M&T Bank Stock

Continuing along with the presentations. Very pleased to have M&T Bank. From the company, Chairman and CEO, Rene Jones. Morning, Rene.

Morning, Jason.

Maybe the best place to start. I've obviously covered M&T for a long time, and I think...

How long is that?

Long time.

I guess one of the things that I think kind of differentiates the company and allowed for kind of a long-term track record is the combination of conservative credit underwriting, relationship-driven banking, very disciplined capital allocation and customer selection. Just as the company has grown significantly over the past decade, just how do you preserve that culture and operating philosophy in a banking environment that seems to be ever increasingly competitive?

Yes. It is interesting. I might think about it to say it a different way, which is that if you go back over time, I think that one of the biggest assets we had in history was this large ownership base. 20% to 25% of the shares were owned by Bob, by the Board and employees. And of course, Buffett was in for 30 years. And so you had this ability and this desire to think about like long-term decision-making. And even though it took a long time for anybody to realize that Bob was actually really not about banking. He was about building communities and he thought it was like one of the best seats you could have.

And so all of that produced this, I would call it, patience but persistence, right? So you could think about what the right thing was to do over a long time. And you repeat those behaviors over time. And even though we don't have that same ownership structure, that's what we're trying to actually do. And the result is what you're talking about. So you could almost make and still have a desire to make sort of countercyclical decisions. So a great example would be when a recession comes, everybody is cutting staff and we take our talent programs and we say, okay, let's double them, right? And as Bob would say, that's the only time we get anybody to move to Buffalo.

So that has a lot, that patience, I think, has allowed us to move through cycles, allowed us to be healthier than average when things aren't going well. And so we try to preserve that. And the best way for us to preserve that is through talent and our talent programs. We used to have 1 or 2. Now they've sort of proliferated. We have specific programs around credit, and we're basically just teaching the fundamentals. And if you bring an employee in, we don't necessarily, they don't necessarily have to know think about banking. But if they're bright, smart, they -- particularly if they have a liberal arts education, we can teach them banking and we can teach them the fundamentals, and that's what allows us to endure.

I guess another thing that kind of differentiates in my mind, M&T is just kind of willing to prioritize long-term returns over short-term growth. On top of kind of relationship banking, local market density, -- when you kind of think about the model, which parts of the model are maybe timeless? And just where does the model need to evolve as we kind of look out into this new world?

Well, I mean, I think you sort of get that if you go to the tech world, and I talked, I just mentioned talent. We had very specific talent programs. One of the things that helps us transform our tech and the way we think about tech over the last 7 -- 6 or 7 years has been started again with talent. One of the first things we did is started talent programs. So we have a management development program. We did a tech development program. We started hiring people from the outside. We changed the environment. We brought in our first set of engineers before Mike Wisler was with our company, there was not a single person in the company with a title of engineer.

So it all kind of comes back to talent. So that's the thing that is the constant, right? But the question is where? Where do you need it? And that's evolving so fast. I mean one of the biggest threats is simply anybody who thinks about -- doesn't think about tech as part of their -- as the center of their strategy is probably going to have a very difficult time in the future. So most of those things that you've talked about are enduring. Credit is enduring. I'll tell you a quick story. Sort of like the Tuesday before the bad Wednesday and Thursday with SVB.

And we're at the Board meeting. We happen to have a Board meeting, and we're going around and we're talking about liquidity. And someone in the room says, we've talked about this the last 5 meetings. Why are we talking about it? So I left, someone was presenting, so I was able to leave and go upstairs and grab a poster and brought the poster down. The poster had all of the banks that have failed since like 1850 and why? And it passed around the boardroom table and we looked at it and said, okay, great. And then 2 days later, liquidity. So tech changes, people change, but the fundamentals of an intermediary, I don't think really change. They make it more efficient, more effective, which is happening today, but the fundamentals are all the same.

Maybe follow up a bit, but your customer base kind of sits at the heart of the real economy. Just maybe talk to kind of what you're hearing and seeing from your customers and maybe frame it around C&I, CRE, consumer and just how that translates into loan demand, competitive landscape, underwriting standards, et cetera.

Yes. 2026 is very different from 2025. '25, we were still peeling back on and being reserved on commercial real estate. Utilization was down. Most of the C&I loan growth you saw was NBFI, data centers and things that we didn't do. So we looked like when you look at the top line, like we were underperforming. Consumer state has always been pretty steady. It was the only thing sort of really growing in 2025. Now everything you look at is growing in concert. It really strikes me.

If I were to guess year-over-year, we've probably had 6% loan growth, somewhere in that range. Most of my career, we've not had -- since you started banking, when you started banking, you always had like high growth in the balance sheet and so forth because you were smaller. But other than that, it's been one of the most robust markets that I think I've seen in a long time. If there's things that were soft, maybe a little bit of softness in auto, but pretty much everything else is moving and not just large corporate, like middle market companies are spending money.

I guess CRE paydowns is something that has kind of constrained growth over the last few years. Has that kind of ebbed? And just how do you see that transpiring?

I think we keep talking about it, but I think it might be one of the most misunderstood things. And I have to tell a story to do that. So we write the letter every year. And I'm working with Brian Klock, who you know...

And -- 7 e-mails from him in the last 2 weeks on this.

7 e-mails -- so I'm working with Brian on the letter, and we -- I don't know, there's something in the draft in the financial section of the letter that I just basically why is this so boring? And we were keeping the same structure and format that we had, which is stuck with the balance sheet, what happened with the balance sheet, whatever. And so the question I ask is why did we do so well last year? And so fee income. And what you saw was all the decisions that we made over the last 5 years on investing in fee income businesses on moving, we reduced our balance sheet exposure, but we increased the number of capabilities we had to do real estate for our customers, and those became really robust.

So you're seeing that if you look at the performance in 2025, you see that for the first time, it's really solid. And then that continued into '26. And I think Daryl is thinking about making more transparent disclosure because it's actually changed the profile of the bank. And so the real estate side helped us really think about how we wanted to play in the segment, and we needed to do a bit of a pause mostly because you got to change your behavior of your teams, and that just doesn't happen overnight. But I'm really pleased with it. I don't know a lot of other places that were able to sort of reduce real estate concentration and actually not have it really affect their bottom line.

And you mentioned the importance of liquidity. Deposits have gotten a lot more attention of late. Maybe just talk to kind of what you're seeing in terms of growth, customer behavior, mix, pricing, just how the current environment compares to kind of what you've seen previously. And I'm hearing the Fed is going to hike tomorrow, just how that impacts things.

Yes. I mean underlying, if you think long term, accounts are growing. We're growing checking accounts on the consumer side. Most of our balance growth is probably dominated by the commercial side today, which is a little bit rate driven. So I think long term, we feel really good about growing checking accounts, which is the base that grows the long-term health of the bank. But it's not a surprise, we've got good solid loan growth. So that's going to drive higher pricing on deposits. And so that, I don't see anything unusual there. We're just paying up a little bit on our deposit base outside of DDA to make that happen. But it's worth it if you're disciplined, you're looking at the returns, you're bringing on relationships that have high returns in total with all the services you're doing, then you should be fine.

So I guess despite paying up for deposits, you still feel good about a high 3.60s NIM for the full year?

Whatever Daryl says is what I thought -- what is the truth. I think if you step way back for a bit, we have one of the higher margins. We also have one of the higher expense bases. Part of that expense base is really driving spending around reengineering processes and around tech. So some of the numbers are like $300 million or so 6 years ago. Last year, $1.2 billion, like we have to be able to keep doing that in order to sort of keep up with the speed and the competitive nature of the institution.

So as you think about that over time, one of the things that I worry about is the acceleration of things like AI, is not that coming of AI, that doesn't bother me at all. But the speed, if we wake up 1 day and find out that you can run a bank 20% more efficient, and it kind of feels like that could happen, right? You could wake up and find yourself that you could run a bank 20% more efficient, almost likely that goes to the customer, right, because everybody can do it, it becomes a commodity.

So at that point, you would begin to see margins actually shrink, right, for everybody. But, so how do you get margins to be, to stay wide or say top of the peer group. It has to be value-added tertiary services that somebody is willing to pay for beyond rate, right? And so that's what drives this idea that we really have to spend money on tech and innovation and understanding our customer because that's the only thing that actually can maintain a margin advantage over a long period of time.

Got it. I guess maybe just staying on deposits, a lot of talk around stablecoin and digital wallets, automated sweep technologies, just other innovations that could reshape it. I'd just love to get your perspective, you've been around the block like me, just how you think deposit gathering changes or not and just the role that banks will continue to play in that.

Yes. I think it's logical that the deposit gathering changes. I think that more transparent discovery of rates is probably going to make deposits a little bit, particularly deposits where you're paying interest, a little bit more commodity like. I don't know when that would happen, but that seems really logical. So the question is how do you play in that space? And how do you make sure that you don't have a disadvantage. So if you think about prior to the GENIUS Act and all the things that are going on today, like basically, most of the banks were prevented from using any of the new technologies. And so that's why we felt like 10 years behind some of the new entrants that have come out over time.

What we found one of the things we're doing is we're working on different projects with people. So one of them is Cari . And one of the things that we've learned is that these decisions that we made 25 years ago, like don't keep 2 deposit systems or don't have 3 treasury management services that feed into the 1 deposit system have become real assets because you've got less technical debt and you're rewiring and doing, you're rewiring the firm and providing services that are new with all these new payment capabilities and your ability to do that has a lot to do with how simple your structure is in the first place.

If you think about it, the people who are having the most fun are the people who are building a bank from scratch, right, because there's just no technical debt in that space. So I would say the range of banks and institutions that have low complexity to high complexity is really wide. And so it's one of the reasons why we're leaning into operational excellence because we've realized in order to use things like tokenized deposits and to have that interconnect with partners, the journey is different for different banks based on how much spaghetti they have underneath. So I feel pretty good about that. And we're positioning ourselves to be able to be really nimble as that evolves because I think the services, it's hard to tell which ones are going to survive.

Got it. I guess you touched on fee income earlier, but it's certainly been a source of strength last year, this year. I think you've guided up multiple times, including Monday night saying the 2026 is once again going to be at the higher end of the higher range that you've laid out. So maybe talk to kind of what's driving that continued upward revision.

Upward revision of...

Fee income.

Typically, if you think about regional banks, right, you don't think about the capital markets, right? But one of the biggest shifts that we have is that we're much more tied to the capital markets and the capital markets are robust, right? Think about our Wilmington Trust Institutional Services, you're basically getting paid for every securitization that happens. The fees aren't huge, but the volume of what we do is pretty significant. We mentioned the capital markets, our M&T Realty Capital core businesses are really robust. We've got partnerships with the private loan markets where we might be taking a loan on board and not keeping on our balance sheet.

So that's shifting to fees. So what you see as a robust loan market is actually also affecting our fee income. If you look at commercial mortgage underwriting last year, we did $6.5 billion that we put on our balance sheet and $6.5 billion that we put into the market. So the profile is really different. So some of it is just the robustness of the capital markets and the health of the markets. And some of it is literally the change in business model that we've had.

And just maybe one -- like you guys all discount every time we get some sort of a payment from Bayview, like excluding that, if you add up the money over time, like you shouldn't be excluding that, right, because it's an extraordinary asset manager that we have a profit interest in.

Yes. No, fair, fair. I guess Wilmington Trust, how do you think about where that fits longer term? What needs to happen to make it maybe a bigger component of the overall franchise?

Yes. I'd start with I just, I love what we're doing today. The ability to add that capability into our suite of services for customers is fantastic. We're talking a lot about this teaming together, which is basically using the bank to get at all of the customers' needs. So the private banking components there, the wealth components, the trust components are extraordinary beneficial to us. We're spending a lot of time as we look at this thing that has, in its current state has been maturing and is doing really, really well. The question is really, are there other segments that we're not getting access to that we should be targeting and thinking about?

And so not all wealth is created equal. It always strikes me nuts when someone says, we focus on high net worth individuals.

Have you ever introduced yourself as a high net worth individual?

If I was, maybe I would -- people run businesses, they have historically industrial companies, which is what the DuPont family built Wilmington on. They've had obviously the tech run. But you think about what's going on today, I mean, you're creating wealth at much earlier ages and the needs of those clients are really different. And the history of Wilmington Trust has been built for preserving wealth, but there's an entire market now today where people aren't really concerned about preserving wealth. They're concerned about what do I do? Can I do it a second time? Can I do it a third time. And so I think our job is to kind of look through and see if we can add capabilities that allow us to attack different segments. And we're thinking about that. We're really early in the stages, but I think there's an upside there.

Maybe just talk to expenses. I think that's kind of running at the high end of the range that you laid out for the year. Just where are you investing across the franchise? Where do you need to do more to kind of compete in the competitive landscape?

Yes. The way to think about what we're doing is we're revisiting all of our processes in the interest of speed and interest of simplicity and interest of the customer. So reengineering area by area. On one of the big opportunities for us is to look at, as we look at how do we look at credit and you think about credit underwriting. So you would say, okay, well, you guys have a great track record. What are you trying to do there? It's really about actually speed to market. How fast can you make a credit decision? How fast can you react on the front end?

And on the back end, are you using the current capabilities like AI and reengineering your space so that you can do anomaly detection to understand something's happened in somebody's checking account in one of your commercial customers and what does that mean for a credit event. So you'd be finding out about credit events much faster, which, of course, allows you to actually address problems that exist. So you'll begin to see like we've had, we used to be very siloed. So we had great expertise in credit in indirect auto and some of the national businesses. We had great credit around home equity and mortgage. And then separately, we have private banking. And then separately, we have commercial.

But if you think about it, while those are all different, the themes of speed, anomaly detection and those things cut across all of them. And so what you're seeing happen at M&T is a modernization of all of that stuff under a set of principles, which is what we call operational excellence. And we think if we can do that, we can simplify it, we can do a better job for the customer. 6 years ago, 5 years ago, we probably did 15,000 releases, new releases of things that affect the customer. This past year, we did 65,000. Like the productivity of the change is really, really high.

And so you'll see that cut across most of the major operations of the bank. We'll save a lot of money. The question is how much do we plow back into new investment. So this question, what's your 17%, 18% return. At some point, you start to get a little bit worried that the return is so high that you might be underinvesting in the franchise. And so it's, when we talk about 17%, it sort of is a bit of an optimal for us. But when we talk about where we want to be 20%? Well, the first question is how much do we want to plow back into the organization. And I think that number is high for a bank our size competing with very large national banks.

Fair. Maybe I'd love to hear how you think about how M&T is kind of approaching AI? What are you doing there? And where do you think the biggest use cases are in terms of is it lowering cost, improve service, enhanced risk management or something entirely different?

Direct AI, we have like 3 sort of things we're focused on. We have awareness of AI. So we've got 22,000 employees, 16,000 have become proficient in using some form of AI, and we create environments to continue to make that happen, but relatively very controlled environments. This is what Mike Wisler calls, we go really slow to go fast. We also then have the second 1/3 of that is we're looking at all of our outsourced technology and making sure we have our arms around what that is doing for us. That's probably one of the fastest-growing channels because they're issuing lots of products and services, right, that we will logically absorb without necessarily having to use our engineering capacity to do it.

And then the third thing is our experimental work around our own development using large language models. And there, you would see things like the credit. You'd actually see in the second category and the third category, things like credit, how do we speed up in those. Everything we do will be fundamental. If you think AI today, it's, we're using it in cybersecurity, we're using it in fraud. We're using it in credit. Just pick a fundamental. That's where we're concentrated. Maybe a little less customer-facing today, but I don't think that matters. I think we'll get there.

Got it. And maybe shift gears to capital. You're approaching your 10% CET1. Just how do you think about redeployment here -- from here, whether it's supporting organic balance sheet growth, returning capital to shareholders and buying back a fair amount of stock, maintaining flexibility.

Yes. I mean last year, 2025, we bought back 9% of the bank, kind of crazy. And I think we did that at $183 or $184. But that was just discipline of if you can't make loans at the right returns, you just need to slow things down and just not make the loans. But that changed. And so first and foremost, we're trying to grow our business. And so we got into a situation where loan growth has been -- has moved up significantly. But the thing that we keep talking is we're generating a lot of money. It's almost, you just step back and think about, we think about returns, but just absolute dollars as well, has allowed us to actually do both, grow the balance sheet and give back capital that is in excess.

So that capital generation rate, I think, sort of forces us in this place of doing something and the capital generation is growing faster than the bank opportunity growth has been. So I don't know it's not any different than we used to think about it ever. I do think that people underestimate the power of that capital deployment. We talk about, what does Brian talk about the tangible capital growth plus the dividend, right? And you look at those numbers over time, that has been extraordinary, really extraordinary. And if you think about it, it's way undervalued in my mind, not just for us, but everybody is looking for growth stocks, has been forever. We're not a growth stock. We're boring, but we're generating massive amounts of cash.

I guess on top of that, we're going to get this regulatory update with Basel III Endgame and the like. At some point, you guys will actually pick up a fair amount of capital because of that. Just how do you think about kind of deploying that pickup that you're going to get? And when do you deploy it?

How do we think about deploy? Well, I think our capital levels are like we don't need to actually raise our capital levels. So my sense is all of that will be deployed one way or another, whichever is the most positive economic value that we can get from it. So I think that is all upside. I think -- I do think about, more so about tangible capital and where we want to position ourselves. I wouldn't say I'm worried, but what I would spend most of my time watching is how much leverage is in the system. And I think the leverage in the system is high.

And I think it might, if you're using old traditional measures to look at that and that you might be missing something. We never had, you think about somebody has an account and they're invested in industrials and they decide to lever it, okay, you get that result. But now someone says, wow, I'm going to put 50% of my stuff in loan funds. So you're actually investing in debt, right? And then I'm going to put my margin on top of it. I don't think the world is wired to think about that level of leverage. And so one of the most difficult things is hidden leverage. And so it's probably the #1 thing that I watch for and try to learn more about as I think about our capital levels.

I think we're high a little bit today. I think we have excess capital still. But the question is timing, what do you think about the economy because I just wouldn't want to end up with having any low capital, right, when there was an opportunity set. And you know most of our expansion has happened, right, when there's been a slight downturn or some uncertainty in the market, we tend to be a safe haven and it's where we grow.

Maybe dovetailing on that, right, the environment from an M&A standpoint, from a -- and regulatory standpoint, it certainly feels a lot easier. And I think a lot of us came into this year thinking we see a pickup in just bank industry consolidation. We haven't. I guess big picture for the industry overall, like why do you think we haven't seen more activity?

I think it's a catch-22. We're dealing with humans, right? And they said, well, okay, regulation is going to be easier. It's easier to get your application in and everyone say, okay, well, this is going to be great. And then if you're a seller on the other side, you're thinking to yourself like, wow, this is an easy environment. I can make a lot of money. I'll go another 2 years, I really think that if you're going to predict which institutions are going to be around and which ones will take a path of not being around, it's probably the amount of investment they're making in new technologies and systems and those types of things.

So I think today, I would be surprised. People are sitting around probably looking at the midterms and trying to think if there's another 2 or 3 years of good growth and increases in the stock price. And everybody I would presume wants to sell at the high, right? So that would be my guess, right? The runway is sending 2 signals, one to buyers and one to sellers.

I guess you guys in the past have been very successful buying banks and adding them on to the platform. I guess, how is your appetite at the moment?

Yes. We're in very good shape, not only in terms of the numbers, but in terms of where we are operationally. And we've been talking about the boring stuff now for 5 years. We've done a tremendous amount of work all the way through our general ledger to our digital assets. So we're in a good place. If there's an opportunity to come up, it would not be hard to absorb a bank.

I guess when you think about it, kind of what fits, is it in market? Is it out of market? And kind of what strategic and maybe what financial metrics kind of matter more to you?

Yes, you know them all. Ideally, in market would be fantastic. It would be in markets where we don't have #1, #2 or #3 share. Those are places that are very attractive to us. And they're attractive because it helps us with local scale, helps us with advertising going further, brand recognition. And what's happened over time is since the franchise has grown, there are more of those places, right, in the Northeast, in the Southeast, Mid-Atlantic areas, there are ample opportunities for us to actually increase our density. And it's really important to us because I think that's what you're seeing on the balance sheet when you talk about our higher margins and those things where it's a reflection of how important are you and how dense are you in the markets that you have -- you choose to be in. If there was something that -- we look at everything, but most likely, those are the easy target targets.

You mentioned hidden leverage earlier. I feel like that's a topic from upcoming annual letter. In prior annual letters, you talked about this whole NBFI situation and expressed concerns. Just kind of what are you thinking about that currently?

Just to refine it, like I think the private loan markets have been extraordinarily beneficial to banking. And go back to when you started, and I was in my early days, we couldn't securitize a commercial real estate loan, right? There were no middle market loan funds. There was nothing like that existed. So we've got lots and lots of liquidity. That's a big plus for the banking industry. The one I worry about is the spot where you can't see what's actually happening.

And so my concern is lack of transparency more than anything else and complexity. And so you're always looking around corners to understand who's being really transparent, who really understands their balance sheet. That would be my, the way I would think about it. When you talk about hidden leverage, the hidden part is like really important.

Got it. And maybe just credit quality more broadly. It's, I think criticized assets continue to come down for you guys. Charge-offs are at the low end of what we would have expected, yet you've kind of built reserves in the last 2 quarters, I think, more so than most other banks. So is that conservatism? Is there something directly in your portfolio you're kind of concerned about? I mean your full year charge-off guidance implies an increase in losses in the back half of the year. I'm not sure if that's the right way to think about it.

I mean credit is good. I mean -- more inflation than you have. I do think this increase in rates thing is really interesting. If we're going to -- if the Fed is going to increase interest rates, it's because they want to slow inflation, which means they want to slow the economy. And so there's been so much robust growth across lots of industries, right, that you got to be careful because it's going to emerge. And it won't be one of these sort of like very direct things -- if you have data centers and things like that.

There's always the indirect benefit -- indirect issues like several years ago, it was natural gas in PA and you're like, well, I don't have any of that. But yes, you happen to have all the trucks that carry the water to do the fracking, right? If it's indirect benefits. And so everything has been so healthy that I think you need to be a little bit conservative because when that does slow down, in fact, when that we, when the government tries to slow things down, there will be an impact, right? You just don't know where it's going to show up. But I'd call it general conservatism.

Yes. I guess any, when you look at your C&I portfolio, any particular industries relatively more worried about commercial real estate, any particular segments that you're paying particular attention to?

No. We, I now have a weekly meeting where the credit guys take me through a different portfolio every single week. What that used to look like was -- do what you said, which is what's going on in NBFI, what's going in this particular segment, and we picked the ones that we are more concerned about. Now we're just going through as a routine, everything, just looking for a change, looking for something that's different than what we've seen in the past couple of years, but things seem pretty healthy today.

Got it. I'm not sure if you caught the presentation of the bank before you, but they expect -- spend the bulk of it saying how the competitive landscape among banking has just gotten a lot more intense lately, whether it's deposit pricing, whether it's loan pricing, how would you kind of, you've been around this a long time. How would you characterize the competitiveness today, both within the banks and then kind of feeding in from nonbanks kind of relative to where it's been historically? Is it accelerated in the last year or so or kind of just always been competitive in your view?

I think the biggest change has been the private loan markets going from very, very competitive in 2025. And then after those liquidity scares funding withdrawal scares they had pulling back and getting more conservative. And I haven't heard a lot of them getting really aggressive. But if there's aggressive in the market, I wouldn't be surprised if it's there as people get more comfortable. One of the really interesting things is when we had those withdrawal -- those nervous points around withdrawals, the capital markets were so strong that they could actually go outside and get funding, right? And so, which is healthy.

So that actually reduced that risk. And the question is, is that change in underwriting that we saw, which was dampening late 2025, has that been a permanent effect on them? Or are they actually pushing price? I mean the banking industry is always competitive, and you talk about it when you're bummed that you can't book loans over the cost of capital. We complain a lot about that, but the discipline is just trying to not do that, right?

Right. And before you touched on kind of a longer-term target of a 17% ROTCE. How do you balance kind of what's kind of profitability versus growth? And just how does like you think about it?

I mean I think there's 2 kinds of growth. Like what's going to happen tomorrow, right? Am I going to make a loan? Is someone going to draw down on their lines or whatever, that's fine. The longer-term issue on growth is are you going to be able to take share, which means are you going to be able to have capabilities. And so all that investing in either infrastructure or technology solutions closer to the customer. You think we talked, we've had it now for years. It's just been wildly successful, but our Nota thing that helps sole [ proprietor ] lawyers get around the risk they have of managing these not sure accounts. And that's probably, it's probably the fastest-growing deposit generator in our bank because it solves a problem for the customer.

And so you're looking for those types of things, and they're not things that everybody can have. The things that have to be really focused on the outcomes for your customers. So that's going to be our biggest demand for resources. Daryl runs a very interesting type shop where everybody comes in and says, here's all the stuff that I want. And then we make them talk about -- we basically make them do a pitch to talk about, okay, who is it going to affect and what's going to. And the biggest place where the demand is there. Think about cash management services on the commercial side and embedded banking, right? So how do we actually allow that customer to do business with us, but not get in their way. So we've made -- we're making some investments in those spaces.

Got it. And then as we sit here today, 2 weeks ago in the quarter, back in July, you were thinking about the world one way kind of fast forward to today. Any trends that may be different from what you thought?

Economy is strong. Not more to say. I mean I can't explain why the economy is so strong, but it is very strong on all fronts.

Does the Fed hike today change that?

I think it doesn't -- I guess it doesn't. And then the thing that's long proven, long studied is it takes 12 to 15 months for an interest rate impact by the rise or movement by the Fed to make its way into the economy. So you still have some time to think about even if they changed their posture and they were raising rates, you might get an initial reaction by the stock market, but you won't see it in the companies for 12 months. And so then your antenna is up and you're trying to look for where the problems might be.

Perfect. On that note, please join me in thanking Rene for his time today.

Thank you.

Welcome to the M&T Bank Second Quarter 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Steven Wendelboe, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Chelsea, and good morning. I'd like to thank everyone for participating in M&T's Second Quarter 2026 Earnings Conference Call. 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 Investor Relations website at ir.mtb.com.

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 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.

Thank you, Steve, and good morning, everyone. Before we discuss our results, I'd like to begin with what continues to define M&T, our purpose, to make a difference in people's lives by knowing them growing with them and connecting them with everything they need to thrive. That purpose continues to guide how we invest in our business and in the communities we serve.

During the quarter, we helped launch new initiatives to strengthen Boston's position as a premier partner hub for innovation in the partnership with the city and the Boston Foundation as part of You Can't Beat Boston initiative. We also expanded our work with the Spanish government and the ICE Ex to help support and connect international life science companies with Boston's innovation ecosystem. Together, these efforts strengthen relationships among businesses, institutions and communities, while supporting long-term economic growth in one of the most dynamic markets we serve.

We also celebrated the fifth anniversary of our tech hub at Seneca One and Buffalo. We started with an investment in technology talent that has become an important part of both Buffalo's innovation ecosystem and M&T's transformation. Today, the hub serves as a center for technologists designers, business leaders working together to improve how we serve customers and operate the company. Put simply, we are using technology to scale what has always differentiated M&T strong relationships, local knowledge and disciplined execution.

Turning to Slide 5. We are pleased to receive continued recognition for our company and our people, reflecting the strength of our talent and the trust we have earned in the communities we serve. Now let's turn to Slide 7 and our second quarter results. Diluted GAAP earnings per share were $5.32, up from $4.13 in the prior quarter. Net income was $818 million compared to $664 million in the linked quarter. M&T's second quarter results produced an ROA and ROCE of 1.51% and 12.3%, respectively. Our results reflect the highest quarterly diluted earnings per share in M&T's history, our earnings strength was broad-based. We reported the highest quarterly NII since 2023 and record fee income, excluding the impact of notable items from prior periods. NII was supported by the strongest quarterly loan growth since 2012, excluding acquisitions and PPP during COVID. We also returned to CRE growth with average balances increasing for the first time in 2021, excluding acquisitions. We remain disciplined in our profitability, maintaining our strong and stable net interest margin at 3.70 and in the backdrop of strong loan growth.

The asset quality continued to improve. Net charge-offs were 23 basis points and commercial criticized loans declined by $0.7 billion making it the ninth consecutive quarterly decline. While the recent stress test results do not affect our required capital levels, we are pleased with the outcome, which reflected an implied stress capital buffer of less than 2.5% at 2.2%.

Slide 8 includes supplemental reporting of M&T's results on a net operating or tangible basis. Net operating income was $823 million, up from $671 million in the linked quarter. Diluted operating earnings per share were $5.35 compared to $4.18 in the prior quarter. Net operating income yielded an ROA and ROTCE of 1.59% and 18.57%. Next, we'll look a little deeper into the underlying trends that drove our second quarter results.

Please turn to Slide 9. Taxable equivalent net interest income was $1.8 billion, an increase of $41 million or 2% from the linked quarter. Net interest margin was 3.7%, unchanged from the prior quarter as the earning asset yield increase was offset by higher funding levels in support of loan growth. In conjunction with the recent implementation of our new general ledger, we refined our methodology for calculating annualized taxable close rates for earning assets and interest-bearing liabilities. Previously reported amounts have been adjusted to conform to the current presentation. This adjustment provides a more consistent way of annualizing balance sheet yields.

Turning to Slide 11 to talk about average loans. Average loans increased $3 billion to $141.4 billion. Growth was broad-based across each of our portfolios, led by our commercial lending. Commercial loans increased $2.3 billion to $66 billion, aided by growth in middle market, business banking and several of our specialty businesses. Middle market balances benefited from higher utilization rates. Average CRE loans increased $57 million to $23.6 billion, reflecting strong origination volume. While not shown on the page, end-of-period CRE balances increased $1.1 billion since March to $24.5 billion, driven primarily by growth in multifamily and industrial.

Average residential mortgage loans increased 1% to $25.1 billion. Consumer loans increased 2% to $26.7 billion, with growth in the recreational finance and HELOC portfolios. Loan yields increased 4 basis points to 5.89%, mostly reflecting higher CRE yields, including a benefit from higher nonaccrual related interest. This quarter, our earnings release was enhanced to include additional loan balance detail, including industry breakouts for C&I property type for CRE and additional detail on the consumer portfolios. These details can be found on Page 16 of the earnings release.

Turning to Slide 12. Our liquidity remains strong. At the end of the second quarter, investment securities and cash held at the Fed totaled $53.9 billion, representing 25% of total assets. Average investment securities increased $0.9 billion to $38.7 billion. The yield on investment securities increased 7 basis points to 4.29%. In the second quarter, we purchased $1.1 billion in debt securities with a yield of 5.02%. At quarter end, the investment portfolio had a duration of 3.6 years and the unrealized pretax loss on available for sale was $125 million. While not subject to the LCR requirements, M&T estimates that its LCR at quarter end was 106%, exceeding the regulatory minimum standards that would be applicable if M&T was a Category 3 bank.

Turning to Slide 13. Average total deposits declined $0.7 billion to $163.5 billion. Noninterest-bearing deposits decreased $0.6 billion to $43.9 billion with lower institutional services and commercial, partially offset by growth in consumer and business banking deposits. Interest-bearing deposits were largely unchanged at $119.6 million. However, we remixed the portfolio by shedding the highest cost money market deposits and replacing them with lower cost time deposits. Interest-bearing deposit costs decreased 2 basis points to 1.95% with the deposit costs improving across most of our businesses. We remain disciplined in our deposit pricing with a 56% cumulative interest-bearing deposit beta since the start of the cutting cycle in 2024. We saw encouraging deposit trends later in the quarter to end of period deposits increasing to $168.9 billion, driven by commercial, business banking and trust demand deposits.

Though end-of-period trust demand deposits can vary each quarter, we usually see more deposit growth in the second half of the year and expect the trend to continue. This focus on deposits should normalize borrowings in the coming year quarters.

Continuing on Slide 14. Noninterest income was $740 million compared to $689 million in the linked quarter. Mortgage banking revenues were unchanged at $127 million. Residential mortgage revenues increased $7 million to $96 million from higher servicing fee income. Commercial mortgage decreased $7 million to $31 million, primarily from lower origination volume in the first quarter. Service charges increased $5 million to $144 million, reflecting higher consumer service charges mostly from higher transaction volume. Trust income increased $14 million to $197 million from a $4 million in seasonal tax prep fees and growth in Institutional Services and Wealth fee income. Derivatives and trading increased $8 million to $22 million from revenues from the interest rate swap transactions with commercial customers.

Other revenues from operations increased $26 million to $213 million, reflecting a $47 million value distribution compared to $33 million in the prior quarter and the higher credit card and merchant discount. While the timing of Bayview distributions can vary over the course of the year, the investment remains a meaningful and recurring contributor to our annual earnings profile. New this quarter on Pages 17 and 18 of our earnings release include additional details on the underlying drivers of our residential and commercial mortgage and other fee income.

Turning to Slide 15. Noninterest expense for the quarter was $1.35 billion, a decrease of $89 million from the prior quarter. Salaries and benefits decreased $88 million to $826 million from lower seasonal compensation and staffing levels, partially offset by 1 additional working day and a full quarter impact on the annual merit increases. Outside data processing and software costs increased $10 million, reflecting continued investments in technology, infrastructure and cybersecurity. The efficiency ratio improved to 52.8% compared to 58.3% in the linked quarter.

Next, let's turn to Slide 16 and 17 for credit. Asset quality in nonaccrual and criticized loans. Criticized commercial loans were $5.9 billion, down from $6.6 billion at the end of March. The improvement from the linked quarter was driven by $590 million decline in CRE, primarily from upgrades in multifamily office and a $110 million decline in C&I criticize. Nonaccrual loans decreased 3% to $1.2 billion and the nonaccrual ratio decreased 5 basis points to 84 basis points. Net charge-offs for the quarter totaled $80 million or 23 basis points, decreasing from 31 basis points in the linked quarter. Net charge-offs were granular with no single net charge-off greater than $10 million.

In the second quarter, we reported a provision for credit losses of $120 million compared to the charge-offs of $80 million. The allowance for loan losses as a percent of total loans declined 1 basis point to 1.52%. Turning to Slide 18 for capital. M&T's estimated CET1 ratio was 10.9%, a decline of 14 basis points from the first quarter. The lower CET1 ratio reflected $465 million in share repurchases and higher risk-weighted assets associated with $3.3 billion of loan growth. These factors were partially offset by continued strong capital generation. If included in regulatory capital, AFS and pension-related AOCI will decrease CET1 ratio by 2 basis points. Tangible book value per share grew 1% from the first quarter.

Now turning to Slide 19 for outlook. First, let's begin with the economic backdrop. The U.S. economy has held up well thus far through the energy shock, though we remain cautious. The increase in gasoline prices has been challenging for households. We see them having a shock by reducing spending in other areas and aided by a boost in tax refunds this year. Although the geopolitical conflict has not been fully resolved, we are cautiously optimistic with an outlook of continued growth. U.S. and GDP has slowed, reflecting slowing consumer spending. We do not see evidence of an energy shock seeping into core inflation, and we expect overall inflation to deaccelerate going forward. Encouragingly, job growth accelerated again in the second quarter as it did in the first. We remain well positioned for a dynamic economic environment.

Now turning to outlook. We expect NII in the lower half of $7.2 billion to $7.35 billion range in the full year NIM in the high 3.60s. We expect continued loan and deposit growth in the second half of the year with full average loans of $141 million to $143 billion. This reflects the strength we've seen in the commercial loans inflecting CRE balances and continued growth in consumer. Our deposit outlook remains in the $165 million to $167 billion range with a cumulative interest-bearing deposit beta in the low to mid-50% range. NII has continued to depend on the shape of the yield curve and loan and deposit balances.

We remain neutral on the short end of the curve. At the same time, our naturally asset-sensitive balance sheet provides flexibility and we can adjust our sensitivity as warranted through maturities of cash flow swaps, shifts in cash and securities mix and the addition of pay fixed swaps. We expect fee income to be $2.8 billion to $2.85 billion, reflecting broad-based rent in fee income year-to-date. The second quarter [ BAB ] distribution and the higher subservicing fee income beginning in the third quarter. Expenses are expected to be at the end of $5.5 billion to $5.6 billion range as we continue with our enterprise investments while maintaining overall expense discipline.

Given the strong credit performance in the first half of the year and our favorable collateral positions, we now expect full year net charge-offs of 37 basis points. We expect to operate the CET1 ratio in the lower part of the 10% to 10.5% range unless market conditions start to deteriorate.

To conclude on Slide 20, our results underscore an optimistic investment thesis. M&T has always been a purpose-driven organization 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, remain focused on shareholder returns and consistent dividend growth. Finally, we are a disciplined acquirer and prudent stewards of shareholder capital. As ranked and diversification of M&T's balance sheet capital, asset quality and revenue will continue to allow M&T to outperform consistently across cycles.

As we close, I want to thank all of my M&T colleagues whose dedication and hard work make a difference every day for our customers, communities and one another. Because of all of your commitment, M&T continues to create lasting value for everyone we serve. Now let's open the call up for questions, for which Chelsea will briefly review instructions.

[Operator Instructions] Our first question will come from Manan Gosalia with Morgan Stanley.

So Daryl, in the NII guide, I guess you're still pointing to the low end of the range. You upped the loan growth guide. I think you're guiding to some NIM compression here in the second half relative to the 3.70 or so in the first half. Can you talk about what's baked into that outlook in terms of, I guess, deposit pricing and loan pricing?

Yes, happy to. So as far as how we expect the balance sheet to go out, we have a lot of momentum in the loan area. If you look at the loan growth that we had this past quarter, it was very robust. We had growth in over $800 million in our middle market regional businesses. About half of that was due to higher utilization, the other half was permanent loans.

We had growth in a lot of our specialty businesses. Mortgage warehouse was up $350 million, institutional CRE $335 million, C, Corporate & Institutional, $309 million. Fund Banking was also up business banking leaf, lender finance and health care. So it was very strong, very robust. We had a really strong finish in the quarter in CRE. If you look at it on an average basis, we eked out a little bit of growth average over average. But when you look at the June numbers and what we put on the books, we're set to have really strong average balance growth in CRE in the third quarter just because of everything that happened in June. And then our 2 consumer portfolios, mortgage and the consumer indirect and direct businesses also grew nicely. We expect all those portfolios to continue to grow in the third and the fourth quarter.

