We'll get started with day two of our America's Select franchise conference. Returning this year, we're very pleased to have M&T Bank kicking us off this morning from the company of Daryl Bible, as many of you know, Chief Financial Officer, joined M&T in mid-2023, and was CFO of Truist and BB&T prior, and also was at this conference in those roles as well. Daryl, welcome back.
Yeah, thanks, Jason. Thanks for inviting us here. We love coming to this conference.
Appreciate it. Maybe we'll start, you know, big picture. You know, I think of M&T, you know, I think of community-focused banks, you know, strong retail banking footprint in northeastern New England, mid-Atlantic portions of the U.S., you know, several national businesses. Obviously, a lot of headlines at the moment, several uncertainties, tariffs, ultimate path of the economy. Maybe you could just discuss what you're hearing, seeing from your customers as we sit here in early May.
Yeah, so if you had a chance to read René's annual shareholder letter, he said that the only thing constant is change, and change it is for sure this year, and we are living and breathing it. I would tell you, though, M&T is starting from a position of strength. You know, we've had a good, have high capital, a lot of liquidity. Our credit is getting better. So all that is going in our direction. You know, we stick to the fundamentals of how we operate our company. Really, on capital allocation, liquidity, and transparency is really key. When you talk to our customers, you know, there are a few customers that are being impacted directly, but for the most part, the consumers. So I went through delinquencies this past April. Delinquencies still are really good on the consumer side. They haven't shown weakness yet in that space.
Their spending patterns with our debit card seem to be pretty consistent for the season that they're in. You still have stress in the lower end of consumer, but you've had that for several years now, so that's not really a change. We did comment on the earnings call that we had a, you know, record volume in indirect lending in both auto, RV, and marine. I would think that the auto was definitely more tariffs related in that getting upfront ahead before car prices go up. When you look at the RV and marine, you know, those are really made in the U.S., so there really isn't much impact from a tariff perspective. The people were spending on big ticket items the last couple of months there, so you have nice volume there.
From a commercial perspective, you know, what I would say is our commercial customers are cautious. When you look at and talk to them, I've been in talking to them, going out on calls and all that, they will tell you that they want to make investments, but they are just a little bit, they don't know all the rules of what the impacts are from that perspective. I think they're just on hold, but there's a lot of people that want to put money to work. A lot of people want to do M&A. That activity is there if the U.S. economy settles down and people kind of understand tariffs. If you think, you know, what's going to happen, you know, we're going to get new tax, probably positive tax legislation. We're going to get lower regulations through a lot of industries and all that.
I think people are still optimistic, but right now very cautious.
Helpful. Maybe from here, kind of against that backdrop, let me just kind of run through some of the key, you know, income statement drivers. You know, if you back up a bit on the April earnings call, you did modestly temper the outlook for NAI, loans, and deposits, but did increase kind of net interest margin expectations. Maybe just discuss kind of what drove some of those changes.
Yeah, so when we put the plan together in the fall of last year, you know, we were optimistic that we could, you know, start the year and actually start to grow a little bit faster than what we have the last couple of years. You know, we continue to grow C&I. C&I is growing. Our consumer book's growing from that perspective. We thought we would, you know, stop decreasing CRE and it would actually start to grow. What's happened is the CRE portfolio has not grown. It's still shrinking. You know, that's just causing it to be a lower balance sheet. So we have lower just loans outstanding. We have less deposits because we weren't as aggressive because we didn't need the funding as much to kind of balance that out for the most part.
You know, we're still trying to attract operating deposits, obviously, and all that, but deposits on the margin, we're just a little bit more price conscious, trying to fit the size of the balance sheet that we have now. Everything else is intact, though. I think we feel pretty good about net interest income and the balance sheet and feel good that, you know, we're going to continue to perform really strong.
I did notice in a slide deck you posted last night, you did kind of reiterate all the earnings drivers you kind of mentioned on the April call. Maybe just talk more a bit about loan growth. You know, in C&I, you know, M&T certainly outperformed. You know, when we kind of think about Q1, maybe just talk to some of the areas of strengths, weaknesses. You know, on the C&I side, was that getting in front of tariffs and just what your expectations are?
