M&T Bank - Earnings Call - Q2 2025

Executive Summary

• EPS beat with cleaner expense control and fee strength; revenues (S&P definition) missed on premium amortization and slight funding cost pressure. Diluted EPS was $4.24 vs S&P consensus $4.01 (+5.7% surprise), while S&P-defined revenue of ~$2.27B came in below ~$2.39B consensus (−4.9%); company-reported revenues (NII + fees) were $2.40B.
• Mix improved: noninterest income rose 12% q/q and 17% y/y on mortgage servicing, trust, and one-time gains; efficiency ratio improved to 55.2% from 60.5% in Q1.
• Credit trends positive: criticized loans down ~$1.0B q/q; NCOs at 0.32% (vs 0.34% in Q1; 0.41% y/y); allowance ratio edged down to 1.61% on improved CRE quality.
• 2025 outlook updated: NII range trimmed to $7.0–$7.15B (mid–high 3.60s NIM), fee income expected at high end of $2.5–$2.6B, expenses trending to low end of $5.4–$5.5B, NCOs now “<40 bps”; CET1 operating range 10.75%–11.0%.
• Capital return remains a catalyst: SCB cut to 2.7% effective Oct 1, enabling $1.1B buybacks in Q2; subsequent to quarter, MTB raised its quarterly common dividend to $1.50 (+11%) on Aug 19.

What Went Well and What Went Wrong

What Went Well

• Strong fee momentum and mix: noninterest income +$72M q/q (+12%) on mortgage servicing, trust, and gains ($15M CRE portfolio sale; $10M subsidiary sale).
• Cost discipline: total noninterest expense fell $79M (−6%) q/q, driving efficiency to 55.2% (from 60.5% in Q1) as seasonal comp normalized.
• Credit and criticized exposure: criticized loans −$1.0B q/q; NCO ratio at 0.32% with allowance/loans modestly lower on improved CRE quality.
• Management tone: “Net operating EPS increased +27% q/q… Net operating ROTCE +301 bps q/q” and TBVPS +1% q/q.

Example management quote: “We executed $1.1 billion in share repurchases… grew average residential mortgage and consumer loans… Fee income continues to perform well… Asset quality continues to improve with a $1 billion reduction in commercial criticized balances.”

What Went Wrong

• Headwind to NII/NIM: a $17M premium amortization catch-up on acquired munis reduced EPS by ~$0.09 and NIM by 4 bps; higher liability costs added 5 bps of NIM pressure.
• Revenue under S&P taxonomy below consensus: S&P-defined revenue fell short despite company revenues of $2.40B (NII + fee).
• CET1 dipped 52 bps q/q to 10.98% on sizable buybacks (still robust), and guidance cut the low end of NII on softer commercial/CRE balances.

Transcript

Operator (participant)

Good morning, everyone. Welcome to the M&T Bank Second Quarter 2025 earnings conference call. All lines have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press Star, then the number one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing Star Two. When posing your question, we ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance today, please press Star Zero. 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.

Steven Wendelboe (SVP of Investor Relations)

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 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 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.

Daryl Bible (Senior EVP and CFO)

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 continue 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 Amplify 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 four, 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. Turn to slide six, 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 a 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 five 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 they have done to make this happen. We executed $1.1 billion in share repurchases in the second quarter while also 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 three 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 two gains reported within fee income, which included a $15 million pre-tax gain on sale of our out-of-footprint CRE loan portfolio and a $10 million pre-tax gain on the sale of an ICF subsidiary. Those two gains impacted EPS by $0.07 and $0.04, respectively. Slide seven 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 an 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 eight.

Taxable equivalent net interest income was $1.72 billion, an increase of $15 million, or 1%, from the link 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 -4 four basis points related to the premium amortization impact, -5 basis points related to higher costs and interest-bearing deposits, and long-term debt, -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. Turn 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 carry 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 held at 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 pre-tax 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 non-interest-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. Non-interest income was $683 million compared to $611 million in the link 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 sub-servicing, 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.

Non-interest 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 link 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 link quarter. Net charge-offs were relatively granular, with the five largest charges amounting to less than $35 million in total, representing both C&I and CRE credits. Non-accrual loans increased $33 million, or 2%, to $1.6 billion. The non-accrual ratio increased 2 basis points to 1.16%, driven largely by higher C&I non-accruals.

