Transcript : M&T Bank Corporation, Q2 2025 Earnings Call, Jul 16, 2025

Published: 2025-07-16 12:35:25 ET MTB

Published on 07/16/2025 at 12:35 - Modified on 07/23/2025 at 12:36

Good morning, everyone. Welcome to the M&T Bank Second Quarter 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 Mr. Steve Wendelboe, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Bo, and good morning. I'd like to thank everyone for participating in M&T's Second Quarter 2025 Earnings Conference Call. If you've not read the earnings release we issued this morning, you may access it along with the financial tables and schedules by going to our new and improved 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. Our purpose continues to drive M&T Bank's success. We strive to make a difference in people's lives, serving our communities with dedication and integrity. This quarter, we continued to deliver on our purpose as we supported entrepreneurs with our small business accelerator labs, invested in our New England and Long Island communities through our third and final round of our amplified fund and announced several high-visibility sponsorships. We remain optimistic about the ability to deliver shareholder value and continue serving our communities with excellence.

Turning to Slide 4. We continue to enjoy notable recognition from our customers and the industry. I want to thank our teams in commercial, business banking, corporate trust and wealth that made these recognitions possible.

Turning to Slide 6, which shows the results for the second quarter. Our second quarter results reflect M&T's continued momentum with several successes to highlight. First, we are pleased with the recent stress test outcome. Our SCB declined from 3.8% to 2.7%, reflecting the resiliency and strength of our earnings power and continued risk management efforts.

We started this effort 5 years ago to reduce our on-balance sheet CRE exposure and still serve our customers. We are also focused on reducing our criticized loans. I want to thank both our commercial and credit teams for a great job that they have done to make this happen.

We executed $1.1 billion in share repurchases in the second quarter while also going -- growing tangible book value per share by 1%. We grew average residential mortgage and consumer loans by $1.1 billion combined, reflecting our diversified business model. Fee income continues to perform well. Excluding security gains and losses and other notable items, fee income grew 11% since the second quarter of 2024. Our expenses remain well controlled, reflected in our second quarter efficiency ratio of 55.2%. Asset quality continues to improve with a $1 billion or 11% reduction in commercial criticized balances. Net charge-offs of 32 basis points also remain below our full year expectations as we discussed in January.

Now let's look at the specifics for the second quarter. Diluted GAAP earnings per share were $4.24, up from $3.32 in the prior quarter. Net income was $116 million compared to $584 million in the linked quarter. M&T's second quarter results produced an ROA and ROCE of 1.37% and 10.39%, respectively. There were 3 notable items in the second quarter, including $17 million in catch-up premium amortization on tax exempt bonds obtained from the People's United acquisition. The corresponding impact of that item on a taxable equivalent basis was $20 million. This item reduced EPS by $0.09. We also had 2 gains reported within fee income, which included a $15 million pretax gain on sale of our out-of-footprint CRE loan portfolio and a $10 million pretax gain on the sale of an ICS subsidiary. Those 2 gains impacted EPS by $0.07 and $0.04, respectively.

Slide 7 includes supplemental reporting of M&T's results on a net operating or tangible basis, M&T's net operating income was $724 million compared to $594 million in the linked quarter. Diluted net operating earnings per share were $4.28 up from $3.38 in the prior quarter. Net operating income yielded an ROTA and ROTCE of 1.44% and 15.54%. Next, we'll look a little deeper into the underlying trends that generated our second quarter results.

Please turn to Slide 8. Taxable equivalent net interest income was $1.72 billion, an increase of $15 million or 1% from the linked quarter. The net interest margin was 3.62%, a decrease of 4 basis points from the prior quarter. The net interest margin decline was primarily driven by a negative 4 basis points related to the premium amortization impact, negative 5 basis points related to higher costs and interest-bearing deposits and long-term debt, negative 2 basis points from lower net free funds contribution, partially offset by a 7 basis point benefit related to fixed asset repricing including reduction in negative carry on our interest rate swaps. Excluding the notable premium amortization, the net interest margin would be 3.66% unchanged from the first quarter.

Turning to Slide 10 to talk about average loans. Average loans and leases increased $0.6 billion to $135.4 billion. Higher consumer and residential mortgage loans were partially offset by a decline in CRE balances. Commercial loans were unchanged at $61 billion with continued growth in certain specialty segments such as C&I and mortgage warehouse, offset by a decline in dealer floor plan balances. However, at the end of the period, commercial loans increased $1.1 billion driven by growth in our specialty segments, including C&I, mortgage warehouse and fund banking.

