M&T Bank Earnings Call: Record Profits, Cautious Outlook

M&T Bank Corporation ((MTB)) has held its Q4 earnings call. Read on for the main highlights of the call.

M&T Bank Leans on Record Year as It Navigates Near-Term Headwinds

M&T Bank Corporation’s latest earnings call painted a largely upbeat picture, underpinned by record full-year results, rising fee income, improved asset quality, strong liquidity, and aggressive capital returns. While the fourth quarter showed modest sequential pressure on earnings, net interest margin and certain credit metrics, management emphasized a constructive medium‑term outlook, with 2026 guidance pointing to growing revenues, controlled expenses and robust returns on capital.

Record Earnings and Strong Returns Underpin the Story

Management highlighted a standout year, with full-year 2025 net income reaching $2.85 billion and record earnings per share of $17. The bank maintained a top‑quartile return on tangible assets above 1.4%, signaling efficient deployment of its balance sheet, and reiterated confidence in sustaining strong shareholder returns with an expected return on tangible common equity of around 16% in 2026 and a longer-term target of 17% by 2027. These metrics frame M&T as a high‑return regional bank even as the rate backdrop turns less favorable.

Capital Returns: Bigger Dividend and Aggressive Buybacks

Shareholders saw tangible benefits from M&T’s capital strength. The bank raised its quarterly dividend by 11% and repurchased roughly 9% of its outstanding shares, totaling about $507 million in buybacks during the period, all while growing tangible book value per share by 7% year over year. This combination of rising tangible book and meaningful capital return signals management’s confidence in the franchise and earnings durability, even as it nudges regulatory capital ratios slightly lower.

Asset Quality Hits Best Levels Since Before the Financial Crisis

Credit quality improved markedly. Nonaccrual loans fell 26% year over year and now represent just 90 basis points of total loans, the lowest level since 2007. Criticized commercial loans dropped 27% over the year, and non-accrual loans declined 17% sequentially to $1.3 billion. Reflecting this healthier risk profile, the allowance for loan losses edged down to 1.53% of loans, a 5‑basis‑point reduction. Overall, the bank enters a potentially softer macro environment from a position of unusually strong asset quality.

Fee Income Becomes a Larger Engine of Growth

A key theme was the growing importance of fee-based businesses. Fee income climbed 13% in 2025 to a record $2.7 billion, and its share of total revenue increased from 26% to more than 28%. Gains were broad-based, spanning treasury services, trust, mortgage and capital markets. For investors wary of the impact of lower interest rates on bank earnings, this shift toward more stable, diversified fee revenue provides an important counterbalance to net interest margin pressure.

Balance Sheet Resilience and Ample Liquidity

M&T underscored its conservative balance sheet stance, with investment securities and cash held at the Federal Reserve totaling $53.7 billion, or about 25% of total assets. Its estimated liquidity coverage ratio stood at 109%, comfortably above regulatory minimums. The bank also deployed some excess liquidity, purchasing $900 million of debt securities in the fourth quarter at an average yield of 4.9%, contributing to a 4‑basis‑point increase in the investment securities yield to 4.17%. This liquidity and funding profile supports both stability and incremental earnings as the rate environment evolves.

Loan and Deposit Growth with Improving Funding Costs

Despite a cautious macro backdrop, M&T posted solid lending and deposit trends. Average total loans rose $2.4 billion to $165.1 billion, led by a $1.1 billion increase in loans and leases to $137.6 billion. On the funding side, interest-bearing deposits climbed $2.2 billion to $120.9 billion, and non-interest-bearing deposits increased modestly to $44.2 billion. Importantly for profitability, interest-bearing deposit costs fell 19 basis points to 2.17%, providing some relief against the downward pressure on loan yields and supporting net interest income resilience.

Strategic Actions and Accounting Changes Support Long-Term Efficiency

Management combined a disciplined outlook with targeted strategic moves. They laid out detailed 2026 expectations for net interest income, fees and expenses, while also adopting a fair-value election for mortgage servicing rights (MSRs). This accounting change adds $197 million—about 8 basis points—to regulatory capital and shifts roughly $75 million of MSR amortization out of expenses and into netted mortgage revenues. The move is intended to better reflect the economics of the business, improve capital metrics, and modestly enhance reported operating leverage as the bank pursues sustained efficiency gains.

