Daryl Bible
Chief Financial Officer at M&T Bank
Thank you, Brian, and good morning, everyone. First, I'd like to begin with our purpose on Slide 3. M&T's success continues to be driven by our purpose, making a difference in people's lives. We do this by not only empowering our customers to meet their financial needs, but by supporting the communities where we live and work. As M&T continues to grow, we remain committed to a relationship-based model. We believe our unique knowledge of customers, capital and community allows us to deliver customized solutions that make an impact. In 2024, this impact was evident across the footprint.
In addition to the positive social, environmental and governance accomplishments highlighted on Slide 4, this December, M&T issued our first sustainability bond in conjunction with the publication of our sustainability financing framework, which will guide future issuances. As highlighted on Slide 5, M&T's to garner -- continues to garner awards for the work in 2024, including recognition from industry of our talent achievements and local charitable efforts.
Now let's turn to Slides 7 and 8. Before we get into the fourth quarter, I want to pause and reflect on some of the highlights for 2024. First, I want to take a moment to recognize the hard work and dedication of our 22,000 colleagues who allowed us to have such a successful year. In 2024, we focused on four priorities, including building our New England and Long Island markets, optimizing our resources through simplification, making our systems and processes resilient and scalable and continuing to develop and scale our risk management. The progress we made on these priorities related -- and related enterprise initiatives will allow the bank to continue to grow and scale in coming years.
Our focus on fundamentals is reflected in several of our financial accomplishments in 2024. We executed our financial plan for the year and the results met or exceeded the outlook we discussed last January for NII, fee income, expenses and average loans and deposits. We made significant progress on our CRE concentration, reaching what we believe is a target level. Our capital levels continue to grow through the year and remain strong as we restarted our share repurchase program in the third quarter.
We actively managed our interest-rate sensitivity through our hedging program and securities portfolio to shift our balance sheet toward a more rate neutral position. We manage credit risk, meaningfully reducing non-accrual and commercial criticized balances and having net charge-offs come in largely in line with our expectations. Let's focus on the fundamentals positions M&T for 2025 and beyond and is reflected in our 2024 results with net operating earnings per share of $14.88, ROTA and ROTCE of 1.3% and 14.54% and 11% growth in tangible book value per share.
Turning to Slide 9, which shows the results for the fourth quarter. Our fourth quarter results reflect the continuation of a strong performance we have through the year. There are several successes to highlight. NII was largely stable compared to the third quarter, even considering 100 basis points in rate cuts since the start of the easing cycle in September. Average total loans grew for the fifth consecutive quarter, demonstrating our ability to more than offset the planned reduction in our CRE concentration.
Average total deposits grew by over $3 billion sequentially, while interest-bearing deposit costs declined 24 basis points, reflecting the quality of our deposit franchise. We excluded 200 -- we executed $200 million in share repurchases and grew CET1 ratio to 11.67%. Fee income, excluding notable items, reached another high point for the fourth quarter, aided by the strength in mortgage and trust. Asset quality continued to improve with $1 billion reduction in commercial criticized loans and $236 million reduction in non-accrual loans.
Now let's look at the specifics for the fourth quarter. Diluted earnings per share were $3.86, down from $4.02 in the prior quarter. Net income for the quarter was $681 million compared to $721 million in the linked-quarter. M&T's fourth quarter results produced an ROA and ROCE of 1.28% and 9.75% respectively. CET1 ratio remained strong, growing to 11.67% at the end of the fourth quarter and tangible book value per share grew 1%.
The fourth quarter included several notable items; a securities gain of $18 million or $0.08 per share related to the sale of non-core investments; expense associated with the redemption of certain M&T trust-preferred obligations amounting to $20 million or $0.09 per share. This action has a three year earn-back. Corporate real estate optimization related to expenses amounting to $27 million or $0.12 per share; and a pension-related credit within expenses amounting to $12 million or $0.05 per share benefit.
Slide 10 includes supplemental reporting of M&T's results on net operating or tangible basis. M&T's net operating income for the fourth quarter was $691 million compared to $731 million in the linked-quarter. Diluted net operating earnings per share were $3.92 for the recent quarter, down from $4.08 in the prior quarter. Net operating income yielded an ROTA and ROTCE of 1.35% and 14.66% for the recent quarter.
