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© transcript Emily Beynon

Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time please press star zero and a member of our team will be happy to help you.

. . . . . . . . . . Please stand by, your meeting is about to begin. Welcome to the M&T Bank Third Quarter 2026 Earnings Conference Call.

All lines have been placed on listen-only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star, then the number 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. When posing your question, we ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you should require operator assistance, please press star 0. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Steve Wendelboe, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Angela, and good morning. I'd like to thank everyone for participating in M&T's third 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 discussing our results, I'd like to begin with what continues to define M&T, our purpose, to make a difference in people's lives. That purpose informs how we serve customers, invest in our company, and create long-term value. At a recent conference, we discussed our focus on teaming for growth and operational excellence. Those priorities continue to guide our work across M&T. We are investing in technology, simplifying processes, and creating more capacity for our teams to serve customers and support growth. These efforts build on what has always differentiated M&T, strong relationships and disciplined execution. You can see that approach across our companies. During the quarter, more than 100 M&T colleagues participated in the Pan Mass Challenge. Overall, we raised more than $850,000 for cancer research and treatment. We also continued investing in our branch network, opening new locations in Torreyton and Waterbury, Connecticut, to serve our customers. And for the 18th consecutive year, we ranked among the nation's top SBA lenders. We were again number one across our footprint and improved to number five nationally for 7A loans by volume for SBA's 2026 fiscal year. Together, these efforts reflect the connections we build with customers, communities, and institutions across our footprint. Sites 20 and 21 provide additional context on M&T's approach to AI. We are seeing AI help automate, augment, and reinvent work across the bank. In the near term, AI is helping employees make better decisions, reduce manual work, find information faster, and identify risks earlier. Growing engagements across the organization, including hundreds of track use cases, shows strong interest in moving quickly from ideas to execution. These efforts are improving productivity, risk management, and customer experience while enabling greater scalability. Turning to slide five, we were pleased to see continued recognition of our people during the quarter. American Banker, Fast Company and Investment News recognized M&T's leaders for their contributions to our bank, customers and industry. These honors reflect the strength of our talent and culture. Now let's turn to slide eight and our third quarter results. Deluded Gap earnings per share were $5.04 compared to $5.32 in the prior quarter. Net income was $775 million compared to $818 million in the linked quarter. M&T's third quarter results produced an ROA and ROCE of 1.4% and 11.44% respectively. Our results continue to reflect a disciplined approach to generating attractive returns. Delivering consistent balance sheet and earnings growth and continuing to generate and preserve capital. Loan growth remains solid and deposit growth more than funded the increase, allowing us to reduce our reliance on short-term borrowings while maintaining strong net interest margin. We also continue to grow earnings per share, with year-to-date net operating earnings per share increasing 17% from the same period in 2025. We delivered net earnings growth while maintaining a return discipline. Third quarter net operating ROTA and ROTCE were 1.47% and 17.29%, both exceeding the targets established for a long-term incentive structure. Our focus on capital generation and preservation is also reflected in our decision to transfer $8.3 billion are residential mortgage-backed securities from available for sale to held to maturity. That action reflects our continued discipline to protecting tangible capital and positioning us well with potential regulatory framework that includes AFS-related AOCI and regulatory capital. According to slide 9, we provided supplemental reporting of our results on a net operating or tangible basis. Net operating income totaled $780 million compared to $823 million in the linked quarter, while diluted net operating earnings per share were $5.08 compared to $5.35. Next, we look a little deeper into the underlying trends that drove the third quarter results. Please turn to slide 10. Taxable equivalent net interest income was $1.8 billion, largely unchanged from the linked quarter as the benefits from one additional day, earning asset growth, and fixed asset repricing were muted by lower non-accrual interest and higher funding costs. In line with the outlook we provided in July and September, net interest margin was 3.65%, down five basis points from the prior quarter, mostly reflecting those same factors that impacted NII. As I mentioned last quarter, we remain disciplined in evaluating the trade-offs between NII and net interest margin with a focus on optimizing overall returns. Turn to slide 12 to talk about average loans. Average loans held for investment increased 2.6 billion, or 2%, to 143.3 billion. This quarter's growth was driven by commercial real estate and consumer. CNI loans were largely unchanged at $65.9 billion, with growth in institutional CRE offset by lower dealer commercial services. Average CRE loans increased $1.6 billion, or 7%, to $24.9 billion, reflecting continuation of the origination strength we saw late in the second quarter and relatively stable payoffs and paydowns. Average residential mortgage loans increased 0.4 billion, or 1%, to 25.2 billion. Consumer loans increased 0.6 billion, or 2%, to 27.3 billion, with growth in recreational finance and HELOC portfolios. Loan yields decreased three basis points to 5.86%, reflecting lower non-accrual related interest. For context, third quarter results reflect A $15 million reduction in interest income recognized on commercial loans that were previously in non-accrual status. Turning to slide 13, our liquidity remains strong. At the end of the third quarter, investment securities and cash held at the Fed totaled $52.2 billion, representing 24% of total assets. Average investment securities decreased modestly to $38.6 billion. The yield on investment securities increased four basis points to 4.33% as reinvestment rates continued to exceed the yields on maturing balances. In the third quarter, we purchased $0.9 billion in debt securities with a yield of 5.12%. The investment portfolio had a duration of 4.1 years and the unrealized free tax loss