Q3 2025 Earnings Call Transcript

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Please stand by. Your program is about to begin. Welcome to the M&T Bank Corporation 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.

Press one on your telephone keypad 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 0. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Steve Wendelboe, Senior Vice President, Investor Relations.

Please go ahead, sir.

Thank you, Katie, and good morning. I would like to thank everyone for participating in M&T Bank Corporation'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 would 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 would like to turn the call over to Daryl.

Thank you, Steve, good morning, everyone. M&T Bank Corporation 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 have 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 Bank Corporation is now the top SBA lender across our footprint by total volume as of the end of the SBA fiscal year September 30. Our small business enterprise continues to be an important component of our support for entrepreneurs and the 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. Turning to slide six, which shows the results for the third quarter. Our third quarter results reflect M&T Bank Corporation's continued momentum with several successes to highlight.

We produced strong returns with operating ROTA and ROTCE, of 1.56% and 17.13%. The 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 commercial criticized balances and $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 while 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 the 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 positive four basis points related to the prior quarter catch-up premium amortization on certain securities. Positive three basis points from higher asset-liability spread mostly from continued fixed asset repricing, partially offset by a lower contribution of net free funds.

Turn to slide 10 to talk about average loans. Average loans and leases increased $1.1 billion to $136.5 billion. Higher commercial, residential mortgage and consumer loans were partially offset by a decline in CRE balances. Commercial loans increased $700 million to $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 HELOCs, while our auto loans were largely stable from the second quarter. Loan yields increased three 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 Fed totaled $53.6 billion, representing 25% of total assets. Average investment securities increased $1.3 billion to $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 three point five years. The unrealized pre-tax gain on the available-for-sale portfolio was $163 million, or an eight basis points CET1 benefit if included in regulatory capital. While not subject to the LCR requirements, M&T Bank Corporation estimates that its LCR on September 30 was 108%, exceeding the regulatory minimum standards that would be applicable if we were a category three institution.

Turning to slide 12. Average total deposits declined $700 million to $162.7 billion. Noninterest bearing deposits declined $1.1 billion to $44 billion, mostly from lower commercial and noninterest 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 $400 million to $118.7 billion, driven by growth in commercial and business banking, offset by a decline in consumer and institutional deposits.

Interest-bearing deposit costs decreased two basis points to 2.36%, aided by lower retail prime time deposit cost 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 to $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 to $18 million from higher commercial customer swap activity.

Other revenues from operations increased $39 million to $230 million, reflecting a $28 million distribution of an earnout payment, a $20 million Payview 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, an increase of $27 million from the prior quarter. Salaries and benefits increased $20 million to $833 million, reflecting one additional working day and higher severance-related expense, which increased $17 million sequentially.

FDIC expense decreased $9 million to $13 million, mostly related to the reduction in estimated special assessment expense. Other costs of operations increased $23 million to $136 million, reflecting higher expense associated with the supplemental executive retirement savings plan. Due to market performance, 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 remained muted in the third quarter.

Non-accrual loans decreased by $61 million. The non-accrual ratio decreased six basis points to 1.1%, driven largely by payoffs, paydowns, and 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 $671 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 Bank Corporation's 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 and 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 a 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 the outlook.

We have three quarters of the year complete, so we will focus on the outlook for 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 to $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 to $138 billion, with growth in C&I, residential mortgage, and consumer, and a moderating pace in CRE decline. Average deposits are expected to be between $163 billion and $164 billion. Our outlook for the fourth-quarter noninterest income was $670 million to $690 million, reflecting continued strength in mortgage, trust, service charges, and commercial services. We expect other revenues from operations to revert toward more normalized levels.

This would imply full year noninterest income excluding notable items well above the top end of our prior range of $2.5 to $3.6 billion. Fourth-quarter expenses, including intangible amortization, are expected to be $1.35 billion to $1.37 billion. This would imply full year expense in the top half of our prior outlook of $5.4 to $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 to 50 basis points, with full-year net charge-offs of less than 40 basis points. Our outlook for the fourth quarter tax rate is 23.5% to 24%. We plan to operate with a CET1 ratio in the 10.75% to 11% range for the remainder of the year. We will be opportunistic with share repurchases, and also continue 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. Concluding on slide 22, our results underscore an optimistic investment thesis. M&T Bank Corporation 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 of 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 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. Our first question will come from Ken Usdin with Autonomous. Your line is open.

