M&T Bank Corp. 2026 Q3 Earnings Call

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.mtb.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 Darrell.

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 company, 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 Torrington and Waterbury, Connecticut, to serve our customers. For the 18th consecutive year, we ranked among the nation's top SBA lenders. We were again number one across our footprint and improved to number five nationally for 7(a) 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 tracked 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 InvestmentNews recognized 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 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 remains 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 continue to grow earnings per share with year-to-date net operating earnings per share increasing 17% from the same period in 2025. We delivered net earnings growth while maintaining a return discipline. Third quarter net operating ROTA and ROTCE were 1.47% 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 to held to maturity. That action reflects our continued discipline to protecting tangible capital and positioning us well with potential regulatory framework that includes AFS related AOCI and regulatory capital.

Turning to slide 9, we provide a 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. 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 benefits from one additional day earning asset growth and fixed asset repricing were muted by lower non-accrual 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. Turn to slide 12 to talk about average loans. Average loans held for investment increased $2.6 billion or 2% to $143.3 billion. 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 continuation of the origination strength we saw late in the second quarter and relatively stable payoffs and pay downs. Average residential mortgage loans increased $0.4 billion or 1% to $25.2 billion. Consumer loans increased $0.6 billion or 2% to $27.3 billion with growth in recreational finance and HELOC portfolios.

Loan yields decreased three basis points to 5.86%, reflecting lower non-accrual related interest. For context, third quarter results reflect a $15 million reduction in interest income recognized on commercial loans that were previously in non-accrual status. Turning to slide 13. Our liquidity remains strong. At the end of the third quarter, investment securities and cash out with 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 four basis points to 4.33%, as reinvestment rates continue to exceed the yields on maturing balances. In the third quarter, we purchased $0.9 billion in debt securities with a yield of 5.12%. The investment portfolio had a duration of 4.1 years, and the unrealized pre-tax loss on the available for sale 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 III bank. Turning to slide 14. Average total deposits rose $3.3 billion to $166.8 billion. Non-interest bearing deposits decreased $256 million to $43.7 billion, 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 two basis points related to the impact of the September rate hike and four 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 cost increased less than the interest-bearing deposit cost, reflecting our continued focus on optimizing overall funding costs and mix. Continuing on slide 15. Non-interest 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 operation. 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 sub-servicing 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 and 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 Bayview distribution compared to $47 million in the prior quarter. Turning to slide 16. Non-interest expenses for the quarter were $1.39 billion, an increase of $44 million from the prior quarter. Salary and benefits increased $6 million to $832 million, mainly from one 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 non-accrual loans remaining near cyclical lows. Criticized 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. Non-accrual loans increased $90 million to $1.3 billion, and the non-accrual ratio increased five basis points to 90 basis points. The increase was driven by higher commercial non-accrual loans, mostly related to office and assisted living credits. Net charge-offs for the quarter totaled $127 million, or 35 basis points. Five credits accounted for approximately $40 million in the net charge-offs and were mostly in the leveraged lending and franchise portfolios.