M&T Bank Corporation (NYSE:MTB) Q3 2024 Earnings Call Transcript

M&T Bank Corporation (NYSE:MTB) Q3 2024 Earnings Call Transcript October 17, 2024

M&T Bank Corporation beats earnings expectations. Reported EPS is $4.02, expectations were $3.64.

Operator: Welcome to the M&T Bank Third Quarter 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. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Brian Klock, Head of Market and Investor Relations. Please go ahead.

Brian Klock : Thank you, Todd, and good morning. I’d like to thank everyone for participating in M&T’s third 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 those following along on the webcast. 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.

Presentation also includes non-GAAP financial measures as identified in the earnings release and 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, Daryl Bible. Now I’d like to turn the call over to Daryl.

Daryl Bible : Thank you, Brian, and good morning, everyone. As you will hear on today’s call, the third quarter results represent M&T’s continued strength through a dynamic economic environment. We continue to support our communities that we serve. For the 16th consecutive year, M&T Bank is among the nation’s top 10 SBA lenders, ranking Number #1 in Baltimore, Buffalo, Connecticut, Delaware, Syracuse, and Washington, D.C. We recently launched the third phase of our [Technical Difficulty] which will provide $25 million to non-profits focused on financial inclusion and economic growth across New England, Long Island, and New York’s Westchester County. We also recently updated several environmental goals, including offsetting 100% of our electricity use with renewable energy by 2030 and establishing interim reduction targets for Scope 1 and 2 emissions.

Turning to Slide 5, our employees and products continue to receive awards from consumer, business, and trade organizations. We’re into Slide 7, which shows the results of the third quarter. As noted in this morning’s press release, we released our third quarter results as we continue to make progress on the plans we laid out in January. There are several successes to highlight. [Net interest margin and non-interest] (ph) income grew sequentially as we continue to grow loans while reducing our CRE concentration. In fact, since the fourth quarter of 2023, we have grown average loans by nearly $2 billion while reducing CRE by over $4 billion and growing C&I and consumer loans. Funding costs was well managed in this quarter with a 4 basis point decline in the cost of interest bearing liabilities.

We restarted our share repurchase program in the third quarter and executed $200 million in share repurchases and grew our CET1 ratio to over 11.5%. Non-interest income reached a high point in the third quarter, if we exclude the prior gains on our two divestitures. This was achieved by even considering the foregone fee income from those two sold businesses, demonstrating the resiliency and strength of our diversified business model. Asset quality continued to improve this quarter with reduction in both non-accrual balances and commercial credit size loans and net charge-offs below the full year outlook. Now let’s look at the specifics for the third quarter. Diluted GAAP earnings per share were $4.02 for the third quarter, improved from $3.73 in the second quarter.

Net income for the quarter was $721 million compared to $655 million in the linked quarter, an increase of 10%. M&T’s third quarter results produced an ROA and ROCE of 1.37% and 10.26% respectively. The CET1 ratio remains strong, growing at 11.54% at the end of the third quarter and tangible book value first year grew 5%. Of note, the third quarter included a discrete tax benefit of $14 million or an $0.08 EPS benefit. Slide 8 includes supplemental reporting of M&T’s results on a net operating and tangible basis. M&T’s net operating income for the third quarter was $731 million compared with $665 million in the linked quarter. Diluted net operating earnings per share were $4.08 for the recent quarter, up from $3.79 in the second quarter. Net operating income yielded an ROTA and ROTCE of 1.45% and 15.47% for the recent quarter.

Next, let’s look a little deeper into the underlying trends that generated our third quarter results. Please turn to slide 9. Taxable-equivalent net interest income was $1.74 billion, an increase of $8 million or 1% from the linked quarter. The net interest margin was 3.62%, an increase of 3 basis points from the second quarter. The primary drivers of the increase to the margin were positive 3 basis points from fixed asset repricing, mostly in the investment portfolio and consumer loans, positive 3 basis points from earning asset mix, positive 2 basis points from deposit and wholesale funding mix and costs, partially offset by a negative 4 basis points from lower non-accrual interest and a negative 1 basis point for all other items. Non-accrual interest amounted to $12 million compared to $30 million in the second quarter.

Turn to slide 11 to talk about average loans. Average loans and leases increased slightly to $134.8 billion. Similar to the trend that we saw last several quarters, C&I growth outpaced the decline in CRE. C&I loans grew 3% to $59.8 billion, driven by increases in fund banking, dealer commercial services, mortgage warehouse, and franchise lending. Middle market utilization declined modestly, while dealer floor plan utilization increased from the second quarter as a result of slower auto sales and new model arrivals. CRE loans declined 8% to $29.1 billion, reflecting continued low originations and paydowns as we continue to manage our CRE concentration. CRE as a percent of Tier 1 capital and allowance is estimated to be 148% at the end of the third quarter.

