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F500-2020-438-MT-Bank-Corp

A Buffalo, N.Y.-based bank, M&amp;T held roughly $120 billion in assets as of the end of 2019.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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M&amp;T Bank Corporation was founded in 1856 and offers banking and financial services through its three segments: commercial bank, retail bank, and institutional services and wealth management. Its two holdings, M&amp;T Bank and Wilmington Trust, operate locations in New England.

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M&T Bank (MTB): Company Profile, Stock Price, News, Rankings

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M&T Bank

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Welcome to the M&T Bank third quarter 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 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 do 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 turn the conference over to Steven Wendelboe, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Katie, and good morning. I'd like to thank everyone for participating M&T's third 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.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 Chief Financial Officer, Daryl Bible.

Now I'd like to turn the call over to Daryl.

Thank you, Steve, and good morning, everyone. M&T continues to serve as a trusted partner for our customers and communities, bringing together people, capital, and ideas to make a difference. Earlier this quarter, we released our 2024 Sustainability Report, which highlights our community impact and the progress we've made towards meeting our sustainability goals. Highlights include $5 billion in sustainable lending and investments, and over $58 million contributed to nonprofits through corporate giving and the M&T Charitable Foundation. We are also proud to share that M&T is now the top SBA lender across our footprint by total volume as of the end of the SBA fiscal year, September 30th. Our small business enterprise continues to be an important component of our support for entrepreneurs and local economy.

Turning to slide four, our businesses and leaders, notably our women in leadership, continue to receive accolades from the industry, including recognition of our Wilmington Trust team and individual recognition for leaders across the bank. Turn to slide six, which shows the results for the third quarter. Our third quarter results reflect M&T's continued momentum with several successes to highlight. We produce strong returns with operating ROTA and ROTCE of 1.56% and 17.13%. Our net interest margin expanded to 3.68%, demonstrating a relatively neutral asset sensitivity, well-controlled deposit and funding costs, and the continued benefit of fixed-rate asset repricing. Strong fee income performance we have seen throughout the year continued, with fee income excluding notable items reaching a record level. Revenues grew more than expenses, resulting in our third quarter efficiency ratio of 53.6%.

Asset quality continues to improve with a $584 million, or 7%, reduction in commercialized credit-sized balances and a $61 million, or 4%, reduction in non-accrual loans. We increased our quarterly dividend per share by 11% to $1.50 and executed a $409 million in share repurchases, also growing tangible book value per share by 3%. Now let's look at the specifics for the third quarter. Diluted GAAP earnings per share were $4.82, up from $4.24 in the prior quarter. Net income was $792 million compared to $716 million in the linked quarter. M&T's third quarter results produced an ROA and ROCE of 1.49% and 11.45%, respectively. The third quarter included a notable fee item of $28 million related to the distribution of an earnout payment to M&T associated with a 2023 sale of our CIT business, adding $0.14 to EPS.

Slide seven includes supplemental reporting of M&T's results on a net operating or tangible basis. M&T's net operating income was $798 million compared to $724 million in the linked quarter. Diluted net operating earnings per share were $4.87, up from $4.28 in the prior quarter. Next, we look a little deeper into the underlying trends that generated our third quarter results. Please turn to slide eight. Taxable equivalent net interest income was $1.77 billion, an increase of $51 million, or 3% from the linked quarter. The net interest margin was 3.68%, an increase of six basis points from the prior quarter. This improvement was driven by a +4 basis points related to the prior quarter catch-up premium amortization on certain securities, +3 basis points from higher asset liability spread, mostly from continued fixed asset repricing, partially offset by lower contribution of net free funds.

Turn to slide 10 to talk about average loans. Average loans and leases increased $1.1 billion-$136.5 billion. Higher commercial, residential mortgage, and consumer loans were partially offset by a decline in CRE balances. Commercial loans increased $0.7 billion-$61.7 billion, aided by growth in our corporate and institutional fund banking and loans to REITs. CRE loans declined 4% to $24.3 billion, reflecting the full quarter impact of last quarter's loan sale and continued payoffs and paydowns. Residential mortgage loans increased 3% to $24.4 billion. Consumer loans grew 3% to $26.1 billion, reflecting increases in recreational finance and HELOC, while auto loans were largely stable from the second quarter. Loan yields increased 3 basis points to 6.14%, aided by continued fixed-rate loan repricing, including a reduction in the negative carry on our interest rate swaps and sequentially higher non-accrual interest. Turning to slide 11, our liquidity remains strong.

