M&T Bank Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. M&T is a bank holding company whose results reflect lending, deposit-taking, mortgage banking, trust and other banking services. Unless stated otherwise, figures below are in U.S. dollars.
Financial results and condition
| Metric | Q2 2021 | Comparable period |
|---|---|---|
| Net income | $458 million | $241 million in Q2 2020; $447 million in Q1 2021 |
| Diluted earnings per common share | $3.41 | $1.74 in Q2 2020; $3.33 in Q1 2021 |
| Net interest income (GAAP) | $942 million | $957 million in Q2 2020 |
| Provision for credit losses | -$15 million, a recapture | $325 million expense in Q2 2020; $25 million recapture in Q1 2021 |
| Other income | $514 million | $487 million in Q2 2020 |
| Other expense | $865 million | $807 million in Q2 2020 |
| Net interest margin, taxable-equivalent | 2.77% | 3.13% in Q2 2020; 2.97% in Q1 2021 |
| Efficiency ratio | 58.4% | 55.7% in Q2 2020; 60.3% in Q1 2021 |
For the first half of 2021, net income was $905 million versus $510 million in the first half of 2020; diluted EPS was $6.73 versus $3.67. Net interest income was $1.924 billion versus $1.934 billion, while other income was approximately $1.019 billion in both periods. The first-half provision was a $40 million recapture, compared with a $575 million expense in 2020.
Management reported Q2 return on average assets of 1.22% and return on average common equity of 11.55%. The effective tax rate was 24.4%. Management’s non-GAAP net operating income was $463 million, or $3.45 per diluted share; this measure excludes specified merger and intangible-amortization items.
Balance sheet, liquidity and credit
- At June 30, 2021, total assets were $150.6 billion, up from $142.6 billion at December 31, 2020. Deposits were $128.3 billion, up from $119.8 billion.
- Loans and leases, net of unearned discount, were $97.1 billion, down from $98.5 billion at year-end; the allowance for credit losses was $1.575 billion, or 1.62% of loans, versus $1.736 billion, or 1.76%, at year-end.
- Cash and due from banks totaled $1.410 billion, and interest-bearing deposits at banks were $33.865 billion. Short- and long-term borrowings totaled approximately $3.591 billion, down from $4.442 billion at year-end.
- Six-month cash flows were $1.532 billion provided by operating activities, $8.982 billion used in investing activities and $7.308 billion provided by financing activities. Cash, cash equivalents and restricted cash ended the period at $1.410 billion.
- Nonaccrual loans were $2.242 billion, or 2.31% of loans, versus $1.893 billion, or 1.92%, at year-end. Criticized commercial and commercial real estate loans were $9.7 billion, up from $7.2 billion at year-end.
- Regulatory capital ratios at quarter-end included consolidated CET1 of 10.72%, total capital of 14.13% and Tier 1 leverage of 8.55%.
Material changes and management commentary
- Higher earnings year over year primarily reflected the swing from a large prior-year credit-loss provision to a modest provision recapture in 2021. Lower deposit funding costs also helped, while net interest income and margin remained pressured by low rates and growth in low-yielding bank deposits.
- Average Q2 earning assets increased 11% year over year to $137.0 billion, including higher bank deposits; average loans were up 1% to $98.6 billion. Average core deposits rose 17% to $124.2 billion.
- Noninterest expenses increased year over year, including salaries, data processing and software, and professional services. Merger-related expenses were $4 million pre-tax in Q2 and $14 million for the first half. The company also reported an $8 million Q2 increase in its residential mortgage servicing-rights valuation allowance.
- M&T agreed to acquire People’s United Financial in an all-stock transaction valued at approximately $7.4 billion at M&T’s June 30 share price. People’s United shareholders are to receive 0.118 M&T shares per share; closing was expected in Q4 2021, subject to regulatory approvals and other conditions. Both companies’ shareholders had approved the transaction.
- M&T reported $2.9 billion of PPP loan originations in the first half of 2021; PPP loans outstanding were $4.3 billion at June 30. COVID-related loan modifications outstanding were $3.14 billion, substantially all scheduled to expire during 2021.
Outlook, risks and contingencies
- The filing provides no specific earnings or revenue guidance. Management said it expected some business effects of COVID-19 to continue and noted risks from possible renewed virus spread and ongoing impacts in hotel, healthcare and office sectors.
- Management cited improving economic forecasts as the basis for first-half credit-loss recaptures, but highlighted uncertainty in the recovery, borrower forbearance requests, real estate valuations and regional economic conditions. Hotel-related commercial real estate nonaccrual loans were $815 million at June 30, 2021.
- Interest-rate sensitivity modeling estimated first-year net interest income would increase $479 million under a gradual +200-basis-point scenario and decrease $93 million under a -100-basis-point scenario. The filing cautions that these estimates depend on assumptions and actual results may differ materially.
- Management stated that available liquidity was adequate for ordinary-course needs. It also noted that a ratings decline or market disruption could restrict funding access. The $800 million share-repurchase authorization remained unused; M&T said it did not expect repurchases while the People’s United acquisition was pending.
- Litigation-related reasonably possible losses beyond recorded liabilities were estimated at $0–$25 million in aggregate; the company said the amount was not considered probable. Merger risks include regulatory delay or denial, integration costs and execution, employee and customer retention, litigation, and a possible $280 million termination fee under specified circumstances.
Important facts for investors to verify
- Whether the People’s United merger obtained regulatory approvals and closed on the expected timetable, and how its costs, integration and expected benefits compare with plans.
- Whether credit quality improves or deteriorates, particularly criticized and nonaccrual commercial real estate exposures, hotel loans and loans with COVID-related accommodations.
- Whether the reduction in the allowance and credit-loss recaptures remain appropriate as forecasts and borrower performance evolve.
- How deposit growth, excess liquidity and interest rates affect net interest margin, earnings and the sensitivity modeled by management.
- Whether mortgage banking revenues, operating expenses and servicing-rights valuations develop as described, and whether capital and liquidity remain adequate.