on the available to sale portfolio was $745 million. While not subject to LCR requirements, M&T estimates its LCR at quarter end was 107%, exceeding the regulatory minimum standards that would be applicable if M&T was a Category 3 bank. Turning to slide 14, average total deposits rose $3.3 billion to $166.8 billion. Non-interest-bearing deposits decreased $256 million to $43.7 billion, primarily from lower trust demand deposits. Interest bearing deposits increased $3.5 billion to $123.1 billion. Growth was driven by commercial, mortgage, business banking, and time deposits. Interest bearing deposit costs increased 10 basis points to 2.05%. The increase was driven by several factors, including two basis points related to the impact of the September rate hike The remainder largely attributed to growth in other interest-bearing deposit categories. Importantly, the deposit growth allowed us to reduce our reliance on borrowings, with average short-term borrowing decreasing by $2.8 billion to $5.2 billion. As a result, total interest-bearing liability costs increased less than the interest-bearing deposit costs, reflecting our continued focus on optimizing overall funding costs and mix. Continuing on slide 15, non-interest income was $743 million compared to $740 million in the linked quarter. Higher residential servicing fee income was largely offset by lower capital markets and advisory and other revenues from operation. Mortgage banking revenues increased $25 million to $152 million. The primary driver was residential mortgage which increased $23 million to $119 million from higher servicing fee income reflecting $63 billion of subservicing balances added in June. Trust and investment services decreased $5 million to $230 million mostly related to seasonal tax preparation fees in the second quarter. Capital markets and advisory decreased $9 million to $32 million from lower interest rate swap transactions with commercial customers and lower loan syndication activity. Other revenues from operations decreased $10 million, mostly reflecting a $31 million Bayview distribution compared to $47 million in the prior quarter. Turning to slide 16, non-interest expenses for the quarter were $1.39 billion, an increase of $44 million from the prior quarter. Salary and benefits increased $6 million to $832 million, mainly from one additional working day in the quarter. Outside data processing and software costs increased $19 million, and professional services increased $8 million, reflecting higher software maintenance, enhancements to our technology infrastructure, and other enterprise initiatives. Other costs from operations increased $6 million, primarily from the Visa-related and other litigation obligations. Our efficiency ratio was 54.4% in the third quarter, up from 52.8% in the link quarter. Year-to-date, however, efficiency continues to improve, with the ratio improving to 55.1% from 56.3% last year. Next, let's turn to slide 17 and 18 for credit. Asset quality remained relatively stable this quarter, with net charge-offs below our initial year expectations and non-accrual loans remaining near cyclical lows. Criticized loans increased $245 million to $6.1 billion. The increase was driven by a $213 million increase in C&I criticized and a $32 million increase in CRE. Non-accrual loans increased $90 million to $1.3 billion and the non-accrual ratio increased five basis points to 90 basis points. The increase was driven by higher commercial non-accrual loans, mostly related to office and assisted living credits. Net charge-offs for the quarter totaled $127 million for 35 basis points. Five credits accounted for approximately $40 million in the net charge-offs and were mostly in the leverage lending and franchise portfolios. In the third quarter, we recorded a provision for credit losses of $135 million. The allowance for loan losses as a percent of total loans declined two basis points to 1.51%. Turning to slide 19 for capital, M&T's estimated CET1 ratio was 10.16%, a decline of three basis points from the second quarter. The decline reflected 323 million in share repurchases, and higher risk-weighted assets associated with $2.2 billion of loan growth. These factors were partially offset by continued strong capital generation. If included in regulatory capital, AFS and pension-related AOCI would have decreased the ET1 ratio by 29 basis points. Now turning to slide 22 for the outlook. First, let's begin with the economic backdrop. The U.S. economy continues to expand despite multiple shocks and heightened uncertainty. Although geographical conflicts have not been fully resolved, we are cautiously optimistic with an outlook of continued growth. Gasoline prices remain high, but consumer spending has held up well in spite of energy shocks. We see households as having managed the shock by reducing spending in other areas. The build-out of artificial intelligence infrastructure is helping drive overall construction and capex while other sectors are more subdued. While we do not see evidence of energy shocks seeping into core inflation, we expect overall inflation to deaccelerate going forward. Labor market remains in a low-hire, low-fire environment with slow job growth and low unemployment rate with very little wage pressure. remain well positioned for a dynamic economic environment. Now turning top to the outlook. With three quarters of the year complete, we were focused on the fourth quarter. We expect taxable equivalent NII to be 1.83 to 1.85 billion and net interest margin to be in the mid 360s. Our forecast reflects one rate hike in December. We expect modest loan growth with average loans of 145 to 146 billion and growths in CNI, CRE, and consumer. Average deposits are expected to increase to 169 to 170 billion with continued focus on growing customer deposits at a reasonable cost. Our outlook for the fourth quarter non-interest income is 710 to 730, reflecting stable to modest growth across most fee income categories except for other revenues from operations given the benefit of Bayview distribution in the third quarter. Fourth quarter expenses, including intangible amortization, are expected to be 1.39 to 1.41 billion, reflecting continued investment in the enterprise initiatives and well-managed non-investment spend. Net charge-outs for the fourth quarter are expected to be 35 to 40 basis points. who plan to continue to operate a CET1 ratio of 10 to 10.25% for the remainder of the year. To conclude on slide 23, our results underscore an optimistic investment thesis. M&T 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. remain focused on shareholder returns and consistent dividend growth. Finally, we are a disciplined acquirer and prudent steward of shareholder capital. The strength and diversification of M&T's balance sheet, 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 your commitment, M&T continues to create lasting value for everyone we serve. Now let's open the call up to questions before which Angela will briefly review the instructions.

Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. Our first question today comes from Daniel Tamayo with Raymond James. Your line is now open.

Thank you. Good morning, Daryl.

Good morning, Danny.

Maybe just starting on the funding side, you mentioned the mixed shift from borrowings, the deposits in the quarter and the benefit that had. Is there any benefit left from this mixed shift? And then just diving into the increase in deposit costs, just curious if that was more related to Thank you for joining us.

We're doing 12 and 18 months maturities. And at that time, we put on a 405 rate on those CDs. Not knowing that rates were going to go up a whole lot, we just thought it was a good time to issue, get more term funding, and pay down borrowings. With the rate increase that we saw late in the third quarter, we're now close to the overnight rate with this term money. We think that's acting really well, and that will stay stable. So if you take that away, our costs were really up around six basis points. And that's just normal repricing that we saw that we had to as we start to implement increases with a higher funds rate from that perspective. On the funding side, we were always looking on the balance sheet for ways to be optimized and do things better. And I'm sure we aren't fully optimized yet, and we'll continue to work on trying to become more optimal I feel very optimistic on the outlook for net interest income and net interest margin. So I think we'll find other things that we can do down the road over the next year or so that will help us continue to maintain and have really strong performance in this space.

Great, thank you. And then maybe just a longer term question, kind of similar topic though. Given your focus on growing the operating accounts, The pressure that we're seeing in the industry on funding on the deposit side. How are you thinking about the trade-off between maintaining deposit pricing discipline and then funding loan growth going forward? And just your thoughts on if the deposit pricing could ultimately become a bigger constraint on growth than maybe demand for loans going forward.

So as you know, Danny, all of our businesses, whether it's consumer or Business Banking, Commercial, Wealth. We always go to market to get the operating account. That, we believe, is the most important thing to have a relationship. A relationship starts with that. And once we get that, we have other opportunities to kind of deepen our relationship with our customers. That's not going to change. That's really good. If you look at business banking, I've said this before, but it has more deposits than loans, three to one. Eighty percent of those deposits are operating accounts. So that's just a pure You know, as far as pricing goes, yes, it's competitive out in the marketplace, you know, and there is loan demand. You know, we'll see how much loan demand we have in 2027 with rates increasing. My guess is we'll have loan demand, but probably at a little bit more modest pace. And I think we'll be able to manage the funding of that effectively. If we go out to term funding, M&T issues very well in the capital market, so we can do that if we need to. But first and foremost, we're going to try to fund our loan growth with our deposit growth.

