M&T Bank Corporation (MTB) Earnings Call Transcript & Summary

Welcome to the M&T Bank Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's comments is being recorded. I would now like to hand the conference over to Steve Wendelboe, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Angela, and good morning. I'd like to thank everyone for participating in M&T's Third Quarter 2026 Earnings Conference Call. If you have not read the earnings release we issued this morning, you may access it along with the financial tables and schedules by going to our Investor Relations website at ir.mtv.com. Also before we start, I'd like to mention that today's presentation may contain forward-looking information Cautionary statements about this information are included in today's earnings release materials and in the investor presentation as well as our SEC filings and other investor materials. The presentation also includes non-GAAP financial measures as identified in the earnings release and investor presentation. The appropriate reconciliations to GAAP are included in the appendix. Joining me on the call this morning is M&T's Senior Executive Vice President and CFO, Daryl Bible. Now I'd like to turn the call over to Daryl.

Thank you, Steve, and good morning, everyone. Before discussing our results, I'd like to begin with what continues to define M&T, our purpose to make a difference in people's lives. That purpose informs how we serve customers invest in our equity and create long-term value. At a recent conference, we discussed our focus on teaming for growth and operational excellence. Those priorities continue to guide our work across M&T. We are investing in technology, simplifying processes and creating more capacity for our teams to serve customers and support growth. These efforts build on what has always differentiated M&T strong relationships and disciplined execution. You can see that approach across our company. During the quarter, more than 100 M&T colleagues participated in the Pan-Mass Challenge. Overall, we raised more than 850,000 for cancer research and treatment. We also continued investing in our branch network, opening new locations in Torito and Waterbury, Connecticut to serve our customers. And for the 18th consecutive year, we ranked among the nation's top SBA lenders. We were again #1 across our footprint and improved to #5 nationally for 7a loans by volume for SBA's 2026 fiscal year. Together, these efforts reflect the connections we build with customers, communities and institutions across our footprint. Slides 20 and 21 provide additional context on M&T's approach to AI. We are seeing AI help automate, augment and reinvent work across the bank. In the near term, AI is helping employees make better decisions, reduce manual work, find information faster and identify risks earlier growing engagements across the organization, including hundreds of track use cases, shows strong interest in moving quickly from ideas to execution. These efforts are improving productivity risk management and customer experience while enabling greater scalability. Turning to Slide 5. We were pleased to see continued recognition of our people during the quarter. American Banker, Fast Company and investment news recognize M&T's leaders for their contributions to our bank, customers and industry. These honors reflect the strength of our talent and culture. Now let's turn to Slide 8 and our third quarter results. Diluted GAAP earnings per share were $5.04 compared to $5.32 in the prior quarter. Net income was $775 million compared to $818 million in the linked quarter. M&T's third quarter results produced an ROA and ROCE of 1.4% and and 11.44%, respectively. Our results continue to reflect a disciplined approach to generating attractive returns, delivering consistent balance sheet and earnings growth and continuing to generate and preserve capital. Loan growth remained solid and deposit growth more than funded the increase, allowing us to reduce our reliance on short-term borrowings while maintaining strong net interest margin. We also continued to grow earnings per share with year-to-date net operating earnings per share increasing 17% from the same period in 2025. The -- we delivered net earnings growth from maintaining a return discipline. Third quarter net operating ROTA and ROTCE were 1.47% and and 17.29%, both exceeding the targets established for our long-term incentive structure. Our focus on capital generation and preservation is also reflected in our decision to transfer $8.3 billion of residential mortgage-backed securities from available for sale our residential mortgage-backed securities from available for sale to held to maturity. That action reflects our continued discipline to protecting tangible capital and position us well with potential regulatory framework that includes AFS related AOCI and regulatory capital. Turning to Slide 9. We provided supplemental reporting of our results on a net operating or tangible basis, Net operating income totaled $780 million compared to $823 million in the linked quarter, while diluted net operating earnings per share were $5.08 compared to $5.35 and Next, we look a little deeper into the underlying trends that drove the third quarter results. Please turn to Slide 10. Taxable equivalent net interest income was $1.8 billion, largely unchanged from the linked quarter as the benefit from 1 additional day, earning asset growth and fixed asset repricing were muted by lower nonaccrual interest and higher funding costs. In line with the outlook we provided in July and September, net interest margin was 3.65%, down 5 basis points from the prior quarter, mostly reflecting those same factors that impacted NII. As I mentioned last quarter, we remain disciplined in evaluating the trade-offs between NII and net interest margin with a focus on optimizing overall returns. Turning to Slide 12 to talk about average loans. Average loans held for investment increased $2.6 billion or 2% to $143.3 million. This quarter's growth was driven by commercial real estate and consumer. C&I loans were largely unchanged at $65.9 billion, with growth in institutional CRE offset by lower dealer commercial services. Average CRE loans increased $1.6 billion or 7% to $24.9 billion, reflecting a continuation of the origination strength we saw late in the second quarter and relatively stable payoffs and paydowns. Average residential mortgage loans increased $0.4 billion or 1% to $25.2 billion. Consumer loans increased $0.6 billion or 2% and to $27.3 billion with growth in recreational finance and HELOC portfolios. Loan yields decreased 3 basis points to 5.86%, reflecting lower nonaccrual related interest. For context, third quarter results reflect a $15 million reduction in interest income recognized on commercial loans that were previously in nonaccrual status. Turning to Slide 13. Our liquidity remains strong. At the end of the third quarter, investment securities and cash held at the Fed totaled $52.2 billion, representing 24% of total assets. Average investment securities decreased modestly to $38.6 billion. The yield on investment securities increased 4 basis points to 4.33% and as reinvestor rates continue to exceed the yields on maturing balances. In the third quarter, we purchased $0.9 billion in debt securities of the yield of 5.12%. The