M&T Bank Corp. 2020 Form 10-K Summary
Business context and reporting period
M&T Bank Corporation is a regional financial holding company providing commercial and retail banking, trust and wealth management, mortgage, and related services, principally in the Northeast and Mid-Atlantic. This annual report covers the fiscal year ended December 31, 2020; fourth-quarter results are noted separately below. At year-end, M&T reported $142.6 billion of assets, $119.8 billion of deposits, and $16.2 billion of shareholders’ equity.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Net income | $1.35 billion | $1.93 billion |
| Diluted earnings per share | $9.94 | $13.75 |
| Taxable-equivalent net interest income | $3.88 billion | $4.15 billion |
| Net interest margin | 3.16% | 3.84% |
| Provision for credit losses | $800 million | $176 million |
| Net charge-offs | $247 million | $144 million |
| Other income | $2.09 billion | $2.06 billion |
| Other expense | $3.39 billion | $3.47 billion |
| Efficiency ratio | 56.3% | 55.7% |
| Return on average assets | 1.00% | 1.61% |
| Return on average common equity | 8.72% | 12.87% |
Year-end loans and leases, net of unearned discount, were $98.5 billion, up from $90.9 billion. Deposits rose to $119.8 billion from $94.8 billion, while total assets increased to $142.6 billion from $119.9 billion. The allowance for credit losses was $1.74 billion, or 1.76% of loans, compared with $1.05 billion, or 1.16%, at the end of 2019.
Cash provided by operating activities was $789 million, versus $2.36 billion in 2019. Investing activities used $22.0 billion, largely reflecting the increase in interest-bearing deposits at banks; financing activities provided $21.3 billion, primarily from deposit growth. Cash, cash equivalents and restricted cash increased $116 million. Year-end interest-bearing deposits at banks were $23.7 billion. Short-term borrowings were $59 million and long-term borrowings were $4.38 billion.
At December 31, 2020, consolidated regulatory capital ratios included CET1 of 10.00%, total capital of 13.37%, and leverage of 8.48%. Tangible common equity to tangible assets was 7.49%, down from 8.55% in 2019. The filing states that available bank subsidiary earnings for dividends to M&T were approximately $1.3 billion, subject to regulatory limits.
Material changes versus the prior comparable period
- Net income fell 30%, and diluted EPS fell 28%, year over year. Lower rates reduced asset yields and narrowed net interest margin by 68 basis points; higher average earning assets partly offset the effect.
- The credit-loss provision increased to $800 million, reflecting the pandemic-related economic outlook and adoption of the current expected credit loss accounting standard (CECL). CECL adoption increased the allowance by $132 million on January 1, 2020.
- Nonaccrual loans rose to $1.89 billion, or 1.92% of loans, from $963 million, or 1.06%. Commercial real estate nonaccruals increased, including $530 million of hotel loans added during 2020. Criticized commercial and commercial real estate loans rose to $7.2 billion from $2.5 billion.
- Mortgage banking revenue increased 24% to $567 million, and trust income increased to $602 million. Deposit service charges declined to $371 million from $433 million, reflecting fee waivers, lower transaction activity, and higher customer balances.
- At year-end, $5.4 billion of Paycheck Protection Program (PPP) loans remained outstanding; M&T funded approximately $7.0 billion during 2020. COVID-related loan modifications with payment deferrals or other forbearances totaled approximately $4.6 billion at year-end.
- The company repurchased $374 million of common stock in the first quarter, then suspended repurchases under Federal Reserve restrictions. Common dividends declared were $4.40 per share for 2020.
Fourth-quarter 2020 net income was $471 million, or $3.52 per diluted share, compared with $493 million, or $3.60, in fourth-quarter 2019. The quarter’s provision for credit losses was $75 million versus $54 million; net charge-offs were $97 million versus $41 million. Quarterly net interest margin was 3.00%, compared with 3.64% a year earlier.
Outlook, management commentary, risks and unusual items
- Management said the pandemic was expected to continue affecting results after year-end. It identified low interest rates as a continuing headwind to net interest margin, and cautioned that weaker economic assumptions or borrower repayment capacity could increase provisions, the allowance, and charge-offs. Some fee income could also remain below historical levels.
- The filing gives no specific earnings or revenue guidance. Management’s outlook is subject to substantial uncertainty about the pandemic, stimulus, the economy, and credit conditions.
- Key disclosed risks include commercial real estate and hotel credit exposure, regional economic concentration, interest-rate sensitivity, deposit retention and liquidity, LIBOR transition, regulatory capital and shareholder distributions, cyber and operational risk, and litigation.
- Federal Reserve restrictions required suspension of share repurchases in the third and fourth quarters of 2020 and limited dividends. On January 20, 2021, the board authorized a new repurchase program of up to $800 million, subject to applicable regulatory limitations.
- On February 22, 2021, M&T announced an agreement to acquire People’s United Financial in an all-stock transaction valued at approximately $7.6 billion. The transaction was expected to close in fourth-quarter 2021, subject to customary approvals and shareholder votes.
- Other notable items include $53 million of 2020 income from the Bayview Lending Group investment, whose carrying value was zero; 2019 included a $50 million legal-reserve expense and a $48 million write-down related to an asset-manager investment. These items affect comparability.
- Management reported effective internal control over financial reporting, and the auditor issued an unqualified opinion. The auditor identified allowance-for-credit-loss model forecast adjustments as a critical audit matter because of the significant judgment and estimation involved.
- For pending legal matters, the reasonably possible aggregate loss beyond recorded liabilities was estimated at $0–$25 million; the company said outcomes could still materially affect results in a particular future period.
Important facts for investors to verify
- Whether credit performance, especially hotel and broader commercial real estate exposure, stabilizes as COVID-related deferrals expire; examine criticized loans, nonaccruals, charge-offs, and allowance coverage.
- How much of the $5.4 billion PPP balance is repaid or forgiven, and the timing and performance of modified or deferred loans.
- Whether deposit growth persists and how low rates affect net interest margin, funding costs, and earnings.
- Current regulatory capital and distribution limits, including whether the proposed $800 million repurchase authorization can be used.
- People’s United transaction approvals, closing timetable, integration costs, and expected benefits; the filing provides no completed transaction results.
- CECL estimate sensitivity to economic forecasts and management adjustments, and any changes in legal contingencies beyond the disclosed range.