Similarly, we saw strong growth in total commitments. The CRE loans declined 4% to $25.3 billion, reflecting continued payoffs and paydowns. However, we continue to see our CRE pipeline build. Residential mortgage loans increased 2% to $23.7 billion. Consumer loans grew 4% to $25.4 billion, reflecting increases in recreational finance and indirect auto loans.

Combined average residential mortgage and consumer loans grew $1.5 billion or 3% sequentially, representing the strength of our diversified loan portfolio and business model. Loan yields increased 5 basis points to 6.11%, aided by the reduction in negative carrying on our interest rate swaps.

Regarding commercial loan growth, earlier this year, we implemented enhancements to our commercial credit and sales processes to improve the ability to serve customers through market cycles, become more responsive to customer needs, scale our risk management and position ourselves for future growth. We have taken the time to assimilate both our employees and customers to this new process and we enter the second half of the year in a strong position to support our growing pipeline.

Turning to Slide 11. Our liquidity remains strong. At the end of the second quarter, investment securities and cash out with the Fed totaled $54.9 billion, representing 26% of total assets. Average investment securities increased $0.9 billion to $35.3 billion. The yield on investment securities decreased 19 basis points to 3.81% primarily from the catch-up premium amortization on certain securities.

Excluding that item, the securities yield would be 4.03%, reflecting continued fixed rate repricing in the investment portfolio. The duration of the investment portfolio at the end of the quarter was 3.6 years and the unrealized pretax gain on available for sale portfolio was $82 million or 4 basis points CET1 benefit, if included in regulatory capital.

Turning to Slide 12. Average total deposits rose $2.2 billion or 1% to $163.4 billion. Deposit growth was across most segments, including commercial, business banking, consumer, mortgage and corporate trust, while average broker deposits declined $0.3 billion to $10.5 billion. Average noninterest-bearing deposits declined $0.3 billion to $45.1 billion, primarily from lower trust demand deposits. Interest-bearing deposit costs increased 1 basis point to 2.38%. Growth in certain high-cost deposits, particularly within commercial, mortgage and corporate trust contributed to the deposit cost increase. That was partially offset by time and broker deposits.

Continuing on Slide 13. Noninterest income was $683 million compared to $611 million in the linked quarter. We saw continued strength across many fee income categories with increases in mortgage banking, service charges, trust and other revenues. Mortgage banking revenues were $130 million, up from $118 million in the first quarter. Residential mortgage banking revenues increased $15 million sequentially to $97 million from higher servicing fee income, aided by the full quarter benefit of subservicing, which started in February. Trust income increased $5 million to $182 million, largely driven by higher seasonal tax preparation fees. Other revenues from operations increased $49 million to $191 million, reflecting $25 million in notable items mentioned earlier, along with higher loan syndication fees and merchant and credit card revenue.

Turning to Slide 14. We continue to execute our expense plan. Noninterest expenses for the quarter were $1.34 billion, a decrease of $79 million from the prior quarter. Salaries and benefits decreased $74 million to $813 million, mostly reflecting the seasonal decline from the first quarter, partially offset by the full quarter impact of annual merit increases. Other non-compensation expenses items changed relatively modestly from the first quarter. The efficiency ratio was 55.2% compared to 60.5% in the linked quarter.

Now let's turn to Slide 15 for credit. Net charge-offs for the quarter totaled $108 million or 32 basis points, decreasing from 34 basis points in the linked quarter. Net charge-offs were relatively granular with the 5 largest charges amounting to less than $35 million in total, representing both C&I and CRE credits. Nonaccrual loans increased $33 million or 2% to $1.6 billion. The nonaccrual ratio increased 2 basis points to 1.16%, driven largely by higher C&I non-accruals, concentrated and recreational finance dealers.

In the second quarter, we reported a provision for credit losses of $125 million compared to the net charge-offs of $108 million. Included within the provision for credit losses is a $20 million provision for unfunded credit commitments related to credit recourse obligations for certain CRE loans sold by MTRCC under the Fannie Mae DUS program. The allowance for loan losses as a percent of total loans decreased 2 basis points to 1.61%, reflecting lower levels of criticized loans.

Please turn to Slide 16. The level of criticized loans was $8.4 billion compared to $9.4 billion at the end of March. The improvement from the linked quarter was driven by an $813 million decline in CRE criticized balances and $226 million decline in commercial. The CRE decline was primarily within multifamily, office, health care and construction and was driven by payoffs, paydowns and upgrades to past status.

