M&T Bank Corporation (MTB) Earnings Call Transcript & Summary

Welcome to the M&T Bank Second Quarter 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Steven Wendelboe, Senior Vice President of Investor Relations. Please go ahead.

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 ICE Ex to help support and connect 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 and 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 5. 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 7 and our second quarter results. Diluted GAAP 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 3.70 and in the backdrop of strong loan growth. The asset quality continued to improve. Net charge-offs were 23 basis points and commercial criticized loans declined by $0.7 billion making it the ninth consecutive quarterly decline. While the recent stress test results do not affect our required capital levels, we are pleased with the outcome, which reflected an implied stress capital buffer of less than 2.5% at 2.2%. Slide 8 includes 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 ROA 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 9. 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 close 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 4 basis points to 5.89%, mostly reflecting higher CRE yields, including a benefit from higher nonaccrual related interest. This quarter, our earnings release was enhanced to include additional loan balance detail, including industry breakouts for C&I 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 7 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 pretax loss on available for sale was $125 million. While not subject to the LCR requirements, M&T estimates that its LCR at quarter end 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. Noninterest-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 million. However, we remixed the portfolio by shedding the highest cost money market deposits and replacing them with lower cost time deposits. Interest-bearing deposit costs decreased 2 basis points to 1.95% with the deposit costs improving across most of our businesses. We remain disciplined in our deposit pricing with a 56% cumulative interest-bearing deposit beta since the start of the cutting cycle in 2024. We saw encouraging deposit trends later in the quarter to 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. Noninterest 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 a $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 value distribution compared to $33 million in the prior quarter and the higher credit card and merchant discount. 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. Noninterest 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 1 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 in nonaccrual and criticized loans. Criticized 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 office and a $110 million decline in C&I criticize. Nonaccrual loans decreased 3% to $1.2 billion and the nonaccrual 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 the charge-offs of $80 million. The allowance for loan losses as a percent of total loans declined 1 basis point to 1.52%. Turning to Slide 18 for capital. M&T's estimated CET1 ratio was 10.9%, a 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, AFS and pension-related AOCI will decrease CET1 ratio by 2 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 U.S. 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 a 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 billion to $7.35 billion range in the full year NIM in the high 3.60s. We expect continued loan and deposit growth in the second half of the year with full average loans of $141 million 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 million 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. We 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 fixed swaps. We expect fee income to be $2.8 billion to $2.85 billion, reflecting broad-based rent in fee income year-to-date. The second quarter [ BAB ] distribution and the higher subservicing fee income beginning in the third quarter. Expenses are expected to be at the end of $5.5 billion to $5.6 billion range as we continue with our enterprise investments while maintaining overall expense discipline. 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 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 stewards of shareholder capital. As ranked 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.

[Operator Instructions] Our first question will come from Manan Gosalia with Morgan Stanley.

So Daryl, in the NII guide, I guess you're still pointing to the low end of the range. You upped the loan growth guide. I think you're guiding to some NIM compression here in the second half relative to the 3.70 or so in the first half. Can you talk about what's baked into that outlook in terms of, I guess, deposit pricing and loan pricing?

Yes, happy to. So as far as how we expect the balance sheet to go out, we have a lot of momentum in the loan area. If you look at the loan growth that we had this past quarter, it was very robust. We had growth in over $800 million in our middle market regional businesses. About half of that was due to higher utilization, the other half was permanent loans. We had growth in a lot of our specialty businesses. Mortgage warehouse was up $350 million, institutional CRE $335 million, C, Corporate & Institutional, $309 million. Fund Banking was also up business banking leaf, lender finance and health care. So it was very strong, very robust. We had a really strong finish in the quarter in CRE. If you look at it on an average basis, we eked out a little bit of growth average over average. But when you look at the June numbers and what we put on the books, we're set to have really strong average balance growth in CRE in the third quarter just because of everything that happened in June. And then our 2 consumer portfolios, mortgage and the consumer indirect and direct businesses also grew nicely. We expect all those portfolios to continue to grow in the third and the fourth quarter. We maybe not have quite as much growth in the in the third and fourth as we had in the second, but we're pretty positive that these portfolios will continue to grow and have positive momentum. On the deposit side, we started the quarter off a little soft on deposit growth. but we've rebounded and you can't really see it in averages. But if you look at the growth that we had at the end of the middle to the end of second quarter, our deposit growth was really robust and strong. And really, and when you compare like June averages to second quarter averages, we're up $3.4 billion. So we have a lot of deposit momentum going forward. And I know that we had a little bit elevated in short-term borrowings. That short-term borrowings number is going to come back down now. It's already down a couple of billion dollars and it continues to come down as we start to grow deposits. Pricing-wise, our deposit betas are still in the mid-50s. It may eat down to the low 50s, but it's the right thing to do to grow our loans with core funding, which is what we're doing.

