M&T Bank Corporation

Good morning, everyone. Welcome to today's M&T Bank fourth quarter and full year 2025 earnings conference call. All lines have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star, then the number one on your telephone. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. When posing your question, we ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance today, please press star zero, and please be advised that today's conference is being recorded. I would now like to hand the conference over to Rajiv Ranjan, Head of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you both, and good morning. I would like to thank everyone for participating in MNC's fourth quarter 2025 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.mgb.com. Also, before we start, I would 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, Darrell Bible. Now, I would like to turn the call over to Darrell.

Thank you, Rajiv, and good morning, everyone. I'm excited to share our full year 2025 results. M&T has continued to deepen our presence in key markets, expand access in new communities, and build innovative offerings that empower our customers and businesses alike. In the last quarter alone, we delivered on our commitment to expand access to banking in Bridgeport, Connecticut's East End, opening our new full-service Honey Locust Branch community's first new bank branch in decades. We partnered with the Baltimore Ravens and wide receiver they flowers to launch our financial fitness Academy to give young people dynamic real world tools to build financial confidence. And we launched our new banking made for business suite of business banking solutions tailored to support small and mid sized businesses throughout the growth of their lifecycle. These efforts reflect our long-term commitment to creating economic opportunities and our purpose to make a difference in people's lives. Turning to slide four, we continue to garner recognition for our businesses and our people, including those who lead the engagement with you, our investors and analysts. Now let's turn to slide six and seven. Before getting into the details of the fourth quarter, I want to pause and reflect on some of the highlights for 2025. The progress we made against our four 2025 priorities and related enterprise initiatives will allow us to grow and scale in the coming years. I look forward to executing against our updated priorities in 2026. Our focus on the fundamentals drove our continued success realized consistent and continued growth while also remaining disciplined and return focused. We earned record net income of $2.85 billion and record EPS of $17 while also maintaining our top quartile return on tangible assets of over 1.4%. We increased our quarterly dividend by 11%. We purchased 9% of our outstanding shares and grew tangible book value per share by 7%. We made great progress on improving our asset quality with non-accruals decreasing 26% and the non-accrual percentage of total loans reaching 90 basis points, the lowest since 2007. We also reduced criticized commercial loans by 27% over the course of the year. We grew fee income by 13% reaching a record of $2.7 billion, and we increased our fee mix as a percentage of revenue from 26% to over 28%. Expenses remain well controlled. The efficiency ratio improved from 56.9% to 56%, while making significant enterprise investments that will allow M&T to thrive in the years to come. Turn to slide 8. which shows the results for the fourth quarter. Diluted GAAP earnings per share were $4.67, down from $4.82 in the prior quarter. Net income was $759 million compared to $792 million in the linked quarter. M&T's fourth quarter results produced an ROA and ROCE of 1.41% and 10.87% respectively. The fourth quarter included two notable expense items, a $29 million reduction in FDIC expense related to the lower estimated special assessment, adding $0.14 to EPS, and a $30 million charitable contribution, which reduced EPS by $0.15. Slide 9 includes supplemental reporting of M&T's results on a net operating or tangible basis. M&T's net operating income was $767 million compared to $798 million in the linked quarter. Diluted net operating earnings per share were $4.72, down from $4.87 in the prior quarter. Net operating income yielded an ROTA and an ROTCE of 1.49% and 16.24% for the recent quarter. Next, we'll look a little deeper into the underlying trends that generated our fourth quarter results. Please turn to slide 10. Taxable equivalent net interest income was $1.79 billion, an increase of $17 million, or 1%, from the linked quarter. The net interest margin was 3.69%, an increase of one basis point from the prior quarter. This improvement was driven by A positive four basis points from higher asset liability spread driven by continued fixed asset repricing and favorable funding mix. Positive three basis points from a reduction in negative impact of our interest rate swaps. Partially offset by negative six basis points from the lower contribution of net free funds. Turning to slide 12 to talk about average loans. Average loans and leases increased $1.1 billion to $137.6 billion. Higher commercial, residential mortgage, and consumer loans were partially offset by a nominal decline in CRE balances. Commercial loans increased $0.5 billion to $62.2 billion, aided by growth in dealer commercial services, and to a lesser extent, REIT lending, business banking, and fund banking. CRE loans declined 1% to $24.1 billion, reflecting a slowing pace of decline in the portfolio with continued payoffs and paydowns and higher originations. Residential mortgage loans increased 2% to $24.8 billion. Consumer loans grew 