M&T Bank Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. M&T provides commercial, retail, mortgage and wealth-management services. Results include a full quarter of People’s United operations, acquired April 1, 2022, so year-over-year comparisons reflect both the acquisition and underlying changes.
Key financial results
| Metric | Q1 2023 | Comparable period |
|---|---|---|
| GAAP net interest income | $1.818 billion | $904 million in Q1 2022 |
| Other income | $587 million | $541 million in Q1 2022 |
| Provision for credit losses | $120 million | $10 million in Q1 2022; $90 million in Q4 2022 |
| Net income | $702 million | $362 million in Q1 2022; $765 million in Q4 2022 |
| Diluted earnings per common share | $4.01 | $2.62 in Q1 2022; $4.29 in Q4 2022 |
| Taxable-equivalent net interest margin | 4.04% | 2.65% in Q1 2022; 4.06% in Q4 2022 |
Net interest income growth year over year reflected higher rates and the larger balance sheet, including People’s United. Higher interest expense partly offset increased asset yields. Noninterest expense was $1.359 billion, up from $960 million in Q1 2022; the increase largely reflects acquired operations, higher staffing and operating costs. The efficiency ratio was 55.5%, versus 64.9% a year earlier and 53.3% in Q4 2022. Management’s non-GAAP net operating income was $715 million, or $4.09 diluted per share; this measure excludes specified intangible-asset amortization and merger costs.
Balance sheet, liquidity and capital
- Total assets were $203.0 billion and loans, net of unearned discount, were $132.9 billion at quarter-end. Loans increased 1% from year-end.
- Total deposits were $159.1 billion, down $4.4 billion from year-end. Noninterest-bearing deposits declined to $60.0 billion from $65.5 billion; time deposits rose to $12.8 billion from $10.1 billion. Estimated uninsured deposits were $67.7 billion, down from $74.2 billion at year-end.
- Short-term and long-term borrowings totaled $14.5 billion, versus $7.5 billion at year-end. M&T and M&T Bank issued senior notes in January; the company reported $17.1 billion of additional FHLB capacity and a $15.4 billion available Federal Reserve line, subject to collateral requirements.
- Management reported available liquidity of $22.3 billion on deposit at the Federal Reserve Bank of New York, $32.5 billion of unused credit lines and approximately $16.8 billion of unencumbered securities after estimated haircuts. Management stated liquidity was adequate for anticipated ordinary-course needs.
- Cash and cash equivalents were $1.82 billion at quarter-end. Operating cash flow was $428 million, compared with $1.30 billion in Q1 2022. Investing activities used $1.75 billion and financing activities provided $1.62 billion.
- Shareholders’ equity was $25.4 billion. The consolidated CET1 ratio was 10.16%, Tier 1 capital 11.48%, total capital 13.28% and Tier 1 leverage 8.98%.
Credit, securities and material changes
- The allowance for credit losses was $1.98 billion, or 1.49% of loans, compared with $1.93 billion and 1.46% at year-end. Net charge-offs were $70 million, versus $7 million in Q1 2022; the annualized net charge-off rate was 0.22%.
- Nonaccrual loans were $2.56 billion, or 1.92% of loans, versus $2.44 billion and 1.85% at year-end. Criticized commercial and commercial real estate loans totaled $10.6 billion. Management highlighted exposure to commercial real estate, particularly office, health care, retail and hospitality properties.
- The credit-loss estimate incorporates a two-year forecast and assumptions including average unemployment of 4.4%, GDP growth averaging 1.0% in year one and 2.4% in year two, and cumulative commercial and residential real-estate price declines of 5.5% and 6.7%. These are modeling assumptions, not earnings guidance. A downside scenario increased modeled credit losses by $478 million; management cautioned that scenario results are not forecasts.
- Debt securities had $1.4 billion of gross unrealized losses. The filing says M&T expected to recover amortized cost and did not intend, nor expect to be required, to sell impaired securities at a loss. Held-to-maturity securities had a $15.2 billion fair value versus $16.2 billion carrying value.
- Compared with Q1 2022, average loans rose 43% and average earning assets rose to $184.1 billion from $138.6 billion, substantially reflecting the acquisition. Versus Q4 2022, taxable-equivalent net interest income was nearly unchanged, while average core deposits fell 4% and borrowings increased.
Outlook, commentary and unusual items
- The filing gives no specific forward earnings or revenue guidance. Management said liquidity was adequate for expected ordinary-course needs and described interest-rate, deposit, economic and credit conditions as sources of uncertainty.
- In April 2023, M&T completed the sale of its Collective Investment Trust business and expected to record a pre-tax gain of approximately $225 million in Q2 2023. The business contributed $45 million to Q1 trust income; its operating results were not material to consolidated net income.
- M&T repurchased approximately 3.84 million shares for $600 million in Q1 and raised its quarterly common dividend to $1.30 per share from $1.20. The board’s previously authorized repurchase program had $1.2 billion remaining at March 31.
- LIBOR publication was expected to cease after June 30, 2023. M&T reported $28.0 billion of LIBOR-based commercial loans and $4.0 billion of LIBOR-based residential and consumer loans; approximately 91% of those loans matured before cessation or had alternative-rate language. The company expected to substantially complete remediation of remaining affected agreements by the end of Q2.
- Potential aggregate legal losses beyond recorded liabilities were estimated at $0–$25 million and were not considered probable; the filing says outcomes could nevertheless materially affect a particular future reporting period.
Important facts for investors to verify
- How much of earnings and balance-sheet growth reflects People’s United, and how comparable are post-acquisition results?
- Whether deposit outflows, uninsured deposits and increased borrowing needs remain manageable, including the availability and collateral requirements of reported liquidity sources.
- Whether commercial real estate criticized loans, nonaccruals and charge-offs—especially in office and health care—worsen and require higher credit provisions.
- How interest-rate changes affect deposit costs, net interest margin and the market value of securities, including the unrealized losses on held-to-maturity holdings.
- Whether the expected $225 million CIT-sale gain is recognized as planned and how LIBOR transition, legal matters and other stated risks develop.