Earnings Call
M&T Bank Corp (MTB)
Earnings Call Transcript - MTB Q3 2024
Operator, Operator
Welcome to the M&T Bank Third Quarter 2024 Earnings Conference Call. All lines have been placed on listen-only mode and the floor will be open for your questions following the presentation. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brian Klock, Head of Market and Investor Relations. Please go ahead.
Brian Klock, Head of Market and Investor Relations
Thank you, Todd, and good morning. I'd like to thank everyone for participating in M&T's third quarter 2024 earnings conference call, both by telephone and through the webcast. 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 website, www.mtb.com. Once there, you can click on the Investor Relations link and then on the Events and Presentations link. Closed captioning has also been provided for those following along on the webcast. Also, before we start, I'd like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information are included in today's earnings release materials and in the investor presentation, as well as our SEC filings and other investor materials. Presentation also includes non-GAAP financial measures as identified in the earnings release and investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning is M&T's Senior Executive Vice President and CFO, Daryl Bible. Now I'd like to turn the call over to Daryl.
Daryl Bible, CFO
Thank you, Brian, and good morning, everyone. As you will hear on today's call, the third quarter results represent M&T's continued strength through a dynamic economic environment. We continue to support the communities we serve. For the 16th consecutive year, M&T Bank is among the nation's top 10 SBA lenders, ranking number one in Baltimore, Buffalo, Connecticut, Delaware, Syracuse, and Washington, D.C. We recently launched the third phase of our initiative, which will provide $25 million to non-profits focused on financial inclusion and economic growth across New England, Long Island, and New York's Westchester County. We also recently updated several environmental goals, including offsetting 100% of our electricity use with renewable energy by 2030 and establishing interim reduction targets for Scope 1 and 2 emissions. Our employees and products continue to receive awards from consumer, business, and trade organizations. As noted in this morning's press release, we released our third quarter results as we continue to make progress on the plans we laid out in January. There are several successes to highlight. Net interest margin and non-interest income grew sequentially as we continue to grow loans while reducing our commercial real estate concentration. In fact, since the fourth quarter of 2023, we have grown average loans by nearly $2 billion while reducing commercial real estate by over $4 billion and growing commercial and industrial and consumer loans. Funding costs were well managed in this quarter, with a 4 basis point decline in the cost of interest-bearing liabilities. We restarted our share repurchase program in the third quarter and executed $200 million in share repurchases, growing our CET1 ratio to over 11.5%. Non-interest income reached a high point in the third quarter, if we exclude the prior gains on our two divestitures. This was achieved even considering the foregone fee income from those two sold businesses, demonstrating the resiliency and strength of our diversified business model. Asset quality continued to improve this quarter with reductions in both non-accrual balances and commercial credit size loans, with net charge-offs below the full year outlook. Now let's look at the specifics for the third quarter. Diluted GAAP earnings per share were $4.02 for the third quarter, improved from $3.73 in the second quarter. Net income for the quarter was $721 million compared to $655 million in the linked quarter, an increase of 10%. M&T's third quarter results produced an ROA and ROCE of 1.37% and 10.26% respectively. The CET1 ratio remains strong, growing to 11.54% at the end of the third quarter, and tangible book value grew 5%. Of note, the third quarter included a discrete tax benefit of $14 million or an $0.08 EPS benefit. Slide 8 includes supplemental reporting of M&T's results on a net operating and tangible basis. M&T's net operating income for the third quarter was $731 million compared with $665 million in the linked quarter. Diluted net operating earnings per share were $4.08 for the recent quarter, up from $3.79 in the second quarter. Net operating income yielded an ROTA and ROTCE of 1.45% and 15.47% for the recent quarter. Next, let's look a little deeper into the underlying trends that generated our third quarter results. Taxable-equivalent net interest income was $1.74 billion, an increase of $8 million or 1% from the linked quarter. The net interest margin was 3.62%, an increase of 3 basis points from the second quarter. The primary drivers of the increase to the margin were positive 3 basis points from fixed asset repricing, mostly in the investment portfolio and consumer loans, positive 3 basis points from earning asset mix, positive 2 basis points from deposit and wholesale funding mix and costs, partially offset by a negative 4 basis points from lower non-accrual interest and a negative 1 basis point for all other items. Non-accrual interest amounted to $12 million compared to $30 million in the second quarter. Average loans and leases increased slightly to $134.8 billion, with C&I growth outpacing the decline in CRE. C&I loans grew 3% to $59.8 billion, driven by increases in fund banking, dealer commercial services, mortgage warehouse, and franchise lending. Middle market utilization declined