Concentrated in recreational finance dealers. In the second quarter, we recorded 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 Dust 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 link 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, healthcare, 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. The 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 would 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 , 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 the service side, and is the counterweight to tariffs. We acknowledge the potential for a slowing in the economy and are attuned 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-$7.15 billion, with net interest margin averaging in the mid to high 360s. 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-$137 billion. Full-year average deposit balances are expected to be $162 billion-$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 non-interest income, excluding notable items, to be at the high end of our $2.5 billion-$2.6 billion range. Our strong quarter provides increased confidence in achieving the high end of the range. Continuing with expenses, we anticipate total non-interest expenses, including intangible amortization, to be $5.4 billion-$5.5 billion, trending toward the lower end of the range.

Our business lines remain focused on closely managing their 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%-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 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 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 (participant)

Thank you very much, sir.

Ladies and gentlemen, at this time, if you would like to ask a question, please press star one on your telephone at this time. Again, if you do find that your question has been addressed, you may remove yourself from the queue at any time by pressing star two. We do ask that you please limit yourself to one question and one follow-up question. We'll go first this morning to Ken Usdin of Autonomous Research. Ken, please go ahead.

Daryl Bible (Senior EVP and CFO)

Ken?

Ken Usdin (Senior Research Analyst)

Yeah, there you go. Hey, Daryl. Good morning. How are you? Good. Daryl, I wanted to ask you to expand 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 keep getting taken out by payouts and the like?

Daryl Bible (Senior EVP and CFO)

Yeah. 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. 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 link quarter in CRE would be pretty challenging.

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 in the year for that to happen.

Ken Usdin (Senior Research Analyst)

Got it. You mentioned on capital a 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've said that maybe you'd get towards 10 over time. What's the right level of capital for M&T to hold? How do you think about this balancing act of all the excess you have versus your potential uses of it?

Daryl Bible (Senior EVP and CFO)

Yeah. 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. Hopefully, next year, we'll get down to 2.5% on a stress capital buffer. 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%. I think given the risks that we have right now, we think the range of 11%-10.75% is the right place to operate.

Ken Usdin (Senior Research Analyst)

Okay. Got it. All right. Thanks, Daryl.

Daryl Bible (Senior EVP and CFO)

Yep.

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

Steven Alexopoulos (US Large Cap Bank Analyst)

Hey, Daryl. How's everything?

Daryl Bible (Senior EVP and CFO)

Good. And you, Steve?

Steven Alexopoulos (US Large Cap Bank Analyst)

Good. Good. I wanted to start. I saw you're 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 get some color on what's driving that? And do we think of that as back to being high single-digit, low double-digit grower from here?

Daryl Bible (Senior EVP and CFO)

It's had a tremendous last year, and it's had a tremendous this year. We are actually investing in Europe. We've started operations there, and it's starting to grow now. We had some big wins this past quarter in that space. We were asked by our customers to support them in Europe. We are just following where our customers are from that perspective.

We're very positive in our corporate trust business. I think it's growing really well and has a lot of potential. If you look at the other fees that we have on the mortgage side, we have a great sub-servicing business that's growing really well. 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. Our commercial mortgage business, RCC, is really doing well, really core to our businesses as we operate, and will have a lot of potential. 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.

Steven Alexopoulos (US Large Cap Bank Analyst)

That's great.

Daryl, I'd love to get your reaction to this. We just wrapped a P&C call, and I had asked Bill about the argument that they need more scale. 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. 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.

Daryl Bible (Senior EVP and CFO)

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 our 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. 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. I think that's really key. We do not 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's happy from that.

We will probably grow and market maybe contiguous markets over time when it's right. Here again, we're real compact in one area. You get a lot of advantages of scale in those areas too. We love our business model. It's very successful. Our community's customers love us. I think it's going to continue to stay with that.

Steven Alexopoulos (US Large Cap Bank Analyst)

I'm with you. Thanks for that color.

Operator (participant)

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

Chris McGratty (Managing Director)

Oh, great. Thanks for the question. 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 GL cost that's been nearing completion. I guess, number one, is that a part of the reason for the expense improvement?

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. Any thoughts about timing where you might be ready to do a deal if it afforded you? Thank you.

Daryl Bible (Senior EVP and CFO)

Yeah. We had about half a dozen major projects going on in the company. The GL is one of them. That had nothing to do with a 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. 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 is not 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. It is the unselfishness and the leadership that we have on our leadership team that actually made that happen.