Good morning, Daryl. Thank you for taking my question. I wanted to ask first on loan growth. So, you know, we are seeing good traction in a few components of the loan portfolio, but the 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. So our if you wanna 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. So we're really producing and have a lot more activity.

Still having some payoffs and paydowns overall, but we feel very optimistic about the growth of that coming in the next quarter or two. You look at the areas that we are really focused on right now, it's primarily in multifamily with industrial close second. We also are interested in looking at retail, hotel, and healthcare on a case-by-case basis, but office, we know, pretty much we are still looking to reduce there. But net net overall, I think we're really moving in the right direction and feel very good at what we're seeing and have real good positive trends moving forward.

Perfect. Okay, thank you. And then, you know, maybe just if you could expand upon your thoughts on sort of where M&T Bank Corporation fits in the now consolidating large regional environment, just kinda given all the events over the last few weeks. So I think you all have been, you know, quite transparent about you know, what you'd be interested in and have such a history of discipline.

But, you know, 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? You know, 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, Ken. You know, we have been very successful with the model that we've had for a very long time. You know? And ours is really to continue to grow, share, and customers in the markets that we serve.

So, you know, 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. You know, it may stretch into another footprint a little bit depending on who the company is that we partner with from that perspective.

But it's gonna happen when it happens, Ken. Our strategy works, 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. Alright. Thank you very much, Daryl. Thank you.

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

Hi, Daryl. How are you?

I'm doing good, Gerard. How are you?

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 what changed to have more approvals?

You know, I think, you know, as we ramp back up with our new systems and processes that we have, you know, earlier in the year, we weren't running as smoothly as possible. That has eased up now. Both our team and Peter Darcy's, our first line folks, as well as in the credit area, with Rich Barry and his team. They're working much more closely together with the people on the line and are just flowing through a lot easier.

And 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. So 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. And then 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 that require attention, MRAs. Can you give us your view of how the regulatory environment is changing and how that may help your profitability going forward?

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. 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.

And the way we treat observations is, you have a year to get it fixed before they come back to next year. And if it makes sense, 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.

So just that itself, the timeline to get it done is a lot faster, a lot fewer 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 fewer people needed in the remediation areas. But, you know, we'll probably try to redeploy those folks in other areas throughout the company because those people were really important, very expensive, experienced people that you would want to keep in the company. From that perspective.

So 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. And it gives our teams a lot more energy to be more productive as well. Which is really, really important as we look forward.

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

You know, our hope is that it's a lot more straightforward really focused on key areas that we should try to figure out what the capital is. That original proposal, they had adjustments for PeopleBank our size, has a very low market operation markets that to build something out that really doesn't make a lot of sense for what we are looking for and charging for operational risk. It didn't seem very logical from that perspective either. So I'm sure it'd be much more streamlined, much more trimmed down, really focused on what's really needed from a capital perspective for the industry as well as for M&T Bank Corporation.

Thank you. Appreciate the insights.

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

Hi, Daryl. Thank you for taking my question. Just wanted to follow up on Scott's line of questioning. You mentioned production picking up, the things that you just talked about with Gerard.

But, you know, rates are, in theory, supposed to trend lower from here. How should we think about the push-pull between some of these loans getting refied away from you and the production? In other words, is the fourth quarter still a good inflection point for when CRE balances would bottom? You know, when can we start seeing, you know, period-end balances start to tick upward in a more consistent way?

Yeah. I would love to tell you that fourth quarter is the bottom. We hope it is, but, you know, you don't really know for sure. It really depends on what payoffs are coming through.

I will tell you though, in 2026, for the amount of maturities that we see coming due in '26, it's much less in '26 than what we had in '25. So we're starting out of the blocks in '26 with just fewer payoffs coming through, which is a positive. And with our production that we're growing, I think it'll be really helpful. So, if I had to guess right now, it's probably bottoming in the first quarter. Maybe if we get fortunate enough, maybe it'll be sooner than that.

But we feel really good that it's gonna bottom and start to grow up. Gonna be a really good earning asset. To get back to be positive momentum.

Got it. And maybe the second question, Daryl, is you know, M&T Bank Corporation has been known to have a conservative culture and there has been a lot of credit noise recently, you know, whether it's related to NDFI or, you know, credit pre-announcements, which always makes the market nervous. So, you know, you're the first management team to call out NDFI. And, additionally, the, RWA treatment of NDFI via SSFA.

So maybe my question is this. Maybe walk us through what the NDFI exposure is for M&T Bank Corporation. You did mention that loans to financial and insurance companies were the driver for C&I growth. And maybe help investors figure out what questions to 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 free and way less severe than a direct C&I loan.