modestly, while dealer floor plan utilization increased from the second quarter as a result of slower auto sales and new model arrivals. CRE loans declined 8% to $29.1 billion, reflecting continued low originations and paydowns as we manage our CRE concentration. Residential mortgage loans were unchanged at $23 billion. Consumer loans grew 4% to $22.9 billion, reflecting growth in recreational finance and indirect auto loans. Loan yields were unchanged at 6.38% as lower non-accrual interest was largely offset by the benefit of fixed-rate loan repricing and mix shift. Our liquidity remains strong. At the end of the third quarter, investment securities and cash, including cash held at the Fed, totaled $59 billion, representing 28% of total assets. The average investment securities increased $1.3 billion. The yield on securities increased 9 basis points to 3.7% as the yield on new purchases exceeded the yield on maturing securities. In the fourth quarter, we have $1 billion in securities maturing, with an average yield of 1.8%, which we intend to reinvest. The duration of the investment portfolio at the end of the quarter was 3.6 years, and the unrealized pre-tax gain on the available-for-sale portfolio was $68 million for a 3 basis points CET1 benefit, if included in regulatory capital. We remain focused on growing customer deposits and are pleased with the overall deposit performance. Average total loans declined $2 billion or 1% to $161.5 billion, reflecting a $1.1 billion decline in broker deposits and a $0.9 billion decline in non-broker deposits. Commercial and business banking grew total average deposits from the second quarter while consumer deposits declined sequentially, as we manage more rate-sensitive deposits. Average non-interest-bearing deposits declined $1.6 billion to $46.2 billion from an expected deal-related decline in trust demand deposits and modest continued disintermediation within commercial and consumer. Excluding broker deposits, average non-interest-bearing deposit mix in the third quarter was 30.7%. Interest-bearing deposit costs decreased 2 basis points to 2.88%. Non-interest income was $606 million compared to $584 million in the linked quarter. Trust income was $170 million, unchanged from the prior quarter, with second quarter seasonal tax prep fees of $4 million offset by strong equity market performance and sales performance at ICS. Mortgage fees were $109 million compared to $106 million in the second quarter. Commercial mortgage fees increased $4 million from the linked quarter to $34 million, reflecting an uptick in origination activity. Service charges increased $5 million to $132 million from both consumer and commercial, mostly related to the number of processing days in the quarter. Other revenues from operations were unchanged at $152 million. Non-interest expenses were $1.3 billion, an increase of $6 million from the second quarter. Salary and benefits increased $11 million to $775 million, reflecting one additional working day. Deposit insurance decreased $12 million, reflecting the prior quarter's $5 million incremental special assessment. Other costs from operations increased $12 million to $128 million, driven mostly by M&T's obligation under various agreements to share losses stemming from certain litigation with Visa. The efficiency ratio of 55% was largely unchanged from the second quarter. Net charge-offs for the quarter were $120 million or 35 basis points, down from 41 basis points in the linked quarter. The three largest charge-offs in the quarter totaled $37 million combined and represented two C&I loans and one office CRE loan. Non-accrual loans decreased $98 million or 5% to $1.9 billion. The non-accrual ratio decreased 8 basis points to 1.42%, driven largely by a decrease in CRE non-accruals from upgrades out of non-accrual, as well as several large payoffs and paydowns. In the third quarter, we recorded a provision of $120 million compared to a net charge-off of $120 million. The allowance to loan ratio decreased 1 basis point to 1.62%, as a result of continued improvements in asset quality and improvements in the macroeconomic outlook, partially offset by growth in certain portfolios. When we file our Form 10-Q in a few weeks, we estimate that the level of criticized loans will be at $10.9 billion compared to $12.1 billion at the end of June. The improvement from the linked quarter was driven by a $315 million decline in C&I and $830 million decline in CRE criticized balances. The largest C&I criticized balance decreases were within the motor vehicle and recreational finance dealers and manufacturing segments with smaller changes across most other industries. The largest CRE criticized declines were within health care and construction, with continued but more modest declines in most other property types, except for office. Within health care, we saw an uptick in repayment activity as improvements in occupancy and rent growth combined with declining long-term rates allowed for more viable takeouts. A decline in construction criticized was aided by improved project performance and loan modifications and curtailments as borrowers continue to support these projects. M&T CET1 ratio at the end of the third quarter was an estimated 11.54% compared to 11.45% at the end of the second quarter. The increase was due to continued strong earnings, alongside a $200 million share repurchase in the third quarter. At the end of the third quarter, the negative AOCI impact on the CET1 ratio from available-for-sale securities and pension-related components combined would be approximately 4 basis points. Now let's open the call to questions before which our operator will briefly review instructions.