Terrific. Thanks so much for taking my questions, Daryl.

Thank you.

Thank you. We'll go next to Scott Seifert with TD Cowan. Your line is now open.

Hey, good morning, guys. This is actually Bill Young on for Scott. How are you? My first question, you had some very strong pull-through on Cree this quarter, which was expected, and it looks like the outlook for 4Q growth is also looking very solid, but as we look out over the next year, and given the evolving higher rate environment, what are your updated thoughts on the positive commercial growth inflection story? Bounce against the rate outlook?

Yeah, that's a great question, Bill. You know, I've spent a lot of time talking to Tim Gallagher this week preparing for this call. He runs our CRE space and, you know, him and his team have worked really, really hard to, you know, start growing our CRE portfolio again. And we have two quarters in a row now where it's grown really nicely. You know, higher rates just by definition is going to make it more challenging for projects to actually you know basically true out from a financial perspective but if we're still optimistic I think Tim and his team have worked hard to get growing and even in a more challenging environment we still feel confident we're going to be able to grow you know probably maybe mid-single digit plus or minus in that neighborhood is kind of our expectations but you know we we were really good at CRE and to be honest with you it's always not all what's on the balance sheet we also have a lot of off balance sheet alternatives too and we really want to serve our customers and meet their needs whether that's on or off balance sheet so I think both ways we will be successful in what we need to do great very helpful and then a separate topic given the slight uptick in criticized

Assets this quarter and some of the uncertainties you flagged on the macro in your prepared remarks. Do you see criticized assets levels perhaps stabilizing at these levels? How do you kind of think about that as well and the backdrop of a higher rate environment?

Yeah, so when you look at our at least near-term projections for criticized balances, we still think the overall portfolio will still be down a little bit. If you look at CRE, that's where most of the improvement has been over the last year. That's probably where you're going to continue to see it near term. As you go out into next year and if rates stay higher, that could put pressure on debt service coverage ratios, and that could have some creep maybe starting back into the portfolio there. The CNI portfolio has been up and down a little bit on a criticized basis. So we don't think that's going to necessarily have a downward trajectory, but kind of bounce along up and down a little bit throughout the next several quarters. But NetNet overall, I think we're optimistic that it's still at least short-term down and criticized, and we'll see how much rates impact our customers going forward. As you know, as we underwrite our customers, we stress test them under a lot higher interest rates, and they will perform well because of that stress testing and renewals. So We aren't concerned about losses coming in with this higher interest rates, but you might see a little creep in the criticized side.

Perfect.

Thank you for taking my questions. Appreciate it.

Thank you. Thank you. We'll go next to John Pancari with Evercore. Your line is now open.

Hey, good morning. This is Gerard Sweeney on for John. Just revisiting the criticized loans on the auto leasing credit, the auto leasing company credit that you flagged. Can you provide a little more color on this in terms of was this something you had some prior visibility into and then if you think this is driven by broader macro or industry pressures or for this credit was a little more idiosyncratic? Thank you.

Yeah, we believe it was idiosyncratic. It was in our NDFI portfolio. This company was in auto leasing, vehicle remarketing, and used car platform. We knew this was coming down the path. We also have a feel for non-accrual next quarter as well, and we think that's going to be flat to up a little bit as well. So we're just bouncing at the bottom right now, and there's a couple credits that we see out there that we think will go into non-accrual. But as long as it's going non-accrual, we do have some curing as well. We were up a little bit this quarter, but we're still having a lot of our customers also pure in this portfolio. But we're at really low periods for M&T, very close to the bottom. So we're going to bounce along the bottom for a while, I believe.

Thank you. Then one more just on, you know, back in the lending side, you know, revisiting pricing there. Given broader competitiveness, what have you observed in loan spreads in 3Q and have you seen any changes in recent weeks as credit spreads across the industry have widened?

Yeah, when you look at the commercial portfolio, include CRE or whatever, you know, we're actually up 10 basis points from what we had run off versus what we ran up, put on the books this past quarter. So I wouldn't say that you can say that's going to stay that way, but I would say we're relatively flat. Right now we're showing a little bit positive bias from that perspective, so I think that's good. It's competitive out there, but we're willing to give a little bit on pricing if we have really good structure. We don't want to sacrifice on structure is really what's important to us, and that's something that we aren't going to change from that perspective. But right now we think what we're putting on the books is still meeting our returns in pretty much most of the situations that we are able to do.