Residential mortgage loans were relatively unchanged at $23 billion. Consumer loans grew 4% to $22.9 billion, reflecting growth in recreational finance and indirect auto loans. Loan yields were unchanged at 6.38% as lower non-accrual interest was largely offset by the benefit of fixed rate loan repricing and mix shift. Turning to Slide 12, our liquidity remains strong. At the end of the third quarter, investment securities and cash, including cash held at the Fed, totaled $59 billion, representing 28% of total assets. The average investment securities increased $1.3 billion. The yield on securities increased 9 basis points to 3.7% as the yield on new purchases exceeded the yield on maturing securities. In the fourth quarter, we have $1 billion in securities maturing, in an average yield of 1.8%, which we intend to reinvest.

The duration of the investment portfolio at the end of the quarter was 3.6 years, and the unrealized pre-tax gain on the available-for-sale portfolio was $68 million for 3 basis points CET1 benefit, if included in regulatory capital. Turning to slide 13, we remain focused on growing customer deposits and are pleased with the overall deposit performance. Average total loans declined [$2 billion or 1%] (ph) to $161.5 billion, reflecting a $1.1 billion decline in broker deposits and a $0.9 billion decline in non-broker deposits. Commercial and business banking grew total average deposits from the second quarter while consumer deposits declined sequentially, as we continue to manage more rate-sensitive deposits. Average non-interest bearing deposits declined $1.6 billion to $46.2 billion from an expected deal-related decline in trust demand deposits and modest continued disintermediation within commercial and consumer.

Excluding broker deposits, average non-interest bearing deposit mix in the third quarter was 30.7%. Interest bearing deposit costs decreased 2 basis points to 2.88%. Continuing on slide 14, non-interest income was $606 million compared to $584 million in the linked quarter. Trust income was $170 million unchanged from the prior quarter with second quarter seasonal tax prep fees of $4 million offset by strong equity market performance and sales performance at ICS. Mortgage fees were $109 million compared to $106 million in the second quarter. Commercial mortgage fees increased $4 million from the linked quarter to $34 million, reflecting an uptick in the origination activity. Service charges increased $5 million to $132 million from both consumer and commercial, mostly related to the number of processing days in the quarter.

Other revenues from operations were unchanged at $152 million. Turning to slide 15, non-interest expenses were $1.3 billion, an increase of $6 million from the second quarter. Salary and benefits increased $11 million to $775 million reflecting one additional working day. Deposit insurance decreased $12 million reflecting the prior quarter $5 million incremental special assessment. Other costs from operations increased $12 million to $128 million driven mostly by M&T’s obligation under various agreements to share and losses stemming from certain litigation of Visa. The efficiency ratio of 55% was largely unchanged from the second quarter. Let’s turn to Slide 16 for credit. Net charge-offs for the quarter were $120 million or 35 basis points down from 41 basis points in the linked quarter.

The three largest charge-offs in the quarter totaled $37 million combined with and represented two C&I loans and one office CRE loan. Non-accrual loans decreased $98 million or 5% to $1.9 billion. The non-accrual ratio decreased 8 basis points to 1.42% driven largely by a decrease in CRE non-accruals from upgrades out of non-accrual, as well as several large payoffs and pay downs. In the third quarter, we recorded a provision of $120 million compared to a net charge-off of $120 million. The allowance to loan ratio decreased 1 basis point to 1.62%, as a result of continued improvements in asset quality and improvements in the macroeconomic outlook, partially offset by growth in certain portfolios. Please turn to Slide 17. When we file our Form 10-Q in a few weeks, we estimate that the level of criticized loans will be at $10.9 billion compared to $12.1 billion at the end of June.

The improvement from the linked quarter was driven by a $315 million decline in C&I and $830 million decline in CRE criticized balances. Slide 18 provides additional detail on the C&I criticized balances. The largest C&I criticized balance decreases were within the motor vehicle and recreational finance dealers and manufacturing segments with smaller changes across most other industries, the decline within the motor vehicle and recreational finance dealers mostly reflects improvements in debt service coverage ratios and normalizing profit margins within the RV segment. Slide 19 includes the detail on CRE criticized balances. The largest CRE criticized declines were within health care and construction with continued but more modest declines in most other property types, except for office.

