M&T BANK CORPORATION Overview
M&T Bank Corporation ("M&T") had net income of$647 million in the third quarter of 2022, compared with$495 million in the corresponding quarter of 2021 and$218 million in the second quarter of 2022. Diluted and basic earnings per common share were$3.53 and$3.55 , respectively, in the recent quarter,$3.69 and$3.70 , respectively, in the third quarter of 2021 and were each$1.08 in the second quarter of 2022. M&T's second and third quarter results each reflect a full-quarter impact of itsApril 1, 2022 acquisition of People's United Financial, Inc. ("People's United"). The after-tax impact of merger-related expenses was$39 million ($53 million pre-tax) or$.22 of basic and diluted earnings per common share in the recent quarter,$7 million ($9 million pre-tax) or$.05 of basic and diluted earnings per common share in the third quarter of 2021 and$346 million ($465 million pre-tax) or$1.94 of basic and diluted earnings per common share in the second quarter of 2022. Such expenses included professional services and other temporary help fees associated with conversions of systems and/or integration of operations, costs related to terminations of existing contractual arrangements to purchase various services, severance, travel costs and, in the second quarter of 2022, an initial provision for credit losses on loans not deemed to be purchased credit deteriorated ("PCD") onApril 1, 2022 . Net income aggregated$1.23 billion or$7.14 of diluted and$7.18 of basic earnings per common share in the first nine months of 2022, compared with$1.40 billion or$10.43 of diluted and$10.44 of basic earnings per common share in the corresponding 2021 period. Merger-related expenses were$398 million ($535 million pre-tax) or$2.46 of basic and diluted earnings per common share in the nine months endedSeptember 30, 2022 and$17 million ($23 million pre-tax) or$.13 of basic and diluted earnings per common share in the nine months endedSeptember 30, 2021 . The annualized rate of return on average total assets for M&T and its consolidated subsidiaries ("the Company") in each of the third quarters of 2022 and 2021 was 1.28% compared with .42% in the second quarter of 2022. The annualized rate of return on average common shareholders' equity was 10.43% in the recent quarter, 12.16% in the third quarter of 2021 and 3.21% in the second quarter of 2022. During the nine-month period endedSeptember 30, 2022 , the annualized rates of return on average assets and average common shareholders' equity were .87% and 7.24%, respectively, compared with 1.24% and 11.76%, respectively, in the corresponding period of 2021. OnApril 1, 2022 , the Company closed the acquisition of People's United resulting in the issuance of 50,325,004 common shares. Pursuant to the terms of the merger agreement, People's United shareholders received consideration valued at .118 of an M&T common share in exchange for each common share of People's United. The purchase price totaled approximately$8.4 billion (with the price based on M&T's closing price of$164.66 per share as ofApril 1, 2022 ). Additionally, People's United outstanding preferred stock was converted into new shares of Series H preferred stock of M&T. The People's United transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. M&T preliminarily recorded assets acquired of$64.2 billion , including$35.8 billion of loans and leases and$11.6 billion of investment securities, and liabilities assumed totaling$55.5 billion , including$53.0 billion of deposits. The transaction added$8.4 billion to M&T's common shareholders' equity and$261 million to preferred equity. In connection with the acquisition the Company recorded$3.9 billion of goodwill and$261 million of core deposit and other intangible assets. The acquisition of People's United formed a banking franchise with approximately$200 billion in assets serving communities in the Northeast and Mid-Atlantic fromMaine toVirginia , includingWashington, D.C. M&T completed the transfer of most financial records of People's United to M&T's core operating systems in the recent quarter. OnJuly 19, 2022 the Company's Board of Directors authorized a program to repurchase up to$3.0 billion of M&T's common stock. The action replaced the previous program under which the repurchases in the second quarter of 2022 were conducted. In accordance with the program and its capital plan, M&T repurchased 3,282,449 shares of its common stock during the recent quarter at an average cost per share of$182.79 resulting in a total cost of$600 million . During the first nine months of 2022, M&T repurchased 6,788,395 shares of its common stock at an average cost per share of$176.77 resulting in a total cost of$1.2 billion . - 52 - --------------------------------------------------------------------------------
Supplemental Reporting of Non-GAAP Results of Operations
M&T consistently provides supplemental reporting of its results on a "net operating" or "tangible" basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and gains (when realized) and expenses (when incurred) associated with merging acquired operations into the Company, since such items are considered by management to be "nonoperating" in nature. Although "net operating income" as defined by M&T is not a GAAP measure, M&T's management believes that this information helps investors understand the effect of acquisition activity in reported results. Net operating income totaled$700 million in the third quarter of 2022, compared with$504 million in the year-earlier quarter and$578 million in the second 2022 quarter. Diluted net operating earnings per common share in the third quarters of 2022 and 2021 were$3.83 and$3.76 , respectively, compared with$3.10 in the second quarter of 2022. For the first nine months of 2022, net operating income and diluted net operating earnings per common share were$1.65 billion and$9.78 , respectively, compared with$1.42 billion and$10.61 , respectively, in the first nine months of 2021. Net operating income in the recent quarter expressed as an annualized rate of return on average tangible assets was 1.44%, compared with 1.34% in the third quarter of 2021 and 1.16% in 2022's second quarter. Net operating income represented an annualized return on average tangible common equity of 17.89% in the third quarter of 2022, 17.54% in the year-earlier quarter and 14.41% in the second quarter of 2022. For the first nine months of 2022, net operating income represented an annualized return on average tangible assets and average tangible common shareholders' equity of 1.23% and 15.13%, respectively, compared with 1.30% and 17.10%, respectively, in the corresponding 2021 period.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income was$1.69 billion in the third quarter of 2022, 74% higher than$971 million recorded in the year-earlier quarter. That increase reflects the impact of$42.0 billion in additional average earning assets predominantly resulting from the People's United transaction, and a 94 basis point (hundredths of one percent) expansion of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, to 3.68% in the recent quarter from 2.74% in the third quarter of 2021. That increase resulted from higher yields on loans, deposits at theFederal Reserve Bank ("FRB") ofNew York , and investment securities, partially offset by a 27 basis point increase in the rates paid on interest-bearing liabilities. Taxable-equivalent net interest income in the recent quarter increased$268 million from the second quarter of 2022 reflecting an increase in the net interest margin in the recent quarter from 3.01% in the prior quarter. For the first nine months of 2022, taxable-equivalent net interest income was$4.02 billion , up 39% from$2.90 billion in the corresponding 2021 period. The increase was largely attributable to the higher level of earning assets, including the impact of the People's United transaction, and a 32 basis point widening of the net interest margin to 3.15% in the 2022 period from 2.83% in the year-earlier period. The higher net interest margin in the recent periods is generally reflective of a rising interest rate environment resulting from actions taken by theFederal Reserve to raise interest rates in an attempt to temper inflationary pressures on theU.S. economy. Average loans and leases totaled$127.5 billion in the third quarter of 2022, up$32.2 billion or 34% from$95.3 billion in the similar quarter of 2021. Included in average loans and leases in the recent quarter were loans obtained in the People's United acquisition. Loans acquired from People's United totaled$35.8 billion on theApril 1, 2022 acquisition date and consisted of approximately$13.6 billion of commercial loans and leases,$13.5 billion of commercial real estate loans,$7.1 billion of residential real estate loans and$1.6 billion of consumer loans. Including the impact of the acquired loan balances, commercial loans and leases averaged$38.3 billion in the recent quarter,$14.6 billion or 61% higher than in the year-earlier quarter. Partially offsetting the increase from acquired loans was a reduction in average balances of Paycheck Protection Program ("PPP") loans, reflecting loan repayments by theSmall Business Administration . PPP loans averaged$241 million in the third quarter of 2022, compared with$3.3 billion in the third quarter of 2021. Average commercial real estate loans were$46.3 billion in the recent quarter, up - 53 - --------------------------------------------------------------------------------$8.7 billion or 23% from$37.5 billion in the corresponding quarter of 2021. That increase was predominantly due to the impact of loans obtained in the acquisition of People's United partially offset by a reduction in balances of construction and permanent mortgage loans, reflecting repayments by customers. Average residential real estate loans increased$6.6 billion or 40% to$23.0 billion in the third quarter of 2022 from$16.4 billion in the year-earlier quarter. The growth in residential real estate loans was largely attributable to the acquisition of loans from People's United and the Company's decision in the third quarter of 2021 to retain rather than sell most originated residential mortgage loans. Consumer loans averaged$20.0 billion in the third quarter of 2022, up$2.3 billion or 13% from$17.7 billion in the year-earlier quarter, reflecting the impact of loans obtained in the acquisition of People's United (that consisted predominantly of outstanding balances of home equity lines of credit) and growth in average recreational finance loans (consisting predominantly of loans secured by recreational vehicles and boats). Average loan and lease balances in the third quarter of 2022 were$127.5 billion , little changed from$127.6 billion in the second quarter of 2022. Commercial loan and lease average balances in the recent quarter increased$504 million from$37.8 billion in the second quarter of 2022. Average commercial real estate loans in the third quarter of 2022 declined$946 million from$47.2 billion in the second quarter of 2022. Average balances of residential real estate loans in the recently completed quarter increased$201 million from$22.8 billion in 2022's second quarter. Average consumer loans in the recent quarter increased$167 million from$19.8 billion in 2022's second quarter. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio. AVERAGE LOANS AND LEASES (net of unearned discount) Percent Increase (Decrease) from Third Quarter Third Quarter Second Quarter 2022 2021 2022 (In millions) Commercial, financial, etc.$ 38,321 61 % 1 % Real estate - commercial 46,282 23 (2 ) Real estate - consumer 22,962 40 1 Consumer Recreational finance 8,626 9 4 Automobile 4,379 (4 ) (5 ) Home equity lines and loans 5,056 38 - Other 1,899 25 5 Total consumer 19,960 13 1 Total$ 127,525 34 % - % For the first nine months of 2022, average loans and leases totaled$115.9 billion , up 19% from$97.7 billion in the corresponding 2021 period. The impact of loans obtained in the People's United acquisition was the most significant factor for that increase offset, in part, by lower average balances of PPP loans of$549 million and$4.9 billion in the first nine months of 2022 and 2021, respectively. The investment securities portfolio averaged$23.9 billion in the third quarter of 2022, up$17.9 billion from$6.0 billion in the year-earlier quarter and$1.6 billion higher than the$22.4 billion averaged in the second quarter of 2022. For the first nine months of 2022 and 2021, investment securities averaged$18.1 billion and$6.3 billion , respectively. The higher average balance in the recent periods reflect the acquisition of People's United, which added approximately$11.6 billion to the investment securities portfolio onApril 1, 2022 , and purchases of approximately$2.7 billion of investment securities during each of the quarters endedSeptember 30, 2022 ,June 30, 2022 andMarch 31, 2022 . The purchases in the first nine months of 2022 consisted predominantly ofU.S. Treasury notes and fixed rate residential mortgage-backed securities. There were no significant sales of investment securities during the first nine months of 2022 or 2021. The Company routinely has increases and decreases in its holdings of capital stock of theFederal Home Loan Bank ("FHLB") ofNew York and the FRB ofNew York . Those holdings are accounted for at cost and are adjusted based on amounts of outstanding borrowings and available lines of credit with those entities. - 54 - -------------------------------------------------------------------------------- The investment securities portfolio is largely comprised of residential mortgage-backed securities and shorter-termU.S. Treasury notes and, following the acquisition of People's United, municipal securities. When purchasing investment securities, the Company considers its liquidity position and its overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. The Company may occasionally sell investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, or as a result of restructuring its investment securities portfolio in connection with a business combination. The amounts of investment securities held by the Company are influenced by such factors as available yield in comparison with alternative investments, demand for loans, which generally yield more than investment securities, ongoing repayments, the levels of deposits, and management of liquidity and balance sheet size and resulting capital ratios. Fair value changes in equity securities with readily determinable fair values are recognized in the consolidated statement of income. Net unrealized losses on such equity securities were not significant in the third quarter of 2022, the second quarter of 2022 or the third quarter of 2021. Net unrealized losses for the first nine months of 2022 and 2021 were$2 million and$23 million , respectively. Those losses include changes in the value of the Company's holdings of Fannie Mae and Freddie Mac preferred stock. The Company regularly reviews its debt investment securities for declines in value below amortized cost that might be indicative of credit-related losses. In light of such reviews, there were no credit-related losses on debt investment securities recognized in either of the nine-month periods endedSeptember 30, 2022 or 2021. Based on management's assessment of future cash flows associated with individual investment securities as ofSeptember 30, 2022 , the Company did not expect to incur any material credit-related losses in its portfolios of debt investment securities. Additional information about the investment securities portfolio is included in notes 3 and 13 of Notes to Financial Statements. Other earning assets include interest-bearing deposits at the FRB ofNew York and other banks, trading account assets, federal funds sold and agreements to resell securities. Those other earning assets in the aggregate averaged$30.9 billion in the recently completed quarter, compared with$39.1 billion in the year-earlier quarter and$39.8 billion in the second quarter of 2022. Interest-bearing deposits at banks averaged$30.8 billion ,$39.0 billion and$39.4 billion during the three months endedSeptember 30, 2022 ,September 30, 2021 andJune 30, 2022 , respectively. The amounts of interest-bearing deposits at banks at the respective dates were predominantly comprised of deposits held at the FRB ofNew York . The decline in the recent quarter reflects actions taken by the Company including the purchases of investment securities and treasury stock and the management of select deposit relationships designed to reduce the balances of higher-cost deposit accounts. In general, the level of deposits held at the FRB ofNew York also fluctuates due to changes in deposits of commercial entities, trust-related deposits and additions to or maturities of investment securities or borrowings. As a result of the changes described herein, average earning assets totaled$182.4 billion in the most recent quarter, compared with$140.4 billion in the third quarter of 2021 and$189.8 billion in the second quarter of 2022. Average earning assets totaled$170.4 billion and$137.3 billion during the first nine months of 2022 and 2021, respectively. The most significant source of funding for the Company is core deposits. The Company considers noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and time deposits of$250,000 or less as core deposits. The Company's branch network is its principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Average core deposits totaled$162.8 billion in the third quarter of 2022, up 28% from$127.1 billion in the similar 2021 quarter, but down 4% from$169.6 billion in the second quarter of 2022. The People's United acquisition added approximately$50.8 billion of core deposits onApril 1, 2022 , including$30.8 billion of savings and interest-checking deposits,$2.6 billion of time deposits and$17.4 billion of noninterest-bearing deposits. The decline in average core deposits in the recent quarter as compared with the second quarter of 2022 is largely reflective of the Company's initiative to reduce certain historically higher-cost deposits as well as customer reactions to the generally rising rate environment. The following table provides an analysis of quarterly changes in the components of average core deposits. - 55 - --------------------------------------------------------------------------------
AVERAGE CORE DEPOSITS
Percent Increase
(Decrease) from
Third Quarter Third Quarter Second Quarter
2022 2021 2022
(In millions)
Savings and interest-checking $ 85,585
deposits 27 % (6 ) %
Time deposits 4,313 60 (8 )
Noninterest-bearing deposits 72,861 27 (2 )
Total $ 162,759 28 % (4 ) %
The Company also receives funding from other deposit sources, including
branch-related time deposits over $250,000 , brokered deposits and, prior to June
30, 2021 , deposits associated with the Company's Cayman Islands office. Time
deposits over $250,000 averaged $681 million in the recent quarter, compared
with $357 million in the third quarter of 2021 and $808 million in the second
quarter of 2022. In the second quarter of 2021, the Company introduced a new
interest-bearing sweep product (included in savings and interest-bearing
deposits) that replaced the Eurodollar sweep product previously recorded as
Cayman Islands office deposits. As a result, there are no longer deposits
maintained at the Cayman Islands office and the office is closed. The Company
had brokered savings and interest-bearing transaction accounts, which in the
aggregate averaged $3.8 billion during each of the recent quarter and the third
quarter of 2021 and $4.2 billion during the second quarter of 2022. Total
uninsured deposits, including deposits associated with the People's United
acquisition, were estimated to be $74.7 billion at September 30, 2022 and $69.1
billion at December 31, 2021 .