Next, we look a little deeper into the underlying trends that generated our fourth quarter results. Please turn to Slide 11. Taxable-equivalent net interest income was $1.74 billion, largely unchanged from the linked-quarter. NII for the fourth quarter was $25 million and non-accrual interest compared to $12 million in the third quarter. The net interest margin was 3.58%, a decrease of 4 basis points from the prior quarter. And the primary drivers of the decrease to the margin were a negative 10 basis points related to lower contribution of free funds, partially offset by a positive 3 basis points from the fixed asset -- fixed rate asset repricing and a positive 3 basis points from higher non-accrual interest.
Turning to Slide 13 to talk about average loans. Average loans and leases increased $1 billion to $135.7 billion. C&I and consumer growth continued to outpace the decline in CRE, similar to the trend in the past several quarters. C&I loans grew 2% to $60.7 billion, driven by strength in dealer commercial services, fund banking and corporate and institutional. CRE loans declined 4% to $27.9 billion. CRE as a percent of Tier 1 capital and the allowance is estimated to be 136% at the end of the fourth quarter. Residential mortgage loans were relatively unchanged at $23.1 billion. Consumer loans grew 5% to $24 billion, reflecting increases in recreational finance and indirect auto loans. Loan yields decreased 21 basis points to 6.17% as lower rates on variable loans were partially offset by fixed rate loan repricing, a smaller drag related to cash flow hedges and higher non-accrual interest.
Turning to Slide 14. Our liquidity remained strong. At the end of the fourth quarter, investment securities and cash, including cash-out at the Fed, totaled $54.8 billion, representing 26% of total assets. Average investment securities increased $2.7 billion. The yield on investment securities increased 18 basis points to 3.88% as the yield on new purchases exceeded the yield on maturing securities. In the fourth quarter, we purchased over $3.3 billion in securities at an average rate of 4.96%. The duration of the investment portfolio at the end of the quarter was 3.7 years and the unrealized pre-tax loss on the available-for-sale portfolio was $205 million or 10 basis points CET1 drag, if included in regulatory capital.
Turning to Slide 15. We remain focused on growing customer deposits and saw a solid deposit growth in the fourth quarter. Average total deposits rose $3.1 billion or 2% to $164.6 billion, reflecting $2.6 billion increase in non-brokered deposits. Deposit growth was concentrated in commercial, business banking and institutional services, while consumer deposits declined, reflecting lower time deposit balances. Average non-interest-bearing deposits rose $0.4 billion to $46.5 billion, primarily related to trust demand deposits within our institutional services segment. Non-interest-bearing deposits were largely stable in our other segments. Excluding brokered deposits, the average non-interest-bearing deposit mix in the fourth quarter was 30.4%. Interest-bearing deposit costs decreased 24 basis points to 2.64%.
Continuing on Slide 16. Non-interest income was $657 million compared to $606 million in the linked-quarter. Trust income increased $5 million to $175 million from higher sales and fees in corporate trust and agency services. Mortgage banking revenues were $117 million compared to $109 million in the third quarter. Commercial mortgage banking revenues were the main driver, increasing $7 million from the linked-quarter to $41 million, reflecting higher gains on the sale of commercial mortgage loans. Other revenues from operation increased $24 million to $176 million from a $23 million distribution from M&T's investment in DLG and strong syndication and other loan and letter of credit fees, which increased $5 million. Security gains of $18 million mostly reflect the realized gains on the sale of non-core investments.
Turning to Slide 17. Non-interest expenses were $1.36 billion, an increase of $60 million from the prior quarter. Salaries and benefits increased $15 million to $790 million, inclusive of higher incentive compensation. Equipment and occupancy increased $8 million to $133 million from our new data centers starting to come online. Other costs from operations increased $40 million to $168 million, reflecting the redemption of certain M&T trust preferred obligations and expenses associated with corporate real estate optimization, partially offset by pension-related credit. The efficiency ratio was 56.8% compared to 55% in the third quarter. On an adjusted basis, when excluding notable items, the efficiency ratio was 55.3%.
Next, let's turn to Slide 18 for credit. Net interest charge-offs for the quarter totaled $160 million or 47 basis points, up from 35 basis points in the linked-quarter. The two largest charge-offs totaled $34 million and more C&I loans in unrelated industries; one, a marine dealer and the other in manufacturing. Overall, CRE related charge-offs remain modest. Net charge-offs for the full year were 41 basis points, which is in line with our expectations. Non-accrual loans decreased $236 million or 12% to $1.7 billion. Non-accrual ratio decreased 17 basis points to 1.25%, driven largely by upgrades out of non-accrual as well as pay-offs and charge-offs. In the fourth quarter, we recorded a provision of $140 million compared to net charge-offs of $160 million. The allowance to loan ratio decreased 1 basis point to 1.61%, partially related to the reduction in criticized loans, including those in non-accrual status.