We maybe not have quite as much growth in the in the third and fourth as we had in the second, but we're pretty positive that these portfolios will continue to grow and have positive momentum.

On the deposit side, we started the quarter off a little soft on deposit growth. but we've rebounded and you can't really see it in averages. But if you look at the growth that we had at the end of the middle to the end of second quarter, our deposit growth was really robust and strong. And really, and when you compare like June averages to second quarter averages, we're up $3.4 billion. So we have a lot of deposit momentum going forward. And I know that we had a little bit elevated in short-term borrowings. That short-term borrowings number is going to come back down now. It's already down a couple of billion dollars and it continues to come down as we start to grow deposits. Pricing-wise, our deposit betas are still in the mid-50s. It may eat down to the low 50s, but it's the right thing to do to grow our loans with core funding, which is what we're doing.

Maybe as a follow-up on capital. One of the things that Rene spoke about recently is how M&T has historically not done as many risk transfer deals as some of your peers. Now that we have the new capital proposals, is there any way you can help us think through what that opportunity is, how to think about the capital that you can free up and over what time frame?

Yes. So the Basel III proposal for SSFA-type transaction, specifically, limit the downside risk that was there before, and it can't get to dollar for dollar capital in the working situation. When it gets to the worst case of what the asset would have been if you put it on initially not in a secured type transaction. So that kind of puts the risk off of how much capital you would have to redeploy if things deteriorated.

So we have some products that we have out there. We're launching new products in CRE that will take advantage of that. growth will build slowly over time. But our CRE team is excited about that, and we'll have a little bit of growth this year, but that will grow more into the next couple of years as we move forward. And then in just the normal C&I space, our focus is really making sure we know what asset qualities are in the deals, how we monitor these asset qualities and make sure that we're very diversified in these. So we will, on occasion, do some of these transactions. So growth will be more than we have. We have hardly anything on our books today. So we're coming from a very low level.

Our next question will come from Erika Najarian with UBS.

Daryl, I heard you loud and clear in terms of anticipating seasonally stronger deposit growth in the second half of the year and your wholesale balance sheet will come down on the liability side. In the case though that loan growth continues, obviously, at this pace, you've hit an inflection point in CRE. Maybe talk through us about sort of how much you're going to potentially just market core funding versus go to the wholesale market. I'm looking at like an 18-month CD at 3.60 your -- on your website, which is lower, obviously, than your borrowing yield.

So as we think about loan growth continuing to outpace deposit growth even with those seasonal factors, how should we think about like the mix of your liability growth from here? And maybe sort of double-click on your comments on deposit costs.

Yes. Yes. That's a good question, Erika. Back early in the second quarter, when we saw the loan growth starting to come through pretty strong in the pipelines building, we met with all of our businesses in the company and really had them focused. This is -- I've only been at M&T for a little over 3 years, but I basically have -- we have both ores in the water. Loans are growing nicely, and we had to get our deposit growth up to grow nicely as well.

So we started with consumer and business banking, they have responded. They have promotions going on that are attractive and still at reasonable costs that we think. So in that they're growing commercial and wealth are focused corporate trust and we continue to get more escrow deposits in mortgage. So all those businesses are really focused at trying to grow deposits as much as possible. If by chance it's not enough to support the loan growth that we have, we have other alternatives. We've consciously been active in putting out securitizations, pending securitizations out there in auto and RV and small ticket leasing to make sure the investors know our collateral and all that. We could turn and dial that up if we had to. We could issue more debt, more Federal Home Loan Bank advances. So we have a lot of options. But the most important thing is to really focus and serve our clients and communities and really try to do it with core deposits to meet the core loan demand.

Got it. And just to follow up. If the Fed doesn't keep rates where they are, do you expect deposit costs to drift higher, given what you just said? And given what you said during prepared remarks about asset sensitivity, what does the 25 basis point rate hike due to that high 3.60s NIM as we think about the go forward and the exit rate?

Yes. So for the Fed and if rates stay, they don't change. The way I look at it is when you look at deposit growth, interest-bearing deposits are growing faster than noninterest-bearing. Noninterest-bearing rates are a little bit higher. We actually plan for rates being down this year. So we aren't meeting our expectations on DDA growth right now. So for every marginal asset you put on the books is going to be at a lower margin than what we anticipated to be. So that does put down a little bit of pressure on net interest margin.

But we operate with one of the highest net interest margins in the industry. I think we're okay trading few basis points away from that and getting more growth in NII. I think that's a fair trade. I don't think our net interest margin is going to collapse by any reason, but I think it's a good trade-off from what we see. And as far as the assets and rates going up 25, we're really neutral and our forecast already had as the steepness in the curve that we have today factored in for the rest of the year. So I don't think you get much change either way with what we have. A chance to get steeper, that would be a good guy. If it gets flatter, it'd be a bad guy. But we have pretty much of that factored in our forecast today.

Our next question will come from John Pancari with Evercore.

Daryl, back to the loan growth topic, on the loan growth trends are definitely encouraging. It's good to see the pipeline building and higher utilization. On the commercial real estate front, also going to see the inflection. What gives you confidence that, that inflection is going to be sustained here? And how should we think about the pace of growth there. I mean are you still selective in terms of your posture and that could impact the growth? How should we think about that trajectory? Maybe could you break it out on how we should think about the C&I side of it as well?

Okay. Let me start with CRE. So having met with our leaders and CRE and the team, they had a very robust pipeline and had a really strong finish, as I said, in the second quarter. that will definitely carry us strong into the third quarter. They still are very optimistic. When I talked about stem where they're seeing growth. We're originating in just about every segment you can originate and accept the office for the most part.

Our strongest obviously, are multifamily and industrial, but we're doing retail. We're doing hotel. We're doing homebuilding, construction, they're all adding to it. We put out a lot of construction loans over the last year or 2. Those are starting to fund now too. So that's another positive. So we're pretty optimistic on the CRE growth headed here now and feel good that it's going to be a good contributor to earning asset growth for the company. On the C&I front, I -- probably honestly, they had the best quarter you could probably ever have on this past quarter. I think 90% of all the businesses grew quarter-over-quarter, and that just doesn't happen very often in my career. So hat's off to Peter D'Arcy and his team there. They did an amazing job from that.

I think third quarter we're going to have to rebuild pipelines. I think we'll grow, but probably more modestly third quarter. And hopefully, we finished the year strong in the fourth quarter and have momentum going into 2027. But Peter has got a lot of motivated people. We've got a lot of products and services out there to serve our customers, and we're doing that and we're making a difference.

Got it. Okay. Great. On the capital front, CET1 at 10.2 came down a bit, but you had bought back about $465 million in the quarter. How should we think about the pace of buybacks as you are now looking at a faster pace of loan growth in front of you as well as other capital considerations. How should we think about the pace of buybacks as we look out through the rest of the year?

Yes. So we're going to target the 10.2 plus or minus range per capital. So buyback is going to be the tail on the dog. Depending on how much RWA growth we get through lending, we'll buy back what we need to basically stay at that level that we're currently at today is kind of how I would forecast it. It's just where we want to operate now and we'll see as we get into next year and Basel III gets approved, what changes we might consider. But right now, we feel comfortable operating in the low 10% range and it's going to -- how much we buy back is a factor of loan growth.

Our next question will come from Gerard Cassidy with RBC Capital Markets.

Thank you for the additional information on Pages 17 and 18 that you cited. The question I have for you...

We got more information coming. This new general ledger, we have -- we're going to have more information next quarter in the next couple of quarters. This is just the start of what we were able to do these days.

That's great. No, that's -- you're paving the way for others to follow. Question for you. On the sub-servicing number that you disclosed in June 30, I think it was $184 million, possibly or $184 billion. I guess it's billion. It's up nicely from the prior quarter. What's the driver? Is that the view? And how should we look at that number going forward for the subservicing residential mortgages?

So we just closed on another 214,000 sub-servicing loans. Some of the subservicing comes from BAB. Some of it comes from other customers. So it's diverse from that perspective. But what we just put on the books will be new revenue for the third and fourth quarter, probably second half of the year is about $35 million more in revenue is what you see. Costs are pretty much already there because we've been building and hiring folks for that. So that's already in the run rate. So it's really just the add of the revenue coming in.

It's a really great business that we have. We specialize in the hard to service more of the FHA type lending, and we do a really good job of that and people come to us to service their loans because of that.

Very good. And then circling back to your answer about in your career about the C&I loan growth you saw this quarter in all the different categories. Is there any way that you guys can get your arms around the impact that the AI industry. I don't mean just the building of the data centers. But is there any way you can get your arms around the second derivative of the AI industry impacting loan demand going forward, whether it's not just the plumbers and the HVAC and the [ cement ] companies, but just all the software companies, have you guys been able to dive into the portfolio to receive what kind of exposure you may have?

I'm sure, given our diverse portfolio that we have, there is some impact for that. But for the most part, it's really our core customers that we've had for a long time. And a lot of them are just rebuilding, putting on new equipment. If you look at our leasing businesses, both small ticket leasing and our equipment leasing grew really nicely this past quarter. So there's really just good core demand out there. The other thing I think, Gerard, is I think private credit isn't as aggressive as it was, and I think we're running back market share back in the regions, which is really what's helping us.

Our next question will come from Ken Usdin with Autonomous Research.

Just one question on fees, one question on expenses. On the fee side, can you just remind us the BLG won't repeat in the second half that you mentioned the servicing. I think you had previously quantified that. But could you just give us an update on like how much that servicing add will be and then just how you expect some of the other fee lines to traject from here?

Yes. So I just gave it on the last call with Gerard. So second half of the year, the new servicing is $35 million additional revenue in that line item. As far as BLG goes, we aren't on his board or anything. We just get distributions when he distributes money out of this company. So we don't really know how much or when we're going to get distributions. So it's hard to say when it's going to happen and how much we're going to get there, but we're happy to have it.

If you look at Bayview, and I looked at some numbers since 2020, we have almost $300 million of revenue that we basically received from Bayview. It can really tell that his businesses are growing nicely. He has a lot of momentum, and he's doing a great job. So in his business is helping and more benefiting from that.

Sorry for that. I guess I was really then focused on what -- if there's -- you can expect continued momentum in some of the other lines that you've seen really good growth in like service charges, trust notably have been really nice drivers.

Yes. I think some of the upside that I saw was wealth. One of our initiatives this year was to really focus on and really cross-sell our M&T commercial and business banking customers into our wealth area [indiscernible]. And the referrals had picked up dramatically more than double than what they were in the past year, and we're getting more wins out there, and we're having really nice growth in asset management, positive flows there in that area. So that's been really positive for us.

Corporate Trust, their global capital markets domestically and in Europe and really strong quarter, second quarter, really positive. They have a lot of momentum going on, which is really well. Treasury management is doing well, serving our customers. The other thing in capital markets, our capital markets area, we had a big quarter in our derivatives area that we sell to customer to our commercial customers. That was nice growth. So we really have strong robust growth and we're doing great there and true very positive on the momentum we have on fees.

Our next question will come from Ebrahim Poonawala with Bank of America.

Daryl, I just wanted to follow up in terms of -- so you talked about expectations that the deposit betas could maybe drift lower. But talk to us a little bit around. When we think about the strength on the C&I side on lending, the level of sort of deposit generation lending is doing today? Like is that a thing or not? Like my view of this was like when a bank makes a C&I loan, it does create deposits and that's a better negotiated rate on those deposits. But is that holding in the current environment or not?

Yes. I mean, even when I would say, private credit was more aggressive the last couple of years. We still had the deposit treasury management revenue. So that really hasn't changed. If you look at our regional middle market businesses and the growth that we're seeing there, we bring the whole relationship there. We have the loans, deposits and the fees all coming together. That's probably some of the most profitable businesses that we have in the company from that perspective. So that's there and live and well.

Now it's more aggressive to get -- it's harder to get DDA and people are more educated. So you put money in sweeps, but that just means we get fee income and less DDA. And you're seeing that this year and with rates a little bit higher. But net-net, overall, it's still a really good business to get deposits. And we kind of -- we go through the credit process if we don't get the deposit relationship right away for a new client, we give our customer time to get it to us. But over time, if we can't get that, we'll probably exit the relationship. It's hard to make it an asset alone only from our total return.

Got it. That's helpful. And just on the fee side, I mean you talked about the momentum on the fee revenue. But specifically, when we think about MSR assets, just talk to us in terms of how you all are thinking about it in terms of adding more and what the pricing backdrop looks there?

So Ebrahim, it's -- so our MSRs that we have on our books are really what we originate on the books, and that's really our customers there. When we talk about growing subservicing we don't really have an asset on the books. There's nothing to hedge. It's just a fee for service that we offer. So we have a lot of subservicing relationships that we have where they just pay us a fee to service those loans. It's not part of the asset that we would have on the books or anything like that.

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

Obviously, possible to see the CRE loans reflecting here. And I remember a while back, you guys talked about kind of broadening out that business that's not just a balance sheet business. So some of you hold from you'll facilitate out to other funders. Just remind us kind of what that opportunity might be more broadly speaking in CRE with the business just overall reflecting strongly like they have.

Yes. When you see our CRE business, it's really transformed significantly over the last 4 or 5 years. And we used to be a CRE portfolio, balance sheet only type of lender in that space. But when you look at our businesses now, we have a strong, call it, RCC, where we can originate and sell. And last year in 2025, we had the same number of originations in RCC as we had as we did on the balance sheet. So it was a really strong year. Rates were a little bit lower last year, and we benefited from that. But to get permanent financing, we were able to go to the agencies or insurance companies or others to serve our customers' needs from that.

But we've been growing those. I just talked about earlier on an earlier question, we have a new business called CRE warehouse, CRE warehouses, something that we're going to start up and start making now. So that's a growing business. We have our affordability businesses that are in there that are growing nicely, and we have our institutional CRE business. So when you look at it, Tim Gallagher, who runs that business and these 5 businesses. And he has a whole portfolio there, some on balance sheet, some soft balance sheet, some of it's fees, and it's really just transformed how we do business with our customers. But the number of customers we're serving is much more than what we had many years ago and all that and it continues to grow and prosper.

Okay. That's helpful. And then just separately, good trends in credit would you say we fully have normalized here or still from kind of those opportunities for criticized to come down and potentially some lumpy items as you kind of work through some remaining products?

Yes. So there's 2 things that I look at. So we give you a nonaccrual number and that nonaccrual number went down 5 basis points to 84 basis points. That's probably bumping along the bottom. It's like a 2-decade low numbers, so that's probably going to bounce around there and not go much lower or higher than what we see today.

As far as the criticized portfolio goes, we still have room for it to come down, maybe not as fast as it's come down the last couple of quarters, but we still are projecting it to come down. When you look at our office CRE portfolio, we still have about 24% that are in criticized there. We had some office loans come off of criticized this past quarter, and we think that's going to continue to happen over the next year or 2. So there's still room for it to come down. The C&I criticized has been coming down a lot slower, that will be more modest, we believe. But net-net, overall, we still think we have trajectory and room for the criticized commercial criticized to come down some.

Our next question will come from David Chiaverini with Jefferies.

The first one is housekeeping. On the NII front, how much did the nonaccrual recovery contribute to NII in the quarter?

Yes, great question. So if you look at our average commercial nonaccrual, it averages about $15 million a quarter. This quarter, we got $20 million, so it was a little bit outsized. But if you look at the first quarter, it was -- we didn't get $15 million. I can't remember what it was some single to maybe 6 or 7, so it was undersized. But we averaged about $15 million a quarter. So it's probably worth of maybe a basis point in net interest margin by this $5 million more that we got.

And then on the net interest margin, you alluded to the incremental margin being lower. Could you talk about a normalized NIM level over the medium term for M&T?

So I would say we'll operate in the 4.60s is probably a range -- 3.60, sorry about that. And the 3.60 is probably where we probably operate. We don't have any guidance going down in the lower range, but you said over multiple years. So it's -- right now, we are at 3.70, probably going down to the high to mid-3.60s right now and we probably hit in that range or so. It really depends on the shape of the curve on how our funding and loan balances are.

We have one more question. This one from Chris McGratty with KBW.

Great. Daryl, just on the expenses, the high end of the expense is unchanged, but maybe unpack where you're putting more dollars today, revenue producing, how that contributes to the outlook for fee income and the interest income?

Yes. We have expense increases in technology, cyber and all that, that's real and happening. And that's one of the risks definitely out in the industry right now. But from a revenue perspective, we've invested heavily in our mortgage area. I can see that by how much more subservicing businesses we're winning in that space. So that's a positive.

We're investing in our treasury management areas really well. In the commercial platforms, we came out with our new CRE warehouse business. So we're investing in all the businesses we can to help make a difference and help serve our customers as much as possible.

And at this time, there are no further questions in the queue. So I'd like to turn the call back over to our speakers for any additional or closing remarks.

Again, thank you all for participating today. And as always, if any clarification is needed, please contact our Investor Relations department at (716) 842-5138. Thank you.

Thank you, ladies and gentlemen. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

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

Happy to be here.

So Rene, let's get right to it. In your annual letter, one of the things you highlighted was the bank's ability to generate record earnings despite an uncertain environment, and we're just seeing more of that uncertainty play out in the environment right now. Can you talk about the ways the business model has evolved over the years, particularly on the fee income side and where you're most focused on investing now?

Yes. Yes, thanks. So I've been at the bank for 34 years. And it is really interesting to look back and think about sort of where we were, very small community bank in Buffalo, New York, fourth largest bank in Buffalo. And over time, I think one of the most important things -- 2 important things is in the early days, we had very tight inside ownership management, the Board, employees own 25% of the company. At that time, Mr. Buffett owned 8% of the company. So it was very closely held, and I think that sort of set the tone. And then #2 was that Bob Wilmers believed in talent. So immediately, when he came in 1983 to M&T, he brought pretty much all the JPMorgan training programs. And if there was ever a recession, instead of cutting them, he would double them because he would say that this is the only time we can get anybody to move to Buffalo.

And so when you sort of take the culture of ownership and you take the talent management, that has allowed us to sort of get through challenges, but more importantly, adapt and take on new businesses. So as I sit back and look today, there's very little that we don't do. We don't have a sort of hardcore investment banking unit. But other than that, all of the services that you could imagine would be there. Best way for me to talk about it is if you think about -- we've been on this journey for a very long time, sometimes through acquisitions, think of Wilmington Trust, grabbing the institutional business, grabbing the wealth business, all those capabilities have come together. And we were looking at the annual letter summarizing what we are doing. And the first draft of the financials, I thought was really boring.

And so I looked at and I talk to the team like why does it look so boring because it doesn't seem like anything happened. We didn't have very much loan growth. The balance sheet kind of stayed the same, but we had a tremendous year. And when you look back, it was all of those fee income businesses sort of kicking in, in concert. And so we had -- for example, we had overall 13% year-over-year growth in fees. We had high double digit, maybe 20-something percent growth in mortgage banking, which is mostly servicing portfolios. We had -- in our commercial mortgage servicing was probably up high teens. Trust income was up 7%. And then our core capital markets, some of which are new businesses, including institutional, were up in teens, right?

So all those businesses just have come along. If you think back to one example where instead of buy, we've built it is when we revisited all of our commercial real estate, most of the markets sort of shortened that into where we're going to lower our concentration. But what we actually said 5 years ago was that we're going to actually do more for the customer than we're doing today, and we're going to use less of our balance sheet to do it. And you really begin to see that if you sort of look at the numbers and how those businesses have matured.

As you think about the runway for the fee businesses from here, it feels like there's more room to go as well. As you think about the environment and you think about the investments you're making there, I guess, what kind of a runway do you see for the fee business?

It's almost -- like I said, it almost took you by surprise. We dive into each business. We look at the capabilities. One of the ones that we're looking at today, it already exists. It's running. It seems fine. But in terms of can we do more private banking, for example, I think lots of people don't think of us as a place to do private banking, but there isn't a product or service I can think of that we don't have. But how have we packaged it, how have we brought it to bear against our best customers, right? And what does that -- do people know that we have those services? So that would be one example.

Do you need to have a middle market investment bank?

No. We need to get really good execution for our customers who at the end of the life cycle are selling their businesses. And we need to be there to continue to advise them. And then to the extent that -- in that transition before that actually happens, as long as we have planning from Wilmington Trust and all that, helping them actually get through that period of time, then we're in good shape. We don't necessarily need to be the banker.

Got it. All right. Perfect. So the other aspect you mentioned in the annual letter was technology. That's been a big success story for the bank. I think you've tripled your tech spend since 2017. So AI is a big part of that, the next chapter for M&T's technology journey. So how does that fit into your operational excellence initiative for 2026? And what are you doing on the AI side?

The reason -- the real reason why we went backwards like 7.5 years in the letter to talk about the transformation is -- there's a couple of reasons. One, if we -- 7.5 years ago, we had sat here and told you what we were going to do, you would have shaken your head and probably sold the stock. So we're going to be -- we spent $325 million today. We're going to spend $1.2 billion by 2025. You wouldn't have understood it. And so we wrote that section, which was much more about talent, culture, how we think about investing in technology, what place does technology have? Is it a support service? Or is it part of your strategy? And that renovation has taken place over that period of time. And we think about the future very similarly.

So today, I think if you think about what we've done over the last maybe 3 years, we've replaced our entire general ledger system. We've gone end-to-end on credit and redid all of commercial credit from beginning to end. And every time we do that, we also put in a really robust data program. It's probably in its third year and maturing. But every time we go in and soup to nuts change everything, we're reengineering how the flow works. And then, for example, take the general ledger, there was a specific effort to say, okay, we're going to work on data quality now as we actually get into the redesign of the system. So all those things are preparation for whatever AI brings. But if you don't have your data right and you haven't got the basics right, it becomes, I think, a little bit unpredictable.

Yes. So the need for high-quality data is a prerequisite for a good AI story going forward, and you're already investing there. Maybe the last piece that you mentioned in your letter as well that it's -- and I thought your duty to slow down as speed limits road conditions demand. And part of that is, okay, where are we in the cycle right now? What are you seeing in the environment? Any broader thoughts there?

Yes. There's a bunch of ways I can go there. But that's what we do. That's our job, right? And we recognize that we probably have 3, 4, 5 different levers that we can pull to keep the bank healthy in any economy. And sometimes, you're fueled by high revenue growth that can be got with the right level of risk and return. But sometimes the market is just not offering that to you, right? So you can use the capital in other places. You can look at efficiency, you can do buybacks. And we're constantly in order to be able to do that, looking at these trends that we see.

So today, it's not a big problem, but we have been running credit spreads at really, really low levels for a fairly long time. That could be a good thing or it could be a bad thing. You're tighter, so you're priced for perfection in some ways. But if you think about like what happened with the private markets, and we had these sort of initial concerns about liquidity, the capital markets have been so strong that a lot of those places have now actually gone to the capital markets, shored themselves up, kept more liquidity in those funds. And that time that it has taken -- that's been allowed for that to happen has actually been really healthy. So I think versus the beginning of the year, when we were looking at all that stuff, I feel much better about it. But you are at abnormal times in terms of credit spreads. everything has kind of priced to perfection.

Are you seeing any competition on structure right now? Or is it mostly on spreads?

No, I think it's mostly on spread when we see it. But we're seeing very healthy loan growth. We're seeing our customers begin to draw down. We were talking about this earlier. The typical cycle is if you're holding lots of cash at the beginning and then you see your opportunity to invest it, the cash comes down first. That's the deposit pressure that people are talking about. And then utilization goes up and then expansion of lines, right, and those types of things in that cycle. And it seems to be following that normal cycle.

So given the dynamic macro environment that we're in, and it's not to say it's never -- it's always dynamic, right? But what are you hearing from your client base right now, ability, willingness to invest, willingness to take on loans?

I mean it's healthy. It's really healthy. We're not hearing negatives. As I said, people are drawing down on their lines. They're doing projects maybe more so than a year ago for us, trying to think if there's anything else there. We are seeing -- if we get deep into our customers, I'm thinking of a customer who does gaming, entertainment, they're seeing at the low end, people spending less, less discretionary income at the low end. And it's not subtle. It's very noticeable, but that hasn't sort of resulted in higher delinquencies or anything as we see today.

So what are you seeing on the credit side?

Credit is improving. I mean just nonperforming just keep -- have steadily come down. I don't know how many quarters it's been, but it's been -- has 9 quarters in a row of improving credit trends. So things are headed in the right direction.

And commercial real estate is part of what's driving that improvement. Anything outside of CRE that you're seeing, any areas of concern that you're focused on?

No, we really haven't. I think for a while, we saw some slowness in consumer demand. I think RVs, think auto. Auto is -- for the entire industry has been soft for the half -- for the entire auto industry has been soft for the last 6 months. We thought it would bounce back after the weather. It did for a month, and then it sort of tapered off again. But as we sit here today, we still have growth in consumer, good growth in home equity. So people are active. And it almost feels like 18 months ago, everybody was waiting for a shoe to drop. So they sat on the sidelines. And as nothing has happened, right? They're like, well, I guess, I got to go do this project.

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

Yes, the consequences haven't happened.

Fair enough. The one area that you spoke about constantly looking at places for hidden leverage and you highlighted some of the risk transfer trades that many of your peers are doing. Can you elaborate on what your focus is there and what you see as a risk?

One of the things I'm really proud of, and I guess it's our culture, but it's not just people who have been there for a long time, people who have joined, all have this curiosity for understanding like what's happening, why are we slower? Why are we faster in different places. And so there are a number of places that we sort of step back and look into. Risk transfer trades is one. And the way I think about this is that's really a story about capital efficiency. And so if you look at our capital structure, where we're a little bit different is we have a really high tangible relative to our regulatory capital. And what we believe we're really managing is tangible capital. And when you look at why that is, there's a number of reasons, but one of the reasons is that we don't do a lot of risk transfer trades. And the reason that we didn't like them, I think we have 4% the median is maybe 8%, somewhere in there, and then the high is 15% of your loans in that space.

We didn't like them because if there was a delinquency, it would go from low risk-weighted capital, let's say, 20% or something like that, up to dollar for dollar, so 1,200 [indiscernible]. And we just thought that when an economy takes a turn, you're going to get hit twice. You get this delinquency and then you get more capital that unwinds. With the new capital regulations that are coming out, it looks like that only goes to 100% risk weight, right? And so that changes it. So either we will use that lever and we can buy back more and have carry a lower tangible or we'll actually just keep our risk profile modest, right? So it will be adjusted. So I think one of the things we don't get a lot of credit for, which you guys years ago used to give us lots of credit for was sort of a risk-adjusted view of our -- of buying M&T Bank stock.

We still give the stock credit for it, but yes, I hear it.

I'm not looking for it. The -- but there are lots of examples like that, that we can do things, but we're sort of looking at the economy, thinking about whether we really should, it's all a game of leverage, right? We wouldn't be better. We'd just be using more leverage, and that would be -- provide a better return to the shareholders. And so we're always thinking about whether we should or should not do that.

And the other area we're always thinking about is the risk that you're putting on the balance sheet as well. Daryl is sitting in the front row here. You mentioned on the earnings call that M&T is choosing not to chase growth if a transaction doesn't meet underwriting standards. And I think, Rene, the question for you is, as you see competition intensifying, why are you seeing competition intensifying? Do you think it's because everyone is freeing up capital and trying to deploy that capital? Or are there other factors that are driving competition higher?

Well, I mean, the market is much more dynamic. We just think of the private credit space and the volume is really high. So there's just more people in the market. I wouldn't characterize, particularly on the asset side as like frothy or anything like that. On the deposit side, I think you're seeing more competition, but that just makes sense as well. Talking about the cycle, there's more leverage out there in the system. The more leverage you have, the more funding you need. We're just at that part of the cycle where the real value of deposits is super high, right?

So as we think about deposit competition overall, the value of deposits is high. I guess deposits are coming down as corporates are spending down part of it. You also have value of the curve is higher, you could get rate hikes in the future. And even if we don't, I guess, as a bank, you do have to prepare for that. So is -- I guess when you put everything together, what are you seeing on the deposit competition side? And what are you doing to get ahead of it?

Yes. I think -- I mean, for a long-term measure, for us, it's like are you net growing more checking accounts, right? And forget about what the balances are in them as long as they're quality accounts that people are actively using. But I think that -- I say it like, I do it this way. If you look at internally the way that our structure works, we have these 13 states that we bank in, they provide the depositories. If we're doing middle market lending or commercial real estate, that funding source is the source. And then we also have a lot more deposits than we have loans. And so we're in these national businesses like RV and indirect auto and so forth.

And what we tend to do is we think as you get further away from home, so as you get into things like a 14 to 15 states, you're really actually pricing those things based on wholesale funding. right? So you're thinking about that. And that really comes to bear when there's a really tight space in liquidity. You will see us go 100% to wholesale funding on auto loans on anything that's out of state or that's national. And that's because the market allow us to bear. So you might actually see in that period of time, like on a relative basis, deposits actually going down. But it's not -- how do I -- economically, we've actually considered that already.

From a funding perspective, you're saying it's the same.

So the balance is going up or down over a long period of time don't matter as much as are you growing your customer base? Do you have more customers that are providing the inventory?

So as you think -- okay, so when we're talking about the 13 states, you've mentioned that there's a lot of advantages that you see of increasing density within existing markets. So can you talk a little bit about that? And why is it only the existing markets? I know when you go to a new state, initially, you're probably paying wholesale funding. But I guess, over the longer run, does that still make things?

As we -- I'll try to do it this way. As we look over time and how we've done things, most of our decisions have been to try to get us to 1, 2 or 3 deposit share in the places that we bank. At times, we'll go into a new market where we won't have that. So think Hudson City and New Jersey. New Jersey was a big hole in our market. We had to go there, but we went there. We had a market that actually didn't have as much, I would say, market power, right, because the credit was thin. And if you did that over and over again, and you took on too many of those things, it would actually affect the entire franchise. And so we're -- it's why we have a bias for in-market deals for fill-in deals, a bias for adjacent deals. So it's not that we wouldn't go to another state. It would just have to be the right economics, right, in the right situation, and we've done that time and time again. But our bias is not to leave behind a set of markets that are underpenetrated, right, because we think that over time, that produces a pretty weak franchise.

Baltimore has also been a big success story. So can you talk about what worked in Baltimore and how you're thinking of applying that to some of your other key markets in New England?

Yes. I think the playbook is pretty clear. First of all, we tend to be relatively patient. So I often said and sometimes got in trouble with my boss that it takes 7 years to actually effectuate an acquisition and have it be an M&T Bank region. And that sort of bears itself out. People have to get to understand the culture. They understand the new products and services that we have and are able to sort of bring them to bear for the customers. But we are on a steady roll from we entered in 2020 -- I'm sorry, in 2003. The crisis provided us the ability to actually expand more. And then at some point in maybe 10 years ago, we were looking at the numbers. And although we had good share, we were losing ground to one very mega bank on the retail side and to another regional bank on the loan side. And we just decided to convene and figure out why. It's really interesting.

We get a group of people in from Baltimore to come to Buffalo and we sat down and talked about it. And we said, what do you think it is? And [indiscernible] think it's 1, 2, 3, 4, 5. We said, well, there are 5 things why haven't done it? And they said, "Oh, because we didn't know we had -- we didn't have permission to do it." Like crazy things. Like we look every 3 years at the branch network and figure out the timing of flows and how it should be staffed. But in Baltimore, they already knew that they were going to lunch at the time when the customers were coming in. And so we basically said, wait a second, you guys run Baltimore. You guys can go address all the customer needs, make the changes you need to, and we'll try to step out of the way. And that resulted in just a massive ramp-up.

And so today, 2 fun things. If it's Sunday and you turn the radio on and someone's going to the football game and they ask where you're going, the person on the radio says, I'm driving to the bank. Two years ago when Lamar wouldn't sign, people started coming into the branches and saying, when are you guys going to get that done? Like that's how integrated it is. And so when we talk about places like Boston, you're thinking loan growth, you're thinking balances, we're thinking relationships. And how do we have perceptive scale where we're much bigger than we peer. And most of that comes from massive amounts of community engagement, right, and being there after 5:00 in the places that matter. So -- and it tends to work and it tends to give us huge amounts of density and then we become a preferred choice amongst scarce choices that you have today because the number of banks are getting smaller.

How long does that take in terms of developing relationships, bringing in the customer set, especially as you get it.

It takes time. I think in -- what are we in? We're 4 years in on People's Bank and really moving to New England. And I feel like this last 6 months this year, we're starting to get lots of traction. Volume is up. People know us. But I think the work continues to be done, right? We're still not -- we're probably #2 -- 1 or 2 in Connecticut in share. We're #1 probably in Vermont, but we're probably 5 or 6 maybe in Massachusetts and then the surrounding areas, right? We're not in Rhode Island. So we have a great playing field, right, to do the work. It just takes time.

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

So it's important to talk about how we got there. So this last year, we started asking the executive team individually, what did they see in the markets in terms of opportunity? And what really struck a couple of us was that the group was seeing the same things, but they weren't talking about it. And so we then said, well, why don't you guys get together and share your ideas with each other because I think you'd be surprised and then we pushed them to say, okay, what would you do with it? And that's where operational effectiveness came, but also most importantly, that's where teaming for growth came. And so the teams just felt like while they were performing well by historical standards, they were leaving lots of things on the table because they would run into -- somebody who was using business banking, but they wouldn't even know that M&T owned Wilmington Trust, right?

And so this idea came up from them, which was how do we actually bring to a single customer to bear all the resources that we have to solve any problem. And it's a deep problem because our management systems were built 40 years ago to run as fast as you could in mortgage, to run as fast as you could in any other space. And so we're beginning to shift those things, right, to bring the full bank to the customer. And it's in the early stages, but there's some really simple things that we could be doing much better around when someone shows up for a mortgage, what do we -- do we introduce them to the retail bank side. If we sign up a new middle market customer, did anybody ever mention that we could actually do bank at work and do the direct deposit and open up accounts for your employees, right? So that's a program that existed, but it wasn't linked to actually introducing ourselves to new customers.

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

One of is a massive amount of awareness on the issue. #2 is actually meeting like really your meeting routines. So if you go into the Springfield office or the Boston office or the Hartford office, there are routines where people are meeting across divisions to talk about opportunities that we just didn't do before. We did them within mortgage, for example. So we brought them to bear in that way. And now as you move forward, it's closer to how do you change the incentive system and the reward system such that in addition to saying you had a great year in commercial real estate, you are part of a region, right, that engaged in providing more services per customer, that's a kicker. And so we didn't have that. So if Baltimore did really well, we didn't actually say Baltimore did really well. There was a team effort, it was a compilation of individual businesses. So we have to change all those things. And it takes time, but it's pretty logical. I think it's -- I think about it as really low risk-adjusted growth that's in front of us.

So that's still in progress.

It will be in progress for a long time. So these sort of 2 priorities are everything else we do has to be in service of those 2 things. Either we're getting super, super efficient, data capture, all that stuff, right, or we're actually just bringing more to bear for the customers.

So that helps you on the lending side, deposit side and the fee side?

Yes, the whole thing.

Okay. Perfect. Okay. Maybe we'll pivot over to capital. You brought that up earlier. Excess capital has been for M&T, one of the highest in the group. Can you talk about how you approach capital management? And how do you think about -- you mentioned tangible versus regulatory capital. Can you dig in a little bit more there?

Yes. Well, I'll just -- I'll start with those comments. You see the way we think about capital is really about tangible capital. We've gone through a period where we were carrying excess just because there was a lot of uncertainty, and that has been reduced through share buybacks. But I think we think about capital, the same capital thought process is in every decision that we make. So if we're buying a bank and the way that model looks and providing free cash flows to shareholders is the same way it looks for a loan or buying a branch, right? It really is a fairly consistent method over time. So it gives us choices as to what we can do with the capital. And if none of those things actually are available to us, then we give the capital back to the shareholders.

If you think about the new capital rules, for example, people are asking the question, okay, what does that do to your risk weights? And for us, I think it gives us a boost of 1% or 1 percentage point on the capital ratios. And that's fine. That has some economic value. But the real value is on every incremental decision you make from today on. So we're about to launch internally our new capital scheme that should the rules get approved the way they are, which I think they will, it changes the decision on every loan. So you look at a mortgage, that mortgage actually needs less capital. It doesn't mean that, that whole thing is going to come to us. But what it means is that some portion of that is going to go to a lower price to the customer so we can hurdle.

So step back, really what you're seeing with the capital rule is we saw a massive shift because of a lot of excess capital that was put in by the rules to the private markets. You're seeing a slight shift back, right? So it should produce growth. And we underestimate that growth potential. We tend to look at just the point in time, how much capital you're able to free up and give to me. But it's actually more powerful than that.

So part of it you pass on to the customer, part of it is your own proxy and your own returns as well. When you're thinking about, I guess, tangible versus regulatory capital, not many talk about that. I guess, do you anticipate that being more of a focus among the investor community or other stakeholders at this point?

We talk about it because we're just an outlier, right? We just have a high tangible. One of the reasons we have a high tangible is we didn't put on long-dated securities, right? So our AOCI is minimal, if any. And so I think people don't -- when they're talking just about the ratios, they don't. But everybody is actually managing return on tangible common equity, right? And so you have to be consistent all the way through. So when we look at that, we think apples-to-apples, it's not just that we're at, I think, 10.3% or something where we finish the quarter and [indiscernible] 8.6%, yes. So some are thinking, oh, well, now you're down to 10%, so you're done. No, not really. We can look at our balance sheet. We can look at the risk transfer trades that I talked about, right? We can think about the mix in the balance sheet. We have a lot more to go to be capital efficient because we have such a -- we're probably at least a point higher than everybody on tangible. So that's an asset that we've got to figure out how to deploy in a safe way.

And how quickly do you think that can get, I guess, freed up or deployed?

It just depends on what the opportunity is. It gets freed up pretty quickly, and you can do it pretty quickly if you do an acquisition because you're restructuring everything, right? But you're always trying to make prudent individual decisions all along the way. And if we were to sort of say, well, temporarily, we're going to put on a bunch of mortgages, it changes the culture and the psyche of the firm. You don't really want that to happen. You want people to make the same sound decisions loan by loan, customer by customer, right? And then at the top of the house, we'll figure out how to optimize the balance sheet.