Operator, Operator
Thank you. The floor is now open for your questions. Our first question will come from Gerard Cassidy with RBC Capital Markets. Please go ahead.
Gerard Cassidy, Analyst
Hi, Daryl, how are you?
Daryl Bible, CFO
Great. How are you doing, Gerard?
Gerard Cassidy, Analyst
Good. Thank you. Daryl, over the years, M&T has done a great job in managing their capital and returning excess capital to shareholders. You're pointing out today that your CET1 ratio is a very strong 11.5% and you have the buyback going on again in the fourth quarter. Can you share with us where do you think the CET1 ratio is at an optimal level? And to get there, could you increase the share repurchases as you go forward into 2025? And once we also get the final Basel III end game, so you guys know what to expect.
Daryl Bible, CFO
Yes. Thanks, Gerard. First, I just want to start with that we have a lot of flexibility when it comes to capital with a CET1 ratio of 11.5%. We have really no negative impact on the AOCI, and we have strong capital generation. That said, as we continue to move forward into the end of the fourth quarter and into 2025, we will continue to look at the economy. The economy continues to grow now. But if we start to slow down, that could impact potential increases to share repurchase. We have made great progress on our criticized loans, they've come down now for two consecutive quarters. We expect the fourth quarter to also show a strong decrease in criticized loans. We believe we are at the point now that our CRE exposure is where we want it to be, and the pipeline is starting to build from that perspective. So, I believe in 2025, we'll return more capital to shareholders, as long as everything plays out as mentioned. We may switch dollar amounts and target more of a CET1 ratio. So for example, we might say we'll buy back in 2025 if we want to stay above an 11% CET1 ratio and do repurchases, and that depends on how much loan growth and RWA growth that we have on the balance sheet. I know 11% is higher than what you would need long term, but we are working on our long-term targets, and we will probably have something to say about that in the next quarter or so.
Gerard Cassidy, Analyst
Very good, and very helpful. As a follow-up, I'm not asking for 2025 guidance since I know it won't come until possibly January. However, it appears that your net interest income has reached its lowest point. According to Slide 9, net interest income seems to have bottomed in the first quarter, and you are gradually increasing net interest income while the margins are clearly expanding. If the forward curve is accurate and if the Federal Reserve is correct in potentially lowering the Fed funds rate to around 3% to 3.5% by the end of next year, along with a positive slope in the curve, could you outline whether the growth you are experiencing might continue and possibly accelerate in 2025, purely based on interest rates?
Daryl Bible, CFO
You start off with a very rosy scenario. Let me just say that our team has worked really hard this past year in '24, and we are really neutral on net interest income and are really happy that this happened just as the Fed started lowering rates. If you look at what's going on, we have really good roll on and roll-off rates in our fixed asset portfolios. I know it is hard for you as analysts to really understand and get those numbers into your models. But if you look at auto and RV, residential mortgages and our investment portfolio, all of those continue to reprice positively this quarter. We expect that to continue next quarter and into 2025. So that's a positive for us. An upward sloping curve would enhance that potential. On the deposit side, I just see it as the strength of our company, Gerard. It is our strong foundation. We have really strong, stable core operating deposits. We are seeing now an initial downward beta of 40%. That's at the higher end of the range that we talked about previously. So that's strong. And when you look at hedging, we know we already have locked in hedge improvements in our swap book that we will reprice. If you look at the cash flow hedges point-to-point, they should go up about 55 basis points, and the fair value hedges should go up about 37 basis points, point-to-point in 2025. That's if rates don't even change. So that's probably very positive from there. So we have a lot of good things going on. Plus, we are growing loans. Even when we were shrinking CRE, we were able to achieve loan growth. So our businesses are performing really well, both on the CRE and C&I side, as well as our consumer businesses. I would say we have a positive mix benefit as we move forward, as we continue to grow that. So that gives me a lot of confidence that net interest income and net interest margin should continue to improve.
