M&T BANK CORP Q3 FY2026 earnings call

• Strategic Focus: Emphasis on 'teaming for growth' and operational excellence, investing in technology and AI to automate processes and enhance risk management.
• Credit Quality: Asset quality remains stable with criticized loans increasing to $6.1 billion, driven by C&I and CRE sectors. Non-accrual loans rose slightly to $1.3 billion, primarily in office and assisted living credits.
• Capital Discipline: Transferred $8.3 billion in residential MBS from Available-for-Sale (AFS) to Held-to-Maturity (HTM) to protect tangible capital and mitigate regulatory AOCI impacts.
• Branch & Community: Opened new branches in Torrington and Waterbury, CT; ranked #1 in footprint for SBA 7A loans.
• Funding Optimization: Reduced reliance on short-term borrowings by $2.8 billion as deposit growth outpaced loan growth, allowing for better funding mix management despite higher deposit costs.

Net income was $775 million (diluted EPS $5.04), down from $818 million in the prior quarter. Net operating income was $780 million (net operating EPS $5.08). Taxable equivalent net interest income was $1.8 billion, largely unchanged. Non-interest income was $743 million, driven by higher residential servicing fees ($152 million total mortgage banking revenue) but offset by lower capital markets and advisory revenues ($32 million). Non-interest expenses were $1.39 billion, up $44 million due to technology investments and litigation costs. The efficiency ratio was 54.4%. Credit losses included a provision of $135 million and net charge-offs of $127 million.

• Q4 Net Interest Income: Expected to be $1.83–$1.85 billion.
• Q4 Net Interest Margin: Forecast at mid-360s (approx. 3.65%), reflecting one rate hike in December.
• Loan Growth: Modest average loan growth expected, with averages between $145–$146 billion, driven by Commercial Real Estate (CRE) and Consumer loans.
• Deposit Growth: Average deposits expected to increase to $169–$170 billion.
• Non-Interest Income: Projected at $710–$730 million, excluding the Bayview distribution benefit seen in Q3.
• Non-Interest Expenses: Expected to be $1.39–$1.41 billion, including intangible amortization.
• Credit Losses: Net charge-offs expected at 35–40 basis points.
• Capital: CET1 ratio targeted at 10.0%–10.25% for the remainder of the year.

• Macroeconomic Uncertainty: Potential impacts from geopolitical conflicts, high gasoline prices, and inflation dynamics.
• Commercial Real Estate Pressure: Higher interest rates may challenge project economics and debt service coverage ratios, potentially leading to creep in criticized assets.
• Asset Quality Trends: Increase in criticized C&I loans and non-accrual loans in specific sectors like office and assisted living.
• Regulatory Changes: Ongoing Basel III, tailoring, and liquidity rule proposals could impact capital requirements and buyback flexibility.
• Rating Agency Scrutiny: Need to maintain rating agency confidence amid changes in regulatory capital treatments.

Q: Analyst asked about the sustainability of deposit cost increases and the trade-off between maintaining pricing discipline and funding loan growth. / A: CFO explained that recent CD issuances are now near overnight rates, stabilizing term funding costs. While deposit pricing is competitive, the bank prioritizes acquiring operating accounts to deepen relationships. They aim to fund loan growth via deposits first but have access to capital markets if needed, expecting modest loan demand in 2027.

Q: Analyst inquired about the outlook for Commercial Real Estate (CRE) growth and criticized asset trends in a higher rate environment. / A: Management expressed optimism for mid-single-digit CRE growth, leveraging both on-balance-sheet lending and off-balance-sheet alternatives. Criticized assets are expected to stabilize or decline slightly in the short term, though higher rates could pressure debt service coverage ratios, potentially causing slight creep in criticized balances next year.

Q: Analyst sought clarity on fee income trajectories under higher rates, specifically regarding mortgage servicing and capital markets. / A: Higher rates are expected to slow residential mortgage origination/sales volumes but boost counter-cyclical mortgage servicing revenue through reward fees for curing delinquent loans. Capital markets/advisory is being rebuilt with more resources, aiming to grow despite market slowdowns, with a long-term goal to increase fee revenue's share of total revenue into the 30s.

Q: Analyst asked about the decision to reclassify financial line items and the achievability of 17% ROTCE targets. / A: The reclassification was driven by a new general ledger system implementation to enhance transparency, breaking out capital markets and card fees. Management confirmed that achieving 17% ROTCE in 2027 is attainable, though challenging due to higher rates, relying on strong business performance and disciplined execution across all segments.

Q: Analyst questioned the impact of AI agents on consumer deposit stability and trends in private credit. / A: Management believes AI-driven money movement will eventually increase efficiency but currently poses limited risk due to trust barriers; customers remain loyal to established banks. Regarding private credit, the sector is softer with tighter liability-side funding, which M&T views neutrally to positively, seeing opportunities to partner or take senior positions rather than facing direct negative competition.