So how does it change in terms of how you allocate capital under the new rules, whether it's more in mortgage, more in different areas? How does that change? Even if it's over time, how does that change?

Yes. I mean it's a relief and it's more of a relief for residential mortgages than real estate, and then it changes the quality, right, because now it's based on LTV and the quality. So it's just more aligned with the capital rules and all of it should be net-net more growth in the industry, a better position.

So I guess you spoke about returns as well. And part of the debate is that as several banks free up capital, right? Like you were an outlier with a strong capital position maybe a couple of years ago, but as more and more banks free up capital, whether it's for the new rules, whether it's accreting more capital. How do you think about just competition overall, a lot of those -- the benefits of that improving ROTCE with the new capital rules being competed away? Just big picture, how do you think about that?

Let me rewrite your question. Now that we're past it, what you could basically say is that we didn't go long. We didn't lose hundreds of millions of dollars, and we gave you that capital back. That's what all the buybacks were. They were from just a very prudent capital-centered decision-making process, right? And so the question is, what are we going to continue to do things at capital that are relatively prudent. And I think they are. I don't worry too much about -- it's better for everybody if we're more capital efficient as an industry. But at the end of the day, we just want to be the best bank for shareholders. So we just want to make prudent decisions and find those and that stretch, for example, for a couple of extra basis points when the downside risk is really high.

So -- and it works that way in our compensation structure. If we get a 17% return over a 3-year period, we get paid a certain amount, which is more than the base. If it goes to 19%, we don't get paid any more because we don't want to underinvest in our franchise. So we're plowing it back most recently into technology. And if it goes below that, and it's because the industry is having a difficulty, we look at our performance where we're in the first, second, third, fourth quartile, right? And that's all built into our structure. So we're just trying to be the best bank over long periods of time.

Yes. I guess my question was more for the industry. Do you worry about that impacting industry-wide returns? And as everyone frees up more capital, just more capital getting deployed at lower returns.

I think it's all -- no, I don't think there are lower returns. I think step back, we were at a place where there was a proposed rule that would have had the largest banks have 20% capital. Like that just got reversed. That's essentially what happened, right? So we were going to see a big slowdown in the banking industry, and it was probably all going to be picked up by the private markets. That didn't happen. That's a good thing. And 2, it went lower, right? So it means the banking industry is more competitive.

Got it. All right. Perfect. Maybe to end, you're also Chair of the BPI and you have more unique...

A couple more days. A couple more days. Charlie is taking over.

So I hear you. And I guess maybe talk a little bit more about the broader changes to the regulatory environment. There's growing discussion around liquidity regulation. And what are the main things that the BPI has been focused?

Well, you've seen there's been a lot of change right down to the original capital stuff. It's been tremendous. I think all very, very positive. I don't worry about any of them. I don't think we've pushed anything too far. I do think in the remaining space, the probably most important thing or the prudent thing to keep talking about is because of liquidity is sort of the discount window idea of how do we make -- get rid of the stigma for that, how do it's a source. So how do we actually use that in our sort of inventory of weapons around liquidity. And I think it's particularly important because we're talking about AI reengineering speed, speed at which decisions are made.

And so if you think about the rapid increase in speed that you could get for a run on a bank, then you have to do something structurally in the system as well, right? And actually bringing maybe the discount window in a safe way back into its original purpose would be a positive. I think -- so that is a discussion out there about that. I think it's a really prudent one to have. And if we could figure out how to lower the stigma, but not get rid of this idea that you can't have 100% of your funding be the window, then I think we'd be in a better place, more safe and sound place.

Got it. All right. With that, we're out of time. Rene, thanks so much for joining us.

Thanks for having me.

We have M&T Bank with us. From the company, we have Daryl Bible, Chief Financial Officer. Daryl, thanks for making it over. Yet again, M&T has been a strong supporter of this event. I've been doing this, I think, 25 years now, and they've come, I think I want to say the majority of those. Daryl, maybe the best place to start is for maybe some of those that are in the audience, maybe less familiar with M&T. Just maybe talk about your approach to banking. M&T is, I would say, a little bit different than maybe you're just playing vanilla regional bank.

Yes. Thanks, Jason, and thanks for having us here again today. We love coming over to Europe, meeting with investors and all that. So M&T Bank is a regional bank. We operate in the Northeast and Mid-Atlantic. It's 13 states plus the District of Columbia. One of the unique things about M&T Bank is we run a community banking model. It's kind of our differentiating factor. If you think of it, we have 6 businesses that are verticals that we have, but we also operate horizontally across the 13 states with 27 banking regions. We have 27 regional presidents. Those regional presidents help drive the sales forces and really know the communities that they're in to help us be most effective in those serving customers and communities that we offer there. Some of the things when you look at M&T Bank in the last couple of decades going through the Great Recession, we were 1 of 2 banks that didn't cut our dividend.

We were 1 of 3 banks that didn't lose any money during the Great Recession. So we're very conservative, very consistent type performing company. We generate a lot of capital. We return that capital to shareholders in the form of dividends and share repurchases, and we continue to execute. Probably our strength that I would say most is that our credit underwriting is really strong. When people look at our loans and our loss rates, we really thrive in times of stress because we really underperformed from a very low credit loss perspective.

Got it. I guess there's 2 priorities that you've been talking about for M&T this year, operational excellence and teaming for growth. Maybe just explain why these matter and what traction or progress you're seeing around these priorities early in the year?

Yes. These are 2 really great priorities for this company. Let me start with teaming for growth. Teaming for growth is really taking our community banking model and double down on that and that we really want to make sure that when we go out and meet with our customers that we bring the whole bank to our customers. So it's all about deepening wallet share, cross-selling and all that. Since we've had this priority now so far this year, we're starting to see positive signs of that actually having a positive impact on us and on our customers. We're getting a lot more referrals from business banking and commercial to our wealth areas. We're getting a lot of referrals from also business banking and commercial into employment -- employees at work, so we can basically cross-sell retail checking accounts and banking services to the employees of our customers and all that. So it's really a positive thing that's going on in the regions.

Our regions are starting to grow because of this, which is really positive, both on lending and deposits side. So we're off to a really good start. From an operational excellence perspective, think of this as really taking all the operations that we have in the company and trying to simplify and automate those operations as much as possible. So we're going into our areas and operations and trying to ask our employees, what things can we stop doing? The more we could stop doing, the more we can simplify our operations and get things done simpler, more less expensive. In the end, as we implement operational excellence, we'll have lower FTEs probably and lower costs. But it's all about putting together a bank that can basically grow double or triple in size, but be less complex as we kind of grow because we try to simplify how we do things as much as possible.

And maybe pivot to the outlook. There's been, I guess, some movement in your guidance. But during the earnings calls in April, you guide -- you made some small tweaks to the ranges, which imply modestly lower estimates -- then during the prepared remarks, you talked about strong pretax pre-provision revenue and earnings in line or possibly exceeding expectations. And some positive commentary on fees in your slides on Monday or Friday. So just maybe kind of tie that all together and kind of what's your messaging you're trying to get out there?

It's fluid. I tell you that. We started the year a little soft in some of our lending areas, and we talked about that on the earnings call. That was in CRE and in our consumer book. But since March, what we've seen in the CRE book, really strong demand, strong production. We had over $1 billion production in March. We had a really strong April as well. CRE is going to grow this year, probably in the next quarter or 2, very, very good positive momentum in that portfolio. Really happy to see that. On the consumer portfolio, I would tell you, home equity is growing, but the indirect portfolios, auto, boat and RV got off to a really slow start because of the weather. I think since March, we're starting to see more activity there, and we're starting to grow our indirect portfolios, which is positive for us. For us, that helps us with a net interest margin perspective because those tend to be our higher-yielding assets that we put on the books.

One of the reasons we guided down in our NIM during the earnings call was because we weren't booking the higher-yielding consumer assets. Those seem to be coming back online, which is positive for us. On the fee side, we've had 2 really good years in fee growth. This year is looking to have another third year of really strong fee growth. We're getting opportunities to continue to grow our mortgage servicing business, sub-servicing with some of our customers. That's a positive provider for us. We're also growing our capital markets functions, growing corporate trust as well and Bayview continues to support us and give us higher distributions because they're performing really well -- as well from that perspective. So fees are on an upswing again. Not sure if we'll get double-digit growth, but we'll have really strong growth in fees and exceed our expectations.

All right. Maybe kind of delve a little bit more into that. I guess just first on lending. I thought on the call, you made an interesting comment on the earnings call that loan pipelines remain strong. We chose not to chase growth or yield if the transaction doesn't fit your underwriting return standards. Maybe just expand on that. Are there any particular areas you're concerned about?

For us, when we're out talking, trying to grow and meet our customers' needs and demands, we go through this, and there's obviously a lot of competition in the marketplace. We are very loyal to our customers. If we're going to stretch for anybody, it's going to stretch for people that we've supported over the long period of time and that actually supported us as too through some challenging periods. So from a pricing and structure perspective, we'll support our customers long term. If it's a new customer coming in, we're going to try to keep it more consistent with our normal underwriting standards from what we have. It is very competitive out in the marketplace but we are getting our fair share, definitely in the C&I space, both in middle market as well as in our specialty businesses.

I guess in middle market, saw a good pickup in growth there in the first quarter. Maybe just kind of double-click on that. What are the specific drivers there? And can that strength persist and maybe just the overall health of the commercial borrower?

Yes. So if you look at our borrowers today, they tend to be really resilient. And the last year or 2 under the new administration, there's been a lot of things changed have been thrown out into the marketplace, whether it was tariffs, tax changes and all that. And some of that has been really positive. But they tend to be really resilient, try to figure out how best to operate. There's always a handful of people that maybe can't adjust. But when you look at it net-net, overall, I look at it from our portfolio, our portfolio continues to improve from a credit quality perspective. So net-net, our customers are very healthy from that. I would say, if you look at middle market, our utilization numbers are higher. People are investing more than they have. We see investments through our leasing businesses that we offer. So people are doing capital investments. So that's positive to see out in the marketplace. So it's -- I think it's good and our producers are out there meeting the needs of our customers and all that seems to be going very well.

And then you mentioned specialty lending businesses. Maybe just delve into that and maybe explain what are kind of some of the key growth drivers there?

Yes. The majority of our specialty lending businesses really came from peoples and we've rightsized them. So corporate and institutional is really large corporate lending. You can make loans there. Those are usually really high-quality loans. To get your return hurdles, you have to cross-sell and get your fee income. We've had nice growth in our capital markets area, which is helping get the returns higher in that space. So we're continuing to drive and have success there. We've been growing out our fund banking, which is part of an NDFI portfolio, but it's what we think a very safe type of loan that we have, capital call lines. That's growing out nicely. We have some franchise lending in that space. We do dealer commercial services. So it's a mixture of businesses. Those have been growing nicely and very positively for us consistently over the last couple of years.

And then you talked about commercial real estate picking back up in April. The senior loan officer survey last night talked about banks kind of loosening in CRE. Just maybe just talk about, I guess, is that the pickup, I guess, more a function of payoff and pay-downs kind of abating? Or are you seeing kind of real activity? And just maybe kind of where the sources within CRE you're seeing the growth?

I'd say it's a combination. We've had some heavy payoffs and pay-downs over the last year or 2. That seems to be abating a fair amount. We've also had some good demand in the CRE though, very competitive in that space. I would say the majority of the CRE that we're putting on the books is more multifamily and industrial. Some of it is in construction lending, but we feel really good. We do also lend in some other areas within commercial real estate, but those are probably the primary areas where we're seeing most of the growth. From a pricing perspective, it's competitive, but we still think we get our returns in the long run there. When you think of our commercial real estate business, though, everybody thinks of the old M&T. We're the only way we made money and CRE was putting on the balance sheet.

Well, I'm here to tell you today, we do as much off-balance sheet production as on-balance sheet production. And we generate a lot of fees in that base as we sell loans, we originate sell loans to the agencies to life insurance companies and all that. And some of our customers really want more longer-term permanent financing. So that's their need that we're filling. And it's for us getting more capital turnover, get higher returns. So our business is actually growing much more now than it has in the past. It's just most of it or at least half of it doesn't go on the balance sheet anymore.

Good point. Good point. And you talked about a pickup in consumer lending in April after a slow start to the year. I don't know, oil is now over $100. Employment numbers have been good, but there's kind of always trepidation. Just maybe just talk about the overall health of the consumer and just your thoughts around that.

Yes. We talked about this on the earnings call, but what we're seeing is the K-shaped economy is continuing to widen out. It's widening out in that the higher-end consumer is actually getting stronger with the stock market performance, and their investments that they have are out there. And they're the ones really driving a lot of the large discretionary spending that exists out in the marketplace. And they're alive and they're spending, and you can actually see that. On the lower end of the consumer, we don't see deterioration. We see that they're kind of in the same place that they were maybe last year, they're in the same place this year. Still struggling, but still making it. The amount of money they're spending is consistent with what they were spending a year ago. So even with higher gas prices or whatever, they're still making it and getting through that. You saw the employment numbers last week, relatively good employment numbers, pretty strong consumer spending numbers going out there. It's kind of amazing how well the U.S. economy is holding up and performing really well right now.

And then maybe just shift to the other side of the balance sheet. Deposit growth has been good. I guess we're seeing a pickup in loan growth throughout the industry. The Fed is on hold, it appears. Maybe just talk about the ability to grow deposits from here, deposit costs begin to level off and just how you're thinking about the competitive landscape?

So I kind of go back to when rates were rising, our deposit beta was in the mid-50s. And I tell our folks and so far, it's true, when rates have been coming down, guess what, our deposit beta is in the mid-50s. So we think we can stay in the mid-50s. As it comes down more if they were to cut rates, not saying they are going to cut rates, we would end up getting pinched at some point because the consumer portfolios, the retail portfolios can't reprice down once you go down maybe another 50, 75 more basis points, they get floored out from that perspective. So from a pricing perspective, I feel that we're doing relatively well there. From a growth perspective, our customer deposit growth is strong. It is funding our balance sheet loan growth.

The only difference that we have is the mix. Our noninterest-bearing deposits aren't growing as much as we thought they would be growing. And that's because we thought rates would be declining this year, and they aren't declining. Quarter rates are staying up higher. So the growth in DDA. So that's causing an unfavorable mix change from funding. But when you look at our customer deposits, interest-bearing, we're growing and we're getting a good share of the wallet from those customers, which is a good way to grow the balance sheet.

Got it. I guess tying that together a bit, just on NIM on the first quarter earnings call, you've chosen to be a bit cautious, I thought with your NIM expectations. Maybe just talk to some of the puts and takes there.

I think we're just cautious from a lending perspective, making sure that we can get the higher-yielding consumer asset growth is really valuable for us from a margin perspective. Trying to get more free funds from DDA has been challenging. That's probably putting some pressure out there. CRE coming on strong should help alleviate some of that because we get higher yields in our CRE portfolio. So net-net, overall, I think our margin will come down some, but it's -- you're coming from the #1 position. So if we come down a little bit, I think we're okay with that. It's really all about serving our customers and our communities and doing the right thing for the long term for serving what their needs are.

Got it. And then we touched on it a little bit earlier, but in a slide deck, Friday, you kind of guided up fee income. On the first quarter call, you said high-end expectations on the deck, you said kind of above expectations. You kind of rated off a lot of drivers before. Are there kind of 1 or 2 things that are kind of this last leg up? Or is it kind of just a little bit of everything?

I would say it's mortgage, capital markets and Bayview. And I don't know what your take is from analysts, but some analysts don't view Bayview as a consistent revenue stream for us. I'm here to tell you we've had it for 2 decades. They are very consistent and being very profitable, very consistent in giving us a portion of those distributions that they make from that perspective. And what we're seeing is that Bayview is growing and being even more strong, and that's benefiting us as well. So we really value the relationship with them and really look forward to working with them in the future and all that.

Got it. And then on the expense front, you kind of gave range at the start of the year, you pointed to the upper end on the earnings call. You kind of stuck with that despite the fact that kind of this little bit of step-up in fee income. Maybe just talk about kind of the puts and takes on the expense side and just how you manage around that.

So some of the -- so as we grow our mortgage servicing business, we have to hire people and continue to grow there. So some of that cost increase is driven by the revenue increase that we did on the other end side there. That's really driving it. I feel pretty good that we're going to stay within the ranges that we originally came up with just on the higher end of it. We'll see how it plays out. We may come back down at some point. But right now, I just see us staying more at the higher end. And it's really not any one thing. It's just a lot of little that are really right there that are driving it up a little bit, but we'll stay within the original range.

And then credit quality has been -- our non-accruals are the best since '07. It's remarkable in criticized assets. I think have come down for multiple quarters in a row.

9 quarters in a row. We are projecting the rest of the year for it to still go down. So this is really positive for us.

Good. And then I guess despite that, you're one of the few banks to actually regionals to build reserves this quarter. Just maybe talk to kind of what drove that? Anything we should be kind of maybe keeping a closer eye on for M&T or the industry overall?

It's the conservative nature of our company. It's our culture. Moody's came out with a scenario for the Iran conflict. We modeled that scenario. It was version 6, I think, in scenario. And we used that as an overlay for our allowance. That drove our allowance up. Our provision, if we didn't use the overlay would have came in close to what net charge-offs are. So it's a $30 million to $40 million adjustment is what we made from that perspective. I'm not sure if any other of our peers did that, and we might be alone on that base. It's just our conservative nature. That obviously gets relooked again when we come again this quarter and all that, and we'll see what we do from that perspective.

I mean if there are 1 or 2 portfolios that keep you up at night, anything in particular, I guess, with elevated oil prices, does transportation or trucking or come to mind?

Yes. We've looked at all the areas that we thought we could have stress because of petroleum, whether it's trucking, transportation, some of the supply areas. And we just don't have a major concentration in any of those areas. We have a couple of one-off companies that might be struggling. But net-net, overall, we're still forecasting our criticized book to actually get better, not worse from that perspective. Any one portfolio, the portfolios that we have started to bring in and really manage more centrally are the ones that we're more concerned about. So like leverage lending, PE-backed companies now that were purchased. Those are ones that we were BDCs or one we're taking a lot of attention on. Lender finance loans would be another category. So those are the ones we don't have huge exposures in those areas, but those are the ones that we're probably managing the closest from a risk perspective.

I guess on that, I guess you and other banks gave additional details on NDFI portfolios in the quarter. How do you think investors should think about the risk in that portfolio, maybe more specifically on how stresses in private credit could lead to credit risk for M&T or just other banks more generally?

NDFI is a new term out there for a lot of lending that's been out there for several decades, like mortgage warehouse lending. Mortgage warehouse lending is a really safe business as long as you have good operational control, you perfect your collateral. We're big in that space. We're going to stay in that space. We've never had a loss in that space. We've grown our fund banking book, capital call lines. I think that's relatively safe as well. We don't do NAV lending in that space. So we think we're pretty good there. The other is how large is we lend to REITs, some public, some private REITs. We've had a lot of success there.

So those 3 right there are 2/3 of our NDFIs, and we view those on the lower end from the risk spectrum from that perspective. I think the ones that we focus on are the BDC one, and that's really more about their liability structure, how much risk they have from a funding perspective as well as the lender finance business that we have. Just those are the ones that we view might have more risk there that we're watching more closely.

Got it. And I guess CET1 after active share repurchase in the first quarter, I guess, 10.3%, you've kind of pointed to a range of 10% to 10.5%. So kind of within that, it sounds like loan growth is getting a little bit better. Just how do we think about share repurchase for the rest of the year?

As long as the economy stays strong, we'll be towards the lower end of our capital range. If we see a lot of things happen that are more risk-oriented or things, but we aren't seeing that right now. So we're on the path of being closer to 10%, and we are at 10.5% from that perspective. I think we'll buy a fair amount of shares this quarter, not as much as last quarter, but probably a little more than what you might expect.

Got it. And then obviously, the capital proposals came out late March. Maybe just talk about the puts and takes between the ERBA model, the standardized approaches model, the pros, I guess, and cons of each in terms of how it plays into M&T.

The whole approach with the new Basel III is really a highlight to how we lend. We're a very conservative lender. We're a collateral lender. We have really low LTVs. So from that perspective, we feel really good and we're being rewarded with that with this new proposal. If we just adopt the standardized, we think it's about 90 basis point increase in our CET1 ratio. If we go with the expanded version, that could be up to 20 basis points more just because of our high LTVs that we have or low LTVs that we have from that perspective. So I think all good from that front, really positive with the change that they have there and really shows the strong underwriting that we have.

Does it -- do you think change how you operate or just...

Well, we have to get it approved first.

When do we think that is?

Hopefully, sooner the better, hopefully, this year. But it really comes down to the governor is really the rating agencies. It's not the regulators. It's really how they interpret the new risk-weighted asset calculations. If they keep their methodology as is, that will allow us to use more capital and lower our targets down some more so our tangible will actually come down further than where it is today from that perspective. But more to come on that. We have to get it past and then see what -- how they adopt it from a methodology perspective. My hope is that we'll be able to leverage this up some as we move forward into next year.

I think you've talked about a 17% ROTCE for next year. But that was before these rules.

I don't know.

So then I guess, how do we think about with these rules, how would you think about the incremental returns? Is it lend more? Does it buy back stock? Do returns go up, all the above?

Returns could go up, but we could actually spend more money and invest more in our companies and our business as well. So there's a lot to think about from that, and we'll have more to talk about probably later this year as we know when Basel III gets implemented and we talk to the rating agencies a little bit more. But it's either going to be neutral or better. It's not going to be worse from this perspective.

I guess one use of capital is acquisitions. M&T has been a very, I would say, good acquirer over the years. You've bought a lot of institutions and made them better and accretive to both sets of shareholders. Despite an improved regulatory tone, you guys have been noticeably quiet. Why is that?

We are very consistent. We want to continue to grow in the markets that we serve and get density in those markets. So we have a specific number of candidates that we're talking to that are in that book. And at some point, maybe one of those might want to sell and do it at a reasonable price that makes sense for both sets of shareholders in the long term. So we're very patient. We think things will happen when it happens, and we're just going to do what we do and just continue to run a real profitable company, buy back a ton of stock, pay a huge dividend and continue to perform really well until then. But it will happen when it happens.

Now those list of candidates, are they in your footprint, the expanded footprint?

All in footprint.

All in footprint.

Yes, we're a lot different than other banks. We are not chasing growth. We want to get more scale and density in the markets we serve. We think that's a better way for us to serve our customers and our communities. And that's really the strategy that we're staying with. And we think it's a good long-term strategy, both from a profitability perspective and from knowing your customers, your clients from a credit perspective. We just think it's a better way to run the company. Maybe over time, inch out a little bit. But for the most part, we're going to stay in the Northeast Mid-Atlantic area.

And what about on the nonbank front? I know you've been acquiring sub-servicing, we talked a little bit about earlier. Is there more to do there and maybe other areas of focus?

Yes. We definitely continue to buy more sub-servicing out there, and that's a good business for us. We do lift out sales teams like in wealth teams and in business banking and all that. So we do it on the edges. It's not really noticeable. As far as actually buying companies, it's hard to buy a company that doesn't operate now in a bank because they're coming from an unregulated entity into regulated. A lot of those don't really end up performing really well long term. So you're really important to bring people into the company that kind of know expectations, know how things work and all that rather than try to educate them from going from a non-regulatory environment to a heavily regulatory environment from that perspective.

Got it. We got 10 minutes left. I'm not sure if there's any questions from the audience. Maybe just wait for the mic. It's right behind you.

Maybe just talk about AI in the context of maybe as an opportunity on the cost side. And I would love some examples as to how you're using it or how you're planning on using it. And then maybe also the potential for disruption and how that impacts the business in terms of credit quality going forward, all of that as well.

Yes. So from an AI perspective, we have 3 broad strategies that we're using AI for in the company today. First and foremost, our company has about 20,000 -- 22,000 employees. We don't give AI to our branch people right now. So we have 17,000 licenses that basically everybody has in the company. We are encouraging everybody. We have training programs in place. But with those 17,000 licenses, we are asking our folks to learn how to use it, make their lives easier, better, trying to be more productive, try to use all that to just be better at what they do today from that perspective.

Second thing that we're doing is that we have obviously thousands of vendors in our company. A lot of those vendors have AI solutions, looking at those AI solutions that they offer and seeing what makes sense for us. One great example that we've done and what we've adopted is in our call centers, we have a vendor called Genesys. Genesys came to us and said, we will actually take the notes of your calls automatically with AI, so your agents don't have to do that. So that was a 25% increase in productivity immediately from that perspective. So we're obviously all attuned to vendor-related AI solutions, trying to get more efficient, more productive. The last way we're looking at AI is we're creating a workshop. And it's really -- the way I would think about it is we have a lot of people that know how to remake operations areas, and we're doing that now throughout the company such that people can come in and automate using AI or whatever to make them more efficient and all that.

So it's not just a one-off thing. It's actually a large process of how that works, and we're starting to do that and all. That said, to answer your question, I think long term, you could have a lot of increase in productivity efficiency that will drive down. But if you go back to the 1800s and if you remember when people used to use steam and they basically went to coal, that basically dropped the cost tremendously. And what that did is that lowered the cost for transportation and trains and all that stuff. So the reason I say that is if AI can become more productive, lower the cost potentially, that creates a lot more demand in some services and products.

So you could actually still have the same amount or even more people because there's more demand coming in for that service because it's at a lower cost forever. I think there's a lot to come. We could go either way from that perspective. But we first thought is it's more productive, more efficient. But if everybody starts buying that product or service because it's cheaper, that creates the demand that maybe has more people. So I don't really know which direction it's going to go from that perspective. I just know it's a good tool. It's going to make us more productive and efficient, and we'll see how it plays out from an FTE headcount perspective.

Maybe a second one for me, if you don't mind.

Sure.

Just on stablecoins, it seems like we're a bit closer to the Clarity Act being passed. What are your thoughts around disruption to the corporate banking side of things, particularly in terms of maybe increasing deposit costs as you're having to compete with some of these? What are your thoughts?

Yes. There's definitely a risk, obviously, stablecoin and tokenized other assets or whatever can definitely hurt the liquidity of the banking system. That's a possibility from that perspective. And from M&T's perspective, we are now members of 2 groups of banks. One is the carry network. We're 1 of 5 or 6 banks in there, and one is sponsored by FIS. So we're putting ownership into these networks. They're going to build out tokenized deposits. They're going to look at collateralization. They're going to have other products and services that will be offered out there. We're just trying to be competitive with how things are changing and making sure that we aren't left in the dust as things continue to move from that perspective. We know there's going to be a lot of changes. But if it does impact liquidity, we have to make sure that we have the tools and the products and services to basically recapture that liquidity back into our balance sheet from that perspective. So that's really one of the main drivers that we're trying to do.

Obviously, a very well-run company, high teens ROTCE, as you've set out, share repurchase is the main means of returning cash. Given valuations approaching 2x tangible book, is there any reset at any point in favor of dividends? Or are we just stuck in a sort of capped dividend payout ratio as far as U.S. regional banks are concerned? Or can M&T break away perhaps under the new -- it's a bit stretched in my opinion, perhaps not yours.

We pay a reasonable dividend. I mean our payout ratio is in the mid-30s, mid- to low 30s. Typically, our Board approves dividends every year, and it's something that we're very proud of having continuous dividends that we pay. It's really tied to our earnings stream. As our earnings go up, our dividends increase so that we're really consistent from a payout ratio perspective. One of the reasons why we were 1 of 2 banks during the Great Recession that didn't cut our dividend is because we really cherish our dividend and we protect our dividend. So we don't want to get over our skis too much, but we also don't want to be lagged behind.

So we're trying to find the right balance and medium to give a good return to our shareholders in the form of dividends. And then we -- what we can't do as much there, then we pay more in share repurchase. Last year, we bought 9% of our stock. This year, we'll probably buy back 6% or 7% of our stock. So we're buying back a fair amount of our stock as well. So we're getting a lot of distribution back from an investor perspective.

Any other questions? I guess, Daryl, we talked about changes on the capital front. But I guess what other changes from either regulatory or supervisory standpoint have we seen over the last year or 2 that have been beneficial? And maybe looking out, what else are we still waiting for?

I would say one of the biggest things that Governor Bowman has implemented is the focus on really managing the real risk of the company and letting some of the, what I would say, less risk, maybe not be so addressed. If you maybe missed some documentation or maybe some of the things aren't totally completed or whatever, those aren't the big things that you really need to be concerned about. I mean the real risks are cyber risk, credit risk, liquidity risk, interest rate risk, making sure you have strong capital. Those 5 things are really where the Fed is really focused on and really concerned from that perspective. The things that we used to get, I would say, more Mickey mouse type of comments and all that were more documentation errors or incompletions and all that. And that would take a lot of time to fix and just really wasn't worth the effort to actually make that happen.

So I think the focus on the real risks has been a huge change. The other thing the candor with the regulators, with the bank management and our Board is really positive, really consistent dialogue back and forth of what they see, what they expect and all that. So the dialogue is very good from that perspective. And with partners like that, you can actually get a lot of things done, get them done efficiently and run a really strong company because of that rather than trying to guess what they're trying to tell you and they don't really tell you what they really want from that perspective. So we like the candor. We like the transparency that they're giving us now.

Got it. We have about 2 minutes left. Any last questions from the audience? Otherwise, I'll ask the final one. I guess we have a big bank on this side of the pond buying a bank in your footprint. I guess, does that create opportunity either for customers or employees? And just how do you think about that?

Yes. M&T has a playbook, and it's not picking on any one bank or whatever. But when somebody buys a bank within our footprint, we go to our playbook, and we basically want to take advantage of if there's any things that happen in the integration periods or people don't like the change of how things are done and all that. So we're basically using our playbook, and we're going to do as much as we can to try to lift out employees and customers that makes sense for us to be part of us and to basically come and be part of M&T from that perspective, and we'll see how that plays out. So we want to welcome our new owners and kind of discrete them well and see what we can take from their businesses and all that.

Great. On that note, please join me in thanking Daryl for his time today.

Welcome to the M&T Bank First Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Rajiv Ranjan, Head of Investor Relations and Corporate Development. Please go ahead.

Thank you, Angela, and good morning. I would like to thank everyone for participating in M&T's First Quarter 2026 Earnings Conference Call. 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 Investor Relations website at ir.mtb.com.

Also, before we start, I would 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 investor presentation. The appropriate reconciliations to GAAP are included in the appendix.

Joining me on the call this morning is M&T Senior Executive Vice President and CFO, Daryl Bible. Now I would like to turn the call over to Daryl.

Thank you, Rajiv, and good morning, everybody. As we move into the next earnings season, I want to start with what continues to define M&T. Our purpose is to make a difference in people's lives. We do this by helping our customers grow, enabling commerce and supporting our communities. We value building long-term relationships and being the source of strength and stability to our stakeholders through various economic cycles.

We are committed to investing in places we serve. In this quarter alone, we recently launched a new Baltimore Ravens College Track Center, a state-of-the-art learning sports space for local high school scholars. In New York City, we opened a new full-service branch in the Bronx. And just this week, we announced our work with the Boston Foundation on a multimillion dollar program with the City of Boston to accelerate the city's innovation ecosystem.

Looking ahead to 2026, our priorities remain clear: operational excellence, that is building simpler, more consistent and resilient operations; and teaming for growth, which is about working more seamlessly to deepen relationships and expand the opportunity in our markets.

We entered this season with some -- with the same relentless commitment to disciplined execution and long-term performance. To that end, before we get started into the results this quarter, let me start by underscoring some long-standing qualities that have come to characterize M&T's performance.

M&T has always maintained a strong balance sheet, starting with a very high-quality loan portfolio; proven asset quality performance over the long term; strong level and quality of capital; and ample liquidity. Regardless of the business environment, we remain steadfast in our disciplined approach to underwriting, pricing and risk management. At times, that results in focused growth in some loan categories while remaining vigilant on others as was the case last year and this quarter. I would rather say no to a transaction than compromise on structure and pricing. We chose to be selective to be preserving the high quality and low volatility of our revenue and earnings stream. Those tenets serve us well, and I'm confident that we will see growth in all loan categories this year but in a manner that delivers progress while protecting all of our constituents, including customers, communities and investors.

As the industry navigates some new uncertainties from current events, we have chosen to be cautious with our NIM expectations, but we remain confident in delivering the performance we expected when we started the year. Our pipelines remain strong, but we chose not to chase growth or yield if the transaction doesn't fit underwriting and our return standards. We have one of the highest-quality risk-adjusted NIMs in the peer group, and we will maintain that while delivering strong results driven by well-diversified revenue stream.

We are starting with a strong year-over-year fee income momentum, and those fee income growth contributors are of high quality and low volatility. Asset quality has been improving notably. Our strong capital levels as well as our consistent capital generation gives us flexibility for share repurchases. In combination, these factors will allow us to produce strong pretax pre-provision revenue and earnings in line and with a possibility of exceeding expectations. As we go through the presentation today, I will highlight strength and diversification of M&T's balance sheet, capital, asset quality and revenue, which enables M&T to outperform consistently across cycles.

Turn to Slide 5. We continue to receive recognition for our performance, including the impact of our charitable team and our engagement with investors, reflecting dedication of our teams across M&T.

Now let's turn to Slide 7, which shows the results for the first quarter. Our results represent a strong start to the year with several successes to highlight.

Net interest margin expanded 2 basis points, reflecting continued fixed rate asset repricing and deposit cost discipline. C&I growth was strong with average C&I loans growing at $1.5 billion from the fourth quarter, including a pickup in middle market growth. Fee income remains a bright spot, growing 13% from the first quarter of 2025 with a solid year-over-year growth in each of our fee categories. Credit continues to perform well with more than $700 million reduction in criticized balances and net charge-offs of 31 basis points.

We brought our capital levels within our operating range and executed $1.25 billion in share repurchases, representing over 3.5% of shares outstanding as of the end of 2025. Diluted GAAP earnings per share were $4.13, down from $4.67 in the prior quarter. Net income was $664 million, compared to $759 million in the linked quarter. M&T's first quarter results produced an ROA and ROCE of 1.26% and 9.67%, respectively.

Slide 8 includes supplemental reporting of M&T's results on net operating or tangible basis. M&T's net operating income was $671 million, compared to $767 million in the linked quarter. Diluted net operating earnings per share were $4.18, down from $4.72 in the prior quarter. Net operating income yielded an ROTA and an ROTCE of 1.33% and 14.51% for the recent quarter.

Next, we will look a little deeper into the underlying trends that generated our first quarter results. Please turn to Slide 9.

Taxable equivalent net interest income was $1.76 billion, a decrease of $27 million or 2% from the linked quarter. Net interest margin was 3.71%, an increase of 2 basis points from the prior quarter. This improvement was driven by a positive 8 basis points from the higher spread driven by fixed asset repricing, remixing of cash to securities, deposit pricing discipline and a favorable impact on our swap portfolio. That was partially offset by a negative 6 basis points from a lower contribution of free funds driven by share repurchases and the impact of lower rates on the value of free funds.

Turning to Slide 11 to talk about average loans. Average loans and leases increased $0.8 billion to $138.4 billion. Higher commercial loans were partially offset by lower CRE and consumer balances. Commercial loans increased $1.5 billion to $63.8 billion, aided by growth in middle market, business banking and several of our specialty businesses. Higher middle market loans reflect an uptick in utilization in the first quarter. CRE loans declined 3% to $23.5 billion, reflecting a somewhat moderating paydowns on softer [ volume ], particularly in January and February. However, we saw strong CRE origination activity in March. Residential mortgage loans were largely unchanged at $24.8 billion.

Consumer loans declined 1% to $26.3 billion from lower recreational finance and auto loans due to poor weather early in the year. Loan yields decreased 14 basis points to 5.86%, reflecting lower rates on variable rate loans, partially offset by fixed rate loan repricing and eliminating the negative carry on our swaps.

Turning to Slide 12. Our liquidity remains strong. At the end of the first quarter, investment securities and cash held at the Fed totaled $53.1 billion, representing 25% of total assets. Average investment securities increased $1.1 billion to $37.8 billion. The yield on investment securities increased 9 basis points to 4.26%. Our duration of the investment portfolio at the end of the quarter was 3.8 years, and the unrealized pretax gain on the available-for-sale portfolio was $9 million.

While not subject to the LCR requirements, M&T estimates that its LCR at the quarter-end was 107%, exceeding the regulatory minimum standards that would be applicable if we were a Category 3 institution.

Turning to Slide 13. Average total deposits declined $0.8 billion to $164.3 billion. Noninterest-bearing deposits increased $0.4 billion to $44.6 billion aided by institutional services. Interest-bearing deposit costs decreased $1.2 billion to $119.7 billion, driven by lower broker deposits. Interest-bearing deposit costs decreased 21 basis points to 1.96%, with lower deposit costs across each of our segments.

We have been able to grow customer deposits and maintain deposit cost discipline. Since the first quarter of 2025, we have more than funded our loan growth with average customer deposits outpacing loan growth by more than $1 billion. We grew customer deposits while we are maintaining deposit cost discipline, reflected in a 56% interest-bearing deposit beta since the start of the cutting cycle in 2024.

Continuing on Slide 14. Noninterest income was $689 million, compared to $696 million in the linked quarter. Mortgage banking revenues were $127 million, down from $155 million in the fourth quarter. Residential mortgage revenues decreased $16 million to $89 million, mostly related to the MSR time decay now being recognized as a contra fee item rather than an expense.

Commercial mortgage banking decreased $12 million to $38 million, driven by lower volumes compared to the fourth quarter. Other revenues from operations increased $24 million to $187 million from a $33 million Bayview distribution, partially offset by lower merchant discount.

Turning to Slide 15. Noninterest expense for the quarter were $1.44 billion, an increase of $59 million from the prior quarter. Salary and benefits increased $105 million to $914 million, reflecting approximately $115 million in seasonal compensation. Professional services decreased $12 million to $93 million, reflecting lower legal and review costs. FDIC expense increased $31 million, primarily related to a $29 million reduction of estimated special assessment expense in the fourth quarter. Other cost of operations decreased $50 million to $101 million from the previously mentioned changes related to the accounting for the MSR portfolio and a $50 million charitable contribution in the prior quarter. The efficiency ratio was 58.3%, compared to 55.1% in the linked quarter.