Please turn to Slide 19. When we file our 10-K in February, we estimate that the level of criticized loans to be $9.9 billion compared to $10.9 billion at the end of September. The improvement from the linked-quarter was driven by a $302 million decline in C&I and $691 million decline in CRE criticized balances. Within C&I, the decline in criticized was concentrated in services, health services and dealer segments. The CRE criticized decline was primarily within office, retail, healthcare, hotel and construction. Improved cash flows in many of the portfolios that were impacted by COVID, namely healthcare, hotel and retail and active refinance markets helped drive the improvement in CRE criticized.
Turning to Slide 22 for capital. M&T's CET1 ratio at the end of the fourth quarter was an estimated 11.67% compared to 11.54% at the end of the third quarter. The increase was due to continued strong earnings net of $200 million in share repurchases. At the end of the year, the negative AOCI impact on the CET1 ratio from the available-for-sale portfolio and the pension-related components combined would be approximately 4 basis points.
Now let's -- turning to Slide 24 for outlook. Let's begin with the economic backdrop. The economy again remained resilient to the end of the year and we estimate GDP growth will come in at 2.8% for 2024 once the fourth quarter data is published. Consumer spending remains solid, though we know challenges for some segments reflected by increasing credit delinquency. The labor market remained sturdy in the fourth quarter, while job growth and wage growth supportive of consumer spending and continued economic expansion. We continue to see a soft landing as the most likely outcome for the U.S. economy. Inflation ticked up a bit in the fourth quarter, but we expect it will deaccelerate going forward.
With the economic backdrop, let's review our net interest income outlook. We expect tangible equivalent net interest income to be $7.1 billion to $7.2 billion with the net interest margin increasing through the year and averaging in the mid-360s. Our interest rate sensitivity remains relatively neutral, aided by the balance sheet actions we took in 2024, including adding forward starting hedges and building our securities portfolio. However, shifts in the shape of the yield curve will drive variability in the NII outlook.
We expect full year average loan and lease balances to be $137 billion to $139 billion. This reflects continued growth in C&I and consumer with more modest growth in residential mortgages. Full year average commercial real estate balances are expected to decline in 2024, but we expect the balances to grow modestly in the second half of the year as we build the pipeline and begin to offset pay-offs and pay-downs with new originations. Full year average deposit balances are expected to be $164 billion to $166 billion. We remain focused on growing customer deposits at a reasonable cost and expect to reduce our reliance on non-customer funding sources.
Turning to fee income. We expect non-interest income to be $2.5 billion to $2.6 billion. The continued growth in non-interest income is driven by growth in our core businesses, which we expect will drive higher revenues in mortgage banking, merchant, trust and service charges. Additional mortgage sub-servicing, which is included in our outlook, adds to our ongoing growth. The interest rate environment remains dynamic. However, our diversified product set should help provide relative stability from our fee income businesses.
Continuing with expenses. We anticipate total non-interest expense including intangible amortization to be $5.4 billion to $5.5 billion. The outlook includes our first quarter seasonal salary and benefit increase, which is estimated to be $110 million. Also included in the outlook is approximately $43 million for intangible amortization. Our business lines remain focused on closely managing their expenses, allowing the bank to make targeted investments in projects and business opportunities that support our enterprise priorities.
Regarding credit, we expect net charge-offs for the full year to again be near 40 basis points with continued normalization in the consumer portfolio and improvements in commercial credit costs. We expect taxable-equivalent tax rate to be approximately 24.5%. As it relates to capital, we expect to reach 11% CET1 ratio in 2025. With our 11.67% CET1 ratio at the end of 2024 and the expectation for continued strong capital generation, quarterly share repurchases are expected to be higher in the third and fourth quarter of 2024.
In 2025, we remain committed to our four priorities, including growing our New England and Long Island markets, optimizing resources through simplification, making our systems resilient and scalable and continuing to scale and develop our risk management capabilities. Continued progress and completion of these priorities will enable the bank to continue to grow in the future, both organically and inorganically.
To conclude on Slide 25, our results underscore an optimistic investment thesis. M&T has always been a purpose-driven organization with a successful business model that benefits all stakeholders, including shareholders. We have a long track record of credit outperforming through all economic cycles, while growing within the markets we serve. We remain focused on shareholder returns and consistent dividend growth. And finally, we are a disciplined acquirer and prudent steward of shareholder capital.
Now let's open the call to questions, before which Todd will briefly review the instructions.