Maybe as a follow-up on capital. One of the things that Rene spoke about recently is how M&T has historically not done as many risk transfer deals as some of your peers. Now that we have the new capital proposals, is there any way you can help us think through what that opportunity is, how to think about the capital that you can free up and over what time frame?

Yes. So the Basel III proposal for SSFA-type transaction, specifically, limit the downside risk that was there before, and it can't get to dollar for dollar capital in the working situation. When it gets to the worst case of what the asset would have been if you put it on initially not in a secured type transaction. So that kind of puts the risk off of how much capital you would have to redeploy if things deteriorated. So we have some products that we have out there. We're launching new products in CRE that will take advantage of that. growth will build slowly over time. But our CRE team is excited about that, and we'll have a little bit of growth this year, but that will grow more into the next couple of years as we move forward. And then in just the normal C&I space, our focus is really making sure we know what asset qualities are in the deals, how we monitor these asset qualities and make sure that we're very diversified in these. So we will, on occasion, do some of these transactions. So growth will be more than we have. We have hardly anything on our books today. So we're coming from a very low level.

Our next question will come from Erika Najarian with UBS.

Daryl, I heard you loud and clear in terms of anticipating seasonally stronger deposit growth in the second half of the year and your wholesale balance sheet will come down on the liability side. In the case though that loan growth continues, obviously, at this pace, you've hit an inflection point in CRE. Maybe talk through us about sort of how much you're going to potentially just market core funding versus go to the wholesale market. I'm looking at like an 18-month CD at 3.60 your -- on your website, which is lower, obviously, than your borrowing yield. So as we think about loan growth continuing to outpace deposit growth even with those seasonal factors, how should we think about like the mix of your liability growth from here? And maybe sort of double-click on your comments on deposit costs.

Yes. Yes. That's a good question, Erika. Back early in the second quarter, when we saw the loan growth starting to come through pretty strong in the pipelines building, we met with all of our businesses in the company and really had them focused. This is -- I've only been at M&T for a little over 3 years, but I basically have -- we have both ores in the water. Loans are growing nicely, and we had to get our deposit growth up to grow nicely as well. So we started with consumer and business banking, they have responded. They have promotions going on that are attractive and still at reasonable costs that we think. So in that they're growing commercial and wealth are focused corporate trust and we continue to get more escrow deposits in mortgage. So all those businesses are really focused at trying to grow deposits as much as possible. If by chance it's not enough to support the loan growth that we have, we have other alternatives. We've consciously been active in putting out securitizations, pending securitizations out there in auto and RV and small ticket leasing to make sure the investors know our collateral and all that. We could turn and dial that up if we had to. We could issue more debt, more Federal Home Loan Bank advances. So we have a lot of options. But the most important thing is to really focus and serve our clients and communities and really try to do it with core deposits to meet the core loan demand.

Got it. And just to follow up. If the Fed doesn't keep rates where they are, do you expect deposit costs to drift higher, given what you just said? And given what you said during prepared remarks about asset sensitivity, what does the 25 basis point rate hike due to that high 3.60s NIM as we think about the go forward and the exit rate?

Yes. So for the Fed and if rates stay, they don't change. The way I look at it is when you look at deposit growth, interest-bearing deposits are growing faster than noninterest-bearing. Noninterest-bearing rates are a little bit higher. We actually plan for rates being down this year. So we aren't meeting our expectations on DDA growth right now. So for every marginal asset you put on the books is going to be at a lower margin than what we anticipated to be. So that does put down a little bit of pressure on net interest margin. But we operate with one of the highest net interest margins in the industry. I think we're okay trading few basis points away from that and getting more growth in NII. I think that's a fair trade. I don't think our net interest margin is going to collapse by any reason, but I think it's a good trade-off from what we see. And as far as the assets and rates going up 25, we're really neutral and our forecast already had as the steepness in the curve that we have today factored in for the rest of the year. So I don't think you get much change either way with what we have. A chance to get steeper, that would be a good guy. If it gets flatter, it'd be a bad guy. But we have pretty much of that factored in our forecast today.

Our next question will come from John Pancari with Evercore.