Next, let's turn to Slide 16 and 17 for credit. Asset quality was strong with lower net charge-offs and continued improvement in nonaccruals and criticized loans. The level of criticized loans was $6.6 billion, compared to $7.3 billion at the end of December. The improvement from the linked quarter was driven by a $400 million decline in CRE and $306 million decline in C&I criticized. Nonaccrual loans decreased slightly to $1.2 billion and the nonaccrual ratio decreased 1 basis point to 89 basis points.

Net charge-offs for the quarter totaled $105 million or 31 basis points, decreasing from 54 basis points in the linked quarter. Net charge-offs were granular with no single net charge-off greater than $10 million. In the first quarter, we recorded a provision for credit losses of $140 million, compared to charge-offs of $105 million. The allowance for loan losses as a percent of total loans was unchanged at 1.53%.

Slide 18 has a summary of our NDFI portfolio. Our NDFI portfolio remains a smaller percentage of total loans compared to our peer group. Three portfolios, which are long-standing and relatively well understood by the market, comprise over 2/3 of the NDFI loans. Those portfolios include fund banking or subscription lines, residential mortgage warehouse lending and institutional CRE, which is primarily lending to REITs. We've also included additional information on business credit intermediaries on Slide 19.

This portion of the NDFI consists of $0.7 billion of wholesale lender finance, $0.6 billion of business leasing and $0.4 billion of loans to BDCs. Across the NDFI portfolio, advance rates vary, but are calibrated to asset quality, historical recovery data and collateral performance. Visibility into collateral is strong. with frequent reporting, borrowing bases, independent valuations and [indiscernible]. Diversification is a key mitigant both within the structures and across the broader NDFI portfolio. For example, software exposure within our BDC portfolio is less than 15%.

Turning to Slide 20 for capital. M&T's CET1 ratio was an estimated 10.33%, decline of 51 basis points from the fourth quarter. The lower CET1 ratio reflects $1.25 billion share repurchases and increased risk-weighted assets, partially offset by continued strong capital generation. In March, the Federal Reserve issued regulatory capital framework proposals. Based on our initial estimate, we estimate an approximate 90 basis point benefit to our CET1 related to lower risk-weighted assets under the standardized approach. If we were to opt in to the expanded risk-based approach, we estimate an incremental 10 to 20 basis point benefit.

The proposal also has a phased-in inclusion of AFS securities and pension-related AOCI and the regulatory capital. At the end of the year, this would be a 4 basis point benefit to the CET1 ratio on a fully phased-in basis. We are well positioned for these proposals given the current capital levels, AOCI, loan mix, disciplined credit underwriting and relatively straightforward business model.

Now turning to outlook on 21. First, let's begin with the economic backdrop. The economy continues to hold up well despite the ongoing concerns and uncertainty regarding tariffs and other policies. The situation in Iran poses new risk to the U.S. and global economies through energy prices and uncertainty. Consumer spending has slowed but continues to grow in aggregate. However, there is a growing divide between higher and lower income households, often called the K-shaped economy. The higher-end consumer continues to be stronger and is spending, while the lower end consumer has not declined but maintained and is vulnerable to the risks in the environment. U.S. GDP growth has slowed, reflecting slower consumer spending among the impacts.

Encouragingly, the underlying details for the first quarter shows continued strength in equipment investment by firms. The weak labor market in 2025 is showing possible signs of bottoming out, but we remain attuned to the risks from the geopolitical conflict. We remain well positioned for a dynamic economic environment.

Now turning to outlook. Our full year expectations are unchanged from the ranges we discussed in January's earnings call, and I'll discuss some of the current trends we are seeing. NII is trending towards the bottom half of NII outlook of 7.2% to 7.35%, which translates into a NIM into the high 3.60s. We started the year with slower CRE and consumer growth at our initial expectations though this has been partially offset by strength in C&I. We saw stronger CRE origination volume in March.

NII will continue to be dependent on the shape of the curve and loan and deposit balances. We expect both fee income and expenses to trend toward the top of their respective ranges. This reflects strength in both fee income categories and additional subservicing balances, which expect to bring in, in the second half of the year. We continue to manage PP&R well within the range implied by our January guidance.

Our taxable equivalent tax rate is expected to be approximately 24%, compared to the prior outlook of 24% to 24.5%. We are also moving to the bottom end of the CET1 ratio of 10% given continued asset quality improvement and our strong performance. Overall, performance remains on track with our initial expectations.

To conclude on Slide 22, 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.

As we close, I want to thank my M&T colleagues who work tirelessly each day to make a difference in people's lives. Because of you, M&T is able to support all of our communities. Thank you.

Now let me turn the call over to questions.

[Operator Instructions] And our first question today comes from Manan Gosalia with Morgan Stanley.

Daryl, really appreciate all the detail on the capital side. So maybe I'll start there. First, you're saying ERB is a positive. I just wanted to clarify that you're saying that you will be adopting that? Or is it still something you're deciding on and maybe there is a higher expense impact from opting in or anything else that we might not be considering?

And just second on ERB is what is driving that benefit? How are you thinking about credit risk and op risk?

Manan, thank you for the question. So this proposal just came out. It has to go through, obviously, the comment process and then it has to go through the approval process. I can't really commit to you that we will adopt the ERB. But what I can tell you is if there's an advantage that we see here today, so that doesn't change. I think it's up to us to make good decisions for our shareholders, which means we would opt in, probably. I mean I -- we're going to see how things play out, but if you're going to get that much of an advantage, we can put processes in place that should more than be able to pay for that.

Got it. All right. Perfect. And then you did a pretty significant buyback this quarter, and you're bringing down the CET1 guide. Now that we have the new capital proposals and assuming they go through as they're written, what would the right normalized CET1 level be for M&T over the longer term after the RWA benefit? And what's going to determine how quickly you get there?

So I mean if it goes as a proposal, just use round numbers, so if we adopt it, our CET1 ratio goes up 100 basis points, to keep it simple. We'd have to really see what other constituencies, primarily the rating agencies, to see what they would think about that. Because there is actually capital coming out of the system, but they also use RWA in a lot of their calculations and how they measure that.

So I think we need to have more measurement there. But my guess is whether you get the full benefit or not, you probably will trend down lower and you probably see that easily in the tangible equity ratio.

Our next question comes from Scott Siefers with Piper Sandler.

Daryl, I was just hoping you can sort of expand on what's causing the margin to come in a little bit below your prior expectations. I think you mentioned in your prepared remarks that you were just sort of choosing to be a little cautious on the guide. Simply trying to figure out if anything has changed or if it is indeed sort of approaching with an abundance of caution.

Yes. So it's a combination of 2 things. Obviously, we didn't come out of the blocks really strong in the consumer indirect. That's an important portfolio to us because it has higher yields. And it was really more of a weather event from that perspective. We believe that we're going to be able to catch that up and make progress on that. But until that happens or whatever, I think we're just being cautious from that standpoint.

And then from a CRE perspective, seasonally, it always kind of drops off in the first quarter, but we had over $1 billion in originations in March, really, really strong. We're off to a great start in the second quarter. So we have a lot of confidence that CRE is going to get on track and start to grow this year and do really well. It's just a matter when that happens and that would be a benefit.

The only other thing I would weigh in is with higher rates, it's harder to get growth in our DDA accounts. And that's something that we were hoping to grow a little bit more than what we thought. But we'll see if rates actually stay flat or actually go down, or who knows right now. But we're just being cautious from what we're seeing, that we don't want to overcommit.

Okay. Perfect. And then one sort of [indiscernible] one. Maybe if you can discuss the overall level of borrowings. I think mostly as I look at sort of the end of period short-term borrowings, that's about as high as I can remember in some time. And it didn't look like it was, obviously, seasonality related or anything like that. Just curious if there's anything going on there we should be aware of.

Yes. I think it's -- we're just trying to manage to our short-term ratios, and we also have a lot of volatility in deposits within our [ ICS ] business. So we have it for a while and then it goes away and we have to replace it. So we just have that volatility. And we're really good at keeping our lines open in a lot of multiple places so we can always have access. A big believer in leaving lines in place. And then if we need to draw upon them and increase some more, we can do it immediately same day.

So it's just how we manage our balance sheet to try to minimize it, the size of it. We don't want it to be too large or whatever. We want to operate at an optimal balance sheet size.

Our next question comes from Gerard Cassidy with RBC Capital Markets.

Circling back to the NDFI portfolio, which you give us obviously very good detail, and based upon M&T's history as being one of the better credit underwriters, your institution, similar to your peers, have all grown these portfolios quite rapidly over the last 5 years. Can you share with us what the catalyst when you turn back the clock and just why has there been such material growth for you folks in this category of lending versus other categories within the loan portfolio? Are there one or two reasons that you can identify whether it's better capital treatment of the loans or something else that's driven the growth here?

When I look at the bulk of our NDFI portfolio, it's 3 primary businesses. Mortgage warehouse lending is a core business for us. It's a really safe credit business. It has -- you have to make sure you do really good from an operations perspective and perfection of collateral. But we run it and it's a very efficient and very profitable business. Lending to REITs, I think we've done that for a long period of time, that is also another very sound way of growing. And as we have opportunities there, that is a portfolio that's been growing nicely from that perspective.

And then our fund banking and capital call lines, that's a business we acquired from Webster. And we like the business from a credit perspective and believe it's a good fit for us. And we've been growing it to rightsize for the size of our company rather than people-size what they had when we first got it. So those 3 are really our core ones that we have. Everything else is relatively small. But we feel very comfortable in growing what we have.

Very good. And speaking of growth, I think you touched on in your comments that commercial real estate mortgages in March started to pick up, or if I heard that correctly. Can you expand upon what you're thinking for commercial real estate lending? C&I lending, of course, many investors anticipate that will continue to do well as capital expenditures hopefully continue to grow this year. But on the CRE side, what are you guys seeing there? And what's kind of the outlook there?

Yes. So when you look at our CRE business, Gerard, we have a really great platform. We have one of the best, I believe, in the industry. And we have 5 distinct business lines that we have in CRE. The first one, is kind of core to us, it's our regional portfolio from a CRE perspective. And that's been shrinking for a while. We are now very active in the markets in those regions, generating more production there and seeing a lot of really nice things happen. So we believe our regional businesses will continue to grow from that perspective.

We got -- several years ago, we got into the originate-and-sell business with RCC. RCC is a great other way of serving our clients. You have to remember, we do a business with clients on balance sheet and off balance sheet. Last year, we had the same amount of originations in 2025 in RCC as we had on balance sheet. So we're serving a lot of clients, just some of it doesn't go on the balance sheet, but we still get paid for it in fee income. And that business continues to perform very, very well. Last year it had record performance.

We also have the institutional CRE business, we talked about in REITs. That's been growing very nicely for us. That will continue to grow. Some of the new ones that we have formed is we've gotten really serious and have a whole business line dedicated to affordable housing. Affordable housing tends to be a more complicated type underwriting. We thought putting everything together there, we'll be able to generate more consistent volume and build good relationships with many customers throughout our footprint. And then lastly, we have the warehouse business, which is also a nice business to have.

So I would say that our platform that we have in CRE and how we perform, our leaders that we have there are the best in the business, and we feel really positive that that's going to continue to grow. And you're going to see loan growth net out of that. But also remember, we're making a lot of fee income too. So it's a much bigger business than just the balance sheet. It's a combination of both of that.

That's very helpful. And then just lastly, you've done a very good job in bringing down those criticized loans in CRE from a year ago. You showed that in your slides, of course. And could you -- what were the factors of the success? Is it that customers are paying down their balances, cash flows have improved? What have been some of the drivers of this nice decline in CRE criticized loans?

It's broad-based. We've definitely seen improvement in operating. But some people are paying off and going elsewhere as well. So it's a combination thereof. But it's nice to see good progress there, and we're making more and more customers and adding more capacity. And for us, the improvement in credit quality has a nice driver for us that we feel comfortable that we can continue to bring down our capital levels, and you see that in our share repurchases.

Our next question comes from Matt O'Connor with Deutsche Bank.

This is Nate Stein on behalf of Matt O'Connor. I wanted to drill down on the CRE comments. So we heard you say that commercial real estate originations picked up in March, but is it fair to say that CRE loan balances can grow in 2Q and beyond?

I've been saying that for a couple of quarters, Nate, so you probably don't believe me anymore. So I'm not going to really commit to that. What I will tell you is we have a lot of momentum. We are growing or we're getting more customers. Whether we grow average or point-to-point second quarter, I'm not concerned about that. I know it's going to grow this year. We got everything going in the right direction.

Our teams are working hard, but they're having fun. I mean they're actually fun out there working with customers and working on developing on these projects. And we will have a very successful, great business and it will be very positive from a revenue perspective, both fees and balances.

Okay. And then a quick question on maybe just the use of excess capital. So 1Q buybacks are really strong, more than doubled the quarterly pace in the second half of last year. And we heard your comments that the rules proposals are directionally supportive of capital. So how could this translate to the pace of buybacks for the rest of the year?

What we did is we widened the range. We went from 10.5% to 10.25% quarter to 10.5% to 10%. And the reason we widened the range is that we continue to have really good improvement in asset quality. So we feel comfortable our long-term CET1 ratio that the Board approved for the company is 10%, we feel comfortable going there at that point now. The reason we left 10.5% out there is there's a lot of risk in the system, a lot of geopolitical risk. We have no idea what's going to happen and all that. If we see signs of stress out in the marketplace or whatever, we'll just stop buyback and accrete capital. On any given quarter, if we don't do share repurchases, net of dividend, we'll still accrete back about 25 basis points. So we can accrete it back very quickly.

But right now, we feel very good and we're going to continue to move our ratios down. And if we see something that we don't like, we will stop and pause and sort accreting capital back.

We'll go next to Chris McGratty with KBW.

Interested in your comments on deposit competition. I don't think you've touched on it yet, but maybe any specific geographies or markets given the industry is putting up a little bit better loan growth?

Yes. Chris, we have a lot of ability to grow customer deposits. I mean we've grown customer profits pretty consistently for many, many years. And we always want to pay competitive rates to our customers. We aren't usually the highest in the market, definitely not the lowest in the market, but we definitely get our fair share and all that. I wouldn't view the competition any worse than what it's been in any other environment, to be honest with you. It's always competitive, but we get our fair share of those deposits.

So we had nice growth this past quarter. I think that's going to continue throughout the whole year. Net-net, on my prepared remarks, we actually have grown customer deposits more than we've grown loans in the last couple of years. And we will continue to do that if we have to and continue to shrink noncore funding. So I would say we're competitive and we're growing and doing a nice thing.

One of the things about M&T that's really important and really what we're true to is all of our businesses first start to get -- they want to get the operating account, get the checking account, and work really, really hard to do that. Once we get that operating account, then that opens the door for other businesses and increases the wallet of what we can do with that customer. So everybody is fully incented to get that.

And one of our businesses, business banking, has a ratio of 3x more deposits than loans. And of the deposits they have, 80% of them are operating, which is really, really strong. And they're having a tremendous business. I mean they're growing their deposits, they have huge loan pipelines as well right now. Business banking is probably performing as good as I've ever seen it, to be honest with you.

Great commentary. And then on credit spreads, obviously, different asset classes, but any comments about incremental credit spreads, whether it be CRE and your increased originations or C&I spreads?

Credit spreads are moving around a little bit. With the conflict in Iran, they probably widened out a touch a little from that perspective. But it's also very competitive. So sometimes it's a little wider, sometimes a little narrower. It's probably net-net about the same, would be my take right now. But we try to be competitive and we want to make sure we get paid for the risk that we're taking at the end of the day.

Our next question comes from Ken Usdin with Autonomous Research.

Daryl, just as you talk about the fee growth and the high end for the year, I know the first quarter had the BLG benefit. But can you just flesh out a little bit more about your thoughts about the magnitude of those mortgage servicing books that you think you can bring on? And how big of an opportunity is that? And just give a little more color on where you expect fees to grow.

Yes. So we have tremendous momentum in our fee businesses, Ken. And we have a really good, great specialized subservicing business that really specializes in more FHA, because we get paid a little bit more because it's higher to service from that perspective. We think that other additional servicing will start to come back on to our run rate in the second half of the year with an annual run rate in the $30 million to $40 million range from a revenue perspective. It operates with about a 50% margin. So it's a really good piece of business for us, something that we like to do and have there.

But we're also seeing really good growth in our trust businesses, both wealth and trust. Corporate trust also brings in nice deposits. That's going on really well. If you look in our commercial area, treasury management is performing really well, high single-digit growth in that space. And then if you look at our capital markets, though we're at a very low base, capital market fees are continuing to increase. And now that we have our general ledger converted over this past weekend, our accounting team, finance folks will work on getting that broken out, so you guys will see that in the next quarter or 2 from that perspective.

So really feel that our fees are going to continue to outperform. My guess, Ken, to be honest with you, is we may actually exceed our range that we have there and all that. So we've got a lot of good things going on.

Got it. Okay. And then you mentioned that your avenues for deposit growth are really strong and you've been kind of outstripping the loan. So I guess with that, your decision tree between, especially in a higher for longer environment, leaving some of that money in cash or putting it into the securities book, it looks like your bias is towards the securities book. Can you just remind us where you want that to live and how you expect that to go?

Yes. It was just more of a little bit more fine-tuning of the balance sheet. We thought we had a little bit of ability to have a little bit less cash at the Fed and that we put a little bit more in the securities portfolio. It just means we'll do a little bit less hedging because we have more fixed-rate assets on our balance sheet. So it's pretty much still a really neutral interest rate risk position. I think we're positioned pretty well if rates go in either direction. And we will continue to do what we do from that perspective.

Our next question comes from John Pancari with Evercore ISI.

I know you indicated in your prepared remarks some selectivity and underwriting in certain areas. What are you seeing right now that's making you say that? Is it on pricing? Is it terms? And then what areas? Are you seeing returns pressured in a certain asset class, certain lending products where you've decided to be more selective?

Yes. So it's really competitive on the lending side, both commercial, consumer, CRE. I mean it's competitive across the board over there. As we talk to our leaders out there and our people out there talking to customers and whatever, I probably lean a little bit more to structure than the pricing, but maybe 60-40, a little bit more to structure.

And structure is not something you really want to give on, to be honest with you. Maybe for good customers, you're stretched on a pricing perspective, from that perspective. But it's just competitive out there and we aren't in any hurry to put a lot of loans on our books. We're going to do it the right way and we're going to make sure we get paid back and have good earnings streams.

I mean if you look at our performance, we're performing really well, and we're generating a lot of capital and returning a lot of that back to you and the other investors out there. So we aren't really under any pressure. We're trying to do the right things in the marketplace and continue to be in here for the long term, which is what you'd expect out of M&T.

Got it. All right. And then I appreciate all the capital color and the commentary around the CET1 range and the M&A -- I mean, in the buyback side. I guess on the M&A side, can you maybe just give us updated thoughts there? Just given the backdrop, any activity we're seeing out there? Maybe you could just update us on your -- where you stand in terms of M&A interest, both bank and nonbank?

Yes. I think the nice thing to know is that M&T is very consistent. We have a long history and track record on M&A and shareholder returns. And you can judge that for yourself. On an M&A front, we've always been very selective and anything we consider was -- will meet both our strategic, which means it's in footprint, as well as our financial criteria.

We will continue to focus and run the company really well within the market conditions that we have. And if something fits from an M&A perspective, we will consider doing that. But we aren't going to stretch or do anything from that perspective. There's no need to.

We'll go next to Ebrahim Poonawala with Bank of America Securities.

I guess maybe just first question, you talked about the GL update. I think it gets completed this year. Just give us a sense of what the tech spend and what projects are upcoming over the next year or 2 after this as we think about just infrastructure upgrade at the bank?

Yes, Ebrahim, you gave me an opportunity to call out. We actually went live on our general ledger this past weekend. It's performing really well, and that's pretty much behind us. But hats off to the team that actually put that together. We had hundreds of people working on that with technology, business people and finance folks and all that. And we have a great partner with E&Y that was with us for the 3 years and did a great job getting us to where we needed to be from that perspective.

As far as tech spend goes, tech spend just gets reallocated to another priority project. Our priority projects that we have right now for this year is teaming for growth, which is more getting deeper wallet from our customers and our regions. But operational excellence is really working on all the operational areas that we have and trying to simplify and automate it. using AI and other automation tools and all that, and we're off to a good start. We plan to continue to invest in that. That's going to be a multiyear project.

So as things fall off like our general ledger, we have other things that just kind of fill in the space. And we have a really good process of how we do our planning. We kind of know what we want to spend and how we allocate it. And it seems to be working really well and balancing our returns, which are so good for the investors, as well as still getting a lot done in the company. It's a good balance there and we are having a lot of success.

Got it. That's helpful, Daryl. And just a follow-up on the capital, it's not unique to M&T, but the roughly 100 basis points benefit that you could get from these proposals if more or less they get firmed up this way. How do you think about if these rules go effective, I'm not sure, is it 1 Jan '27 or 1 Jan '28, how do you think about that 100 basis points in a world where your CET1 target ratio remains the same? I know you mentioned the rating agencies, but do you start getting more active on buybacks? I'm just wondering how should we think about the deployment of that 100 basis points, where you would have the green signal to start thinking about that as truly it is capital.

I think we just have to wait until we get there. I don't -- kind of dodging the question, Ebrahim. But I think we just have to see what the actual results are after we go through the comment period and what gets passed. It's definitely in the right direction, the RWAs with the LTVs. We're a really conservative lender, we have a huge lift because of our LTVs, take advantage of that. That will continue to be core to us from that. But it's too early to really say how we're going to deploy that capital and all. It's -- we want to serve all constituencies and we'll try to figure that out as we know more down the road.

And anything in there in the comment period, Daryl, that you expect to advocate where you think either technically or something that may not quite truly reflect the risk of the balance sheet and the way the Fed proposed these rules?

No. I think it's a fair assessment of what they went through. They went through with it data-driven and came up with RWAs or standardized that directionally seem in the right direction. And from the other approach that's out there and the enhanced approach, there's definitely a good advantage to move forward for us because of our LTVs that we have.

And the other thing we have, if you look at our fee businesses, if those fee businesses stay to be favored, our Wilmington Trust business is basically -- benefit from that as well. So from our perspective, we seem to have a good business mix that's actually really benefit from what we're seeing right now.

We'll go next to David Chiaverini with Jefferies.

Brooks Dutton on for Dave today. I just wanted to touch on deposit betas going forward. You guys reported a 56% beta through the cycle so far. How much additional beta do you expect if rates stay higher for longer? And if you guys could please touch on a modest curve steepening or lower short-term rates and how that would translate through NIM and NII given your current balance sheet positioning?

Yes. The way I try to simplify this is, when rates were going up, we had a deposit beta in the low to mid-50s. Rates are coming down. Right now, we're in the mid-50s coming down. We'll probably stay in the low to mid-50s coming down. At some point, if you go down maybe 50 to 100 basis points more, the consumer portfolio gets basically hits the floor and then that beta starts to shrink. But we're still a ways away from that.

But it's not rocket science. It should go up as much as it goes down, if you're really disciplined on how you price these deposits.

Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks.

Again, thank you all for participating today. And as always, if any clarification is needed, please contact our Investor Relations department at (716) 842-5138. Thank you all.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

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The next fireside chat. Many of you know Rene Jones, who's the CEO of M&T Bank Corporation, which has about $214 billion in total assets. It's always one of the premium priced stocks, always likes -- I know you always want a higher premium, but about 1.8x tangible when we did the pricing. I know things have changed in the last couple of days. But close to 1,000 branches, primarily in the Northeastern part of the United States, but also at the same time, have some national businesses as well. We were just chatting. Rene told me that he's going on his 34th year this year with M&T. M&T, again, is one of our premier banks. It has over 22,000 employees. And I believe you took over in -- you became the CFO in 2005. And then your CEO 10 years?

8 last December.

Okay. 8 last December. So with that, maybe what we can do, Rene, is 2025 was a solid year for M&T. And what were some of the main successes? And how does that position you more importantly, for 2026 and beyond?

So when you look at the results that we put out in our annual letter, we had a great year. We had a record year in terms of profits, record year in terms of earnings per share. But I think the thing that was probably different. And if you looked at our letter, we changed something in the letter a little bit. And it was typically we review the income statement and the balance sheet and what happens and so forth. And when you read it, it was a little boring. And so what you realized is like you asked the question, like why was the year so extraordinary. Our balance sheet didn't really grow that much. It grew modestly. Expenses were fine. But it was really -- was fine. It was really the fee income year where a lot of investment that we made over time actually came to bear the stuff that nobody really associates us with the capital markets, but a big chunk of our business is -- it moves and services the capital markets.

We had talked about the commercial real estate shift over the years. We had and talk about taking things off balance sheet, but doing more for our customers. Last year was a year where I think in the first year where we did more off-balance sheet commercial real estate than the $6 billion that we originated in the space. And so you saw a lot of these capabilities that we've been working on over time sort of come to bear in a way that I think is very subtle and probably surprised people.

Daryl was always talking about what's happening with loan growth and people are asking us, why is the CRE loan growth not yet come back. Well, the actual activity with the customers come back, where you see it in our income statement is just in a different place, right, because of the services we're providing. So that was probably what was unique about the year.

Yes. Very good. And when you look at your priorities at earnings in January, the fourth quarter earnings, you had a slide that outlined 2 new priorities for M&T, teaming for growth and operational excellence. Can you walk through those priorities and what you're focused on? And why do those priorities matter so much to you and M&T?

Yes. So let me tell you about how the process works. So we think of the calendar year. Typically, we allocate September and October and those particular Board meetings and our management meetings all around performance, how have the individual business units performed, what worked that we tried, what isn't working and so forth, all of which is used to set up going into November where we sort of talk about those successes and failures and then sort of carve out a path. And we -- that carving out of a path is November, December and then we approve our operating plan in January. So that's the cycle that we go through.

And so the executive leadership team as they kind of went through that process, really felt that there were 2 areas of opportunity where we just -- we're not necessarily hitting on all cylinders here. We had some success. But like if we could actually expand it to the whole institution, from an organic perspective, we actually could really improve the profitability and strength of the firm. And those are the 2 areas. And so operational excellence is the idea. Think about the work that we've done in 2 areas.

So for example, in our phone centers. After the acquisition, we found ourselves with 20 contact centers, all of which are serving different products, all of which had a different level of expertise, professionalism, performance right? A lot of duplication couldn't train from one place to the other. And so we implemented this end-to-end reengineering of that entire process and thinking about like what outcomes are we actually looking for, for our customers. So we did that. We did a very similar thing in our customer complaints area. In our customer complaints area, we have -- let's do these root cause analyses.

And so again, mapping out using our engineers to actually re-envision the space. And then in that particular case, applying AI allowed us to get to root cause in literally like 7 minutes as opposed to the week-long process, it would be to figure out what actually went wrong with that customer. And so when they looked at that, those were great examples when you look at the statistics and the results, but we weren't applying them to the whole firm. And so the idea was how do we take this to the whole firm.

And then the second one is teeming for growth is really simple. It's a very simple concept. We could be less siloed as we approach a customer. We have every capability that a large institution has. I mean we do airplane lending, we do yacht lending. We do all kinds of the suite of portfolio of products that you'd want, but we hadn't really consciously said, how do we bring that to bear all together for you, right, as opposed to showing up 4 different times. And so that's the essence of what we're trying to do in those spaces.

So I should be coming from my loan from my plane then to you?

You should. You should. Yes. Yes. I'm not sure if you make it.

We can figure that out, right? Paper plane. Anyway --

You could use it to fly down to the Red Sox games.

There you go. When you look at how you measure, you gave us a couple of things in terms of time lines on solving problems. But how do you measure the success of these priorities? And what are the implications for the longer-term financial results for M&T?

Well, you saw -- the reason that in our letter, we wrote the technology section, and we wrote going back was because we had long had this belief that it was really about changing behaviors in our firm. We thought we were kind of crappy in the outcomes that we were getting from tech. And so behaviors repeated over time become culture. And we essentially want to go down a path of really changing the way we think about technology as an integral part of the business. And so we laid that whole process out. And the reason for that is we started thinking about like, how are we going to actually compete with these institutions that have vastly more money than we do?

And I think the answer that we've sort of come to is we're not going to focus on everything. We're going to focus on what I would call the fundamentals of banking, credit, what is your depositors' behavior, what's going on with fraud, maybe 5 to 8 categories. And if we do that and we lean into the tech in that space, it has a bunch of benefits. One is, as you get further away from home, your management systems are less effective, right, at going out there. So how can we actually reengineer all those particular processes in an effort to actually strengthen those management systems and get the results that we've gotten over the past 20 years, right? So it's always thinking about not just being better, but how can we be an enduring company.

Right. Yes. Very good. Taking a step back for a moment. I know it's early in the year, but how is the economy -- and I know there's a lot of changed geopolitical issues.

Like what?

That little skirmish in the Middle East. What are the macroeconomic risks or bright spots that you guys are monitoring from 20,000 feet and above?

So we -- from time to time, we step back and think about these things. I remember, I think it was probably 2019 we said we were worried about hospitals and nursing homes. We didn't know what was going to happen in the coming year. We didn't know there was going to be a pandemic. But we did know that the conditions were such that they were already having a difficult time. And if things got worse, right, that it might be some of the areas of first to go. And I think always, but particularly today, we're constantly looking at places for hidden leverage where you think it's one thing, and it actually has evolved into something else that you can't quite see. And we were just looking at the idea we're going to probably talk about capital, but of the risk transfer trades, right?

And you look underneath like what do you have there? It helps your risk-weighted assets, but risk-weighted assets aren't a real thing, right? And it's a place where you can look at hidden leverage. So we're basically looking anywhere you can see that there might be more leverage than we originally thought and trying to make sure we're conservative enough as we move forward.

Got it. regulatory environment has changed -- is changing. Maybe your thoughts when you think about as we get into '26, the stress capital buffers, the stress test transparency. Obviously, the big one is the Basel III end game. We're hearing -- maybe we hear something in the next 2 weeks, 3 weeks on that. And just supervision overall.

Yes. I mean I'll start with overall. I think, I mean, I just couldn't agree more with the approach of trying to focus on the risks that matter. I write about the fundamentals all the time, and trying to not divert resources to places that in the scheme of things don't matter, documentation. You didn't document your model exactly right. So that's been a really positive shift. I think -- I'm not sure it results in us saving money. It results in us actually focusing on doubling down on places that matter most.

The capital thing is fine. It's -- the transparency is a huge thing. We can all now sort of see the models. And when you think about M&T, go back to before the stress test, right? We carry this very thin capital level. And we said, look, we have low volatility. We can understand the process, whatever. The stress test sort of took all that away. And to the extent that you can not even change the process, but just see how we're getting to the models we're getting, you begin to either learn that they may not be correct or you learn how to modify your business right, in order to mitigate the risk that they're looking at. That's a pretty big deal. That's a pretty big deal.

I think from what I would expect, I would expect the Basel stuff to be very rational, again, because of the more cooperation between all of us and the transparency that's out there.

Yes. yes, we are expecting some big news when it comes out. So we're all anxiously awaiting the Basel III end game, and it's far different than the summer of '23. Far different.

Yes, which had all kinds of negative consequences for everybody.

Correct. Correct. Correct. One of the outstanding characteristics of M&T is through the cycle, your credit underwriting has been better than all of your peers. And so when we ask you guys about credit, I think a lot of people really want to sink their teeth into what you have to say because you've been so good over the years. So when you look at credit today, what are the places that you're focused on that you mentioned a moment ago in 2019, the health care and stuff. 2026, what are you guys looking at going forward?

Well, I think the things that...

Aside from my airplane loans.

Yes. We'll work on that. Where I would start is that we're trying to look at just the environment, right? And we talked about this in the letter, asset prices are high. They just are, and they've been high for a very long time. Credit spreads are very low, right? And so we can't predict what would cause that to change, but we can actually -- as we make loans and do other financial -- make other financial decisions, we can actually take that into account in a way that wouldn't be the case if asset prices were softer and so forth. And so that's what we see.

And then again, we do see the hidden leverage thing. We look at -- again, I love the risk transfer trade issue. I also love the NDFI thing, not in absolute sense, but if you take that whole thing where you're doing business with other financials, so financial to financial, like, is there a segment of that, right, that is less transparent that you really need to think about and ask about. But they change. That process changes over time. And if I said it really simply, it would be like you just -- I think our folks know you just can't be too ambitious, right, because you're going to end up sitting in workout for a couple of years, right? That's just no fun.

We just had -- I don't know, it's been about a year. We have our third credit officer since 1984 right? So he's new. He's in 1 year. He fits the mold. And I think that's the same thing. He's very curious. He loves looking at deals. He loves discussing deals and he knows the clients.

Yes. Circling back to something you just said about NDFI. Again, because of M&T's reputation, we as outsiders don't really have a lot of transparency in those buckets that they use. If you want to steer us or guide us investors, you have the mortgage warehouse loans, you've got the loans to BDCs, private equity, then you've got the consumer lenders and then other, which is insurance and REITs. Where do you think we should be really paying attention to in terms of where some of these hidden risks could be?

Well, I'm paying -- and it's -- I think it's becoming more and more public now. Again, let me start by saying, look, I have no problem with private credit. When we grew up in the '90s in banking, we couldn't securitize middle market loans. We couldn't securitize commercial real estate. The liquidity factor of this is just an extraordinary gift that has been a great innovation in the space. But when you start looking at some of the things you saw yesterday in the Wall Street Journal, there were 2 articles. One of them I thought was just funny, we've been talking about pick and bad pick. And it just disclosed this write-down of loans on the sale of loans at $0.94 on the dollar and said, it was actually a good thing because those guys weren't paying us interest anyway.

It's like if you don't see those loans, like there's all kinds of delinquency out there that you're not factoring into your math, right? And that stuff builds up over time. So anywhere like that, that you don't see transparency or that they're labeling something like delinquency something else, right? And I think the big risk that we have today, no matter how you look at it is there are too many of us looking at the U.S. as if there's more than one financial system. There's just one. Everything is interconnected. You can't have a bad day in private equity without having some impact on the banking system.

Right. Yes. No, very fair. Shifting over to capital. Obviously, your CET1 ratio, 10.8%, a little bit higher with the AOCI included in it. What are the priorities when you think about capital for you folks? And what are the trade-offs between using capital for share repurchases or investing in businesses organically? How do you guys look at that?

Yes, it's pretty simple. It's pretty simple. I mean we -- first and foremost is to make loans, to grow our business, to focus on our customers, right, and make sure we meet their needs. And that's not a small thing because the ultimate test is when everything hits the fan, are you still making loans to those customers? That is really important to think about being there in the moments that matter. And we've generated -- I think in the fourth quarter, we had like -- our ROA was like 1.49%, right? It's just -- it's very high. And so we're generating lots of capital. So we don't really have a big choice issue there. We've been repurchasing shares or distributing shares.

But I think -- as you think about our numbers, over the last 20 years, we've averaged, I think, 17.2% ROTCE, okay? So it's gone here and there, but if you average it over that time, it's pretty significant. We were 16% and change in the fourth quarter. Once we get to our target of 17% like it's sort of set up in the way we get compensated that you go to 18%, nothing happens. And so you start saying yourself, okay, maybe I better be plowing much more of this back into our business, right? Because, again, we're trying to build an enduring business. There's lots of change going on, lots of investment that's needed.

If 7 years ago, I had have sat on this stage and said, okay, what we're going to do is we're going to triple our investment in technology. You guys would have like tanked the stock. But 7 years ago, we spent $400 million. And this year, we spent $1.2 billion. And we're doing that by reallocating within the system and making sure that there was no need when we were at 17% to make an ROE 20%. What's the point if you actually have a long-term goal?

Yes. No, very good point. When you think about what you said a moment ago, you had thinner levels of capital prefinancial crisis. Now is it when you look out going forward, what's the appropriate level of CET1? Is it 10%, which you guys have kind of talked about? Could it come down a little less depending on maybe what we hear from Basel III end game? How do you think about that?

I can give you my own view. Daryl may have a different view on it. If we were just -- if it was just about M&T, yes, I think our capital levels could be meaningfully lower. The volatility we have, thinking about depending on how the advanced methods go, that could be valuable to us if our performance holds up, right? Because this idea that we've been lending in a certain way that's more conservative and less volatile doesn't get today credit. So we could come down on our own, I think. But then there's the world. And there are a lot of things moving out there. I guess, as we didn't have these private markets and other things as we -- in our history, the change amounts are really high. And then you look at the wars and the stuff that's going on.

So probably today, you could see that you should be holding a little bit more than you otherwise would need, but we continue to say in the 10s where we are is too high. And again, the thing I would look at, nobody looks at it, but look at the tangible. You're a kid like in the math class, you had to have the same apples-and-apples denominator, right, right? Everybody goes from ROTCE to what kind of regulatory capital do you have? That's not real. You get in trouble if you say that. But the tangible -- and so for us, we probably -- we have -- our tangible relative to everybody else is very high. It's very high. And that's a great protection, but it's also an opportunity.

Yes. Do you think -- if we just digress on that for a second, one of the questions going forward is that the rating agencies may be the binding constraint for banks in general, this tangible. Do you think that could -- can we evolve into that as an industry? Or is that going down a path that may not happen?

I wish the rating agencies were more pure, okay? So they'll look at a lot of that same risk-weighted stuff in that space. If you grab a chart and you put it together and look at the risk transfer trades, right? You get 3 banks at the bottom in our peers that have 0. We are less than 1/2 of 1%. The average is 4. 1 bank is 15% to 16% of their loans are those risk transfer trades, right? You got to be looking at that, like -- but you can't treat that all the same. And so I worry a little bit. So we focus on tangible. I think the rating agencies are a constraint, but if we wanted to get around them the way they think you could, you're taking a little bit more risk, right? But what's really fascinating is nobody would say anything about it.

Right. Interesting. Yes. That's a very good point. Obviously, M&T has been built over the years on acquisitions. I think Daryl has reminded us you've done maybe 22 deals and -- around there over the last 30 years. There's been some sizable deals in your footprint recently. And what's M&T's approach on -- remind us on M&A? And what are your thoughts on some of these deals? And does it create opportunities for you to pick up business?

