M&T Bank Corp. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context
M&T is a regional bank with commercial, real estate, consumer, mortgage, trust and retail banking businesses. The quarter’s results reflect improving economic forecasts and credit-loss reserve releases, continued effects of COVID-19, a large deposit base and lower-yielding balances held at the Federal Reserve. M&T’s proposed all-stock acquisition of People’s United Financial remained pending regulatory approval.
Financial results and position
| Metric | Q3 2021 | Comparable period |
|---|---|---|
| Net income | $495 million | $372 million in Q3 2020; $458 million in Q2 2021 |
| Diluted EPS | $3.69 | $2.75 in Q3 2020; $3.41 in Q2 2021 |
| Net interest income | $967 million GAAP; $971 million taxable-equivalent | $943 million GAAP in Q3 2020 |
| Net interest margin | 2.74% | 2.95% in Q3 2020; 2.77% in Q2 2021 |
| Other income / other expense | $569 million / $899 million | $521 million / $827 million in Q3 2020 |
| Efficiency ratio | 57.7% | 56.2% in Q3 2020; 58.4% in Q2 2021 |
- Nine-month results: Net income was $1.401 billion and diluted EPS was $10.43, versus $882 million and $6.42 in the first nine months of 2020. Net interest income was $2.891 billion versus $2.877 billion; the net interest margin was 2.83% versus 3.22%.
- Drivers: Q3 taxable-equivalent net interest income rose year over year as lower deposit costs and higher average earning assets more than offset lower average loan balances. Margin compression reflected the larger share of low-yielding Federal Reserve deposits. Other income increased, including from deposit service charges, trust and brokerage activity, and mortgage banking. Expenses rose, particularly compensation, technology and professional services.
- Credit costs: M&T recorded a $20 million provision recapture in Q3 2021, compared with a $150 million provision in Q3 2020. Nine-month provision was a $60 million recapture versus $725 million of provision in 2020. Q3 net charge-offs were $40 million, or 0.17% of average loans annualized, versus $30 million and 0.12% a year earlier.
- Credit quality: Nonaccrual loans were $2.24 billion, or 2.40% of loans, versus $1.24 billion, or 1.26%, a year earlier. Criticized commercial and commercial real estate loans totaled $9.6 billion, up from $6.9 billion at September 2020. Management identified hotel, healthcare and office borrowers as areas of continued concern. The allowance for credit losses was $1.52 billion, 1.62% of loans, down from $1.76 billion, or 1.79%, a year earlier.
- Balance sheet and liquidity: Total assets were $151.9 billion at September 30, up from $142.6 billion at December 31, 2020. Loans, net of allowance, were $92.1 billion, down from $96.8 billion; deposits were $128.7 billion, up from $119.8 billion. Cash and due from banks was $1.48 billion and interest-bearing bank deposits were $38.45 billion. Long-term borrowings were $3.50 billion, down from $4.38 billion.
- Cash flow, first nine months: Operating activities provided $2.02 billion; investing activities used $10.18 billion; financing activities provided $8.09 billion. Cash and restricted cash decreased $73 million to $1.48 billion.
- Capital: Shareholders’ equity was $17.53 billion. Consolidated regulatory ratios were 11.15% CET1, 12.83% Tier 1, 15.06% total capital and 8.91% Tier 1 leverage. Tangible common equity to tangible assets was 7.59%.
Material changes and unusual items
- Compared with Q3 2020, net income rose 33%, while diluted EPS increased from $2.75 to $3.69. The prior-year quarter included a $150 million credit-loss provision; Q3 2021 included a $20 million recapture.
- Average loans fell 3% year over year to $95.3 billion, primarily reflecting PPP loan repayments, lower dealer floor-plan balances and subdued commercial demand. PPP loans outstanding declined to $2.2 billion from $5.4 billion at year-end 2020.
- Deposits grew substantially: noninterest-bearing deposits were $56.5 billion at quarter-end, versus $47.6 billion at year-end 2020. The Cayman Islands office was closed after M&T replaced its Eurodollar sweep product with a domestic interest-bearing sweep product.
- Merger-related expenses were $9 million pre-tax in Q3 and $23 million for the first nine months. M&T issued $500 million of Series I preferred stock in August. No common-stock repurchases were made under the 2021 $800 million authorization while the acquisition was pending.
Outlook, risks and contingencies
The filing provides no specific earnings or financial guidance. Management said it expected some business effects of COVID-19 to continue and cited uncertainty around the pandemic, the pace and unevenness of economic recovery, inflation and supply-chain pressures, and credit exposures in hospitality, healthcare and office real estate. Management considered available liquidity adequate for expected ordinary-course needs. Its interest-rate sensitivity analysis estimated first-year net interest income would increase $294 million under a gradual +100 basis-point scenario and decrease $102 million under a -100 basis-point scenario; management cautioned that actual results may differ materially because the modeling depends on uncertain assumptions.
The proposed approximately $7.6 billion People’s United acquisition was an all-stock transaction, with People’s United shareholders to receive 0.118 M&T shares per share. It had board and shareholder approvals but still required Federal Reserve approval and customary closing conditions. Risks disclosed include approval delays or denial, integration challenges and costs, failure to achieve expected benefits, employee or customer disruption, merger litigation, and a possible $280 million termination fee under certain circumstances. Pending and threatened legal matters had an estimated aggregate reasonably possible loss range of $0–$25 million beyond recorded liabilities; outcomes could still materially affect an individual future period.
Important facts for investors to verify
- Whether the People’s United merger received regulatory approval, closed as anticipated, and delivered expected integration savings without excessive costs.
- Whether criticized and nonaccrual commercial real estate exposures—particularly hotel, healthcare and office loans—stabilize or produce additional losses.
- How rapidly PPP repayments and deposit growth change loan balances, excess liquidity, net interest income and margin.
- Whether credit-loss recaptures remain appropriate as pandemic relief expires and economic conditions evolve; review loan modifications and government-guaranteed delinquent balances.
- Whether expense growth, including compensation and technology costs, is controlled and the reported efficiency ratio improves.
- Capital and liquidity resilience under changing interest rates, regulatory requirements and potential merger-related demands.