M&T Bank Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unless stated otherwise, financial amounts below are in U.S. dollars. M&T completed its acquisition of People’s United Financial on April 1, 2022; results include the acquired business from that date, making year-over-year comparisons less directly comparable.
Financial performance and position
| Metric | Q2 2022 / June 30, 2022 | Comparable period / prior date |
|---|---|---|
| Net interest income | $1.412 billion | $942 million in Q2 2021 |
| Other income | $571 million | $514 million in Q2 2021 |
| Net income | $218 million; diluted EPS $1.08 | $458 million; diluted EPS $3.41 in Q2 2021 |
| Net interest margin | 3.01% (taxable-equivalent basis) | 2.77% in Q2 2021; 2.65% in Q1 2022 |
| Loans, net of unearned discount | $128.5 billion | $92.9 billion at Dec. 31, 2021 |
| Total deposits | $170.4 billion | $131.5 billion at Dec. 31, 2021 |
| Cash and interest-bearing bank deposits | $35.1 billion | $43.2 billion at Dec. 31, 2021 |
| Short- and long-term borrowings | $4.1 billion | $3.5 billion at Dec. 31, 2021 |
| Allowance for credit losses | $1.824 billion; 1.42% of loans | $1.469 billion; 1.58% at Dec. 31, 2021 |
| Shareholders’ equity | $25.8 billion | $17.9 billion at Dec. 31, 2021 |
- Q2 pre-tax income was $278 million and net income available to common shareholders was $192 million. Net income declined about 52% from Q2 2021, while the acquisition materially increased the balance sheet and share count.
- Q2 net interest income rose with acquisition-related asset growth and higher rates; the reported net interest margin increased 24 basis points year over year. Management said acquired assets contributed an estimated 8 basis points to Q2 margin.
- Q2 other expense was $1.403 billion, including $223 million of merger-related expenses and $18 million of intangible amortization. Management’s non-GAAP net operating income was $578 million, or $3.10 diluted per share; this measure excludes specified acquisition-related expenses and amortization.
- Six-month net cash provided by operating activities was $2.483 billion. Investing activities provided $14.039 billion, largely reflecting a reduction in bank deposits, while financing activities used $16.171 billion, including deposit outflows, debt payments, $600 million of stock repurchases, and dividends. Cash and restricted cash increased $351 million over the six months.
- Consolidated regulatory capital ratios at June 30 were 10.94% CET1, 12.35% Tier 1, 14.27% total capital, and 8.84% Tier 1 leverage. Tangible common equity to tangible assets was 7.73%.
Material changes and acquisition
- People’s United was acquired for approximately $8.4 billion in stock and other consideration. M&T issued 50.3 million common shares. The preliminary purchase accounting recorded approximately $3.9 billion of goodwill and $261 million of core deposit and other intangible assets.
- The acquisition added about $35.8 billion of loans and $53.0 billion of deposits at the acquisition date. People’s United contributed approximately $492 million of revenue and a $176 million net loss from April 1 through June 30; merger integration costs and acquisition accounting affect reported results.
- Q2 provision for credit losses was $302 million, versus a $15 million credit loss recapture in Q2 2021. It included a $242 million provision on acquired loans not classified as purchased credit deteriorated; the allowance also included $99 million established for acquired purchased-credit-deteriorated loans.
- Nonaccrual loans were $2.633 billion, or 2.05% of loans, compared with $2.060 billion, or 2.22%, at year-end 2021. Q2 net charge-offs were $50 million, or an annualized 0.16% of average loans; the reported figure excludes $33 million of charge-offs on acquired purchased-credit-deteriorated loans.
- Net unrealized losses on investment securities were significant amid higher interest rates: gross unrealized losses on debt securities totaled $866 million at June 30. Management said it expected to recover amortized cost and did not intend, nor expect to be required, to sell impaired securities at a loss.
Outlook, risks, and contingencies
- Management anticipated completing the transfer of People’s United financial records to M&T’s core operating systems by the end of Q3 2022 and expected additional merger-related expenses during 2022. It cited expected cost savings and business synergies, but the filing provides no quantified earnings guidance or quantified synergy target.
- Management said liquidity sources were adequate for ordinary-course needs. Estimated uninsured deposits were $79.9 billion at June 30. The filing identifies potential funding pressure if the company’s financial condition or credit ratings deteriorate or market funding becomes restricted.
- Interest-rate risk is material. The company estimated that a parallel +200-basis-point rate change would increase first-year projected net interest income by $361 million, while a -100-basis-point change would reduce it by $301 million. These are model estimates subject to significant assumptions, not forecasts.
- LIBOR cessation was expected by June 30, 2023. M&T disclosed substantial LIBOR-linked loans, borrowings, preferred instruments, and swaps; transition and remediation could affect interest-rate risk management.
- Credit risks cited include inflation, geopolitical and supply-chain uncertainty, slower growth, and commercial real estate exposure—particularly hospitality, office, retail, and health-care-related borrowers. Criticized commercial and commercial real estate loans totaled $11.6 billion, including $2.8 billion acquired from People’s United.
- Pending legal matters had an aggregate reasonably possible loss range of $0–$25 million beyond recorded liabilities; management did not consider losses probable, but said future-period results could be materially affected. No material risk-factor changes from the 2021 Form 10-K were reported.
- On July 19, 2022, the board authorized a new repurchase program of up to $3.0 billion, replacing the prior program. M&T repurchased $600 million of common stock in Q2.
Key investor verification points
- Separate the ongoing earnings and margin contribution of People’s United from acquisition-related provisions, integration costs, purchase accounting, and the larger share count.
- Track integration timing, remaining merger expenses, realized cost savings, and the effect on expense levels and efficiency.
- Monitor credit trends in acquired portfolios and commercial real estate, including criticized and nonaccrual balances, charge-offs, and allowance adequacy under changing economic scenarios.
- Assess deposit retention, uninsured-deposit concentration, deposit pricing, and liquidity as interest rates and funding conditions change.
- Review the interest-rate sensitivity assumptions, securities valuation losses, and progress in transitioning LIBOR-linked contracts.
- Confirm capital and liquidity capacity after the announced $3.0 billion repurchase authorization, dividends, and ongoing integration needs.