Yes. I mean they do. We love local density, local scale. We think it's a big deal. We're doubling down on it. I actually think one of the advantages of M&A is it helps with the scale thing, like this idea that you're at a disadvantage if you're not really large. Not a lot of people are talking about that. The initial investment might be tough, but the results could be really, really powerful. So we -- that's most important. And so if there are opportunities that come up that somebody wants to do something like-minded when there's not a problem, we've done that. That's what we did in People's. There was no real problem there. It was just more of an opportunity for both firms. And then obviously, when things get crazy, our models really tends to kick in, in that space and those are opportunities. But I think there'll be I would imagine it will be a fair amount of opportunities, but we don't spend a lot of time chasing them.

As can I tell you about the just operate any -- I can tell you a quick story. Yes, I won't tell you the whole thing, but I was over in Europe. I was with Bob Wilmers, and he was showing me something and -- be showing me a second chateau or something. It was disaster. It was like a Roman [indiscernible]. And I was like, what I like you 78 years what are you doing? And he's like, I don't want to do this. I wanted to do this for the guys that run the winery needed something else to do. And then he stopped and staying on the steps and he looked at me and he goes, I never wanted to do any of those acquisitions. You guys just needed something to do. It's like a talent first thing. And so if you're constantly producing talent, like we hired 80 undergrads every year, we hire 80 tech undergrads every year. We hire 20 MBAs every year. We have to find something for them to do.

Yes. Yes, absolutely. That's good. Maybe some more comments about -- you mentioned about the tech spend going up as much as it has. Just walk us through the difference today on technology and how you're using it versus maybe 5, 7, 8 years ago when you first came on board as CEO.

It's dramatically different. First of all, I would say this, we have a single person with the title of engineer in our shop. When we hired Mike Wisler to brought them on, that sort of changed because he's a master engineer. But a series of folks that we actually brought on started changing things. We brought -- we started creating groups of data scientists. We created -- I remember the first group of 13 were user design engineers. So the entire process is not tech as we used to think about it back then. Back then, it was like we do these large projects. Tech was sitting in a place on its own. If you wanted to make a change, you had to get an appointment, right?

And so we reshaped all of the behaviors. We changed -- if you're doing a tech project now, you are sitting right alongside the technologists with the data scientists, everybody's together, that's why we built the tech hub we did. And we essentially changed the behavior patterns. We probably had 15% of our stuff as end of life today at 7%. The industry average is 12%. We're down 80% in our outages because resiliency, redundancy is in that space. We had 50% -- less than 50% of our workforce was in-house working for M&T in the tech space. It's over 80%. We have a 300% increase in our releases to our systems right? And the way to think about that is if you were to walk into the tech hub -- if you haven't been, you got to come to [indiscernible] and come see it.

And you can look at this wide open space and you look over and you see it there's the retail guys and you walk over, you said what you're doing, and they say, okay, Rene, today are on Fridays our release train. And it's in plain English. As a teller, I no longer have to pick up the phone and call someone to do this with the customer. Number two, as a lender, I no longer have to fill out all that paperwork when I first introduce myself to the client, right?

And trying to put it in plain English so that we can come back and understand what we talk about when we talk about AI. I don't know how these 2 letters seem to explain everything in the world, right? But the plain English is like what are you trying to do? And so that has changed us. I mean, it's just remarkable. And the speed and the resiliency is really important, particularly in a world that's changing all the time.

Correct. Speaking of change, the competitive landscape that you are in, some of the -- your regional bank peers have decided to go more national and not just stay in their historical footprint. Can you talk about that and give us an idea of how you are going to compete against these banks that are spreading their wings into different areas?

Yes. It's just a fundamental belief that our mission and purpose is such that if we're an integral part of the community, if we're meaningful, if people listen to our voice, right, that makes a difference. And if you're spread too thin, it's hard to get that effect. And we know that, right? So we know that we don't have #1, 2 or 3 share in New Jersey, for example. There are places where we don't. And the performance is just very, very different. So I think that's one, and I sort of repeat myself, it'd be like you have kids, whatever and they say, hey, to your parents, could you maybe you can buy a place next door and let us stay there. Like, no, you're staying. It matters, right? And so you're going to spread your resources in my mind, thinner in a time when their resources are really scarce with the amount of infrastructure investment that's being made to change the world.

Sure. Speaking of change, financial innovation with digital assets, nonbank lenders coming to the forefront, does this change the competitive landscape for you guys? And how do you approach competing against this potential disruptive force that's out there?

Yes. I mean -- well, first of all, I think it's a real threat. I think it's kind of on us as bankers because there's really nothing all that unique about what we're talking about here. And again, I wrote about this. I mean we went from paper to digital, we were fine, right? We're now going from distributed -- from centralized ledgers to distributed ledgers. That should be fine. And we should have probably a long time ago thought about the tokenization. And even if it's simply as if all of our information becomes available, do we have another way to secure ourselves in that space.

So -- but I think the banking industry is super healthy. It can attract a lot of talent. It's mobilizing, albeit a little bit late, but it's mobilizing. And my sense is, yes, innovation is going to be great. It's actually going to come back. Eventually, what's going to happen is there's going to be some event. And it's going to force us to realize that there's only one financial system. So we're going to come back together, and we're going to be fine.

Yes. No, very good point. Maybe we're running out of time here, Rene, but maybe you could give us an update on the full year '26 guidance you've given it in the past, how the quarter is going and how that reflects into that guidance as well?

I don't know whatever Daryl says what we're doing. I think we've had a -- if you take '25, right? I think that was a stellar year. I think we're running in. As we go to the fourth quarter, the momentum is there for us. The things are kind of soft. I mean there's nothing gangbusters going on the loan -- on either side of the balance sheet. So we'll have to watch. But the work that we're doing is fantastic. And as I said, we're able to invest in lots of things because of the capital generation that we have. And so I don't feel like we're short on investing in the future. But who knows what will happen next things stay the same. If credit spreads don't widen, right? Probably we're on the trend that we've been on.

Yes. With that, we've run out of time. Please join me in a round of applause thanking Rene.

Thank you.

Good morning, everyone. Welcome to today's M&T Bank Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Rajiv Ranjan, Head of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you, Bo, and good morning. I would like to thank everyone for participating in M&T's Fourth Quarter 2025 Earnings Conference Call. 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 Investor Relations website at ir.mtb.com.

Also, before we start, I would 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 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 would like to turn the call over to Daryl.

Thank you, Rajiv, and good morning, everyone. I'm excited to share our full year 2025 results. M&T has continued to deepen our presence in key markets, expand access in new communities and build innovative offerings that empower our customers and businesses alike.

In the last quarter alone, we delivered on our commitment to expand access to banking in Bridgeport, Connecticut's East End; opened our new full-service Honey Locust branch, the community's first new bank branch in decades. We partnered with the Baltimore Ravens and wide receiver, Zay Flowers, to launch our Financial Fitness Academy to give young people dynamic real-world tools to build financial confidence.

And we launched our new Banking Made for Business suite of Business Banking solutions tailored to support small and midsized businesses throughout the growth of their life cycle. These efforts reflect our long-term commitment to creating economic opportunities and our purpose to make a difference in people's lives.

Turning to Slide 4. We continue to garner recognition for our businesses and our people, including those who lead the engagement with you, our investors and analysts.

Now let's turn to Slides 6 and 7. Before getting into the details of the fourth quarter, I want to pause and reflect on some of the highlights for 2025. The progress we made against our four 2025 priorities and related enterprise initiatives will allow us to grow and scale in the coming years. I look forward to echoing against our updated priorities in 2026.

Our focus on the fundamentals drove our continued success in 2025. In 2025, M&T realized consistent and continued growth while also remaining disciplined and return focused. We earned record net income of $2.85 billion and record EPS of $17 while also maintaining our top quartile return on tangible assets of over 1.4%. We increased our quarterly dividend by 11%, repurchased 9% of our outstanding shares and grew tangible book value per share by 7%.

We made great progress on improving our asset quality with nonaccruals decreasing 26% and the nonaccrual percentage of total loans reaching 90 basis points the lowest since 2007. We also reduced criticized commercial loans by 27% over the course of the year. We grew fee income by 13%, reaching a record of $2.7 billion, and we increased our fee mix as a percentage of revenue from 26% to over 28%.

Expenses remain well controlled. The efficiency ratio improved from 56.9% to 56% while making significant enterprise investments that will allow M&T to thrive in the years to come.

Turning to Slide 8, which shows the results for the fourth quarter. Diluted GAAP earnings per share were $4.67, down from $4.82 in the prior quarter. Net income was $759 million compared to $792 million in the linked quarter. M&T's fourth quarter results produced an ROA and ROCE of 1.41% and 10.87%, respectively. The fourth quarter included two notable expense items: a $29 million reduction in FDIC expense related to the lower estimated special assessment, adding $0.14 to EPS; and a $30 million charitable contribution, which reduced EPS by $0.15.

Slide 9 includes supplemental reporting of M&T's results on a net operating or tangible basis, M&T's net operating income was $767 million compared to $798 million in the linked quarter. Diluted net operating earnings per share were $4.72, down from $4.87 in the prior quarter. Net operating income yielded an ROTA and an ROTCE of 1.49% and 16.24% for the recent quarter.

Next, we'll look a little deeper into the underlying trends that generated our fourth quarter results. Please turn to Slide 10. Actual equivalent net interest income was $1.79 billion, an increase of $17 million or 1% from the linked quarter. The net interest margin was 3.69%, an increase of 1 basis point from the prior quarter. This improvement was driven by a positive 4 basis points from higher asset liability spread driven by continued fixed asset repricing and favorable funding mix, positive 3 basis points from a reduction and negative impact of our interest rate swaps, partially offset by a negative 6 basis points from the lower contribution of net free funds.

Turning to Slide 12 to talk about average loans. Average loans and leases increased $1.1 billion to $137.6 billion. Higher commercial residential mortgage and consumer loans were partially offset by a nominal decline in CRE balances. Commercial loans increased $0.5 billion to $62.2 billion, aided by growth in dealer commercial services and, to a lesser extent, reblending, business banking and fund banking.

CRE loans declined 1% to $24.1 billion, reflecting a slowing pace of decline in the portfolio of continued payoffs and paydowns and higher originations. Residential mortgage loans increased 2% to $24.8 billion. Consumer loans grew 1% to $26.5 billion, reflecting growth in recreational finance and HELOC. Loan yields decreased 14 basis points to 6%, reflecting lower rates on variable rate loans, partially offset by continued fixed rate loan repricing, including the reduction in the negative impact on our interest rate swaps.

Turning to Slide 13. Our liquidity remains strong. At the end of the fourth quarter, investment securities and cash out at the Fed totaled $53.7 billion, representing 25% of total assets. Average investment securities increased slightly to $36.7 billion. In the fourth quarter, we purchased a total of $0.9 billion in debt securities with an average yield of 4.9%. The yield on investment securities increased 4 basis points to 4.17%, reflecting continued fixed rate securities repricing benefit.

The duration of the investment portfolio at the end of the quarter was 3.4 years, and the unrealized pretax gain on available-for-sale portfolio was $208 million or a 10 basis point CET1 benefit if included in regulatory capital. While not subject to the LCR requirements, M&T estimates that its LCR on December 31 was 109%, exceeding the regulatory minimum standards that would be applicable if we were a Category 3 institution.

Turning to Slide 14. Average total loans rose $2.4 billion to $165.1 billion. Noninterest-bearing deposits increased $0.1 billion to $44.2 billion. Interest-bearing deposits increased $2.2 billion to $120.9 billion driven by growth in commercial and business banking, partially offset by smaller declines in consumer and corporate trust deposits. Interest-bearing deposit costs decreased 19 basis points to 2.17%, aided by lower retail time deposit costs and lower interest checking and savings costs across our business lines.

Continuing on Slide 15. Noninterest income was $696 million compared to $752 million in the linked quarter. Mortgage banking revenues were $155 million, up from $147 million in the third quarter. Residential mortgage banking revenues decreased $3 million to $105 million. Commercial mortgage banking increased $11 million to $50 million, driven by higher gains on the sale of commercial mortgage loans.

Trust income increased $3 million to $184 million from higher institutional services fee income. Other revenues from operations decreased $67 million to $163 million primarily from prior quarter items, including the $28 million distribution of an earn-out payment, a $20 million Bayview distribution and a $12 million gain on the sale of equipment leases.

Turning to Slide 16. Noninterest expenses for the quarter were $1.38 billion, an increase of $16 million from the prior quarter. Salary and benefits decreased $24 million to $809 million from lower severance and other benefit-related expenses. Professional services increased $24 million to $105 million, reflecting higher legal and review costs.

FDIC expense decreased $21 million, mostly related to the reduction in the estimated special assessment expense. Other cost of operations increased $15 million to $151 million from the $30 million contribution to The M&T Charitable Foundation, partially offset by the settlement gain on the pension annuity purchase and the prior quarter impairment of renewable energy tax credit investment. The efficiency ratio was 55.1% compared to 53.6% in the linked quarter.

Next, let's turn to Slide 17 for credit. Net charge-offs for the quarter totaled $185 million or 54 basis points, increasing from 42 basis points in the linked quarter. Net charge-offs reflect the resolution of 3 previously identified credits totaling over $100 million. Nonaccrual loans decreased 17% to $1.3 billion. The nonaccrual ratio decreased 20 basis points to 90 basis points, driven largely by payoffs and charge-offs of the commercial and CRE nonaccrual loans.

In the fourth quarter, we reported a provision for credit losses of $125 million compared to net charge-offs of $185 million. The allowance for loan losses as a percent of total loans decreased 5 basis points to 1.53% from improved asset quality and macroeconomic factors.

Slide 18 has a summary of our NDFI portfolio. The NDFI portfolio increased $1.3 billion from the third quarter to $12.6 billion. The increase was driven by both net new loan growth and a recategorization of certain C&I loans as NDFI.

Please turn to Slide 19. The level of criticized loans was $7.3 billion compared to $7.8 billion at the end of September. The improvement from the linked quarter was largely driven by a $429 million decline in CRE criticized balances. The CRE decline was broad-based with lower criticized levels across nearly all property types. Given the consistent improvement in criticized, we will likely exclude the detailed criticized information on Slides 20 and 21 in future earnings presentations. But the detail will continue to be available in our 10-K and 10-Q reporting.

Turning to Slide 22 for capital. M&T CET1 ratio was an estimate of 10.84%, a decline of 15 basis points from the third quarter. The lower CET ratio reflects a $507 million share repurchases and an increase in risk-weighted assets, largely from higher end-of-period commercial loans, partially offset by continued strong capital generation. The AOCI impact on the CET1 ratio from AFS securities and pension-related components combined would be approximately a positive 13 basis points, if included in regulatory capital.

On Slide 23, we have our employee directions for 2026, which is shaped by two priorities drawn from the work across the company. The first is what we call operational excellence. We are building an enterprise that can operate at scale with greater consistency, efficiency and transparency.

Our focus is on creating intelligent, simplified operations that make it easier for customers to do business with us and easier for our teams to deliver. This includes strengthening our shared standards, streamlining processes, equipping colleagues with better tools and maturing capabilities such as automation and enterprise-wide control processes. These steps help reduce risk, improve performance and free our people to focus on the work that matters most.

The second priority is teaming for growth. We are leaning into a more unified enterprise-wide approach to growth, bringing together markets, business lines and capabilities so clients experience us as one bank. When we integrate the strength across regions and when we match local insight with the scale of M&T and Wilmington Trust, we'd unlock opportunities we cannot reach in silos. This focus is about deepening relationships, more coordinated planning and a shared approach to serving clients across the spectrum from retail to commercial to wealth.

Together, these priorities help deliver us consistent value, position the bank for the long-term performance and strengthen how we serve the communities that rely on us.

Now turning to Slide 24 for the outlook. First, let's begin with the economic backdrop. The economy continues to hold up well despite the ongoing concerns and uncertainty regarding tariffs and other policies. Private data sources reported decent spending growth in the holiday season and roughly a 4% through price increases have driven some of that growth. The economy bounced back in the third quarter for the strongest expansion in 2 years, but we are cautious of possible revisions and the slowdown once the fourth quarter data is collected.

Businesses continue engaging in CapEx and equipment while spending on new buildings remain in decline. Although overall economic activity was resilient, we remain attuned to the risk of the slowdown in coming quarters due to weakening labor market. We remain well positioned for a dynamic economic environment.

Now turning to the outlook, starting with net interest income. We expect taxable equivalent net interest income to be $7.2 billion to $7.35 billion as net interest margin in the low 3.70s. Our outlook includes 50 basis points of rate cuts in 2026, though our sensitivity to the short end of the remains relatively neutral. That said, shifts in the shape of the curve could drive variability in the NII outlook.

We expect full year average loans to be $140 billion to $142 billion. Reflected in the priority discussed earlier, we have renewed focus on growing relationship customers and our community bank regions across all business lines. This outlook includes point-to-point growth in each of the 4 main loan portfolios, though we expect the full year CRE balances to be lower than the 2025 full year average.

The full year average deposits are expected to be $165 billion to $167 billion. We remain focused on growing customer deposits at a reasonable cost and expect broad-based growth across each of the business lines.

Turning to fee income. We expect noninterest income to be to $2.675 billion to $2.775 billion. We expect growth to be broad based across our fee income categories and business lines.

Continuing with expenses. We expect total noninterest expense, including intangible amortization, to be $5.5 billion to $5.6 billion. Our expense outlook includes continued investment, and enterprise initiatives are also closely managing noninvestment debt. This outlook includes our usual first quarter seasonal salary and benefit increase, which is estimated to be $110 million. We also included in the outlook is approximately $31 million in intangible amortization.

As of January 1, we elected to carry our own residential MSRs at fair value rather than the prior treatment of lower of cost or market. We have also begun hedging the changes in fair value of those MSRs. Along with this election, MSR amortization is no longer to be recognized as an expense. And instead, the impact of the MSR time decay and related hedging will be net with mortgage banking revenues. These changes are included in the fee and expense guidance ranges but has minimal impact on net income or PPNR. The MSR fair value election also adds $197 million in regulatory capital or an 8 basis point benefit to the CET1 ratio.

Regarding credit, we expect charge-offs for the full year again to be near 40 basis points. We expect taxable equivalent tax rate to be 24% to 24.5%. As it relates to capital, we expect to operate with a CET1 ratio of 10.25% to 10.5% in 2026. We always run a bank to generate the best returns for our shareholders of appropriate capital levels and return excess capital to shareholders. Given the current capital levels, continued strong capital generation, we have significant flexibility to continue to support lending, pursue opportunistic inorganic growth and return excess capital to shareholders. We'll be opportunistic with share repurchases while also monitoring the economic backdrop and asset quality trends.

To conclude on Slide 25, our results underscore our 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 in our shareholder returns and consistent dividend growth. And finally, we are a disciplined acquirer and prudent steward of shareholder capital.

Last, I would like to thank Brian Klock for his leadership and contribution to M&T's Investor Relations since he rejoined the bank in 2021. I look forward to his continued impact as he leads the bank's strategy function. I'd also like to welcome Rajiv Ranjan, a 20-year-plus M&T Finance veteran, who will be leading M&T's Investor Relations along with several other finance functions.

As we close, I want to thank my M&T colleagues for serving our customers and communities. It was because of all of you that M&T continues to be the top-performing community bank. Now with that, let's open up the call to questions, before which Bo will briefly review the instructions.

[Operator Instructions] We'll go first this morning to Gerard Cassidy of RBC Capital.

Circling back to the capital ratios. Obviously, we're going to get the Basel III end game proposal hopefully sometime in the first quarter as well as another stress test. Assuming those are favorable to you and your peers and brings down your required regulatory capital CET1 ratio, how do you then approach where you are today with the CET1 ratio around 10.25% to 10.5%? Is that something you guys would look to maybe bring down if your required number fell with what's coming with those two, the stress test and Basel III end game?

Yes. Thanks for the question, Gerard. I would just tell you that we are always looking at where and what position we have on our balance sheet and what's going on in the economy. And we feel good of bringing it down to 10.25% right now. And potentially, we could go lower. I don't view the regulatory capital limits or where they are now as a binding constraint right now. We can go a lot lower with where we are today, and we may actually improve that.

But I think it really depends on what other things that are going on in the marketplace. But could we go below 10% at some point? Possibly. And we will evaluate it and share that with everything else we do as we move forward.

And you mentioned binding constraint. What would you point to as your binding constraint if you don't look at it as the CET1 ratio?

We have other constituencies out there that have other limitations, including the rating agencies and working with the rating agencies and getting them comfortable with how we're performing. I mean, when I look at our asset quality now, it's probably been the best it's been in the last couple of decades. So we are in a really strong condition. Our capital generation is probably the best we've been. So we're really strong there. So we have a lot of positives going forward.

I love the page when I started out with the statistics. We grew dividends 11%. We retired 9% of shareholders. And we grew tangible book 7%. We had record income, net income, EPS. Our ROTA is over 1.4. And our efficiency ratio went down from 56.9% to 56%. I mean, we are performing at a very high level. And the risk that we're taking on our balance sheet is the right risk for us and we feel really good with it, and we're getting great returns on that.

Great. And then just as a follow-up question. Regarding the loan growth, you gave us some clarity on where you are today and where you hope to be moving forward. On the commercial real estate side, I think you pointed out that you think it will start to inflect in the second quarter of '26. Is there regions of the franchise or property types that you're anticipating will be the driver behind this inflection?

Yes. I would say when you look at our teams and the CRE team run by Tim Gallagher and all the credit folks in Rich Barry's area, they've been working all 2025 to get us back on track. And if you look at the fourth quarter, our production levels were the strongest they've been for a very long time, December, we closed over $900 million loans in CRE. So we are performing on all cylinders. If you look at our 3 sectors, we have a large regional CRE portfolio that is hitting all cylinders. We have a strong M&T RCC business. That is also hitting record returns and record outstandings.

And we have an institutional CRE that is also performing very well. So our CRE businesses are really strong and productive. And we will have growth, as we said, starting in the second quarter on an average basis. So we're going to have 4 of our loan portfolios. All of our 4 loan portfolios should have point-to-point loan growth for us. in 2026, which would be really, really strong and gives us a lot of confidence with our earnings power.

We'll go next now to Scott Siefers with Piper Sandler.

Daryl, actually, just hoping you can expand upon just what you said about some of those non-CRE drivers. As we look at CRE having come down in the last couple of years, you've had pretty good momentum in some of those other main categories. Where do you see the best demand and sort of your willingness to lend in those kind of non-CRE categories as we look out into the course of the year?

So Scott, when you look at where we've had growth for the last couple of years, it's been in our C&I but mainly in our specialty businesses, fund banking, mortgage warehouse and other portfolios like corporate and institutional. And that will continue to grow and do really nicely. But when we talk about our new priorities that we have for 2026, one of them is called teaming for growth. Teaming for growth simply is basically bringing the whole bank together in the regions that we operate in.

We operate in 27 regions where we have regional presidents. Regional presidents have the local knowledge to how we go to market in those markets. So we're trying to combine the regional presidents' local knowledge with the scale and how we deliver our products and services of a larger company together, and we're really focused on growing our regions this year and do that. We are planning to grow in that area, and I think we'll be very successful there.

Perfect. Okay. And then you all have been quite transparent about sort of M&A aspirations. Just curious to hear any updated thoughts you might have about how you're thinking about the landscape this year.

M&A will come our way when it happens, Scott. We aren't aware of anybody -- and we want scale and density in the markets we serve. We're in 12 states, plus the District of Columbia. That's where we want to continue to get more density. We are not aware of anybody who wants to sell in those markets. We will continue to reach out and have good relationships with them. Rene knows all the appropriate people and all that.

And it will happen when it happens. We aren't going to force anything from that perspective. And it will happen at some point down the road. But right now, we have a lot of capital. We want to deploy that capital to our markets, to our customers, first and foremost, continue to pay a great, strong dividend. And we're going to buy back a ton of stock.

We'll go next now to Matt O'Connor with Deutsche Bank.

I was hoping you could elaborate on the deposit environment. Obviously, you've been kind of running off some CDs and growing other deposits, but maybe some color in terms of net second account growth, what you're seeing from a competitive landscape. And any changes in the brand strategy as you think about driving organic growth?

Yes. Yes, deposits are really key. One of my famous sayings that I have, Matt, is that we want to have both oars in the water. So as we grow loans, we also want to grow our customer deposit base. We've done a good job the last couple of years growing that and retiring a lot of noncore funding in the wholesale book. I think we will continue to do that. As far as competitive-wise, all of our businesses have in their plans to grow customer deposits. And we're really focused on doing that.

So we complete and really manage both sides of the balance sheet very well. As far as competition goes, I would say the competition is the same as it's been for the last couple of years, not any worse or any easier, what it is. It's competitive. We have different pricing strategies depending on the scale and density market share that we have in those markets, and it seems to be successful. Our teams are really good at going to market.

But first and foremost, we really focus on getting the operating account, the checking account. Whether you're in the consumer bank, business banking, commercial wealth, that is really critical to us. And from that, other revenues and products and services come off of that. And we've always done that and we will continue to do that, really focused on growing net new checking accounts, which is really important.

Okay. That's helpful. And then just separately, I know it's not a big category for you, but the trading revenues has stepped up each of the last 2 quarters to $18 million to $19 million. Remind me, like has there been a change in kind of the efforts there or any small deal that would reset this level higher versus just kind of quarter-to-quarter volatility?

Yes. No, I appreciate you breaking that out. I mean, that specifically is our customer swap book. But what you see there is really just a precursor of something that's greater overall. We have Hugh Giorgio, who runs our capital markets investment banking area. He's been actually adding resources. He had a record year of revenue this past year. He's going to have a really strong year, probably another record in 2026.

We will actually -- once we get through our general ledger conversion shortly, we're going to break out and actually show our capital markets and investment banking so you can see it together. It's growing really nicely, and our teams are executing really well. And I think it's been a really strong business and will continue to grow well for our fee income categories.

We go next now to Manan Gosalia at Morgan Stanley.

When I look at the guide for 2026 for both fees and expenses relative to what you did in 2025 and even the 4Q run rate, it feels like both growth rates are significantly slower. I know you called out the impact of the MSR -- well, you called out that the MSR fair value and hedge will impact those two lines. Is that a big driver for both lines? And what is the core growth rate that you expect for both fees and expenses next year?

Yes. No, thank you for the question. I would say that the accounting change is part of it. It's $75 million that would normally be an amortization expense is going to be now netted against revenues. So that's basically just a shrink of both expenses and revenues by adopting the smart market accounting. And the residential MSR is one. When you look at kind of our projections for fee income and you kind of back out the notable items, we should be about 4% in fee growth is kind of what we're looking there.

And it's pretty broad based when you look at the fee growth. We're growing -- our treasury management was up double digit year-over-year. We expect to be close to that again in '26. We're growing trust revenues. We're growing in the mortgage area. Potentially our commercial mortgages are off to a good start. So they're doing really well. Residential mortgages, if rates come down on the long run, we'll be able to do well there. We could have potential more sub-servicing growth there. And then what I just talked about in our capital markets and investment banking.

So we have momentum on the fee side and feel good about hitting the [ 4% ] number that we have. If you look and put it all together, we are generating kind of operating leverage in '26 probably 150 basis points plus or minus. So we feel good about that like we did this past year.

Got it. And then in the deck, you spoke about operational excellence and teaming for growth and how the outcome of that should drive better revenues and profitability. When you think about the environment, loan growth is improving, fee income is growing, capital is normalizing. How do you think about the trajectory for ROTCE over the next 12 to 18 months? And what's a good end goal for ROTCE as we look out in the medium term?

Yes. Thank you for the question. So we had a really strong finish in 2025 with our returns approaching 16%. We think that will kind of continue in 2026 to be in the 16% range. And our goal is to get it to 17% by 2027. So I think we're on a great trajectory, and I think we can get there.

Brian, we will miss you. All the very best. And Rajiv, looking forward to working with you.

Thank you.

We'll go next now to John Pancari of Evercore.

Rajiv, welcome. I look forward to working with you. And Brian, best of luck in the new role. It's going to feel kind of weird not seeing your balancing around at the conferences and cracking some jokes. I guess on the loan growth front, Daryl, I wanted to see -- I know Scott asked you a question just a little bit around the other areas.

Could you elaborate a little bit more on what you're seeing in underlying commercial C&I growth more specifically? You mentioned CapEx in your prepared remarks. Are you seeing some drawdowns tied to CapEx? Are you seeing line utilization tied to that? If you could just give us a little bit more color on what's actually beginning to take shape and influencing your growth expectations.

In the fourth quarter, our middle market commercial actually had an increase in utilization. So that was a positive. So I think that was something really good to see. It's been dormant for a while from that perspective. I think net-net, overall, we're seeing good growth. It's competitive, obviously, in the commercial space. But I feel that we're going to have good growth overall both in specialty and in our regions as we kind of launch with our new priorities from that perspective.

So I think we're confident we're going to have good loan growth. I mean, if you look at loan growth, for the whole company, it's, in total, probably be in the 3% to 5% range. And C&I will be kind of right in that same similar range. But we got CRE still shrinking year-over-year but starting to grow point-to-point. We got commercial real estate. That's what I just talked about. And then consumer real estate and consumer growth also growing nicely. Consumer actually in the indirect space and HELOCs will approach high single digit. So we have good overall broad-based growth in all portfolios.

Got it. All right. And then secondly, on the credit side, I know you indicated the charge-offs related to the resolution of charges of some of the previously identified credits. But your 90-day past dues jumped about 30% in the quarter. Can you give us a little bit of color on what drove that and if that could influence nonperformers and losses in coming quarters at all?

Yes. So on the consumer delinquencies, that's really just a result of more Ginnie Mae repurchases going on the balance sheet, which is an attractive trade for us, and we actually make more fee income doing that. On the commercial side, it was more administrative delays. People basically missed payments in the first week or so. If you move from year in, go back forward 7 days, we had $250 million more come in, in payment that wouldn't have been delinquent. So I think there's nothing there to say in the delinquency, per se. I think we feel good about our credit quality and performance there. It's just kind of, one, administrative on the commercial side and consumer is just on the Ginnie Mae growth side.

We'll go next now to David Chiaverini of Jefferies.

I wanted to ask about your deposit beta on the next 50 basis points of cuts. What's your assumption there?

We've been holding pretty good to the low 50s, David, so far. And we feel really good in the down 50 that you asked for. So staying in the low 50s, I think that's definitely doable. I think at some point, as we continue to go down more, we're going to start hitting forwards on the consumer portfolios. But definitely feel confident that we can stay in the low 50s going down another 50 basis points.

And as you inflect higher on loan growth, do you expect increased competitiveness on the deposit cost front?

Our mindset first is to grow operating accounts. We're also, I believe, in like an always-on strategy where we always will offer competitive rates to our customers. We won't be the highest, we won't be the lowest but we'll get our market share. I think that's what you're seeing come through from the business lines. We grew $2.2 billion this past quarter. It was in business banking and commercial. So I feel that we're pretty much hitting stride there and doing really well. So I feel that our deposit growth will stay intact with our loan growth. I don't think you're going to have any disconnect there.

We'll go next now to Erika Najarian with UBS.

Just wanted to take a step back, Daryl, as we think about how longer-term shareholders should sort of frame the M&T investment case. As we think about your capital position and as we think about some of these initiatives and sort of the CRE optimization strategy, as you think about 2026 and maybe the next 3 years, what is more important to this management team and Board, optimizing ROTCE or optimizing growth?

That sounds like a familiar question.

It was a good discussion.

It was a good discussion. Erika, I believe it's really a combination of both of that, to be honest with you. We really have capital out there and we want to use it for our customers and make sure we get good returns on that. So we're pretty disciplined in the returns we're getting when we're putting loans on the books and getting those returns. But we also will distribute capital to our shareholders.

And I think you're seeing us do that. I think we're probably the only large bank that basically retired 9% of their shares this past year. We're going to probably do amount -- most of that this next year, maybe a little bit lower because of the higher stock price. But we are giving back lots of capital to our investors and shareholders. So I think we feel good. We're balancing that. We generate a lot of capital. We do a lot of good for this community, which is really important for us and our customers. We meet their financial needs.

So our company is, I think, doing well on all cylinders right now. And our two new priorities is tweaking us to get even better in the things that we do and how we execute, which is really exciting from the teaming for growth and operational excellence. We just try to keep notching it up and keep setting the standard as we're kind of improving it better.

Got it. And just a more localized question on the net interest income guide. Daryl, you mentioned neutrality on the short end. How much of those three components that you mentioned that would be telling of where you are in the range, how much is the shape of the curve important versus the growth trends? And additionally, thanks for giving us the average balances. I'm wondering if you could give us a sense of the size of your overall balance sheet in terms of earning asset growth that's embedded in that NII number.

Yes. So I'll start with the shape of the curve. Obviously, the shape of the curve will have impact because we still are getting benefit from kind of our fixed rate loans and our investment securities and sometimes our swap book and all that. So if the curve flattens out, we will definitely have less NII. If it stays steeper, we'll have a little bit of a benefit there.

It's really hard to hedge the yield curve, and it keeps moving back and forth, so I don't recommend trying to do that on a regular basis, to be honest with you. But we feel pretty good, though, that we're pretty neutral on the short end, which is really good because, as you know, we're really asset sensitive with the hedges that we have right now. I mean, if we didn't hedge right now, if we stop hedging now and you go a year forward, we'd be much more asset sensitive just by what's rolling off. So we have to hedge to stay relatively neutral.

Growth will be a good key component. It's going to be a good value add for us this year. Having more growth consistently across all of our portfolios, being able to grow deposits and loans in sync is really good. As far as earning assets, it's growing about 3% if you look at it on a point-to-point basis.

Great. And welcome, Rajiv, and congratulations, Brian, on your new role. We'll always have Denver.

Thanks, Erika.

We'll go next now to Chris McGratty at KBW.

Earlier in your remarks there, you talked about checking account growth as a priority in terms of mix shift within the deposits. Can you put a little meat on the checking account traction? Maybe the accounts opened in 2025, outlook for noninterest bearing, anything you could provide there would be great.

I'd probably start with my favorite business that I have is business banking. When you look at business banking, we have 3x more deposits than loans. Their go-to-market strategy is always to get the checking account, first and foremost. In the consumer bank, we definitely try to grow, and we monitor those statistics every month to try to get to net account growth from that perspective. And then commercial and wealth, it's definitely important from that. And we are investing heavily in our treasury management products and services that are helping the growth in business banking as well as commercial.

As far as specific numbers of account growth, I'll probably won't be able to give you that. Maybe at the next conference. I don't have that handy with me right now, Chris. But we'll share that information in our next investor deck for the first quarter, if that's okay.

That would be great. And as my follow-up, I'm looking at Slide 24 and the ranges that you've provided. If you take a step back, is there a piece of the P&L where you're, I guess, most optimistic within the ranges? You talked about loan growth by each category point-to-point growing. But any kind of elaboration there would be great.

We've had a lot of strong momentum in the fee area the last couple of years. So we still have momentum there. So that would be one that I'd probably be most bullish on. NII, I think we're going to do well in that space. Expenses, we have a very disciplined company. One of the favorite things I like being part of M&T is once we set our plan and move forward, people follow the plan and get the job done. So I have all the confidence that we'll get our operating leverage that we have and move forward.

So I feel good about it. I mean, I feel more positive entering '26 than I have in the first couple of years I've been here. I think we're moving together and really working together much better as a team. Rene, I think, has probably the strongest management team he's had under his tenure running the company. And we are starting to perform like that as well. So I feel really good about that.

We'll go next now to Ken Usdin with Autonomous Research.

Daryl, just two quick ones. On the deposit side, your growth allows you to remix a little bit on the wholesale borrowings. I'm just wondering how much more room you might have there, and do you believe we've seen the bottom here of the DDA balances?

So on the first question, we can probably still shrink, whether it's broker or some of our funds or other areas, maybe a couple of billion more so we can -- if we get cheaper core deposits and we can't deploy it in the lending side, we'll be able to shrink and still optimize there. Definitely, we want to continue to run as efficient optimal balance sheet as possible. That's really important to us.

Your second question, what was that again?

Just about the DDA balances, and do you think we've hit an absolute bottom? And do you expect any growth from here?

We think when we hit around 3%, DDA should bottom out and start to actually grow. So we aren't that far away from that if we hit those 2 or down 50 basis points, we think at that point, it should start to level off and start to grow again from that perspective is our opinion. That, and we're investing heavily in treasury management services. We have a great leader there who's doing a great job. And our businesses are really good going to market with all that. So we're launching with good products and services and that will also benefit. But I think down about 50 more basis points, and I think you're going to start to see it bottom out and grow.

Okay.And one on the loan side. I haven't done the calc this morning, but as CRE bottoms, can you just remind us where CRE as a percentage of your equity today? And as you start to grow it again, where would you be comfortable taking that back to if, in fact, the reduction ended up being any different than where your comfort level would be?

Yes. So we're at 124%. Our limit is, I think, 160%. So we have a ton of room to grow. And we'll grow serving our clients, getting the right returns on the growth that we're getting. So we really have a large amount of capacity to be able to grow and add to that portfolio as needed. And I think the teams are excited. And Tim Gallagher, who runs that group, is really excited. He said get had all 3 businesses performing at top levels, and at an unbelievable strong finish to the end of the year and that's going to carry us really well.

One of the things that I always watch for going into a new year is start point issues and all that. And when we put our plan together in the third quarter, we didn't know if we'd have any start point problems or issues. And lo and behold, as the year and fourth quarter played out, all of our loan portfolios performed really well and we have no start point problems. So we're starting where we thought we would be and we aren't behind. So that gives us a lot of momentum to actually lift off and grow from that perspective.

We'll go next to now to Steven Chubak of Wolfe Research.

Daryl, so I wanted to ask just on consumer deposit growth. Just within the guidance that you offered up for '26, how you're thinking about the growth in consumer versus wholesale. I know we don't have the explicit disclosure within the supplement. But i know last quarter, year-on-year retail deposit growth, it was beginning to recover back towards that flat year-on-year level. As you continue to build density in some of these markets like New England and Long Island, are you nearing a sustainable inflection in retail deposits as we look out to the coming year?

