We have a special shout-out to the 50 or so U.S. corporates that came over here to present. I'm told we have, you know, record attendance at this event this year and kind of continue to, you know, build as we kind of come out of kind of the COVID kind of revamp. Continuing with the string of banks today, very pleased to have M&T Bank kicking it off with us this morning from the company with Daryl Bible, Chief Financial Officer. And let's begin. We'll kick it off with a fireside chat. Daryl, thanks for making the trip.
Thanks, Jason. Congratulations on your record attendance this year.
Thank you. Appreciate it.
Yeah.
Maybe the best place to start, Daryl, you started M&T maybe almost a year ago. Obviously a lot of big bank experience before that. Let me just talk a little bit about M&T's business model. You know, what are some of the things that differentiate the company from others?
Yeah. So I, I would tell you it starts with the top at the top. And, René, our Chairman and CEO, you know, is a special person. You know, from an ethical perspective, he's, he's best in class. But he really cares. And he cares about the communities that we serve. And he really does want to make sure that our communities, we're helping them grow and be prosper from that. Really, cares about our customers and making sure our customers meet their financial needs and, and also our colleagues. So I call it the three Cs. So he's really good on caring. The other thing is, I would say, M&T's culture is, is really strong, very positive. You know, to me, I tell people, you know, we live I live in Western New York now, so that Buffalo is really a Midwest city in the state of New York.
Really strong ethical values. Everybody wants to do the right thing. And it's a great place to work. And we can continue to attract a lot of top talent because people want to come work for a company that really does what it says, so.
Got it. And maybe expand on that. You know, since the events of last spring, you know, a lot of talk about the role of regional banks and whether, you know, better have scale, too big to fail, national bank type of model. You know, you've been in the industry over 40 years. A lot, you've worked at a couple banks bigger than M&T. Maybe just talk about whether banks need to have scale to compete and win, and just your thoughts around that.
So, you know, I, I the way I look at inorganic growth is, are we going to be able to produce a return on that that's going to benefit our shareholders longer term? You know, our business model, we believe at M&T, is very unique. You know, when we were able to partner with and purchase People's in New England, that opened up five new states for us. And there's really not an M&T Bank when you look at, you know, Massachusetts, Maine, Vermont, Rhode Island, New Hampshire. So we really go there, try to get involved in the community. You know, we're one of the fewest banks or maybe the only bank. We give everybody, every employee in our company, 40 hours of volunteer time a year to basically invest in the community and to really be engaged in that. And we really want the community to prosper.
I'm a big, big believer that a bank is just a microcosm of the community that it serves. So we really want to be successful from that perspective. You know, to do deals just to get more profitable, you know, we're already really profitable. You know, we're probably a mid-50s efficiency ratio. I'm not sure, you know, getting larger, we're going to improve upon that profitability. But we can maybe get a better return than what that target was that would help our shareholders and get more value is how I would probably look at it. But it's got to be a right fit culturally and, you know, from that and move forward.
Got it. And then I know Friday, you posted a slide deck. And I think it was page 7 kind of jumped out at me where you kind of talk about, you know, the through-the-cycle, you know, return on tangible asset, advantage over peers. And if you look over 5, 10, 20 years or so, you know, it looks like it translates into 200 basis point plus ROTCE, if you kind of normalize for tangible common equity. Just, you know, how does management view, you know, profitability versus growth? And just maybe, you know, what does the broader management, you know, what are your targets around those? And then, you know, how do you think about generating long-term value for shareholders?
Yeah. So I'd start with, from a growth perspective, we're going to grow as much as the community will allow us to grow. You know, we aren't going to widen our credit box. We're going to take advantage of the products and services we have. And we're going to run our playbook. And we're going to get the growth that the market gives us. So I wouldn't say we're going to be a high-growing company, you know, over the long term just because of the markets that we serve. But we will grow market share and, and I think be very effective, you know, from that. From a profitability perspective, you know, we have really six businesses that all blend together to produce a really profitable business. You know, we start and I think one of the best things we have in our franchise is our deposit franchise.
Our deposit franchise, we start with trying to get the operating account. If you look at it right now, before the Fed started to, you know, pull money out of the system, our DDA was over 42%. Now we're down to low 30% range. But still one of the best in the marketplace. So we go to market to really get the operating account, which is really important. But we really want to serve our clients to make sure we get their full relationship and make them successful. At the end of the day, you know, as long as we help our customers grow and meet their needs, that helps us grow. And we, we do that. And it helps us get our profitability up there. And then eventually, we'll buy back a lot of stock. And that's really how we produce really strong returns over the long term.