Gerard Cassidy, Analyst
Very good. Very helpful. Thank you.
Daryl Bible, CFO
Thank you.
Operator, Operator
Thank you. Our next question will come from Ebrahim Poonawala with Bank of America. Please go ahead.
Ebrahim Poonawala, Analyst
Good morning, Daryl.
Daryl Bible, CFO
Good morning.
Ebrahim Poonawala, Analyst
I'm curious about the decline in criticized loans you mentioned. Do we need rates to drop significantly for criticized loans in commercial real estate to decrease in the next few quarters? Could we expect a substantial decline early next year when we receive updated appraisals or financials from these borrowers? What are the implications of this? Does it affect your perspective on the current 11% CET1 or the existing reserve ratio?
Daryl Bible, CFO
Yeah, thanks for the question, Ebrahim. What I would tell you is this quarter, I pointed out in the prepared remarks that the biggest difference in the third quarter versus the past several quarters is that we actually had a lot of upgrades in our roles. When rates fall, we can see more takeouts and paydowns, and that's occurring with rates coming down. But we are actually getting good upgrades now. If you look specifically in our healthcare sector, the operations have started to really improve. Their occupancy and rents are more positive, and they are cash flowing better, which is really positive. You have to remember that in our criticized book that we have in total, 91% is paying current. So that's really good. If you look at our CRE construction book, that also dropped significantly. That was driven by interest rates and market stabilization in the projects that we have. One of the strengths M&T has with all of our lending is really the clients that we lend to. We select clients very carefully, and they are committed to supporting their credits. You are seeing this momentum come through now. The other thing that we observed this quarter is our RV dealers. We had three significant RV dealers who were able to get rid of their excess inventory in 2022, which helped from an upgrade perspective. So we have a lot of momentum with criticized loans, and I am very optimistic that the fourth quarter will also continue to show strong improvement into 2025. It won’t be a direct line down, but I believe the trajectory is definitely downwards, and I am positive about that.
Ebrahim Poonawala, Analyst
Understood. And just maybe, Daryl, you mentioned drivers of loan growth. You had pretty good C&I growth over the last few quarters. Is this still partly driven by the People's acquisition and the footprint you acquired there? And are we done with the runoff in CRE? Could that flatline from here, or is that still going to be declining somewhat from third quarter levels?
Daryl Bible, CFO
Let me start with the CRE first. Our pipelines are building in CRE. We haven't had large pipelines for a while, so it will take us a couple of quarters for those pipelines to fill up and start seeing it reflected on the balance sheet. But we are making good progress in our CRE portfolio, which gives me confidence as we move into 2025. We won't be shrinking CRE but will be growing it as another component of our revenue growth. As for growth this quarter, it was continued growth. Our specialty businesses that we have—corporate, institutional, fund banking, mortgage warehouse franchise—were all very strong growers this quarter. We were a little soft in the first part of the quarter, but we finished the quarter well. You can see it in our end-of-period loan balances, and we have a lot of momentum going into the fourth quarter. When you look at our regions, Boston, Baltimore, New Jersey, York, PA, and Richmond, Virginia are showing great progress. So I would say we have good momentum in lending and feel good about our revenue projections.
Ebrahim Poonawala, Analyst
Got it. And just one follow-up on the previous response to Gerard. If we don't see a rate cut in the fourth quarter in November or December, does that change your outlook on net interest income and net interest margin from here?
Daryl Bible, CFO
Everything I said, including the list of structural factors, has no impact based on interest rates. So I feel comfortable that we are going up if rates stay flat or even if they rise or fall. We are relatively neutral from an interest rate risk percentage, and while it is hard to be exact, we are as neutral as can be with the balance sheet and its inherent complexities. I feel positive that we have an upward trajectory on margin and net interest income.
Ebrahim Poonawala, Analyst
That's helpful. Thank you.
Operator, Operator
Thank you. Our next question will come from Manan Gosalia with Morgan Stanley. Please go ahead.