Turning to Slide 19 for capital. M&T's CET1 ratio at the end of the second quarter was an estimated 10.98% compared to 11.5% at the end of the first quarter. A decline in the CET1 ratio reflects increased capital distributions, including $1.1 billion in share repurchases, partially offset by continued strong capital generation. The AOCI impact on the CET1 ratio from AFS securities and pension-related components combined will be approximately a positive 10 basis points, if included in regulatory capital.

Now turning to Slide 20 for the outlook. First, let's begin with the economic backdrop. The economy fared better than feared given the market volatility and uncertainty regarding tariffs and other policies. The economy contracted in the first quarter as domestic production gave way to a surge of imports of consumer and business goods. We expect a positive figure in the second quarter, thanks in part to lower imports, but also do see slowing in domestic spending which is a risk worth watching. We see the impact of tariffs hitting categories that are most exposed to imports, but consumers are cutting back on service spending such as travel and recreation, reducing price pressure on service side and is the counterweight to tariffs. We acknowledge the potential for a slowing in the economy and are tuned to downside risks and uncertainty.

We ended the second quarter well positioned for a dynamic economic environment with strong liquidity, strong capital generation and a CET1 ratio of nearly 11%. With that economic backdrop, let's review our net interest income outlook. We expect taxable equivalent net interest income, excluding notable items, to be $7 billion to $7.15 billion with net interest margin averaging in the mid- to high 3.60s. We lowered the range due to continued softness in commercial and CRE loan growth. We expect full year average loan growth to be $135 billion to $137 billion. Full year average deposit balances are expected to be $162 billion to $164 billion. We remain focused on growing customer deposits at a reasonable cost and reducing non-core funding.

Turning to fee income. We continue to expect noninterest income, excluding notable items, to be at the high end of our $2.5 billion to $2.6 billion range. Our strong quarter provides increased confidence in achieving the high end of the range. Continuing with expenses. We anticipate total noninterest expenses, including intangible amortization to be $5.4 billion to $5.5 billion, trending towards the lower end of the range. Our business lines remain focused on closely managing our expenses, allowing the bank to continue to make targeted investments in projects and business opportunities that support our enterprise priorities and also achieve positive operating leverage.

Regarding credit, net charge-offs for the first half of the year were below our initial expectations. With that positive start to the year, we now expect net charge-offs for the full year to be less than 40 basis points. We also expect criticized loans to continue to decline through 2025 though at a more moderate pace. As it relates to capital, we expect to operate in a 10.75% to 11% range for the remainder of the year. We will be opportunistic with share repurchases while also continuing to monitor the economic backdrop and asset quality trends.

As shown on Slide 21, we remain committed to our 4 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 our shareholder returns and consistent dividend growth. Finally, we are a disciplined acquirer and prudent steward of shareholder capital.

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

[Operator Instructions] We'll go first this morning to Ken Usdin of Autonomous Research.

Daryl, I wanted to ask you to expand on the on the loan dynamics. I think you did sell a portfolio of out-of-footprint CRE. I'm just wondering how close are we to getting to that bottom in CRE? And are you seeing any change in terms of the underlying originations that just keeps getting taken out by payouts and the like?

Yes. Thanks for the question on that, Ken. What I would tell you is the CRE portfolio, I think, the pipeline continues to build. We had our best month in June that we've had this year so far. We had over $5 billion in the pipeline right now. So we feel pretty good that we're headed in a good direction from that perspective. If you look at when it's going to grow because of the runoff that we had this past quarter, the chances of growing linked quarter in CRE would be pretty challenging. But as we get towards the end of the year, I think, as the pipeline continues to build and still serve clients and all that. I think we have a chance for maybe later of the year for that to happen.

Got it. And you mentioned on capital, the good stress test result. And it's nice to see that you're kind of moving that buyback activity a little forward, still 10.75% to 11% is still way above where you need to sit and you said that maybe you'd get towards 10% over time. But what's the right level of capital for M&T to hold? And how do you think about this balancing act of all the excess you have versus your potential uses of it?

Yes. So I think it first starts with right now, there's still a lot of uncertainty in the marketplace. We did really well with our stress capital buffer. We did a great job bringing down our criticized loans. But we still have more wood to chop in getting our criticized loans down further and hopefully, next year, we'll get down to 2.5% on a stress capital buffer. But if you look at what's in the marketplace right now, there's a lot of uncertainty with tariffs, which create a lot of trade uncertainty. You have worsening geopolitical conditions, high fiscal deficits and elevated asset prices. I think those risks right now just weigh out there. Our long-term target that the Board approved in January this year is 10%, but I think given the risk that we have right now, we think the range of 11% to 10.75% is the right place to operate.