Great. Then, you know, I guess since kind of Q1 earnings were reported, M&T has, you know, outperformed peers. Let me just comment a little bit on the first quarter and, more importantly, you know, just how you think the bank's position for the rest of the year.
I think from a PPNR perspective, we have a lot of wind in our sales right now. If you look at net interest income in January, we started with a guide of $6.8 billion to $6.7 billion. And that was between three cuts and six cuts. It's kind of how we bracketed up then. As first quarter played out, you know, we tended to have, you know, a pretty good result in our net interest income and margin. We had a little bit bigger balance sheet because we were carrying extra liquidity just from a conservative perspective because of New York Community. That has now flushed out of the company. So we're back to our normal size, closer to $210 billion. But, you know, I think from a net interest income perspective, we said net interest income should be at least $6.8 billion. We put a plus sign on that.
It's probably $6.85 at least right now, you know? So I think that's, you know, I think a positive. And we'll just see how the year plays out. Our sensitivities are relatively neutral. So if the Fed raises, we don't think the Fed's going to raise rates. You know, we might get maybe one basis point benefit in margin over 12 months. So it's not that significant. If Fed goes down 25 basis points, we probably lose two basis points over 12 months. So we're relatively neutral. What we have going on on the balance sheet is a lot of positive repricing on the asset side. You know, we have our consumer book. A lot of our peers decided to exit a lot of the indirect businesses. We stayed in those businesses.
We're able to track really nice yields and nice spreads in those businesses such that we're getting really effective growth that's really helping us, you know, grow our yields overall on the balance sheet. We're still continuing to shrink CRE as planned and able to offset that with C&I growth. But that consumer higher yields is really helping offset that mixed change. On the deposit side, we've definitely seen deposit costs moderate some. We had a good result on that as well as we move forward. Fees were strong. Expenses were on track. PP&R is in really strong position right now.
Got it. So all right. Net interest income, it was $6.7 billion -$6.8 billion for this year. Now you're saying $6.8 billion+ at earnings. Now $6.85 billion, at least. Maybe just talk a bit more, about some of the drivers of that, around earning assets and NIM and just how you kind of think the year plays out from here and, you know, beyond kind of rates, what are, you know, some of the key drivers?
I mean, the biggest impact, I think most banks would agree with this right now, is what happens to the deposit franchise. You know, and the disintermediation is probably the biggest impact. Second biggest impact is pricing in deposits. From a disintermediation perspective, we've seen a definite slowdown of the migration of DDA going into sweeps. So that's really moderated. That has continued so far in the second quarter. So that's a very good positive sign for our company as well as for the industry from that perspective. Back in January, we noticed that, you know, some of our competitors were starting to drop rates. We joined in with that. And the result of that in the first quarter is our interest-bearing deposits were up only 3 basis points. I take out the broker deposits. We were only up 1 basis point.
So really almost no increase in interest-bearing deposits, which is a good sign as well from that. So I think the more that our deposit franchise, you know, has not that it's not competitive, it's just not frothy that it was coming out of Silicon Valley. We're still able to grow our customer deposits, you know, even with the rates coming down from that pressure. But that's the largest single impact that's driving the company from a net interest income perspective.
And I guess, Darren and I, you've talked about a net interest margin in the $350s for the year. I guess, where do you think kind of NIM bottoms? And then when do you think we can kind of get back to that $3.6-$3.9 range that your predecessors used to talk about?
Yeah. So I would tell you that we believe the first quarter, we were at $3.52. That was probably the bottom. Definitely think we're in the mid-$3.50s to high-$3.50s throughout this year. May see a $3.60, maybe, maybe not this year. But hopefully, that happens sometime next year if we continue to have positive trends as we move forward there. So I think there's a chance we get back into that at some point, maybe in the next 12-18 months while we'll get back in that range that you talked about. But, you know, a lot depends on the deposit pricing. Right now, we're able to still grow the balance sheet some, which is good even though we're shrinking CRE, which is a positive as well. So I give all the credit to the teams out there, Kevin Pearson and Darren King. They're both running the businesses.
Our six businesses are operating probably as good as they've ever operated all at the same time right now from a profitability perspective.