Chris McGratty (Managing Director)

Okay. Thank you for that, Daryl. Just a follow-up. You've done a lot of progress on the CRE diversification. Do acquisitions, a lot of the small and community banks that you might be talking to, they have a lot of commercial real estate. Does that stop the conversation, or is there perhaps ways to work around? Not trying to go backwards on the improvement and create concentration? Thanks.

Daryl Bible (Senior EVP and CFO)

Yeah, 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. First and foremost.

To acquire somebody, we'll look for somebody that basically fits with us from a culture perspective, from a credit perspective. The hope is that we would maintain most of those relationships. 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. That is not a concern whatsoever. It is just the cost of doing the transaction.

Chris McGratty (Managing Director)

Understood. Thanks so much.

Operator (participant)

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

Ebrahim Poonawala (Managing Director)

Hey, Daryl. Good morning.

Daryl Bible (Senior EVP and CFO)

Good morning.

Ebrahim Poonawala (Managing Director)

Just maybe one on the margin outlook as we think about it. It is kind of in the range where you expect it to be for the full year in the mid to high 360s. Just remind us, X, any changes to interest rates? Are we at a point where incremental asset repricing is offset by funding costs?

How do you think about just mechanically how the margin should operate? What could take it above 370 basis points versus below 360 basis points, I guess, X rate changes?

Daryl Bible (Senior EVP and CFO)

Yeah. We've kept the guidance in the mid to high 360s. It depends on how much commercial and CRE real estate we get is really the biggest driver, Ibrahim, 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. We're hoping that we end the year strong with CRE as well so we can start 2026 really strong. As far as getting to 370 basis points, 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.

We put on a lot of those loans. We priced higher in those areas. Even our residential mortgages that we booked also repriced higher if you look at the yields. 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. Our swap book, I've mentioned a couple of times in the prepared remarks, but we are getting positive repricing in the swap book. You're going to continue to see that drag on for the next four quarters. That's a positive. Is it possible to get to 370 basis points this year? Yes. It's really going to rely on loan growth, Ebrahim.

Right now, I'm just a little cautious, which is why we're keeping it in the mid to high 360s.

Ebrahim Poonawala (Managing Director)

That's helpful. Thanks for that. 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, etc., just how big is that pipeline? Is it a multi-year thing? I mean, it's been helpful to the bank over the last year or two. If you don't mind just double-clicking on C&I loan growth in some of these markets we acquired through People's. Thanks.

Daryl Bible (Senior EVP and CFO)

Yeah. Ibrahim, 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. It has a lot of momentum.

Connecticut is also a great market for us. We have a lot of share in that space. That is a positive. I think all that is really good. The key thing, though, that we got from People's, 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. We did not have those businesses at M&T. We have been able over the last couple of years to scale those businesses, invest in those businesses because they are really good-sound businesses that we have, and we are growing them very nicely. That is really, I think, where the growth of the second half of the year is going to come from, from these businesses that we have acquired from People's, and they continue to grow and really pay dividends for us.

Ebrahim Poonawala (Managing Director)

That is helpful. Thanks, Daryl.

Operator (participant)

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

Peter Winter (Senior Research Analyst)

Good morning. 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?

Daryl Bible (Senior EVP and CFO)

Yeah. The big amount of loans that we had in indirect RV and in our auto was basically just people buying ahead of before higher car prices or RV prices came on board. That was a pull forward. I think in the RV space, talking to our leader, Mike Drury, in that space, he's pretty optimistic that RV will continue. Auto as well. Auto really depends on which manufacturers and what's going on the lots.

That's actually hurt us on the commercial side beyond floor planning because our utilization's down. 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. 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. They believe they're pretty optimistic for the rest of the year. That's a huge positive for us. We have a lot of really good things going on in that space today.

Peter Winter (Senior Research Analyst)

Got it. Thank you. And then.

Separately, last quarter, you lowered the average deposit range, but mentioned that you expected to be at the high end of that new range. 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-$164 billion?

Daryl Bible (Senior EVP and CFO)

Peter, we will. We have not always on. We are always paying competitive rates to our customers as they come in. We will 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. It was really nice growth. It allowed us to pay off some broker deposits and some other non-core funding, which is what I am all about.

I would continue to focus on growing as much as we can as long as we grow it at a competitive, reasonable rate in that sense. We will fund loans with it. If we have more than what we need there, we will pay down non-core funding, which is what we have been doing. It is a positive, and I think we will continue to see growth in that sector.

Peter Winter (Senior Research Analyst)

Got it. Okay. Thanks, Daryl.