Understood. Thank you very much.

Thank you.

Thank you. Our next question comes from Ryan Kinney with Morgan Stanley. Your line is now open.

Hey, good morning. So on the fee income side, it's been a strength for MNC for several quarters. Can you walk through what you expect to see in terms of higher rates impact on the fee businesses and maybe how that trajectory would vary across the major line items?

Yeah, so the easy ones are, you know, higher interest rates on the yield curve is definitely going to slow down our residential mortgage business. And you're seeing that now, obviously, with new home rates, you know, above seven and a half to eight in that range bouncing along right now. And our RCC business, which is our originate and sell business in the commercial real estate space, is also higher and has lower volumes just because it's Hard to pencil out and get the economics that we need for our customers in that space. So those would be softer. One of the counter-cyclical items we have is our mortgage servicing, subservicing businesses. What we have there is most of our subservicing businesses are in government servicing, FHA. When loans are delinquent and then we're able to cure loans, we actually get paid a reward fee for that. So it's that actually not wishing our customers to have issues, but if they do have issues, we generate more revenue. And when we're able to cure them, we get paid for that even more from that. So that's more counter-cyclical. If you look at corporate trust, corporate trust business is a great B business, but it's also a good deposit business for us. And if market activity slows down in the capital market series, we'll see that space there. We now broke out our line items on capital markets and commercial. That's going to probably do well in most situations just because we're putting more resources and more people in that space. We're coming off pretty much very low bottoms. So we're very optimistic as we push more into that space and offer it more to our customers. Even in tougher environments, I think we'll be able to hold our own and still have success growing in that area. NetNet overall, we're very optimistic on fees. It's about 28% of our revenue. We're going to continue to push hard, and we still have strong net interest income and margin, but trying to get the fee revenue up into the 30s would be a great objective for us to achieve.

Thank you. Very clear, and appreciate the enhanced disclosure around fees. And then separately on the M&A question, any updated thoughts on the board's appetite for potentially are expanding inorganically given the movement in rates. Does higher rates limit the pool of available sellers because of unrealized losses, or does it make high-quality deposit franchises more attractive? If you could just walk through the puts and takes there. Thanks.

Yeah. I mean, higher rates definitely changes the mark of the balance sheet, and that's real. But what we look at, to be honest with you, deposit franchise is one of the most important things we look at, whether Rene Jones, Rene Jones, Rene Jones, Rene Jones, you know he has good dialogue and when somebody wants to maybe want to partner with us they'll reach out to us and at that point you know we'll engage and see if it can work for both parties from that perspective.

Thank you.

Thank you. Our next question comes from David Chavarini with Jefferies. Your line is now open.

Hi thanks for taking the questions. Wanted to follow up on the loan side of things so CRE Consumer drove the growth, but CNI was muted. Can you talk through why CNI was muted and the outlook from here on the CNI side?

Yeah, so CNI is a big business for us. We have lots of businesses within CNI. I'll just cut to the chase. So it was flat this quarter. We had actually nice growth in our institutional CRE kind of re-blending. We had good growth in our large corporate institutional. We actually had good growth in three of our four major regions in our regional CNI space. What offset us was, you know, seasonally dealer commercial services is at a point now where there's less inventory cars on the platform, so that went down. And then if you look at owner occupied, that was the other one that kind of decreased. So net net, it added to pretty flat. Our outlook though for CNI is very optimistic and good. You know, for next quarter in my prepared remarks, we said we'd have growth in commercial CRE as well as consumer. So all three portfolios and we believe that's going to happen and maybe a little bit more challenging with higher rates next year and all that. But our teams are really good. We have great relationships with our customers. So we will hold our own and I'm sure we'll have good loan growth and still continue to perform really well as we get into 27 and beyond.

Great. Thanks for that. And then on the net interest margin, you're guiding mid-360s for the fourth quarter. Should we think of that as a sustainable level for multiple quarters? And can you also remind us of the sensitivity to rates on the NIM for M&T going forward?