Can you maybe just elaborate a bit in terms of, you know, if the Fed stays higher for longer, you know, what impact does that have on NAI and NIM?
You know, I think, you know, rates staying where they are, even if they went down 100 or 200 basis points, as long as we have rates where you make money on the deposit franchise and on the loans franchise, it comes back to discipline, making sure you're getting your credit spreads on your assets and that you're basically pricing your deposits under your marginal funding curve. If you do that, that's really good. Right now, we have an inverted curve. If the curve would normalize and I think they said about 70% of the time, you have an upward sloping curve. We haven't seen that in the last year or so. But eventually, that gets there. That's also a favorable environment. So I actually think it's a positive environment to be in the kind of mid-single-digit range of where we have in rates.
If we got an upward sloping curve, that would be really positive for the industry as well as M&T.
Got it. And then earlier, you talked about cost of interest-bearing deposits. Ex-brokered was up only one basis point, you know, certainly better than most banks, I think, of my coverage. You had Zions down three basis points. Fifth Third was also up a basis point. And you also talked about deposit growth. So just maybe talk about elaborate more on the competition for deposits. And then, you know, when do you think kind of interest-bearing deposit rates could actually decline?
I would think, you know, the last Fed increase, I don't want to jinx this. But the last Fed increase was in July. My guess is that, you know, you could see some lower deposit costs. Second half of the year would be my guess. We'll see how that plays out. But, you know, the trend right now is people are moderating. When you looked in April, you're seeing even some of your monoline banks or your digital banks, they're starting to drop rates as well, too. So as that kind of flushes through the system, that alleviates pressure. And everybody will kind of accommodate that and move in that direction. You know, for us, we start with getting the operating account. That's the most important thing to us when we go and try to get customers. We start with getting that. And we're very successful doing that.
We aren't in the highest growth markets. But once we get those operating accounts, we tend to not lose them very, very easily. We hold on to our customers and support them really well, which is really important.
Got it. And then, you know, this quarter, there was this kind of interesting phenomenon between kind of average deposit growth and period on deposit growth. You said a lot of banks, given, I think, some of the calendar impact. So maybe just, you know, talk about that dynamic and just how you see the outlook for deposit balances for the remainder of the year.
Yeah. I mean, deposits are seasonal. I mean, typically, you have an increase in deposits early in the year. Some of our businesses have that. You usually have deposits build up during tax time. And when you come to April, it usually dips because you pay your taxes. We also have some of our businesses that have escrows. And escrows can be seasonal as well. We had one large deposit that came in in the middle of the first quarter that ended up leaving in, I think, April-ish, towards the end of April. It was a large deposit that came from our corporate trust business. So we're going to have some lumpy funding flows up and down. But that's kind of how that business, you know, makes money over time, is, you know, supporting like M&A advisory activity.
We hold on to those funds until they can be dispersed from that perspective. So, you know, we are good in that business. That's a business that's growing very nicely for us. We're investing in that business. And we think it's really good. We're actually international. We have offices here in London, Dublin, and other parts of the continent in Europe. So it's a business that's growing with us. We're following where our sponsors do work and trying to help them, you know, meet their needs throughout the world.
Got it. And then maybe shift gears to loan growth. You're actually one of the few banks to actually grow loans in the first quarter. But maybe just talk about, you know, I guess, what's driving your CNI growth, you know, what industries, what subsectors, and then, you know, how are you able to grow where others aren't?
Yeah. I honestly think, you know, a lot of people, you know, probably because of the AOCI impact, went on a what people would call an RWA diet. We saw that in the indirect businesses. A lot of people pulled back in indirect auto. We stayed in that business. You know, and all of a sudden, our margins are really nice in that space. So that's an example where you can kind of see where people exited and actually benefited us from a return perspective. You know, from a CNI perspective, you know, we had really good growth. You know, it was from a geography perspective. You know, we're investing heavily in New England, trying to put more resources there for all of our businesses. But we had CNI growth in Eastern Mass, which was good. But we also had growth in Baltimore, Philadelphia, Jersey.