investment portfolio had a duration of 4.1 years and the unrealized pretax loss on the available case portfolio was $745 million. While not subject to LCR requirements, M&T estimates its LCR at quarter end was 107%, exceeding the regulatory minimum standards that would be applicable if M&T was a Category 3 bank. Turning to Slide 14 average total deposits rose $3.3 billion to $166.8 billion. Noninterest-bearing deposits decreased $256 million to $43.7 million RECONNECT primarily from lower trust demand deposits. Interest-bearing deposits increased $3.5 billion to $123.1 billion. Growth was driven by commercial mortgage, business banking and time deposits. Interest-bearing deposit costs increased 10 basis points to 2.05%. The increase was driven by several factors, including 2 basis points related to the impact of the September rate hike and 4 basis points related to the growth and repricing of the time portfolio. The remainder largely attributed to growth in other interest-bearing deposit categories. Importantly, the deposit growth allowed us to reduce our reliance on borrowings with average short-term borrowing decreasing by $2.8 billion to $5.2 billion. As a result, total interest-bearing liability costs increased less than the interest-bearing deposit cost, reflecting our continued focus on optimizing overall funding costs and mix. Continuing on Slide 15. We Noninterest income was $743 million compared to $740 million in the linked quarter. Higher residential servicing fee income was largely offset by lower capital markets and advisory and other revenues from operations. Mortgage banking revenues increased $25 million to $152 million. The primary driver was residential mortgage, which increased $23 million to $119 million from higher servicing fee income, reflecting $63 billion of subservicing balances added in June. Trust and Investment Services decreased $5 million to $230 million mostly related to seasonal tax preparation fees in the second quarter. Capital Markets Advisory decreased $9 million to $32 million from lower interest rate swap transactions with commercial customers and lower loan syndication activity. Other revenues from operations decreased $10 million, mostly reflecting a $31 million value distribution compared to $47 million in the prior quarter. Turning to Slide 16. Noninterest expenses for the quarter were $1.39 billion, an increase of $44 million from the prior quarter. Salary and benefits increased $6 million to $82 million mainly from 1 additional working day in the quarter. Outside data processing and software costs increased $19 million and professional services increased $8 million, reflecting higher software maintenance. -- enhancements to our technology infrastructure and other enterprise initiatives. Other costs from operations increased $6 million, primarily from the Visa-related litigation obligations. Our efficiency ratio was 54.4% in the third quarter, up from 52.8% in the linked quarter. Year-to-date, however, efficiency continues to improve, with the ratio improving to 55.1% from 56.3% last year. Next, let's turn to Slide 17 and 18 for credit. Asset quality remained relatively stable this quarter, with net charge-offs below our initial year expectations and nonaccrual loans remaining near cyclical lows. Credit cited loans increased $245 million to $6.1 billion the increase was driven by a $213 million increase in C&I criticized and a $32 million increase in CRE. Nonaccrual loans increased $90 million to $1.3 billion and the nonaccrual ratio increased 5 basis points to 90 basis points. The increase was driven by higher commercial nonaccrual loans, mostly related to office and assisted living credits. Net charge-offs for the quarter totaled $127 million or 35 basis points. 5 credits accounted for approximately $40 million in the net charge-offs and were mostly in the leverage lending and franchise portfolios. In the third quarter, we recorded a provision for credit losses of $135 million. The allowance for loan losses as a percent of total loans declined 2 basis points to 1.51%. Turning to Slide 19 for capital. M&T's estimated CET1 ratio was 10.16%, a decline of 3 basis points in the second quarter. The decline reflected $323 million in share repurchases and higher risk-weighted assets associated with $2.2 billion of loan growth. These factors were partially offset by continued strong capital generation. It included in regulatory capital, AFS and pension-related AOCI would have decreased to ET1 ratio by 29 basis points. Now turning to Slide 22 for the outlook. First, let's begin with the economic backdrop. The U.S. economy continues to expand despite multiple shocks and heightened uncertainty. Although geographical conflicts have not been fully resolved, we are cautiously optimistic with the outlook of continued growth. Gasoline prices remain high, but consumer spending has held up well in spite of energy shocks. We see households as having managed the shock by reducing spending in other areas. The build-out of artificial intelligence infrastructure is helping drive overall construction and CapEx while other sectors are more subdued. While we do not see evidence of energy shock seeping into core inflation, we expect overall inflation to deaccelerate going forward. Labor market remains in a low higher low fire environment of slow job growth and low unemployment rate with very little wage pressure remain well positioned for a dynamic economic environment. Now turning to the outlook. With 3 quarters of the year complete, we expect taxable equivalent NII to be $1.83 billion to $1.85 billion and net interest margin to be in the mid-360s. Our forecast reflects 1 rate hike in December. We expect modest loan growth with average loans of $145 million to $146 million and growth in C&I, CRE and consumer. Average deposits are expected to increase to $169 million to $170 billion, with continued focus on growing customer deposits at a reasonable cost. Our outlook for the fourth quarter noninterest income is $710 to 730, reflecting stable to modest growth across most fee income categories, except for other revenues from operations, given the benefit of Bayview distribution in the third quarter. Fourth quarter expenses, including intangible amortization, are expected to be $1.39 billion to $1.41 billion, reflecting continued investment in the enterprise initiatives and well-managed non-investment spend. Net charge-offs for the fourth quarter are expected to be 35 to 40 basis points. We plan to continue to operate a CET1 ratio of 10% to 10.25% and for the remainder of the year. To conclude on Slide 23, our results underscore an optimistic investment thesis. M&T has always been a purpose-driven organization with 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. Finally, we are a disciplined acquirer and prudent steward of shareholder capital. The strength and diversification of M&T's balance sheet, asset quality and revenue will continue to allow M&T to outperform consistently across cycles. As we close, I want to thank all of my M&T colleagues whose dedication and hard work make a difference every day for our customers, communities and 1 another. Because of your commitment, M&T continues to create last unit value for everyone we serve. Now let's open the call up to questions before which Angela will briefly review the instructions.