The accompanying table summarizes average total deposits for the quarters ended
AVERAGE DEPOSITS
Commercial
Retail Trust and Other Total
(In millions)
Three Months Ended September 30, 2022
Savings and interest-checking deposits $ 51,196 $ 7,008 $ 31,156 $ 89,360
Time deposits 4,607 12 431 5,050
Noninterest-bearing deposits 14,414 10,927 47,520 72,861
Total $ 70,217 $ 17,947 $
79,107
Three Months EndedJune 30, 2022 Savings and interest-checking deposits$ 52,750 $ 6,852 $ 35,547 $ 95,149 Time deposits 5,001 17 462 5,480 Noninterest-bearing deposits 14,483 11,691 47,880 74,054 Total$ 72,234 $ 18,560 $
83,889
Three Months EndedSeptember 30, 2021 Savings and interest-checking deposits$ 34,344 $ 5,934 $ 30,698 $ 70,976 Time deposits 2,892 12 157 3,061 Noninterest-bearing deposits 8,557 12,022 36,639 57,218 Total$ 45,793 $ 17,968 $ 67,494 $ 131,255 The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, the FRB ofNew York and others as sources of funding. Short-term borrowings represent borrowing arrangements that at the time they were entered into or were assumed in an acquisition had a contractual maturity of one year or less. Average short-term borrowings totaled$913 million in the third quarter of 2022, compared with$91 million in the year-earlier quarter and$1.1 billion in the second quarter of 2022. Short-term borrowings assumed in connection with the People's United acquisition totaled$895 million . InOctober 2022 M&T redeemed$500 million of unsecured senior notes due to mature inDecember 2022 that had been assumed in the acquisition of People's United and included in short-term borrowings. - 56 - -------------------------------------------------------------------------------- Long-term borrowings averaged$3.3 billion in each of the two most recent quarters, compared with$3.4 billion in the third quarter of 2021. Average balances of the Company's outstanding senior notes were$1.7 billion during each of the three months endedSeptember 30, 2022 andJune 30, 2022 , compared with$2.4 billion in the third quarter of 2021. InAugust 2022 , M&T issued$500 million of senior notes that mature inAugust 2028 and pay a fixed rate of 4.553% semi-annually untilAugust 2027 after which the Secured Overnight Financing Rate ("SOFR") plus 1.78% will be paid quarterly until maturity. InApril 2022 ,M&T Bank redeemed$650 million of fixed rate senior notes that were due to mature onMay 18, 2022 . DuringMay 2022 ,$250 million of variable rate senior notes ofM&T Bank matured. InJanuary 2021 ,$350 million of variable rate senior notes matured. Subordinated capital notes included in long-term borrowings averaged$982 million in the third quarter of 2022,$500 million in the three-month period endedSeptember 30, 2021 and$983 million in the second quarter of 2022. InMarch 2021 ,M&T Bank redeemed$500 million of subordinated capital notes. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were$534 million ,$530 million and$533 million during the third quarters of 2022 and 2021 and the second quarter of 2022, respectively. Additional information regarding junior subordinated debentures is provided in note 5 of Notes to Financial Statements. As ofApril 1, 2022 , long-term borrowings assumed in the People's United acquisition totaled$494 million and included$483 million of fixed-rate subordinated notes and$11 million of FHLB advances. The Company has utilized interest rate swap agreements to modify the repricing characteristics of certain components of its loans and long-term debt. As ofSeptember 30, 2022 , interest rate swap agreements were used as fair value hedges of approximately$1.5 billion of outstanding fixed rate long-term borrowings. Additionally, interest rate swap agreements with a notional amount of$15.25 billion were used as cash flow hedges of interest payments associated with variable rate commercial real estate loans. Further information on interest rate swap agreements is provided herein and in note 11 of Notes to Financial Statements. Changes in the composition of the Company's earning assets and interest-bearing liabilities, as discussed herein, as well as changes in interest rates and spreads, can impact net interest income. Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 3.49% in the recent quarter, up 81 basis points from 2.68% in the third quarter of 2021. The yield on earning assets during the third quarter of 2022 was 3.90%, up 108 basis points from 2.82% in the similar 2021 period, while the rate paid on interest-bearing liabilities increased 27 basis points to .41% in the recent quarter from .14% in the year-earlier period. In the second quarter of 2022, the net interest spread was 2.92%, the yield on earning assets was 3.12% and the rate paid on interest-bearing liabilities was .20%. The increases in the net interest spread since the third quarter of 2021 reflect the impact of generally rising interest rates that resulted in higher yields on loans and leases, deposits at the FRB ofNew York and investment securities, partially offset by higher rates on interest-bearing liabilities. For the first nine months of 2022, the net interest spread was 3.03%, up 27 basis points from 2.76% in the year-earlier period. The yield on earning assets and the rate paid on interest-bearing liabilities for the first nine months of 2022 were 3.30% and .27%, respectively, compared with 2.91% and .15%, respectively, in the initial nine months of 2021. TheFederal Reserve raised its target Federal funds rate 3.00% sinceSeptember 30, 2021 , including hikes of 1.50% and 1.25% in the third quarter of 2022 and second quarter of 2022, respectively. Net interest-free funds consist largely of noninterest-bearing demand deposits and shareholders' equity, partially offset by bank owned life insurance and non-earning assets, including goodwill and core deposit and other intangible assets. Net interest-free funds averaged$83.8 billion in the third quarter of 2022, compared with$62.9 billion in the year-earlier quarter and$84.7 billion in the second quarter of 2022. During the first nine months of 2022 and 2021, average net interest-free funds aggregated$78.0 billion and$59.0 billion , respectively. The increases in average net interest-free funds in the recent quarter and the second quarter of 2022 as compared with third quarter of 2021 reflect higher average balances of noninterest-bearing deposits and shareholders' equity that include the impact of the acquisition of People's United. Shareholders' equity averaged$25.7 billion during the three-month period endedSeptember 30, 2022 , compared with$17.1 billion during the year-earlier period and$26.1 billion during the three-month period endedJune 30, 2022 . The higher amounts of shareholders' equity in the two most recent quarters as compared with 2021's third quarter reflect retained earnings and additional equity issued in connection with the People's United acquisition, partially offset by share repurchase activity. M&T issued$8.4 billion of common equity and$261 million of preferred equity in completing the acquisition of People's United onApril 1, 2022 . M&T also - 57 - -------------------------------------------------------------------------------- repurchased$600 million of its common stock in each of the third and second quarters of 2022.Goodwill and core deposit and other intangible assets averaged$8.7 billion and$8.8 billion in the third quarter of 2022 and second quarter of 2022, respectively, up from$4.6 billion in the third quarter of 2021. The Company recorded$3.9 billion of goodwill onApril 1, 2022 which represents excess consideration over the fair value of net assets acquired in the People's United transaction. As part of the transaction, intangible assets were identified and recorded at fair value, thereby increasing the balance of core deposit and other intangible assets on the Company's balance sheet by$261 million onApril 1, 2022 . Reflecting the impact of the People's United acquisition, the cash surrender value of bank owned life insurance averaged$2.6 billion in each of the third and second quarters of 2022, compared with$1.9 billion in the third quarter of 2021. Changes in the cash surrender value of bank owned life insurance and benefits received are not included in interest income, but rather are recorded in "other revenues from operations." The contribution of net interest-free funds to net interest margin was .19% in the third quarter of 2022, compared with .06% and .09% in the third quarter of 2021 and the second quarter of 2022, respectively. The increased contribution of net interest-free funds to net interest margin in the most recent quarter as compared with the third quarter of 2021 and second quarter of 2022 reflects the higher rates on interest-bearing liabilities used to value net interest-free funds. The contribution of net interest-free funds to net interest margin in the first nine months of 2022 and 2021 was .12% and .07%, respectively. Reflecting the changes to the net interest spread and the contribution of net interest-free funds as described herein, the Company's net interest margin was 3.68% in the third quarter of 2022, compared with 2.74% in the year-earlier period and 3.01% in the second quarter of 2022. During the first nine months of 2022 and 2021, the net interest margin was 3.15% and 2.83%, respectively. Future changes in market interest rates or spreads, as well as changes in the composition of the Company's portfolios of earning assets and interest-bearing liabilities that result in changes to spreads, could impact the Company's net interest income and net interest margin. TheFederal Open Market Committee has conducted a series of basis point increases in short-term interest rates during the first nine months of 2022. These actions have led to generally higher interest rates overall and, accordingly, have contributed to the Company's higher net interest margin in the recent quarter as compared with the year-earlier quarter and immediately preceding quarter. Management assesses the potential impact of future changes in interest rates and spreads by projecting net interest income under several interest rate scenarios. In managing interest rate risk, the Company has utilized interest rate swap agreements to modify the repricing characteristics of certain portions of its earning assets and interest-bearing liabilities. Periodic settlement amounts arising from these agreements are reflected in either the yields on earning assets or the rates paid on interest-bearing liabilities. The notional amount of interest rate swap agreements entered into for interest rate risk management purposes was$16.75 billion (excluding$4.65 billion of forward-starting swap agreements) atSeptember 30, 2022 ,$19.0 billion (excluding$8.35 billion of forward-starting swap agreements) atSeptember 30, 2021 and$15.0 billion (excluding$8.35 billion of forward-starting swap agreements) atDecember 31, 2021 . Under the terms of those interest rate swap agreements, the Company received payments based on the outstanding notional amount at fixed rates and made payments at variable rates. AtSeptember 30, 2022 interest rate swap agreements with notional amounts of$15.25 billion were serving as cash flow hedges of interest payments associated with variable rate commercial real estate loans, compared with$17.35 billion atSeptember 30, 2021 and$13.35 billion atDecember 31, 2021 . Interest rate swap agreements with notional amounts of$1.5 billion atSeptember 30, 2022 and$1.65 billion at each ofSeptember 30, 2021 andDecember 31, 2021 were serving as fair value hedges of fixed rate long-term borrowings. The Company enters into forward-starting interest rate swap agreements predominantly to extend the term of its interest rate swap agreements serving as cash flow hedges and provide a hedge against changing interest rates on certain of its variable rate loans. - 58 - -------------------------------------------------------------------------------- In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and changes in the fair value of the hedged item are recorded in the Company's consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded as an adjustment to the interest income or interest expense of the respective hedged item. In a cash flow hedge, the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The amounts of hedge ineffectiveness recognized during each of the quarters endedSeptember 30, 2022 ,September 30, 2021 andJune 30, 2022 were not material to the Company's consolidated results of operations. Information regarding the fair value of interest rate swap agreements and hedge ineffectiveness is presented in note 11 of Notes to Financial Statements. Information regarding the valuation of cash flow hedges included in other comprehensive income is presented in note 10 of Notes to Financial Statements. The changes in the fair values of the interest rate swap agreements and the hedged items primarily result from the effects of changing interest rates and spreads. The average notional amounts of interest rate swap agreements entered into for interest rate risk management purposes, the related effect on net interest income and margin, and the weighted-average interest rates paid or received on those swap agreements are presented in the accompanying table. Additional information about the Company's use of interest rate swap agreements and other derivatives is included in note 11 of Notes to Financial Statements.