You know, and the mothership, Western New York, also grew nicely. So I think CNI was positive from a geography perspective. But when you look at the businesses, I think you're seeing the complements of the People's Acquisition. People's had some nice commercial businesses that were able to leverage and grow more. They had a corporate and institutional business that we have now put more resources behind that's growing nicely, the fund banking, mortgage warehouse. All those came to us from People's. All those contributed to our growth. We also had increases in utilization in our dealer floor planning. That's more seasonal as the cars hit the lots early in the year. You know, that spiked up. So that was good. Probably one of the best signs that we saw, though, was we had growth in middle market.
You know, middle market, you know, has been pretty stagnant for the last year or two. We actually saw some growth in middle market. If our core customers are actually starting to make some investments, that bodes well for our marketplace and, you know, for our company.
Got it. And then maybe focus on credit quality for a little bit. But, you know, it was interesting. The first quarter, we saw both criticized commercial real estate loans declined, commercial real estate net charge-offs declined. Maybe just talk about what drove that improvement in the first quarter and then just, you know, how we kind of see this cycle playing out for commercial real estate for the rest of the year.
Yeah. So when you look at our commercial real estate, you know, in the last year or so, the pieces that have had the most stress has been the office portfolio and the health care portfolio. That's where I'd say over half of the losses have come from in that space. You know, I think we've continued to see health care start to stabilize some. If you go back maybe a year or so ago, you know, they were having issues, you know, from an occupancy perspective. They were having issues from a staffing perspective, getting the right skilled nursing in place. Those seem to have gotten better. The place where they're still hurting some is on the reimbursement rates are still lagging from that. But overall, I would say health care maybe isn't improving, but it's stabilizing from that perspective.
So we still have a fair amount of loans in criticized. But it seems to be stabilizing, which is positive. On the office side, you know, we've been very thorough, continuing to shrink CRE. Office has been part of that as we can kind of go through that. It really starts with client selection. Client selection is huge for M&T. The vast majority of our clients that we bank in the CRE space are generational customers of M&T and owners of these properties. And they have been very supportive of owning and supporting these.
When the loans come up to maturity, we talked about that on the earnings call, we saw a fair amount of our customers, vast majority of them, either put more equity in, put more collateral in, or more recourse, bring in other co-borrowers to kind of support those credits, to help stabilize those credits, and to allow some extensions to perform. So I think we don't want to say one quarter is a trend yet, but that was a positive sign. Obviously, you know, if rates were to fall a little bit, that would take some pressure off as well. So we'll see how that plays out. But, you know, from a marketplace, we've seen, you know, when the yield curve shifts down, we've been able to actually place more of our borrowers into permanent placing using the agencies or insurance companies. That happened in December.
Right now, you've seen rates drop now in the last week. We aren't down to the December levels. But if that continues, you could see a real big pickup. And a huge movement of placements would actually alleviate a lot of those that would be in the criticized space pretty quickly.
You know, one of the pushbacks I get in M&T is, you know, your office reserve is 4.4% of loans. Some peers are closer to 8%, 9%, and ones even 12%. I guess, you know, why the difference? Is that something that concerns you?
So our allowance process, like every other bank, is built on the history of what you've done over time. We've included even acquisitions. We've included the loss history of the people that we've acquired. So it's all in there. So there's a process built. It is validated by our internal folks. It's reviewed by the auditors. It's reviewed by the regulators. You have a process in place, you know? And there's certain things you can do. But right now, what we're seeing in the allowances the last two quarters, the macro factors, the CREPI Index and the home pricing indexes have actually been better, you know? And we've still added to reserves for specific reasons. We do put overlays, you know, on the results of the models. We do that in areas where we think we need to add a certain amount of reserves.
But, you know, we have that process. We follow that process. We just can't change that and just say, I'm going to add reserves. Now, if you look at if we did add the reserves, and let's say we wanted to be like every other peer and double our reserves from 4.4% closer to 9%, it's $230 million. We make over $1 billion pre-tax every quarter. We would still be very profitable in the quarter that we did. So it's not a material event. So the process is really important that we follow. And we believe we are adequately reserved.
Got it. And then when we were talking about CRE, you know, you mentioned health care and office. You didn't mention multifamily. You know, that's an area that some investors seem concerned with. They hear M&T. They see some multifamily. They think New York. Maybe just, you know, talk about that portfolio for a little bit.