Within health care, we saw an uptick in repayment activity as improvements in occupancy and rent growth combined with declining long-term rates, allowed for more viable takeouts. A decline in construction criticized was aided by improved project performance and loan modifications and curtailments as borrowers continue to support these projects. The largest factor that drove [Technical Difficulty] versus prior quarters was the amount of upgrades that occurred in the quarter. Turning to Slide 20 for capital. M&T CET1 ratio at the end of the third quarter was an estimated 11.54% compared to 11.45% at the end of the second quarter. The increase was due to continued strong earnings and strong and a $200 million share repurchase in the third quarter.

At the end of the third quarter, the negative AOCI impact on the CET1 ratio from available for sale securities and pension-related components combined would be approximately 4 basis points. Now turning to Slide 21 for the outlook. Let’s begin with the economic backdrop. The economy remains resilient in the third quarter, with GDP growth expected to come in stronger than we had projected. The labor market has slowed, but remains healthy. Though we see a soft landing scenario as having the highest probability, the possibility remains for a mild recession brought on by lagged impact and rate hikes. The consumer spending has slowed, alleviating inflation pressure for many goods and services. Recently inflation has nearly returned to the Fed’s target of 2%.

Now turning to the outlook. Our outlook for the full year NII is unchanged from our last update. While the outlook from the full year fees, expenses and net charge-offs is unchanged from the ranges we initially discussed in January and maintained through the year. That said, with three quarters complete we will focus on the outlook for the fourth quarter. We expect taxable equivalent NII to be at least $1.73 billion implying a full year NII near the top end of the range we provided previously. Net interest margin is expected to be in the low 3.60s. Our outlook incorporates the latest forward curve that has an additional 50 basis points in rate cuts by the end of the year. We expect continued loan growth and average total loans of approximately $136 billion with growth in C&I and consumer and lower CRE balances.

Total deposits are expected to be at least $160 billion, as we continue to focus on growing core customer deposits. We expect interest-bearing deposit beta of approximately 40% for the first couple of interest rate cuts. Security balances are expected to continue to grow in the fourth quarter. Our outlook for the fourth quarter non-interest income is about $600 million, reflecting continued strength in mortgage and trust partially offset by other fee categories. Fourth quarter expenses including intangible amortization are expected to be about $1.32 billion due to the timing of projects coming online. This reflects continued investment in our key priorities and initiatives are closely managing our expenses. We continue to expect net charge-offs for the full year to be near 40 basis points.

Our outlook for the tax rate for the fourth quarter is about 24.25% and the preferred dividends are expected to be approximately $36 million. We plan to continue the $200 million share repurchase in the fourth quarter. To conclude on Slide 22, our results underscore an optimistic investment thesis. M&T has always been a purpose-driven organization, with 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. Finally, we are a disciplined acquirer and prudent steward of shareholder capital. Now let’s open the call to questions before which our operator will briefly review instructions.

Operator: Thank you. The floor is now open for your questions. [Operator Instructions] Our first question will come from Gerard Cassidy with RBC Capital Markets. Please go ahead.

Q&A Session

Gerard Cassidy: Hi, Daryl, how are you?

Daryl Bible: Great. How are you doing Gerard?

Gerard Cassidy: Good. Thank you. Daryl, over the years, M&T has done a great job in managing their capital and returning excess capital to shareholders. You’re pointing out today that your CET1 ratio is a very strong 11.5% and you have the buyback going on again in the fourth quarter. Can you share with us where do you think the CET1 ratio is at an optimal level. And to get there, could you increase the share repurchases as you go forward into 2025? And once we also get the final Basel III end game, so you guys know what to expect.

Daryl Bible: Yes. Thanks, Gerard. First I just want to start with that we have a lot of flexibility when it comes to capital with a CET1 ratio of 11.5%. And we have really no negative impact on the AOCI, and we have strong capital generation. That said, as we continue to move forward into the end of the fourth quarter and into 2025. We will continue to look at the economy. The economy continues to grow now. But if we sign to slow down that could impact potential increases to share repurchase. We have made great progress on our criticized loans, they’ve come down now two consecutive quarters. We expect fourth quarter to be also a really strong decrease in criticized. And we believe we are at the point now that our CRE exposure is where we want it to be.

And we are now, the pipeline is starting to build from that perspective. So I believe in 2025, we’ll return more capital to shareholders as long as it plays out, as mentioned what I just talked about. We probably switched dollar amounts and target more of a CET1 ratio. So for example, we might say we’ll buy back in 2025, if we want to stay above 11% CET1 ratio and do repurchases and that depends on how much loan growth and RWA growth that we have on the balance sheet. I know 11% is higher than what you would need long term. But we are working on our long-term targets and probably we will have something to say about that in the next quarter or so.

