M&T Bank Corporation

Welcome to the M&T Bank third quarter 2026 earnings 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. 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, please press star zero. Please be advised that today's conference 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.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 discussing our results, I'd like to begin with what continues to define M&T. 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 Torreyton and Waterbury, Connecticut And 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 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, These efforts are improving productivity, risk management, and customer experience while enabling greater scalability. Turning to slide five, we were pleased to see continued recognition of our people during the quarter. American Banker, Fast Company, and Investment News 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 eight and our third quarter results. Diluted Gap 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 margins. 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 that 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 a 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 nine. 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. Next, we looked a little deeper into the underlying trends that drove the third quarter results. Please turn to slide 10. Taxable equivalent non-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, non-interest margin was 3.65%, down five 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 tradeoffs 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. CNI 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 paydowns. 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 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 four basis points to 4.33% as reinvestment rates continued 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 free tax loss on the available to 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 3 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 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 costs, reflecting our continued focus on 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 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 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 and other litigation obligations. Our efficiency ratio was 54.4% in the third quarter, up from 52.8% in the link 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 for 35 basis points. Five 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 two basis points to 1.51%. Turning to slide 19 for capital, M&T's estimated CET1 ratio was 10.16%, a decline of three basis points from 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. If included in regulatory capital, AFS and pension related AOCI would have decreased the 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 an 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 shocks seeping into core inflation, we expect overall inflation to deaccelerate going forward. Labor market remains in a low-hire, low-fire environment with slow job growth and low unemployment rate with very little wage pressure. remain well positioned for a dynamic economic environment. Now turning top to the outlook. With three quarters of the year complete, we were focused on the fourth quarter. We expect taxable equivalent NII to be 1.83 to 1.85 billion and net interest margin to be in the mid 360s. Our forecast reflects one rate hike in December. We expect modest loan growth with average loans of 145 to 146 billion and growths in CNI, CRE, and consumer. Average deposits are expected to increase to 169 to 170 billion with continued focus on growing customer deposits at a reasonable cost. Our outlook for the fourth quarter non-interest 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 to 1.41 billion reflecting continued investment in the enterprise initiatives and well-managed non-investment spend. Net charge-outs for the fourth quarter are expected to be 35 to 40 basis points. who plan to continue to operate a CET1 ratio of 10 to 10.25% 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 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. 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 one another. Because of your commitment, M&T continues to create lasting value for everyone we serve. Now let's open the call up to questions, before which Angela will briefly review the instructions.