Yeah, what I would tell you is on the commercial side, utilization has been relatively soft, especially in the floor planning. Now that the cars are being purchased, you know, there's not as many new cars going on the lot, so you're definitely down in dealer commercial services. You can see those numbers pretty easily. Middle market seems to be growing a little bit. Not huge, but a little bit of growth there. You know, the core growth in C&I is really coming from our specialty businesses, corporate and institutional fund banking, and those type of businesses is really what's driving the C&I growth for the most part. If you look at other parts of the portfolio, CRE is, you know, we had a lot of runoff in CRE, and that runoff wasn't all bad.
A lot of it was criticized loans, so that was actually a positive as we continue to lower our criticized numbers. You know, we're hoping that that runoff will slow down some. Our originations are starting to build. If you look in March, you know, we put, you know, new exposures on in the mid-300s. In April, a little mid-400s. We probably have to get to like 500 or 600 in actually what we're booking in a month for us to start to stabilize and grow. We're building, and, you know, we plan to get there sometime in the second half of this year.
That's helpful. You know, maybe to kind of shifting gears to net interest margin, you had a nice eight basis point increase in the first quarter to 3.66%, which was kind of, I think, one of the highest in our coverage. You know, interest-bearing deposit cost fell 27 basis points, which was also on the upper end. Let me talk to kind of your outlook for margin and deposits from here.
We're pretty optimistic on net interest margin. You know, we have a lot of favorable things that we know are going to happen. Our swap book that we have, what's rolling off and rolling on, we know for the rest of 2025 and into 2026, you know, we're going to be pricing higher in that book. Right now, it's probably going to go up 30 plus basis points and all that, and that's just going to happen over time, which is positive. We're still getting positive impacts on the fixed assets on our balance sheet. If you look at our loan portfolio, if you look at what we get in the consumer portfolio from the indirect channels, some of the residential mortgages, we are repricing up with what's rolling off, anywhere from 100-150 basis points.
If you look at our investment portfolio, with the maturities, we have left $3 billion or $4 billion. The average rate of what's rolling off is around 3.5%, and our purchases of the mix of what we're buying now is around 5%. That is also going to happen. With all that in play, I feel optimistic that our margin should have positive pressure as the year plays out from that perspective. The wild card and what we really do not know is, you know, how much loan growth you have and the shape of the curve. We're pretty neutral from a short end, but the shape of the curve will matter. If it flattens out, obviously that will create more pressure, you know, less net interest income. Steeper curve will provide more net interest income.
I guess, so historically, M&T has been, I think, viewed as a relatively more asset-sensitive bank. Sounds like that's kind of changed over the last few years and now you're, you know, more neutral. Let me just talk, so if the Fed cuts two times or four times, does it make that big of a difference?
We ran our models, and with four cuts, it really does not impact. It is really the shape of the curve that is the impact. It is the biggest driver. After that, it comes into the loan growth and the deposit growth, making sure you can keep both oars in the water and trying to grow that there. Then pricing. We had really good reactivity on our deposit beta this past quarter. You know, we plan to be in the 50% plus type percentages as we move forward. I think that that is a good number for us. You know, and on the credit side, lending side, the credit spreads and all that, you know, are somewhat aggressive, but we are still getting decent spreads and getting good returns on what we are booking from originations.
I guess think about your guidance for the year. We have kind of up 2% to up 3.5%, I think is what it implies. You know, I guess when you think about low end versus high end, it was one of the biggest variables.
I think it's pricing, growth, and shape of the curve are the three variables that really drive that. You really can't control any of those for the most part. You know, we'll go and what the market gives us from that perspective. Businesses are working hard. We're performing well. We're competing well against the competition in the marketplace. I'm optimistic that we're going to have good net interest income this year and into next year.
You know, maybe shifting gears to the fee side. Actually looking, calling for decent fee income growth for this year if you look at your guidance. You know, Q1 was a bit, I think, mixed for you and some others. A lot of banks actually kind of guided down on fee income for the year. You kind of talked to the upper end of your guidance. Just maybe talk about maybe some of the key drivers of that and kind of why you're different from some of your peers, maybe.