At the end of the third quarter, investment securities and cash held at the Federal Reserve totaled $53.6 billion, representing 25% in total assets. Average investment securities increased $1.3 billion-$36.6 billion. In the third quarter, we purchased a total of $3.1 billion in securities with an average yield of 5.2%. The yield on the investment securities increased to 4.13%, reflecting the prior quarter catch-up premium amortization on certain securities and continued fixed-rate securities repricing benefit. The duration of the investment portfolio at the end of the quarter was 3.5 years, and the unrealized pretax gain on available for sale portfolio was $163 million, or 8 basis points. CET1 benefit if included in regulatory capital.

While not subject to the LCR requirements, M&T estimates that its LCR on September 30th was 108%, exceeding the regulatory minimum standards that would be applicable if we were a Category III institution. Turning to slide 12, average total deposits declined $0.7 billion-$162.7 billion. Non-interest-bearing deposits declined $1.1 billion-$44 billion, mostly from lower commercial non-interest-bearing deposits related to a single customer client. We continue to consider the entirety of the customer relationships as we assess our overall deposit funding mix. Interest-bearing deposits increased $0.4 billion-$118.7 billion, driven by growth in commercial and business banking, offset by the decline in consumer and institutional deposits. Interest-bearing deposit costs decreased 2 basis points to 2.36%, aided by lower retail prime-time deposit costs and lower interest checking costs across other business lines.

Continuing on slide 13, non-interest income was $752 million compared to $683 million in the linked quarter. We saw continued strength across all fee income categories. Mortgage banking revenues were $147 million, up from $130 million in the second quarter. Residential mortgage revenues increased $11 million sequentially to $108 million from higher servicing fee income. Commercial mortgage banking increased $6 million-$39 million. Trust income was relatively unchanged at $181 million as the prior quarter seasonal tax preparation fees were largely offset by growth in wealth management and fee income. Trading and FX increased $6 million-$18 million from higher commercial customer swap activity. Other revenues from operations increased $39 million-$230 million, reflecting $28 million distribution of an earnout payment, $20 million Bayview distribution, and the gain on the sale of equipment leases.

These items were partially offset by $25 million in notable items in the prior quarter. Turning to slide 14, non-interest expenses for the quarter were $1.36 billion, increased $27 million from the prior quarter. Salaries and benefits increased $20 million-$833 million, reflecting one additional working day and higher severance-related expense, which increased $17 million sequentially. FDIC expense decreased $9 million-$13 million, mostly related to the reduction in estimated special assessment expense. Other costs of operations increased $23 million-$136 million, reflecting higher expense associated with a supplemental executive retirement savings plan due to market performance and the impairment of renewable energy tax credit investment. The efficiency ratio was 53.6% compared to 55.2% in the linked quarter. Next, on slide 15 for credit, net charge-offs for the quarter were $146 million, or 42 basis points, increasing from 32 basis points in the linked quarter.

The increase in net charge-offs reflects the resolution of several previously identified C&I credits, the two largest of which totaled $49 million. CRE losses remain muted in the third quarter. Non-accrual loans decreased by $61 million. The non-accrual ratio decreased 6 basis points to 1.1%, driven largely by payoffs, paydowns, charge-offs of commercial and CRE non-accrual loans. In the third quarter, we recorded a provision for credit losses of $125 million compared to net charge-offs of $146 million. Included in the provision expense is a $15 million provision for unfunded commitments related to the letter of credit to a commercial customer. The allowance for loan loss as a percent of total loans decreased three basis points to 1.58%, reflecting lower criticized loans. Please turn to slide 16. The level of criticized loans was $7.8 billion compared to $8.4 billion at the end of June.

