definitely believe from a commercial CRE perspective, as things continue to improve and we have less criticized loans, less non-accrual loans out there, that you're going to see improvement in the allowance. On the other end, though, we are changing the mix of our loan portfolio. And that mix of the loan portfolio has more consumer assets associated to it. But those consumer assets with that, you know, has a little bit higher allowance numbers. And we're really basically building, you know, a very diversified balance sheet, diversified revenue stream from that perspective. So, you know, I'm not going to say we can definitely release a lot of allowance because of that mix change that's happening. But I think within that mix change, you're seeing the commercial side of it definitely improving it better. But on the consumer side, we get paid for these higher yields and higher returns that we're going to receive on that. So it makes sense all in all in the long run.

Okay. Thank you. And then just separately, back to the capital and M&A topic. I know you did mention that when you're looking at your markets of interest and broader expansion, that inorganic would be an opportunity to speed up the process as you look at your markets. Could you maybe just give us a more broadly your view, your updated view on whole bank deals, particularly given the evolving regulatory backdrop that you just mentioned in terms of the upcoming Trump administration? Thanks.

Yeah, you know, I think we're optimistic. We'll see what happens, you know, when people get into the seats. And I think for us, we are really focused on our four priorities. You know, and I firmly believe as we execute on these priorities, you know, and we get things accomplished, you know, people will want us to actually be more important or grow into other markets. I think we'll have basically people pushing us or pulling us into those markets, and there will be demand for an M&T bank. When you look at M&T, where I kind of think of us kind of more as in the sweet spot. You have smaller banks in many of the markets that are also community oriented, but they don't have the platform or the scale to really offer what we can offer over, you know, the time period and what we do, how we go to market. And then you have the bigger banks. Bigger banks, while they have the scale and the products and services, they tend to be more line of business oriented. And We feel M&T, being community bank oriented, is really a great fit for the New England markets. We think that's a great bank there, and we'll have a lot of success in how that actually plays out. So we're excited to continue to grow, and we actually believe the markets will basically push us into those other markets to make us be successful.

Got it. All right. Thanks, Daryl.

Thank you. Our next question will come from Peter Winter with DA Davidson. Please go ahead.

Good morning. Carol, can you talk about borrower sentiment today in terms of loan demand and what you think it'll take to get them to be more aggressive in terms of demand?

Yeah, so if you look from a borrower perspective, what we're seeing right now in the marketplace is kind of a mixed bag. to be honest with you. If you look at our specialty businesses that we have and look specifically like in corporate institutional fund banking, dealer financial services, all those seem to be pretty robust and going very strong. If you look at our middle market businesses that we have throughout our footprint, not as much so there. It tends to be a little bit more soft. I think waiting for more certainly to come out from the administration and how things play out. You know, when you look from our perspective, we actually think 2025 and 2026 are going to be really good years. The administration seems to be very much pro-business, growing the economy, and we think as the economy and they're successful doing that, loan demand will follow at some point down the road. So we're optimistic, but right now I would say it's probably a mixed bag.

Got it. And then just as a follow-up, can you talk about deposit competition? And would you say DDA migration has stabilized and actually could start growing in 2025?

Yeah, so we definitely saw all of our business lines, with the exception of ICS, were pretty flat. So the disintermediation seemed to have basically gone away, and I think that's run its course. ICS had a really great quarter and should have a great 2025 and actually contributed, and we had positive growth in our non-interest-bearing deposits. So we feel very positive from that perspective. When you look at the growth that we had in deposits for the quarter, in quarter we were up over $3 billion in deposits. That is really good. It was all customer-oriented growth. It is very competitive in the marketplace. But I think it comes back to, you know, when I got the question earlier, I just, M&T's model and how we go to market and how we serve our clients, you know, people want to have, you know, relationships all with one place that can basically fully serve their needs, and I think we're basically being very successful at accomplishing that, and we're seeing really good traction there. You know, we expect our core deposit growth to be up a couple percent, 2% or 3% this next year, and I'm not saying it's not competitive, but we think that we can win with our services and competitive rates that we will pay out in the marketplace.

Got it. Thanks, Daryl.

Thank you. Our next question will come from Frank Scoraldi with Piper Sandler. Please go ahead.