Yeah, we've invested a lot in our businesses and it's starting to show through. I'd start first with our corporate trust and loan agency business. That continues to perform at record levels. We're continuing to gain share in that space. We're actually in, you know, now in Europe, we're actually going to go out and do marketing with the sales team here. We're growing actually in Europe in this business as well. We followed some of our customers from the U.S. over here and now we're just trying to grow in that space from that perspective. So that's a good guy. Wealth is doing well. Obviously, you have the asset, the AUM issue with the volatility of, you know, what valuations are. They go down and they go back up and all that.
That is a little bit up and down, but we are growing wealth clients, which is the good core growth that you have there. If you look at service charges, our treasury management business has done really well last year, starting off this year really strong. High single digit, low double digit type of growth year over year. Investments we have made in those businesses also performing well. I think the one that is really positive is mortgage, both on the residential side as well as the commercial side. Residential, you know, we have the production origination team and that will fluctuate as rates move in the marketplace. From a servicing perspective, we have added some good sub-servicing to our portfolio. A lot of fee income. There are opportunities. Whenever you see big transactions in that space, you know, you saw with Mr. Cooper
and Rocket, that creates a lot of dislocation in there. We may have other opportunities there as well to actually capitalize on over time, which would actually be a positive for us. Commercial mortgage, our RCC business continues to perform very well. It's really subject to what happens in the five and ten year treasury, and that moves up and down, but when it goes down, they lock in a lot of product and get a lot of fee income. We're still optimistic, you know, we'll be, you know, mid to high single digits in fee growth.
I guess guidance kind of talks to fairly modest expense growth, maybe around 2%, give or take. You know, just maybe how you kind of think about the outlook for expenses. I remember last year you were kind of talking about a lot of initiatives that you're spending some money on.
We got them still.
Maybe you can provide an update on some of the stuff you're working on and maybe some of the bigger stuff and kind of where you see it.
You know, we're getting at a point though, we have about seven really key strategic projects going on in our company right now. I'd say out of the seven, five of them have nine digit spend over the life of those projects. When you look at that seven, there's three that are getting pretty close to completion. You know, one would be the general ledger. You know, we're well past 50% of the way there. I'm sure to get that done hopefully in the first part of 2026. That's a couple $100 million dollars putting in a new financial system there. It's not just the general ledger. It's all the systems, profitability. We're actually putting in liquidity stuff for category three and all that. All that is part of that project.
The other one would be, you know, how we rebuilt our commercial delivery system for how we generate credits and put loans on the books and all that. That should be finished end of this year or earlier than that from that perspective. Another big project we're working on is we're putting in three new data centers. They went live a quarter ago. We're now putting the applications out there and we're putting the applications that are cloud ready up into the cloud from that perspective. That will go for a couple more years, but making good progress. You know, I call cyber and digital, just those are growing businesses for us. They're always going to be there. We're always going to be investing in them. Those are critical. We're making really good progress and, you know, feel good about getting these big ones done.
We got some other big ones that we're starting up now that will kind of fill the boat, but maybe not quite as large as what we got going on right now.
I guess hypothetically, the economic environment's, you know, weaker than expected, maybe revenue is soft. Do you have the ability to kind of manage in expenses to kind of maintain positive operating leverage or maybe that doesn't matter so much and just how do you think about that?
You know, M&T has a really good mindset from like managing from a budget perspective. You know, and if we need to tighten our belts or whatever, you know, people will really buy into that and really would do that. For the projects that we have that are like within a year of completion, we probably would not slow those down or pause those. The other ones you could slow down. There is a lot of other things that we are starting up now and how we kind of do our automation and workforce planning and other things that will kind of play off the next couple of years. But, you know, if you look at it, our efficiency ratio is really strong. We are in the mid-50s. We really do not want to go lower than that because we still need to make investments in this company.