Gerard Cassidy: Very good, and very helpful. And then as a follow-up, and I’m not asking for ’25 guidance because I know that won’t come until possibly January. But it looks like your net interest income has troughed. It looks like the first quarter based upon Slide 9 that net interest income bottomed and you are gradually growing out net interest income and the margins obviously expanding. If the forward curve is correct, and if the Fed — and I know these are big ifs, but if the forward curve is correct and the Fed is correct and that it is going to lower the Fed funds rate possibly to 3% to 3.5% by the end of next year, and we get a positive slope in the curve, can you kind of frame out should this growth that you are seeing continue and possibly accelerate in 2025, just based — aside from growing your balance sheet, but just based on interest rates

Daryl Bible: You start off with a very rosy scenario. Let me just say that our team has worked really hard this past year in ’24. And we are really neutral on net interest income and really happy that happened just as the Fed started lowering rates. So we were very fortunate for that. If you look at what’s going on, we have really good roll on and roll off rates and a lot of our fixed asset portfolios. I know it is hard for you as analysts to really understand and get that — those numbers into your models. But if you look at auto and RV, resi mortgage and our investment portfolio, all those continue to reprice positively this quarter. We expect that to continue next quarter and into 2025. So that’s a positive for us. Upward sloping curve would enhance that potentially.

On the deposit side, I just see it’s the strength of our company, Gerard. It is our strong foundation that we have. We have really strong, stable core operating deposits. We are seeing now an initial downward beta of 40%. That’s at the higher end of the range that we talked about previously. So that’s strong. And when you look at hedging, we know we already have locked in hedges improvements in our swap book that we are going to basically reprice our hedges. If you look at the cash flow hedges, point-to-point, they should go up about 55 basis points and the fair value hedges should go up about 37 basis points, point-to-point in [2025] (ph). That’s if rates don’t even change. So that’s probably very positive from there. So we have a lot of good things going on.

Plus, we are growing loans, even when we were shrinking CRE, we were able to eke out loan growth. So our businesses are performing really well, both on the CRE and C&I side, as well as our consumer businesses. So I would say we have positive mix benefit as we move forward, as we continue to grow that. So that gives me a lot of confidence that NII, net interest margin should continue to improve.

Gerard Cassidy: Very, good. Very helpful. Thank you.

Daryl Bible: Thank you.

Operator: Thank you. Our next question will come from Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala: Good morning, Daryl.

Daryl Bible: Good morning.

Ebrahim Poonawala: This question on the — you mentioned the criticized loans decline. I’m just wondering, do we need rates to go much lower for CRE criticized loans to come down over the coming quarters? And could we see a big like step-step decline at some point early next year when you, I don’t know, get updated appraisals, financials from these borrowers? And what are the implications? Does it really change your thought process as a result on the 11% CET1 or where the reserve ratio is today at [1.60] (ph)?

Daryl Bible: Yeah, thanks for the question, Ebrahim. You know, what I would tell you is this quarter I pointed out in the prepared remarks, the biggest difference in the third quarter versus the past several quarters is that we actually had a lot of upgrades in our roles. When rates fall, we can have more takeouts and paydowns from that, and that’s occurring obviously with rates coming down. But we’re getting actually good upgrades now. If you look specifically in our healthcare sector that we had, the operations really started to improve. Their occupancy and rents were more positive and they were cash flowing better and that’s really positive. You have to remember that in our criticized book that we have in total, 91% is paying current.

So that’s really, really good. If you look at our CRE construction book, that also dropped a fair amount. And that was really driven by interest rates and also just stabilization that you’re seeing in the marketplace, the projects that we have. One of the strengths M&T has with all of our lending is really the clients that we lend to. We really have really strong client selection, and people are committed to supporting their credits and believe that they’re the right things they want to hold on to. And you’re seeing that really come through, and you’re seeing this now come through as we’re starting to get upgrades. The other thing that we saw this quarter is our RV dealers. You know, [three — had three] (ph) significant RV dealers. They were able to get rid of their excess inventory in 2022, and that really helped from an upgrade perspective.

So we have a lot of momentum and criticized. I’m very optimistic. Fourth quarter will continue to be a very strong and continue into 2025. So I think we have momentum there and, you know, probably won’t be a direct line down, Ebrahim, but I think the trajectory is definite down. I’m sure we’re very positive about that.

Ebrahim Poonawala: Understood. And just maybe, Daryl, so you mentioned drivers of loan growth. You had pretty good C&I growth the last few quarters. Is this still coming through partly driven by the people’s acquisition and kind of the footprint you acquired there. And are we done with the runoff in CRE? Could that kind of flatline from here or is that still going to be declining somewhat from third quarter levels?