Hey, good morning, Daryl. Good morning, Frank. Just trying to work through some of the numbers you talked about just on the call here in terms of such as, you know, the pickup and swaps and repricing securities and loan book and the deposit betas. And just wondering if, you know, we think about exit rate for 2025. You know, just curious to be willing to talk about any guardrails there. Seems like you could perhaps get to the sort of a 380 number. And so just curious there, or maybe just updated thoughts on more normalized NEMs.

as we move to the... Yeah, I would love to tell you that, Frank, but it really depends on really the shape of the curve and what's going on in the marketplace. Like I said earlier, we're pretty neutral on the short end of the curve. We have an upward sloping yield curve. I think we'll have a much higher net interest margin. That's a good environment for margins. If it stays more flattish, it'll be less so from that perspective. So it's really hard to tell from that. But, you know, I'm optimistic as we start 2025. You know, I feel that we have a lot of good things in place and have a lot of confidence in my teammates out there that are going to make things happen and really make us be successful. So I'm optimistic all that's going to play out. And, you know, whether it's going to be 380 or some other number, I can't really tell you today, but I feel really good about how it's going.

Okay, and then just follow up on stock buybacks. Presumably still going through CCAR again. You seem pretty comfortable with that 11% CET1 sort of regardless, but I'm just wondering, aside from whether loan growth throughout the year turns out stronger or weaker than anticipated, is there otherwise any backloading, anticipated repurchase activity, holding something back, for later in the year, or do you think it should be, should we expect pretty consistent throughout 2025?

What I would tell you is we feel comfortable operating the company at 11% of where we are today. That's kind of a short-term capital target. What I believe is our long-term capital target is probably going to be around 10%. And I think that's probably going to play out over the next year or two from that. As far as when we repurchase shares and all that is really going to be dependent on what we think the timing is and whether we're opportunistic or not and whatever. So we are going to basically tell you guys. You guys can calculate how much we're going to buy back. I don't really know when we're going to buy back. We're going to be opportunistic and just see how it plays out from that. I don't think 11 is done and 26 and 27 things continue to improve and all that. We can continue to push our capital ratios down closer to 10%.

Okay, great. I appreciate it. Thanks.

Thank you. Our next question will come from Erica Najarian with UBS. Please go ahead.

Hi. Good morning. And just to follow up on that line of questioning, Daryl, I think it's an off-cycle year this year for DFAST for Category 4 banks. Are you planning to maybe address that stress capital buffer this year by opting to participate? And also maybe I'll ask the second question here. How should we read into the Federal Reserve press release that was issued in December 23rd essentially saying that they were going to look to improve the transparency of the stress test? and also sort of the bank lawsuit and how that could sort of impact, you know, your path from, you know, you mentioned like 11% this year to over the long-term 10%.

Yeah, so we actually did already opt into the stress test. We notified the Fed and, you know, it was approved. So we are doing the stress test again. We firmly believe that with the reduction that we've had in CRE and with the reduction that we've had in our criticized and non-accrual balances, and the performance we've had in PPNR that we should stress test better than what we had did in 24. Remember in 24, though, we were only one of three banks that dropped out of 30 banks that we look at from that perspective. But we're hopeful that we can continue to drive it down. Our stress capital buffer is still too high from how we look at it, and we need to bring it down some more. So hopefully we'll make progress on that this year. You know, as far as what the Fed came out, you know, I think we applaud Governor or Chairman Powell for being transparent and things to work on. You know, we all work on things to get better, and I think all that is really important. So I think that is definitely in the right direction, and, you know, look forward to, you know, having them do and move forward and making it a better process from that perspective.

Great. That's helpful. Thanks, Daryl. Thanks, Erica.

Thank you. Our next question will come from Christopher Spahr with Wells Fargo. Please go ahead.

Hi, good morning. So, Daryl, you have a lot of comments about the investments you're putting into the company. And yet, when I kind of look at the expense guide, it seems to be relatively measured. So I'm just wondering, what are the sources, the cost savings or the offsets that you're getting within the franchise and how repeatable those may be? Thanks.

Yeah, Chris, what I would tell you is, is You know, one of the things when I joined M&T, and I knew the company pretty well from outside looking in, but one of the gems that you have here that, you know, I think is really, really important is our business leaders that we have and throughout the company that run their groups, they are all really entrepreneurial. And they don't like to be told what to do, but they are really good at executing, you know, what and how they do it. So I give all the credit to my peers and how they look and restructure their groups and how they make them more efficient, more automated, and how that all works. So I think that's really important. And we don't want to lose that. I think that's what makes us really unique in how successful we go to market. Because if you look at our performance in 2024, I mean, what we were able to accomplish was pretty amazing. And I think 2025 will be better than 2024 as I look out. So I feel really good and Definitely, we definitely have more opportunities, Chris, optimized throughout the company, and we will continue to execute and do that. And I know my peers around the company will help make that happen.