Manan Gosalia, Analyst
Hi, good morning Daryl.
Daryl Bible, CFO
Good morning.
Manan Gosalia, Analyst
So I wanted to ask on deposit beta. I think you noted that you are assuming a 40% deposit beta in 4Q. Now deposit betas have been on the way up, or closer to the mid-50s if I recall correctly. Do you expect that betas will accelerate from 4Q as you go into next year as we see more rate cuts and get closer to the betas you saw on the way up?
Daryl Bible, CFO
Yes. I think of it simply. If our betas went up, we peaked at about 55% on the way down, we will probably end up at 55% at some point. It's really about the pace and how quickly you reach that. I felt really good about what we’ve been able to achieve at the end of September. I expect at least a 40% beta repricing down in the fourth quarter, and hopefully, it will continue forward as we get into 2025. I don't think we are going back to where we were, but I feel very positive about our pricing strategy that has been implemented throughout the company.
Manan Gosalia, Analyst
Got it. And then just in terms of the loan growth you were speaking about, it sounds like loan growth will accelerate as you start to build those CRE loans. In terms of funding that loan growth, do you expect to grow deposits in line with loan growth next year? Or is there room to bring down the cash balances? I noticed that they didn't decrease significantly this quarter. Is there some room to utilize cash balances and maybe grow deposits a little slower next year?
Daryl Bible, CFO
I am a big believer that we should operate with the mindset of always being on. By that, I mean we should always be reaching out to our customers for deposits. We won't pay the highest rates or the lowest rates, but we will always seek deposits. We've had four consecutive quarters of customer deposit growth. We will continue to focus on this growth. It is important, especially as we aim to grow loans, to avoid a cyclical effect. I actually would prefer to grow deposits faster than loans. We want to continue to reduce some of our non-core funding if possible.
Manan Gosalia, Analyst
Got it. So it sounds like core deposits continue to grow, you will pay down some of the non-core funding. And would the securities balances grow as well as you move away from cash? Or do you expect to stay at this level of cash?
Daryl Bible, CFO
We currently have about $59 billion combined in cash and investments, and we have been methodical about increasing that investment portfolio. This strategy has been working well for us. You will likely see us approach a yield close to 3.90% towards the end of the year and earlier in the first quarter of next year, with 4% achievable in 2025. So, we will continue to grow our investment portfolio. We have $1 billion maturing in the fourth quarter. We will likely invest $3 billion in the fourth quarter and then reassess how 2025 develops. Regarding cash at the Fed, we will likely not reduce below $20 billion, as we want that flexibility.
Manan Gosalia, Analyst
Got it. Thank you.
Operator, Operator
Thank you. Our next question will come from Christopher Spahr with Wells Fargo. Please go ahead.
Chris Spahr, Analyst
Thank you. Good morning. I have a question about the loan period. Can you hear me better now? Or is it still unclear?
Daryl Bible, CFO
I can now hear you, yes.
Chris Spahr, Analyst
Okay. Sorry about that. Just for the loans in the fourth quarter relative to period end of $136 billion, just is there upside to that if CRE stabilizes? Or do you see some runoff and paydowns in that portfolio, followed by stabilization into 2025?
Daryl Bible, CFO
Yes. I think you will see some runoff in CRE for at least a couple more quarters. Fourth quarter, for sure—first quarter, maybe second quarter. It depends on how quickly our pipelines build and the types of loans we make, whether construction or permanent loans. We aim to have about 20% of our loan book in CRE moving forward. But pipelines are building, and our team will ensure they meet the needs of our clients and communities as we move forward.
Chris Spahr, Analyst
Okay. And then during the quarter, you said that a 200 basis points lower in rates could effectively wipe out the criticized loans in the CRE. Do I have that correct? And if so, what's the timing of that effect on the criticized CRE?
Daryl Bible, CFO
Yes, I didn’t catch the last part of your question. But I got the first part. I wouldn’t say 'wipe out' is appropriate. We have a long history of working with our clients and helping them through challenges, and we will continue to do so. We will always have some criticized loans, as it is part of our DNA. But I feel positive about the downward trajectory in the fourth quarter. I anticipate maintaining this positive trend into 2025.
Chris Spahr, Analyst
Thank you.