INTEREST RATE SWAP AGREEMENTS
Three Months Ended September 30
. 2022 2021
Rate(a) Amount Rate(a)
(Dollars in thousands)
Increase (decrease) in:
Interest income $ (22,466 ) .(05 ) % $ 58,058 .16 %
Interest expense (651 ) - (8,731 ) .(04 )
Net interest income/margin $ (21,815 ) .(05 ) % $ 66,789 .19 %
Average notional amount (c) $ 16,472,826 $ 18,923,913
Rate received (b) 2.06 % 1.53 %
Rate paid (b) 2.57 % .15 %
Nine Months Ended September 30,
. 2022 2021
Amount Rate(a) Amount Rate(a)
(Dollars in thousands)
Increase (decrease) in:
Interest income $ 35,500 .03 % $ 206,713 .20 %
Interest expense (14,436 ) .(02 ) (26,084 ) .(04 )
Net interest income/margin $ 49,936 .04 % $ 232,797 .23 %
Average notional amount (c) $ 15,452,015 $ 18,915,751
Rate received (b) 1.67 % 1.79 %
Rate paid (b) 1.25 % .17 %
(a)
Computed as an annualized percentage of average earning assets or
interest-bearing liabilities.
(b)
Weighted-average rate paid or received on interest rate swap agreements in
effect during the period.
(c)
Excludes forward-starting interest rate swap agreements not in effect during the
period.
As a financial intermediary, the Company is exposed to various risks, including
liquidity and market risk. Liquidity refers to the Company's ability to ensure
that sufficient cash flow and liquid assets are available to satisfy current and
future obligations, including demands for loans and deposit withdrawals, funding
operating costs and other corporate purposes. Liquidity risk arises whenever the
maturities of financial instruments included in assets and liabilities differ.
The most significant source of funding for the Company is core deposits, which
are generated from a large base of consumer, corporate and institutional
customers. That customer base has, over the past several years, become more
geographically diverse as a result of expansion of the Company's businesses.
Nevertheless, the Company faces competition in offering products and services
from a large array of financial market participants, including banks,
- 59 -
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thrifts, mutual funds, securities dealers and others. The Company supplements
funding provided through deposits with various short-term and long-term
wholesale borrowings, including overnight federal funds purchased, short-term
advances from the FHLB of New York , brokered deposits, and longer-term
borrowings. M&T Bank has access to additional funding sources through borrowings
from the FHLB of New York , lines of credit with the FRB of New York , M&T Bank's
Bank Note Program, and other available borrowing facilities. The Bank Note
Program enables M&T Bank to offer unsecured senior and subordinated notes. The
Company has, from time to time, also issued subordinated capital notes and
junior subordinated debentures associated with trust preferred securities to
provide liquidity and enhance regulatory capital ratios. The Company's junior
subordinated debentures associated with trust preferred securities and other
subordinated capital notes are considered Tier 2 capital and are includable in
total regulatory capital. At each of September 30, 2022 and December 31, 2021 ,
long-term borrowings aggregated $3.5 billion .
Cayman Islands office deposits had been used by some customers of the Company as
an alternative to other deposit and investment products. During the second
quarter of 2021, the Company introduced a new interest-bearing sweep product
(included in savings and interest-checking deposits) that replaced the
Eurodollar sweep product previously recorded as Cayman Islands office deposits.
As a result, the Cayman Islands office has been closed and there were no Cayman
Islands office deposits outstanding as of September 30, 2022 and December 31,
2021 . The Company has benefited from the placement of brokered deposits. The
Company had brokered savings and interest-checking deposit accounts which
aggregated approximately $3.3 billion at September 30, 2022 , $3.2 billion at
December 31, 2021 and $3.4 billion at September 30, 2021 . Brokered time deposits
were not a significant source of funding as of those dates.
The Company's ability to obtain funding from these sources could be negatively
impacted should the Company experience a substantial deterioration in its
financial condition or its debt ratings, or should the availability of funding
become restricted due to a disruption in the financial markets. The Company
attempts to quantify such credit-event risk by modeling scenarios that estimate
the liquidity impact resulting from a short-term ratings downgrade over various
grading levels. Such impact is estimated by attempting to measure the effect on
available unsecured lines of credit, available capacity from secured borrowing
sources and securitizable assets. In addition to deposits and borrowings, other
sources of liquidity include maturities of investment securities and other
earning assets, repayments of loans and investment securities, and cash
generated from operations, such as fees collected for services.
Certain customers of the Company obtain financing through the issuance of
variable rate demand bonds ("VRDBs"). The VRDBs are generally enhanced by
letters of credit provided by M&T Bank . M&T Bank oftentimes acts as remarketing
agent for the VRDBs and, at its discretion, may from time-to-time own some of
the VRDBs while such instruments are remarketed. When this occurs, the VRDBs are
classified as trading account assets in the Company's consolidated balance
sheet. Nevertheless, M&T Bank is not contractually obligated to purchase the
VRDBs. The value of VRDBs in the Company's trading account was not material at
September 30, 2022 or December 31, 2021 . The total amounts of VRDBs outstanding
backed by M&T Bank letters of credit were $633 million at September 30, 2022 ,
$662 million at December 31, 2021 and $683 million at September 30, 2021 . M&T
Bank also serves as remarketing agent for most of those bonds.
The Company enters into contractual obligations in the normal course of business
that require future cash payments. Such obligations include, among others,
payments related to deposits, borrowings, leases and other contractual
commitments. Off-balance sheet commitments to customers may impact liquidity,
including commitments to extend credit, standby letters of credit, commercial
letters of credit, financial guarantees and indemnification contracts, and
commitments to sell real estate loans. Because many of these commitments or
contracts expire without being funded in whole or in part, the contract amounts
are not necessarily indicative of future cash flows. Further discussion of these
commitments is provided in note 14 of Notes to Financial Statements.
M&T's primary source of funds to pay for operating expenses, shareholder
dividends and treasury stock repurchases has historically been the receipt of
dividends from its bank subsidiaries, which are subject to various regulatory
limitations. Dividends from any bank subsidiary to M&T are limited by the amount
of earnings of the subsidiary in the current year and the two preceding years.
For purposes of that test, at September 30, 2022 approximately $937 million was
available for payment of dividends to M&T from bank subsidiaries. M&T also may
- 60 -
--------------------------------------------------------------------------------
obtain funding through long-term borrowings. Outstanding senior notes of M&T at
September 30, 2022 and December 31, 2021 were $1.22 billion and $766 million ,
respectively. M&T assumed $503 million of short-term borrowings and $78 million
of long-term borrowings in the acquisition of People's United. In October 2022 ,
M&T redeemed the short-term borrowings obtained in the acquisition of People's
United. Junior subordinated debentures of M&T associated with trust preferred
securities outstanding at September 30, 2022 and December 31, 2021 totaled $535
million and $532 million , respectively.
Management closely monitors the Company's liquidity position on an ongoing basis
for compliance with internal policies and believes that available sources of
liquidity are adequate to meet funding needs anticipated in the ordinary course
of business. Management does not anticipate engaging in any activities, either
currently or in the long-term, for which adequate funding would not be available
and would therefore result in a significant strain on liquidity at either M&T or
its subsidiary banks.
Market risk is the risk of loss from adverse changes in the market prices and/or
interest rates of the Company's financial instruments. The primary market risk
the Company is exposed to is interest rate risk. Interest rate risk arises from
the Company's core banking activities of lending and deposit-taking, because
assets and liabilities reprice at different times and by different amounts as
interest rates change. As a result, net interest income earned by the Company is
subject to the effects of changing interest rates. The Company measures interest
rate risk by calculating the variability of net interest income in future
periods under various interest rate scenarios using projected balances for
earning assets, interest-bearing liabilities and derivatives used to manage
interest rate risk. Management's philosophy toward interest rate risk management
is to limit the variability of net interest income. The balances of financial
instruments used in the projections are based on expected growth from forecasted
business opportunities, anticipated prepayments of loans and investment
securities, and expected maturities of investment securities, loans and
deposits. Management uses a "value of equity" model to supplement the modeling
technique described above. Those supplemental analyses are based on discounted
cash flows associated with on- and off-balance sheet financial instruments. Such
analyses are modeled to reflect changes in interest rates and provide management
with a long-term interest rate risk metric. The Company has entered into
interest rate swap agreements to help manage exposure to interest rate risk. At
September 30, 2022 , the aggregate notional amount of interest rate swap
agreements entered into for interest rate risk management purposes that were
currently in effect was $16.75 billion . In addition, the Company has entered
into $4.65 billion of forward-starting interest rate swap agreements.
The Company's Asset-Liability Committee, which includes members of senior
management, monitors the sensitivity of the Company's net interest income to
changes in interest rates with the aid of a computer model that forecasts net
interest income under different interest rate scenarios. In modeling changing
interest rates, the Company considers different yield curve shapes that consider
both parallel (that is, simultaneous changes in interest rates at each point on
the yield curve) and non-parallel (that is, allowing interest rates at points on
the yield curve to vary by different amounts) shifts in the yield curve. In
utilizing the model, market-implied forward interest rates over the subsequent
twelve months are generally used to determine a base interest rate scenario for
the net interest income simulation. That calculated base net interest income is
then compared to the income calculated under the varying interest rate
scenarios. The model considers the impact of ongoing lending and
deposit-gathering activities, as well as interrelationships in the magnitude and
timing of the repricing of financial instruments, including the effect of
changing interest rates on expected prepayments and maturities. When deemed
prudent, management has taken actions to mitigate exposure to interest rate risk
through the use of on- or off-balance sheet financial instruments and intends to
do so in the future. Possible actions include, but are not limited to, changes
in the pricing of loan and deposit products, modifying the composition of
earning assets and interest-bearing liabilities, and adding to, modifying or
terminating existing interest rate swap agreements or other financial
instruments used for interest rate risk management purposes.
The accompanying table as of September 30, 2022 and December 31, 2021 displays
the estimated impact on net interest income in the base scenario described above
resulting from parallel changes in interest rates across repricing categories
during the first modeling year.