Daryl, back to the loan growth topic, on the loan growth trends are definitely encouraging. It's good to see the pipeline building and higher utilization. On the commercial real estate front, also going to see the inflection. What gives you confidence that, that inflection is going to be sustained here? And how should we think about the pace of growth there. I mean are you still selective in terms of your posture and that could impact the growth? How should we think about that trajectory? Maybe could you break it out on how we should think about the C&I side of it as well?

Okay. Let me start with CRE. So having met with our leaders and CRE and the team, they had a very robust pipeline and had a really strong finish, as I said, in the second quarter. that will definitely carry us strong into the third quarter. They still are very optimistic. When I talked about stem where they're seeing growth. We're originating in just about every segment you can originate and accept the office for the most part. Our strongest obviously, are multifamily and industrial, but we're doing retail. We're doing hotel. We're doing homebuilding, construction, they're all adding to it. We put out a lot of construction loans over the last year or 2. Those are starting to fund now too. So that's another positive. So we're pretty optimistic on the CRE growth headed here now and feel good that it's going to be a good contributor to earning asset growth for the company. On the C&I front, I -- probably honestly, they had the best quarter you could probably ever have on this past quarter. I think 90% of all the businesses grew quarter-over-quarter, and that just doesn't happen very often in my career. So hat's off to Peter D'Arcy and his team there. They did an amazing job from that. I think third quarter we're going to have to rebuild pipelines. I think we'll grow, but probably more modestly third quarter. And hopefully, we finished the year strong in the fourth quarter and have momentum going into 2027. But Peter has got a lot of motivated people. We've got a lot of products and services out there to serve our customers, and we're doing that and we're making a difference.

Got it. Okay. Great. On the capital front, CET1 at 10.2 came down a bit, but you had bought back about $465 million in the quarter. How should we think about the pace of buybacks as you are now looking at a faster pace of loan growth in front of you as well as other capital considerations. How should we think about the pace of buybacks as we look out through the rest of the year?

Yes. So we're going to target the 10.2 plus or minus range per capital. So buyback is going to be the tail on the dog. Depending on how much RWA growth we get through lending, we'll buy back what we need to basically stay at that level that we're currently at today is kind of how I would forecast it. It's just where we want to operate now and we'll see as we get into next year and Basel III gets approved, what changes we might consider. But right now, we feel comfortable operating in the low 10% range and it's going to -- how much we buy back is a factor of loan growth.

Our next question will come from Gerard Cassidy with RBC Capital Markets.

Thank you for the additional information on Pages 17 and 18 that you cited. The question I have for you...

We got more information coming. This new general ledger, we have -- we're going to have more information next quarter in the next couple of quarters. This is just the start of what we were able to do these days.

That's great. No, that's -- you're paving the way for others to follow. Question for you. On the sub-servicing number that you disclosed in June 30, I think it was $184 million, possibly or $184 billion. I guess it's billion. It's up nicely from the prior quarter. What's the driver? Is that the view? And how should we look at that number going forward for the subservicing residential mortgages?

So we just closed on another 214,000 sub-servicing loans. Some of the subservicing comes from BAB. Some of it comes from other customers. So it's diverse from that perspective. But what we just put on the books will be new revenue for the third and fourth quarter, probably second half of the year is about $35 million more in revenue is what you see. Costs are pretty much already there because we've been building and hiring folks for that. So that's already in the run rate. So it's really just the add of the revenue coming in. It's a really great business that we have. We specialize in the hard to service more of the FHA type lending, and we do a really good job of that and people come to us to service their loans because of that.

Very good. And then circling back to your answer about in your career about the C&I loan growth you saw this quarter in all the different categories. Is there any way that you guys can get your arms around the impact that the AI industry. I don't mean just the building of the data centers. But is there any way you can get your arms around the second derivative of the AI industry impacting loan demand going forward, whether it's not just the plumbers and the HVAC and the [ cement ] companies, but just all the software companies, have you guys been able to dive into the portfolio to receive what kind of exposure you may have?

I'm sure, given our diverse portfolio that we have, there is some impact for that. But for the most part, it's really our core customers that we've had for a long time. And a lot of them are just rebuilding, putting on new equipment. If you look at our leasing businesses, both small ticket leasing and our equipment leasing grew really nicely this past quarter. So there's really just good core demand out there. The other thing I think, Gerard, is I think private credit isn't as aggressive as it was, and I think we're running back market share back in the regions, which is really what's helping us.

Our next question will come from Ken Usdin with Autonomous Research.