Daryl Bible: Yeah, so let me start with the CRE first. So our pipelines are building in CRE. We haven’t had large pipelines for a while there, so it’s going to take us probably a couple quarters for those pipelines to fill up and start seeing it hit on the balance sheet. But we are making really good progress in our CRE portfolio and that gives me confidence as we get into 2025. We won’t be shrinking CRE, but we’ll be growing CRE, so it’s another oar in the water that will give us more momentum from a revenue growth perspective from that. So I think that’s very positive. As far as growth this quarter, you know, it was continued growth. I mean, our specialty businesses that we have, corporate and institutional, fund banking, mortgage warehouse franchise, all were really strong growers this quarter.

When you saw the quarter play out, we were a little soft in the first part of the quarter, but we finished the quarter really strong. You can see it in end of period loan balances, and we have a lot of momentum going into the fourth quarter. So that’s good. When you look at our regions that we have, our middle market, you know, the areas that really are to highlight there are Boston and Baltimore and New Jersey, York, PA, Richmond, Virginia. All those continue to progress and go really be positive. So I would say we have good momentum on the lending side and feel good about the revenue projections that we have.

Ebrahim Poonawala: Got it. And just one follow-up on the previous response we get to Gerard. If we don’t get a rate cut in the fourth quarter in November, December or at least one of those, does that change your outlook on the NII NIM from here?

Daryl Bible: Everything I said going through that list, Ebrahim was structural that’s going on in our balance sheet that has no impact on interest rates. So I feel comfortable that we are going up if rates stay flat or if they actually go up or down. We’re relatively neutral from an interest rate risk percentage, and it is hard to be exact, but we are as neutral as you can be with the balance sheet and the complexities that you have. So I feel good that we have an upward trajectory on margin and net interest income.

Ebrahim Poonawala: That’s helpful. Thank you.

Operator: Thank you. Our next question will come from Manan Gosalia with Morgan Stanley. Please go ahead.

Manan Gosalia: Hi, good morning Daryl.

Daryl Bible: Good morning.

Manan Gosalia: So I wanted to ask on deposit beta. I think you noted that you assuming a 40% deposit beta in 4Q. Now deposit betas on the way up or closer to the mid-50s if I recall correctly. So do you expect that betas will accelerate from 4Q, as you go into next year and as we see more rate cuts and get closer to the betas that you saw on the way up?

Daryl Bible: Yes. I think of it maybe it’s my simple mind or whatever, but I think that if our betas went up, I think we peaked at about 55% on the way down, we will probably end up at 55% at some point. It’s really the pace and how quickly you get there. But I felt really good about what we’ve been able to do at the end of September. And feel good that we’ll have a good — at least a 40% beta repricing down in the fourth quarter. And that hopefully will continue to move forward as we get into 2025. But all things being equal, I don’t think we are going back to where we were, but I feel very positive that our businesses are lowering rates. There was a lot of good planning that we had in the company. Our treasury team with all the businesses worked really hard to come up with good strategies and really good implementation, and we’ve tested that and feel really good at where we are headed.

Manan Gosalia: Got it. And then just on — in terms of the loan growth you were just speaking about, as we get into next year, I mean it sounds like loan growth will accelerate as you start to build that — the CRE loans. In terms of funding that loan growth, do you expect to grow deposits in-line with loan growth next year? Or is there room to bring down the cash balances? I noticed that they didn’t go down that much this quarter. Is there some room to utilize cash balances and maybe grow deposits a little bit slower next year?

Daryl Bible: Hi, Manan, I’m a big believer that we want to operate the company basically being always on. When I say always on, what that means is we are always out there trying to get deposits from all of our customers. We won’t pay the highest rates, we won’t pay the lowest rates, but we’ll always be out there asking for deposits. We’ve had four consecutive quarters of customer growth in deposits. We will continue to focus on growing customer deposits. I think it is important if you think of [a boat] (ph), if you’re growing loans, you need to grow deposits so you don’t go in a circle and all that. So you need to continue to move going forward. I would actually like to grow deposits faster than loans, to be honest with you and continue to shrink some of our non-core funding, if that’s able — if we are able to do that.

Manan Gosalia: Got it. So it sounds like that core deposits continue to grow, you pay down some of the non-core funding. And would the securities balances grow as well as you move away from cash? Or would you expect to stay at this level of cash?

Daryl Bible: If you look at where we are right now, we have about $59 billion between the two. We are putting more money into the investment portfolio. Again, we’ve been very methodical all year and increasing our investment portfolio increases, and that’s played out really well for us. You saw we had nice increases will probably be in the [3.90s] (ph) towards the end of the year, early first quarter and 4% sometime in 2025 from a yield perspective. So we will continue to grow our investment portfolio. We have $1 billion in maturing in the fourth quarter. We will probably invest $3 billion in the fourth quarter, and then we’ll re-evaluate and see how ’25 plays out. From a cash at the Fed perspective we probably will operate with cash at Fed. No at $20 billion, we won’t probably go much lower than that. But I think we just have a lot of flexibility where we are right now. Right now, we are sitting on about $25-plus billion at the Fed. So we got a lot of flexibility.