The improvement from the linked quarter was largely driven by a [$71 million] decline in CRE criticized balances. The decline in CRE criticized balances was broadly based, with lower criticized balances across nearly all property types. Turning to slide 19 for capital, M&T CET1 ratio was an estimated 10.99%, unchanged from the second quarter. The stable CET1 ratio reflects capital distributions, including $409 million in share repurchases, offset by continued strong capital generation. In the third quarter, we also increased our quarterly dividend by 11% to $1.50. The AOCI impact on the CET1 ratio from available for sale securities and pension-related components combined would be approximately 13 basis points if included in regulatory capital. Now turning to the slide for the outlook. First, let's begin with the economic backdrop. The economy continues to hold up well despite ongoing concerns and uncertainty regarding tariffs and other policies.

The passage and signing of the One Big Beautiful Bill Act into law removed one source of uncertainty and also gave businesses more incentive to invest in new capital. The economy bounced back in the second quarter after having contracted in the first. Consumer spending proved resilient despite tariff impacts. Businesses continued engaging in CapEx, though it was heavily in tech, software, and transportation equipment, while spending on new buildings remained in decline. Although overall economic activity was resilient, we remain attuned to the risk of a slowdown in coming quarters due to the weakening labor market. The possibility of declining jobs or the rise in the unemployment rate would likely cause weaknesses in consumer spending and possibly business CapEx too. We continue to monitor the possibility of a prolonged government shutdown and the potential impact on our customers, communities, and broader economy.

We remain well-positioned for a dynamic economic environment with strong liquidity, strong capital generation, and a CET1 ratio of nearly 11%. Now turning to outlook, we have three quarters of the year complete. We will focus on the outlook on the fourth quarter. We expect taxable equivalent NII of approximately $1.8 billion, which implies full-year NII, excluding notable items, to be at the low end of the $7 billion-$7.15 billion range, in line with the outlook we discussed in September. Fourth quarter net interest margin is expected to be approximately 3.7%. Our forecast reflects two additional rate cuts in the fourth quarter. We expect continued loan growth and average total loans of $137 billion-$138 billion, with growth in C&I, residential mortgage, and consumer, and a moderating pace in CRE decline. Average deposits are expected to be $163 billion-$164 billion.

Our outlook for the fourth quarter non-interest income was $670 million-$690 million, reflecting continued strength in mortgage, trust, service charges, and commercial services. We expect other revenues from operations to revert toward a more normalized level. This would imply full-year non-interest income, excluding notable items, well above the top end of our prior range of $2.5 billion-$3.6 billion. Fourth quarter expenses, including intangible amortization, are expected to be $1.35 billion-$1.37 billion. This would imply full-year expense in the top half of our prior outlook of $5.4 billion-$5.5 billion. This is being driven by an increase in professional services. Net charge-offs for the fourth quarter are expected to be 40-50 basis points, with a full-year net charge-offs of less than 40 basis points. Our outlook for the fourth quarter tax rate is 23.5%-24%.

We plan to operate with a CET1 ratio in the 10.75%-11% range for the remainder of the year. We will be opportunistic with share repurchases and are also continuing to monitor the economic backdrop and asset quality trends. As shown on slide 21, we remain committed to our four priorities, including growing our New England and Long Island markets, optimizing our resources through simplification, making our systems resilient and scalable, and continuing to scale and develop our risk management capabilities. To conclude, on slide 22, 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 a prudent steward for shareholder capital. Now let's open the call up to questions, before which Katie will briefly review the instructions.

Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. We will pause for just a moment to allow questions to queue. Our first question will come from Scott Seifers with Piper Sandler. Your line is open.

Morning, Daryl. Thank you for taking the question. I wanted to ask first on loan growth. You know, really good traction in a few components of the loan portfolio, but CRE is still moderating, albeit at a slower pace. Maybe just sort of a thought on where we stand with the actual inflection of the CRE book, sort of timing and magnitude, stuff like that.

Yeah. If you want to talk about CRE and our customers in CRE, I would say it's looking like much more of a rebound now. The amount of production that's being done and that's going through our system and our approval rates are double what they were in prior quarters. We're really producing and having a lot more activity. Still having some payoffs and paydowns overall, but we feel very optimistic on the growth of that, you know, coming in the next quarter or two. If you look at the areas that we're really focused on right now, it's primarily in multifamily with industrial a close second. We also are interested in looking at retail, hotel, and healthcare. That's on a case-by-case basis. Office, we know pretty much we're still looking to reduce there.