We'll go next now to Steven Alexopoulos at TD Cowen.

I wanted to start, I saw you were guiding to the high end of the fee income range. And when I look at trust, it was a nice positive surprise this quarter, again, $182 million. Can you give some color, what's driving that? And do we think of that as back to being high single digit, low double-digit grower from here?

It's had a tremendous last year, and it's had a tremendous this year. We are actually investing in Europe. We started operations there and it's starting to grow now. We had some big wins this past quarter in that space. And we were asked by our customers to support them in Europe. So we're just following where our customers are from that perspective. So we're very positive in our corporate trust business. I think it's growing really well and have a lot of potential. But if you look at the other fees that we have on the mortgage side, we have a great subservicing business that's growing really well. And we have, from an origination perspective, we've been investing in producers and resi.

You can't see it because rates aren't really down yet, but that will happen at some point down the road. And then our commercial mortgage business, RCC is really doing well, really core to our businesses as we operate and we'll have a lot of potential. But I think the highlight that we have right now, Steve, is really in treasury management. If you look at treasury management revenues year-over-year, we're up 12%, 13%, which is really strong.

That's great. And Daryl, I'd love to get your reaction to this. So we just wrapped the P&C call, and I had asked Bill about the argument that they need more scale and the comment was competing against the mega banks in order to drive retail deposit growth, you do need more scale. You're in a pretty unique position because you came from a much larger bank and now you're at M&T. What's your take on this? I mean you guys have always done a good job at M&T of growing retail deposits, lower cost commercial deposits. But do you feel more of a burning need just to get larger to compete against the mega banks, which are net growing checking accounts pretty well here?

Absolutely not, Steve. I mean if you look at our business model, we are basically serving our communities, and we bring our full bank to those customers within those communities. I think that's a huge advantage for us. I think that's very successful. We also look at efficiency ratios and all that. We operate with one of the best efficiency ratios in the industry. And while we will continue to grow in size, one of the advantages we have and what we focus on is being simple, less complexity in the company so we can manage the company as we get bigger and all that.

And I think that's really key. We don't have to be the biggest bank to serve in our communities and all that. We just do a really great job doing that. I think everybody is happy from that. We will probably grow in market maybe contiguous markets over time when it's right. But here again, we're real compact in one area. So you get a lot of advantages of scale in those areas, too. So we love our business model. It's very successful. Our communities, customers love us, so I think it's going to continue to stay with that.

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

Maybe I want to ask that topic from a different angle. The expense guide for the back half of the year, I know you've had this geo cost that's been nearing completion. I guess, number one, is that a part of the reason for the expense improvement? And two, I believe in the past, you've talked about needing to get that done before you consider perhaps a tuck-in, not a large-scale acquisition, but any thoughts about timing where you might be ready to do a deal if it afforded to?

Yes. So we had about a half a dozen major projects going on in the company. The GL is one of them. That had nothing to do with the change in guidance. It really was, at the end of the day, we want to make sure we can contribute and have positive operating leverage. And our leadership team decided that we could bend the expense curve down a little bit and flatten it out so that we can still generate positive operating leverage. Our loan growth isn't as much as we thought it would be for this plan year. We're still doing really well and hope that we finish the year out stronger, but it's the unselfishness and the leadership that we have in our leadership team that actually made that happen.

Okay. And just a follow-up. You've done a lot of progress on the CRE diversification. Do acquisitions -- a lot of the small community banks that you might be talking to, they're a lot of commercial real estate. Does that -- did that stop the conversation? Or is there perhaps ways to work around not trying to go backwards on the improvement in CRE concentration?

Yes, Chris, there's a lot of optionality and things you can do with what's been developed. I mean, obviously, you could potentially sell credits once you close the transaction, you could do risk transfer trades. You can do a lot of things. But first and foremost, to acquire somebody, we'll look for somebody that basically fits with us from a culture perspective, from a credit perspective. So the hope is that we would maintain most of those relationships, but for -- if we wanted to reduce some of them or exit some of them, we do have ways of doing that or minimizing the risk now. So that's not a concern whatsoever. It's just the cost of doing the transaction.