Yeah. Okay, so let me do sensitivity first. So sensitivity on the short end, we're relatively neutral, maybe a touch liability sensitive, but pretty relatively neutral in that space. The curve is steeper, and that's a good guy for us. So I feel very comfortable where we're operating in the mid 360s. We are going to give 27 guidance, but when you look at where the shape of the curve is, if that holds, If you look at where our asset repricing is, we have really good asset repricing in a lot of our portfolios. Our investment portfolio, you know, for a given next 12 months, we'll reprice $6 billion up easily over 100 basis points. If you look at loans over the next 12 months, we have about $10 billion of fixed rate loans going off. That should reprice up for about 75 basis points. Look at our swap book. It's come down in the last quarter or two. It starts to go back up again in the second quarter next year and climbs out of that. So feel good on our swap book, giving us momentum as you get into the middle and later part of 27. So I'm actually pretty optimistic, David, that we're going to continue to have a strong net interest margin for our company and have good long growth and see how that plays out. But We're really performing really well, all the businesses, and I think you're going to see that performance continue.

Very helpful. Thank you.

Thank you. Our next question comes from Christopher McGrady with KBW. Your line is now open.

Hi, thanks. This is Chris O'Connell. I'm for Christopher McGrady. I was just hoping to, you know, touch on some of the pricing dynamics on the loan and the security side. You know, maybe just post-hike, you know, where the average pipeline origination yields are coming on for the C&I and CRE books.

Yeah, I mentioned it earlier, but on the commercial side, when you look at the roll-on, roll-off, we're up about 10 basis points in the third quarter in that space. that kind of bounces around I don't know what will be next quarter but NetNet overall it's competitive in that space we're really not giving on our structure and we're getting the pricing and I'd say the vast majority of the loans we put on our books are meeting our hurdles and that's what's really important from that perspective as far as pricing securities I mentioned that just a minute ago but We have good momentum. We're going to be able to reprice that portfolio up. We'll have four basis points this quarter. I would say that will continue to be up for the next several quarters each quarter.

Okay, great. Thank you. And then on the capital side, I mean, you guys are pretty close to your capital targets now and expected to stay in that range for Q4. As you kind of, you know, move into Q4 into next year and given, you know, the Basel III proposals, any change do you think, you know, in the level of buybacks going forward?

So, you know, we first want to get the rules out there and know what they are. You know, we'll look at, you know, what actually is out there. You know, there's three regulations that will probably be out by the end of the year. Basel III, tailoring, and liquidity. You know, and I think all of them will have some positives, maybe not as much, you know, as what everybody wants, but still positives in each of them to some extent. I think we'll just have to evaluate, you know, what the new rules are, what we have, but I think where we are now, we feel really good at that. With an increase in AOCI, we are being very careful with our tangible equity and all that. So that's why we moved those $8.3 billion into maturity. The other caveat out there in the marketplace is rating agencies. Rating agencies, we don't want to get downgraded, so we have to see how they interpret the new rules as well. but NetNet overall, we're optimistic that we'll have some flexibility there and continue to do really well.

Great. Appreciate the detail. Thanks for taking my questions.

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

Hey, this is Nate Stein on behalf of Matt O'Connor. I actually wanted to ask about the decision to break out new feline items like capital markets and advisory and card fees. What drove the decision to start breaking all that out versus lumping a lot of and other items into other income previously? And separately, I noticed a reclassification of CNI, CRE and RISD mortgage loans and I didn't see any footnotes highlighting it in case I missed it. Could you just elaborate more on this?

Yeah, let me take your second question first. We didn't change any classification of our loans with the exception that we broke out available for sale, held for sale out there. And that was really for our two portfolios in residential mortgage and in our RCC CRE business. So those were actually show that there, other than that, the balance sheet didn't change. That's the only thing we had. And we're averaging a little less than a billion dollars in that new held for sale line item. As far as the fees go, We had a very large other revenue category. It was either the largest or second largest out there. We just had a lot of, we believe, good news within that other category. We wanted to break it out and show more transparency there. We created those new buckets in capital markets and card fees and other things and just bucketed things how we thought it would be and It was that way for a long, long time. We would have changed it earlier, but we were putting in a general ledger, and we just didn't want to change our line items and have to redo kind of our new system all over again. So we went into the new system, was in and working, and then we broke it out. So you may see a little bit more changes positively over the next quarter or two as well, just trying to enhance and improve our transparency and information that we share with you guys.