Overall, I think we're really moving in the right direction and feel very good about what we're seeing and have real good positive trends moving forward.

Perfect. Okay. Thank you. Maybe just if you could expand upon your thoughts on sort of M&T's position in the now consolidating large regional environment, just given all the events of the last few weeks. I think you all have been quite transparent about what you'd be interested in and have such a history of discipline. Just curious now that we're actually seeing activity, how do you sort of balance the maybe finite regulatory window, need to have willing sellers? Does it cause you at all to sort of expand your geographic base a little to increase the number of possibilities, or will you simply kind of stay close to your knitting?

Yeah, Scott, we've been very successful with the model that we've had for a very long time. Our strategy is really to continue to grow share and customers in the markets that we serve. I'm sure an acquisition will come at some point down the road. Not sure when that's going to be, but when it happens, it will probably be within our footprint. It may stretch into another footprint a little bit depending on who the company is that we partner with from that perspective. It's going to happen when it happens, Scott. Our strategy works. If you look at our performance and our earnings, all really strong, and we're going to continue to execute on this strategy and be very successful.

Perfect. All right. Thank you very much, Daryl.

Thank you. Our next question will come from Gerard Cassidy with RBC. Your line is open.

Good, thanks. Just to follow up on what you just said about the approvals on commercial real estate, I think you said they're double from what they were prior. Can you share with us a little deeper how did that happen or what's changed to have more approvals?

I think as we ramp back up with our new systems and processes that we have, earlier in the year, we were just running as smoothly as possible. That has eased up now. Both our team in Peter Darcy's world, our first line folks, as well as in the credit area with Rich Berry and his team, they're working much more closely together with the people on the line, and things are just flowing through a lot easier. That's not just CRE. We're also seeing it on the C&I front, both in commercial as well as in our business banking area. I think the momentum is growing, and we're having a lot more success and a lot more wins and seeing more loans go on the books.

Very good. Just a broader picture, if we step back for a moment, you've had in the past some very good insights on what's going on in Washington with the regulators, and we saw the notice of proposed rulemaking on Matters Requiring Attention, MRAs. Can you give us your view of how the regulatory environment is changing and how that may help your profitability going forward as well as maybe the industry?

Yeah. One of the big things that's happened and that we've started to see now is we used to always get, when you have a review, you would get observations, and then if it was more serious, you might get an MRA or something really serious, an MRIA from that perspective. Observations are now being given. The way we treat observations is, you know, you have a year to get it fixed before they come back the next year, and if it makes sense, you know, we go ahead and get them done. That's what's really helped a lot. By just having a recommendation to do something, you don't have the whole process and everything else that you have to do when you're trying to cleanse an official issue like an MRA or MRIA.

Just that itself, the timeline to get it done is a lot faster, a lot less people working on it. As far as how much that actually reduces in headcount and all that, I think it's, you know, definitely will be less people needed in the remediation areas. We'll probably try to redeploy those folks in other areas throughout the company because those people were really important, very experienced people that you'd want to keep in the company from that perspective. I don't look at it as too much as an expense save. I look at it as a way of just things getting done a lot faster, a lot smoother. It gives our teams a lot more energy to be more productive as well, which is really, really important, I think, as we kind of look forward.

Just to stick with this for a second, obviously, the Basel III endgame is coming up soon, maybe by the end of the year, first of next year. Many investors have identified the benefits to the money center banks. In terms of regional banks, what do you see the potential benefits for you from the Basel III endgame being a lot less onerous than what it was proposed in July of 2023?

Our hope is that it's a lot more straightforward, really focused on key areas that we really should try to figure out what the capital is. In that original proposal, they had adjustments for people, bank of our size, which has a very low market operation, markets that to build something out that really we have very little risk in didn't make a lot of sense. What they were looking and what charging for operational risk didn't seem very logical from that perspective either. I'm sure it'll be much more streamlined, much more trimmed down, and really focused on what's really needed from a capital perspective for the industry as well as for M&T.

Thank you. Our next question will come from Erika Najarian with UBS. Your line is open.