Yeah. So when you look at multifamily, overall, multifamily is performing well in the state and the city of New York. There's some rent control questions that you have. You know, we stopped doing rent control probably back in the 2018, 2019 time frame. We have probably a few hundred million that have rent control out there. So we have a little bit of exposure, $200 million-$300 million. We have a little bit in the construction book. But to build new buildings in the city of New York, you have to have rent control to just build the building. So there's a piece there. But when they get started, when they get to permanent status and it gets completed, they start off at a market rate. It's just that they don't adjust higher, you know, from that point on.
But our exposure is less than $500 million in rent control. So we think it's a very manageable exposure for us to deal with.
Got it. And then while CRE, charge-offs, and criticized went down in the quarter, we did see CNI, criticized, and charge-offs go up, I think, for the second straight quarter. Maybe talk about, you know, kind of the drivers of that and the outlook.
Yeah. So the last two quarters, we've had a couple of credits in what I would call non-auto floor planning relationships. The one this past quarter was a marine dealer. And if you go back to COVID times when things were good and everybody was buying, you know, power sports toys or whatever and all that, it was booming times. Floor planning for these types of pieces of equipment are different than autos. When they bring them to the floor plan, they're stuck with that inventory. They can't put it back to the manufacturer. So in 2022, when things started to slow down, you know, a lot of these dealers were caught with this equipment. So you had pressure from a profitability perspective.
If you look at, like, the boat shows that have happened in the past first quarter, you know, boats are probably still expected to be down 20% from last year. And 2023 was down from 2022. So there's just less money going into, I would call, large discretionary consumer pieces of equipment from that perspective. So it's just an area where there's stress. In this situation, we also had an out-of-trust position coupled with the stress that they were under from just what I just described there. So we took charge-offs. And we put up a specific reserve. We are in the midst now of, you know, going through the inventory and trying to liquidate the inventory over time. And that specific reserve is an estimate of what we think those losses might be.
But I would say that for the most part, I think that the risk that we've seen in this space is pretty much there. We don't have that much of a relationship over on these non-auto floor planning ones. It's about $1.5 billion. You know, we've had, you know, maybe $500 million of criticized go into there. So we feel that we got to handle them where we have right now. But it was definitely higher losses. You know, the other credit that we had gone on was a manufacturer, you know? And it was something that was just unique that has this situation. So things will ebb and flow. That one actually might be a recovery in the next quarter or two. So you just never know. We have to follow here, again, a process and rules.
When somebody matures on a certain credit and it's all cross-collateralized, you have to default everything if they don't pay it off. But if they pay that off, that cures everything. So you could actually have a reversal at some point down the road on certain credits too. So it will ebb and flow from that perspective. That's why we say it's kind of lumpy going through.
Got it. But I think you've talked in the past that charge-off rate for the year in the 40 basis points area. You still feel good with that?
We do. You know, we're at 42. You know, we'll bounce around, you know, and we'll see. We've had a little bit higher losses in CNI that we thought less in CRE that could reverse, you know, as the year plays out, maybe not. You know, I'm hopeful that CNI or CRE continues to stabilize and get better. That would be a great sign for it because that's where the bulk of the criticized book is in CRE. And if that really starts to stabilize, that would be really positive for us.
Got it. And then I got to check the transcript later for your exact words. But I think you said, eventually, repurchase a lot of stock. Now, you've been pretty quiet since the beginning, I think, of last year. You know, on the earnings call, you laid out, you know, five factors that you're looking at in terms of macro environment, capital generation, CCAR results, level of commercial real estate, and just overall credit quality. I guess, do you view any of those as, you know, maybe more important than the other, you know, in determining when you're going to restart?
You know, we're hopeful. You know, we had a good result from our stress test last year when we went from a 470 stress capital buffer to a 4% even. You know, we hope that, you know, with the continued shrinkage of CRE, that should bode well for the loss models that the Fed runs. We also have a stronger PP&R. We have less expenses in there from the merger charges from People's. So we're hopeful that that will be a good positive for us. But we won't know that till we see that. Asset quality is really key for us. For asset quality, I kind of look to our criticized book and see the trend in the criticized book as a trend on, you know, how we're doing over time. We've always carried a lot in criticized. We do that because our customers support our credits.
We're going to support our customers. But if we start to see trends where criticized starts to decrease on a consistent basis, that would bode well. That's probably what I'd look at most.
Got it. And then, you know, in terms of the SCB, even with the improvement you talked about from 470 to 4, you're still, you know, a lot of your regional bank peers are, you know, at the kind of the 250 floor.
250, yeah.
