M&T Bank Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts below are U.S. dollars; financial statement amounts are GAAP unless identified otherwise. Year-over-year comparisons are affected by the April 1, 2022 acquisition of People’s United Financial.
Business context and key financial metrics
| Metric | Q3 2022 | Comparable period |
|---|---|---|
| Net interest income | $1.679 billion GAAP; $1.691 billion taxable-equivalent | GAAP: $967 million in Q3 2021 |
| Net interest margin | 3.68% taxable-equivalent | 2.74% Q3 2021; 3.01% Q2 2022 |
| Other income | $563 million | $569 million Q3 2021 |
| Provision for credit losses | $115 million | $20 million credit-loss recapture in Q3 2021 |
| Net income | $647 million | $495 million Q3 2021 |
| Diluted earnings per common share | $3.53 | $3.69 Q3 2021 |
| Noninterest expense | $1.279 billion | $899 million Q3 2021 |
| Efficiency ratio | 53.6% | 57.7% Q3 2021; 58.3% Q2 2022 |
For the first nine months, net income was $1.226 billion versus $1.401 billion in 2021; diluted EPS was $7.14 versus $10.43. Taxable-equivalent net interest income increased 39% to $4.02 billion, and the nine-month net interest margin rose to 3.15% from 2.83%. Nine-month operating cash flow was $3.62 billion. Investing activities provided $20.26 billion and financing activities used $22.96 billion; the filing attributes substantial movements in these categories to changes in bank deposits and the acquisition.
At September 30, total assets were $197.96 billion, loans net of allowance were $126.35 billion, and deposits were $163.85 billion. Cash and due from banks were $2.26 billion, with a further $25.39 billion in interest-bearing bank deposits. Short-term and long-term borrowings totaled $4.38 billion. Shareholders’ equity was $25.26 billion. Regulatory capital ratios were 10.75% CET1, 12.13% Tier 1, 13.96% total capital, and 9.13% Tier 1 leverage at the consolidated level.
Material changes versus prior periods
- People’s United added approximately $50.8 billion of core deposits and $35.8 billion of loans at acquisition. M&T issued approximately $8.4 billion in common equity consideration and converted $261 million of preferred stock. The transaction added $3.91 billion of goodwill; reported assets and earnings comparisons therefore include a larger combined company from April 1 onward.
- Q3 net income rose 31% year over year, while diluted EPS declined 4%, reflecting a substantially larger weighted-average share count following the acquisition. Nine-month net income and diluted EPS were both lower year over year.
- Rising interest rates and the larger earning-asset base lifted Q3 taxable-equivalent net interest income 74% year over year. Interest expense also increased, and average deposits declined 4% from Q2 as customers responded to higher rates and the company reduced selected higher-cost deposits.
- Q3 merger-related expenses were $53 million pre-tax; nine-month merger-related expenses were $293 million. The company reported $398 million of total nine-month merger-related expenses on an after-tax basis-inclusive measure of $535 million pre-tax, including the acquired-loan credit provision. Q3 operating expenses also reflect acquired operations and higher personnel and technology costs.
- Mortgage banking revenue fell to $83 million from $160 million in Q3 2021, principally as M&T retained most newly originated residential mortgages rather than selling them. Q3 service charges were also affected by customer fee waivers after account conversion and the planned elimination of certain overdraft-related fees.
- Accumulated other comprehensive loss increased to $900 million from $128 million at year-end 2021, reflecting unrealized investment-security and cash-flow-hedge losses amid higher rates.
Outlook, commentary, and risks
- The filing provides no quantified earnings or revenue guidance. Management said it expected additional merger-related expenses in 2022 and cited anticipated cost savings and synergies from the acquisition, which are not included in the pro forma results.
- Management’s credit-loss estimates reflect concern about inflation, weaker growth, rising unemployment, supply-chain and wage pressures, and possible deterioration in commercial real estate—particularly hospitality, office, retail, and healthcare-related exposures. The allowance was $1.88 billion, or 1.46% of loans, at quarter-end; criticized commercial and commercial real estate loans totaled $10.9 billion.
- Q3 net charge-offs were $63 million, or an annualized 0.20% of average loans. Nonaccrual loans were $2.43 billion (1.89% of loans); criticized loans were concentrated in investor-owned commercial real estate. Management’s downside scenario produced $370 million more modeled credit losses than its base estimate; this is a sensitivity analysis, not a forecast.
- Rate sensitivity modeling estimated first-year net interest income increases of $251 million under a +200 basis-point scenario and $180 million under +100 basis points, and decreases of $249 million under -100 basis points and $521 million under -200 basis points. Management cautioned that assumptions are uncertain and actual results may differ materially.
- LIBOR transition remains a risk: $36.6 billion of commercial loans and leases and commercial real estate loans referenced LIBOR at quarter-end; publication of remaining LIBOR tenors was expected to cease by June 30, 2023. M&T said it was remediating affected contracts.
- Management stated liquidity sources were adequate for ordinary-course needs. Uninsured deposits were estimated at $74.7 billion. The filing also describes regulatory, economic, market, integration, competition, and legal risks. Reasonably possible legal losses beyond recorded liabilities were estimated at $0–$25 million in aggregate; outcomes could still materially affect an individual period.
- M&T completed the sale of its insurance agency on October 31, 2022 and expected to recognize an approximately $135 million pre-tax gain. This was a subsequent event, not part of Q3 results.
Most important facts for investors to verify
- How quickly the People’s United integration proceeds, including systems conversion, expected cost savings, and remaining merger expenses.
- Whether rising deposit costs, deposit attrition, and the mix of interest-bearing versus noninterest-bearing deposits change the benefit of higher rates to net interest margin.
- Credit trends in commercial real estate and other criticized portfolios, and whether actual losses align with the allowance’s economic assumptions.
- The magnitude and duration of investment-security and hedge-related accumulated comprehensive losses, and any effects on tangible capital or flexibility.
- Capital and liquidity after the $1.2 billion of 2022 share repurchases, dividends, acquisition integration, and the insurance-agency sale; verify the reported regulatory ratios and applicable buffers.
- Reported GAAP earnings against management’s non-GAAP “net operating” figures, which exclude merger costs and intangible amortization, and the assumptions behind those measures.