Yeah. No. Thank you for the question, Erika. So if you look at our NDFI portfolio, it is one of the lower exposures.

We're probably 7% or 8% of total loans in that big bucket. We really focus on businesses in this bucket that you know, we believe in and are really good businesses that are on the lower end of the risk scale. So I'll start with our top three categories: fund banking, which helped with our loan growth, this past quarter and pretty much throughout the year. It has been growing nicely.

Those are capital call lines. And we do those. But if you want to take more risk, which we don't, is you would do NAV lending, which we don't do. From that perspective.

So in that case, it's our choice to stay on the more conservative end. 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. And we stay with really good conservative-known REITs that perform well. So 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, you know, it's a really safe business to run from that perspective.

So those are the ones that we have that are our largest. We do dabble in other ones. And 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 of a higher risk orientation. So we split that there. As far as your SSFA question goes, SSFA is basically transactions where you have securities or loans that are put on the balance sheet in a structure. So 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. And, you know, 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. But the thing you have to really look at when you look at SSFA is that it's procyclical.

So you start off with a lower RWA, and it's because of the structure that you have. But 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 actually need capital the most from that standpoint. So 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 procyclical type structure on your balance sheet.

Got it.

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

Good morning, Daryl.

Morning.

On the capital front, I know you're at 10.99% CET1 and you are net of the $409 million in buybacks. As you look out, I know you have your 10.75% to 11% target. Can you provide us your updated thoughts around that target? What is keeping you from moving that lower?

And as you get clarity on the regulatory front. And once you do have that confidence and the ability to move it lower, can you 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. So first I'd start with when we look at where we're positioned right now, 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.

You know, and there was more risk into the environment. So we're a little bit cautious there. Our credit quality continues to improve really well. And that will probably continue, so we feel good about that.

And the other thing is we're a little bit price sensitive on how much we buy depending on when we buy it. So, you know, it went up much higher last quarter, and we just bought less on a daily basis. So, I mean, right now, you know, we could buy anywhere from $400 million to $900 million this quarter depending on how we feel about the economy and the value of the stock.

And in terms of your CET1 target, the 10.75% to 11% range, what would you need to see to move that lower?

You know, that's a discussion we'll have with our board later this quarter. When we get our strategic plan approved and go through that. But, you know, 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. But that's really a Renee and board question.

And we'll probably have something to say about that come our January earnings call.

Got it.

Got it. Okay. And then 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? 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 that larger banks are becoming even more of a form of competitor to the regionals on the lending front. What are you seeing there in terms of front-end loan spreads on the commercial book?

Yes. No, it's definitely much more competitive. You know, if you take and look at all of our commercial businesses, C&I and CRE together, I would say spreads are down maybe 10 or 15 basis points approximately from what we're originating maybe a quarter ago. But we're still seeing really good production.

You know, 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 3x more deposits than loans, but you know, they've had really big success 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.

So that said, you know, I think it's competitive, but from a pricing perspective, you know, we're pretty efficient, we can still get our returns with these pricing.

Got it. Alright. Thanks, Daryl.

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?

What would you say is narrowing?

Just operating leverage. Is it gonna widen or narrow, I guess, is the deal. Yeah.

Yeah. You know, Scott, you know, banking is simple when it comes down to this. Long term, but you know, 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.

And if you look at our fees growing with trust, mortgage, and our commercial swath 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. So that's a positive. We have positive momentum on our net interest margin.

We guided up for the fourth quarter. Gonna hit three seventies. So we have momentum there. And CRE is going to start growing as well.

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

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

Yeah. So from a credit quality perspective, you know, 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 criticized balances, it is really a function of the CRE portfolio. CRE portfolio basically decreased in every category in CRE.

But really driven by multifamily and healthcare. And those were the drivers there. Pretty optimistic that that will continue over the next several quarters. So 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.

So we feel really good and excited about that. As far as geography goes, the only I say expanded geography is if you buy a bank that's, let's say, 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 of more growth in another area. But it's still really focused on getting scale and density in the 12 states and in the District Of Columbia where we operate.

Okay. Thank you. Appreciate it.

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

Hey, good morning. You noted in your credit comments a few one-time C&I NCOs that were embedded in the overall 42 basis point NCO number. And then I guess your guide for next quarter is 40 to 50. Are there more lumpy items that you're expecting next quarter? And, you know, I guess, the bigger picture question is, how do you expect that to trend into 2026?