Hi. Thank you for taking my question. I just wanted to follow up on Scott's line of questioning. Daryl, you mentioned production picking up, the approval rate that you just talked about with Gerard. Rates are in theory supposed to trend lower from here. How should we think about the push-pull between some of these loans getting refined away from you and the production? In other words, is the fourth quarter still a good inflection point for when CRE balances would bottom? When can we start seeing period end balances start to tick upward in a more consistent way?

I would love to tell you the fourth quarter is the bottom. We hope it is, but you don't really know for sure. It really depends on what payoffs are coming through. I will tell you, in 2026, for the amount of maturities that we see come due in 2026, it's much less in 2026 than what we had in 2025. We're starting out of the blocks in 2026 with just less payoffs coming through, which is a positive. With our production that we're growing, I think it will be really helpful. If I had to guess right now, it's probably bottoming in the first quarter, but if we get fortunate enough, maybe it'll be sooner than that. We feel really good that it's going to bottom and start to grow. It's going to be a really good earning asset to get back to the positive momentum.

Got it. Maybe the second question, Daryl, is, you know, M&T has been known to have a conservative culture, and there has been a lot of credit noise recently, whether it's related to NDFI or credit pre-announcements, which always makes the market nervous. You're in the first management teams to sort of call out NDFI and additionally the RWA treatment of NDFI via SSFA. Maybe my question is this: maybe walk us through what the NDFI exposure is for M&T. You did mention that loans to financial and insurance companies was the driver for C&I growth. Maybe help investors figure, like, what questions do we ask in order to really properly assess the credit risk from a go-forward perspective? Because all we're getting from other banks is that, "Oh, don't worry about it. This is way, you know, way less frequency and way narrower severity than a direct C&I loan.

Yeah. No, thank you for the question, Erika. If you look at our NDFI portfolio, you look at it in total, we're one of the lower exposures. We're probably 7 or 8% of total loans is what we have in that big bucket. We really focus on businesses in this bucket that we really believe in that are really good performing businesses that are on the lower end of the risk scale. We'll start with our top three categories: fund banking, which helped with our loan growth this past quarter and pretty much throughout the year, and it has been growing nicely. Those are capital call lines, and we do those. If you wanted to take more risk, which we don't, you would do NAV lending, which we don't do from that perspective. In that case, it's our choice to stay in the more conservative grain.

The other category that we have that we have a fair amount in is in our industrial CRE, made up a lot primarily from our REIT activity that we have. We stay with really good conservative known REITs that perform really well. Very good from an institutional performance. The other business I'd like to call out is residential mortgage warehouse. Done properly from an operations perspective, you really can't lose money. From a credit perspective, it's really an operational risk business. If you have good operations and good controls in place, it's a really safe business to run from that perspective. Those are the ones that we have that are our largest. We do dabble in other ones. We do lend to BDCs, but we only focus on public BDCs. We don't do private ones. We don't think there's enough disclosure and just more higher risk-oriented.

We kind of split that there. As far as your SSFA question goes, SSFA is basically transactions where you have securities or loans that are basically put on the balance sheet in a structure. There's no recourse on the loans. Your ability to get paid back is strictly from the assets. I think the way we're looking at it is we have a very small exposure today, and you have to be selective on what assets you're going to put into these structures. We have one structure that has loans, another structure that has mortgages. Most of our structures that we have is more in ABL right now. The thing you have to really look at when you look at SSFA is that it's pro-cyclical. You start off with a lower RWA, and it's because of the structure that you have.

As delinquencies increase, as the economy turns down, your RWA automatically increases. In times of really bad stress, these portfolios will actually use up capital when you need capital the most from that standpoint. We're aware of that, and we're just trying to take it very conservative from that perspective. Times are very benign now, but times could get a lot worse at some point down the road, and you just want to make sure you don't have too much of this pro-cyclical type structures on your balance sheet.

Thank you. Our next question will come from John Pancari with Evercore. Your line is open.

On the capital front, I know you're at 10.99% CET1 and net of the $409 million in buybacks. As you look out, I know you have your 10.75%-11% target. Can you provide us your updated thoughts around that target? What is keeping you from moving that lower? As you get clarity on the regulatory front, and once you do have that confidence and the ability to move it lower, is there a way to help us frame where you think a bank of your size and your regulatory considerations, where you really could be operating at?

