M&T Bank Corporation

Stand by, your program is about to begin. Welcome to the M&T Bank second quarter 2026 conference call. All lines have been placed on 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 keypad. Thank you for joining us today.

Thank you, Chelsea, and good morning. I'd like to thank everyone for participating in M&T's second 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 Daryl.

Thank you, Steve, and good morning, everyone. Before we discuss our results, I'd like to begin with what continues to define M&T, our purpose, to make a difference in people's lives by knowing them, growing with them, and connecting them with everything they need to thrive. That purpose continues to guide how we invest in our business and in the communities we serve. During the quarter, we helped launch new initiatives to strengthen Boston's position as a premier partner hub for innovation in the partnership with the city and the Boston Foundation as part of You Can't Beat Boston initiative. We also expanded our work with the Spanish government and the ICEX to help support and connect and other international life science companies with Boston's innovation ecosystem. Together these efforts strengthen relationships among businesses, institutions and communities while supporting long-term economic growth in one of the most dynamic markets we serve. We also celebrated the fifth anniversary of our tech hub at Seneca One in Buffalo. We started with an investment in technology talent that has become an important part of both Buffalo's innovation ecosystem and M&T's transformation. Today, the hub serves as a center for technologists, designers, business leaders working together to improve how we serve customers and operate the company. Put simply, we are using technology to scale what has always differentiated M&T. Strong relationships, local knowledge, and disciplined execution. Turning to slide five, we are pleased to receive continued recognition for our company and our people, reflecting the strength of our talent and the trust we have earned in the communities we serve. Now let's turn to slide seven and our second quarter results. Diluted gap earnings per share were $5.32 up from $4.13 in the prior quarter. Net income was $818 million compared to $664 million in the linked quarter. M&T's second quarter results produced an ROA and ROCE of 1.51% and 12.3% respectively. Our results reflect the highest quarterly diluted earnings per share in M&T's history. Our earnings strength was broad-based. We reported the highest quarterly NII since 2023 and record fee income excluding the impact of notable items from prior periods. NII was supported by the strongest quarterly loan growth since 2012, excluding acquisitions and PPP during COVID. We also returned to CRE growth, with average balances increasing for the first time in 2021, excluding acquisitions. We remain disciplined in our profitability, maintaining our strong and stable net interest margin at 370, and in the backdrop of strong loan growth. and others. We are pleased with the outcome, which reflected an implied stress capital buffer of less than 2.5% at 2.2%. include supplemental reporting of M&T's results on a net operating or tangible basis. Net operating income was $823 million, up from $671 million in the linked quarter. Diluted operating earnings per share were $5.35 compared to $4.18 in the prior quarter. Net operating income yielded an ROTA and ROTCE of 1.59% and 18.57%. Next, we'll look a little deeper into the underlying trends that drove our second quarter results. Please turn to slide nine. Taxable equivalent net interest income was $1.8 billion, an increase of $41 million, or 2%, from the linked quarter. Net interest margin was 3.7%, unchanged from the prior quarter, as the earning asset yield increase was offset by higher funding levels in support of loan growth. In conjunction with the recent implementation of our new general ledger, we refined our methodology for calculating annualized taxable equivalent rates for earning assets and interest-bearing liabilities. Previously reported amounts have been adjusted to conform to the current presentation. This adjustment provides a more consistent way of annualizing balance sheet yields. Turning to slide 11 to talk about average loans. Average loans increased $3 billion to $141.4 billion. Growth was broad-based across each of our portfolios led by our commercial lending. Commercial loans increased $2.3 billion to $66 billion aided by growth in middle market, business banking, and several of our specialty businesses. Middle market balances benefited from higher utilization rates. Average CRE loans increased $57 million to $23.6 billion, reflecting strong origination volume. While not shown on the page, end of period CRE balances increased $1.1 billion since March to $24.5 billion, driven primarily by growth in multifamily and industrial. Average residential mortgage loans increased 1% to $25.1 billion, Consumer loans increased 2% to $26.7 billion with growth in the recreational finance and HELOC portfolios. Loan yields increased four basis points to 5.89%, mostly reflecting higher CRE yields, including a benefit from higher non-accrual related interest. This quarter, our earnings release was enhanced to include additional loan balance detail, including industry breakouts, for CNI, property type for CRE, and additional detail on the consumer portfolios. These details can be found on page 16 of the earnings release. Turning to slide 12, our liquidity remains strong. At the end of the second quarter, investment securities and cash held at the Fed totaled $53.9 billion, representing 25% of total assets. Average investment securities increased $0.9 billion to $38.7 billion. The yield on investment securities increased seven basis points to 4.29%. In the second quarter, we purchased $1.1 billion in debt securities with a yield of 5.02%. At quarter end, the investment portfolio had a duration of 3.6 years and the unrealized pre-tax loss on available for sale was $125 million. While not subject to the LCR requirements, M&T estimates that its LCR and Carter N. was 106%, exceeding the regulatory minimum standards that would be applicable if M&T was a Category 3 bank. Turning to slide 13, average total deposits declined $0.7 billion to $163.5 billion. Non-interest bearing deposits decreased $0.6 billion to $43.9 billion, with lower institutional services and commercial partially offset by growth in consumer and business banking deposits. Interest bearing deposits were largely unchanged at $119.6 billion. However, we remixed the portfolio by shedding the highest cost money market deposits and replacing them with lower cost time deposits. Interest bearing deposits cost decreased two basis points to 1.95% with the deposit cost improving across most of our businesses. We remain