Quarterly Earnings Dip Highlights Near-Term Pressure

Against the strong full-year backdrop, fourth-quarter results showed some cooling. Diluted GAAP EPS for Q4 came in at $4.67, down about 2.7% from $4.80 in the prior quarter, while net income declined to $759 million from $792 million. On an operating basis, diluted EPS slipped to $4.72 from $4.87, a 3.1% drop. Management framed these moves as manageable in light of one‑time items and seasonal factors, but they do underscore that the margin for earnings growth in a lower‑rate environment is getting tighter quarter to quarter.

Spike in Net Charge-Offs Tied to Specific Credits

Credit costs ticked higher in the quarter. Net charge-offs totaled $185 million, or 54 basis points of average loans, up from 42 basis points in the prior period. The increase was largely driven by the resolution and write-down of three previously identified credits totaling more than $100 million. While these were expected problem loans rather than a broad deterioration in the portfolio, the elevated charge-offs remind investors that, even from a strong base, loss levels are normalizing above pre‑pandemic lows.

Non-Interest Income Pullback Reflects Fewer One-Time Gains

Non-interest income weakened sequentially, falling to $696 million in Q4 from $752 million in the prior quarter, a decline of about 7.5%. The bulk of the drop came from “other” revenues, which were roughly $67 million lower, primarily because the prior quarter benefited from a cluster of non-recurring items, including an earn-out distribution, a vendor distribution and an equipment lease gain. Underlying fee trends across core businesses remained healthy, but investors should note that such one‑offs added a meaningful boost earlier in the year that did not repeat.

Efficiency Ratio Deteriorates Sequentially on Higher Costs

The bank’s efficiency ratio, a key measure of cost discipline, worsened in the quarter, rising to 55.1% from 53.6%—about a 150‑basis‑point deterioration. Management attributed the increase to elevated professional services spending and other non-interest expenses. While the full-year comparison showed improvement, the Q4 uptick highlights the ongoing challenge of balancing investment in talent and technology with the need to maintain strong operating leverage in a slower-growth revenue environment.

Capital Ratios Dip but Stay Comfortable After Buybacks

M&T’s common equity tier 1 (CET1) ratio ended the period at an estimated 10.84%, down 15 basis points from the prior quarter. The decline was driven by the $507 million of share repurchases and higher risk‑weighted assets, not by credit stress or losses. Management signaled comfort operating with a CET1 range of about 10.25% to 10.50% in 2026, suggesting ample capital flexibility remains for continued buybacks and dividend growth while meeting regulatory and strategic needs.

Margin and Credit Normalization Present Ongoing Headwinds

Lower rates on variable loans weighed on asset yields, with overall loan yields declining 14 basis points to 6.00%, a trend that can pressure net interest margins as more loans reprice. The bank recorded a $125 million provision for credit losses in Q4 compared with $185 million of net charge-offs, and guidance for 2026 assumes charge-offs around 40 basis points—higher than pre‑COVID levels and consistent with a more “normal” credit cycle. For investors, this points to a more balanced earnings mix in which growth in fee income and cost discipline must offset both margin compression and a gradual drift higher in credit costs.

Forward Guidance Points to Growth, Efficiency and Strong Returns

Looking ahead to 2026, management guided to taxable-equivalent net interest income of about $7.27 billion with net interest margin in the low‑3.70% range, assuming roughly 50 basis points of rate cuts and a deposit beta in the low‑50s. Average loans are expected to land between $140 billion and $142 billion, with average deposits of $165 billion to $167 billion, indicating steady but not aggressive balance sheet growth. Noninterest income is projected at $2.675 billion to $2.775 billion, while noninterest expense is forecast at $5.5 billion to $5.6 billion, including a notable first-quarter bump from salaries, benefits and intangible amortization. The bank anticipates charge-offs near 40 basis points, a tax rate around 24%–25%, and an operating CET1 ratio of roughly 10.25%–10.50%. Crucially, management expects about 150 basis points of positive operating leverage and a return on tangible common equity around 16% in 2026, with a target of 17% by 2027—implying continued focus on efficiency and shareholder returns.

In sum, M&T Bank’s earnings call blended record full-year performance and robust capital actions with a candid acknowledgment of near-term pressures from margin compression, higher charge-offs and cost creep. For investors, the story centers on a well-capitalized, high-return regional bank using liquidity strength, fee growth and disciplined expense management to navigate a maturing credit cycle and a potentially lower-rate environment, while still targeting attractive returns over the next two years.