M&T Bank (MTB) Q3 2026 Earnings: Deposit Costs Rise, Margin Falls to 3.65%

M&T Bank's third-quarter 2026 earnings showed loans and fees growing as planned while rising deposit costs kept that growth from lifting net interest income. M&T released results for the quarter ended September 30 on October 16, 2026, through an 8-K earnings release, an earnings presentation and an earnings call [1][2][3]. The research behind this update followed four questions: whether commercial real estate lending would grow again, whether deposit costs would keep falling enough to hold the 3.70% net interest margin, whether the newly acquired sub-servicing portfolio would lift fees, and whether credit costs would stay low. This quarter confirmed the commercial real estate recovery and showed sub-servicing fees arriving faster than expected, but deposit costs rose instead of falling and credit costs moved back toward the company's own expectations. Overall, balance sheet growth did not become net interest income growth, and M&T's model of earning money from lending spreads and fees is unchanged.

M&T Bank is a bank holding company based in Buffalo, New York, with branches concentrated in the US Northeast and Mid-Atlantic, serving small and mid-sized businesses, middle-market companies, commercial real estate investors and local residents [4]. In the third quarter, taxable-equivalent net interest income was $1.805 billion and noninterest income was $743 million, so spread income made up about 70% of revenue [1].

Deposits replaced borrowings, but costs rose and the margin fell to 3.65%

Interest-bearing deposits funded most of the third quarter's loan growth. Average deposits rose $3.3 billion from the second quarter to $166.777 billion, within the company's full-year guidance range, and average short-term borrowings fell $2.768 billion [1][2].

Deposit pricing moved up at the same time, contrary to the earlier view that deposit costs would keep declining. The cost of interest-bearing deposits rose from 1.95% to 2.05%; M&T attributed 2 basis points to the September rate hike, 4 basis points to time deposit growth and repricing, and 4 basis points to growth in other interest-bearing products [1][2]. The CFO said that, excluding the 12- and 18-month time deposits issued earlier, costs rose about 6 basis points [3].

As a result, the net interest margin narrowed 5 basis points to 3.65%, with 3 basis points coming from lower interest income on nonaccrual loans [2]. Taxable-equivalent net interest income rose only $1 million from the prior quarter [1]. M&T guided to a fourth-quarter margin in the mid-3.60s, assuming one more rate hike in December [2].

Commercial real estate loans grew for a second quarter as yields fell

The third quarter confirmed the recovery in commercial real estate lending. On the new basis that excludes loans held for sale, average commercial real estate loans rose $1.641 billion, or 7%, to $24.862 billion, with growth in multifamily, industrial/warehouse and health services properties while office balances kept shrinking [1]. Management attributed the growth to origination strength that began late in the second quarter [3].

That growth did not translate into higher interest income in the quarter. The commercial real estate loan yield fell from 6.29% to 6.03% [1]. M&T disclosed a $15 million reduction in interest recognized on commercial loans previously in nonaccrual status but did not split it by portfolio, so the share of the yield decline due to pricing cannot be determined [3].

Sub-servicing fees arrived faster than M&T expected

The new sub-servicing portfolio lifted fees sharply in its first full quarter. Residential loan sub-servicing and other fees rose from $67 million to $93 million, which M&T attributed to the $62.9 billion of additional sub-servicing balances it began handling in June [1]. M&T had earlier expected the portfolio to add about $35 million in the second half of 2026, and the third quarter alone delivered more than 70% of that. This growth offset lower capital markets revenue and a smaller Bayview distribution; based on nine-month results and the company's fourth-quarter guidance, full-year noninterest income would be about $2.88 billion to $2.90 billion, above the $2.80 billion to $2.85 billion guided at the start of the year [1][2]. M&T has not separately disclosed whether the legacy Bayview sub-servicing portfolio kept shrinking [1].

Credit costs returned toward the company's expectations

Credit metrics rose from their lows in the third quarter. The annualized net charge-off rate climbed from 0.23% to 0.35%, and criticized commercial loans rose $245 million to about $6.1 billion, mainly because of a loan to an auto leasing company; nonaccrual loans rose to 0.90% of loans [1][2][3]. Management called that loan idiosyncratic, and with fourth-quarter charge-offs guided at 35 to 40 basis points, the full-year rate would still be below the roughly 37 basis points expected at the start of the year [2][3].

Conclusion

The quarter strengthened the case for M&T's growth and weakened the case for its profit conversion. Higher deposit costs and lower nonaccrual interest absorbed the contribution from a larger balance sheet, and with higher expenses and provisions, net operating income fell 5% from the prior quarter [1]. The common equity tier 1 capital ratio was an estimated 10.16%, within the company's target range [1]. Whether fourth-quarter net interest income lands within M&T's $1.83 billion to $1.85 billion guidance, whether sub-servicing fees hold, and whether criticized loans resume declining will determine how durable these changes are [2].

Sources

[1] MTB Q3 2026 earnings release 8-K furnished 2026-10-16, 2026-10-16, M&T Bank Form 8-K earnings release (Exhibit 99.1), https://www.sec.gov/Archives/edgar/data/36270/000003627026000057/ex991release3q26.htm [2] MTB Q3 2026 earnings presentation 8-K furnished 2026-10-16, 2026-10-16, M&T Bank Form 8-K earnings presentation (Exhibit 99.2), https://www.sec.gov/Archives/edgar/data/36270/000003627026000057/a3q26earningspresentatio.htm [3] MTB Q3 2026 earnings call 2026-10-16, 2026-10-16, M&T Bank earnings call, https://ir.mtb.com/events-and-presentations [4] MTB 10-K filed 2025-02-19 · corporate profile and bank subsidiaries, 2025-02-19, M&T Bank Form 10-K annual report, https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000036270&type=10-K&dateb=&owner=include&count=40