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

Just maybe one on the margin outlook as we think about it, it's kind of in the range where you expect it to be for the full year in the mid- to high 3.60s. Just remind us ex any changes to interest rates, are we at a point where incremental asset repricing is offset by funding costs? Like how do you think about just mechanically how the margin should operate? Like what brings it -- what could take it above 3.70 versus below 3.60, I guess, ex rate changes?

Yes. So we've kept the guidance in the mid- to high 3.60s. It's really -- it depends on how much commercial and CRE growth that we get is really the biggest driver, Ebrahim, at the end of the day. I think we're optimistic that we will be growing our commercial C&I balances, third and fourth quarter, that will turn positive. And we're hoping that we end the year strong with CRE as well so we can start '26 really strong. As far as getting to 3.70, we have a lot of positives going on in the balance sheet still.

That fixed asset repricing was really huge for us this quarter with our auto loans and RV loans that we put on, and we put out a lot of those loans and we priced higher in those areas. Even our residential mortgages that we booked also repriced higher, if you look at the yields. So all that's really positive. The investment portfolio as we continue to invest, we're probably averaging about 150 basis points on what's rolling off to what's rolling on. We've been adding a little bit to the portfolio as well, which has been a positive. And then our swap book, our swap book I've mentioned a couple of times in the prepared remarks, but we are getting positive repricing in the swap book, and you're going to continue to see that drag on for the next 4 quarters. So that's a positive. So while -- is it possible to get to 3.70 this year? Yes, but it's really going to rely on loan growth, Ebrahim. And right now, I'm just a little cautious, which is why we're keeping it in the mid- to high 3.60s.

That's helpful. And I guess maybe just on C&I loan growth, and sorry if I missed it, but remind us when we think about the opportunity within sort of the People's market in Long Island, et cetera, just how big is that pipeline? Like is it a multiyear thing? I mean it's been helpful to the bank over the last year or 2. So if you don't mind, just double-clicking on C&I loan growth in some of these markets, we acquired through People's.

Yes, Ebrahim, we've put lots of people, new leaders into those markets. If you look at this past quarter, Eastern Mass was one of the fastest-growing regions of our 27 regions that we had this quarter. So it has a lot of momentum. Connecticut is also a great market for us. We have a lot of share in that space. So that's a positive. So I think all that's really good. The key thing, though, that we got from people, which is kind of the -- whenever you do acquisitions, sometimes you get some positive intangibles is that we got a lot of specialty businesses like fund banking, mortgage warehouse, corporate, institutional, and we didn't have those businesses at M&T.

So we've been able, over the last couple of years to scale those businesses, invest in those businesses because they're really good sound businesses that we have, and we're growing them very nicely. And that's really, I think, where the growth of second half of the year is going to come from is from these businesses that we've acquired from people, and they continue to grow and really pay dividends for us.

We'll go next to now to Peter Winter of D.A. Davidson.

Daryl, the consumer loan growth has really been consistently strong. I'm just wondering would you expect some of that growth maybe to moderate just as discretionary spending is slowing and consumer prices are starting to rise as some of these tariff pass-throughs are just starting.

Yes. So the big amount of loans that we had in indirect RV and our auto was basically just people buying ahead of before higher car prices or RV prices came on board. So that was a pull forward, but I think in the RV space, I'm talking to our leader, Mike Drury in that space, he's pretty optimistic that RV will continue. Auto as well. Auto, it really depends on which manufacturers and what's going on the lots. That's actually hurt us on the commercial side beyond the floor planning because our utilization is down. But as manufacturers figure out where to make the cars and put them on the lots, I think that will be a positive for both sides of us as we move forward. So I think that's good.

One of the nice surprises though that we have and I really give a call out to Rich McCarthy, who ran the branches and all that is we actually grew HELOC for the first time in a while and our credit card book this past quarter. And they believe, they're pretty optimistic for the rest of the year. So that's a huge positive for us. So we have a lot of really good things going on in that space today.

Got it. And then separately, last quarter, you lowered the average deposit range, but you mentioned that you expected to be at the high end of that new range. And I was just wondering with average deposits at $162 billion in the first half of the year. Do you still expect to be at that upper end of that range of $162 billion to $164 billion?