Operator (participant)

Thank you. We will go next now to John Pancari at Evercore ISI.

John Pancari (Senior Managing Director)

Morning, Daryl.

Daryl Bible (Senior EVP and CFO)

Hey, good morning, John.

John Pancari (Senior Managing Director)

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-$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 six quarters. Are you still on that type of pace as you look at it? 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 regionals starting to do deals that's made whole bank M&A any more interesting to you, or would you say you're no change in your outlook on that perspective today? Thanks.

Daryl Bible (Senior EVP and CFO)

Yeah. John, I mean, we're always looking and talking to people and all that. I mean, that's just part of what we do. We don't really have anything known. Obviously, we wouldn't say anything. 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 1980s, 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 down 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. We're buying a fair amount of stock back from that perspective. I think our investors would be happy that we would continue to do that when it makes sense from that perspective.

John Pancari (Senior Managing Director)

Okay. Got it. All right. Thanks, Daryl.

And then just separately, back to the NII guide regarding the lowering of the lower bound of that guide. You discussed CRE as 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? Thanks.

Daryl Bible (Senior EVP and CFO)

Yeah. I think if you look at C&I, I mean, our fastest-growth regions besides Eastern Mass was in New 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 and 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. As far as uncertainty of paydowns and all that, it has been relatively strong to date. That pace will probably moderate at some point. Whether it is this quarter or next quarter, it is hard to call when that moderates. It is going to happen at some point, and that will bring more natural growth to the portfolio. Our specialty businesses, specifically C&I, mortgage warehouse, and fund banking, are operating really strong. Our RMs are out there calling with our customers and very active. Our pipelines, both in commercial and CRE, are building and continuing to get stronger. I think we are optimistic. I am just a little bit cautious, to be honest with you.

I think you know that about me, John. I think we will have some good green shoots, and it will actually pay dividends.

John Pancari (Senior Managing Director)

Great. All right. Thank you, Daryl.

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

Manan Gosalia (Analyst)

Hey, good morning.

Daryl Bible (Senior EVP and CFO)

Good morning.

Manan Gosalia (Analyst)

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? I know it's a board decision, but M&T's dividend yield is below peer. Is that more of a focus than buybacks?

Daryl Bible (Senior EVP and CFO)

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. I think you will be pleased when the board votes on that and we make our public press release on it. After dividends, we look at organic. After that, we buy back. Buyback is probably at the end.

Manan Gosalia (Analyst)

Got it. Very helpful. On NIM, can you talk about what drove that five 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. I was hoping you could give us some more color on that, how much of that is one-time in nature versus what could be some more sticky, I guess, pressure on those funding costs.

Daryl Bible (Senior EVP and CFO)

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 $390-$440. We view that as something less than our marginal funding curve. We are not fluid in that when you bring a deposit in, you just cannot pay off a borrowing. You have to do it over time to right-size it. It came in and made sense to come on our balance sheet because it is under the funding curve. If we do not need it to fund loans, we will pay off more non-core funding with that growth. It is the right thing to do. We will always take it from our customers and pay them fair rates, reasonable rates from that perspective. I think this was a great quarter for us for our ability to attract these good funds in. We got them at a really good cost.

It's just it's higher than the average of the interest-bearing costs that we have just because we have a lot lower rates in certain categories. But these marginal deposits actually were good for us.

Manan Gosalia (Analyst)

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

Daryl Bible (Senior EVP and CFO)

It is. That's exactly right, Manan.

Manan Gosalia (Analyst)

Got it. Thank you.

Operator (participant)

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

Bill Carcache (Senior Equity Research Analyst)

Hey, good morning, 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?

Daryl Bible (Senior EVP and CFO)

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

Bill Carcache (Senior Equity Research Analyst)

Thanks. That's helpful, Daryl.

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?

Daryl Bible (Senior EVP and CFO)

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

Bill Carcache (Senior Equity Research Analyst)

Helpful. Thanks very much.

Operator (participant)

We will go next now to Erika Najarian of UBS.

Erika Najarian (Managing Director and Equity Research Analyst)

Hi. Good morning or afternoon. Just following up to the question on capital, you mentioned you'd like to operate around 11%. You cited some economic and macro factors. As we think about the difference between you guys operating around 11% and B of A 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?

Daryl Bible (Senior EVP and CFO)

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 de-risk the company. I think our stress capital buffer that came out really showed the progress that we made with that. With us still continuing to shrink our criticized book, we have a shot of even improving from where we are next year.