And, you know, what's a good normalized NCO run rate for M&T Bank Corporation?

Yeah. No. Thank you for the question. So this quarter, I mean, 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, you know, 40 basis points this quarter. As further goes to 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'll come in for the year under 40 overall.

So I think that's where it's kinda shaking out. From that perspective. As far as next year goes, we aren't going to give any guidance yet. All that.

But the economy still overall is in relatively good shape. You know, 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 '26, but we'll give you more of that in January.

Got it. And then separately, you spoke about, you know, 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 Bank Corporation is doing there? And if you will need to spend more next year as as you invest there.

Yeah. We definitely are spending a lot of money in the company. I mean, the two and a half 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 my world, in the finance world, the general ledger will go live probably in the next quarter or so.

So that that will be a big success and also a big drop in run rate. But, you know, 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 commercial servicing system that needs to get upgraded, consumer servicing system that needs to get upgraded, so there's other investments out there. You know, from a data center perspective, our two data centers are up and operating. We're still moving applications over there. That would take another year or two to get that fully accomplished.

And Mike Whistler and his team are putting 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. So I think our costs will be controlled.

I think our revenues will grow more than our expenses, but we're going 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 serve.

Got it. Thank you.

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

Just a bigger picture question on credit, which is obviously driving the reasonableness of 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, you know, with rates kind of coming down? I thought that would have taken the pressure off, but just any big picture thoughts as you guys kind of sit around and think about the credit environment.

I'm sure you have talked about some of these positions out there. If you don't have any, just any thoughts on that.

You know, 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. So if you look at the consumers, you know, we've been saying for years that in the lower end, call it the 20-odd percent in the lower end, are really hurting in that space. And those are the ones that are paying the higher credit card yields and all that.

And then it's just, 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. So business banking has pulled back a little just because of some of the weakness we were seeing there in the last year or so. And have a leasing business that also we tightened up there as well.

So on those areas, you know, we're things that we're just trying to tighten and see. But 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's sectors that have been impacted in certain situations, whether it's tariffs or, you know, just other operating private equity coming into buy. Some of these companies sometimes it's a good thing, sometimes maybe not. They aren't experienced in trying to run these companies. Like the original teams were.

So you see one-offs from that perspective. So there are things you have to be careful for. What we really focus on are the fundamentals, 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 gonna be there in the next year or two in the credit situation.

So, we're trying to do that and trying to be really holistic. You know, Rich Berry, our chief credit officer, has set up some verticals and some specialty areas for like our leverage lending area, and a couple of other areas just to focus, make sure that you know, we have controls in place in areas that we deem as higher risk. In place. So I think we're doing all the right things.

Really trying to be guarded from that. But net net, if rates come down more, I think that will relieve some of the pressure. But right now, I think you're just seeing some of the pressures from it's been elevated for a while.

That's helpful. And then I'm sure it's a lot easier to kind of get comfortable with your book. You know, you originated them, and you can kind of evaluate it on an ongoing basis. And 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 again, just kind of generally in credit these headlines that you're seeing, that that might give you a little pause?

All hypothetical, obviously.

You know, 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. I mean, if that's where you're going, it really starts with the culture and, I mean, do they underwrite similar to how we underwrite? And that needs to get established upfront from that perspective, and 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 M&T Bank Corporation, that would fit in quite nicely from that perspective.

But 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 mean, I think that's the way it works. You have to do your homework. It all comes back down to fundamentals again.

Okay. That's helpful. Thank you.

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

Hey. Just back on your margin comment, you mentioned earlier you had some momentum there guiding to the 3.70 level in 4Q. Do you see any upside potential of that going forward given your outlook for more Fed 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?

So, 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. So when you look at that and then you look at it, down 100, or down 100 is basically flat from an NII perspective. So that's really rates going down 200 plus basis points over twelve months.

So 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 I'd say we're a little bit more liability sensitive on the way up a little bit. But the way our balance sheet is really structured is we have to hedge to have the position that we are at. And 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. So we're constantly having to hedge to 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 points spread positive there. The investment portfolio is probably going to be anywhere from 50 to 75 basis point positive there from that perspective.

So still benefiting from the roll-on and roll-off from that perspective. So that's really good. And our deposit betas are 54% We came in and we think that's pretty much what it was when rates were going up. So coming down, we're gonna mirror that as well.

So we feel very good that we'll stay in the low to mid-fifties from a beta perspective. I think we got things positioned pretty well from a sensitivity perspective on NII and feel good about what we're guiding to.