Yes, Peter, we will -- we haven't always on. We always pay competitive rates to our customers as they come in. We'll get our share from that perspective. We had a great quarter this quarter. We grew $2.2 billion of what we brought in, it was from mortgage, our corporate trust business as well as commercial. But it was really nice growth. It allowed us to pay off some broker deposits and some other non-core funding, which is what I'm all about. So I would continue to focus and growing as much as we can as long as we grow it at a competitive reasonable rate at that sense, and we'll fund loans with it. And then if we have not more than what we need there, we will pay down noncore funding, which is what we've been doing. So it's a positive, and I think we will continue to see growth in that sector.

We'll go next now to John Pancari at Evercore ISI.

Just to go back to capital, a couple of things there. Good to see the acceleration in the buybacks to the $1.1 billion level up from the $600 million to $700 million before that. Can you maybe give us your thoughts on the pace of buybacks through the remainder of the year? I believe you had indicated the $4 billion authorization could be completed over 6 quarters, are you still on that type of pace as you look at it? And then separately, I know M&A has been brought up a couple of times, and you mentioned that you may be interested when the time is right. I guess if you could just talk about it. Anything about the evolving backdrop with the other regional starting to do deals that's made whole bank M&A any more interesting to you? Or would you say your -- no change in your outlook on that perspective today?

Yes. So John, I mean, we're always looking and talking to people and all that. So I mean that's just part of what we do. We don't really have anything known. Obviously, we wouldn't say anything. But when opportunities are right and when we find a partner that really fits us for all the various reasons, that will happen when it happens. It's happened 27 times since the early '80s. So I'm sure it will happen at some point down the road from that perspective.

As far as the pace goes, I would say we will probably operate at 11%. And if the economy -- if we get more constructive on the economy and feel good about it. We could go out to 10.75% at some point down the road. If you look at what we've done for the first half of the year, John, we bought 5.7% of our shares outstanding in the first and second quarter. So we're buying a fair amount of stock back from that perspective. And I think our investors are -- would be happy that we would continue to do that when it makes sense from that perspective.

Okay. Got it. All right. And then just separately, back to the NII guide, I know you -- regarding the lowering of the lower bound of that guide, you discussed CRE is a factor and mentioned that already. You also mentioned C&I. Can you just give us a little bit more detail in terms of what you're seeing on the C&I front that's contributing still to the sluggishness? Or are you beginning to see some green shoots there?

Yes. I think if you look at C&I, I mean, our fastest growth regions besides Eastern Mass was in Jersey and New York. They were all really positive, which is really good. I would say if we have a really good growth among many of our portfolios, pipeline in middle market continues to be robust. As far as line utilization and dealer commercial services, that's low now. That could start to drift back up towards the end of the year. That could be a positive for us. I think that would be good. And then as far as uncertainty of paydowns and all that, it's been relatively strong to date.

That pace will probably moderate at some point whether it's this quarter or next quarter, it's hard to call when that moderates, but it's going to happen at some point and then that will bring more natural growth to the portfolio. But our specialty businesses, specifically C&I, mortgage warehouse and fund banking are operating really strong. And RMs are out there calling and with our customers and very active in our pipelines, both in commercial and CRE, our ability and continue to get stronger. So I think we're optimistic. I'm just a little bit cautious to be honest with you. I think you know that about me, John. But I think we will have some good green shoots and it will actually pay dividends.

We'll go next now to Manan Gosalia at Morgan Stanley.

Daryl, just a follow-up on the capital return question. As we think about the back half of the year, how much of a priority is raising the dividend? So I know the Board decision, but M&T's dividend yield is below peers. Is that more of a focus than buybacks?

They're both really important. I mean, when I look at how we allocate capital, first and foremost, we allocate to our customers organically. Secondly, I put dividends in there to make sure we can pay a strong growing dividend and make it repeatable over time. You'll see some action out of our Board this quarter. So I think you will be pleased when the board votes on that and we make our public press release on it. Then after dividends, we look at organic. And then after that, it will be buyback. Buyback is probably at the end.

Got it. Very helpful. And then on NIM, can you talk about what drove that 5 basis point headwind to NIM from higher liability costs? I know you spelled out a few categories on the deposit side where costs went up Q-on-Q. But I was hoping you could give us some more color on that. How much of that is onetime in nature versus what could be some more sticky, I guess, pressure on those funding costs?

So it really wasn't sticky funding costs and all that. We actually asked for and brought in these deposits. The average cost came in at around $3.90 to $4.40. We view that as something less than our marginal funding curve. So we are fluid in that when you bring a deposit in, you just can't pay off a borrowing, you have to do it over time to right size it. But it came in, it made sense to come on our balance sheet because it's under the funding curve. And we don't need it to fund loans, we will pay off more non-core funding with that growth. So it's the right thing to do. We're always taking from our customers and paying fair rates, reasonable rates from that perspective.