Yeah. Thanks for the question, John. First, I'd start with, you know, when we look at, you know, where we're positioned right now, we definitely feel comfortable in repurchasing shares. We didn't buy back as much as we could have this past quarter just because we think the market was a little bit overheated, and there was more risk in the environment. We were a little bit cautious there. Our credit quality continues to improve really well, and that will probably continue, so we feel good about that. The other thing is we're a little bit price-sensitive on how much we buy depending on when we buy it. It went up much higher last quarter, and we just bought less on a daily basis.

Right now, we could buy anywhere from $400 million-$900 million this quarter, depending on how we feel about the economy and how we think the value of the stock is.

your CET1 target, the 10.75%-11% range, what would you need to see to move that lower?

That's a discussion we'll have with our board later this quarter when we get our strategic plan approved and go through that. As we continue to perform, we'll look for opportunities to potentially try to decrease our capital ratio down over time as that makes sense. That's really a René Jones and board question, and we'll probably have something to say about that come our January earnings call.

Got it. Okay. If I could just throw in one more on the loan front, I appreciate the color you gave around appetite around CRE and some of the loan growth dynamics. Can you maybe talk about competition a bit? Are you seeing, what are you seeing in terms of loan spreads? We're hearing a little bit more that competition is starting to bear down again, and the larger banks are becoming even more of a formidable competitor to the regionals on the lending front. What are you seeing there in terms of front-end loan spreads on the commercial book?

Yeah. No, it's definitely much more competitive. If you take a look at all of our commercial businesses, which is C&I and CRE together, I would say spreads are down maybe 10 or 15 basis points or approximately from what we were originating maybe a quarter ago. We're still seeing really good production. We're doing really good in our business banking business. We don't talk much about business banking because it's really more of a deposit gatherer. It's three times more deposits than loans. They've had really big success in the last quarter or two in growing their loan book and continue to build that out, which is really good for us. It's the smaller end of the commercial space, and it's really serving our communities and our clients in the right space.

With that said, I think it's competitive, but from a pricing perspective, we're pretty efficient, so we can still get our returns with this pricing.

Thank you. Our next question will come from Chris McGratty with KBW. Your line is open.

Chris, your line is open. Please check your mute.

There we go. Sorry about that. Daryl, if you think about operating leverage going into 2026, or the medium term, can you just speak to how you think this plays out in terms of widening, narrowing, and then the drivers between revenues and expenses?

Just operating leverage. Is it going to widen or narrow? I guess that's what the, yeah.

Yeah. You know, [Scott] banking is simple when it comes down to this long term. It's really just growing revenue faster than expenses at the end of the day. We have a lot of momentum right now on our fee businesses. If you look at our fees growing with trust, mortgage, and our commercial suite of products that we have in the commercial area to our customers there, we're going to grow that really strong again this next year. That's a positive. We have positive momentum on our net interest margin. We got it up for the fourth quarter. We're going to hit 370s, so we have momentum there. CRE is going to start growing as well. We'll have all of our portfolios growing.

I'm pretty positive that our earning assets will start to grow maybe a little bit faster, and we'll still have good expansion on our net interest margin from that. I feel good overall and think that should come down to a good operating leverage number.

Thanks for that. I guess quick follow-ups, kind of two-part. One, I guess the visibility into the improvement in the CRE size that you've noted in the CRE book, I presume that'll continue. Secondly, I just noticed a nuance in kind of your geography question about M&A. I think you said adjacent markets. If you could unpack that for a minute, that'd be great. Thanks.

Yeah. From a credit quality perspective, our non-accrual loans came down to 1.1%, and that was really driven by both C&I and CRE. When you look at the CRE size balances, it was really a function of the CRE portfolio. The CRE portfolio basically decreased in every category in CRE, really driven by multifamily and healthcare. Those were the drivers there. We're pretty optimistic that will continue for the next several quarters. We actually might think about pulling this slide out of our presentation in a quarter or two because we'll be pretty much back to normal credit quality and normal operating from that perspective. We feel really good and excited about that. As far as the geography goes, the only expanded geography is if you buy a bank that's headquartered in one of the 12 states that we are, but they might have some exposure outside the 12 states.