- 61 -
--------------------------------------------------------------------------------
SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES
Calculated Increase (Decrease)
in Projected Net Interest Income
Changes in interest rates September 30, 2022 December 31, 2021
(In thousands)
+200 basis points $ 251,494 533,317
+100 basis points 179,848 297,573
-100 basis points (248,760 ) (204,760 )
-200 basis points (520,661 ) - (a)
(a)
The Company did not analyze this scenario as of
The Company utilized many assumptions to calculate the impact that changes in interest rates may have on net interest income. The more significant of those assumptions included the rate of prepayments of mortgage-related assets, cash flows from derivative and other financial instruments, loan and deposit volumes and pricing, and deposit maturities. In the scenarios presented, the Company also assumed gradual changes in interest rates during a twelve-month period as compared with the base scenario. In the declining rate scenario, the rate changes may be limited to lesser amounts such that interest rates remain at or above zero on all points of the yield curve. Changes in amounts presented sinceDecember 31, 2021 reflect higher balances of earnings assets obtained in the People's United acquisition, changes in portfolio composition, the level of market-implied forward interest rates and hedging actions taken by the Company. The assumptions used in interest rate sensitivity modeling are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly from those presented due to the timing, magnitude and frequency of changes in interest rates and changes in market conditions and interest rate differentials (spreads) between maturity/repricing categories, as well as any actions, such as those previously described, which management may take to counter such changes. A significant amount of the Company's interest-earning assets, interest-bearing liabilities, preferred equity instruments and interest rate swap agreements have contractual repricing terms that reference the London Interbank Offered Rate ("LIBOR"). Various regulatory bodies have encouraged banks to transition away from LIBOR as soon as practicable, generally cease entering new contracts that use LIBOR as a reference rate no later thanDecember 31, 2021 , and for new contracts entered into beforeDecember 31, 2021 to utilize a reference rate other than LIBOR or include robust language that includes a clearly defined alternative reference rate after LIBOR's discontinuation. Publication of certain tenors of LIBOR has already ceased and complete cessation of LIBOR publication is expected byJune 30, 2023 . EffectiveDecember 31, 2021 , the Company essentially discontinued entering into new LIBOR-based contracts. AtSeptember 30, 2022 the Company had LIBOR-based commercial loans and leases and commercial real estate loans of$36.6 billion and residential mortgage and consumer loans of$4.3 billion outstanding. Approximately 70% of the loans either mature beforeJune 30, 2023 or have been amended to include appropriate alternative language to be effective upon cessation of LIBOR publication. Approximately$731 million of borrowings and$1.1 billion of preferred equity instruments reference LIBOR as ofSeptember 30, 2022 . The Company's interest rate swap agreements primarily reference LIBOR. InOctober 2020 , theInternational Swaps and Derivatives Association, Inc. published the IBOR Fallbacks Supplement ("Supplement") and the IBOR Fallback Protocol ("Protocol"). The Protocol enables market participants to incorporate certain revisions into their legacy non-cleared derivative trades with other counterparties that also choose to adhere to the Protocol. M&T adhered to the Protocol inNovember 2020 and is in the process of remediating its interest rate swap transactions with its end-user customers. With respect to the Company's cleared interest rate swap agreements that reference LIBOR, clearinghouses have adopted the same relevant Secured Overnight Financing Rate ("SOFR") benchmark alternatives of the Supplement and Protocol. As loans mature and new originations occur a larger percentage of the Company's variable-rate loans are expected to reference SOFR or other indexes, including the Bloomberg Short Term Bank Yield Index ("BSBY"). AtSeptember 30, 2022 the Company had approximately$21.3 billion and$274 million of outstanding loan balances that reference SOFR and BSBY, respectively. Additionally, as ofSeptember 30, 2022 , the Company had$15.6 billion of notional amount of interest rate swap agreements designated as cash flow hedges of commercial real estate loans, - 62 - -------------------------------------------------------------------------------- including$4.7 billion of forward-starting interest rate swap agreements that become effective in 2023, and notional amounts of$4.3 billion of non-hedging derivative interest rate contracts that are referenced to SOFR. The Company's usage of interest rate swap agreements referenced to SOFR or BSBY is expected to increase in response to the discontinuation of LIBOR. The Company continues to work with its customers and other counterparties to remediate LIBOR-based agreements which expire afterJune 30, 2023 by incorporating alternative language, negotiating new agreements, or other means. The discontinuation of LIBOR and uncertainty relating to the emergence of one or more alternative benchmark indexes to replace LIBOR could materially impact the Company's interest rate risk profile and its management thereof.
Changes in fair value of the Company's financial instruments can also result from a lack of trading activity for similar instruments in the financial markets. That impact is most notable on the values assigned to some of the Company's investment securities. Information about the fair valuation of investment securities is presented in notes 3 and 13 of Notes to Financial Statements.
The Company enters into interest rate and foreign exchange contracts to meet the financial needs of customers that it includes in its financial statements as non-hedging derivatives within other assets and other liabilities. Financial instruments utilized for such activities consist predominantly of interest rate swap agreements and forward and futures contracts related to foreign currencies. The Company generally mitigates the foreign currency and interest rate risk associated with customer activities by entering into offsetting positions with third parties that are also included in other assets and other liabilities. The fair values of non-hedging derivative positions associated with interest rate contracts and foreign currency and other option and futures contracts are presented in note 11 of Notes to Financial Statements. As with any non-government guaranteed financial instrument, the Company is exposed to credit risk associated with counterparties to the Company's non-hedging derivative activities. Although the notional amounts of these contracts are not recorded in the consolidated balance sheet, the unsettled fair values of such financial instruments are recorded in the consolidated balance sheet. The fair values of such non-hedging derivative assets and liabilities recognized on the balance sheet were$416 million and$1.42 billion , respectively, atSeptember 30, 2022 and$418 million and$83 million , respectively, atDecember 31, 2021 . The fair value asset and liability amounts atSeptember 30, 2022 have been reduced by contractual settlements of$1.15 billion and$20 million , respectively, and atDecember 31, 2021 have been reduced by contractual settlements of$54 million and$305 million , respectively. The values associated with the Company's non-hedging derivative activities atSeptember 30, 2022 as compared withDecember 31, 2021 reflect changes in values associated with interest rate swap agreements entered into with commercial customers that are not subject to periodic variation margin settlement payments. Trading account assets were$130 million atSeptember 30, 2022 ,$50 million atDecember 31, 2021 and$51 million atSeptember 30, 2021 . Included in trading account assets were assets related to deferred compensation plans aggregating$23 million atSeptember 30, 2022 , compared with$21 million at each ofSeptember 30, 2021 andDecember 31, 2021 . Changes in the fair values of such assets are recorded as "trading account and non-hedging derivative gains" in the consolidated statement of income. Included in "other liabilities" in the consolidated balance sheet atSeptember 30, 2022 was$29 million of liabilities related to deferred compensation plans, compared with$25 million atSeptember 30, 2021 and$24 million atDecember 31, 2021 . Changes in the balances of such liabilities due to the valuation of allocated investment options to which the liabilities are indexed are recorded in "other costs of operations" in the consolidated statement of income. Also included in trading account assets were investments in mutual funds and other assets that the Company was required to hold under terms of certain non-qualified supplemental retirement and other benefit plans that were assumed by the Company in various acquisitions. Those assets totaled$107 million atSeptember 30, 2022 and$29 million at each ofSeptember 30, 2021 andDecember 31, 2021 . The increase atSeptember 30, 2022 as compared with the prior dates reflects assets obtained in the acquisition of the People's United non-qualified supplemental retirement and other benefit plans. - 63 - -------------------------------------------------------------------------------- Given the Company's policies and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading account and non-hedging derivative activities was not material, however, as previously noted, the Company is exposed to credit risk associated with counterparties to transactions related to the Company's actions to mitigate foreign currency and interest rate risk associated with customer activities. Additional information about the Company's use of derivative financial instruments is included in note 11 of Notes to Financial Statements.
Provision for Credit Losses
A provision for credit losses is recorded to adjust the level of the allowance to reflect expected credit losses that are based on economic forecasts as of each reporting date. Provisions for credit losses of$115 million and$302 million were recorded in the third and second quarters of 2022, respectively, compared with a credit loss recapture of$20 million in the third quarter of 2021. The provision recorded in the second quarter of 2022 included$242 million on loans obtained in the acquisition of People's United not deemed to be PCD. GAAP requires a provision for credit losses to be recorded beyond the recognition of the fair value of the loans at the acquisition date. In addition to the recorded provision, the allowance for credit losses was also increased by$99 million in the second quarter of 2022 to reflect the expected credit losses on loans obtained in the acquisition of People's United deemed to be PCD. That addition represents an increase of the carrying values of loans identified as PCD at the time of the acquisition. The Company's estimates of expected credit losses atSeptember 30, 2022 reflect anticipated increases in unemployment spurred byFederal Reserve initiatives to curb high rates of inflation that could lead to overall deterioration of economic conditions and, thus, credit quality during an eight-quarter forecast period. Risks considered included inflation, a projected rise in unemployment, reduction of economic growth projections, decreasing residential real estate prices as compared with the immediately preceding quarter and continued concerns about commercial real estate values in the hospitality and office building sectors. Macroeconomic assumptions used to estimate credit losses on loans acquired from People's United at theApril 1, 2022 acquisition date were consistent with those used by the Company to estimate credit losses atMarch 31, 2022 . Net charge-offs of loans were$63 million in the recent quarter, compared with net charge-offs of$40 million in the third quarter of 2021 and$50 million in the second quarter of 2022. Net charge-offs as an annualized percentage of average loans and leases were .20% in the third quarter of 2022, .17% in the year-earlier quarter and .16% in the second quarter of 2022. As an annualized percentage by loan type, net charge-offs (recoveries) for the third quarter of 2022, third quarter of 2021 and the second quarter of 2022 were .16%, .38% and .31% for commercial loans and leases, .30%, .13% and .06% for commercial real estate loans and .25%, .12% and .26% for consumer loans, respectively. Net charge-offs of residential real estate loans as an annualized percentage of average loan balances were less than .01% for each of the three quarters noted herein. Net charge-offs for the nine-month periods endedSeptember 30, 2022 and 2021 were$120 million and$161 million , respectively, representing an annualized .14% and .22%, respectively, of average loans and leases. A summary of net charge-offs by loan type is presented in the table that follows. - 64 - -------------------------------------------------------------------------------- NET CHARGE-OFFS (RECOVERIES) BY LOAN/LEASE TYPE 2022 Second Third Year- First Quarter Quarter (a) Quarter to-date (a) (In thousands) Commercial, financial, leasing, etc. $ 5,569 29,502 15,374 50,445 Real estate: Commercial (13,143 ) 7,140 34,812 28,809 Residential 865 256 338 1,459 Consumer 13,576 12,671 12,675 38,922 $ 6,867 49,569 63,199 119,635 2021 Third Year- First Quarter Second Quarter Quarter to-date (In thousands) Commercial, financial, leasing, etc. $ 4,434 29,242 22,813 56,489 Real estate: Commercial 54,092 11,330 11,880 77,302 Residential 366 (149 ) 22 239 Consumer 16,289 5,655 5,389 27,333$ 75,181 46,078 40,104 161,363 (a)
For the quarter ended
The net charge-offs of commercial loans in the third quarter of 2022 reflect a$23 million charge-off of a loan to a paper distribution company partially offset by recoveries of previously charged-off loan balances. Net charge-offs of commercial loans in the second quarter of 2022 include a$23 million charge-off of a loan to a consumer products manufacturer. The net charge-offs of commercial real estate loans in the third quarter of 2022 reflect a$20 million charge-off of a loan to a healthcare provider and a$7 million charge-off of a loan to a residential leasing company. Included in net charge-offs of consumer loans were: net recoveries of automobile loans of less than$1 million in the recent quarter,$2 million in the year-earlier quarter and$1 million in the second quarter of 2022; net charge-offs of recreational finance loans of$5 million in the third quarter of 2022,$1 million in the year-earlier quarter and$7 million in the second 2022 quarter; and net recoveries of home equity loans and lines of credit secured by one-to-four family residential properties of less than$1 million in each of the recent quarter, the third quarter of 2021 and the second quarter of 2022. Net charge-offs associated with other consumer loans including credit cards and installment loans totaled$8 million in each of the recent quarter and the second quarter of 2022, compared with$7 million in the third quarter of 2021. Nonaccrual loans aggregated$2.43 billion or 1.89% of total loans and leases outstanding atSeptember 30, 2022 , compared with$2.24 billion or 2.40% atSeptember 30, 2021 ,$2.06 billion or 2.22% atDecember 31, 2021 and$2.63 billion or 2.05% atJune 30, 2022 . Loans obtained in the acquisition of People's United that have been classified as nonaccrual totaled$581 million atSeptember 30, 2022 and$545 million atJune 30, 2022 . The level of nonaccrual loans reflects the continuing impact of economic conditions on borrowers' abilities to make contractual payments on their loans, most notably commercial real estate loans in the hospitality, office, retail and health care-related sectors. Accruing loans past due 90 days or more were$477 million or .37% of loans and leases atSeptember 30, 2022 , compared with$1.03 billion or 1.10% atSeptember 30, 2021 ,$963 million or 1.04% atDecember 31, 2021 and$524 million or .41% atJune 30, 2022 . Accruing loans past due 90 days or more were predominantly residential real estate loans and included loans guaranteed by government-related entities of$423 million ,$947 million ,$928 million and$468 million atSeptember 30, 2022 ,September 30, 2021 ,December 31, 2021 andJune 30, 2022 , respectively. The lower balance atSeptember 30, 2022 andJune 30, 2022 compared with the 2021 dates reflects residential real estate loans guaranteed by government-related entities receiving payment deferrals during the COVID-19 pandemic, but ineligible for treatment under the CARES act, that exited these arrangements and complied with modified terms to - 65 - -------------------------------------------------------------------------------- become current. Guaranteed loans included one-to-four family residential mortgage loans serviced by the Company that were purchased to reduce associated servicing costs, including a requirement to advance principal and interest payments that had not been received from individual mortgagors. Despite the loans being purchased by the Company, the insurance or guarantee by the applicable government-related entity remains in force. The outstanding principal balances of those purchased loans that are guaranteed by government-related entities totaled$366 million atSeptember 30, 2022 ,$919 million a year earlier,$889 million atDecember 31, 2021 and$435 million atJune 30, 2022 . The remaining accruing loans past due 90 days or more not guaranteed by government-related entities were loans considered to be with creditworthy borrowers that were in the process of collection or renewal. The direct and indirect effects of the COVID-19 pandemic resulted in a dramatic reduction in 2020 in economic activity that severely hampered the ability of some businesses and consumers to meet their repayment obligations. Information regarding the Company's treatment of loan modifications subject to applicable regulatory guidance issued during the pandemic, including the CARES Act, can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations within Form 10-K for the year endedDecember 31, 2021 . COVID-19 related modifications with payment deferrals atSeptember 30, 2022 were not material. The Company also modified the terms of select loans in an effort to assist borrowers that were not related to the COVID-19 pandemic. If the borrower was experiencing financial difficulty and a concession was granted, the Company considered such modifications as troubled debt restructurings. Loan modifications included such actions as the extension of loan maturity dates and the lowering of interest rates and monthly payments. The objective of the modifications was to increase loan repayments by customers and thereby reduce net charge-offs. Information about modifications of loans that are considered troubled debt restructurings is included in note 4 of Notes to Financial Statements. Residential real estate loans modified under specified loss mitigation programs prescribed by government guarantors that were not related to the COVID-19 pandemic have not been included in renegotiated loans because the loan guarantee remains in full force and, accordingly, the Company has not granted a concession with respect to the ultimate collection of the original loan balance. Such loans aggregated$382 million atSeptember 30, 2022 ,$425 million at each ofSeptember 30, 2021 andDecember 31, 2021 , and$356 million atJune 30, 2022 . Commercial loans and leases classified as nonaccrual totaled$368 million ,$280 million ,$221 million and$442 million atSeptember 30, 2022 ,September 30, 2021 ,December 31, 2021 andJune 30, 2022 , respectively. Commercial real estate loans in nonaccrual status aggregated$1.47 billion ,$1.31 billion ,$1.18 billion , and$1.55 billion September 30, 2022 ,September 30, 2021 ,December 31, 2021 andJune 30, 2022 , respectively. Commercial real estate loans in nonaccrual status were largely reflective of loans in the hospitality, office, retail and health care-related sectors. Commercial loans and leases and commercial real estate loans acquired from People's United and classified as nonaccrual totaled$136 million and$416 million , respectively, atSeptember 30, 2022 and$188 million and$312 million , respectively, atJune 30, 2022 . Nonaccrual residential real estate loans totaled$381 million atSeptember 30, 2022 , compared with$480 million atSeptember 30, 2021 ,$479 million atDecember 31, 2021 and$444 million atJune 30, 2022 . The decreases sinceSeptember 30, 2021 largely reflect borrower repayment performance since that date partially offset by$17 million of residential real estate loans acquired from People's United and classified as nonaccrual atSeptember 30, 2022 . Included in residential real estate loans classified as nonaccrual were limited documentation first mortgage loans of$95 million atSeptember 30, 2022 , compared with$127 million atSeptember 30, 2021 ,$123 million atDecember 31, 2021 and$113 million atJune 30, 2022 . Limited documentation first mortgage loans represent loans secured by residential real estate that at origination typically included some form of limited borrower documentation requirements as compared with more traditional loans. The Company no longer originates limited documentation loans. Residential real estate loans past due 90 days or more and accruing interest aggregated$412 million atSeptember 30, 2022 , compared with$945 million atSeptember 30, 2021 ,$920 million atDecember 31, 2021 and$474 million atJune 30, 2022 . Those amounts related predominantly to government-guaranteed loans as previously noted. The lower balances at the two most recent quarter-ends also reflect improved borrower repayment performance. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter endedSeptember 30, 2022 is presented in the accompanying table. - 66 - -------------------------------------------------------------------------------- Nonaccrual consumer loans were$206 million atSeptember 30, 2022 ,$170 million atSeptember 30, 2021 ,$177 million atDecember 31, 2021 and$196 million atJune 30, 2022 . Included in nonaccrual consumer loans atSeptember 30, 2022 ,September 30, 2021 ,December 31, 2021 andJune 30, 2022 were: automobile loans of$40 million ,$31 million ,$34 million and$36 million , respectively; recreational finance loans of$39 million ,$24 million ,$28 million and$33 million , respectively; and outstanding balances of home equity loans and lines of credit of$78 million ,$71 million ,$70 million and$79 million , respectively. Consumer loans acquired from People's United and classified as nonaccrual atSeptember 30, 2022 totaled$12 million and consisted predominantly of home equity loans and lines of credit. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter endedSeptember 30, 2022 is presented in the accompanying table.