Yes. We are really focused at growing our consumer deposits. And I believe that is kind of the real value that you have by having a strong consumer threshold. All the businesses that we plan for, whether it's consumer, business banking, commercial wealth, all plan for their deposits to grow both for operating and total deposits, which is really positive.

We did shrink some of our time deposits this past year. That was intentional because we didn't have a use for a higher cost. We can get that back very easily by just going out and doing that. That was a conscious decision. But net-net, overall, we feel good about the growth and what we can achieve in the consumer side.

As far as commercial goes, they're a machine. They're really important when we go and serve our clients. It's not just loans, deposits, treasury management, other fee income services. They deliver and bring the whole bank to them and all that. So we feel really good about getting the right wallet share on the commercial side.

And for my follow-up, just on mortgage banking. Revenues continue to grow at a healthy clip. I know that's primarily been driven by the expansion in the subservicing business. Do you believe the tailwinds from '25 could persist into '26? What's a reasonable expectation for growth within that subservicing business at the current clip?

So there's going to be a couple of changes in '26 in subservicing early on. I think we're going to lose a smaller portfolio but then we're going to get something back to next quarter and potentially even get more back in the second half of the year. So Mike Drury, who is in charge of that business and many other businesses out there, feels really good about his mortgage business, his subservicing.

We are really good subservicers in the hard to service. So the FHA stuff is kind of our sweet spot that we do, and people come to us to have us service those loans. And that's a niche that we have and we feel really good about it. So net-net, it might bounce around a little bit throughout the year, but I think we're going to finish the year pretty strong overall in that space.

And we'll go next now to Ebrahim Poonawala of Bank of America.

Just one question. As we think about your growing core deposits organically, as we think about the incremental balance sheet growth that's coming on, would you say that's dilutive to the net interest margin where it is today at around 3.70%? And is there a ton of upside, like is there an upside scenario where this margin could be closer to 3.80%? If you could sort of give us a framework around those two. Appreciate that.

Yes. So that's a good question. When we put on customer relationships, we look at the returns for the overall relationship. We just don't look at one side of the fence, whether it's deposits or loans. It's the whole relationship. There are scenarios that where, if we grow loans, grow deposits, maybe you put a little lower net interest margin on the books. But net-net, it still returns a good return on capital and which is something I think we can do.

I mean, I think our net interest margin is either first or second in the peer group. So we have room for it to go down if we need it to go down to be competitive. But right now, we're trying to continue to keep our mix there and grow the DDA in conjunction with interest-bearing deposits as well as good, attractive spread loans and getting good fee income overall. So it's really getting the whole balance there. But the guide that we have is what we're giving you is what we think is going to happen from what we're going to earn.

And we'll keep you updated as that plays out. But right now, we feel really good about operating in the low 30s for 2026.

We have no further questions this morning. Mr. Ranjan, I'd like to turn things back to you, sir, for any closing comments.

Thank you. Again, thank you all for participating today. And as always, if any clarification is needed, please contact our Investor Relations department at (716) 842-5138. And I look forward to working with all of you. .

Thank you, Mr. Ranjan. Thank you, Mr. Bible. Ladies and gentlemen, that will conclude today's M&T Bank Fourth Quarter and Full Year 2025 Earnings Conference Call. Again, thanks so much for joining us, everyone. We wish you all a great afternoon. Goodbye.

All right. We're going to get started. Up next, we are pleased to once again have M&T joining us. M&T had another strong year, highlighted by strong fee income growth, continued expense discipline, continued improvements in credit and returned lots of capital. I think the most in the peer group. Here to tell us how they're going to continue this momentum is CFO, Daryl Bible.

Today's presentation is a fireside chat. And for everyone here, I'm sure you saw the company did publish a slide deck last night, where they reiterated their fourth quarter guidance, which we will touch upon shortly, but I just want to make sure that everyone saw that.

So welcome, Daryl. Thanks for coming again.

No. Thanks for inviting us. Happy to be here and excited to talk about '26.

Awesome. Well, maybe before we talk about '26, we'll kind of round out '25 here. As I talked about, another solid year, margins increased. We saw some pockets of loan growth. Credit continued to improve as you further derisk criticized and you returned a lot of capital. There were some tweaks to NII because of softer CRE, which we'll touch upon. But maybe just with that as background, talk about what you felt was successful in '25 and how that's positioning the bank for 2026?

Yes. I think when you looked at it and look at the pieces, you could start with the balance sheet. From a lending perspective, we knew going into the year that CRE would be down early on. We thought it would grow later in the year and that didn't happen. What was really exciting to see was the growth that we had in our consumer portfolios and residential mortgage that helped overcome what that growth that we didn't see from the CRE portfolio.

From a C&I perspective, we continue to do well in our specialty growth. Some of our regional markets are growing nicely. On the deposit front, I'd say our deposit growth was decent for 2025. I think that's pretty good to have, and we expect that to continue and maybe have more momentum in '26 as we move forward.

From a fee perspective, that was probably the highlight. We were up 16% year-over-year on that. That includes a couple of one-timers there but still on a core basis up really significantly there from that perspective. That was led by mortgage, trust and our treasury market, our treasury management products and services.

Expenses pretty much came in, in place on track, which is what we thought they would. And I think we're doing well there. And credit continues to surprise us. It continues to get better, faster than what we thought it would. And our criticized levels continue to come down and nonaccrual levels. So all that, I think, was really positive for '25.

Great. So maybe to think about your strategic priorities, you've had 4 built around expanding certain markets, simplification, upgrading systems to be more resilient and scale capabilities to manage risk. As you look ahead, like -- how do you see your -- the strategic priorities of the bank evolving over the medium term?

Yes. From a big picture perspective, we've been on this journey for 7 or 8 years now from a technology space, and we continue to make investments. If you look at our funds, expenses that we pay in technology, it's tripled over that same time period. So I think we're doing a lot, deploying more capital into our technology spaces. I would say the last couple of years was really focused on resiliency. We were investing in projects that really gives us a solid foundation.

You can look at the data centers that we put in that we now have up live in Northern Virginia and outside of Chicago. If you look in finance, we're actually in production parallel in our general ledger system. We hope to turn off the old general ledger system in the first part of 2026. That's foundational. In our commercial area, the factory that actually generates how we make loans and credit decisions and all that was rebuilt, and that's finished.

So all that was kind of foundational. Where I see us moving now is moving closer to the customer and the customer experience and trying to facilitate and get those systems and processes is best-in-class as possible. So I think we're going to continue to work on. We started a project on commercial payments that will improve our client experiences for our commercial customers there.

Commercial servicing, we're looking at consumer servicing. So those are areas that will help from a digital basis, we're looking at improving our digital experiences not just in the consumer and business banking space, which is really core, but also to our wealth function, which is really meaningful from that perspective. So we're kind of transitioning and moving in that direction and feel good that we'll have a good client experience and help continue to grow our company as we move forward.

So before we dig a bit deeper, let's just spend a minute talking about the fourth quarter update or reiteration that you put out anything in particular that you wanted to highlight or walk through about 4Q? And how does that position you guys as we kind of jump off '25 and enter '26?

So when you look at what we've done 2 months now into the fourth quarter, we actually are growing CRE. If you look at where it was in the beginning of the quarter where we are now, we're actually net up. So our runoff that we thought would have happened earlier is actually happening now, our production levels continue to increase. So point to point, we'll probably be positive in CRE, which is a good thing to have.

On the deposit front, we're growing our customer deposits nicely. Our DDA is growing, but maybe not quite at the pace that we thought, but it's still growing from that perspective. On the fee side, I think our fees are coming in really well on track with what we thought they would. Expenses are coming in maybe a little bit on the high end or being impacted by a little bit higher costs in our medical area, some of our compensation areas and professional services, but we'll still be within the range that we have. But -- so just a little couple of tweaks, but really feel good. And from a credit perspective, I feel really good that both criticized and nonperforming will be lower again in this quarter.

So let's dig into loan growth. Maybe let's put CRE aside for a sec. Maybe just talk about where you see the opportunities to grow, whether it's C&I and consumer? And how is that -- where do you see the opportunities outside of CRE to position the bank to improve growth into next year?

So as we kind of start 2026, I'll give you a little story. So some of our leaders on executive leadership, Peter D'Arcy, Eric Feldstein, talked to the leadership team and said, we think we can do better if we really focus on, we call it teaming together and really focus on growing our community markets. So we've spent now the last 3 or 4 months organizing how to team better and to get organized.

But one of our goals for 2026 is to really bring the full capacity of the bank even better than we have to our customers and clients and communities from that. And I feel really good that we'll be successful and actually growing more aggressively, maybe middle market commercial, which really has been pretty flat line for the most part. It's really important to us, but really trying to focus on that growth in that area. I think it would be important for that.

On the consumer front, it's something we can dial up, dial down. But with the growth that we are projecting and now starting to see in CRE, we'll probably take the pedal off a little bit on the consumer. And most of that in the indirect business is just an asset. So you don't really lose much except for the asset. But if we get it more in a wholesome relationship we're better off from that perspective, but that's something we can dial back and forth from that perspective.

And I think there's specialty businesses within the C&I space. We continue to build out. Peter is investing in more verticals and all that. So I think that will be helpful. He's really focused on kind of the large market commercial companies in our space and all that. So I think building out our capabilities to serve those clients will be very helpful.

So as of the third quarter, CRE had been down 16% year-on-year, and that continued to decline. And obviously, it's good to hear that we are starting to see the inflection. Maybe just talk a little bit about what is driving this inflection, whether it's on the production side or specific areas? And maybe just talk a little bit about do you feel this inflection is sustainable and we could continue to see growth into 2026 across CRE?

Yes. Yes. So we're counting on growth in '26, to be honest with you. But when you look at our CRE space, all the -- we made loans in CRE last year. I didn't feel like it being down 16%, but we did. A lot of those were construction loans, and those construction loans, guess what, start to get funded up in '26 and all that. So we know that's going to happen. That's going to be in addition from that growth.

We are finally seeing a slowdown in payoffs, which is what we've been projecting now for a couple of quarters. That is now actually happening. And then our production levels continue to increase. Our win rates are better. I would say M&T is back in place in the CRE space.

No, that's great to hear. Let's switch gears a little bit and talk about NII. I know we'll get guidance in January. But couple of things. Maybe just talk about key drivers for NII growth into next year, can the margin expand beyond 3.70%? And do you expect it to be more -- NII growth to be more driven by margin expansion or balance sheet or both?

Yes. And our plan that we put together for '26, we have both from that perspective. I'd say growth in lending and deposits will have a larger balance sheet, so that will help us grow NII at a net margin benefit from that. And then when you look at repricing and margin, we still have favorable things that we know will happen that should give us some lift in the low 3.70s is probably where we'd be expecting margin to be. So similar to what we had last year, we grew 6 to 8 basis points. I think we'll continue to grow in '26 as well.

And it sounds like you should have better balance sheet growth this year to drive it. So maybe let's just talk a little bit about rates. You positioned the balance sheet to be neutral to cut. You guys have been successful in bringing down deposit costs. Maybe just talk about what -- we're going to hear from the Fed today, maybe just talk about your updated expectations for deposit repricing. And what are your expectations as we move further into the easing rate cycle?

Yes. I think we're really pleased. Our deposit betas in this downward cycle has been in the low 50s, which is, to be honest with you, you'd expect it because it was similar to that when it was going up. So no news there. It should react down from that perspective, and we are seeing that. We do expect the Fed to move today and probably have 2 or 3 moves in next year, which will be good and feel comfortable all through next year, we should still stay in the low 50% beta range.

At some point, though, you're going to get to a point where the retail deposit franchise will start to get forward out on what you can actually cut. But we're probably 100 to 150 basis points away before we see that happening.

So you should still have good momentum in terms of bringing down deposit costs. Now maybe let's just talk a little bit about deposit competition. If I think about M&T sort of the hallmark of it is the density has within its footprint as a market leader. So a lot of times, you guys can have a big impact on the competition. But maybe just talk about what the deposit gathering looks like across the footprint. You talked about success you've had in consumer. Maybe just talk about where you're seeing the good opportunities to grow deposits as you look ahead?

So if you look at our 6 businesses, all 6 businesses for '26 are expected to grow deposits. We'll have growth in the consumer sector, business banking and commercial. And that's kind of a core where you get the operating account. And we go to market, first and foremost, to get the operating account from our clients, and if we get the operating accounts and everything else will follow over time from that.

But we also have growth expectations in our wealth area on deposit side, in our corporate trust area through our activities that we have in M&A and escrow in that space. And then also growth in mortgage. Mortgage is -- we're a big servicer of loans. We do a lot of subservicing. So we get a lot of escrow deposit growth there. I think all those areas are areas that we feel comfortable will contribute positively as we move forward and support the growth of the company.

So let's shift gears a little bit and talk about fee income, and we'll start broad before we get into some of the specifics. So you've had a really robust year of fee income growth, pretty diversified across mortgage trust and service charges. And I think at earnings, you noted that you expect the momentum to continue into next year. So maybe just unpack for us where you see the best opportunities to grow fees? And what do you see as the keys for -- as the key drivers moving forward?

Yes. So we had a great year in '25 in fee income growth. I don't think we're going to repeat that in '26, but I do believe we're going to grow positively, and we'll give you guidance on that in January.

I'd first start off with our mortgage area. If we're able to continue to grow our subservicing area, that's also an area where we can grow our fees in that space very nicely at good margins because of our automation and technology that we have in that business line makes a lot of sense to do that.

We continue to invest in our treasury management products, so that will support fees as well as DDA and other types deposits there, so that will be a positive. Corporate trust area will continue to grow and do well in that space, but probably not have the growth that we've seen in the last couple of years there, but still have, I think, a decent growth in that space.

I think the one that surprises you're going to see is our capital markets. We are really known for capital market fees. And I've had requests now to actually take -- we have a lot of those line items in our other fee income categories. Right now, other is too big. We need to break it out. So once the general ledger goes live, we will be able to readjust and show our capital market fees from that.

But really expecting good growth as we build out that whether it's a customer derivatives, FX, syndications, other fee products. It's really starting to add up. And you see the growth in the other area supporting. So we'll actually highlight now, and that will be growth.

And finally, wealth, I think wealth will be a good growth engine for us. We're starting to see positive growth in our inflow of assets, which is really good news. And we think we have a lot of referral business going back and forth as we team together to help grow that business faster.

So maybe let's dig into 1 or 2 of those. So I think you're one of the few banks that was actually able to grow mortgage this year. Obviously, your business is pretty diversified and has several different sub businesses in there. But maybe just talk about what has driven this performance? And can this continue to be a growth driver for the bank looking ahead?

We believe that with the investments that we've made or how we do business, we're known as being really good at servicing the hard-to-service type mortgages, FHA, state of New York just because they have more regulations, more requirements, just more delinquencies. So in those areas are the areas where you generate more revenue, you get paid more for it. Those are the areas that we really focus on and really are aggressive to try to attract in there. So we hope to have more opportunities and be able to swing and continue to grow that space over time.

And then I wanted to dig into the trust business, which obviously is a combination of multiple businesses, wealth and corporate trust. You've had an incredibly successful year there. First, just what has been driving the growth? And then second, on the wealth side, can you maybe just talk about the strategy, particularly on expanding the focus on $5 million to $25 million of AUM, which I know has been a big focus for the bank.

Yes. I'll start with the wealth side first. So we break our wealth segments into less than $5 million to $25 million and over $25 million. And the less than $5 million, which is really what we get through our consumer retail channel, we've actually just moved one of our leaders that was in business banking to run that business in the wealth area from that space.

She's been in the job about 6 months, and we're already -- it was growing nicely before we're actually seeing a lift because of how she's engaging the people in the field and how they're just collaborative nature we have between both of those businesses coming together is really positive.

But when you look at the $5 million to $25 million, I think that's really going to come from referrals from business banking and our middle market, those are the areas that we think that we can get more referrals and help grow net asset growth in that space. It's something we're really focused on and really believe that we can have a significant difference in that space.

If you go to Corporate Trust. Corporate Trust, we have about 20 different businesses within Corporate Trust. The businesses where we generate most of the revenue is in structured, loan agency, M&A, public finance, those areas. I think those areas will continue to grow and do well. Depending on market activity, it kind of will depend on how much we can grow in that space. But really feel good that we will continue some momentum in that space, but maybe not as much as what we've seen in the last couple of years.

So let's shift and talk a little bit about credit. In your opening remarks, you had some positive commentary. We've continued to see improvement in criticized assets. They've come down from I think they were over 14% closer to 9% today, and I think it's faster than most of us expected. One, just talk about what is driving this, how much more room for improvement is there? And does -- does this at all change the way you approach growth once you get there, given the run-up that you had and the period of improvement that we've been through?

Yes. So I think there's a lot of positives. I mean, first and foremost, our customers are performing better. So they have better operating performance. So just that alone gets us over the debt service coverage, threshold and improves that. We've had help from the Fed with lowering rates. We probably still think we believe we need to continue to lower rates for various reasons.

But I think that will be a benefit. We've had people get refinanced away from us. A lot of times, those were criticized loans, so that was a positive. And we've had people put capital and equity into it. And that really shows the quality that we have of our customer base that we serve and the commitments that we have in that perspective. So we feel really positive from that perspective.

So last quarter at earnings, obviously, NDFI was the big focus. If you listen to the commentary yesterday, it seems like a lot of those things truly were one-off and you had a lot of banks talking about the confidence in their portfolios. When I think about yours, you only have 8% of your loans in this portfolio, I think it's below peers, which are closer to 11%. Maybe just talk about some of the dynamics within your book. Are there any areas of risk within that, that you see as emerging? And maybe just talk to the risk characteristics of your book relative to the industry?

Yes. So it's good that we have a general definition for this type of asset class, people out there. But within that asset class, you have a lot of different risk threshold levels from that. And we tend to be on the more conservative side. So if you look at it, we tend to lean very heavy on the mortgage space. In mortgage space, we have a big business in mortgage warehouse. And that's really not a credit perspective. It's more of an operational risk. As long as you have good operational controls in place, you are going to lose money in that space, and that's a positive.

We also lend money to REITs. We really lend money to the REITs that are well known in the marketplace that we believe are the most secure and safe there. So from that perspective, we feel good. We also have a concentration in private equity lending, mainly capital call lines with our fund banking operation. We don't do NAV lending, which is a more riskier type of lending from that space. So we feel good with the growth that we've had there and we'll continue to grow in that space.

Net-net, overall, I think we feel good with what we have today, and we'll continue to grow for us, but it's going to grow for us in the areas that we think are best and from a risk return perspective makes sense for us.

So Daryl, on the back of this, while you didn't have any credit exposure to any of the loans that went bad, you did have some other roles in some of the Tricolor deals. Maybe just tell us, talk about your exposure there? And how do you see this playing out over time?

Yes. So we were custody agent and trustee on a lot of transactions with Tricolor. We feel that the fraud or alleged fraud that happened with Tricolor is out there, and there will be definitely a lot of issues that will be surfaced and what will be known out there. We feel good about our position and where we are and what we've done. We just recently saw a couple of entities get sued by various fund members and all that.

So I think there's going to -- that's going to continue. I think it's going to be something that will play out through '26 and all that. But we feel good about what we've done and how things are situated.

So let's shift and talk about capital priorities. Obviously, I know Rene spent a lot of time talking about this when he presented last month, although he commented that the stock...

He's all over capital.

He commented that the stock has been doing well and it's obviously done well since. So maybe you got to get them out there speaking a little more. But...

He wanted to be here.

I know. I know.

We're doing talent review. I didn't get to do day 3 of talent review, but he's there, really looking at supporting all the people in our company, our future leaders of everything, which is really important for us.

Yes. We'll put in the word that you're talented. Given where the stock valuation is right now, how are you thinking about capital priorities from here?

First and foremost, capital should be used for our clients, communities. I think we have enough capital to support that. We have great history from a dividend record. We didn't cut the dividend in the Great Recession. Our dividend payout is in the low to mid-30s, really good protection and making sure we can continue that in the long term. But we increased it 11% this year. We'll continue to increase it as our earnings continue to grow from that perspective.

Next, I would say, in the order is really M&A. I think M&A if that's available out in the marketplace. And if it's a good investment for our company, culture-wise and financial-wise for our shareholders, that's where you would deploy capital next and foremost. We haven't done that since the People's transaction and then share repurchase.

And you heard him talk with where we're trading at now and all that. We're buying back a lot of stock. If you look at 2025, about 8.7% of our outstanding is what was repurchased in 2025, which is a fair amount. I think probably more than double anybody closest to that.

And we'll come back to M&A in a second. I don't think you're going to get up. So maybe just digging into capital a little bit further. I think you were at around 11% at the end of 3Q. I know you've guided to 10.75% to 11%, which is still above your long-term target. You said that you repurchased 8.7%, which I know that you have been talking about $400 million to $900 million. Lucas is not quick enough to update the numbers to me that quickly, but I'm guessing you're somewhere in that $400 million to $900 million range. But maybe just talk a little bit about what you need to see to bring down capital towards your long-term target? And how should we be thinking about buybacks in the context of what sounds like could be an improving loan growth environment?

Yes. So we're seeing continued improvement on our balance sheet. Asset quality continues to get better. That will continue into next year. So that's a good guy, and that will be a big positive for us. Economy is still moving forward. There's not a majority of economists saying we're going into recession, although there are some saying they might have a 30 plus or minus percent of a recession coming forward. So it is something you have to watch and be out there.

But what we see right now are, for the most part, clients are out there doing investments, spending money and all that. So I think net-net, overall, that's positive. Our range was 11% to 10.75%. I think in January, we'll give you a number. It will be lower than that and feel good about it. And I think our share repurchase in '26 will be pretty significant as well.

So when we think about the footprint, you guys operate in 12 states in D.C., and I know you have great market share and about around 7 of them, 5 of them where you'd like to improve it. Maybe just talk about what you're doing to increase the density and scale in the markets and can it be done organically?

Yes. We definitely can grow organically, and we are growing organically. If you look in New England, we have -- that was one of our priorities for the last 2 years. We've deployed sales teams in the mortgage area, the wealth area, business banking to really add more scale into that space and all that. And we are starting to reap some of the benefits of that. And if you look in Boston market, we have very small share in that space, but we show up as if we have significant share in that space, and we're starting to grow.

We look back to what we did in Baltimore, 20 years ago, where we were really small in Baltimore and now we dominate Baltimore there, and we hope to do that in other cities in New England and throughout our footprint.

So maybe as a follow-up. So I know you obviously came from an institution who did an MOE because they thought they needed to do it to have scale. And we'll stay beyond that discussion. But as I speak to investors, I think there still is a perception that the biggest banks have scale and many of the regionals don't. So maybe just talk about within M&T, how do you define scale? And do you think M&T has the scale that it needs to succeed?

I think we continue to perform really well. And if you look at our profitability that we have besides the largest bank in the country, we are the most efficient bank out there. So I think if there's any doubt that we don't have the scale needed to serve the clients and the communities that we are in, I'd say, if you just look at our results from that perspective.

The focus is really getting more density in the markets that we serve and really using our community banking model to serve our clients and how we deliver our clients. So we get the whole bank coming to them and meeting the needs from that perspective.

Technology-wise, Rene talked about over the last 7 or 8 years that we've made a lot of foundational investments within technology. We continue to build that out and continue to improve that, and we get better at that each and every day from that perspective.

And net-net, when you -- when I go through like the budget process with my team and all that, everybody has started out to be task flat, even technology. But how we deploy on all these projects, you really see technology growing high single digit, low double digit because of all the investments that we're making in that space. And I think that's the playbook that you see on a continual basis.

So I think I've asked every bank about their capital priorities, and I think you're the first one to list M&A, if not less. So it's good to hear. Maybe just talk about what you're looking for in terms of a partner characteristics size, cultural fit? What are some of the key elements that are important to M&T?

When we look at partners to partner with out there, we look at -- first to look at what we are, who do we want to bring to the family and all that. And so culture is really important. We have a great culture at M&T and making another company that has a good cultural fit will be really good.

I think I believe, Rene believes the deposit franchise is really key and core to long-term earnings potential and all that, and we're having real customer relationships. So that's really important. Good credit culture is important. People's had a great credit culture from that, that blended really well for us. So that was really positive.

So those are the ones that I think would come together. And then obviously, we have to have good financial metrics to make sure all of our constituencies are pleased from that perspective. But it's not going to be anybody that's going to surprise you if and when we do an acquisition, it's going to be somebody to say, "Oh, that makes sense for M&T and that's a good fit for the company".

So last month at BAB, Rene talked about the challenges of doing a deal with the stock at the price it was at and sort of the conundrum between IRR and TBV earnback. I think Bill Demchak, echoed similar sentiment yesterday. Can you maybe talk about how you weigh the different metrics, IRR versus EPS accretion and earnback? And what are some of the parameters that the management team is using to evaluate a deal? Is it TBV earnback, the CRE concentration? What are the main things that get factored into that?

Yes. So not to be a cop out, but we look at all of them, to be honest with you. We want all of them to be attractive for us to do the transaction. But we know that the marketplace has focused on tangible book earnback. We do spend a lot of time from a tangible earnback basis. And there's deals in there that we hypothetically model that work in our footprint. There's other deals that don't work just because of our valuation level where we have. That's why we're buying back a lot of stock. We can't do acquisitions, we're going to buy back stock and continue to think -- believe in and that's a good long-term investment for us.

So maybe to switch gears in the last minute or 2, a couple of questions. You've been heavily investing in tech. Some of the stats, I think, as you mentioned, Rene said, you invested 3x more than you did 8 years ago. 60% of the tech was outsourced today, 80% is in-sourced or in-house. And you -- I still have some major projects. You talked about the GL going live, debit system, all the commercial servicing, and a couple of other things moving stuff to the cloud. Maybe talk a little bit more about what's next and how will this help you with customer acquisition inevitably to help grow the bank?

We are really focused as we transition from resiliency type projects to more client-focused projects. We have Krista Phillips, who joined our leadership team about a year ago from another large institution. And she's really brought. She's our customer officer of the company and really brings to the table when we meet in executive leadership, what we want to do to serve our client. But it's the investments that we're making to make sure the client experience and the security and safety of how they transact with us are really good.

The investments that we made not to brag a little bit, but if you look at the CrowdStrike incident that happened last -- or earlier this year, we were up and running by 8:30 in the morning, where other people were struggling all through the weekend and all that. Our investments are paying off. You look at our downtimes on our major systems and all that, it's very minimal from that.

So we're trying to really serve and have great client experience. We will continue to invest in that. Mike Wisler and Rich McCarthy, we just pulled together all of our technology and operations all under one umbrella from that perspective.

Putting that together will give us not only more efficiency, but also better ways of how we do the back office, how we can replicate and in times of seriousness how we can respond quicker and faster from that perspective. We call that operational excellence.

Maybe one last one. I guess, despite all these investments, you've been able to hold costs to 3%, talk about where you're finding efficiencies. And I know you're talking about operating leverage. How do you balance operating leverage with making the necessary investments? And how should we think about operating leverage over time?

Yes. It's a juggling act. If you really look at it and to be honest with people, it's really how you set your priorities. I mean everybody wants to -- in an easy world, everybody will say, I'll take more money, more FTEs and let me grow my area more. And at the end of the day, you have to continue to look at your shop and you need to rationalize and make sure that hear what you're doing makes sense. And if there's a higher priority, you do that higher priority and maybe you deemphasize something else from that perspective.

So there's always trade-offs, and our leadership team is really good at doing that. We also focus on vendor spend and our real estate, corporate real estate, and those are other areas. But our major cost is around personnel, and it's really what we do there and how we treat our clients and our employees, but really making sure it makes sense, and we're focused on the right priorities.

Great. Well, we're out of time. So please join me in thanking Daryl.

I'm Gerry Benson. I'm a research analyst at Fidelity covering the U.S. banks. And I have the pleasure of hosting Rene Jones of M&T Bank today. M&T is a community-focused banking franchise that provides retail and commercial banking, trust, wealth management and investment services. Founded in 1856, it's headquartered in Buffalo, New York. And at September 30, it had $211 billion in assets.

Presenting today for M&T is Rene Jones, Chairman and Chief Executive Officer; Rene has been with M&T for over 30 years and prior to becoming CEO in 2017, he was the Chief Financial Officer since 2005, where he led the key functions of the finance division. And later when promoted to Vice Chairman, you oversaw the growth of the company's wealth and institutional businesses.

Please join me in welcoming Rene.

All right. Thanks, Gerry.

So Rene, it's been -- your last appearance to [indiscernible] was in 2023, I believe. So it's been a couple of years. Just curious if you could walk us through. There's been a lot of strategic work done at the bank over the past few years. And actually, since you took over as CEO in 2017, which includes balance sheet transformation, more fee diversification, tech transformation. I was curious if you could kind of walk us through and provide an update of all these initiatives?

Yes. Thanks, Gerry. Thanks, everybody, for being here. It's always fun to be at this conference where we get the collection of everybody. So it's one of my favorites. Yes, so it's been -- next month, it will have been 8 years Bob passed, and I took over as CEO. And so it gives you a chance to step back and reflect on what the journey we've been on. So we've effectively over that time, we've doubled the size of the bank. We've essentially doubled the size of our earnings per share. We -- we've reshaped our thinking about our balance sheet in terms of the level of commercial real estate that we had, which is a topic we'd be happy to talk about, because there's a lot of logic behind that, that it was not about credit about sort of how do you navigate and continue to be considered very, very safe when opportunities come up. We've done all of that and we've sort of remained very profitable.

So today, we're probably 20% to 25% more profitable than the average peer in our group, which means that we're generating lots of capital. And actually, we happen to be sitting on quite a bit of that capital and thinking about how we release it. We -- over that same time, we've really sort of -- I call it tech transformation, but really it's a way in which we work and the way in which we think there was a need for the bank to be more modern, more entrepreneurial often tell the story of -- in October '17 when we asked Bob Wilmers, what's your eye wish. What he said was that in the '80s and '90s, we were much more entrepreneurial, and I think we've lost that and it would be fun to get it back. And so we've been on a journey there where our tech transformation today, we spend 3x more than we did 8 years ago. We we've got -- every one of our stats, our resiliency at the time, we had 60% of our technology resources were outsourced. Today, 80% are in-sourced. And we needed to do that to sort of gain control so that we could make the changes that we thought we wanted to make. If you can -- you guys will laugh at this, but if you take yourself back to 8 years ago and you look at your notes, the questions you were asking is, how are you going to keep up with the big guys? What apps are you going to release? Are you going to copy the [ BofA ] app that talks to you and all that stuff? Really what's happened is we've not -- that's not the way it's sort of played out. But it's played out in terms of capabilities, resiliency, how many releases can you do. So today, we probably do 5x the number of releases that touch our customers than we did before. We are 80% down in terms of incident management. So our systems are up and running at a much more consistent space.

Not only is that the case, if you look over the 7 years, it just is a continuous drop, right? And all of that was around the idea that we needed a modern capability, and we also had to change out our entire talent. There's not a single person left in an IT leadership today that was there back -- back in 8 years ago. It's had a pretty significant effect not just on the bank and how we think about technology, but how we all work. We have 300 teams of -- agile teams that get reallocated across whatever it is that we happen to need. And in the past, what you had was some analyst in a particular business who was heavily focused on getting something done a particular feature and then they had one technologist. Today, those groups are groups of 10 individuals that have every -- everybody and every skill set that you need all the way through to compliance. And it makes us much more flexible, much more adaptable. We used all that to go through a period, which is probably 3 years long to sort of redo our infrastructure.

As we get to the -- probably to the first quarter, we'll have redone the general ledger system and all of the, we call it, Project Rise, all of the financial systems that are out there. This is hugely important in the current environment. Where you'll ask a lot of questions about AI. But for us, it's, is your data there? Is it flexible? Can you move it? Can you get it when you need it. And so that will be done. We've also redone our entire commercial credit process over the last 3 years. Making it more flexible, more agile and also sort of access to information so you can do your job a lot easier. We're in the middle of redoing all of our digital platforms. And so it goes on and on. But we're sort of coming out of this period, where we've been sort of rebuilding and redouble downing on our infrastructure. And as we think about it today, the 2 things that we talk about today are how do we team better together across our businesses to grow, sort of moving into a growth mode? And how do we achieve operational excellence, which we believe resiliency in these times are going to be really important.

So stuff is going to happen to you, whether it be cyber, whatever it may be. The question is how quickly can you react and how can -- how much -- how quickly can you make it a nonevent for your customers and get through that. So with the complexity that's going on today, we think that's actually one of the most important things that we're now poised to be able to execute on.

And when you think about just a couple of things you said, you talked about how you shifted and maybe we could just -- a couple of data points, just what -- how many engineers you employed like 8 years ago before this journey began and what it is now and maybe a couple of metrics like incidences as well as fraud events and how that's improved?

So, 8 years ago, we didn't have a single person in the company with the title of engineer. We had one guy who -- whose wife was from Buffalo and who was the designer of Windows 7, who worked at the bank, but he refused to tell anybody he was an engineer because he didn't want to be an outlier. Today, we probably have 1,000 engineers, whether they're user design engineers, whatever the discipline is. We -- the change in the capabilities for us has resulted in -- I think I talked about some of them, but like the incidents, we probably had 100 significant incidents a year. We -- I think we've talked about most of them. It's just the agility of our ability to actually go and respond is just much, much higher than it was before. Technical debt would be a one that you guys would understand Instead of talking about what apps and what things have you deployed per se, like we look at our end-of-life systems.

And today, that's about, things that are getting close to end of life are about 7%. In the industry average, it would be about 12% right? So we can see that we're actually having a pretty big impact on those things. They're really important.

Right. And just -- thank you for all that. Just at the balance sheet transformation, just where you're at now and if there's any more to go or back in growth mode as well as just the fee diversification, the progress made there?

Yes. I mean the fee diversification part has just come over time, mostly through acquisitions where we acquired a capability, and we've sort of decided whether we want to keep it or not. And then if we keep it, we lean into it. So -- we pretty much offer every service to a commercial customer that there is all the way from starting your business all the way to Wilmington Trust at the end. So that is going to happen very slowly, but you see that we're -- it's provided a lot of stable source of income over time. What was your other part of your question?

Just on the balance transformation. And there's been a big reduction on the commercial real estate side, and you said it was not credit related, just elaborate...

We made that shift in -- at the beginning of 2019. We just felt that our concentration risk was high. And it wasn't, there was a problem with the credits it was that when something happened like 2023, people would sort of label us. And that's a pretty big deal like for us because if you look at our outsized returns and growth that we've actually produced early in our franchise years, they all came from crisis. And so as I said, we've probably produced a return over the last 8 years that averaged just under 16% ROTCE, 8.5% growth, compounded growth per year in earnings per share. How you outperform that is you take advantage of crisis. And you saw that in 2013, like people just all of a sudden labeled us the commercial real estate bank.

And so in our minds, what we decided to do was to try to continue to offer all the same services to -- and more to our commercial real estate customers, but just not using the balance sheet as much as we did. And the idea is that you'll get the markets to be more comfortable, which gives you more wherewith-all to take advantage of disruptions, which is part of our history. Most of our growth has come through disruptive periods.

Just one more on the tech transformation, I mean a lot of heavy lifting has been done. Just perhaps you could share a few thoughts. It is -- everyone is talking about AI and the implications for their businesses going forward, just how you guys are thinking about it in different impacts that you expect?

Yes. I mean it's a big topic, but to try to break it down, we've doubled down on focusing on data, data integrity, data access, and making sure that we have across the bank, so with no spaces missing a very regimented process to understand our data. We think that's -- we're not going to be the ones that develop the AI solutions. They're going to be vended out to -- they're going to be provided by vendors to us. And so to differentiate yourself, having that quality understanding of your data and how you use it, how it gets produced, I think, is really important. There are a bunch of categories we too have probably 100 used cases. I chalk that up to getting the environment to learn about AI and how it works and getting them to be comfortable with things. But in my mind, if I were to -- if I were to pick areas to focus on, it would be much like my annual letter, it would be fundamentals.

So I was telling the story earlier, someone asked me like it was actually a regulatory person like you're usually like a third mover, you're never a first mover in technology. Why does it feel like with these issues of AI and stablecoin that you guys are moving up to try to be like a first mover? And I'm like, well, no, I'm concerned about falling behind on liquidity, right? And so of all the uses that you could apply AI to, I think the ones that we would like to focus on are the fundamentals, credit, liquidity, how fast the deposits move. If you think about what we do today with cyber, and we have a 150 solid professionals in our cyber unit who sit in rooms and monitor for anomalies that are happening anywhere in our space so that we can prevent crooks from coming. But you could apply that same technology to your customer behavior patterns and possibly learn more and not get surprised about runoff in deposits or activities that might happen.

So I use that as an example. But to me, those would be the way -- the way we would prioritize -- it's not just about expenses, which seems almost relatively easy. It's much more about are we focusing on the fundamentals to build a strong bank.

Okay. Maybe we can shift a little bit. You talked about the investments, all the investment spend, all the efforts and of course, being CAT III ready. Maybe You can talk about the recent easing in the regulatory environment and how that can impact competition with the big banks, which is the theme of the conference asked, what will this result in a step-up in ROEs?

Well, that resulting us to a -- yes, probably will result in a step-up in ROEs. I mean just no mystery. The flexibility on capital is really important. And when you have a -- historically, when you had a test where the variability of the answer was high, you can't then go to the low point and keep your capital or even the medium, you got to keep extra capital just because of the uncertainty of the test from year-to-year as an example. So I think the last part of your question, yes, probably you will see a noticeable change in sustainable ROEs from what's happening there. The thing that always baffles me, maybe you guys can help me with this, so we spent all this time talking about, well, there's lots of regulation, and there's a lot of technology investment that we all need to make. And so what that means is that the small banks aren't going to be able to survive and it's going to be really hard on them because they don't have the scale on that spending. And then when we find out that it's going to ease in the regulatory environment, we say, well, it's only the big banks that are going to win.

And I can't reconcile that space at all. I think it is true that there's going to be a big impact on the largest institutions, but the pound for pound impact, everybody's got to keep a BSA/AML environment. And one bank can't have a better one than the other, right? So relief in those spaces against not having to do as much around documentation of things and really focusing on finding real criminals and so forth. I think, is actually a huge relief for smaller institutions.