Operator, Operator
Thank you. Our next question will come from Dave Rochester with Compass Point. Please go ahead.
Dave Rochester, Analyst
Very good morning guys. Nice quarter.
Daryl Bible, CFO
Thank you.
Dave Rochester, Analyst
On the deposit front, I appreciate the outlook on the beta that 40% you mentioned. I was curious about your thoughts on the noninterest-bearing deposit piece as part of that deposit outlook. I know you’re still running off broker deposits, which has contributed to that decline you've noted for 4Q. But are you factoring in a bit more runoff on the noninterest-bearing side within that? And can you discuss how close we are to a drop in those deposits?
Daryl Bible, CFO
When looking at our non-interest-bearing deposits, I would say that the commercial and consumer side has slowed significantly. There might be a little disintermediation that occurs, but I wouldn't expect much as we move forward. It seems that our non-interest-bearing balances are a function of how we operate, and we have balances from our ICS business, which can be volatile. However, we have witnessed an overall average for noninterest-bearing deposits around 30% when excluding broker deposits. So I feel quite positive about our strategy in this area.
Dave Rochester, Analyst
Okay, great. Just switching to loan growth. I appreciate all the details you provided on the drivers for 3Q. You mentioned those specialty lines, and the middle market utilization was actually down a little bit. When do you expect that utilization to start to increase more meaningfully? If you could just talk about the competitive landscape within C&I overall, that would be great.
Daryl Bible, CFO
In the commercial sector, we did see an increase, particularly in our dealer services, with more cars on the lots driving that utilization. However, it's still down. Some may attribute it to post-election effects. The markets we serve are showing many positive developments, and I anticipate that there will be a growth in needs over time. However, it is challenging to pinpoint exactly when that will occur. We strive to be available and responsive to our clients when they need us. So even though we have our lines, we continue to grow our customers and accounts, which means they may eventually start to draw from those lines.
Dave Rochester, Analyst
Great. Thank you.
Daryl Bible, CFO
Thank you.
Operator, Operator
Thank you. Our next question will come from Frank Schiraldi with Piper Sandler. Please go ahead.
Frank Schiraldi, Analyst
Good morning Daryl.
Daryl Bible, CFO
Good morning Frank.
Frank Schiraldi, Analyst
I know there's a lot of moving parts here. You mentioned the $136 billion in average for next quarter signs that would be sort of 1% growth linked quarter. Do you think that's a good estimate going forward as you talk about pipelines building? Or do you see quarterly growth perhaps even accelerating from that 1% linked quarter annualized number?
Daryl Bible, CFO
We are still in the planning phase for 2025. I would say that growth could range from slightly less than to a little over 1%, with 1% being an average. We want to carry out our strategy to support our customers and communities, which takes precedence. We remain selective in whom we do business with. Hence, we will strive for growth while exercising caution with credit levels. I will be able to provide more clarity on this at our next earnings call.
Frank Schiraldi, Analyst
Okay, fair enough. You also mentioned the repricing of the back book. If we consider rate movements for modeling purposes, could you provide some color on the current rates for the quarters based on repricing?
Daryl Bible, CFO
From a high-level perspective, our C&I portfolio is averaging up about 1% on what's rolling off and on. CRE is averaging up approximately 1.3%. Mortgages are averaging just over 2%, and consumer loans are around 1.4%. Overall, if you blend all the fixed-rate loans, it’s roughly a 150 basis point benefit.
Frank Schiraldi, Analyst
Great. Thanks for the insight.
Daryl Bible, CFO
You're welcome.
Operator, Operator
Thank you. Our next question will come from John Pancari with Evercore ISI. Please go ahead.
John Pancari, Analyst
Good morning Daryl.
Daryl Bible, CFO
Good morning John.
John Pancari, Analyst
In terms of expenses, I noticed that you posted some solid operating leverage this quarter. Your outlook implies continued positive operating leverage near term. Could you share your thoughts for 2025 on the achievable target for positive operating leverage? I believe the Street is looking at about 150 to 200 basis points for full year '25.