I think we're getting more aligned with where we want to operate with and feel more comfortable. When you do that, the rating issues 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. That's why it's a good test out there. I think we will continue to make great progress from that.

Erika Najarian (Managing Director and Equity Research Analyst)

Got it. Just to clarify, your deposit cost 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? We clearly just had some headlines as you guys were 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?

Daryl Bible (Senior EVP and CFO)

Yeah. So, Erica, I mean, we have six businesses. And all of our businesses, first and foremost, come with a mindset that to attract new customers, we want to get operating accounts. That is 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. We track that, and we really value that. 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. That is first and foremost the core to us.

I mean, the value of M&T, one of the biggest things we have, is our core deposit franchise. It starts with the operating accounts that we have from that. I think that's really what we focus on. We pay competitive rates to our customers to get more share of the wallet over time. Getting the operating account is really first and foremost. We've been very successful and will continue to be successful in accomplishing that.

Erika Najarian (Managing Director and Equity Research Analyst)

Got it. Thanks.

Operator (participant)

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

Matt O'Connor (Managing Director)

Good morning. Most of the questions have been answered. 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 do not know if you have anything handy. I am just trying to figure out, are we back to more normalized levels or pre-Fed hike levels or trying to frame the current levels? Thanks.

Daryl Bible (Senior EVP and CFO)

Yeah. I would say we probably peaked a few years ago. At our highest level, at least in the history that I have seen here at M&T. We have 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 two to levels that maybe are a little bit lower than where we operate today. We are making great progress and doing really well from that. I think that has been really good. I think overall.

We'll be back down in the next couple of years to something that's probably half of where we peaked.

Matt O'Connor (Managing Director)

Yeah. Okay. And then the Miles reserved, 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? What's that for?

Daryl Bible (Senior EVP and CFO)

Yeah. 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 a third of the risk is on our balance sheet and two-thirds is on their balance sheet. We've been in this business since 2003. To date, we've had 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, right, up until this quarter.

This quarter, we had four clients come through. The provision is $20 million, but the charge-off we took is closer to $15 million or $16 million so far that we have. They are 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 have now discontinued that program. We are just basically sharing the losses with the agency on this transaction. Another one involved a Multifamily Project with a university. The university was housing students, and it was for foreign students. Now that the need for foreign students is not there anymore, that project is not as profitable as it was before. Another one is a senior living facility. The other one was just a renovation that had bad luck and had fire and flood issues and is behind schedule.

I think there are one-offs. I think we expect to have our allowance and reserves for this business 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. We love the business. One quarter does not mean much, and we had some losses here. Long-term, it has been a great business and will be a great business for M&T as we move forward.

Matt O'Connor (Managing Director)

Thank you.

Operator (participant)

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

Gerard Cassidy (Managing Director)

Hi, Daryl.

Daryl Bible (Senior EVP and CFO)

Hey, Gerard.

Gerard Cassidy (Managing Director)

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?

Daryl Bible (Senior EVP and CFO)

Yeah. So we have a group of people that are looking at this. 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 has to be something that is easier than what we have today and that it is 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. Late at nights 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.

Gerard Cassidy (Managing Director)

Very good. 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. 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?

Daryl Bible (Senior EVP and CFO)

Yeah. Year to date, we're 33 basis points right now. Can it be 40 basis points? Yes.

I think 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. We're just being a little cautious with some of our guidance. We may come in and be much better than that. Right now, we feel comfortable that it's under 40 basis points, but we don't really know how much under 40 basis points yet.

Gerard Cassidy (Managing Director)

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

Daryl Bible (Senior EVP and CFO)

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 was not in our footprint. From a credit perspective, they performed very well. Credit, that is what we got to gain on the sale from that. It was in the CRE space from that perspective. We think long-term, we can deploy that capacity that we sold out to our core clients within our footprint and have a more wholesome relationship with that space. It is an M&T thing. It is a long-term trade to do the right thing.

Gerard Cassidy (Managing Director)

Very good. Thank you.

Daryl Bible (Senior EVP and CFO)

Yep.

Gerard Cassidy (Managing Director)

Thank you. Gentlemen, it appears we have no further questions today. Mr. Wendelboe, I would like to turn things back to you for any closing comments, sir.

Steven Wendelboe (SVP of Investor Relations)

Again, thank you all for participating today. As always, if clarification is needed, please contact our investor relations department at 716-842-5138. Thanks.

Operator (participant)

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.