The way I look at it, it's more of a balancing act. You know, we want to make sure that, you know, we get our good stewards to our shareholders and give good returns, capital generation, which we're doing. But we're also making the necessary investments in this company to protect us for the long run and really help grow the company future and all that. Right now, I think we're just in a really good space of that balance and it seems to be playing out pretty well.
Got it. You know, maybe shift gears to credit quality. I mean, non-performing assets, charge-offs, criticized loans all improved in the first quarter, yet kind of all the economists out there are telling us things are going to deteriorate. Maybe just kind of talk to what's your outlook?
You know, I can't say that we're agnostic to anything going on out there. I mean, we have, you know, some upgraded or downgraded credits like in the government contractors. We had some nonprofits we've downgraded. Our exposure in the D.C. greater area is about a little around $300 million. We don't have a large exposure there from a CRE perspective. We're watching a lot of those areas and companies that could have issues, but aren't seeing too much of that to date. You know, we're really good at last five quarters of where we've been able to shrink our criticized loans. We did have an increase in C&I, was one large credit. It was basically a roll-up strategy on a heavy trucking company that just didn't quite hit their targets from that perspective.
You know, on the outlook, you could see a couple more C&I credits maybe going into criticized, but net net, we still feel that our criticized balances should be coming down throughout the year. Maybe not at the pace of what we did last year, but still in that same general direction.
I guess within, you mentioned a couple criticized C&I credits potentially. Any areas, industries of note or?
No, it's just all over.
Specific?
Yeah. I mean, PE related could be some of that.
Got it. Just with respect to commercial real estate, gets a lot of headlines, yet M&T never seems to have any losses. So just maybe talk to.
You know, the key to that, to be honest with you, starts with client selection. We are really good at getting the clients that support their credits and really do that. I mean, everybody thought we were going to have all these losses last several years and that did not happen. No.
And. I'm still waiting.
Yeah. Our client selection is really, really strong. You know, and we're opened up for business. Obviously, we aren't looking to grow our office portfolio, but multifamily, industrial, good retail market, construction, we're putting loans on. So we feel pretty good about where we are. I think our CRE criticized will continue to fall. We have a pretty good trajectory over the next year or so as those maturities come up.
Makes sense. Maybe talk to just what's going on with the allowance for credit losses. You know, we saw from you and some others, you know, a slight build in the first quarter as, you know, the economic outlook softened during Q1. You know, we got additional information on April 2nd. I know banks have kind of qualitative, quantitative reserves, but just how do you think about the reserves now? We sit here in Q2 and forecasts have kind of been downgraded more, but what you're seeing, it sounds like at the onset, you know, consumers, corporates are still holding in.
If you look at the allowance with CECL, you know, you have to start with the macro factors. If you look at our models that we have, there's really four macro factors that really make a difference for our allowance. One is GDP, the other one's unemployment. And then because of our CRE portfolios, HPI and CREPI are the other two. If those start to turn negative, then we're going to probably have to add more allowance. It's just the math, how that goes. The other thing that you have to look out for is right now, if you look at our book, there's more upgrades than downgrades.
If that would flip where all of a sudden the book starts to get more downgrades than upgrades, that would be fed into the models and you would have a negative, you know, increase in your allowance type of impact. You know, right now we aren't seeing a whole lot. You know, it's still feeling relatively good. We're watching it very closely, but it's talked about delinquencies, customers and all that. You know, our customers are strong. They're just really cautious right now because they don't really know, you know, what to invest in and what to do until they really know all the specifics coming out of D.C.
Got it. I guess on the Q2, you know, provision reserve, I guess it's one of those things maybe too early in the quarter to make a call and you kind of revisit it to get into the quarter.
We always do a mid-month one. We'll know something, you know, next month. We kind of true it up in the last month of the quarter and all. Right now, we do not see a recession coming. We see a slowdown right now happening. We'll see if it actually turns into a recession or not. If they get this tax, you know, policies passed, that will be a positive. It could help bounce back from that and all that. I know there are some customers that will get hurt with tariffs, but there are also other customers you talk to that actually benefit with the tariffs going on. It is not all negative. There is just change going on, which is really the impact.