1% to $26.5 billion, reflecting growth in recreational finance and HELOC. Loan yields decreased 14 basis points to 6%, reflecting lower rates on variable rate loans, partially offset by continued fixed rate loan repricing, including reduction in the negative impact on our interest rate swaps. Turning to slide 13, our liquidity remains strong. At the end of the fourth quarter, investment securities and cash held at the Fed totaled 53.7 billion, representing 25% of total assets. average investment securities increased slightly to $36.7 billion. In the fourth quarter, we purchased a total of $0.9 billion in debt securities with an average yield of 4.9%. The yield on the investment securities increased four basis points to 4.17%, reflecting continued fixed rate securities repricing benefit. Regulation of the investment portfolio at the end of the quarter was 3.4 years, and the unrealized pre-tax gain on available for sale portfolio was $208 million, or a 10 basis point CET1 benefit if included in regulatory capital. While not subject to the LCR requirements, M&T estimates that its LCR on December 31st was 109%, exceeding the regulatory minimum standards that would be applicable if we were a Category 3 institution. Turning to slide 14, average total loans rose $2.4 billion to $165.1 billion. Non-interest-bearing deposits increased $0.1 billion to $44.2 billion. Interest-bearing deposits increased $2.2 billion to $120.9 billion, driven by growth in commercial and business banking, partially offset by smaller declines in consumer and corporate trust deposits. Interest-bearing deposit costs decreased 19 basis points to 2.17%, aided by lower retail time deposit costs and lower interest checking and savings costs across our business lines. Continuing on slide 15, non-interest income was $696 million. quarter. Mortgage banking revenues were $155 million, up from $147 million in the third quarter. Residential mortgage banking revenues decreased $3 million to $105 million. Commercial mortgage banking increased $11 million to $50 million, driven by higher gains on the sale of commercial mortgage loans. Trust income increased $3 million to $184 million from higher institutional services fee Other revenues from operations decreased $67 million to $163 million, primarily from prior quarter items, including the $28 million distribution of an earn-out payment, a $20 million debut distribution, and a $12 million gain on the sale of equipment leases. Turning to slide 16, non-interest expenses for the quarter were $1.38 billion, an increase of $16 million from the prior quarter. Salary and benefits decreased $24 million to $809 million from lower severance and other benefit-related expenses. Professional services increased $24 million to $105 million, reflecting higher legal and review costs. FDIC expense decreased $21 million, mostly related to the reduction in the estimated special assessment expense. Other costs of operations increased $15 million to $151 million from the $30 million contribution to the M&T Charitable Foundation, partially offset by the settlement gain from the pension annuity purchase and the prior quarter impairment of renewable energy tax credit investment. The efficiency ratio was 50-50. turned to slide 17 for credit. Net charge-offs for the quarter totaled 185 million, or 54 basis points, increasing from 42 basis points in the linked quarter. Net charge-offs reflect the resolution of three previously identified credits, totaling over 100 million. Non-accrual loans decreased 17% to 1.3 billion. The non-accrual ratio decreased 20 basis points to 90 basis points. driven largely by payoffs and chargeoffs of the commercial and CRE non-approval loans. In the fourth quarter, we reported a provision for credit losses of $125 million compared to net chargeoffs of $185 million. The allowance for loan losses as a percent of total loans decreased five basis points to 1.53% from improved asset quality and macroeconomic factors. Slide 18 has a summary of our NDFI portfolio. The NDFI portfolio increased $1.3 billion from the third quarter to $12.6 billion. The increase was driven by both net new loan growth and a recategorization of certain CNI loans as NDFI. Please turn to slide 19. The level of criticized loans was $7.3 billion compared to $7.8 billion at the end of September. The improvement from the link quarter was largely driven by a $429 million decline in CRE criticized balances. The CRE decline was broad-based with lower criticized levels across nearly all property types. Given the consistent improvement in criticized, we will likely exclude the detailed criticized information and future earnings presentations. But the detail will continue to be available in our 10-K and 10-Q reporting. Turning to slide 22 for CAPA. M&T's CET-1 ratio was an estimate of 10.84%, a decline of 15 basis points in the third quarter. The lower CET ratio reflects a 507 million in Q repurchases and an increase in risk-weighted assets, largely from higher end-of-period commercial loans, partially offset by continued strong capital generation. The AOCI impact on the CET1 ratio from AFS securities and pension-related components combined would be approximately a positive 13 basis points, if included in regulatory capital. On slide 23, we have our employer which is shaped by two priorities drawn from the work across the company. The first is what we call operational excellence. We are building an enterprise that can operate at scale with greater consistency, efficiency, and transparency. Our focus is on creating intelligent, simplified operations that make it easier for customers to do business with us and easier for our teams to deliver. This includes to