Information about past due and nonaccrual loans as of
SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA
Quarter Ended
September 30, 2022 September 30, 2022
Nonaccrual Net Charge-offs (Recoveries)
Percent of
Percent of Average
Outstanding Outstanding Outstanding
Balances Balances Balances Balances Balances
(Dollars inthousands)
Residential mortgages:
New York$ 6,553,820 $ 111,080 1.69 % $ 1,383 .09 % Mid-Atlantic (a) 6,549,714 104,464 1.59 (185 ) .(01 ) New England (b) 6,187,859 49,177 .79 (124 ) .(01 ) Other 2,631,196 19,086 .73 (216 ) .(03 ) Total$ 21,922,589 $ 283,807 1.29 % $ 858 .02 % Residential construction loans: New York$ 21,563 $ 375 1.74 % $ - - % Mid-Atlantic (a) 21,688 336 1.55 - - New England (b) 18,439 877 4.76 - - Other 2,566 - - - - Total$ 64,256 $ 1,588 2.47 % $ - - % Limited documentation first lien mortgages: New York$ 501,679 $ 40,427 8.06 % $ 45 .03 % Mid-Atlantic (a) 442,905 34,664 7.83 - - New England (b) 99,097 15,358 15.50 - - Other 43,754 4,933 11.27 (565 ) (4.94 ) Total$ 1,087,435 $ 95,382 8.77 % $ (520 ) .(18 %) First lien home equity loans and lines of credit: New York$ 969,253 $ 16,728 1.73 % $ 274 .17 % Mid-Atlantic (a) 1,110,862 21,961 1.98 (18 ) .(01 ) New England (b) 704,555 2,551 .36 - - Other 20,620 1,010 4.90 (20 ) .(01 ) Total$ 2,805,290 $ 42,250 1.51 % $ 236 .03 % Junior lien home equity loans and lines of credit: New York$ 768,949 $ 16,106 2.09 % $ (479 ) .(41 %) Mid-Atlantic (a) 929,851 16,674 1.79 (539 ) .(45 ) New England (b) 538,721 2,802 .52 376 .36 Other 20,612 376 1.82 - - Total$ 2,258,133 $ 35,958 1.59 % $ (642 ) .(11 %) (a)
Includes
(b)
Includes
Real estate and other foreclosed assets totaled$37 million atSeptember 30, 2022 , compared with$25 million atSeptember 30, 2021 ,$24 million atDecember 31, 2021 and$29 million atJune 30, 2022 . Net gains or losses associated with real estate and other foreclosed assets were not material during the three months and nine months endedSeptember 30, 2022 and 2021. AtSeptember 30, 2022 , foreclosed assets are comprised predominantly of residential real estate-related properties. - 67 - --------------------------------------------------------------------------------
A comparative summary of nonperforming assets and certain past due, renegotiated and impaired loan data and credit quality ratios is presented in the accompanying table.
NONPERFORMING ASSET AND PAST DUE, RENEGOTIATED AND IMPAIRED LOAN DATA
2022 Quarters 2021 Quarters
Third Second First Fourth Third
(Dollars in thousands)
Nonaccrual loans $ 2,429,326 2,633,005 2,134,231 2,060,083 2,242,263
Real estate and other
foreclosed assets 37,031 28,692 23,524 23,901 24,786
Total nonperforming assets $ 2,466,357 2,661,697 2,157,755 2,083,984 2,267,049
Accruing loans past due 90 days
or more(a) $ 476,503 523,662 776,751 963,399 1,026,080
Government guaranteed loans
included in totals
above:
Nonaccrual loans $ 44,797 46,937 46,151 51,429 47,358
Accruing loans past due 90 days
or more(a) 423,371 467,834 689,831 927,788 947,091
Renegotiated loans $ 356,797 276,584 242,108 230,408 242,955
Nonaccrual loans to total loans
and leases, net of
unearned discount 1.89 % 2.05 % 2.32 % 2.22 % 2.40 %
Nonperforming assets to total
net loans and
leases and real estate and
other foreclosed assets 1.92 % 2.07 % 2.35 % 2.24 % 2.42 %
Accruing loans past due 90 days
or more(a) to
total loans and leases, net
of unearned discount .37 % .41 % .85 % 1.04 % 1.10 %
(a)Predominantly residential real estate loans.
Management determines the allowance for credit losses under accounting guidance that requires estimating the amount of current expected credit losses over the remaining contractual term of the loan and lease portfolio. A description of the methodologies used by the Company to estimate its allowance for credit losses can be found in note 4 of Notes to Financial Statements. In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes and also estimates losses for other loans and leases with similar risk characteristics on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by type. At the time of the Company's analysis regarding the determination of the allowance for credit losses as ofSeptember 30, 2022 , concerns existed about the somewhat incomplete recovery evident in some sectors of the economy; elevated levels of inflation; fears of a slowing economy and possible recession in coming quarters; the volatile nature of global markets and international economic conditions that could impact theU.S. economy;Federal Reserve positioning of monetary policy; ongoing supply chain issues and wage pressures impacting commercial borrowers; the extent to which borrowers, in particular commercial real estate borrowers, may be negatively affected by pandemic-related and general economic conditions; and continued stagnant population and economic growth in the upstateNew York and centralPennsylvania regions (approximately 37% of the Company's loans and leases are to customers inNew York State andPennsylvania ) that historically lag other regions of the country. The Company utilizes a loan grading system to differentiate risk amongst its commercial loans and commercial real estate loans. Loans with a lower expectation of default are assigned one of ten possible "pass" loan grades while specific loans determined to have an elevated level of credit risk are classified as "criticized." A criticized loan may be classified as "nonaccrual" if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. Criticized commercial loans and commercial real estate loans totaled$10.9 billion , including$2.8 billion of loans acquired from People's United, atSeptember 30, 2022 , compared with$9.6 billion atSeptember 30, 2021 ,$9.0 billion atDecember 31, 2021 and$11.6 billion atJune 30, 2022 , including$2.8 billion of loans acquired from People's United. The level of criticized loans remains reflective of the impact of current conditions on many borrowers, particularly those with investor-owned commercial real estate loans in the hotel, office and healthcare sectors. Investor-owned commercial real estate loans - 68 - -------------------------------------------------------------------------------- comprised$8.0 billion or 74% of total criticized loans atSeptember 30, 2022 . The weighted-average loan-to-value ("LTV") ratio for investor-owned commercial real estate properties was approximately 60%. Criticized loans secured by investor-owned commercial real estate had a weighted-average LTV ratio of approximately 65%. Line of business personnel in different geographic locations with support from and review by the Company's credit risk personnel review and reassign loan grades based on their detailed knowledge of individual borrowers and their judgment of the impact on such borrowers resulting from changing conditions in their respective regions. The Company's policy is that, at least annually, updated financial information is obtained from commercial borrowers associated with pass grade loans and additional analysis performed. On a quarterly basis, the Company's centralized credit risk department reviews all criticized commercial loans and commercial real estate loans greater than$1 million to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. For criticized nonaccrual loans, additional meetings are held with loan officers and their managers, workout specialists and senior management to discuss each of the relationships. In analyzing criticized loans, borrower-specific information is reviewed, including operating results, future cash flows, recent developments and the borrower's outlook, and other pertinent data. The timing and extent of potential losses, considering collateral valuation and other factors, and the Company's potential courses of action are contemplated. With regard to residential real estate loans, the Company's loss identification and estimation techniques make reference to loan performance and house price data in specific areas of the country where collateral securing the Company's residential real estate loans is located. For residential real estate-related loans, including home equity loans and lines of credit, the excess of the loan balance over the net realizable value of the property collateralizing the loan is charged-off when the loan becomes 150 days delinquent. That charge-off is based on recent indications of value from external parties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are generally charged off to estimated net collateral value shortly after the Company is notified of such filings. AtSeptember 30, 2022 , approximately 55% of the Company's home equity portfolio consisted of first lien loans and lines of credit and 45% were junior liens. With respect to junior lien loans, to the extent known by the Company, if a related senior lien loan would be on nonaccrual status because of payment delinquency, even if such senior lien loan was not owned by the Company, the junior lien loan or line that is owned by the Company is placed on nonaccrual status. In monitoring the credit quality of its home equity portfolio for purposes of determining the allowance for credit losses, the Company reviews delinquency and nonaccrual information and considers recent charge-off experience. When evaluating individual home equity loans and lines of credit for charge off and for purposes of determining the allowance for credit losses, the Company gives consideration to the required repayment of any first lien positions related to collateral property. Home equity line of credit terms vary but such lines are generally originated with an open draw period of ten years followed by an amortization period of up to twenty years. AtSeptember 30, 2022 approximately 86% of all outstanding balances of home equity lines of credit related to lines that were still in the draw period, the weighted-average remaining draw periods were approximately five years, and approximately 18% were making contractually allowed payments that do not include any repayment of principal. Factors that influence the Company's credit loss experience include overall economic conditions affecting businesses and consumers, generally, but also residential and commercial real estate valuations, in particular, given the size of the Company's real estate loan portfolios. Commercial real estate valuations can be highly subjective, as they are based upon many assumptions. Such valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, interest rates and, in many cases, the results of operations of businesses and other occupants of the real property. Similarly, residential real estate valuations can be impacted by housing trends, the availability of financing at reasonable interest rates and general economic conditions affecting consumers. The Company generally estimates current expected credit losses on loans with similar risk characteristics on a collective basis. To estimate expected losses, the Company utilizes statistically developed models to project principal balances over the remaining contractual lives of the loan portfolios and determine estimated credit losses through a reasonable and supportable forecast period. The Company's approach for estimating current expected credit losses for loans and leases atSeptember 30, 2022 ,September 30, 2021 andDecember 31, 2021 included utilizing macroeconomic assumptions to project losses over a two-year reasonable and supportable forecast period. Subsequent - 69 - -------------------------------------------------------------------------------- to the forecast period, the Company reverted to longer-term historical loss experience, over a period of one year, to estimate expected credit losses over the remaining contractual life. Forward-looking estimates of certain macroeconomic variables are determined by theM&T Scenario Development Group , which is comprised of senior management business leaders and economists. Events posing emerging risks to the macroeconomic environment, such as international conflicts and other events, inflation and supply chain issues, are considered when developing economic forecasts even if the events do not directly and materially impact the Company's financial results. Supply chain disruptions, inflationary pressures or other peripheral impacts of global events may alter economic forecasts and the Company monitors this activity as part of its risk management procedures in assessing the allowance for credit losses. Among the assumptions utilized as ofSeptember 30, 2022 was that the national unemployment rate will average 3.9% through the reasonable and supportable forecast period. The forecast also assumed gross domestic product grows at a 1.5% average rate during the first year of the reasonable and supportable forecast period and at a 2.7% average rate in the second year. Commercial real estate prices were assumed to cumulatively grow 6.5% and residential real estate prices were assumed to contract 4.4% over the two-year reasonable and supportable forecast period. As ofJune 30, 2022 the national unemployment rate was assumed to average 3.4% through the reasonable and supportable period. The forecast also assumed gross domestic product would grow during the first year of the reasonable and supportable period at a 2.4% average annual rate and at a 2.9% average rate in the second year. Commercial real estate and residential real estate prices were assumed to cumulatively grow 11.6% and 0.4%, respectively, over the two-year reasonable and supportable forecast period. As ofDecember 31, 2021 the forecast assumed that national unemployment would average 4.6% through the first year of the reasonable and supportable forecast period before gradually improving to 3.7% in the latter half of 2023. The forecast also assumed gross domestic product would grow during 2022 at a 3.1% average annual rate and during 2023 at a 2.7% annual rate. Commercial and residential real estate prices were assumed to cumulatively grow 11.1% and 5.9%, respectively, over the two-year reasonable and supportable forecast period. Among the assumptions utilized as ofSeptember 30, 2021 was that the national unemployment rate would continue to be at then elevated levels, on average 4.6%, through the remainder of 2021, followed by a gradual improvement reaching 3.5% within the reasonable and supportable forecast period. The forecast also assumed gross domestic product would grow at an average annualized rate of 3.3% during the eight-quarter forecast period. The commercial real estate price index was assumed to be down modestly in 2021, but improving in 2022 and 2023. Residential real estate prices were not assumed to fluctuate significantly. The assumptions utilized were based on the information available to the Company at or nearSeptember 30, 2022 ,June 30, 2022 ,December 31, 2021 andSeptember 30, 2021 (at the time the Company was preparing its estimate of expected credit losses as of those dates). In establishing the allowance for credit losses the Company also considers the impact of portfolio concentrations, imprecision in economic forecasts, geopolitical conditions and other risk factors that might influence the loss estimation process. With respect to economic forecasts the Company assessed the likelihood of alternative economic scenarios during the two-year reasonable and supportable time period. Generally, an increase in unemployment rate or a decrease in any of the rate of change in gross domestic product, commercial real estate prices or home prices could have an adverse impact on expected credit losses and may result in an increase to the allowance for credit losses. Forward looking economic forecasts are subject to inherent imprecision and future events may differ materially from forecasted events. In consideration of such uncertainty, the following alternative economic scenarios were considered to estimate the possible impact on modeled credit losses. A potential downside economic