Makes sense. And then on capital, you know, you've talked to wanting to get to 11% CET1 ratio by the end of the year. I think you're 11.5% at the end of the first quarter. You did step up the buyback, you know, doing over $600 million in the first quarter after $200 million in Q3 and Q4 last year. How do we think about, I guess, the near-term buyback just given kind of the step up in Q1?
You know, we're going to be opportunistic. You know, if we think that the stock is relatively inexpensive, we're going to jump in and purchase more stock. Right now we think the stock is inexpensive. We think it's a good time to buy our stock, obviously. You know, but we're committed to the 11% ratio. You know, we want to continue to get our criticized numbers down lower. I mean, they've done a great job. You know, we've shrunk our criticized book 27% and our non-accrual book 33% this past year. They've come down a fair amount, but they still should come down a little bit more. The board in January approved our long-term target of CET1 of 10%.
Yeah.
We do not feel comfortable getting to that stage yet, but as we continue to maybe improve in our credit quality and still have strong earnings and we do not go into a recession, you could see something else potentially down the road.
My next question is, we think 11% seems too high. It sounds like your board agrees. You know, no good deed goes unpunished. Now we're taking 10%. You know, when do you think that comes into play?
You know, I think we'll just see how it goes. You know, we opted in for stress testing too. You know, we opted in because we really think, you know, last year we were one of the three banks that actually dropped a little bit in the stress capital buffer. With a lower criticized, lower CRE and better, you know, earnings, PP&R and all that right now, we feel that it should actually be better. We're still at the higher end of the stress capital buffer for our peers. We want to continue to move that down further. We hope to make a lot of progress this year on doing that.
I guess with the improvements we've seen at M&T, plus, you know, a scenario for the stress test for this year that looked a bit easier than the last two years, albeit still strenuous. Any kind of guess in terms of, you know, where the SEB ends up?
My team has a guess, but it's off the record and I got to tell you what it is.
I'll press Brian later. We'll see what happens. You know, I guess was it last month, you know, the Fed talked about potential changes to the stress test, either shifting to a two-year average, you know, changing some of the transparency, looking maybe deeper into expenses. Can you talk to kind of what your thoughts on, you know, the proposal they put out there and then other potential changes?
You know, I don't view the averaging versus non-averaging as a big deal, to be honest with you. I mean, directionally, I don't think we care one way or the other. Transparency, though, is really important. You know, and having transparency in how they come up with our scenarios, how they run these models and all that, I think is critical and that should come out from that perspective. We'll see if that happens or not, but I just, it's what we run as an industry and I think we just need to understand how they're coming up with the figures that they come up with these loss rates and projections and all.
Got it. You know, we last did a fireside chat in my New York conference in September. I felt like you hinted at like maybe more focus on a dividend or we can get like a decent dividend increase at some point in 2025. Just maybe talk to how you're thinking about the dividend from here.
You know, I think we're big believers. First and foremost, dividends are really important to us. We're one of two banks that didn't cut the dividend during the Great Recession. We take that very, very seriously from that perspective. You know, dividends are really just a reflection of the earning power of the bank. You know, our earnings power continues to increase. You know, I think you will see at some point, probably this year, that we will probably have an increase to the dividend that represents the earning power that we're showing right now.
Got it. You know, another use of capital is Bank M&A. I guess M&T has historically been, you know, a good acquirer. You know, it seems like we're a few years removed from the People's Deal, you know, which looked to be fairly additive. Let me just kind of talk to the kind of current Bank M&A environment and how you're thinking about it.
You know, we really aren't spending much time on it. We're really focused on our four priorities we have in the company, building out New England, you know, improving our risk framework, optimizing our revenue and expenses, as well as simplifying the company through resiliency and improving that. I'm sure there will come a time when we actually do acquisitions because we have been inquisitive in the past. M&T is not going to surprise the marketplace, whatever. I mean, we're very consistent. You know, we usually do in-market deals or we do market banks that maybe will be on the fringe of our market and maybe a newer market and all that. We will be very consistent from that. I don't see us leaping across the country. We don't want to be a national bank.
We want to be, you know, a dominant bank in the markets that we serve and really do a great job there with our community banking model that we have that we offer to our customers.