Daryl Bible, CFO
We are still shaping 2025. I do believe we will achieve positive operating leverage for 2025. Whether it’s 150 or 200 basis points, you're in the ballpark of where we see things ending up. However, we haven’t fully solidified this yet. It is worth noting that our current expenses reflect project-related increases. We are seeing good performance and progress in our asset quality and loan and deposit growth. This success leads to increases in corporate-wide incentives. I firmly believe 2025 will be a better year than 2024, as we have a lot of positive momentum and need to reward those contributing to that success.
John Pancari, Analyst
That’s helpful. Regarding the credit side, your loan loss reserve ratio as a percentage of loans decreased slightly this quarter to about 162 basis points. Where do you see that trending, considering the expected decline in criticized loans? Is it fair to assume a continued modest decline in that ratio?
Daryl Bible, CFO
Historically, a through-the-cycle charge-off ratio is around 34 basis points. With our loan portfolio's diversification, mostly leaning on more consumer loans, we may see higher charge-off ratios. Nevertheless, we are maintaining robust returns on our assets and ensuring that's a good capital utilization for our shareholders. The mix shift could influence our ratios over the next couple of years, but I think we are strategically diversifying without compromising our performance.
John Pancari, Analyst
Thanks Daryl. Very helpful.
Operator, Operator
Thank you. Our next question will come from Matt O'Connor with Deutsche Bank. Please go ahead.
Nathan Stein, Analyst
Hi, everyone. This is Nathan Stein representing Matt O'Connor. I would like to ask about the trajectory of net interest margin, which was strong this quarter at 3.62%, and you anticipate it to be in the low 3.60s next quarter. This is higher than your previous guidance of being in the high 3.50s for the second half of the year. In September, you mentioned that a 3.60 range for net interest margin seems reasonable for next year. Have your views on the net interest margin trajectory changed considering its strength thus far?
Daryl Bible, CFO
We feel comfortable with a low 3.60s margin for the fourth quarter, and we will provide guidance on January's earnings call. We are positive about our momentum, good repricing, and effectiveness on the deposit side, as well as roll-on and roll-off rates on our fixed-rate loan assets. So I see a lot of opportunities for continued solid performance.
Nathan Stein, Analyst
Okay. Great. And then kind of a nuanced question, but other revenue was in line with 2Q levels. I believe you previously suggested it would come down a bit due to lower syndication revenues and interchange fees. Did those come in better than expected, or was it something else that contributed to the strength? How do you expect this fee line to trend going forward?
Daryl Bible, CFO
Yes, in the other revenue categories, the two largest contributors were loan syndications and merchant and card fees, both doing quite well and contributing to that other revenue category.
Nathan Stein, Analyst
Thank you.
Daryl Bible, CFO
Alright. Thank you.
Operator, Operator
Thank you. Our next question will come from Zach Westerlind with UBS. Please go ahead.
Zach Westerlind, Analyst
Good morning. This is Zach on for Erika. I just had a quick follow-up on the expense question. I know you mentioned that there were some projects that are going to hit in the fourth quarter. Can you clarify if those are one-time type projects or are they expected to remain in the run rate?
Daryl Bible, CFO
It’s a mix, Zach. Some projects, like our new data centers, are coming online in the fourth quarter, which will remain in the run rate. We also have some project expenses that are being incurred in the fourth quarter. We'll give you more specifics regarding our '25 guidance in January. We anticipate strong operating leverage in 2025.
Zach Westerlind, Analyst
Helpful, appreciate that. Additionally, on the credit front. Clearly, you have made significant progress with net charge-offs trending down and good credit quality trends. Can you remind us how you think about through-the-cycle charge-offs?
Daryl Bible, CFO
Historically, we have observed through-the-cycle charge-offs at around 34 basis points. As we bring in more consumer loans as a percentage of total loans, we may experience higher charge-off ratios. Nonetheless, this adjustment allows us to maintain decent returns on the assets we are adding to the balance sheet.
Zach Westerlind, Analyst
Got it. Thanks for taking my questions.
Operator, Operator
Thank you. At this time, I would like to turn the call back over to Brian Klock for any additional or closing remarks.
Brian Klock, Head of Market and Investor Relations
Again, thank you all for participating today. As always, if clarification of any of the items in the call or news release is necessary, please contact our Investor Relations department at area code (716)-842-5138. Thank you and have a great day.
Operator, Operator
Thank you. This does conclude the M&T Bank third quarter 2024 earnings conference call. You may disconnect your lines at this time and have a great day.