Well, I'll just reiterate another person's comments that the increased transparency is definitely appreciated, so thank you for that. And then I wanted to ask also about ROTC. So you called out a 17.3% operating ROTC in 3Q, which is a little above the high end of your 15% to 17% medium term range. And in the past, you've said 17% next year is achievable. Is that still a fair assumption, or is there maybe upside to this target?

Yeah, Nate, you know, we believe we're on track with what we share with the board. We believe that 17 is attainable for 2027 for us. And, you know, it will be challenging. It won't be easy, you know, especially with higher rates. Might have a little bit softer economy because of that. That said, our businesses are performing well. All of our people know our clients, customers really well. We will compete, I think, really well against others in the marketplace and I think we're all focused and I think we're going to achieve our goals that we're setting out. A year from now, you kind of know if we're there or not. I think that's the objective and that's what we're going to try to execute too.

Thank you.

Thank you. Our next question comes from Gerard Cassidy with RBC Capital. Your line is now open.

Hi, Daryl. How are you?

I'm doing good. And you, Gerard?

Good. I've got a bigger picture question for you. There's been a lot of talk lately about the Enged Inc. AI agents coming in and maybe moving deposits around on the consumer deposit accounts, thereby pressuring deposit rates for banks like yours and others. What's your guys' take on this use and other types of AI agents?

You've been in the industry a long time. I mean, Information has gotten a lot better over the last 30 years. People can move money to higher rates. You get information out there very easily. These agents will make it easier out there. I think it's going to come down to trust, to be honest with you. Where our customers really trust to let their agents allow them to have all their credentials come in and have the ability to move money to other places and have that trust. and many more. have access to move money around, but it will probably become more efficient over time. But right now, I just think it's going to be not as much of a big deal. And over time, if people get comfortable and actually trust these agents with all their money and move it to other places, then it's purely mobile at that point down the road.

Sure. Okay. Thank you. and then you guys and you have had good insights into the private credit market. What are the trends that you're seeing? Obviously at the beginning of the year there were some real concerns about credit quality in that market. Are you seeing increased competition from the spring or what are you folks seeing?

I'd say private credit including BDCs and that it's just a little bit softer. They've had... I wouldn't say issues, but they've had to address some of their liability side of their balance sheets. The funding that they have now is probably isn't as robust as what it had a few years ago from that perspective. We actually like to partner with those if it makes sense for us and maybe support them and help them doing what they're doing or split a customer up or take a senior position or take a more subordinated position. I think NetNet overall, it's Not having a negative impact for us. If anything, it's neutral to slightly positive for us.

Got it. Thank you. Appreciate the color.

Our next question comes from Ken Houston with Autonomous Research. Your line is now open.

Hi. Good morning, Daryl. This is for Ken. Could you just talk through the trade-off between AEA growth and NIMH? I think you briefly touched on it in the comments, but just going into the higher or longer rate environment, how do you guys think about just the trade-off between the two?

Yeah, you know, I would say if you're purely minded to get the maximum interest margin, you probably won't optimize your Return Performance, and your revenue growth. And to be honest with you, you probably aren't solving all of your customers' needs in the marketplaces. So there's a balance there. Our goal is to support customers and communities first and foremost. We need to have the ability to have balance there. So we look at can they hurdle and can they get the right returns is really what we're looking for. Can they get a 17% return on tangible relationships? If that requires a lower spread, so be it. Maybe we make it up in fee income or balances as well. So net-net overall, it's more about getting the right returns is really what we're focused on. And that sometimes could be margin, sometimes it's getting more NII. Right now we're leaning into trying to be as open as we can with customers and try to bring in more of the relationship that way and seems to be working right now and I think we'll continue to exercise it and do that.

Okay, got it. And then just one on fees. You guys had this nice subservicing ad this quarter, but how are you guys thinking about the opportunity to continue scaling originations and subservicing capabilities over the next, over the medium term?

So our servicing, subservicing business and mortgage is really important to us. We have good systems. We have good people that are trained in there. We perform really well in that space. We actually like the hard-to-service type of business there just because we think we're really good at it. So that's something that we're in and going to continue to stay in that space. And as we have opportunities to grow it some more and compete competitively, we will. That requires continuation of investment in technology. We're prepared to do whatever we need to in that space. But it's a good, important fee income line item. It's counter-cyclical for us, which is also really good from a diversification perspective. So George Taylor, who runs that function for us, is doing a great job with that and will continue to grow and do well and take advantage of opportunities when they come our way.

Thanks for the answers.

Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to Steve Wendelboe for closing remarks.

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This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.