M&T Bank Corporation — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared primarily with Q1 2021. M&T is a U.S. banking and financial services company. It closed its acquisition of People’s United Financial on April 1, 2022, after the reporting period.
Key financial metrics
| Metric | Q1 2022 | Comparable period / context |
|---|---|---|
| Net interest income | $904 million GAAP; $907 million taxable-equivalent | $981 million GAAP in Q1 2021 |
| Net interest margin | 2.65% | 2.97% in Q1 2021; 2.58% in Q4 2021 |
| Other income | $541 million | $506 million in Q1 2021 |
| Other expense | $960 million | $919 million in Q1 2021 |
| Provision for credit losses | $10 million | $25 million credit recapture in Q1 2021 |
| Net income | $362 million | $447 million in Q1 2021 |
| Diluted EPS | $2.62 | $3.33 in Q1 2021 |
| Net operating income / diluted EPS (non-GAAP) | $376 million / $2.73 | $457 million / $3.41 in Q1 2021 |
| Return on average assets / common equity | 0.97% / 8.55% | 1.22% / 11.57% in Q1 2021 |
| Efficiency ratio | 64.9% | 60.3% in Q1 2021; 59.7% in Q4 2021 |
| Cash flow from operating activities | $1.30 billion | $995 million in Q1 2021 |
Financial position, credit and liquidity
- At March 31, total assets were $149.9 billion, down from $155.1 billion at year-end 2021. Total deposits were $126.3 billion, down from $131.5 billion; loans and leases net of the allowance were $90.3 billion, down from $91.4 billion.
- Cash and due from banks plus interest-bearing bank deposits totaled $37.4 billion. Long-term borrowings were $3.44 billion; short-term borrowings were $50 million.
- Shareholders’ equity was $17.9 billion. Consolidated regulatory capital ratios were 11.66% CET1, 13.36% Tier 1, 15.54% total capital, and 9.36% Tier 1 leverage.
- The allowance for credit losses was $1.47 billion, or 1.60% of loans. Net charge-offs were $7 million (0.03% annualized of average loans), versus $75 million in Q1 2021.
- Nonaccrual loans were $2.13 billion, or 2.32% of loans, compared with $1.96 billion, or 1.97%, a year earlier. Criticized commercial and commercial real estate loans totaled $8.7 billion; investor-owned commercial real estate represented 78% of criticized loans.
- Accumulated other comprehensive loss increased to $377 million from $128 million at year-end, primarily reflecting market-value declines in securities and cash flow hedges.
Material changes and management commentary
- Net income fell 19% year over year. Lower net interest income and higher expenses more than offset growth in other income and substantially lower net charge-offs. Net interest margin was 32 basis points below Q1 2021, reflecting lower loan yields and reduced average loan balances.
- Average loans declined 7% year over year to $92.2 billion, largely from repayments of Paycheck Protection Program loans and declines in commercial real estate and residential mortgage balances. Average core deposits increased 4% year over year, although average deposits declined from Q4 2021.
- Other income benefited from a $30 million distribution from Bayview Lending Group, higher trust income and deposit service charges. Mortgage banking revenue declined to $109 million from $139 million a year earlier, in part as M&T retained more originated residential mortgages in portfolio.
- Management described credit quality as stable overall, but cited continuing pandemic effects on commercial real estate borrowers, especially in hospitality, office, retail and health care-related sectors. The allowance estimate incorporated a two-year economic forecast; management’s downside scenario produced $246 million more modeled credit losses than its base scenario.
Outlook, acquisition and other notable items
- People’s United acquisition: The approximately $8.4 billion transaction closed April 1, 2022, with 50.3 million M&T common shares issued. People’s United had approximately $63.0 billion in assets and $53.0 billion in deposits at March 31, before acquisition accounting adjustments. M&T expected preliminary acquisition accounting adjustments in Q2 2022 and transfer of financial records to its core systems by the end of Q3. Integration, realization of expected benefits, costs and retention of customers and employees are identified risks.
- M&T did not provide specific earnings guidance in the supplied filing text. Management said available liquidity was adequate for anticipated ordinary-course funding needs.
- In February 2022, M&T announced elimination of non-sufficient-funds fees and overdraft-protection transfer charges, along with reduced overdraft fees and limits on daily assessments. It estimated an approximately $40 million reduction in deposit service-charge income, largely in the second half of 2022.
- Interest-rate sensitivity modeling estimated a $421 million increase in projected net interest income under a gradual +200 basis-point scenario and a $303 million decrease under a -100 basis-point scenario. These are model estimates, not guidance; management cautioned that actual results may differ materially.
- LIBOR publication was expected to cease fully by June 30, 2023. M&T reported $34.2 billion of LIBOR-based commercial and commercial real estate loans and $1.7 billion of LIBOR-based residential mortgage and consumer loans; it was working to transition affected contracts.
- The Board reaffirmed an authorization to repurchase up to $800 million of common shares; no shares were repurchased under the program during Q1. The quarterly common dividend was $1.20 per share.
- Pending and threatened legal matters had reasonably possible aggregate losses of $0–$25 million beyond recorded liabilities; management did not consider a material effect on financial position probable, while noting a particular period’s results could be affected. The filing reported no material change in risk factors from the 2021 Form 10-K.
Investor facts to verify
- Post-close People’s United purchase accounting, integration expenses, systems conversion timing and realized financial benefits.
- Whether deposit outflows and loan trends continue, and how rate increases affect net interest margin and funding costs.
- Commercial real estate criticized and nonaccrual exposures, particularly hospitality, office, retail and health care, and the adequacy of credit-loss reserves as forecasts change.
- The trajectory of securities-related accumulated other comprehensive losses and any effects on capital or liquidity.
- The realized revenue impact of overdraft-fee changes, and the company’s progress in transitioning LIBOR-linked loans and derivatives.