[Operator Instructions] Our first question today comes from Daniel Tamayo with Raymond James.

Thank you. Maybe just starting on the funding side. You mentioned the mix shift from borrowings. The deposits in the quarter and the benefit that had. Is there any benefit left from this mix shift? And then just diving into the increase in deposit costs. Just curious if that was more related to competition? Or how much of that came from was impacted by the rate hike in September?

Yes. Thanks, Danny. Let me start with the deposit 1 first. So our deposit costs were up 10 basis points quarter-over-quarter. When you kind of decompose that, 4 basis points of that increase was really attributable to time deposits that we put on towards the end of the second quarter and early third quarter. We had a promotion we were running were doing 12 and 18 months maturities. And at that time, we put on a 405 rate on those CDs. Not knowing that rates were going to go up a whole lot. We just thought it was a good time to issue, get more term funding and pay down borrowings. With the rate increase that we saw late in the third quarter, we're now close to the overnight rate with this term money. We think that's acting really well, and that will stay stable. So if you take that away, our costs were really up around 6 basis points, and that's just normal repricing that we saw that we had to, as we start to implement increases with the higher funds rate from that perspective. On the funding side, we are always looking on the balance sheet for ways to be optimize and do things better and I would sure there's we aren't fully optimized yet, and we'll continue to work on trying to become more optimal. I feel very optimistic on the outlook for net interest income and net interest margin. So I think we'll find other things that we can do down the road over the next year or so that will help us continue to maintain and have really strong performance in this space. .

Great. And then maybe just a longer-term question, kind of similar topic, though, given your focus on growing the operating accounts, but the pressure that we're seeing in the industry on funding on the deposit side, -- how are you thinking about the trade-off between maintaining deposit pricing discipline and then funding loan growth going forward? And just your thoughts on if the deposit pricing could ultimately become a bigger constraint on growth than maybe demand for loans going forward?