That's really how you might get a little bit more growth in another area. It's still really focused on getting scale and density in these 12 states and in the District of Columbia where we operate.

Thank you. Our next question will come from Manan Gosalia with Morgan Stanley. Your line is open.

You noted in your credit comments a few one-timers in CNI NCOs that was embedded in the overall 42 basis points NCO number. Your guide for next quarter is 40-50. Are there more lumpy items that you're expecting next quarter? The bigger picture question is, how do you expect that to trend into 2026? What's a good normalized NCO run rate for M&T?

Thank you for the question. This quarter, our net charge-offs were $146 million. It was really driven by two large C&I loans. They were two contractors that added up to $49 million, and that's really what drove us higher than our 40 basis points this quarter. As far as next quarter, we could have maybe another one or so in the fourth quarter, but we still think that net-net year-to-date, we will come in for the year under 40 basis points overall. I think that's where it's kind of shaking out from that perspective. As far as next year goes, we aren't going to give any guidance yet and all that, but the economy still overall is in relatively good shape. There is stress in certain areas, but overall it's still in really good shape.

I wouldn't expect much change one way or the other for 2026, but we'll give you more of that in January.

Got it. Separately, you spoke about more room on the operating leverage side. Some of your peers have spoken about accelerating investments in AI and tech. Can you talk a little bit about what M&T is doing there and if you will need to spend more next year as you invest there?

Yeah. We definitely are spending a lot of money in the company. In the 2.5 years I've been here, we've had some really significant projects that we've started and that we're starting to finish up. Like our, in my world and the finance world, the general ledger platform will go live probably in the next quarter or so. That will be a big success and also a big drop in run rate. We have other projects right behind that that we're going to be investing in. We're putting in a new debit platform for all to serve our customers that's going in. We're looking at a commercial servicing system that needs to get upgraded, consumer servicing system that needs to get upgraded. There are other investments out there. From a data center perspective, our two data centers are up and operating.

We're still moving applications over there; that will take another year or two to get that fully accomplished. Mike Whistler and his team are putting out as many applications as we can up into the cloud so we can maybe get out of doing some of the data centers, which in the long run will actually reduce costs. I think our costs will be controlled. I think our revenues will grow more than our expenses. We want to continue to invest in our company and do the right thing and continue to have really strong service quality for our customers and really predictable, sustainable platforms that they serve.

Thank you. Our next question will come from Matt O'Connor with Deutsche Bank. Your line is open.

Good morning. Just a bigger picture question on credit, which is obviously driving the regional bank stocks today. We're seeing some of these kind of one-off in commercial that, according to the media, are fraud-related. What are your thoughts in terms of why we're seeing these events now, with rates kind of coming down? I thought maybe that would have taken the pressure off. Just any big picture thoughts as you guys kind of sit around and think about the credit environment. I'm sure you'll talk about some of these kind of positions out there. If you don't have any, just any thoughts on that.

A lot of people have a lot of different ideas on this. I think one of the things we think about is, we've seen stress out in the marketplace for a while. If you look at the consumers, we've been saying for years that the lower end, call it the 20% and lower end, are really hurting in that space. Those are the ones that are paying the higher credit card yields and all that. It's really tough for them when they have to pay these high interest rates. If you look, we've tightened a little bit in our small business areas. Business banking's pulled back a little just because of some of the weakness we were seeing there in the last year or so. We have a leasing business that also we tightened up there as well.

In those areas where there's stress, I think there are things that we're just trying to tighten and see. There's definitely stress out there, and sometimes people can only go so long, and then they have to kind of throw in the towel. On the larger end commercial, there are sectors that have been impacted in certain situations, whether it's tariffs or just how they're operating. Private equity coming into buying some of these companies, sometimes it's a good thing, sometimes maybe not, because they aren't experienced in trying to run these companies like the original teams were. You see one-offs from that perspective. There are things you have to be careful for. What we really focus on is the fundamentals, Matt, and really try to make sure we're underwriting and looking at everything we can, making really good sound decisions for the long term.