strengthening our shared standards, streamlining processes, equipping colleagues with better tools, and maturing capabilities such as automation and enterprise-wide control processes. These steps help reduce risk, improve performance, and free our people to focus on the work that matters most. The second priority is teaming for growth. We are leaning into more unified enterprise-wide approach to growth, bringing together markets, business lines, and capabilities so clients experience us as one bank. When we integrate the strengths across regions and when we match local insight with the scale of M&T and Wilmington Trust, we unlock opportunities we cannot reach in silence. This focus is about deepening relationships more coordinated planning, and a shared approach to serving clients across the spectrum, from retail to commercial to wealth. Together, these priorities help deliver us consistent value, position the bank for the long-term performance, and strengthen how we serve the communities that rely on us. Now, turning to slide 24 for the outlook. First, let's begin with the economic backdrop. The economy continues to hold up well despite the ongoing concerns and uncertainty regarding tariffs and other policies. Private data sources reported decent spending growth in the holiday season and roughly a 4% through price increases have driven some of that growth. The economy bounced back in the third quarter to the strongest expansion in two years but we are cautious of possible revisions and a slowdown once the fourth quarter data is collected. Businesses continue engaging in CapEx and equipment, while spending on new buildings remain in decline. Although overall economic activity was resilient, we remain attuned to the risk of the slowdown in coming quarters due to weakening labor markets. We remain well positioned for a dynamic economic environment. Now turning to the outlook, starting with net interest income. We expect taxable equivalent net interest income to be 7.2 to 7.35 billion as net interest margin in the low 370s. Our outlook includes 50 basis points of rate cuts in 2026, though our sensitivity to the short end of the curve remains relatively neutral. That said, shifts in the shape of the curve could drive variability in the NII Outlook. We expect full-year average loans to be $140 to $142 billion. Reflected in the priority discussed earlier, we have renewed focus on growing relationship customers and our community bank regions across all business lines. This outlook includes point-to-point growth in each of the four main loan portfolios, though we expect the full-year CRE balances to be lower than the 2025 full year average. The full year average deposits are expected to be $165 to $167 billion. We remain focused on growing customer deposits at a reasonable cost and expect broad-based growth across each of the business lines. Turning to fee income, we expect non-interest income to be $2.675 to $2.775 billion. We expect growth to be broad based across our fee income categories and business lines. Continuing with expenses, we expect total non-interest expense, including intangible amortization, to be $5.5 to $5.6 billion. Our expense outlook includes continued investment in enterprise initiatives while also closely managing non-investment spend. This outlook includes our usual first quarter seasonal salary and benefit increase, which is estimated to be 110 million. We also included in the outlook is approximately 31 million in intangible amortization. As of January 1st, we elected to carry our own residential MSRs at fair value rather than the prior treatment of lower of cost or market. We have also begun hedging the changes in fair value of those MSRs. Along with this election, MSR amortization is no longer to be recognized as an expense and instead the impact of the MSR time decay emulated hedging will be net with mortgage banking revenues. These changes are included in the fee and expense guidance ranges but has minimal impact on net income or PPNR. The MSR fair value election also adds $197 million in regulatory capital or an eight basis point benefit to the CET1 ratio. Regarding credit, we expect charge-offs for the full year, again, to be near 40 basis points. We expect taxable equivalent tax rate to be 24 to 25, 24.5%. to 10.5% in 2026. We always run a bank to generate the best returns for our shareholders, offer appropriate capital levels, and return excess capital to shareholders. Given the current capital levels, continued strong capital generation, we have significant flexibility to continue to support lending, pursue opportunistic and organic growth, and return excess capital to shareholders. or be opportunistic with key repurchases, or also monitoring the economic backdrop and asset quality trends. To conclude on slide 25, our results underscore our 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 in our shareholder returns and consistent dividend growth. And finally, we are a disciplined acquirer and prudent steward of shareholder capital. Last, I would like to thank Brian Clough for his leadership and contribution to M&T's investor relations since he rejoined the bank in 2021. I look forward to his continued impact as he leads the bank strategy function. I'd also like to welcome Rajiv Ranjan, a 20-year-plus M&T finance veteran who will be leading M&T's investor relations along with several other finance functions. As we close, I want to thank my M&T colleagues for serving our customers and communities. It was because of all of you that M&T continues to be the top-performing community bank. Now with that, let's open up the call to questions, before which Beau will briefly review the instructions.