Manan Gosalia : Got it. Thank you.

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

Chris Spahr: Thank you. Good morning. So just a question on the loan period — can you hear me better now? Or is it still bad?

Daryl Bible: I can now, yes.

Chris Spahr: Okay. Sorry about that. Just for the loans in the fourth quarter relative to period end of $136 billion, just is there upside to that if CRE stabilizes? Or do you see some more — some a little bit more runoff and paydowns in that portfolio and then stabilizing into 2025.

Daryl Bible: Yes. I think you are going to see runoff in CRE for at least a couple more quarters. First quarter, for sure — fourth quarter, first quarter, maybe second quarter, it depends on how quickly our pipelines build and what type of loans that we are making, whether it is permanent or construction loans from that perspective. But we are kind of going to operate with about 20% of our loan book being in CRE is kind of the mix that we’re going to have moving forward from that projection. So it is pipelines are building, and Peter and his team will do a great job and try to meet the needs of our clients and communities as we move forward. So — but we’ll do it the right way, but I wouldn’t expect CRE balances to grow until mid-next year conservatively.

Chris Spahr: Okay. And then during the quarter, you said that 200 basis points lower in rates could actually effectively wipe out the criticized loans in the CRE. Do I have that correct? And if so, then just kind of getting back to the earlier questions, like the timing — is it that last [Technical Difficulty].

Daryl Bible: Yes, I didn’t get the last part of your question. Yeah, so, I got the first part, I didn’t get the last part Chris.

Chris Spahr: Sure. Apologies about the connection. Just what’s the timing of that of the — if you do get 200 basis points lower in the curve, what’s the timing for the benefits on the criticized CRE.

Daryl Bible: Yes. So we have a good downward trajectory and criticized. I don’t like to use the word wipe out. I don’t think that’s appropriate. We have a long-term history Chris, of working with our clients and staying with them when things are stressful and we will continue to do that as long as they support their loans that I will. So we are always going to have some criticized loans — that’s just who we are – it’s in our DNA. It also makes our clients very loyal to us. So that’s going to continue from that perspective. But I do feel really good fourth quarter trajectory down. I do believe that we will continue with a good trajectory down in 2025 and all that. But we aren’t going to wipe out the criticized balances.

Chris Spahr: Okay. Thank you.

Operator: Thank you. Our next question will come from Dave Rochester with Compass Point. Please go ahead.

Dave Rochester: Very good morning guys. Nice quarter.

Daryl Bible: Thank you.

Dave Rochester: On the deposit front, I appreciate the outlook on the beta that 40% you mentioned. I was curious on what your thoughts were on the noninterest-bearing deposit piece, as a part of that deposit outlook. I know you are still running off broker deposits, so that’s a part of that decline that you’ve been talking about for 4Q. But are you factoring in a little bit more runoff the noninterest-bearing side within that? And can you talk about how close we are to a drop in those deposits?

Daryl Bible: So when you look at our non-interest bearing, I would say that the commercial and consumer side is really slowed down significantly. There might be a little bit of disintermediation that occurs, but I wouldn’t say very much as we move forward. I think what you have though, in our non-interest bearing is just a function of who we are is that we have balances from our ICS business. And those balances tend to be volatile. And sometimes, you see swings of that going back and forth. We will try to point those out and all that, but you are going to have some volatility with that. But I think for the most part, what we said several quarters ago that we thought we would average around 30% noninterest-bearing, I think that’s playing out when you exclude our broker deposits from that perspective.

So I feel really good from a noninterest-bearing perspective. I think the thing as you look forward, the value of free deposits as rates come down, it is less, so we have to work harder to keep our interest rate spreads and margins higher just because you aren’t getting as much benefit from the noninterest-bearing. And we are aware of that. We are definitely key into how that plays out.

Dave Rochester: Okay. Great. Just switching to loan growth. I appreciate all the color you gave on the drivers for 3Q. I think you mentioned those more specialty lines and the middle market utilization was actually down a little bit. When do you expect that utilization to start to move up more meaningfully? I mean, if you could just talk about the competitive landscape within C&I overall, that would be great.