Right. So I mean, given -- as you spoke to, the easing regulatory standards, though it is an advantage for the big banks, even more in a competitive advantage. The last time we discussed bank M&A, you spoke to not needing to be a national player with scale because your community-focused model is able to achieve adequate scale on a regional basis. I'm just curious if that view has changed at all given the change in the environment?

No. It hasn't changed at all, and in part because it's been working. And we just -- it's not right or wrong. We just don't have Look, if you took 2 paths and you said, okay, I want to be a national bank. I want to be everywhere and then you take our approach. They're just very, very, very different paths. And quite frankly, you can see it in the balance sheets and the income statements that get produced by those things. They're completely different. If you're trying to grow and get loan share and then you have to after the fact, actually focus on deposits, you're going to get a different balance sheet and income statement than what we do, which is we focus heavily on dominating around depositories.

That's our thing. And it tends to give us lots of leverage. It gives us pricing power. It gives us awareness power in the places that we're at. So like if you were to look on a scale of awareness of banks, you'll see them all jumbled in the middle. And then then you'll see them -- you'll see like at a really separating from the pack will be like Capital One and JPMorgan. And so you look at that and you say, well, how is this working? But if you run the same thing for Baltimore, you see us up top. Right? And so that's what people have sort of missed. All the things are about like on a national scale, but the question is what is your reputation and the awareness and how well you do your job for those people that you concentrate on. I think for me that as you get further and further away from home in more geographies, I think the management challenge goes up.

Because you're really an organization around -- that is built around culture and cultural norms, some of which are documented, many of which are not. And so having enough people to deploy across that kind of a geography who will make the same decisions that you make. I think, becomes more and more challenged as you get larger.

Right. The -- so you have a very strong balance sheet, generating a lot of capital, been very active share repurchases. Maybe you can talk about how you evaluate buying back your own stock versus making acquisitions. And even to the extent like your stock is very attractively valued, so how that influences the level you buy back?

Yes. Gerry, so what we do is we sit around a lot and have this discussion. And we take opposite sides. So like Daryl has been a tremendous addition, right? Because he'll say, yes, so what M&T did it that way. Here's how we think about it. And it actually adds quite a bit of value. But today is an interesting time. First of all, I think banks are sold. I think the regulatory relief change is going to have other banks. Banks are going to -- who are not -- banks who are going to sell are probably going to think about selling and think about it as a window. But from our perspective, we have to think about like, are we doing the right thing for our franchise. One of the facts that if I look back over time, we've done lots and lots of deals. Pretty much they've been at 10 to 9x earnings after cost saves, has been the purchase price, somewhere in that space. And then we would transform the institution and create a fair amount of value from there.

We're trading at like 9.5x earnings, and so without buying a bank, it makes our stock repurchase look really strong, really attractive, I should say. Now we have this other issue, which is because we didn't have the AOCI issue, we have a lot of capital, and now we're generating a lot of capital. So we have a lot of capital to deploy and figure out where to go. And so we're trying to be very disciplined about it. Should it be loans, should it be some other investment? Should it be an acquisition or do we just return it. I think down the road, you might see a multiple of those uses over time. The conundrum is -- when you look at all that, what I believe is that you -- bank stocks look cheap even if you adjust for some correction of recession or something like that. And so when you look at the IRRs on deals, you kind of shake your head and saying, well, our corporate finance guys I'm like, "No, go back and do that again because that's not -- that doesn't make sense. But then on the flip side, you get some 4-year payback. I would say 2 to 2.5 is our history. And after thinking about it and thinking about it what you realize is that the problem is, is that our stock is actually such at a low currency, right, that the trade is pretty close.

So even though the return looks kind of high, the return of our own stock actually looks really high as well. Purchasing own stock looks really high as well. And so we have to think about that. We have to think about like if there was something that we wanted to do that was a strategic fit and produce the right returns how do we think about longer-term paybacks. And so you -- I think of it like you wouldn't do something just for doing it, even if it was a positive NPV. But if it makes sense to help your franchise round itself out to move to 1, 2 or 3 deposit share or something like that, you probably would try to take advantage of that.

And that one fact -- that being the primary factor, just good quality deposits that dominate some sort of region in your footprint?

I mean, think about this. So we would -- first of all, we were healthy, in 2012 -- is it 2012? I can't remember any more '11. But we would have never gone out and entered the 2 Wilmington Trust businesses on our own and capability. The reason we took on that risk was because we could get the #1 deposit share in Delaware. And as we went into the boardroom and sat down to decide to do it, we -- the question we asked is, could we sell those 2 businesses? We did the transaction. We said, let's spend a little time trying to learn about them, and they actually had capable people in that part of the institution. But the thing that got us there was #1 deposit share in Delaware, right? That's who we are. It's one of the reasons why people thought, I think some thought that when you go on this journey to lower your real estate concentration, well, now your margins, your historically high margins aren't going to be there.

And it hasn't changed a bit because most of our pricing power comes from the depository.

Right. Understanding that banks are sold and not bought. And -- there's a lot of other factors at play like we're just talking asset size, what is the profile deal for M&T and maybe kind of the high end and the low end, max-size, min-size?

We don't have a lower limit, because if you think about it, there could be something out there that really is maybe not that meaningful to the bank but really meaningful to the region. And so if you think about it, we've decided not to be a national bank. So we better be focused on like achieving our goal where we are, right? And so I wouldn't say there's a lower limit there. I think we were talking about this earlier, like MOEs and stuff like that don't make sense to me. The way I think about that is the most recent acquisition we did, we had 17,000 people. We had -- we added 5,000 people, right? And we were running the bank, right? And then we would reduce these curves, which were like customer experience, employee experience, in particular, and then we do it across different channels, right? And we'd see them.

And like in the beginning, in peoples, it was like M&T was at a 55, you could see like a negative 54, right? Think of that as culture. I don't know who you are. I don't really care whether I believe the same things that you believe. And then over time, we have that running is for about almost 4, 5 years, right? They've converged. Right? And at the point of convergence, you're operating the same culture. So this idea that you could do like an MOE, like I just don't see it because at least we believe the way we run the bank, it's about culture it's about norms, it's about trying to build an enduring company.

Okay. I have one more general bank question for you or industries, but I'm going to pause right now because just to see if there's any questions from the audience?

How do you pick in front?

Yes, I wanted to just do that. I think the mic is coming down.

Manan Gosalia, Morgan Stanley. Rene, you made a few comments on the capital side. You're sitting on a lot of capital. You're thinking of ways to deploy it. More flexibility on the rules and regulatory side also gives you more flexibility to manage down that capital. But you're already doing buybacks, it's highly accretive. You're already doing that. what in your mind is the highest priority for deploying that excess capital here? And how quickly can you do it from an organic basis?

So, this is may be you want to hear. The #1 priority to making sure that we have all the capabilities that our businesses need in order to get things done. That could be not just the technical capability, but it usually comes in the form of human capital. So hiring talent, keeping people, that's really important to us. But from there, it's just a matter of trying to figure out what's going to have the most meaningful impact if you take all the operations as a given. And so it would just be -- we would back and go back and forth based on returns. So if we had the right transaction to do, we would do it. We're less likely to enter some completely new capability that we're not familiar with. And today, if you think about it, if you don't count the loans to NDFIs, right, there isn't any loan growth really in the space. And so we're sort of sitting in this really good spot, which is we're generating lots of cash, but we're a bit cautious as to where to deploy it because we want to make sure that those actually are positive NPVs as well. So it's not a bias really. It's important for us to continue to expand our franchise.

So do you just view the capital as earnings in store and you'll deploy it as you see opportunities? Or is there an urgent...

No. So it's like -- so we have this big -- we have this good problem, which is relative to everybody else, we didn't invest our cash, so we don't have the AOCI, right? So if you look at the ratios today, our capital ratios look kind of like everybody else's. But really, our tangible ratios are really, really high. And so unfortunately, I don't know why, but people look at the regulatory ratios. And so we have to make sure, like in order to -- if we were to capitalize on all of that right away, what would end up happening is that rating agencies would start to give us grief, right? But it's all -- all that's going to normalize over time because eventually, what's going to happen is that AOCI is going to go away. You're going to probably see regulatory capital ratios for the whole peer groups come down to 10%, maybe to 9%, 9.5%, where they were, right, if you think about it. And so that's going to give you a lot more freedom as you move forward.

So what we already -- if you think of the pace at which we bought back shares this year, it's really significant. So doing more, right, in our minds is, okay, let's wait and see what happens with the environment. We've just finished all these investments and maybe there will be opportunities that come up. Maybe if there's a downturn, right, you're going to see us be able to deploy that capital pretty quickly.

Julian?

M&T subsidiary, Wilmington Trust was the trustee for Tricolor, I think, for all of their securitizations. Can you give us any color about that? Maybe what went wrong? I believe the trustee role included like collateral verification. And then Also, like are there any other areas in general that you're worried about or that you're kind of intensifying scrutiny of?

Okay. So I get 2 -- those are 2 sort of separate things. So we've put out our Q, and so I'm probably not going to say anything more than it's in our Q. But the way I would describe it, I think that might give you context is that typically, our role in one -- one form or role we play a role as custody and paying agent and another role around securitizations. We played the role of trust those same roles plus the role of trustee. And typically, what will happen for that business. We like that business because it's countercyclical because if a security fails or if an instrument fails, it's almost 100% of the time of credit. And because we don't do a lot of large corporate we end up being not conflicted and so people hire us for that reason. The problem you have is that when there's fraud, all that sort of goes out the window, and you have to really understand what exactly occurred and so when you think about, which you guys have all read about, but I'll just talk the construct I'll give you is there's -- in that particular thing, you've got a practitioner, an auto dealer who happens to be a lender who happens to be a servicer. Think of all the roles that the servicer actually plays in terms of information.

And then you will have, I don't know, 4 or 5 warehouse lenders in addition to that. And then when you get to the securitization, you have all kinds of parties, which you guys are familiar with around the securitization. So what you know is that the bondholders are going to get their money back. They're going to make sure they do everything to get their money back. So when you ask the question, will you get sued, what will happen? It's just that's probably the process that we all go through. It's very different from the credit environment. But it's impossible for us, particularly today to really tell what impact that's going to have in what happened, who did what, and it has to get unpacked. Unlike if you were a warehouse lender and you had a loan, the loan is just bad. And that's kind of easy. But in the fiduciary space and all those roles that everybody's playing, underwriters, examiners, auditors all the way through you really have to understand what transpired in the transaction to be able to understand whether you have exposure.

So I hope that helps. That's sort of how we think about it. Your other -- you had a second part to your question?

[indiscernible]

I haven't seen a cockroach in Buffalo I've seen a lot of bad stuff, but I haven't seen a cockroach in Buffalo. Yes, it's a natural thing for us, right? So I think that question is great. We're -- one of the things that you see and other things in our portfolio from the past is that there's real pressure, right, on a subsegment of the economy. So if you sit back and look overall, everything looks great. There's a lot of capital investment because of AI and other technologies that are happening, but underneath, you're beginning to see all these things around the 9% inflation that we had, which caused prices to go up, the higher interest rates and then the tariffs coming in and that's having a real effect on the low end of the consumer, and it's real. We were just here this morning, I did a panel with the Boston Chamber of Commerce. I had the CEO of Ann Taylor, Talbots in all those brands, all women's buying women driven buying brands. We had a grocer from Chelsea, who predominantly deals with the Hispanic community. And then we had a guy who is a big, big entertainment and hospitality venues.

And when you listen to them, you see the stress, right? And so what you tend to find is that when you get long in the cycle and you begin to look at those things, you've got to figure out where the weak links are. They're all those operators who just -- who are new to the business, who weren't there before. I think when we look at things like it's made me think, for example, what we call value chain financing or buy here, pay here. We don't need a bank, you're just friction. Well, then you start to realize, wait a second, you've changed the control structure, right? And those businesses are thinking about it. And if you're then going to the securitization markets, have you been prepared for that change in that structure. So each time we see one of these things, the job is to actually scan the portfolio, think about what other ways it could manifest itself.

And the goal is to stay on top of those things so that you never have some big spikes. So -- so a lot of the things that have happened in some sense, could turn out to be good because we need resets when there's so much innovation going on in the economy to be able to make sure we've thought end-to-end, like what are the impacts that could occur. We've got one on the right before Brent.

Christopher with Wells. So in your 2022 annual letter, you got the rate and story right. Rates were 0, you predicted that they were going to go higher if they did. So how does that impact your view right now with the rates potentially going lower in your decisions with ALM and the excess cash you're generating?

That's a great question. The source was a little different. It was -- it was 2 things. We didn't know -- we had all this cash, we didn't know why we had it. Like a lot of the things that happened that are positive for us are that we didn't know. So we're sitting around with $35 billion, $45 billion of cash that we never had before. And we just couldn't figure out why it was we had it, and therefore, what would happen to it. And then the second part was just like literally like Finance 101. I hate to say it that way, but it's literally like you just don't get paid enough. You get -- I think it was like something like it, we got an extra 8 basis points for taking this massive risk, right, on that trade. And sometimes I think what happens is we tend to take those individual trades, those individual economic decisions.

And we say, "Well, it's a big bank. We can just go to make them. But you really have to think about that. So those 2 things had us avoid the process. And if we look today, you've got a different level of risk, right? Just by the fact that the rates moved, you're still going to think about like when they were at 5%, what's the probability they go to 7%, but that math and that risk reward is just a totally different equation. I mean you were on the worst possible place you could be in any cycle, right, at that moment. So as I look forward, I mean, we're focused on keeping our balance sheet neutral. We're not necessarily worried that we don't have asset growth, so we're looking for asset growth for the sake of asset growth in terms of keeping our neutral position. I don't think there's anything fancy that we're doing other than trying to stay neutral, think about what happens if rates go up and what happens if they continue to come down. We're kind of in an advantaged place right now because as we built the bank to be neutral for changes in interest rates over the last couple of years, we've got the steep curve, which actually is giving us some benefit in the margin. Right?

Brent Erensel from Portales Partners. The last time the Buffalo Bills were in the Super Bowl, we had a pretty wicked credit cycle in 1991, and early '90 and I want to follow up on Julian's question, where are we in the credit cycle? Where do you think we are? We've seen some flare-ups, but could you try and to mention this and give us some idea as to dimensioning and pace?

While we don't have a lot of cockroaches in Buffalo, we may win the Super Bowl. Is that answering. It's a great question. I think it's a hard question. I think that we're -- it's been a long run without any credit problems. I mean really, you can't count the pandemic because there was so much infusion. We didn't see anything there. And so 15 years without a real credit cycle that might tell you that it's time. But I think the way it works is that you get these events, and if you get them over time, and you can begin to identify risk, you could actually put yourself on a path, if nothing goes wrong, you could put out yourself on a path for another period of expansion.

But the question is, how do we get more risk identification, the thing that used to worry me a lot of worries me a little bit less because of what I see the industry doing is that if you think of the financial crisis, there are 2 things, there were a regular recession. There were high asset prices on mortgages, right, all that stuff. But then what we underestimated is how much leverage within the system, right? So we were just looking at, again, the regulatory capital ratios and then we were missing the fact that we had CDO-squared and CDOs and CDO-squared, and we had more leverage. So that fuel, right, made the situation very different. Today, the banking industry doesn't provide most of the loans, that's where all the transparency is. So oftentimes, when we talk or we've written about nonbank financials in the private credit markets, we're actually not saying that they're not a good development.

We think they're an outstanding development. When we started our careers, we couldn't securitize real estate and middle-market loans and now you can. What worries us is the transparency. So how do you tell relative to 2010, how much leverage is in the system? Well, you need to get transparency and need things reported, not the say someone is doing something wrong, but just to actually see it. And that's what worries me. But if we get at that and we can get really informed and we can sort of to your earlier question, really double down, look at our portfolios and learn from what we're seeing at these small events, you could put yourself on a path to grow again. I mean if you think about -- think about '80s and '90s, right? I mean there were bumps in there. but a bunch of those bumps were pretty healthy for us in the end, not in the moment.

We have time for one more quick question.

Quick means we have 21 seconds.

Yes, 21 seconds. Let me just follow up to Brent's question then just and we'll wrap up after this. But Rene, like what do you think can be done to improve the transparency. So we have better visibility into the actual leverage in the system?

I think it's starting to happen. I think it will -- for better or for worse, it will start through the banking industry examiners and other people will start looking, requiring more disclosures, which is just a window into the world. It's maybe not the perfect window, but you'll begin to see that. I think you could get. If -- if you were to get some -- the place that you could do it would be through the SEC. I don't think that's going to happen, not in the current administration. I think it's really really -- everything is very clear about pro growth. And then maybe these events, right, force people to ask better questions about who they're giving their money to and what fund.

Again, if I were to guess, I'd say that we've got a rock-solid industry in that space with rock-solid people. But on the fringe, who are the new players, who's got 2 years of experience in starting a fund, right, and who doesn't necessarily have the risk management infrastructure and if we could better understand that, you'd really understand the macro risk in a much better way, a much deeper way.

Right. That's great. I appreciate it. Thank you, Renee. I appreciate it.

Thanks, Gerry.

Welcome to the M&T Bank Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Steven Wendelboe, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Katie, and good morning. I'd like to thank everyone for participating M&T Bank's Third Quarter 2025 Earnings Conference Call. 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 Investor Relations website at ir.mtb.com.

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.

Thank you, Steve, and good morning, everyone. M&T continues to serve as a trusted partner for our customers and communities, bringing together people, capital and ideas to make a difference. Earlier this quarter, we released our 2024 sustainability report, which highlights our community impact and the progress we've made towards meeting our sustainability goals.

Highlights include $5 billion in sustainable lending and investments, and over $58 million contributed to nonprofits through corporate giving and the M&T Charitable Foundation. We are also proud to share that M&T is now the top SBA lender across our footprint by total volume, as of the end of the SBA fiscal year September 30. Our small business enterprise continues to be an important component of our support for entrepreneurs and local economy.

Turning to Slide 4. Our businesses and leaders, notably our women in leadership, continue to receive accolades from the industry, including recognition of our [ Wilmington ] Trust team and individual recognition for leaders across the bank.

Turning to Slide 6, which shows the results for the third quarter. Our third quarter results reflect M&T's continued momentum with several successes to highlight. We produced strong returns with operating [ ROTA ] and ROTCE of 1.56% and 17.13%. Our net interest margin expanded to 3.68%, demonstrating our relatively neutral asset sensitivity, well-controlled deposit and funding costs, and the continued benefit of fixed rate asset repricing.

Strong fee income performance we have seen throughout the year continued with fee income, excluding notable items, reaching a record level. Revenues grew more than expenses, resulting in our third quarter efficiency ratio of 53.6%. Asset quality continues to improve with a $584 million, or 7%, reduction in commercialized criticized balances, and $61 million or 4% reduction in nonaccrual loans. We increased our quarterly dividend per share by 11% to $1.50 and executed a $409 million in share repurchases are also growing tangible book value per share by 3%.

Now let's look at the specifics for the third quarter. Diluted GAAP earnings per share were $4.82, up from $4.24 in the prior quarter. Net income was $792 million compared to $716 million in the linked quarter. M&T's third quarter results produced an ROA and ROCE of 1.49% and 11.45%, respectively. The third quarter included a notable fee item of $28 million related to the distribution of an earn-out payment to M&T associated with the 2023 sale of our CIT business, adding $0.14 to EPS.

Slide 7 includes supplemental reporting of M&T's results on a net operating or tangible basis. M&T's net operating income was $798 million, compared to $724 million in the linked quarter. Diluted net operating earnings per share were $4.87, up from $4.28 in the prior quarter. Next, we look a little deeper into the underlying trends that generated our third quarter results.

Please turn to Slide 8. Taxable equivalent net interest income was $1.77 billion, an increase of $51 million, or 3%, from the linked quarter. The net interest margin was 3.68%, an increase of 6 basis points from the prior quarter. This improvement was driven by a positive 4 basis points related to the prior quarter catch-up premium amortization on certain securities, positive 3 basis points from higher asset liability spread mostly from continued fixed asset repricing, partially offset by lower contribution of net free funds.

Turning to Slide 10 to talk about average loans. Average loans and leases increased $1.1 billion to $136.5 billion. Higher commercial, residential mortgage and consumer loans were partially offset by a decline in CRE balances. Commercial loans increased $0.7 billion to $61.7 billion, aided by growth in our corporate and institutional fund banking and loans to REITs. CRE loans declined 4% to $24.3 billion, reflecting the full quarter impact of last quarter's loan sale and continued payoffs and pay downs. Residential mortgage loans increased 3% to $24.4 billion. Consumer loans grew 3% to $26.1 billion, reflecting increases in recreational finance and [ HELOC ], where our auto loans were largely stable from the second quarter. Loan yields increased 3 basis points to 6.14%, aided by continued fixed rate loan repricing, including a reduction in the negative carry on our interest rate swaps at sequentially higher nonaccrual interest.

Turning to Slide 11. Our liquidity remains strong. At the end of the third quarter, investment securities and cash held at the Fed totaled $53.6 billion, representing 25% in total assets. Average investment securities increased $1.3 billion to $36.6 billion. In the third quarter, we purchased a total of $3.1 billion in securities with an average yield of 5.2%. The yield on the investment securities increased to 4.13%, reflecting the prior quarter catch-up premium amortization on certain securities and continued fixed rate securities repricing benefit. The duration of the investment portfolio at the end of the quarter was 3.5 years, and the unrealized pretax gain on available-for-sale portfolio was $163 million, or 8 basis points CET1 benefit, if included in regulatory capital.

While not subject to the LCR requirements, M&T estimates that its LCR on September 30 was 108%, exceeding the regulatory minimum standards that would be applicable if we were a Category 3 institution.

Turning to Slide 12. Average total deposits declined $0.7 billion to $162.7 [ billion ]. Noninterest-bearing deposits declined $1.1 billion to $44 billion, mostly from lower commercial noninterest-bearing deposits related to a single customer client. We continue to consider the entirety of the customer relationships as we assess our overall deposit funding mix.

Interest-bearing deposits increased $0.4 billion to $118.7 billion driven by growth in commercial and business banking, offset by the decline in consumer and institutional deposits. Interest-bearing deposit costs decreased 2 basis points to 2.36%, aided by lower retail prime time deposit costs and lower interest checking costs across other business lines.

Continuing on Slide 13. Noninterest income was $752 million compared to $683 million in the linked quarter. We saw continued strength across all fee income categories. Mortgage banking revenues were $147 million, up from $130 million in the second quarter. Residential mortgage revenues increased $11 million sequentially to [ $108 million ] from higher servicing fee income. Commercial mortgage banking increased $6 million to $39 million. Trust income was related -- was relatively unchanged at $181 million as the prior quarter seasonal tax preparation fees were largely offset by growth in wealth management and fee income. Trading and FX increased $6 million to $18 million from higher commercial customer swap activity. Other revenues from operations increased $39 million to $230 million, reflecting $28 million distribution of an earn-out payment, $20 million Bayview distribution and the gain on the sale of equipment leases. These items were partially offset by $25 million in notable items in the prior quarter.

Turning to Slide 14. Noninterest expenses for the quarter were $1.36 billion, increase of $27 million from the prior quarter. Salaries and benefits increased $20 million to $833 million, reflecting 1 additional working day and higher severance-related expense, which increased $17 million sequentially. FDIC expense decreased $9 million to $13 million, mostly related to the reduction and estimated special assessment expense.

Other costs of operations increased $23 million to $136 million, reflecting higher expense associated with the supplemental executive retirement savings plan due to market performance and the impairment of renewable energy tax credit investment. The energy -- the efficiency ratio was 53.6%, compared to 55.2% in the linked quarter.

Next, on Slide 15 for credit. Net charge-offs for the quarter were $146 million, or 42 basis points, increasing from 32 basis points in the linked quarter. The increase in net charge-offs reflects the resolution of several previously identified C&I credits, the largest -- the two largest of which totaled $49 million. CRE losses remain muted in the third quarter. Nonaccrual loans decreased by $61 million. The nonaccrual ratio decreased 6 basis points to 1.1% driven largely by payoffs, paydowns, charge-offs of commercial and CRE nonaccrual loans.

In the third quarter, we recorded a provision for credit losses of $125 million compared to net charge-offs of $146 million. Included in the provision expense is a $15 million provision for unfunded commitments related to the letter of credit to a commercial customer. The allowance for loan loss as a percent of total loans decreased 3 basis points to 1.58%, reflecting lower criticized loans.

Please turn to Slide 16. The level of criticized loans was $7.8 billion, compared to $8.4 billion at the end of June. Improvement from the linked quarter was largely driven by $671 million decline in CRE criticized balances. The decline in CRE criticized balances was broadly based with lower criticized balances across nearly all property types.

Turning to Slide 19 for capital. M&T's CET1 ratio was an estimated 10.99%, unchanged from the second quarter. The stable CET1 ratio reflects capital distributions including $409 million in share repurchases, offset by continued strong capital generation. In the third quarter, we also increased our quarterly dividend by 11% to $1.15. The AOCI impact on the CET1 ratio from available-for-sale securities and pension-related components combined would be approximately 13 basis points if included in regulatory capital.

Now turning to the slide for the outlook. First, let's begin with the economic backdrop. The economy continues to hold up well despite ongoing concerns and uncertainty regarding tariffs and other policies. The passage and signing has of The One Big Beautiful Bill Act into law removed one source of uncertainty and also gave businesses more incentive to invest in new capital. The economy bounced back in the second quarter after having contracted in the first. Consumer spending proved resilient despite tariff impacts. Businesses continued engaging in CapEx, though it was heavily in tech, software and transportation and equipment, while spending on new buildings remained in decline.

Although overall economic activity was resilient, we remain attuned to the risk of the slowdown in coming quarters due to the weakening labor market. The possibility of declining jobs, or the rise in the unemployment rate, would likely cause weaknesses in consumer spending and possibly business CapEx, too. We continue to monitor the possibility of a prolonged government shutdown and the potential impact on our customers, communities and broader economy. We remain well positioned for a dynamic economic environment with a strong liquidity, strong capital generation and a CET1 ratio of nearly 11%.

Now turning to outlook. We have 3 quarters of the year complete, we will focus on the outlook on the fourth quarter. We expect taxable equivalent NII of approximately $1.8 billion, which implies full year NII excluding notable items to be at the low end of the $7 billion to $7.15 billion range, in line with the outlook we discussed in September. Fourth quarter net interest margin is expected to be approximately 3.7%. Our forecast reflects two additional rate cuts in the fourth quarter. We expect continued loan growth and average total loans of $137 million to $138 million with growth in C&I, residential mortgage and consumer, and a moderating pace in CRE decline.

Average deposits are expected to be $163 billion to $164 billion. Our outlook for the fourth quarter noninterest income was $670 million to $690 million, reflecting continued strength in mortgage, trust, service charges and commercial services. We expect other revenues from operations to revert toward more normalized levels. This would imply full year noninterest income, excluding notable items, well above the top end of our prior range of $2.5 billion to $2.6 billion.

Fourth quarter expenses, including intangible amortization, are expected to be $1.35 billion to $1.37 billion. This would imply full year expense in the top half of our prior outlook of $5.4 billion to $5.5 billion. This is being driven by an increase in professional services. Net charge-offs for the fourth quarter are expected to be 40 to 50 basis points, with a full year net charge-offs of less than 40 basis points. Our outlook for the fourth quarter tax rate is 23.5% to 24%. We offer -- we plan to operate with a CET1 ratio in the 10.75% to 11% range for the remainder of the year. We will be opportunistic with share repurchases, are also continuing to monitor the economic backdrop and asset quality trends.

As shown on Slide 21, we remain committed through our four priorities, including growing our New England and Long Island markets, optimizing our resources through simplification, making our systems resilient and scalable, and continuing to scale and develop our risk management capabilities.

To conclude on Slide 22, 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 share order returns and consistent dividend growth. Finally, we are a disciplined acquirer and a prudent steward for shareholder capital.

Now let's open the call up to questions before which Katie will briefly review the instructions.

[Operator Instructions] Our first question will come from Scott Siefers with Piper Sandler.

I wanted to -- wanted to ask first on loan growth. So really good traction in a few components of the loan portfolio, but CRE is still moderating, albeit at a slower pace. Maybe just sort of a thought on where we stand with the actual inflection of the CRE book, sort of timing and magnitude, stuff like that?

Yes. So if you want to talk about CRE and our customer since CRE, I would say it's looking like much more of a rebound now. The amount of production that's being done and that's going through our system, and our approval rates are double what they were in prior quarters. So we're really producing and having a lot more activity. Still having some payoffs and pay downs overall, but we feel very optimistic on the growth of that coming in the next quarter or 2.

If you look at the areas that we're really focused on right now, it's primarily in multifamily with industrial close second. We also are interested in looking at retail, hotel and health care. That's on a case-by-case basis. But office, we know pretty much we're still looking to reduce there. But that had overall, I think we're really moving in the right direction and feel very good of what we're seeing and have real good positive trends moving forward.

Perfect. Okay. And then maybe just if you could expand upon your thoughts on sort of M&T's position in the now consolidating large regional environment, just kind of given all the events in the last few weeks. So I think you all have been quite transparent about what you'd be interested in and have such a history of discipline. But just curious now that we're actually seeing activity. How do you sort of balance the maybe finite regulatory window, need to have willing sellers?

Does it cause you at all to sort of expand your geographic base a little to increase the number of possibilities? Or will you simply kind of stay close to your [ knitting ]?

Scott, we've been very successful with the model that we've had for a very long time. And our strategy is really to continue to grow share and customers in the markets that we serve. So I'm sure an acquisition will come at some point down the road, I'm not sure when that's going to be. When it happens, it will probably be within our footprint. May stretch into another footprint a little bit depending on who the company is that we partner with from that perspective.

But it's going to happen when it happens, Scott. Our strategy works. If you look at our performance in our earnings, all really strong, and we're going to continue to execute on the strategy and be very successful.

Our next question will come from Gerard Cassidy with RBC.

Just to follow up on what you just said about the approvals on commercial real estate. I think you said they're double from what they were prior. Can you share with us a little deeper. How did that happen? Or what's changed to have more approvals?

I think as we ramp back up and with our new systems and processes that we have earlier in the year, [ we were ] just weren't running as smoothly as possible. That has eased up now, both our team and Peter D'Arcy's [indiscernible], our first-line folks as well as in the credit area, which [ Rich Barry ] and his team are working much closely together with the people on the line, and things are just flowing through a lot easier.

And that's not just CRE. We're also seeing it on the C&I front. Both in commercial as well as in our business banking area. So I think the momentum is growing, and we're having a lot more success, and a lot more wins and seeing more loans go on the books.

Very good. And then just a broader picture. If we step back for a moment, you've had in the past some very good insights on what's going on in Washington with the regulators, and we saw the notice of proposed rule-making on matters that require attention MRAs.

Can you give us your view of how the regulatory environment is changing? And how that may help your profitability going forward, as well as maybe the industry?

Yes. One of the big things that's happened that we've started to see now is we used to always get -- when you have a review, you would get observations. And then if it was more serious, you might get an MRA, or something really serious, an MRIA from that perspective. Observations are now being given. And the way we treat observations is you have a year to get it fixed before they come back to next year and if it makes sense, then we go ahead and get them done. And that's what's really helped a lot.

By just having a recommendation to do something, you don't have a whole process and everything else that you have to do when you're trying to cleanse an official issue like an MRA or [ MRIA ]. So just that itself, the time line to get it done a lot faster, a lot less people working on it. As far as how much that actually reduces in head count and all that, I think it's -- definitely will be less people needed in the remediation areas. We'll probably try to redeploy those of folks in other areas throughout the company because those people were really important during -- experienced people that you want to keep in the company from that perspective.

So I don't look at it as too much as an expense save. I look at it as a way of just things getting done a lot faster, a lot smoother. And it gives our teams a lot more energy to be more productive as well, which is really, really important, I think, as we kind of look forward.

And just to stick with this for a second. Obviously, the Basel III end game is coming up soon, maybe by the end of the year, first of next year. Many investors have identified the benefits to the money center banks. But in terms of regional banks, what do you see the potential benefits for you from the Basler III end game being a lot less [ onerous ] than what it was proposed in July [ 23 ]?

Our hope is that it's a lot more straightforward, really focused on key areas that we really should try to figure out what the capital is. In that original proposal they had adjustments for people [indiscernible], which has a very low market operation markets that build something out, that really we had very little risk in. Didn't make a lot of sense. What they were looking and what charging for operational risk didn't seem very logical from that perspective either. So I'm sure it'll be much more streamlined, more trimmed down, and really focused on what's really needed from a capital perspective for the industry as well as for M&T.

Our next question will come from Erika Najarian with UBS.

Just wanted to follow up on Scott's line of questioning. Daryl, you mentioned production picking up the approval rate that you just talked about with Gerard, but rates are, in theory, supposed to trend lower from here.

How should we think about the push-pull between some of these loans getting [ re-fied ] away from you and the production? In other words, is the fourth quarter still a good inflection point for when CRE balances at bottom? When do we -- can we start seeing period-end balances start to tick upward in a more consistent way?

I'd love to tell you the fourth quarter is the bottom and we hope it is, but you don't really know for sure. It really depends on what payoffs are coming through. I will tell you though, in 2026, for the amount of maturity that we see coming due in '26, it's much less in '26 than what we had in '25. So we're starting out of the blocks in '26 with just less payoffs coming through, which is a positive.

And with our production that we're growing, I think, will be really helpful. So if I had to guess right now, it's probably bottoming in the first quarter. But maybe if we get fortunate enough, maybe it will be sooner than that. But we feel really good that it's going to bottom and start to grow [indiscernible] It's going to be a really good earning asset to get back to the positive momentum.

Got it. And maybe the second question, Daryl, is M&T has been known to be -- to have a conservative culture, and there has been a lot of credit noise recently. Whether it's related to NBFI or credit pre-announcements, which always makes the market nervous. So you're in the first management team to sort of call out [ NDFI ] and additionally, the RWA treatment of NDFI via SSFA.

So maybe my question is this. Maybe walk us through what the [ NDFI ] exposure is for M&T.? You did mention that loans to financial and insurance companies was the driver for C&I growth? And maybe help investors figure like -- what questions do we ask in order to really properly assess the credit risk from a go-forward perspective? Because all we're getting from other banks is that don't worry about it. This is way less frequency and weigh narrower severity than a direct C&I loan.

Yes, thank you for the question, Erika. So if you look at the -- our [ NDFI ] portfolio. If you look at it in total, or one of the lower exposures were probably 7% or 8% of total loans is what we have in that big bucket. We really focus on businesses in this bucket that we really believe in, and are really good performing businesses that are on the lower end of the risk scale.

So I'll start with our top three categories. Fund banking which helped with our loan growth this past quarter and pretty much throughout the year, and has been growing nicely. And those are capital call lines, and we do [indiscernible]. But if we -- if you want to take more risk, which we don't is you would do [ NAV ] lending, which we don't do from that perspective. So in that case, it's our choice to stay in the more conservative [ brain ].

The other category that we have, that we have a fair amount in our industrial CRE made up a lot primarily from our REIT activity that we have. And we say with really good conservative known REITs that perform really well. So very good from an institutional performance.

The other business I'd like to call out is residential mortgage warehouse. Done properly from an operations perspective, you really can't lose money from a credit perspective, it's really an operational risk business. And if you have good operations and good controls in place, it's a really safe business to run from that perspective. So those are the ones that we have that are our largest. We do [ dabble and ] other ones. And I think we do lend to BDCs, but we only focus on public BDCs. We don't do private ones. We don't think there's enough disclosure and just more of higher risk oriented. So we kind of split that there.

As far as your [ SSFA ] question goes, [ SSFA ] is basically transactions where you have securities or loans that are basically put on the balance sheet and a structure. So there's no recourse on the loans. So your ability to get paid back is straightly from the assets. I think the way we're looking at it is we have a very small exposure today, and you have to be selective on what assets you're going to put into these structures. And we have one structure that has loans, another structure that has mortgages. Most of our structure that we have is more in ABL right now. But the thing you have to really look at when you look at SSFAs, it's procyclical.

So you start off with a lower RWA, and it's because of the structure that you have. But as delinquencies increase as the economy turns down, then your RWA automatically increases. So when times are really bad stress, these portfolios will actually use up capital when you actually need capital the most from that standpoint. So we're aware of that, and we're just trying to take it very conservative from that perspective.

Now times are very benign now, but the times could get a lot worse at some point down the road. And you just want to make sure you don't have too much of this procyclical type structures on your balance sheet.

Our next question will come from John Pancari with Evercore.

On the capital front, I know you're at 10.99 CET1, and you -- net of the $409 million in buybacks. As you look out, I know you have your [ 10.75% ] to 11% target. Can you provide us your updated thoughts around that target? What is keeping you from moving that lower? And as you get clarity on the regulatory front? And once you do have that confidence and the ability to move it lower, is the way to help us frame where you think a bank of your size and your regulatory considerations where you really could be operating at?

Yes. Thanks for the question, John. So first, I'd start with when we look at where we're positioned right now, we definitely feel comfortable in repurchasing shares. We didn't buy back as much as we could have this past quarter. Just because we think the market was a little bit overheated and there was more risk into the environment. So we're a little bit cautious there.

Our credit quality continues to improve really well, and that will probably continue. So we feel good about that. And the other thing is we're a little bit price sensitive on how much we buy depending on when we buy it. So it went up much higher last quarter, and we just bought less on a daily basis. So I mean, right now, we could buy anywhere from $400 million to $900 million this quarter, depending on how we feel about the economy and how we think the value of the stock is.

And in terms of your CET1 target, the 10.75% to 11% range. What would you need to see to move that lower?

That's a discussion we'll have with our Board later this quarter and when we get our strategic plan approved, and go through that. But as we continue to perform, we'll look for opportunities to potentially try to decrease our capital ratio down over time as that makes sense. But that's really a Rene and Board question, and we'll probably have something to say about that come our January earnings call.