disciplined in our deposit pricing with a 56% cumulative interest-bearing deposit data since the start of the cutting cycle in 2024. We saw encouraging deposit trends later in the quarter with the end-of-period deposits increasing to $168.9 billion, driven by commercial, business banking, and trust demand deposits. Though end-of-period trust demand deposits can vary each quarter, we usually see More deposit growth in the second half of the year and expect the trend to continue. This focus on deposits should normalize borrowings in the coming year quarters. Continuing on slide 14, non-interest income was $740 million compared to $689 million in the linked quarter. Mortgage banking revenues were unchanged at $127 million. Residential mortgage revenues increased $7 million to $96 million from higher servicing fee income. Commercial mortgage decreased $7 million to $31 million, primarily from lower origination volume in the first quarter. Service charges increased $5 million to $144 million, reflecting higher consumer service charges, mostly from higher transaction volume. Trust income increased $14 million to $197 million from $4 million in seasonal tax prep fees and growth in institutional services and wealth fee income. Derivatives and trading increased $8 million to $22 million from revenues from the interest rate swap transactions with commercial customers. Other revenues from operations increased $26 million to $213 million, reflecting a $47 million Bayview distribution compared to $33 in the prior quarter and the higher credit card and merchant discounts. While the timing of Bayview distributions can vary over the course of the year, the investment remains a meaningful and recurring contributor to our annual earnings profile. New this quarter on pages 17 and 18 of our earnings release include additional details on the underlying drivers of our residential and commercial mortgage and other fee income. Turning to slide 15. Non-entry expense for the quarter was $1.35 billion, a decrease of $89 million from the prior quarter. Salaries and benefits decreased $88 million to $826 million from lower seasonal compensation and staffing levels, partially offset by one additional working day and a full quarter impact on the annual merit increases. Outside data processing and software costs increased $10 million, reflecting continued investments in technology, infrastructure, and cybersecurity. The efficiency ratio improved to 52.8% compared to 58.3% in the linked quarter. Next, let's turn to slide 16 and 17 for credit. Asset quality remained strong in the quarter. The lower net charge-offs and continued improvement in non-accrual and credit-sized loans. Credit-sized commercial loans were 5.9 billion, down from 6.6 billion at the end of March. The improvement from the linked quarter was driven by 590 million decline in CRE, primarily from upgrades in multifamily and office, and 110 million decline in CNI criticized. Non-accrual loans decreased 3% to 1.2 billion, and the non-accrual ratio decreased 5 basis points to 84 basis points. Net charge-offs for the quarter totaled $80 million, or 23 basis points, decreasing from 31 basis points in the linked quarter. Net charge-offs were granular, with no single net charge-off greater than $10 million. In the second quarter, we reported a provision for credit losses of $120 million compared to net charge-offs of $80 million. The allowance for loan losses as a percent of total loans declined one basis point to 1.52%. Joining the slide 18 for capital, M&T's estimated CET1 ratio was 10.19%, decline of 14 basis points from the first quarter. The lower CET1 ratio reflected $465 million in share repurchases and higher risk-weighted assets associated with $3.3 billion of loan growth. These factors were partially offset by continued strong capital generation. If included in regulatory capital, AFF and pension-related AOCI would decrease CET1 ratio by two basis points. Tangible book value per share grew 1% from the first quarter. Now turning to slide 19 for outlook. First, let's begin with the economic backdrop. The US economy has held up well thus far through the energy shock, though we remain cautious. The increase in gasoline prices has been challenging for households. We see them having the shock by reducing spending in other areas and aided by a boost in tax refunds this year. Although the geopolitical conflict has not been fully resolved, we are cautiously optimistic with an outlook of continued growth. U.S. and GDP has slowed, reflecting slowing consumer spending. We do not see evidence of an energy shock seeping into core inflation and we expect overall inflation to deaccelerate going forward. Encouragingly, job growth accelerated again in the second quarter as it did in the first. We remain well positioned for a dynamic economic environment. Now turning to Outlook, we expect NII in the lower half of 7.2 to 7.35 billion range in the full year NIM in the high 360s. We expect continued loan and deposit growth and the second half of the year with full average loans of $141 to $143 billion. This reflects the strength we've seen in the commercial loans inflecting CRE balances and continued growth in consumer. Our deposit outlook remains in the $165 to $167 billion range with a cumulative interest-bearing deposit beta in the low to mid 50% range. NII has continued to depend on the shape of the yield curve and loan and deposit balances. Remain neutral on the short end of the curve. At the same time, our naturally asset sensitive balance sheet provides flexibility and we can adjust our sensitivity as warranted through maturities of cash flow swaps, shifts in cash and securities mix, and the addition of pay fix swaps. We expect fee income to be 2.8 to 2.85 billion, reflecting broad-based strength in fee income year-to-date. The second quarter Bayview distribution and the higher subservicing fee income beginning in the third quarter. Expenses are expected to be at the high end of 5.5 to 5.6 billion range as we continue with our enterprise investments while maintaining overall expense disciplines. Given the strong credit performance in the first half of the year and our favorable collateral positions, we now expect full-year net charge-offs of 37 basis points. We expect to operate the CET1 ratio in the lower part of the 10% to 10.5% range unless market conditions start to deteriorate. To conclude on slide 20, 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. Finally, we are a disciplined acquirer and prudent steward of shareholder capital. The strength and diversification of M&T's balance sheet, capital, 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 one another. Because of all of your commitment, M&T continues to create lasting value for everyone we serve. Now let's open the call up for questions for which Chelsea will briefly review instructions.