Daryl Bible: Yes. Well, within commercial, we did have the increase, like I said in our dealer services. It seems like there is more — a lot more cars on the lots now, which is driving that utilization up. But net-net is still down. Some of it could be post-election. That’s what people seem to be defaulting to when you talk to clients in the marketplaces. And in the markets that we serve, we have a lot of good things going on in the market places, and I think there will be a lot of growth needs over time. It is just a matter of when that will happen. It is hard to actually pin that down, to be honest with you today. But we are working as hard as we can and we are there for our clients when they need us. If you look at lines, our lines can actually continue to grow. So we are actually making more lines available for our clients. So we are growing our customers and accounts from that perspective and eventually, they will start to draw on them.

Dave Rochester: Great. Thank you.

Daryl Bible: Thank you.

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

Frank Schiraldi: Good morning Daryl.

Daryl Bible: Good morning Frank.

Frank Schiraldi: I know, I guess just one last one on loan growth. I mean I know there is a lot of moving parts here. You mentioned the $136 billion in average for next quarter which would be sort of 1% growth linked quarter. Do you think that’s a pretty good bogey even going forward from there as you talk about pipelines building, maybe [CRE] (ph) has a couple of more quarters to trough. Is that a decent bogey? Or do you think you could see quarterly growth, maybe even accelerate from that sort of 1% linked quarter unannualized number.

Daryl Bible: We are still in the midst of our planning season for 2025 Frank, I would love to tell you that answer right now. I would say, it is anywhere to maybe a little bit less than 1% continuously to maybe a little bit more than 1%, 1% might be an average, give or take. I – we are going to do the right thing to support our customers and the communities. That’s the most important thing we do from that. We are very selective in the customers that we do business with from that. But — that said — we will get as much growth as we think is prudent out in the marketplace. We aren’t going to stretch or change our credit levels and all that. So we’ll just see how it plays out, but I’ll give you more color on that next earnings call.

Frank Schiraldi: Okay. Fair enough. And then you also talked about the repricing of the back book. And I think you just mentioned kind of — on the security side where you think yields could get to. If we — just for modeling purposes, we think about the loan book repricing, you set aside rate movements for a minute, and just any sort of color you can give in terms of where we sit now with rates where they are currently, what you are seeing or what the sort of pickup is on a quarterly basis on loan yields from the repricing of the back book?

Daryl Bible: Yes. So I will give you a high level of what we are seeing on this past quarter. So when you look at our C&I portfolio, and we’ll look at — these are all fixed rate loan categories. The C&I fixed rate loan is averaging up about 1% on what’s rolling-off, rolling-on. The CRE is averaging up about 1.3%. Mortgage is averaging about little over 2%, consumers at about 1.4%. Net-net, if you blend that all together of all the fixed rate loans rolling on, rolling off, it’s around 150 basis point benefit.

Frank Schiraldi: Great. Okay. Thanks for the color.

Daryl Bible: You’re welcome.

Operator: Thank you. Our next question will come from John Pancari with Evercore ISI. Please go ahead.

John Pancari: Good morning Daryl.

Daryl Bible: Good morning John. In terms of expenses, I mean you put up some pretty good operating leverage this quarter. It looks like your outlook implies some continued positive operating leverage near-term. Could you give us your thoughts as you look into 2025, what type of acceleration in that positive operating leverage is possible I believe right now — the Street is looking at about 150 to 200 basis points positive operating leverage for you guys as we look into the full year ’25. Curious on your thoughts on what you believe is achievable.

Daryl Bible: Yes. So we are still putting 2025 together. I do believe we will have positive operating leverage for 2025. Whether we are 150 or 200, I think you’re in the neighborhood of where plan will end out, but we are on 100% have kind of figured out and everybody’s agreed to it, but we will get there. I feel very confident we will get there from that. If you look at the expenses that we guided, they were up a little bit in the fourth quarter. It is mainly due to projects that we have. We have a fair amount of projects going on in the company, and we are making a lot of progress. We do have an increase there. The other thing that we are doing is — we’ve had a pretty good year from a performance perspective, both financially.

We made good progress on our asset quality and good loan and deposit growth and just improving and getting good some of our priorities accomplished. So we actually are increasing our corporate-wide incentives in the fourth quarter for payout for everybody for a good year. That said, I still feel that 2025 is going to be a better year than 2024 to be honest with you. We continue to have a lot more work to do and make progress. But we have a lot of positive momentum now and need to reward the people that are making it happen in the company and feel good about that.

John Pancari: Great. All right. Thank you. That’s helpful. And then on the credit side, your loan loss reserve ratio as a percentage of loans ticked down a bit or so this quarter, I guess around 162 basis points where it stands now. Where do you see that trending here? You cited the expected decline and criticized that you will see in the quarter and then a pretty good trajectory there. Fair to assume continued modest decline here in that ratio? Is that fair to assume as you look out?

