M&T Bank Corp. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023. Amounts are U.S. dollars; balance-sheet figures are as of June 30, 2023 unless otherwise stated.
Business context and reporting period
M&T is a regional banking and financial services company. Results include the businesses acquired from People’s United Financial on April 1, 2022, so year-over-year comparisons reflect a different acquisition contribution period. M&T completed the sale of its Collective Investment Trust (CIT) business on April 29, 2023.
Key financial metrics
| Metric | Q2 2023 | Comparable period / context |
|---|---|---|
| Net income | $867 million | $218 million in Q2 2022; $702 million in Q1 2023 |
| Diluted EPS | $5.05 | $1.08 in Q2 2022; $4.01 in Q1 2023 |
| Net interest income, GAAP | $1.80 billion | $1.41 billion in Q2 2022 |
| Net interest income, taxable-equivalent | $1.81 billion | $1.42 billion in Q2 2022; $1.83 billion in Q1 2023 |
| Net interest margin, taxable-equivalent | 3.91% | 3.01% in Q2 2022; 4.04% in Q1 2023 |
| Other income | $803 million | $571 million in Q2 2022; includes $225 million pre-tax CIT sale gain |
| Other expense | $1.29 billion | $1.40 billion in Q2 2022 |
| Provision for credit losses | $150 million | $302 million in Q2 2022; $120 million in Q1 2023 |
| Efficiency ratio | 48.9% | 58.3% in Q2 2022; excludes merger-related expenses and net securities transactions |
For the first half of 2023, net income was $1.57 billion, diluted EPS was $9.06, taxable-equivalent net interest income was $3.64 billion, and provision for credit losses was $270 million. Management’s non-GAAP net operating income was $879 million in Q2 and $1.59 billion for the first half; these measures exclude specified acquisition-related items and should not be treated as GAAP results.
Total assets were $207.7 billion, up from $200.7 billion at year-end 2022. Loans, net of unearned discount and allowance, were $131.3 billion; the allowance for credit losses was $2.00 billion, or 1.50% of loans. Deposits totaled $162.1 billion, down from $163.5 billion at year-end. Shareholders’ equity was $25.8 billion. Short-term and long-term borrowings were $7.9 billion and $7.4 billion, respectively.
Six-month cash flow: operating activities provided $1.69 billion; investing activities used $6.65 billion; financing activities provided $5.29 billion. Cash and cash equivalents ended the period at $1.85 billion. Management reported $27.1 billion on deposit at the Federal Reserve Bank of New York, $31.0 billion of unused credit lines and approximately $18.5 billion of unencumbered investment securities after estimated haircuts.
Regulatory capital ratios at June 30 included CET1 of 10.59%, total capital of 13.71% and Tier 1 leverage of 9.25% on a consolidated basis. The tangible common equity-to-tangible assets ratio was 7.63%.
Material changes versus comparable periods
- Q2 net income and EPS increased substantially year over year. The comparison is affected by $223 million of pre-tax merger-related expenses in Q2 2022, including a $242 million provision on acquired loans, and by the absence of such merger expenses in 2023.
- Higher interest rates drove higher asset yields and net interest margin year over year, while deposit and borrowing costs rose sharply. The margin declined 13 basis points from Q1 2023, reflecting spread compression.
- Average core deposits were $146.8 billion, down 13% from Q2 2022. Customers shifted toward interest-bearing products and off-balance-sheet alternatives. Average noninterest-bearing deposits fell to $56.2 billion from $74.1 billion a year earlier.
- Average loans and leases rose 5% year over year to $133.5 billion, with commercial loan growth partly offset by lower commercial real estate balances.
- Net charge-offs increased to $127 million in Q2 from $50 million in Q2 2022; commercial real estate net charge-offs were $99 million. Nonaccrual loans were $2.44 billion, or 1.83% of loans, down from 2.05% a year earlier.
- The CIT sale generated a $225 million pre-tax gain, approximately $157 million after tax, or $0.94 per diluted share. No common shares were repurchased in Q2; $600 million was repurchased in Q1 2023.
Outlook, commentary, risks and unusual items
- No specific earnings or revenue guidance is provided. Management said available liquidity is adequate for ordinary-course funding needs and reported no planned activities expected to cause significant liquidity strain.
- Credit-loss estimates incorporate expectations for unemployment averaging 4.6%, GDP growth averaging 0.8% in year one and 2.3% in year two, and cumulative commercial and residential real estate price declines of 11.1% and 6.6%, respectively, over the two-year forecast period. Management highlighted uncertainty around inflation, recession risk, funding-market liquidity and commercial real estate, particularly office and healthcare.
- Investor-owned commercial real estate represented $7.6 billion, or 72%, of criticized loans; its weighted-average loan-to-value ratio was approximately 56%. Criticized CRE borrowers and charge-offs warrant monitoring.
- The FDIC proposed a special assessment related to the 2023 bank failures. M&T estimated its share at $183 million, expected to be tax deductible and recorded as expense in the quarter of enactment; the proposal could change.
- After quarter-end, Moody’s reaffirmed M&T Bank’s short-term deposit rating but downgraded M&T and M&T Bank senior and subordinated debt ratings from A3 to Baa1, and M&T Bank long-term deposits from Aa3 to A1. A proposed regulatory capital rule for large banks was also issued after quarter-end; M&T was evaluating its effects.
- LIBOR publication ended June 30, 2023. The company said substantially all affected loans and swaps were remediated or expected to transition, primarily to SOFR, but noted that benchmark transition could affect interest-rate risk management.
- Potential reasonably possible legal losses beyond recorded liabilities were estimated at $0–$25 million. The MOVEit cybersecurity incident compromised certain customer information held by external service providers; the company said internal systems were not affected and it did not expect a material financial impact.
- Management cited interest-rate, deposit competition, credit, liquidity, economic, regulatory, integration, cybersecurity and litigation risks. The filing states there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Underlying earnings excluding the one-time CIT sale gain, and the sustainability of net interest margin as deposit repricing and funding costs continue.
- Deposit mix, uninsured deposits ($67.0 billion at quarter-end), brokered time deposits and access to wholesale funding.
- Further CRE credit deterioration, especially in office, healthcare, retail and hospitality, and the adequacy of the $2.00 billion credit-loss allowance.
- The final FDIC special-assessment amount and timing, and the effects of the post-quarter Moody’s downgrades and proposed capital regulations.
- Capital and liquidity metrics under stress, including the impact of unrealized securities losses and planned or permitted share repurchases.
- Progress and financial impact of LIBOR-to-SOFR transitions, cybersecurity notifications, and any material developments in legal proceedings.