I guess there hasn't really been, I guess there's been kind of a slowdown in the bank M&A just in general and whether it's regulatory uncertainty or purchase accounting marks. It feels like now we have a new regulatory regime. Purchase accounting marks have come in either because rate-driven or time-driven. You know, do you think.
The double count, Michael.
The FASB said last week, right, the CECL double count will go away, but I think we have to wait a little bit more for that. Can we talk to just, you know, do you expect that to result in kind of a pickup in industry-wide M&A in the near term?
You know, people are expecting that. You know, for us, you know, we're successful. The type of bank that we operate, you know, we really try to serve our customers and our communities. And we've been able to purchase banks in both administrations. People's was done in the Biden administration. We think we can work with either party and all that just because we really do the right thing and serve our clients and do what we say we are going to do from that. You know, the people that are getting into the seats are definitely pro-growing the economy. They are definitely, you know, more like-minded. They like the Acting Chair of the FDIC, Travis Hill, you know, his changes that he made to LivingWell. The reason I know this so well is we're submitting ours in another month.
What he took out and what he put in and stressed is really just practical. I mean, he's really trying to get the information and the data to resolve a bank in trouble over a weekend or create a bridge bank. All this other theoretical stuff was basically taken out. I think a lot of the people getting in the seats will have, you know, much more realistic. You know, if Governor Bowman gets supervision, you know, she talks about tailoring a lot. She also talks about, you know, the core and key things that banks really have to worry about. You have your credit risk, you have cyber risk, interest rate risk, liquidity, capital. Those are the core things that can really hurt the company and all that. I think that's the direction that these people are going to really focus on.
You know, all these other things that are out there that were created in the roles, you know, has created a big cottage industry of consultants that are all making a lot of money, basically fixing all these other issues out there. I think if you stick to the core fundamentals and really focus on, you know, what banks could actually get in trouble with and actually hurt the company, I think that that's how I would go. I think they're more like-minded from that perspective.
Makes sense. Earlier you mentioned you getting kind of LCR compliance for category three. I guess M&T is a category four bank. I guess how do you think about that shift to category three? You know, does it make sense to cross it a little bit? Do you want to cross it a lot? You know, and just what, is there a lot more work you have to do? Keep in mind, I know that that all may change anyway.
We have no idea. You know, what I've learned, you know, over my career is that you always want to be prepared for opportunities that come your way from that perspective. You know, in my prior life, when the two banks in the Southeast came together, the bank that I worked for was already operating at a category three level from a credit perspective, interest rate, liquidity, capital perspective. We did not really have any questions from the regulators about that from that standpoint. It is just the mindset that, you know, we know we are going to grow. We do not know when it is going to happen, but we want to be there and be able to do it if that opportunity comes our way. It is kind of a mindset we have now at M&T.
Got it. You mentioned changes to the LivingWell from the FDIC. I guess what are the tweaks from the new administration from a regulatory standpoint? You know, do we expect to be beneficial? I know in the prior one we were kind of not concerned, but, you know, thinking about maybe more long-term debt, more liquidity. Just maybe someone's talked about some of the potential other changes that could occur.
You know, if you look at it, I think Basel III is out there. You know, we'll see what, if Governor Bowman gets in there, what she wants to do with that. It is probably going to be more focused on things that are more meaningful. You know, right now you talk to the Fed and Chairman Powell or whatever, they say it will be neutral to whatever they impact. You do not have the details of what that really means from that. The devil is in the details from that. I think all these things that are out there may or may not happen, or if they happen, it is going to be done to really focus on the key risks that you really should be focused on from running a bank and making sure you have strong fundamentals out there.
You know, whatever it is, we'll work on it and we'll get it done and fix it. I think you have more rational people in the seats right now than coming.
I'm going to pull up and see if there's any questions from the audience. Wait, maybe just wait for the mic just so.
You mentioned earlier the C&I, not the C&I lending, but the C&I customers may be on the investment side a bit more hesitant. Do you see that already in C&I lending and new business that is coming?