Is it just less headcount over time, less manual operations? Again, what are the underlying drivers for the savings?

I mean, with Headcount obviously being the highest cost on our expense base, that would definitely have to have some type of impact, but automation, new ways of doing things. What we've done in the company, and I don't know how many other entities have done this, but we have trained now people throughout our whole company to work in an Agile form. When I was in other places where I worked, Agile was more of a technology thing. and as technology people go off and do this stuff. We've trained all of our business leaders throughout the whole company. We call it the way we work and how they basically work with technology and with other drivers of how the company works and really works together as teams to make us better each and every day. And everybody is empowered to improve how they operate. It could be as simple as moving things from a, an Excel worksheet onto Alteryx and all that. We've had a dozen of those things in our finance area where we save hundreds of hours doing that. Or it could be more complex where we're offshoring some people out into other jobs from lower skilled or whatever. So we do a whole mixture of things, Chris. I'm not going to be too specific about that. I'm just going to hope that we continue to deliver really good numbers for you and you're satisfied with that.

Okay, thanks. And then one last follow-up. Your office count shrunk a little bit over the last year. Do you expect that to expand going forward?

You know, from an office count perspective, I think we're kind of real close. I mean, it was within 100 FTE, I think, if I remember. Look at the numbers year over year or something like that. So I think... When you look at just, you know, how much our vacancy rate is, our vacancy rate is much larger than that. So we could have some volatility in those numbers. And, you know, I really look at what expenses that, you know, they're going to hit for the year and not so much the FTE.

All right. Thank you. Thank you.

Our next question will come from Matt O'Connor with Deutsche Bank. Please go ahead.

Thanks for squeezing me in. Just a question on fees. I mean, the trends have been good. The outlook is solid. But do you feel like you'd need maybe a broader product set, you know, both to boost kind of the contribution of fees to overall revenue? And then I guess I'm thinking specifically like in capital markets where, you know, more of your peers have kind of veered into that over the last several years and you're still relatively small and some of the hedging services you provide and things like that.

Yeah, so we actually are growing out in that area. Peter Darcy and his team have put some investments in talent over the last couple of years, and we'll probably continue to do that in the next couple of years. But we are really focused on growing out the capital markets, investment banking pieces that make sense to serve our customers in the communities that we serve from that perspective. We also see some nice growth within our CRE platform. One of our people that works for Peter has really done amazing things, given us relationships with other non-bank entities out there. We have a relationship now with Blackstone, and it's connected to our RCC business so that Blackstone can originate and actually do placements through the agencies now. And we're going to continue to do more of those things throughout that will generate more fee income. We will plan to continue to serve our CRE customers, but we think that our choices and options that we have now won't be just on balance sheet. We have a lot of off-balance sheet and growing off-balance sheet alternatives that can really help drive and serve them as well as to serve our fee income. So I think we're headed in a really good direction. As far as mortgage goes, Matt, we've continued to hire producers both in commercial and residential. And one of the things you may not know about us, but We have a really strong subservicing sector. We do subservicing for some of the largest mortgage originators in the industry, and we're really good at it. We actually love the more challenging stuff from a servicing perspective because of our expertise there. And then if you look at our ICS business, they've had tremendous growth the last couple of years. I expect to have really good growth. We're expanding in Europe now. So that's something we're following our customers. Our customers have asked us to follow them to Europe, and we're following them and serving their needs there. So I think our fee income area is actually very positive, has a lot of good momentum, and will continue to grow and be a good positive revenue source. That said, I think net interest margins are also going to go up. So maybe from a mixed perspective, you may not see the benefit, but I think we've got a lot of good revenue momentum going on at M&T right now.

That's helpful. Thanks for the detail.

Thank you. At this time, we have no further questions in queue. I would like to turn the call back to Brian Clonk for any additional or closing remarks.

Again, thank you all for participating today. And as always, if clarification of any of the items in the call or news release is necessary, please contact our Investor Relations Department at area code 716-842-5138. And have a great day.

This does conclude the M&T Bank fourth quarter and full year 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.