Yes. So as you know, Danny, we all of our businesses, whether it's consumer business banking, commercial wealth, we always go to market to get the operating account that we believe is the most important thing to have a relationship that relationship starts with that. And once we get that, we have other opportunities to kind of deepen our relationship with our customers. That's not going to change. And that's really good. If you look at business banking, I've said this before, but it has lower deposits and loans, 3:1 of those deposits are operating accounts. So that's just a pure way you can see of how focused we really are in getting on those operating accounts. As far as pricing goes, yes, it's competitive out in the marketplace. -- and there is loan demand. We'll see how much loan demand we have in 2027 with rates increasing. I guess is we'll have loan demand, but probably at a little bit more modest pace. And I think we'll be able to manage the funding of that effectively. If we go out to term funding, M&T issues very well in the capital market, so we can do that if we need to. But first and foremost, we're going to try to fund our loan growth with our deposit growth.

We'll go next to Scott Siefers with TD Cowen. .

This is actually Bill Young on for Scott my first question, you had some very strong pull-through on CRE this quarter, which was expected and it looks like the outlook for 4Q growth is also looking very solid. But as we look out over the next year and given the evolving higher rate environment, how what are your updated thoughts on AAV positive commercial growth inflection story balanced against the rate outlook?

Yes. It's a great question, Bill. We spent a lot of time talking to Tim Gallagher this week to preparing for this call. He runs our CRE space. And him and his team have worked really, really hard to start growing our CRE portfolio again. And we have 2 quarters in a row now where it's growing really nicely. Higher rates just by definition, is going to make it more challenging for projects to actually basically true out from a financial perspective. But if we're still optimistic, I think Tim and his team have worked hard to get growing and even in a more challenging environment, we still feel confident we're going to be able to grow probably maybe mid-single digit plus or minus in that neighborhood is kind of our expectations. But we were really good at CRE. And to be honest with you, it's always not all what's on the balance sheet. We also have a lot of off-balance sheet alternatives too. And we really want to serve our customers and meet their needs, whether that's on or off balance sheet. So I think both ways, we will be successful in what we need to do.

Great. Very helpful. And then a separate topic. Given the slight uptick in criticized assets this quarter and some of the uncertainties you flagged on the macro in your prepared remarks do you see criticized asset levels, perhaps stabilizing at these levels? How do you kind of think about that as well and the backdrop of a higher rate environment?

Yes. So when you look at or at least near-term projections for criticized balances, we still think the overall portfolio will still be down a little bit. If you look at CRE that's where most of the improvement has been over the last year. That's probably where you're going to continue to see it near term. As you go out into next year, if freight stay higher, that could put pressure on debt service coverage ratios, and that could have some creep maybe starting back into the portfolio there. The C&I portfolio has been up and down a little bit on a criticized basis. . So we don't think that's going to necessarily have a downward trajectory, but kind of bounce along up and down a little bit throughout the next several quarters. But net-net, overall, I think we're optimistic that it's still only short-term down and criticized and we'll see how much rates impact our customers going forward. As you know, as we underwrite our customers, we stress test them under a lot higher interest rates and they will perform well because of that stress testing and renewals. So we are concerned about losses coming in with this higher interest rates, but you might see a little creep in the size side.

We'll go next to John Pancari with Evercore.

This is Joy Sweeney on for John. Just revisiting the criticized loans on the auto leasing credit, the always in company credit that you flagged. Can you provide a little more color on this in terms of was this something you had some pie visibility into? And then do you think this is driven by broader macro or industry pressures? Or for this credit was a little more idiosyncratic?

Yes. We believe it was idiosyncratic. It was in our NDF portfolio. This company was an auto leasing, vehicle remarketing and used car platform. We knew this was coming down the path -- we also have a feel for nonaccrual next quarter as well, and we think that's going to be flat to up a little bit as well. So we're just bouncing at the bottom right now and there's a couple of credits that we see out there that we think will go into nonaccrual. But the loans going on accrual, we do have some curing as well. Net-net, we were up a little bit this quarter. But we're still having a lot of our customers also pure in this portfolio. But we're at really low periods for M&T very close to the bottom. So we're going to bounce along the bottom for a while, I believe.

And 1 more just on back on the lending side, revisiting pricing there, given broader competitive competitiveness, what have you observed in loan spreads and have you seen any changes in recent weeks as credit spreads across the industry have widened.