Yeah, we have this one customer in the Baltimore area. He wants to invest $60 million-$70 million in some hotels. Until he really knows how these tariffs play out or whatever, he's just on hold. He has all the projects scoped out. It's ready to go and all that. You have that, you know, throughout the footprint. There are people that want to make these investments. They just, the uncertainty, you know, they need, I mean, a good business person needs to kind of know the rules and then they can comply and do what they need to do from that. That was kind of the advantage the last time Trump was in the administration. You kind of knew where people stood and that actually created a lot of economic activity. There were not things changing.
Hopefully that things get settled down at some point so there is more certainty and investments will continue to be made in the U.S.
Yeah.
Thanks. Just a quick one on the potential tax cuts coming through. Do you think the market might react negatively if the tax cuts are totally unfunded because the tariff tax is probably not going to come through?
You know, it's early right now in the details and there's a lot of puts and takes going on. I'm not as close to it as, you know, some others out there. You know, my guess is, you know, they're really trying to, we can't sustain, the U.S. can't sustain, you know, with the amount of borrowing that we have versus our GDP. I mean, we're a very profitable country. We make a lot of money, but we're just, we're spending too much money right now. That really needs to get addressed one way or the other, in my opinion.
Yeah. And then if you sort of, is there a point at which you said a steepening yield curve is good for your bank? Is there a point where it sort of stops becoming good and becomes negative for the economy in your view when you do yield curve?
Yeah, no, that's a great question. If you look at our company, you know, if we get a really steep yield curve, obviously that puts stress, you know, a lot of borrowers out in the marketplace. You want to have a steepness of a curve, but, you know, maybe with the short end coming down and the longer end kind of staying where it is, you know, might be better. You're right, if it gets really steep, that could basically create a lot more issues for some borrowers from that perspective. If rates, the good news of a flatter curve is while NII might get hurt, our credit quality would improve, right? It's not all bad and our mortgage business would grow. We could argue the way we're diversified that rates falling might actually be a better number for the bottom line.
It just hurts NII more from that perspective.
You mentioned earlier the selection in the commercial real estate lending has been working out for you very well. How does it look like on the residential mortgages? Do you see there any changes in trend for asset quality?
No, our mortgage book is really prime quality. I don't think we had any net charge-offs in 2024 or early part of 2025 in our whole mortgage book. I mean, there's people charging up, but we've got recoveries on it. So net, we don't have any loss in that portfolio right now.
Time for one more. I guess maybe just to wrap it up, Daryl, I guess, you know, M&T, you know, very consistent results over time, you know, consistent, you know, kind of high ROTCE, you know, type company. I guess maybe, you know, maybe just to wrap it up, kind of what do you think kind of differentiates M&T and just what keeps that performance so consistent and high?
You know, we start with, you know, we're a bank for our communities. You know, and we really want to serve not just the regional community. If you think of it, we're operating 13 states plus D.C. We're Buffalo down to Richmond up to Maine. And that's for our community banking model. We also have businesses outside that 13 states as well. That's important. We also want to be communities, you know, for other communities in these markets and all that. We really want to focus on being inclusive. You know, a good example of why we want to be so inclusive, we have a big business in business banking. Our team in Washington, D.C. is very diverse. It kind of reflects what the people in that market, you know, look like from that perspective. It's our highest performing team that we have in business banking today.
Kind of making sure that we emulate, you know, kind of what our markets are that we're serving, we think is actually a huge advantage for us. We have that mindset when we go to work all the time. You know, from a financial perspective, if you look at the incentives like the executive management team has, you know, our max payout, like on the performance shares that we get, is a 17% return on tangible common equity, 1.25% return on tangible assets. We have to do that continuously over three years. That's not the highest in the industry, but it's that consistency is what we're trying to do. What the board wants us to do is to be really good and run a really strong bank, but don't go for really high risks.
You can get 20 maybe one year or two years, but you can't continuously stay at 20. It is really having a good foundational bank that is really successful continuously over time. It is so we can serve our customers in good times and bad times, and we can be consistent in the marketplace. That's what M&T is all about.
Perfect, Daryl. Thank you for joining us today.