We don't want to put loans on the books that aren't going to be there in the next year or two because of a credit situation. We're trying to do that and trying to be really holistic. Rich Berry, our Chief Credit Officer, he stood up some verticals and some specialty areas for like our leverage lending area, and a couple other areas just to focus to make sure that we have controls in place in areas that we deem as higher risk in place. I think we're doing all the right things, really trying to be guarded from that. Net net, if rates come down more, I think that will relieve some of the pressure. Right now, I think you're just seeing some of the pressures from it's been elevated for a while.

That's helpful. I'm sure it's a lot easier to kind of get comfortable with your book. You know, you originated them. You could kind of evaluate it on an ongoing basis. I guess hypothetically, if you were kind of looking at an external book, do you still feel like there's enough visibility where you could evaluate it, or are there enough red flags, just generally in credit, these headlines that you're seeing that might give you a little pause? All hypothetical, obviously.

I think it sounds like you're trying to lead to a question if we do a due diligence on a company and you're looking at a credit book and all that. It really, if that's where you're going, it really starts with the culture and, you know, do they underwrite similar to how we underwrite? That needs to get established upfront from that perspective. You really need to know that and trust that. Like when we acquired Peoples, we knew day one that their culture was very similar to the M&T culture, and that would fit in quite nicely from that perspective. When you look at stuff, you have to be really careful and ask a lot of questions and information and keep digging until you get satisfied. I think that's the way it works. You have to do your homework. It all comes back down to fundamentals again.

Thank you. Our next question will come from Dave Rochester with Cantor. Your line is open.

It's back on your margin comment. You mentioned earlier you had some momentum there, guiding to that $370 level in 4Q. Do you see any upside potential of that going forward, given your outlook for more Federal Reserve rate cuts on the one hand, and then given the repricing that you see you still have left to do on the fixed rate segments of your loan and securities books?

I mean, what we have modeled right now is we have two cuts in this year and three cuts next year, so five cuts total. When we do our modeling, our base scenario embeds the forward curve. When you look at that and then you look at a down 100, our down 100 is basically flat from an NII perspective. That is really rates going down 200+ basis points over 12 months from that. I think we're very neutral from that perspective. If rates go up 100, which is basically rates staying flat because you got the forward curve embedded into that, we're off just a touch, so a little bit. I guess I'd say we were a little bit more liability sensitive on the way up a little bit.

The way our balance sheet is really structured is we have to hedge to kind of have the position that we are at. If we don't do any hedging on how we operate, within a year, we can become very asset sensitive very quickly, just naturally as things happen. We're constantly having to hedge to kind of neutralize our interest rate sensitivity from that perspective. We feel really good about where our net interest margin is. We do have a piece of it, obviously, based upon the shape of the yield curve. That's also impactful for us. We're still benefiting from that from a roll-on roll-off basis. If you look at our loan book, in the consumer book that we have, we're still probably getting about 75 basis point spread positive there.

Investment portfolio is probably going to be anywhere from 50-75 basis point positive there from that perspective. We're still benefiting from the roll-on and roll-off from that perspective. That's really good. Our deposit betas are 54%. We came in and we think that's pretty much what it was when rates were going up. Coming down, we're going to mirror that as well. We feel very good that we'll stay in the low to mid-50s from a beta perspective. I think we got things positioned pretty well from a sensitivity perspective on NII and feel good of what we're guiding to.

It sounds like it all adds up to, you know, some upside potential there to that $370 going forward, all else equal. Great. Maybe just back on your comments on the government and M&T being ready for that. It doesn't sound like you're too concerned about it right now given your comments, but when would you start to get worried about it from a credit perspective? How long would this have to drag on before you guys get more concerned about it?

You know, from a government shutdown, we are monitoring and looking at various sectors that potentially could happen. Obviously, it hasn't been around long enough to know, but we've seen some stress in government contractors. Obviously, this puts more stress on them because of the shutdown. That's important. The SBA business is kind of shut down right now, so that's some stress from that. HUD and FHA, we're looking at that to see what impact that might have. You have [CNI] healthcare from a reimbursement perspective. That will probably impact if it goes longer. Reimbursements might slow down or stop. Nonprofits that get grants, and then government employees, which is the heart and soul of the government, those people and all. We're monitoring all those areas. Haven't really seen anything yet. If it goes on a few months, I think you're starting to see some stress maybe.

M&T Bank (MTB) Q3 2025 Earnings Call Transcript

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