Yes. When you look at the commercial portfolio, include CRE or whatever, we're actually up 10 basis points from what we had run off versus what we ran up, put on the books this past quarter. So I wouldn't say that you can say that's going to stay that way. But I would say it's relatively flat. Right now, we're showing a little bit positive bias from that perspective. So I think that's good. It's competitive out there, but we're willing to give a little bit on pricing if we have really good structure. We don't want to sacrifice on structure is really what's important to us. And that's something that we aren't going to change from that perspective. But right now, we think what we're putting on the books is still meeting our returns in pretty much most of the situations that we are able to do. .

Our next question comes from Ryan Kenny with Morgan Stanley.

So on the fee income side, it's been a strength for M&C for several quarters. Can you walk through what you expect to see in terms of higher rates impact on the fee businesses and maybe how that trajectory we are across the major line items.

Yes. So the easy ones are higher interest rates on the yield curve is definitely going to slow down our residential mortgage business, and you're seeing that now, obviously, with new home rates above 7.5% to 8% in that range, bouncing along right now. And our RCC business, which is our originate and sell business, in the commercial real estate space is also higher and as lower volume just because it's hard to pencil out and get the economics that we need for our customers in this, right? So those would be softer One of the countercyclical items we have is our mortgage servicing, subservicing businesses. What we have there is most of our subservicing businesses are in government servicing FHA when loans are delinquent and then we're able to cure loans, we actually get paid a reward fee for that. So it's that actually not wishing our customers to have issues, but if they do have issues, we generate more revenue. And when we're able to cure them, we get paid for that even more from that. So that's more countercyclical. If you looking at Corporate Trust. Corporate Trust business is a great fee business, but it's also a good deposit business for us. And if market activity slows down in the capital markets areas, we'll see that space there. We now broke out our line items on capital markets and commercial that's going to probably do well in most situations just because we're putting more resources and more people in that space. We're coming off pretty much very low bottoms. So we're very optimistic as we push more into that space and offer it more to our customers even in a tougher environment, I think we'll be able to own our own and still have success growing in that area. So Net-net, overall, we're very optimistic on fees. It's about 28% of our revenue. We're going to continue to push hard, and we still have strong net interest income and margin, but try to get the fee revenue up into the 30s would be great objective for us to achieve.

Very clear, and I appreciate the enhanced disclosure around fees. And then separately, on the M&A question, any updated thoughts on the Board's appetite for potentially expanding inorganically given the movement in rates of higher rates limit the pool of available sellers because of unrealized losses? Or does it make high-quality deposit franchises more attractive? Can you just walk through the puts and takes there?

Yes. I mean, higher rates definitely changes the mark on the balance sheet and that's real. But what we look at, to be honest with you, deposit franchise is 1 of the most important things we look at, whether no matter what the conditions are because it's hard to really have a bank that funds with operating transaction accounts and have that mindset when you find those, you really a lot of value there. So we're still actively talking to a lot of people in our footprint and something may happen at some point down the road. There's nothing imminent from that perspective. But Renee knows all the CEOs in our marketplace, plus and has good dialogue. And when somebody wants to maybe want to partner with us, they reach out to us. And at that point, we will engage and see if it can work for both parties from that perspective.

Our next question comes from David Chiaverini with Jefferies.

I wanted to follow on the loan side of things. So CRE consumer drove the growth, but C&I was muted -- can you talk through why C&I was muted in the outlook from here on the C&I side?

Yes. So C&I is a big business for us. We have lots of businesses within C&I. I'll just cut to it, Jay. So it was flat this quarter. We had actually nice growth in our institutional CRE kind of relending. We had good growth in our large corporate institutional we actually had good growth in 3 of our 4 major regions in the regional C&I space. What offset us was seasonally, dealer commercial services is at a point now where there's less inventory cars on the platform. So that went down. And then if you look at owner occupied, that wasn't the other 1 that kind of decreased. But net-net, it added to pretty flat. Our outlook, though, for C&I is very optimistic and good for next quarter in my prepared remarks, we said we'd have growth in commercial CRE as well as consumer. So all 3 portfolios, and we believe that's going to happen. And maybe a little bit more challenging with higher rates next year and all that but our teams are really good. We have great relationships with our customers. So we will for our own, and I'm sure we'll have good loan growth and still continue to perform really well as we get into 2017 and beyond.

Great. And then on the net interest margin, you're guiding mid-360s for the fourth quarter. Should we think of that as a sustainable level for multiple quarters? And can you also remind us of the sensitivity to rates on the NIM for M&T going forward?