scenario assumed the unemployment rate averages 7.1% in the reasonable and supportable forecast period. The scenario also assumed gross domestic product contracts 2.4% in the first year of the reasonable and supportable forecast period before recovering to 2.2% growth in the second year and commercial real estate and residential real estate prices cumulatively decline 18.4% and 11.4%, respectively, by the end of the reasonable and supportable forecast period. A potential upside economic scenario assumed the unemployment rate declines to approximately 3.4% for the duration of the reasonable and supportable forecast period. The scenario also assumes gross domestic product grows 5.2% in the initial year of the reasonable and supportable forecast period and 2.0% in the second year while commercial real estate and residential real estate prices cumulatively rise 8.9% and 1.4%, respectively, over the two-year reasonable and supportable forecast period. - 70 - -------------------------------------------------------------------------------- The scenario analyses resulted in an additional$370 million of modeled credit losses under the assumptions of the downside economic scenario, whereas under the assumptions of the upside economic scenario a$161 million reduction in modeled credit losses could occur. These examples are only a few of the numerous possible economic scenarios that could be utilized in assessing the sensitivity of expected credit losses. The estimated impacts on credit losses in such scenarios pertain only to modeled credit losses and do not include consideration of other factors the Company may evaluate when determining its allowance for credit losses. As a result, it is possible that the Company may, at another point in time, reach different conclusions regarding credit loss estimates. The Company's process for determining the allowance for credit losses undergoes quarterly and periodic evaluations by independent risk management personnel, which among many other considerations, evaluate the reasonableness of management's methodology and significant assumptions. Further information about the Company's methodology to estimate expected credit losses is included in note 4 of Notes to Financial Statements. Management believes that the allowance for credit losses atSeptember 30, 2022 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled$1.88 billion atSeptember 30, 2022 , compared with$1.52 billion atSeptember 30, 2021 ,$1.47 billion atDecember 31, 2021 and$1.82 billion atJune 30, 2022 . As a percentage of loans outstanding, the allowance was 1.46% atSeptember 30, 2022 , 1.62% atSeptember 30, 2021 , 1.58% atDecember 31, 2021 and 1.42% atJune 30, 2022 . Using the same methodology described herein, the Company added$341 million to the allowance for credit losses related to the$35.8 billion of loans and leases obtained in the acquisition of People's United onApril 1, 2022 . The combined Company allowance for credit losses atApril 1, 2022 as a percentage of loans outstanding was 1.42%. The level of the allowance reflects management's evaluation of the loan and lease portfolio using the methodology and considering the factors as described herein. Should the various economic forecasts and credit factors considered by management in establishing the allowance for credit losses change and should management's assessment of losses in the loan portfolio also change, the level of the allowance as a percentage of loans could increase or decrease in future periods. The reported level of the allowance reflects management's evaluation of the loan and lease portfolio as of each respective date. The ratio of the allowance for credit losses to total nonaccrual loans atSeptember 30, 2022 andDecember 31, 2021 was 77% and 71%, respectively. Given the Company's general position as a secured lender and its practice of charging off loan balances when collection is deemed doubtful, that ratio and changes in the ratio are generally not an indicative measure of the adequacy of the Company's allowance for credit losses, nor does management rely upon that ratio in assessing the adequacy of the Company's allowance for credit losses.
Other Income
Other income totaled$563 million in the third quarter of 2022, compared with$569 million in the year-earlier quarter. Trust income, service charges on deposit accounts and credit-related fees all increased reflecting the acquisition of People's United, but were offset by a decline in mortgage banking revenues resulting from the Company's decision to retain the substantial majority of recently originated mortgage loans in portfolio rather than sell such loans. Other income was$571 million in the second quarter of 2022. The modest decline in the recent quarter resulted from lower service charges on deposit accounts and trust income, offset by higher credit-related fees. Mortgage banking revenues were$83 million in each of the third quarter and second quarter of 2022, compared with$160 million in the third quarter of 2021. Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities. The Company's involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multi-family loan programs of Fannie Mae, Freddie Mac and theU.S. Department of Housing and Urban Development . Residential mortgage banking revenues, consisting of realized gains and losses from sales of residential real estate loans and loan servicing rights, unrealized gains and losses on residential real estate loans held for sale and related commitments, residential real estate loan servicing fees, and other residential real estate loan-related fees and income, were$55 million in the third quarter of 2022,$110 million in the similar quarter of 2021 and$50 million in the second quarter of 2022. As compared with the third quarter of 2021, lower residential mortgage banking revenues in the recent quarter resulted from decreased gains associated with loans held for sale and related commitments, reflecting the Company's decision late in the third quarter of 2021 to retain most originated mortgage loans in portfolio - 71 - --------------------------------------------------------------------------------
rather than sell such loans. Residential mortgage banking revenues were
New commitments to originate residential real estate loans to be sold were approximately$47 million in the third quarter of 2022, compared with$1.1 billion in the year-earlier quarter and$78 million in the second quarter of 2022. Realized gains and losses from sales of residential real estate loans and loan servicing rights and recognized net unrealized gains or losses attributable to residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans totaled gains of$1 million in the third quarter of 2022 and$49 million in the corresponding period of 2021, compared with losses of$17 million in 2022's second quarter. Loans held for sale that were secured by residential real estate aggregated$43 million atSeptember 30, 2022 ,$279 million atSeptember 30, 2021 and$474 million atDecember 31, 2021 . Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates totaled$80 million and$57 million , respectively, atSeptember 30, 2022 , compared with$795 million and$751 million , respectively, atSeptember 30, 2021 and$617 million and$233 million , respectively, atDecember 31, 2021 . Net recognized unrealized gains on residential real estate loans held for sale, commitments to sell loans, and commitments to originate loans for sale were$1 million atSeptember 30, 2022 ,$22 million atSeptember 30, 2021 and$10 million atDecember 31, 2021 . Changes in net unrealized gains or losses are recorded in mortgage banking revenues and resulted in a net increase in revenues of$1 million in the recent quarter and$10 million in the third quarter of 2021, compared with a net decrease of$5 million in the second quarter of 2022. Revenues from servicing residential real estate loans for others were$54 million during the quarter endedSeptember 30, 2022 , compared with$61 million and$67 million during the three months endedSeptember 30, 2021 andJune 30, 2022 , respectively. Residential real estate loans serviced for others totaled$104.0 billion atSeptember 30, 2022 ,$97.1 billion atSeptember 30, 2021 ,$97.9 billion atDecember 31, 2021 and$102.5 billion atJune 30, 2022 . Reflected in residential real estate loans serviced for others were loans sub-serviced for others of$81.2 billion ,$73.2 billion ,$74.7 billion and$79.0 billion atSeptember 30, 2022 ,September 30, 2021 ,December 31, 2021 andJune 30, 2022 , respectively. Revenues earned for sub-servicing loans totaled$33 million during the recent quarter,$39 million in the third quarter of 2021 and$44 million in the second quarter of 2022. The decrease in sub-servicing fees in the recent quarter reflects lower fees associated with modifying and selling reperforming loans previously repurchased by the holder of the contractual servicing rights. The contractual servicing rights associated with loans sub-serviced by the Company were predominantly held by affiliates ofBayview Lending Group LLC ("BLG"). Information about the Company's relationship with BLG and its affiliates is included in note 16 of Notes to Financial Statements. Capitalized residential mortgage servicing assets totaled$208 million atSeptember 30, 2022 ,$218 million atSeptember 30, 2021 ,$217 million atDecember 31, 2021 and$215 million atJune 30, 2022 . Commercial mortgage banking revenues totaled$28 million in the third quarter of 2022 compared to$50 million in the third quarter of 2021 and$33 million in the second quarter of 2022. Included in such amounts were revenues from loan origination and sales activities of$12 million and$24 million in the third quarters of 2022 and 2021, respectively, compared with$14 million in the second quarter of 2022. Commercial real estate loans originated for sale to other investors were$906 million in the recent quarter, compared with$1.7 billion in the third quarter of 2021 and$692 million in the second quarter of 2022. Loan servicing revenues totaled$16 million and$26 million in the third quarters of 2022 and 2021, respectively, compared with$19 million in the second quarter of 2022. Capitalized commercial mortgage servicing assets were$129 million and$131 million atSeptember 30, 2022 andSeptember 30, 2021 , respectively, and$133 million atDecember 31, 2021 . Commercial real estate loans serviced for other investors totaled$25.1 billion atSeptember 30, 2022 ,$23.1 billion atSeptember 30, 2021 and$23.7 billion atDecember 31, 2021 . Those servicing amounts included$3.7 billion atSeptember 30, 2022 ,$3.9 billion atSeptember 30, 2021 and$4.0 billion atDecember 31, 2021 of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectable. Included in commercial real estate loans serviced for others were loans sub-serviced for others of$3.7 billion atSeptember 30, 2022 ,$3.4 billion atSeptember 30, 2021 and$3.5 billion atDecember 31, 2021 . Commitments to sell commercial real estate loans and commitments to originate commercial real estate loans for sale were$703 million and$401 million , respectively, atSeptember 30, 2022 ,$993 million and$434 million , - 72 - --------------------------------------------------------------------------------
respectively, at
Service charges on deposit accounts were$115 million and$105 million in the third quarters of 2022 and 2021, respectively, compared with$124 million in the second quarter of 2022. The People's United acquisition contributed$20 million to the service charges on deposit accounts total in the most recent quarter and$33 million in the second quarter of 2022. The lower fees associated with People's United reflect waivers of certain fees in September following conversion of customer deposit accounts to the Company's deposit servicing system. The Company is waiving additional fees and reimbursing select customers in the fourth quarter. The Company does not expect those amounts to ultimately be material to its consolidated financial position or results of operations. Excluding the contribution associated with the People's United acquisition, the decrease in the recent quarter as compared with the year-earlier quarter, reflected the Company's planned elimination, announced inFebruary 2022 , of certain non-sufficient funds fees and overdraft protection transfer charges from linked deposit accounts. Trust income includes fees related to two significant businesses. The Institutional Client Services ("ICS") business provides a variety of trustee, agency, investment management and administrative services for corporations and institutions, investment bankers, corporate tax, finance and legal executives, and other institutional clients who: (i) use capital markets financing structures; (ii) use independent trustees to hold retirement plan and other assets; and (iii) need investment and cash management services. The Wealth Advisory Services ("WAS") business offers personal trust, planning, fiduciary, asset management, family office and other services designed to help high net worth individuals and families grow, preserve and transfer wealth. Trust income aggregated$187 million in the third quarter of 2022, compared with$157 million in the year-earlier quarter and$190 million in the second quarter of 2022. Trust income contributed from the acquisition of People's United totaled approximately$11 million in the recent quarter and$14 million in the second quarter of 2022. Revenues associated with the ICS business were$114 million during the quarter endedSeptember 30, 2022 and$109 million during the quarter endedJune 30, 2022 , each inclusive of$2 million of People's United-related revenue, compared with$94 million during the quarter endedSeptember 30, 2021 . The higher revenues in the recent quarter as compared with the prior year third quarter were largely attributable to reduced fee waivers of$13 million resulting from higher rates on money market fund accounts and incremental fees from sales. Relative to the second quarter of 2022, the higher level of ICS revenues resulted from lower money market fund account fee waivers and higher collective fund fees. Revenues attributable to WAS, including$8 million of People's United-related fees, totaled approximately$71 million in the three-month period endedSeptember 30, 2022 , compared with$78 million , including$10 million of People's United-related fees, during the quarter endedJune 30, 2022 and$63 million during the quarter endedSeptember 30, 2021 . The decline in WAS revenues in the recent quarter as compared with the second quarter of 2022 was largely reflective of annual tax service fees of$4 million recognized in the second quarter of 2022. Trust assets under management were$153.5 billion ,$152.2 billion ,$165.6 billion and$151.8 billion atSeptember 30, 2022 ,September 30, 2021 ,December 31, 2021 andJune 30, 2022 , respectively. Trust assets under management include the Company's proprietary mutual funds' assets of$12.7 billion ,$13.0 billion ,$13.2 billion and$11.9 billion atSeptember 30, 2022 ,September 30, 2021 ,December 31, 2021 andJune 30, 2022 , respectively. Additional trust income from investment management activities comprised of fees earned from retail customer investment accounts was$2 million in the third quarter of 2022, less than$1 million in the third quarter of 2021 and$3 million in the second quarter of 2022. Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, and, sinceJune 2021 , sales of select investment products of LPL Financial, totaled$21 million in the third quarter of 2022,$20 million in the third quarter of 2021 and$24 million in the second quarter of 2022. The acquisition of People's United contributed approximately$2 million and$3 million to brokerage services income in the third and second quarters of 2022, respectively. Trading account and non-hedging derivative gains were$5 million ,$6 million and$2 million during the quarters endedSeptember 30, 2022 ,September 30, 2021 andJune 30, 2022 , respectively. Information about the notional amount of interest rate, foreign exchange and other contracts entered into by the Company is included in note 11 of Notes to Financial Statements and herein under the heading "Taxable-equivalent Net Interest Income." - 73 - -------------------------------------------------------------------------------- Other revenues from operations were$153 million in the third quarter of 2022, compared with$120 million in the corresponding 2021 period and$148 million in the second quarter of 2022. Other revenues from operations associated with the People's United acquisition totaled$28 million and$29 million in the third and second quarters of 2022, respectively. Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees aggregated$54 million in the recent quarter, compared with$36 million in the year-earlier quarter and$38 million in the second quarter of 2022. As compared with the second quarter of 2022, the higher credit-related fees in 2022's third quarter resulted from an increase in loan syndication fees. The increase in letter of credit and other credit-related fees in the recent quarter as compared with the year-earlier quarter reflects both higher loan syndication fees and the impact resulting from the acquisition of People's United. Reflecting increased customer activity and incremental revenues associated with the People's United acquisition, revenues from merchant discount and credit card fees were$45 million in each of the recent quarter and second quarter of 2022, compared with$39 million in the year-earlier quarter. Tax-exempt income from bank owned life insurance, which includes changes in the cash surrender value of life insurance policies and benefits received, totaled$12 million in the third quarter of 2022,$11 million in the third quarter of 2021 and$14 million in the second quarter of 2022. The Company owns both general account and separate account policies. To the extent market conditions change such that the market value of assets in a separate account bank owned life insurance policy becomes less than the previously recorded cash surrender value, an adjustment is recorded as a reduction to "other revenues from operations." The increase in interest rates during 2022 has led to reductions of the market values of assets in some separate account bank owned life insurance policies below previously recorded cash surrender value. While the resultant reductions in recognized cash surrender value have not been material, a continued rise in interest rates could result in additional adjustments. Insurance-related sales commissions and other revenues totaled$13 million in the quarter endedSeptember 30, 2022 , compared with$10 million in the third quarter of 2021 and$14 million in the second quarter of 2022. Other income totaled$1.68 billion during the first nine months of 2022, compared with$1.59 billion during the year-earlier period. Higher trust income, service charges on deposit accounts, brokerage services income, income resulting from a distribution received from the Company's investment in BLG in 2022, a reduction in unrealized losses on investment securities, and an increase in credit-related and merchant discount and credit card fees were partially offset by lower mortgage banking revenues. The acquisition of People's United contributed approximately$140 million to other income in the second and third quarters of 2022. Mortgage banking revenues totaled$275 million during the first nine months of 2022, compared with$432 million during the similar period in 2021. Residential mortgage banking revenues aggregated$181 million and$315 million during the nine-month periods endedSeptember 30, 2022 and 2021, respectively. New commitments to originate residential real estate loans to be sold aggregated$286 million and$3.7 billion in the initial nine months of 2022 and 2021, respectively. Realized gains from sales of residential real estate loans and loan servicing rights and recognized unrealized gains and losses on residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans aggregated to losses of$2 million in the first nine months of 2022, compared with gains of$138 million in the first nine months of 2021. The reductions in volume and revenues reflect the Company's decision to retain the substantial majority of recently originated mortgage loans in portfolio rather than sell such loans. Revenues from servicing residential real estate loans for others were$183 million in the first nine months of 2022 and$177 million in the corresponding 2021 period. Included in servicing revenues were sub-servicing revenues aggregating$119 million and$110 million in the first nine months of 2022 and 2021, respectively. For the nine months endedSeptember 30 , commercial mortgage banking revenues were$94 million and$117 million in 2022 and 2021, respectively. Commercial real estate loans originated for sale to other investors totaled$2.2 billion and$2.7 billion during the nine-month periods endedSeptember 30, 2022 and 2021, respectively. The decline in commercial mortgage banking revenues is predominantly reflective of the origination volumes. Service charges on deposit accounts aggregated$341 million during the first nine months of 2022, compared with$297 million in the year-earlier period. The increase can be attributed to the acquisition of People's United and increased consumer activity, partially offset by reductions resulting from the Company's planned elimination of certain fees and charges beginning in the second quarter of 2022. Trust income totaled$546 million and$476 million during the first nine months of 2022 and 2021, respectively. The increase in trust income in 2022 as compared with 2021 was largely due to higher revenues from the ICS business, reflecting lower money market fund fee waivers, increased sales - 74 - -------------------------------------------------------------------------------- activities and higher retirement services income from growth in collective fund balances, as well as WAS revenues associated with the People's United acquisition. Brokerage services income totaled$65 million in the first nine months of 2022, compared with$44 million in the nine-month period endedSeptember 30, 2021 . That increase reflects a change inJune 2021 in product delivery to retail brokerage and certain trust customers related to the LPL Financial relationship. Revenues associated with the sale of investment products of LPL Financial, an independent financial services broker, are included in "brokerage services income." Prior to the transition to LPL Financial's product platform, revenues earned from providing those customers with proprietary trust products managed by the Company were reported as trust income. Net unrealized losses on investment securities, including investments of Fannie Mae and Freddie Mac preferred stock, totaling$2 million were recognized during the first nine months of 2022, compared with net unrealized losses of$23 million in the corresponding 2021 period. Other revenues from operations totaled$437 million (including approximately$55 million associated with the acquisition of People's United) in the first nine months of 2022, compared with$344 million in the year-earlier period. Other revenues from operations include the following significant components. Letter of credit and other credit-related fees aggregated$119 million (including$21 million associated with the acquisition of People's United) and$96 million in 2022 and 2021, respectively. Merchant discount and credit card fees were$124 million (including$5 million associated with the acquisition of People's United) and$101 million in the first nine months of 2022 and 2021, respectively. Income from bank owned life insurance totaled$36 million in the first nine months of 2022, compared with$34 million in the corresponding 2021 period. Insurance-related commissions and other revenues aggregated$42 million and$35 million in the first nine months of 2022 and 2021, respectively. M&T's investment in BLG resulted in income of$30 million in the first nine months of 2022; there was no similar income in the first nine months of 2021.
Other Expense
Other expense totaled$1.28 billion in the third quarter of 2022, compared with$899 million in the year-earlier quarter and$1.40 billion in the second quarter of 2022. Included in those amounts are expenses considered to be "nonoperating" in nature consisting of amortization of core deposit and other intangible assets of$18 million in each of the second and third quarter of 2022 and$3 million in the third quarter of 2021, and merger-related expenses of$53 million ,$9 million and$223 million in the recent quarter, third quarter of 2021 and second quarter of 2022, respectively. Exclusive of those nonoperating expenses, noninterest operating expenses were$1.21 billion in the recent quarter, compared with$888 million in the year-earlier quarter and$1.16 billion in the second quarter of 2022. Operations acquired from People's United were the largest contributor to the rise in noninterest operating expenses in the third and second quarters of 2022 as compared with the third quarter of 2021. Factors contributing to the higher level of operating expenses in 2022's third quarter as compared with the year-earlier quarter, in addition to People's United-related noninterest operating expenses, were higher costs for salaries and employee benefits and outside data processing and software, offset by lower defined benefit pension-related expenses included in other costs of operations. As compared with the second quarter of 2022, the increase in the recent quarter was predominantly attributed to higher salaries and benefits expenses resulting from an additional pay day and M&T's continued investment in its talent base through salaries and incentive compensation. Table 2 provides a reconciliation of other expense to noninterest operating expense. Other expense for the first nine months of 2022 totaled$3.64 billion , compared with$2.68 billion in the year-earlier period. Included in those amounts are expenses considered to be "nonoperating" in nature consisting of amortization of core deposit and other intangible assets of$38 million and$8 million in the nine-month periods endedSeptember 30, 2022 and 2021, respectively, and merger-related expenses of$293 million and$23 million during the same respective periods. Exclusive of those nonoperating expenses, noninterest operating expenses for the first nine months of 2022 were$3.31 billion , compared with$2.65 billion in the first nine months of 2021. Approximately three-fourths of that increase can be attributed to operating expenses associated with the People's United acquisition. In addition, the year-over-year increase reflects higher costs for salaries and employee benefits, outside data processing and software, equipment and net occupancy and professional services expenses partially offset by lower defined benefit pension-related expenses included in other costs of operations. - 75 - -------------------------------------------------------------------------------- Salaries and employee benefits expense totaled$736 million in the third quarter of 2022, compared with$510 million in the year-earlier quarter and$776 million in the second quarter of 2022. Excluding the nonoperating expense items described earlier, salaries and employee benefits expense totaled$723 million and$691 million in the third and second quarters of 2022, respectively. The higher operating expense in the recent quarter as compared with the third quarter of 2021 reflects higher employee staffing levels, including employees retained from the acquisition of People's United, and higher salaries from merit increases and incentive compensation. Comparing the recent quarter with the second quarter of 2022, the increase reflected an additional pay day in the recent quarter and M&T's continued investment in its talent base through salaries and incentive compensation. During the first nine months of 2022 and 2021, salaries and employee benefits expense aggregated$2.09 billion and$1.53 billion , respectively. Excluding nonoperating expenses described herein, salaries and employee benefits expense in the first nine months of 2022 totaled$1.99 billion . The higher operating expense level in 2022 largely reflects increased staffing levels, including the addition of People's United employees at the beginning of the second quarter, higher salaries resulting from merit increases and a rise in incentive compensation. The Company, in accordance with GAAP, has accelerated the recognition of compensation costs for stock-based awards granted to retirement-eligible employees and employees who will become retirement-eligible prior to full vesting of the award. Salaries and employee benefits expense included stock-based compensation of$21 million ,$12 million and$23 million , in the three-month periods endedSeptember 30, 2022 ,September 30, 2021 andJune 30, 2022 , respectively, and$94 million and$74 million during the nine-month periods endedSeptember 30, 2022 andSeptember 30, 2021 , respectively. The number of full-time equivalent employees was 22,879 atSeptember 30, 2022 , compared with 17,103 and 22,680 atSeptember 30, 2021 andJune 30, 2022 , respectively. The increase in staffing levels sinceSeptember 30, 2021 was predominantly the result of the acquisition of People's United. Excluding the nonoperating expense items described earlier from each quarter, non-personnel operating expenses were$485 million ,$377 million and$471 million in the quarters endedSeptember 30, 2022 ,September 30, 2021 andJune 30, 2022 , respectively. On that same basis, such expenses were$1.32 billion and$1.12 billion in the nine-month periods endedSeptember 30, 2022 and 2021, respectively. The increase in non-personnel operating expenses in 2022's third quarter as compared with 2022's second quarter reflects higherFDIC assessments and professional services expenses. The higher non-personnel operating expenses in the 2022 periods as compared with the corresponding 2021 periods is predominantly attributable to the impact of the People's United acquisition. In addition to those expenses, higher costs for outside data processing and software, professional services and equipment and net occupancy were offset by reduced defined benefit pension-related expenses. Components of pension expense included in other costs of operations reflect the amortization of net unrecognized losses included in accumulated other comprehensive income. Such net unrecognized losses had been amortized over the average remaining service periods of active participants in the plan. If all or substantially all of the plan's participants are inactive, GAAP provides for the average remaining life expectancy of the participants to be used instead of average remaining service period. Substantially all of the participants in the Company's qualified defined benefit pension plan were inactive and beginning in 2022 the average remaining life expectancy was utilized prospectively to amortize the net unrecognized gains and losses of the Plan existent at each measurement date. The change increased the amortization period by approximately sixteen years and reduced the amount of quarterly amortization of unrecognized losses recorded in 2022 from what would have been recorded without such change in the amortization period by$9 million . The efficiency ratio measures the relationship of noninterest operating expenses to revenues. The Company's efficiency ratio was 53.6% during the recent quarter, compared with 57.7% and 58.3% in the third quarter of 2021 and second quarter of 2022, respectively. The efficiency ratios for the nine-month periods endedSeptember 30, 2022 and 2021 were 58.1% and 58.8%, respectively. The calculation of the efficiency ratio is presented in Table 2.