Can you give me just kind of thoughts about in terms of, you know, I know you're kind of looking to reduce commercial real estate further. Maybe just talk about what you're doing there. And then is there, you know, anything else that kind of, you know, impedes your stress test results?
Yeah. So, you know, I go back to my days. And then, you know, M&T isn't exactly like my former company. But there's a lot of similarities. If you go back a decade ago to BB&T, we had a lot of CRE exposure. A lot of huge construction book. It is possible. And we've been now on a four-year journey of basically doing less on balance sheet and doing more originate and sell. You know, we're investing in our RCC business. Our RCC business has the ability to sell loans to the agencies, Fannie and Freddie, for permanent placement, to the insurance companies, and to specific sponsors out in the marketplace. We actually now are actually partnering with some sponsors as well to get some floor arrangements too that would help fee income. So we're actually investing in growing resources in CRE.
But what's happening is we're coming down on how much exposure is on balance sheet. So right now, if you look at our portfolio, we're about 42% CNI, about 24% in CRE. And then the rest would be maybe 33% would be in consumer. I think over time, you'll probably see the consumer continue to grow some. You'll see the CNI continue to grow. And you'll see the CRE on balance sheet exposure continue to shrink some overall and be a much more diversified revenue mix that will probably stress test a little bit better than what we are today from that perspective. The other thing is our fee businesses are growing nicely. And we continue to invest in our fee businesses, that revenue stream. You know, everybody thinks M&T has low fee income because as a percentage of revenue, it's only about 25%.
I point people to look at it as a % of total assets, % of total assets versus our peers. We're right in the middle of the pack with fees. So yet, we don't have an outsized fee income. But our fee income is relatively average. And we continue to invest in those businesses. And those will actually grow over time as well. We just have an oversized net interest margin, which has always been part of our profitability that we have.
Got it. And then maybe, you know, historically, M&T has been a very good acquirer. A lot of them have been more, I don't want to say it, like lower quality, maybe trouble banks. You know, some people are maybe better positioned. But in the current environment, clearly, you know, some of these regional banks are, I guess, in hindsight, not as strong underwriters, particularly in commercial real estate, or having difficulties around, you know, unrealized losses or managing interest rate risk. Seems like a good environment to maybe, you know, do acquisitions. People, sounds like, it's kind of well into the mix. Maybe just thoughts about kind of inorganic growth and just how you're thinking about that right now.
Yeah. So usually, when you acquire a company like People's, you know, is a good company. It still takes, you know, three to five years to really make it perform like a legacy M&T marketplace. So we're starting year three. We're starting to see the benefits of that come through at that standpoint. You know, I think where we sit right now, there's probably a couple of reasons why it would be more challenging to do deals. You know, the economics of people just having a lot of, you know, lower-yielding assets on their books makes the accounting mark a little bit more challenging in there. And quite frankly, until you get a larger deal approved, you know, I think people might be a little gun shy on actually, you know, doing some larger deals from what happened from the TD, you know, First Horizon piece from that perspective.
I think over time, people will have more confidence. There will be deals that will happen. You know, and, you know, for us, you know, it's going to be something that will add value to our company, you know? But we don't want to be a national bank. We just want to be in the markets that we are, do a good job serving our clients. So it'd probably be closer to, you know, end market, contiguous market, or a combination thereof type of acquisition if and when that were to happen. But it's got to be something that's a good cultural fit, first and foremost. And then it's got to be something that, you know, makes a lot of sense long term, that adds a lot of value, that brings us, you know, to want to try to partner with them.
Got it. And then, you know, you mentioned fee income. You've actually sold a couple of fee income businesses over the last couple of years. Can you talk about kind of some of the put and takes in there and kind of what do you see the main drivers going forward?
Yeah. So, you know, we've invested in our businesses. Jen Warren, who runs our ICS business, corporate trust business, you know, we continue to invest in that space. It's performing very well and continuing to get more and more business. So that's a good business for us. And that's something we highlight. Our wealth businesses continue. This past year, you know, everybody talks about integrated relation management or cross-selling, or we call it lead generation. We actually put something in place. We're actually getting really good benefits out of that right now. If you look at our commercial RMs or, you know, more specifically, given, like, 5 referrals per month to the wealth businesses, wealth is giving referrals back to the commercial businesses. Same is going on in business banking and wealth. Our retail shop is also referring to wealth.