Got it. Got it. Okay. And then if I could just throw in one more. On the -- just on the loan front, I appreciate the color you gave around -- the appetite around CRE and some of the loan growth dynamics. Can you maybe talk about competition a bit? Are you seeing -- what are you seeing in terms of loan spreads? We're hearing a little bit more that competition is starting to bear down again and the larger banks are becoming even more of a formidable competitor to the regionals on the lending front. What are you seeing there in terms of front-end loan spreads on the commercial book?

Yes. No, it's definitely a much more competitive. If you take and look at all of our commercial businesses, which is C&I and CRE together, I would say spreads are down maybe 10 or 15 basis points approximately from what we were originating maybe a quarter ago. But we're still seeing really good production. We're doing really good in our business banking business. And we don't talk much about business banking because it's really more of a deposit gatherer. It's 3x more deposits than loans, but they've had really big success in the last quarter or 2 in growing our loan book and continue to build that out, which is really good for us. It's smaller end of the commercial space and it's really serving our communities and our clients in the right space.

So with that said, I think it's competitive, but from a pricing perspective, we're pretty efficient so we can still get our returns with its pricing.

Our next question will come from Chris McGratty with KBW.

Daryl, if you think about operating leverage going into 2026, or the medium term, can you just speak to how you think this plays out in terms of widening, narrowing, and then the drivers between revenues and expenses?

What do you say is narrowing?

Just operating leverage. Is it going to widen or narrow?

Yes. [ Scott ], banking is simple when it comes down to this long term. But it's really just growing revenue faster than expenses at the end of the day. We have a lot of momentum right now on our fee businesses. And if you look at our fees growing with trust, mortgage and our commercial [ spot ] of the products that we have in the commercial area to our customers there, we're going to grow that really strong again this next year. So that's a positive.

We have positive momentum on our net interest margin. We guided up for the fourth quarter. We're going to [indiscernible] So we have momentum there. And CRE is going to start growing as well. So we'll have all of our portfolios growing. So I'm pretty positive that our earning assets will start to grow maybe a little bit faster. And we still have good expansion on our net interest margin from that. So I feel good overall, and I think that should come down to a good operating leverage number.

And then I guess a quick follow-up kind of two parts. One, I guess, the visibility into the improvement in the criticized that you've noted in the crewbook. I presume that will continue. And then secondly, I just noticed a nuance in kind of your geography question about M&A. I think you said adjacent markets. Just if you could unpack that for a minute, that would be great.

Yes. So from a credit quality perspective, our nonaccrual loans came down to 1.1%, and that was really driven by both C&I and CRE. When you look at the criticized balances, it is really a function of the CRE portfolio. CRE portfolio basically decreased in every category in CRE, but really driven by multifamily and health care. And those were the drivers there.

We're pretty optimistic that, that will continue for the next several quarters. So we actually might think below [ in this slide ] out of our presentation in a quarter or 2, because we'll be pretty much back to normal credit quality and normal operating from that perspective. So we feel really good and excited about that.

As far as the geography goes, well, the only I say expanded geography is it you buy a bank that's -- it's headquartered in one of the 12 states that we are, but they might have some exposure outside the 12 states that's really how you might get a little bit some more growth in another area. But it's still really focused on getting scale and density in these 12 states and in the District of Columbia, where we operate.

Our next question will come from Manan Gosalia with Morgan Stanley.

You noted in your credit comments, if you have one-timers in C&I NCOs that was embedded in the overall 42 basis point NCO number. And then I guess your guide for next quarter is [ $40 million to $50 million ]. Are there more lumpy items that you're expecting next quarter?

And I guess the bigger picture question is, how do you expect that to trend into 2026? And what's a good normalized NCO run rate for M&T?

Yes. No, thank you for the question. So this quarter, our net charges were [ $146 ]. Yes. It's really driven by two large C&I loans. There were two contractors that added up to $49 million. And that's really what drove us higher than our 40 basis points this quarter.

As far as you go next quarter, we could have maybe another one or so in the fourth quarter. But we still think that net-net, year-to-date, we will come in for the year under [ 40 ] overall. So I think that's where it's kind of shaking out from that perspective. As far as next year goes, we aren't going to give any guidance yet and all that. But the economy, still overall, is in relatively good shape. There is stress in certain areas, but overall, it's still in really good shape. So I wouldn't expect much change one way or the other for '26. But we'll give you more of that in January.

Got it. And then separately, you spoke about more room on the operating leverage side. Some of your peers have spoken about accelerating investments in AI and tech. Can you talk a little bit about what M&T is doing there? And if you will need to spend more next year as you invest there?

Yes. We definitely are spending a lot of money in the company. In the 2.5 years I've been here, we've had some really significant projects that we've started and that we're starting to finish up. Like our -- in my world and the finance, or the general ledger will go live probably in the next quarter or so. So that will be a big success and also a big drop in run rate. But we have other projects right behind that, that we're going to be investing in.

We're putting in a new debit platform for all to serve our customers. That's going in. We're looking at commercial servicing system that needs to get upgraded, or consumer servicing system that needs to get upgraded. So there's other investments out there. From a data center perspective, our two data centers are up and operating. We're still moving applications [indiscernible] will take another year or 2 to get that fully accomplished. And Mike [ Whistler ] and his team are putting as many applications we can up into the cloud. So we can maybe get out of doing some of the data centers, which in the long run will actually reduce costs.

So I think our cost will be controlled. I think our revenues will grow more than our expenses. But we're going to continue to invest in our company and do the right thing and continue to have really strong service quality for our customers and really predictable, sustainable platforms that serve.

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

Just a bigger picture question on credit, which is obviously driving reasonable [indiscernible] today. We're seeing some of these kind of one-offs in commercial that according to the media are fraud related.

But what are your thoughts in terms of like why we're seeing these events now with rates kind of coming down? I thought maybe that would have taken the pressure off. But just any big picture thoughts as you guys kind of sit around and think about the credit environment. I'm sure you have talked about some of these kind of positions out there if you don't have any -- just any thoughts on that?

People arguably have a lot of different ideas on this. I think one of the things we think about is we've seen stress out in the marketplace for a while. So if you look at the consumers, we've been saying for years that in the lower end, call it, the [indiscernible]% in lower end are really hurting in that space. And those are the ones that are paying the higher credit card yields and all that. And then just -- it's really tough for them when they have to pay these high interest rates.

If you look, we've tightened a little bit in our small business areas. So business banking has pulled back a little just because of some of the weakness we were seeing there in the last year or so. And we have a leasing business that also we tightened up there as well. So on those areas, we're going to stress. I think there's things that we're just trying to tighten and see. But there's definitely stress out there and sometimes people can only go so long and then they have to kind of throw in the [indiscernible].

On the larger end commercial, there are sectors that have been impacted in certain situations, whether it's tariffs or just other operating private equity coming into buying some of these. Companies, sometimes it's a good thing, sometimes maybe not, because they aren't experienced in turn to run these companies, like the original teams were. So you see one-offs from that perspective. So there's things that you'd have to be careful for.

What we really focus on is the fundamentals, Matt, and really try to make sure we're underwriting and looking at everything we can, making really good, sound decisions for the long term. We don't want to put loans on the books that aren't going to be there in the next year or 2 because of a credit situation. So we're trying to do that and trying to be really holistic.

[ Rich Barry ], our Chief Credit Officer, he stood up some verticals and some specialty areas for like our leverage lending area, and a couple of other areas, just to focus to make sure that we have controls in place in areas that we would deem as higher risk, in place. So I think we're doing all the right things, really trying to be guarded from that. But net-net, if rates come down more, I think that will relieve some of the pressure. But right now, I think you're just seeing some of the pressures from -- it's been elevated for a while.

That's helpful. And then I'm sure it's a lot easier to kind of get comfortable with your book. You originated them that you could kind of evaluate it kind of on an ongoing basis. And I guess, hypothetically, if you were kind of looking at an external book, do you still feel like there's enough visibility where you could evaluate it? Or are there enough red flags, again, just kind of generally in credit, these headlines that you're seeing that, that might give you a little pause, all hypothetical, obviously?

I think -- I mean it sounds like you're trying to lead to a question if we do a due diligence on a company and you're looking at a credit book and all that. I mean, it really -- if that's where you're going, it really starts with the culture and do they underwrite similar to how we underwrite. And that needs to get established upfront from that perspective, and you really need to know that, and trust that. When we acquired [ Peoples ], we knew day 1 that their culture was really similar to the M&T culture, and that would fit in quite nicely from that perspective.

But when you look at stuff, you have to be really careful and ask a lot of questions, and information, and keep digging until you get satisfied. I mean, I think that's the way it works. You have to do your homework. It all goes back down to fundamentals again.

Our next question will come from Dave [ Rochester ] with Cantor.

Back on your margin comment, you mentioned earlier, you had some momentum there guiding to the [ 370 ] level in 4Q. Do you see any upside potential of that going forward given your outlook for more Fed rate cuts on the one hand? And then given the repricing that you see you still have left to do on the fixed rate segments of your loan and securities books?

So I mean what we have modeled right now is we have 2 cuts in this year and 3 cuts next year, so 5 cuts total. And when we do our modeling, our base scenario embeds the forward curve. So when you look at that, and then you look at it down [ 100 ], our down [ 100 ] is basically flat from an NII perspective. So that's really rates going down 200-plus basis points over 12 months from that. So I think we're very neutral from that perspective.

If rates go up 100, which is basically rates staying flat because you got the forward curve embedded into that, we were off just a touch so a little bit I guess, I'd say we were a little bit more liability sensitive on the way up a little bit. But the way our balance sheet is really structured is we have to hedge to kind of have the position that we are at. And if we don't do any hedging on how we operate within a year, we can become very asset sensitive very quickly, just naturally as things happen. So we're constantly having to hedge to kind of neutralize our interest rate sensitivity from that perspective.

So we feel really good about where our net interest margin is. We do have a piece of it, obviously, based upon the shape of the yield curve. That's also impactful for us. That's still -- we're still benefiting from that from a [ row on roll-off ] basis. If you look at our loan book on the consumer book that we have, we're still probably getting about 75 basis point spread positive there.

Investment portfolio is probably going to be anywhere from 50 to 75 basis points positive there from that perspective. So we're still benefiting from the roll on and roll off from that perspective. So that's really good. And our deposit [ betas ] are 54%. We came in, and we think that's pretty much what it was when rates were going up. So coming down, we're going to mirror that as well. So we feel very good that will stay in the low to mid-50s from a beta perspective. So I think we got things positioned pretty well from a sensitivity perspective on NII and feel good of what we're guiding to.

So it sounds like it all adds up to some upside potential there to that [ 370 ] going forward, all else equal. Great. Maybe just back on your comments on the government shutdown and M&T being ready for that.

It doesn't sound like you're too concerned about it right now given your comments, but when would you start to get worried about it from a credit perspective? How long would this have to drag on before you guys get more concerned about it?

From a government shutdown, we are monitoring and looking at various sectors that potentially could happen. Obviously, it hasn't been around long enough to know, but we've seen some stress in governing contractors. Obviously, this puts more stress on them because of the shutdown. So that's important.

The SBA business has kind of shut down right now. So that's some stress from that. [ Hot ] and FHA, we're looking at that to see what impact that might have. You have C&I health care from a reimbursement perspective, that will probably impact if it goes longer, reimbursements might slow down or stop. And then nonprofits that get grants and then government employees, which is heart and soul of the government and those people at all. So we're monitoring all those areas. I haven't really seen anything yet. But if it goes on a few months, I think you're starting to see some stress maybe.

Yes. Okay. Maybe just one last one. I was hoping you just give a little update on your exposure, if you have anything to the tricolor situation? I know you don't have any credit exposure, but if you just talk about anything like from a legal perspective or anything else there, just be great to hear how you're assessing that risk just given [ Wilmington's ] roles there?

Yes. Yes, happy to talk about it. So first of all, as we publicly reported, there are allegations of fraud, which is never good for an industry overall. And unfortunately, we will have, from time to time, but we expect that the industry will improve over time to make sure that such events happen less frequently. We are and always have been a very client-centric culture and company, and we will always strive to provide the best services and execution.

We've got a thorough review of what we're looking at and enhancing our quality and service. We still believe in our Corporate Trust business. Feel good about where we are and just looking for better ways to partner with our clients.

Regarding your current question that you have, it clearly will play out over a long period of time. It's really not helpful to kind of speculate what's going to happen from that perspective. We were -- our roles in the transaction. We have no lender exposure from M&T, or [ Wilmington Trust ], whatsoever. We -- our roles that we have there were focused in the warehouse account bank and custodian, and on the securitization as owner trustee, [ indenture ] trustee, custodian, [ pain ] agent, not register and certificate register. Those were our roles that we have from that perspective. So there's no credit exposure that we have there.

So I think that's really what we see right now, and we're just going through the process and seeing how things play out. And there will probably be people that see [ other ] people just because of the bankruptcy and what happens, but we'll see if we're impacted or not from that, we don't know.

Our next question will come from [ Ken Houston ] with Autonomous.

Great. Daryl, just one quick one. You mentioned in the slides that the fourth quarter expense stuff up, you pointed out professional services. I know you guys typically do have higher expenses, third to fourth. But I'm just wondering, is that a specific nuance that you're just finishing some projects or something like that? And just obviously, we'll hear more in January about what next year's expenses look like, but I just want to know if that's atypical, or more kind of the normal ramp that we typically see towards year end?

Ken, we have a lot of projects going on, and we're just trying to get some of them finished off. So it's kind of a cost of getting things done is just increase in expenses from a professional services perspective. We'll give you guidance for '26, and we will make sure that we have revenue growing faster than expenses.

Our next question comes from Christopher Spahr with Wells Fargo.

First is the buybacks during the quarter and you kind of indicated like you were being a little price-sensitive. Just with the accumulation of capital, regulatory relief coming in, AOCI becoming even more favorable for you. I'm a little surprised that you kind of talked about kind of being price sensitive just given where the overall stock is and your accumulation of capital?

We just have a grid that we have, Chris, in that depending on what the tangible book level is and what we're trading at, we have certain amounts that we buy at certain levels. And we adjusted it fluid from that perspective. But just like investors out there, we're investing in our company as well, and we think of it the same way.

Okay. And as a follow-up, with 5 rate cuts kind of in the forward curve, what is your outlook for deposit growth over the next year or so?

Yes. My guess is our deposit growth -- and we'll give you guidance in January. But deposit growth and loan growth shouldn't be much different than really the growth of the economy, plus or minus a little bit is what it is. So economy grows 2% or 3%, I think it would be in that same neighborhood.

Thank you. This concludes today's Q&A. I will now turn the program back over to our presenters for any additional or closing remarks.

Thank you all for participating today. And as always, if clarification is needed, please contact our Investor Relations department. Have a good one.

Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect.

Next up, very pleased to have M&T with us. If you kind of put up the first ARS question. M&T did post a slide deck last night, but you could take a look at that in your own time. There's some good stuff in that, but I thought maybe better just kind of jump right into it and maybe just start big picture.

Your kind of franchise spans Northeast New England and Atlantic from maybe a branch presence and obviously, several businesses on a national scale. Maybe just kind of updates in terms of what you're hearing and seeing from your customers.

Yes. So I think from where we felt customers from maybe 6 months ago, I would say things are more positive. I think people are addressing the tariffs and people are feeling more comfortable. I wouldn't say the investments are robust, but we are seeing increases now, some of our middle market customers, utilization is going up a little bit, maybe in distribution, [ ABL ]. So I think there's pockets where things are starting to increase and be more positive. And hopefully, with the new tax bill that happened, that will give more surety. And as things continue to move and get better, we're hopeful that the economy will grow and be more positive and get more loan growth from that perspective.

Got it. And then I guess when we think about M&T, you've been in kind of slower markets, while many of your peers are kind of focused on building a presence in higher growth markets. Maybe just kind of talk to kind of your confidence in your trajectory direction.

So I think both of us have been doing this a long time. Things kind of ebb and flow in the marketplace. And I would tell you, I've seen this story before, sometimes with an institution doing that exact same strategy. But our strategy at M&T is really to serve our customers and our communities. And we really are big believers in growing and getting more density in the markets that we serve. We operate in 13 states plus the District of Columbia. We feel that we have more opportunities to grow and just get more density in those markets and do a good job making a difference in people's lives. We think that's really key to how we operate. I kind of like being an outlier strategy, to be honest with you, everybody is chasing growth, and we're just growing operating accounts, checking accounts and doing our thing. And I think in the long run, we will prevail really well.

Got it. And maybe -- I guess maybe the best way to start kind of against that backdrop, maybe just running through the income statement. Starting on net interest income, kind of 1Q, 2Q call, you kind of tempered your outlook. You exhibit at the slides last night, you slightly tempered your outlook. Again, maybe just talk a little bit kind of what's driving those changes.

Yes. From a net interest income perspective, we started the year out very optimistic thinking we grow loan growth more robustly than it's actually come to fruition. Some of it, you can blame on maybe surprises on the administration and how aggressive that they came out with tariffs and all that. But that said, things are still progressing really well. We're on pace to have record EPS this year. So I think we're doing some things right from that perspective.

If you really look at the portfolios, we really thought our CRE portfolio would have bottomed out by now. We're still getting pretty high payoffs in that area. Our production is increasing. You have to remember, we are a disciplined acquirer and disciplined in underwriting and how we basically make loans. And we won't get every loan in the marketplace. We support our customers that we've had for many years, and we will continue to do that. CRE will grow. It's just a matter of a time when the payoffs slow down from that perspective. But net-net, overall, NII is maybe a little bit softer, but the fee income businesses that we are having are producing much more revenue than we thought and really good growth in a lot of categories that we'll go into in a little bit from that perspective. So net-net, overall, we're outperforming our budget overall.

Got it. Maybe the first ARS question. I guess maybe kind of delve a little bit more into loan growth. I guess, earlier in the year, C&I was an area of strength. Looking at -- obviously, the C&I is a pretty broad term. But maybe within that, where you're seeing strength, where is potential weakness and maybe your outlook there?

Yes. From a C&I perspective, we've done a good job in the last couple of years of growing that book. And if you look at it, most of the growth is coming in what I would call our specialty businesses, which is large corporate, fund banking, mortgage warehouse. A lot of those categories are in the [ NFDI ] categories where you're seeing that growth. We -- so that's REITs, mortgage warehouse and fund banking are in those categories. That's really driving it. Starting to see some pockets of growth in middle market. So we're more optimistic there as the year plays out that we'll have more growth there. We have 27 regions. Some are growing, some are shrinking. Net-net overall, it's slightly positive from that perspective. We hope to get more momentum there. But from a C&I perspective, I think we'll continue to penetrate that and do really well and serve our clients in those markets.

And then if we can put up the next ARS question, but we'll get to that answer in a bit. But maybe shifting to CRE, you kind of talked about the -- maybe taking a little bit longer to bottom out. You've also kind of mentioned maybe a bit more competitive than you would have thought. Maybe just kind of talk to when do you think that book could start to grow again? What areas of it do you want to grow and just opportunities?

Yes. So we're -- we've been open up for business for CRE since the beginning of the year. And for the most part, almost all the categories are something we're willing to do, probably shy a little away from office in major metropolitan markets, but we're open for industrial growth, multifamily, retail, construction loans. So all those are available there. We still have our strict underwriting guidelines that we follow. We try to support our customers that we've had for long periods of time. I think in the last 2 months, we've seen really strong growth in July and August that basically has been the best we've seen in the last several years, which is positive.

Payoffs are still pretty high. Good news about payoffs, that's curing some of our criticized book, but we probably see that subsiding as the year kind of closes and probably production will stay where it is or continue to gain momentum, and you start seeing some growth, probably thinking fourth quarter will be the bottom, we grow off from that into '26.

And then just lastly, on the consumer side, recreational finance and indirect auto were pretty strong in the first half of the year. I'm not sure if tariff played a role, but maybe just your outlook for those consumers.

Yes, huge production that we had in the March, April time frame in our indirect auto, marine and RV portfolios. The lots have not filled back up since that purge of all that volume that we had there. So we're growing in those businesses, but not as fast a pace as we had earlier this year, but really good growth. I really want to say that the growth was also in our consumer bank. We actually focused on and started to grow our home equity lending business again. I think given where mortgage rates are on first mortgages and all that, we were able to grow our home equity again, which is positive and our -- we don't have a huge credit card, but that's also growing. So really good overall, the consumer bank really has performed really well in the first 3 quarters of the year.

Got it. And maybe just shift gears to the deposit side of the house in terms of just what you're seeing in terms of mix, balances and maybe just rate paid, the Fed is likely going to cut 25 basis points. How do you think about deposit beta and the outlook from here?

Yes. So year-to-date or since rates started to drop and all, our deposit betas have been in the low 50s, pretty much as planned from that. So we feel good about that. And we've already started to cut rates believing that the Fed is going to cut next week from that. So we try to get a little bit ahead of that and front run some of that so that that's actually happening in the marketplace. From a deposit growth perspective, I believe in the always-on strategy, always trying to give competitive rates out to our business lines and to our customers. We don't want to give the highest rates, but not the lowest rates. So we want to get our fair share of volume.

Last quarter, you saw that we were able to get in some good interest-bearing funding sources. They were priced at higher rates, but still at rates that we could still bring in funding and pay off noncore funding, which is positive. So that will continue from that. As far as the disintermediation goes, I think disintermediation for the most part, is gone. You might have one-off situations. But for the most part, I think with rates coming down, disintermediation is going to probably start swinging back maybe sometime next year if rates go down.

Historically thought of M&T as a fairly asset-sensitive bank. I feel like it's a different balance sheet construct today. Maybe just address that? And what is the ideal environment for you?

When you look at M&T, we positioned ourselves really nicely knowing not to deploy the assets into the investment portfolios when rates were down to 0 and all that. And that was a great decision from the company's perspective doing that. As rates have kind of leveled off and started to come down last year or 2, we've deployed some of the cash at the Fed. When I joined, we were probably over $30 billion of cash at the Fed. We're down to probably about $17 billion, $18 billion on average at cash at Fed. Our investment portfolio is up to about $37 billion.

We're kind of in a sweet spot where we think that's -- we're comfortable there where we still have a lot of liquidity on balance sheet. But our investment portfolio, which is still all government securities and treasuries that are really pure liquidity, but it basically extends our duration out of our assets, just having a bigger portfolio there. But our duration of the investment portfolio is 3.5 years. So it's not a long portfolio. We've made investments in securities such that we don't have a negative convex portfolio. We have a lot of positively convex vehicles like treasuries and agency CMBS versus agency MBS from that perspective. So I feel good about that. We've also been able to grow our consumer book intentionally. That's fixed rate. That's also helping our rate sensitivity. We have positive repricing going on in our swap book. That's going to play out through into '26 from that perspective. So that's going really well.

So I think as loan growth continues to grow, I think you're going to see margins start to respond and maybe come up a little bit higher in the mid- to high 3.60s and maybe getting into the low 3.70s sometime into next year.

Okay. So mid- to high 3.60s for this year and then you're thinking low 3.70s for next year.

We'll see, but I think that's possible.

Makes sense. And I guess as kind of tying that kind of the whole discussion together so far, you're obviously putting together your 2026 budget. As you think about kind of NII growth, maybe kind of what are some of the puts and takes and kind of considerations. And if you look on the screen, that's kind of the buy side consensus forecast for NII growth for next year.

Yes. I don't want to really focus too much on '26, but I don't think we're going to surprise you. I think what you see on there is very reasonable from that perspective. Our fee income has been really a great performer. So we're going to have higher growth in fee income this year. That will continue into next year. Our businesses are performing really well. So we feel good about all the revenue production that we have.

Makes sense. Maybe turning to fee income. One of the takeaways from the deck last night was potentially exceeding the top end of the range. So just kind of what are the areas of strength and kind of what's driving that outperformance?

We're really fortunate to have a great mix of businesses that are performing really well in these times. And I think they can actually get better as rates continue to fall. But where we are right now, our corporate trust and loan agency business continues to perform at record levels. We aren't cutting pricing. We're winning it on servicing.

We've opened up offices in Europe in the last year. So we're in London, Dublin and Frankfurt starting to grow and support our customers over there. They asked us to support. So we are doing that. If you look at our mortgage business, we have a good relationship with Bayview and we're able to get some more subservicing from that relationship. That has gone online performing at 50% efficiency. So that's performing really nicely as expected. As far as the commercial business, treasury management is up double digit year-over-year. So that's performing nicely. We're having good loan syndication fees as well as good customer derivative fees. So that's performing really well. If rates fall, we've invested really well into originators in the mortgage area.

Right now, we're originating more focused on ARMs, but as rates have come down, anticipate that volume to switch from ARMs into more fixed production, which would be more conforming and generate more fees from that perspective. So that will be positive. Our RCC business in commercial real estate continues to perform really well. Kind of if you monitor what's been going on in the last couple of years, when rates get close to 4% or go under 4% on the 10-year, volumes really pick up. I think last time I looked, we're about 4.07% on the 10-year. So we're getting close to that. So I expect fourth quarter and maybe early '26 to have strong production if they stay close to these rates and all that. So that's a positive.

I think the gem out there that we have that can perform in really any environment is really the wealth business. We look at our wealth business, and we break it into 3 broad buckets. The high net worth, ultra net worth area performs really well, competes against all the other large players in that space, and we're very successful there and do well. Over the last couple of years, we've done really well on the lower end, which is more of the affluent category, $3 million and less in the branch system, we have a partnership with LPL and had record production revenue last year, doing really well again this year.

But I think that the sweet spot of where we really can make a difference over the next several years is the cross-sell that we have between our business banking customers. We have a lot of business banking that's kind of core to our company and our middle market commercial customers and get more cross-sell into the wealth area there will continue to help drive the growth in that business. So we're very optimistic about wealth and getting more assets under management. And when you look at our product and service, it's not just managing the investment. It's the whole real deal. We look at helping with taxes. We look at financial planning. It's the full package.

When you come to Wilmington Trust, it's one of the best packages that I've seen in my history working on all that. So it's a great product to have, and we do a great job serving our customers and clients.

Helpful. And maybe up the next ARS question as we shift to expenses. I guess, Al, you kind of talked to the upper end, if not above, your kind of fee income guide, yet you're also talking to the lower end of your expense guide. So most banks where they're kind of seeing out fee income outperformance, you're kind of seeing expenses go higher to support that, you've kind of been able to maintain your kind of expense outlook or even point to low end. Maybe just kind of talk to the whole philosophy and the ability to do that.

No. I mean a lot of the fee businesses we talked about, people that have businesses that are tied to more commission-based. So when rates fall, the origination piece, revenue that comes with expense automatically because you're paying that. So we have some of that there, but like the mortgage servicing businesses, you add expenses and that kind of stays flat for the most part and you just kind of leverage from that perspective.

From a Corporate Trust perspective, there are some commissions there, but it's not as noticeable as we have in other businesses. So I think it's more of a mix in business per se. But as we grow out some of our other businesses, whether it's originations or some of the commercial space, some of that will be tied to more commission-based from that perspective. But net-net, overall, I think we're balancing out the expenses. We have a lot of things going on in the company from a project perspective. And we're balancing all these investments that we're making. When you cut through and look at and adjust for all the adjustments we made in '24 and '25 because we had the extra FDIC charge in '24 and when you net through all that out, we're growing expenses about 3% year-over-year adjusted. And we feel good with that. I think we'll continue to have positive operating leverage because of that.

So I guess when you kind of plan 2026 budget, which I know you're looking forward to, is like 3% the baseline number you start with. And just I know you've talked in the past about several kind of big projects that I assume are expensive that I would imagine you're kind of coming to completion on. Just how does that inform that figure?

So we got a lot of things going on in the company, and we really have to manage and make sure we don't have too much change going on at the same time, but we've been able to balance and do really well with that. We have 3 key projects that we'll be finishing up over the next year or 2. One of them is what we call our [ CDA ] project. It's basically how you manufacture a loan, how you monitor and basically administer a loan production area. That should be finished at the end of this year. We put it in place early this year. It actually cost us some of our loan production, to be honest with you. We've worked on it and smooth it out. We're still working on that. We made a lot of progress. This is why loan production is increasing from that perspective. We feel good that will finish out.

In my world in finance, we are putting in finance transformation that includes putting in the general ledger. That should go in early part of '26. Don't have to finish out profitability, but our burn rate right now in that project is about $7 million per month. That will come down dramatically post getting the general ledger in, which will alleviate and get redeployed in other projects in the company. The other major project that we have coming due in the next year or 2 is our data centers and putting applications into the cloud. We have 3 new data centers that are up and running. We are putting application systems in those data centers as we speak. And we are also putting applications that are cloud-enabled up into the cloud system and think that will be finished out sometimes in '27.

So those are the 3 that are what we call closest to graduating in there. Behind that, we have a lot of projects that we are just now starting up in our commercial servicing system, we're putting in the new version of AFS Vision that has started up. We are basically replacing and putting in new debit modernization in the commercial space that has started and producing. We are starting to invest in our corporate trust loan agency business, trying to digitize that offering for our customers and how we operate from an operations perspective. So those are really some key other initiatives that will help from a client perspective, focus on the client experience, but also help us from a control perspective. A lot of these investments are moving us from what I would say, manual controls to automated controls, which makes us much easier to manage as we get to a larger company, we can control the company and know what's going on as we get more scale.

Helpful. And then maybe shifting gears to credit quality. We've seen criticized classified loans kind of continue to come down for several quarters now. Maybe just talk to in terms of just your outlook in general, and then we can kind of delve into deeper into stuff.

Yes. So I mean our guide right now for charge-offs is to be less than 40 basis points. We still feel good about that. Losses are coming in. There are some chunky losses in the C&I space. When you look at C&I, there's really not any themes of certain industries. But the ones that we do see that tend to have higher losses are ones that are backed by private equity, where private equity has failed to support their credits with the company and all that, and that's where you're seeing a couple of large losses. That said, it's still very manageable from that perspective.

CRE losses are coming in really low. Consumer losses are coming in as expected or slightly better. So net charge-offs overall are good. If you look at our criticized book, we've made tremendous progress in moving our criticized balances down. If you look at the WACR ratio, if you go back a couple of years ago, our criticized book was about 12.5%. Right now, we're operating about 7.5%. So we've made tremendous progress. Still expect to have continued criticized loans come down, seeing a lot of that in the CRE space and feel good that we'll get to under 6% probably in the next year or so, which will be really good and much more manageable from that perspective. So credit trends overall going very positive and feel good about what's going on.

I guess getting, I guess, criticized loans under 6%, I guess, how does that kind of inform your view on kind of the allowance for reserves and what can we see on provision and the like?

Yes. So when you look at the allowance for this next quarter coming up, we went through the macroeconomic statistics, not much change from what we saw last quarter. So that's one version there. Then you look at what's going on from a grading perspective. So as there's less criticized, that means there's probably positive grading going on. So you're upgrading more credits than you're downgrading net-net overall, which is a good guide from that perspective. But then you have to provide for loan growth to think how to balance it off. I think you got C&I growth, you got consumer growth, a little bit of resi mortgage growth coming through.

Net-net, overall, probably don't see a whole large change either way on the provision. We're still 1 month away, but don't see any big surprises. I don't think it will come through pretty much as expected from our forecast.

And then maybe -- shifting gears to capital deployment. I mean, last quarter, I think it was over $1 billion in stock repurchase, which was a...

$1.1 billion.

A big number, up from what we've seen in the prior quarters. You've got a nice dividend bump over the summer. Just maybe talk to just how you're thinking about deploying the capital you're generating.

Yes. Our dividend increase was 11%, up to $1.50 per quarter. So that was really strong as well. Our payout ratio still is around 33%. So we have a lot of ammunition there. and I think a lot of certainty that our dividends will continue to grow and be positive. From a capital deployment perspective, we did say we bring down the targeting of a ratio from 11% to 10.75% to 11%. We're operating in that range.

One of the things that I tell when I talk to investors is we found a bank to buy, it's us, and we're buying back a lot of us right now and really feel supportive of doing that. And with our criticized numbers doing better, the economy overall, relatively good. We're a little bit ahead of what our projections were in capital deployment for this year and to our 3-year plan that we presented to the Board last year. So feel good about that. And I think we will continue to take that posture. And I think over the next year or 2, we will continue to move down and probably get down to 10% at some point in the next year or.

So I guess if we had you in London in May, you kind of mentioned for the first time, 10% could be the number. Is that like a year-end 2026 target? Or how are you thinking about that?

It really depends on criticize and the economy and everything going on. We're very conservative and very cautious. And there's a lot of risk with not just the U.S. government deficit, but a lot of countries deficits going on right now and really trying to monitor that going on and looking at impact on all the other changes in the industry. That said, I think we feel very comfortable. We're generating a lot of capital, a lot of earnings, which we feel good about deploying a lot of that. So our share repurchases are doing well and will continue to be very positive.

You mentioned you found the bank to buy and it's yourself. But it does feel like the regulatory construct has improved. There seems to be a pickup in activity. M&T has historically been a very good acquirer and sometimes an acquirer of choice. How do you think about the current landscape with respect to inorganic growth?

So the administration is definitely very positive, right? The people that they put in the seats, Governor Bowman, the OCC, the FDIC, all those people are much more pro business growing the economy, which is really positive for our industry and really supportive from that. From an acquisition perspective, they also are all pretty supportive of supporting growth from that. So we know that if there's partners that we can partner with in our footprint, we know we have the ability and thought that we can get deals done from that perspective.

Rene has been in the job 7 years. He did -- Peoples was his first one as the CEO. He's very disciplined in how he approaches this. And we know and he has relationships with all the people in our markets and banks that we would like to partner with at some point down the road. But it's going to happen when it happens. We got a lot of positive things, momentum going on in the company today, and we feel really good about that and want to embrace that. And if we get an opportunity to partner with somebody that we think is going to serve our customers, our communities and definitely be shareholder-friendly, we will consider and move in that space.

One of the ratios that we really monitor and believe is important to us is tangible book value growth plus dividend. If you look at that, we have a slide projection in there. If you look at our peer group, we're the #1 bank in both 5, 10 and 20 years with that ratio. So we are very disciplined from how we operate the company, how we do acquisitions from that perspective. When we do an acquisition, I don't think it's going to be one that's going to surprise anybody. We'll probably be in footprint, probably get us more density in the markets that we serve, so we can serve our markets and our customers better, and that will allow us to support our shareholders much more positively.

I guess earlier, you talked about some of the systems work you're doing on those projects. Does that preclude you from doing something near term or you could do both at the same time?

It's possible. It's harder. I would say, preferably, we'd like to get the GL running and in place first. But if there's something that is able to get done and you still have the approval period and all that, it's doable from that perspective. But getting the GL in is critical because the first thing you have to do is you got to connect their financial system with your financial system, and you got to have financials on close date because we have to sign off on those from that perspective. So that's key, but it's not a have to have. It just makes it a little bit more challenging.

Got it. And then you mentioned kind of the easing of a regulatory M&A environment. Just maybe talk to other pockets of either regulatory changes or supervisory changes that you're seeing that maybe makes your life a little bit easier.

Yes. I really, really am excited about their approach and basically focusing on the real risk of the company. And banks really get into trouble for credit problems, sometimes interest rate mismatches, liquidity issues. So those are really 3 big risks. Really haven't had a bank get in trouble with cyber, but cyber is really important risk. It's a big thing out there. It needs to be done really well. You get attacked constantly every day in this space that you have to be strong in from a cyber perspective and making sure you're managing your capital the right way, but also making sure the capital you have can also be deployed to help the growth of your customers, communities and the economy from that balancing act.

So everything that we see in here, I think, is moving in a positive direction. From a supervision perspective, I think the Fed that we have is much more focused on getting things through and addressing things and getting our responses back on a much quicker basis from a responsive perspective. I think you're hoping to see sooner approvals from an acquisition perspective. So that's positive. So things, I think, have been much more balanced out, but still focused on the real risks of the company and really how that should be managed and handled. And I think we're strong with the fundamentals. That's kind of one of the strengths M&T has and trying to exhibit. So I think the fundamentals that we play out ties really closely to how our regulators are wanting us to run the company.

Got it. Any questions from the audience? We can put up the last ARS question. [ Let's get back to put this up when ] talking about acquisitions. But any questions from the audience? Just keep -- go ahead.

[indiscernible] To generalize, I'd say, regional banks in the late stages of rebuilding whereas the biggest banks have a lot of excess capital bringing it down and it's just going to accelerate with deregulation. Doesn't that mean that you think that the biggest banks are going to compete harder on price compared to the regional banks?

So one thing in your question, we're actually positive on our AOCI, not negative. So we actually have positive capital if that were to get impacted. We're the only large bank that has positive AOCI, I think about 10 or 15 basis points right now to our CET1 ratio. We compete against large banks every day. JPMorgan, Bank of America, Wells, we respect them. They lead with digital first for the most part. Our business model is a lot different than their business model. We're much more focused on serving our communities and our clients within those communities. So when we go to markets, we go there with a full scale, and we're all in, in the community.

Some of the things we focus on are meeting with government officials to help them drive and get things done and accomplished in their communities. We try to network and get our key players in those communities supportive of our bank going into those markets. All of our employees have the ability and most of them take self on this where they get 40 days of volunteer hours that we're seeing in the marketplace. So we are trying to operate in our 13 states as a large regional bank, but we want to be seen as a bank with 27 headquarters in these 13 states. So every market that we're in, we want to have our regional presidents be decision-makers, empowerment and actually drive how we go to market with all the various businesses because whether in your rural markets or metropolitan markets, you have different strategies of how you go to market. And our regional presidents really need to help drive how that goes to market to be successful to compete against the ones that we're competing against with a tough competition, whether it's smaller banks or the big guys. But we feel that our model is different.

There's really not many banks left that are -- have a regional bank franchise, so we can operate at scale, but still try to have the downhome feeling of how we operate in the community. So that's our differentiating factor and feel that that's how successful we can compete against the big guys as well as the smaller players.

We've been through cycles where they get more aggressive and is it consistent. I've been around long enough. Somebody might go in and be real aggressive. There's one big bank right now being super aggressive on certain CRE asset classes right now. That's more of a fad than it's going to stay there for long term. They go in and out, if you've been around for a while. So I don't think we worry about that. We stick to our game of how we operate, how we underwrite, how we serve clients, and that's really how we win the day in the long run.