So I think this was a great quarter for us for our ability to attract these good funds in, and we got them at a really good cost. It just is higher than the average of the interest-bearing cost that we have just because we have a lot lower rates in certain categories. But these marginal deposits actually were good for us.

So from a total funding cost perspective, it sounds like it's a little bit more of a timing difference than anything else.

It is. That's exactly right, Manan.

We'll go next now to Bill Carcache at Wolfe Research.

Daryl, following up on your diversification strategy as your CRE mix falls and you get bigger in C&I and consumer. How much room is there to increase your C&I and consumer mix from here as we look ahead?

Yes, Bill, we will continue to grow and our C&I and right now, our CRE businesses have been shrinking. We're trying to stabilize that and grow that. We actually like the mixes that we have today. Right now, if you look at CRE, I think it's under 20%, closer to 18% or 19%. So that actually has room to maybe grow a little bit from that perspective. C&I, we are obviously trying to grow that as much as we can in our markets that we serve as well as in our specialty businesses that we operate in. I think that's really good.

And we also want to continue to grow our consumer portfolios. We like the diversification that we have and what it gives us. And I think it's a good mix for us. And we'll be tilted a little bit more on the consumer side. So you might see us run with a little bit higher allowance ratios just because of charge-offs. But net-net overall, the risk-adjusted spreads are strong.

That's helpful, Daryl. And then following up on your comments around the increase in your interest-bearing deposit costs. To the extent that loan growth were to further accelerate from here, is there room to let your loan growth outpace your deposit growth for a time? Or do you envision having to pay up a little bit more for deposits?

I would say we will always continue to be consistent in trying to attract deposits at the right price from that perspective. And we've been very successful, and I think we can do that and manage that with the loan growth that we're going to have. I don't view that as an issue one way or the other. Pricing up isn't really something we really do at M&T that much, to be honest with you. We give fair prices more consistently.

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

Just following up to the question on capital. You mentioned you'd like to operate around 11% and cited some economic and macro factors. As we think about the difference between you guys operating around 11% and like BofA operating around 11%, how much are the ratings agencies versus the regulators playing a part in how regional banks like M&T are setting their targets?

Rating agencies definitely have some say in that as well as the regulators and other constituencies too. From our perspective, though, we've been on a journey to derisk the company. I think our stress capital buffer that came out really showed the progress that we made with that. And with us still continuing to shrink our criticized book. We have a shot at even improving from where we are next year.

So I think we're getting more aligned with where we want to operate with and feel more comfortable. And when you do that, the rating agencies take notice of that and acknowledge that because this is the one test that all banks take at the same time and they can compare you against everybody else from that perspective. So that's why it's a good test out there. And I think we will continue to make great progress from that.

Got it. And just to clarify, your deposit cost did increase. In your response to Manan, you mentioned that you did gather deposits at more wholesale rates that were sort of under your funding costs. In terms of core deposit competition, how is that faring underneath the surface? And we clearly just had some headlines as you guys are running this call about Chair Powell. How should we think about deposit competition in the scenario of more cuts versus a scenario of maybe a prolonged hold from the Fed?

Yes. So Erika, I mean, we have 6 businesses. In all of our businesses, first and foremost, come with a mindset that to attract new customers, we want to get operating accounts. And that's first and foremost to us. When you look at the tracking of what our businesses do and what we generate. We generate lots of new operating accounts each and every month and every quarter that we have. And we track that, and we really value that. And once you get the operating account, that opens up other channels so you can get other services, other deposit products, other loan products and all that. But that is, first and foremost, the core to us. So I mean, the value of M&T, one of the biggest things we have is our core deposit franchise, and it starts with the operating accounts that we have from that.

So I think that's really what we focus on. And then we pay competitive rates to our customers to get more share of the wallet over time. But getting the operating account is really first and foremost, and we've been very successful, and we'll continue to be successful in accomplishing that.

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

Most of my questions have been answered. But just looking at the criticized C&I and CRE loans on Slide 16. Obviously, this is one of the things that rating agencies look at, one of the things you look at. This big drop that you're down to $8.5 billion -- or $8.4 billion. How does that compare to a few years ago? I don't know if you have anything handy. I'm just trying to figure out, like, are we back to more normalized levels or pre fed hike levels or trying to frame the current levels.