So we're actually integrated and doing much more from a cross-sell perspective than we ever have and really starting to add some momentum there, which is really nice to see. I give Darren and Kevin a lot of credit in putting that in place and tracking that and measuring that and following through. So that's a good positive. It's easy to talk about. It's hard to do that in reality. But we're off to a good start. And that's helping grow our wealth businesses. It was off to a good start, which is good. You know, we've invested heavily in our residential mortgage business. We're putting 100 producers in New England. We're in the midst of doing that. We're also putting resources in our commercial real estate system. So if rates were to go down, the old curve were to shift down some, those would be very leverageable.
And you'd see a lot more fee income come out of that. So I'm actually pretty positive from a fee income perspective that we're going to have momentum as this year goes out into 2025.
Then on the expense front, I think you've talked about, what, 2% expense growth this year, although I think you told you made your business lines kind of have no expense growth. So you can kind of invest in some bigger initiatives. Maybe just talk about, you know, how you're managing expenses and, you know, what you're kind of focusing that incremental spend on.
One of the unique things coming to M&T that I really didn't know about is the unselfishness of our leadership team. They really do. And what's best for the greater good of the company. And we asked them that we said, we have these large investments we got to make. And guess what? We're going to continue to make them next year. I asked them all to be flat and to absorb merit. They were able to do that. We did that through severance costs from that perspective. And that kind of bled through at the end of last year and early this year from that perspective. But we have six major projects going on in the company now. Never in the history of M&T have we had six major projects going in this company. You know, we have much more transparency, accountability, tracking in place now and really driving.
We have two transformations out of those six, one in the commercial and credit area that's going, making tremendous progress. One is in my world, financials. I hope to be out of that in the next 12-15 months. The sooner, the better from my perspective. But we're also investing heavily in IT. And we have two new data centers. We're putting in place one in Northern Virginia, one in Chicago. We're also putting a lot of applications up into the cloud. We are investing heavily in treasury management. You know, because we're growing our CNI space, we have to have a really sound and strong treasury management business. So we've doubled the agile teams in that space to make project progress in there. So we got a lot of projects going on, a lot of positive momentum.
You know, it's a lot of hard work because, you know, these big projects, they're like a Christmas tree. It's not like they're always green. They're green, yellow, and red. But it's a matter of how you manage through the projects and the mindset of, what are your plans to get back to green and battle through that? And it's, you know, we're building those bones in the company right now of how to have successful integrations with this. So I expect, you know, 2025 to be similar to 2024 from still having some big projects but still be able to contain our expense growth from that perspective because everybody's excited about the success that we're having right now.
It sounds like these projects position you to be even a bigger bank.
We are trying. We are trying to improve our, what I would say, our scalability, you know, our resiliency, and also improve our risk systems. So Mike Todaro, Chief Risk Officer, has been building out risk appetites throughout the whole business line, putting that in place and with limits in place. So we are growing into the bones of a bigger bank. But the important piece is, as you do that, you still have to have the ability to meet the needs of the clients. So you have to be responsive. And you need to be able to adjust. You can't be a standardized, very large bank. Otherwise, there's no difference between us and the real large guys. So it's finding that middle space where you kind of know what's going on.
But you still have some flexibility in your system to still meet the customer needs is really what we're trying to build at M&T.
In the closing minute, you know, the regional banks have probably the smallest AOCI impact under the new Basel III proposal and one of the lower kind of RWA inflation. So you can maybe answer this more honestly. But, you know, what do you think happens here? Does it get reproposed? Does it just get watered down? Any thoughts on timing? What are you kind of hearing?
I honestly think that AOCI will become effective. You know, whether it becomes effective on as a one-off or with a new proposal, you know, that would come out. Don't know. But that's a given. You know, probably operational risk gets watered down some, gets a little bit more rational from what was done there. And we'll just see how the other changes occur. I think, you know, people were pretty positive on the housing pieces, the gold plating, and some of the equity investments. So I think overall, I think people realize that it was, I think, a bridge too far to what was proposed. And that will be backed up some.
You know, whether it gets done this year or next year, you know, depends on how fast the Fed's willing to move on it and how much changes, I think, are going to be made from that perspective. But, you know, I feel positive. We didn't have a big impact before. We'll probably have less of an impact now. So I think it's good for M&T team, M&T for sure.
Right. With that, please join me in thanking Daryl for his time today.