Daryl Bible: Yes. I think when you look at it, this past quarter we had some good macro factor positives with creepy being much more positive and that helped drive and downward drop in criticized, which is good. I think as you look forward though, we are growing all of our lending categories, so you have a mix change that you’re seeing occur in the balance sheet. And that mix change is more heavy on the consumer side. Consumers definitely have for the most part, higher overall spreads and yields, but they also come with higher net charge-offs. So you are seeing a mix change. So right now, it’s we’re feeling really good where we are operating right now around 40%. Could it be a little lower than that maybe. Could it be a little bit higher than that possibly.

It really depends on how quick that mix change happens. We look at it. I have obviously from a net overall spread and making sure we are getting good returns on the assets that we are putting on our balance sheet. So it is a good capital use for our shareholders. So we think we are doing the right thing from that perspective. But I think it is the mix shift that could potentially play out over the next couple of years of having just a little bit higher charge-off company, as we get a little bit more diversified. John, we are really trying to be a much more diversified company, not so much 100% relying on CRE. We never were 100%, but really try to have much more diversification. So we’ve strong consumer businesses, C&I businesses, as well as CRE businesses and a lot of great fee businesses like ICS, and wealth out in the marketplace.

So we are really — I mean if you look at all the things that we present at the investors and all that, it is really talking more of a diversified company as we move forward.

John Pancari: Thanks Daryl. Very helpful.

Operator: Thank you. Our next question will come from Matt O’Connor with Deutsche Bank. Please go ahead.

Nathan Stein: Hi, all. This is Nathan Stein on behalf of Matt O’Connor. I wanted to ask about the NIM trajectory given it’s — it came in strong this quarter at 3.62% and you expect it to be low 3.60s next quarter. So this is above your prior guide to be in the high 3.50s in the second half of the year. In September, I think you said a 3.60 range NIM makes sense for next year. Have your thoughts changed regarding the NIM trajectory given how strong it is been to-date?

Daryl Bible: So what I would tell you is that I think we feel comfortable in the low 3.60s for fourth quarter margin, and we will give you a 25% guidance in January when we do our next earnings call that we’re really positive about the momentum we have, good repricing and reactivity on the deposit side. It’s really going well and good roll on and roll off rates on our fixed rate loan assets as well. So I think, we have a lot of positive momentum.

Nathan Stein: Okay. Great. And then kind of a nuanced question, but other revenue was in-line with 2Q levels. And I think you previously suggested it would come down a bit on lower syndication revenues and interchange fees. Did those come in a bit better than you had expected? Or was it something else that kind of helps these? And then how do you expect this fee line to trend going forward?

Daryl Bible: Yes. I would say that within the other, the two largest categories are loan syndications and merchant and card fees. Those tend to be going very well, and that’s really what drives that other category or those two line items for the most part.

Nathan Stein: Thank you.

Daryl Bible : All right. Thank you.

Operator: Thank you. Our next question will come from Zach Westerlind with UBS. Please go ahead.

Zach Westerlind: Good morning. This is Zack on for Erika. I just had a quick follow-up on the expense question. I know you mentioned that there were some projects that are going to hit in the fourth quarter. Can you just clarify if those are kind of one-time type projects? Or is that expected to stay in the run rate?

Daryl Bible: It is a mix, Zack. Some of the things that come online, like our new data centers that we are putting on are coming online fourth quarter, that’s going to be in run rate. We also have some project expenses that we have that are more being expensed in the fourth quarter from that. So it is really a mix that we have there. We will give you ’25 guidance in January and give you good projections. But like I said, I think we are going to have good strong positive operating leverage in 2025, so I feel good about that, and we will give you more specifics as we get in January.

Zach Westerlind: Helpful. Appreciate that. And then just on the credit front. Clearly, you guys have made a bunch of progress with better net charge-offs trending down, credit quality trends looking pretty good. Can you just remind us how you think about through-the-cycle charge-off number if you are able to kind of share your thoughts around that?

Daryl Bible: So if you look historically or through the cycle charge-off is 34 basis points. But what I said on an earlier question, is that the mix of our loan portfolio is changing. And as that portfolio mix changes having more consumer as a percentage of total loans that will drive higher just allowance balances. It is still good. We look at it to make sure that we have a good net spread on those loans, good capital return on the loans that we are making there. So it is nothing to be concerned about. It is just that it is a mix change that you have as we continue to be a more diversified company moving forward.

Zach Westerlind: Got it. Thanks for taking my questions.

Operator: Thank you. At this time, I would like to turn the call back over to Brian Klock for any additional or closing remarks.

Brian Klock: 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. Thank you and have a great day.

Operator: Thank you. This does conclude the M&T Bank third quarter 2024 earnings conference call. You may disconnect your lines at this time, and have a great day.