Yes. So I would say we probably peaked a few years ago at our highest level, at least in the history that I've seen here at M&T. And we've been coming down for the last couple of years nicely. I think our goal is to continue to come down over the next year or 2 to levels that maybe be a little bit lower than where we operate today. But we're making great progress and doing really well from that. So I think that has been really good. But I think overall, we'll be back down in the next couple of years to something that's probably half of where we peaked.

Yes. Okay. And then the modest reserve, the $20 million for unfunded credit commitments. Did you comment on what that related to? Or is that maybe a little conservatism expecting growth in the future? Or what's that for?

Yes. So we have our MTRCC business, has relationships with all the agencies. Specifically, there's one program with Fannie Mae that we have where we sell loans to them. We remain -- 1/3 of the risk is on our balance sheet and 2/3s is on their balance sheet. We've been in this business since 2003. And to date, we have until this quarter had very minimal losses at all in this portfolio. I think over that 22-year time period, we had $7 million of net charge-offs this quarter -- up until this quarter. This quarter, we had 4 clients come through and the provision is $20 million, but the charge-off we took is closer to $15 million or $16 million, so far that we have. And they're all very unique clients. One client focuses on manufactured housing with pads. Fannie Mae actually had a special program called Pilot, where they were targeting these customers. They've now discontinued that program, and we are just basically sharing the losses with the agency on this transaction.

Another one involved multifamily project with the university and the university was housing students and it was for foreign students. And now that the need for foreign students isn't there anymore, that project isn't as profitable as it was before. And then another one is the senior living facility. And the other one was just a renovation that had bad luck and had fire and flood issues and behind schedule.

So I think they're one-offs. I think we expect to have our allowance and reserves for this business to go back to where it was before on a go-forward basis. MTRCC is really important to our strategy in the CRE space. We can serve a lot of clients with permanent financing by selling to the agencies and keep it off our balance sheet and just make it a fee income perspective for us. So we love the business. One quarter doesn't mean much. And that we had some losses here, but long term, it's been a great business, and it will be a great business for M&T as we move forward.

We will go next now to Gerard Cassidy of RBC Capital Markets.

Daryl, can you give us some thoughts on how you guys are looking at the expectation that stablecoins once the Coin Act is passed down in Washington may impact your payments business or deposit gathering. How are you guys approaching adopting a digital currency as part of your offerings for your customers?

Yes. So we have a group of people that are looking at this. And obviously, stablecoin could be a payment rail that people could use potentially and maybe do it for cross-border trading if you want to. I think from our perspective, for people to adopt that, it's got to be something that's easier than what we have today and then it's less expensive to move the money than what we have today. Some of the usage that you see happening right now is doing it in the off hours when banking hours are closed. So late at night or on weekends, I think people are using this type of payment rail for that piece.

We'll see how much it develops over time. Obviously, we will continue to monitor this, probably partner with some folks over time to participate in this space. If our customers want this product, we will be there to service and serve it to them.

Very good. And then circling back to the net charge-off guidance. If I heard it correctly, it's less than 40 basis points, which is a modest improvement from the beginning of the year. And you guys pointed out that charge-offs are coming in less than expected. Any color on where you're seeing the charge-offs today versus what you expected at the beginning of the year? What segments of the portfolio are doing better than expected?

Yes. So year-to-date, we're 33 basis points right now. So can it be 40? Yes. But I think that we're just very cautious right now just because of the uncertainty in the marketplace. The tariff issues are still out there. I talked about all these other risks that are still out there that could impact. And we're just being a little cautious with some of our guidance. We may come in and be much better than that. But right now, we feel comfortable that it's under 40, but we don't really know how much under 40 yet.

I see. And then just a quick follow-up on the sale of the commercial real estate that you guys said the $15 million gain. Any color there on the buyer or the types of loans that were sold?

I mean it was an out-of-footprint business. It was really a business decision because we really didn't have relationships with these customers. We just had loans with them because it wasn't in our footprint. And from a credit perspective, they performed very well. Credit, that's where we got a gain on the sale from that. But it was in the CRE space from that perspective. But we think long term, we can deploy that capacity that we sold out to our core clients within our footprint and have more wholesome relationship with that space. So it's an M&T thing. It's a long-term trade to do the right thing.

And gentlemen, it appears we have no further questions today. Mr. Wendelboe, I'd like to turn things back to you for any closing comments, sir.

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

Thank you. Again, ladies and gentlemen, this will conclude the M&T Bank Second Quarter 2025 Earnings Conference Call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.