So it sounds like it all adds up to some upside potential there to that 3.70 going forward. All else equal.

Great.

Maybe just back on your comments on the government shutdown and M&T Bank Corporation being ready for that. It doesn't sound like you're too concerned about it right now, given your comments, 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, you know, we are monitoring and looking at various sectors that potentially could happen. Obviously, it hasn't been around long enough to know, but you know, we've seen some stress in gathering contractors. Obviously, this puts more stress on them because of the shutdown, so that's important. You know, the SBA business has gotten a shutdown 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 C&I healthcare from a reimbursement perspective. That will probably impact if it goes longer.

Reimbursements might slow down or stop. And then nonprofits that get grants. Then government employees, which is the heart and soul of the government, those people at all. So we're monitoring all those areas.

Haven't really seen anything yet. But if it goes on a few months, I think you're starting to see some stress maybe.

Yeah. Okay. Maybe just one last one. Was hoping you'd just give a little update on your exposure if you have anything to the Tricolor situation. I know you have any credit exposure, but if you just talk about anything like a legal perspective or anything else there, it'd just be great to hear how you're assessing that risk, just given Wilmington's roles there.

Yeah. Yeah. Happy to talk about it. So first of all, we publicly reported, there are allegations of fraud is never good for an industry overall.

But we expect the industry will improve over time to make sure that such events happen less frequently. We are and always have been a very client-centric culture and company, and we will always strive to provide the best services and execution. We've got a thorough review of what we're looking at and enhancing our quality and service. We still believe in our corporate trust business, feel good about where we are, and just looking for better ways to partner with our clients.

Know, regarding your current situate, question that you have, it clearly will play out over a long period of time. It's really not helpful to kind of speculate what's gonna happen from that perspective. You know, we were our roles in the transaction. We have no lender experience or exposure from M&T Bank Corporation or Wilmington Trust whatsoever.

Our roles that we have there were focused in the warehouse account banking custodian and on the securitization roles, owner trustee, indenture trustee, custodian, paying agent, note register, and certificate register. Those were our roles that we have from that perspective. So there's no credit exposure that we have there. So I think that's really what we see right now, and we're just going through the process and seeing how things play out.

And, you know, there will probably be people that sue other people just because of the bankruptcy and what happens, but we'll see, you know, if we're impacted or not from that. We don't know.

Alright. Thanks, Daryl. Appreciate it.

Our next question will come from Ken Usdin with Autonomous. Your line is open.

Hey, great. Hey, Daryl. Just one quick one. You mentioned in the slides that the fourth quarter expense up, you pointed out professional services.

I know you guys typically do have higher expenses, third to fourth. But I'm just wondering, is that a specific nuance that you're just finishing some projects or something like that and just obviously, you know, we'll hear more in January about what next year's expenses look like. But, I just wanna know if that's atypical or more of kind of the normal ramp that we typically see towards year-end?

You know, Ken, we have a lot of projects going on and we're just trying to get some of them finished off. So it's kind of the cost of, you know, getting things done is just increasing expenses from a professional services perspective. We'll give you guidance for '26, and, you know, we will make sure that we have revenue growing faster than expenses.

Okay. Alright. Got it. Thanks for that clarification.

Thank you. Our next question comes from Christopher Spahr with Wells Fargo. Your line is open.

Hi. Thanks for taking the question. First, about the buybacks during the quarter, and you kind of indicated like you were being a little price sensitive. Just with the accumulation of capital, regulatory relief coming in, an AOCI becoming even more favorable for you.

I'm a little surprised that you talked about being price sensitive, just given where the overall stock is and and your accumulation of capital.

You know, we just have a grid that we have, Christopher, in that, you know, depending on what the tangible book level is, what we're trading at, we have certain amounts that we buy at certain levels. And adjust it fluidly from that perspective. But you know, just like investors out there, you know, we're investing in our company as well, and we think of it the same way.

Okay. And as a follow-up, with five rate cuts kind of in the forward curve, what is your outlook for deposit growth over the next year or so? Thank you.

Yeah. You know, my guess is our deposit growth and we'll give you guidance in January. But deposit growth and loan growth shouldn't be much different than really the growth of the economy plus or minus a little bit. Is what it is. So economy grows two or 3%, I think it'd be in that same neighborhood.

Alright. Thank you.

Thank you. This concludes today's Q&A. I will now turn the program back over to our presenters for any additional or closing remarks.

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