Income Taxes
Income tax expense was$201 million in the third quarter of 2022, compared with$162 million in the year-earlier quarter and$60 million in the second quarter of 2022. For the nine-month periods endedSeptember 30, 2022 and 2021, income tax expense was$374 million and$454 million , respectively. The effective tax rates were 23.7%, 24.6% and 21.7% for the quarters endedSeptember 30, 2022 ,September 30, 2021 andJune 30, 2022 , respectively, and 23.4% and 24.5% for the nine-month periods endedSeptember 30, 2022 and 2021, respectively. - 76 - -------------------------------------------------------------------------------- The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall level of pre-tax income, the level of income allocated to the various state and local jurisdictions where the Company operates, because tax rates differ among such jurisdictions, and the impact of any large discrete or infrequently occurring items. The Company's effective tax rate in future periods will also be affected by any change in income tax laws or regulations and interpretations of income tax regulations that differ from the Company's interpretations by any of various tax authorities that may examine tax returns filed by M&T or any of its subsidiaries.
Capital
Shareholders' equity was$25.3 billion atSeptember 30, 2022 , representing 12.76% of total assets, compared with$17.5 billion or 11.54% a year earlier and$17.9 billion or 11.54% atDecember 31, 2021 . The increase in shareholders' equity reflects the issuance of 50,325,004 M&T common shares and other common equity consideration totaling$8.4 billion for the acquisition of People's United and the conversion of People's United preferred stock into 10,000,000 shares of Series H Perpetual Fixed-to-Floating Rate Non-cumulative Preferred Stock of M&T ("Series H Preferred Stock") amounting to$261 million . Included in shareholders' equity was preferred stock with financial statement carrying values of$2.01 billion atSeptember 30, 2022 , compared with$1.75 billion at each ofSeptember 30, 2021 andDecember 31, 2021 . OnApril 1, 2022 , the Company closed the acquisition of People's United resulting in the issuance of 10,000,000 shares of Series H Preferred Stock, par value$1.00 per share and liquidation preference of$25.00 per share, valued at$261 million . ThroughDecember 14, 2026 , holders of the Series H Preferred Stock are entitled to receive, only when, as and if declared by M&T's Board of Directors, non-cumulative cash dividends at an annual rate of 5.625%, payable quarterly in arrears. Subsequent toDecember 14, 2026 , holders will be entitled to receive, only when, as and if declared by M&T's Board of Directors, non-cumulative cash dividends at an annual rate of the three-month LIBOR plus 402 basis points. The Series H preferred stock may be redeemed at M&T's option, in whole or in part, from time to time, on or afterApril 1, 2027 or, in whole but not in part, at any time within 90 days following a regulatory capital treatment event whereby the full liquidation value of the shares no longer qualifies as "additional Tier 1 capital". The Series H Preferred Stock is listed on the NYSE under the symbol MTPrH. Common shareholders' equity was$23.2 billion , or$134.45 per share, atSeptember 30, 2022 , compared with$15.8 billion , or$122.60 per share, a year earlier and$16.2 billion , or$125.51 per share, atDecember 31, 2021 . Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was$84.28 at the end of the recent quarter, compared with$86.88 atSeptember 30, 2021 and$89.80 atDecember 31, 2021 . The Company's ratio of tangible common equity to tangible assets was 7.70% atSeptember 30, 2022 , compared with 7.59% a year earlier and 7.68% atDecember 31, 2021 . Reconciliations of total common shareholders' equity and tangible common equity and total assets and tangible assets as of each of those dates are presented in table 2. Shareholders' equity reflects accumulated other comprehensive income or loss, which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale, remaining unrealized losses on held-to-maturity securities transferred from available for sale that have not yet been amortized, gains or losses associated with interest rate swap agreements designated as cash flow hedges, foreign currency translation adjustments and adjustments to reflect the funded status of defined benefit pension and other postretirement plans. Net unrealized losses on investment securities reflected in shareholders' equity, net of applicable tax effect, were$348 million or$2.01 per common share, atSeptember 30, 2022 compared with net unrealized gains of$105 million , or$.81 per common share, atSeptember 30, 2021 and$78 million , or$.60 per common share, atDecember 31, 2021 . Changes in unrealized gains and losses on investment securities are predominantly reflective of the impact of changes in interest rates on the values of such securities. Information about unrealized gains and losses as ofSeptember 30, 2022 andDecember 31, 2021 is included in note 3 of Notes to Financial Statements. Reflected in the carrying amount of available-for-sale investment securities atSeptember 30, 2022 were pre-tax effect unrealized gains of$1 million on securities with an amortized cost of$261 million and pre-tax effect unrealized losses of$471 million on securities with an amortized cost of$11.1 billion . Information concerning the Company's fair valuations of investment securities is provided in notes 3 and 13 of Notes to Financial Statements. - 77 - -------------------------------------------------------------------------------- Each reporting period the Company reviews its available-for-sale investment securities for declines in value that might be indicative of credit-related losses through an analysis of the creditworthiness of the issuer or the credit performance of the underlying collateral supporting the bond. If the Company does not expect to recover the entire amortized cost basis of a debt security a credit loss is recognized in the consolidated statement of income. A loss is also recognized if the Company intends to sell a bond or it more likely than not will be required to sell a bond before recovery of the amortized cost basis. As ofSeptember 30, 2022 , based on a review of each of the securities in the available-for-sale investment securities portfolio, the Company concluded that it expected to realize the amortized cost basis of each security. As ofSeptember 30, 2022 , the Company did not intend to sell nor is it anticipated that it would be required to sell any securities for which fair value was less than the amortized cost basis of the security. The Company intends to continue to closely monitor the performance of its securities because changes in their underlying credit performance or other events could cause the amortized cost basis of those securities to become uncollectable. Accounting guidance requires investment securities held to maturity to be presented at their net carrying value that is expected to be collected over their contractual term. The Company estimated no material credit losses for its investment securities classified as held-to-maturity atSeptember 30, 2022 andDecember 31, 2021 . The amortized cost basis of obligations of states and political subdivisions in the held-to-maturity portfolio totaled$2.7 billion atSeptember 30, 2022 and less than$1 million atDecember 31, 2021 . The increase reflected municipal securities obtained in the acquisition of People's United. AtSeptember 30, 2022 andDecember 31, 2021 , the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of$52 million and$62 million , respectively, and a fair value of$53 million and$57 million , respectively. AtSeptember 30, 2022 , 83% of those mortgage-backed securities were in the most senior tranche of the securitization structure. The mortgage-backed securities are generally collateralized by residential and small-balance commercial real estate loans originated between 2004 and 2008. After considering the repayment structure and estimated future collateral cash flows of each individual bond, the Company concluded that as ofSeptember 30, 2022 , it expected to recover the amortized cost basis of those privately issued mortgage-backed securities. Nevertheless, it is possible that adverse changes in the estimated future performance of mortgage loan collateral underlying such securities could impact the Company's conclusions. Adjustments to reflect the funded status of defined benefit pension and other postretirement plans, net of applicable tax effect, reduced accumulated other comprehensive income by$258 million , or$1.49 per common share, atSeptember 30, 2022 ,$436 million or$3.38 per common share, atSeptember 30, 2021 and$267 million or$2.08 per common share, atDecember 31, 2021 . InJanuary 2021 M&T's Board of Directors authorized a plan to repurchase up to$800 million of shares of M&T's common stock subject to all applicable regulatory limitations. InFebruary 2022 , the Board reaffirmed that plan. M&T repurchased 3,505,946 shares of its common stock for$600 million in the second quarter of 2022. There were no repurchases pursuant to that repurchase plan during 2021. OnJuly 19, 2022 , M&T's Board of Directors authorized a new stock purchase program to repurchase up to$3.0 billion of common shares subject to all applicable regulatory reporting limitations. The new plan authorized inJuly 2022 replaced the previous plan. M&T repurchased 3,282,449 shares of its common stock for$600 million under the new program in the third quarter of 2022. Cash dividends declared on M&T's common stock totaled$210 million in the recent quarter, compared with$143 million and$215 million in the quarters endedSeptember 30, 2021 andJune 30, 2022 , respectively. During the fourth quarter of 2021, M&T's Board of Directors authorized an increase in the quarterly common stock dividend to$1.20 per common share from the previous rate of$1.10 per common share. Common stock cash dividends declared during the nine-month periods endedSeptember 30, 2022 and 2021 were$581 million and$428 million , respectively. Cash dividends declared on preferred stock aggregated$25 million in both the recent quarter and second quarter of 2022 compared with$17 million in the third quarter of 2021. Preferred stock dividends totaled$72 million and$51 million during the first nine months of 2022 and 2021, respectively.
M&T and its subsidiary banks are required to comply with applicable capital adequacy standards established by the federal banking agencies. Pursuant to those regulations, the minimum capital ratios are as follows:
•
4.5% Common Equity Tier 1 ("CET1") to risk-weighted assets (each as defined in the capital regulations);
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6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets (each as defined in the capital regulations);
•
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets (each as defined in the capital regulations); and
•
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the "leverage ratio"), as defined in the capital regulations. Capital regulations require buffers in addition to the minimum risk-based capital ratios noted above. M&T is subject to a stress capital buffer requirement that is determined through theFederal Reserve's supervisory stress tests and M&T's bank subsidiaries are subject to a capital conservation buffer requirement. The buffer requirement must be composed entirely of CET1 and for each entity was 2.5% of risk-weighted assets atSeptember 30, 2022 . InJune 2022 , theFederal Reserve released the results of its most recent supervisory stress tests. Based on those results, onOctober 1, 2022 , M&T's stress capital buffer of 4.7% became effective. The federal bank regulatory agencies have issued rules that allow banks and bank holding companies to phase-in the impact of adopting the expected credit loss accounting model on regulatory capital. Those rules allow banks and bank holding companies to delay for two years the day one impact on retained earnings of adopting the expected loss accounting standard and 25% of the cumulative change in the reported allowance for credit losses subsequent to the initial adoption through the end of 2021, followed by a three-year transition period. M&T and its subsidiary banks adopted these rules and the impact is reflected in the regulatory capital ratios presented herein.
The regulatory capital ratios of the Company and its bank subsidiaries,
REGULATORY CAPITAL RATIOSSeptember 30, 2022 M&T M&T Wilmington (Consolidated) Bank Trust, N.A. Common equity Tier 1 10.75 % 11.37 % 257.25 % Tier 1 capital 12.13 % 11.37 % 257.25 % Total capital 13.96 % 12.87 % 257.76 % Tier 1 leverage 9.13 % 8.56 % 83.96 % The Company is subject to the comprehensive regulatory framework applicable to bank and financial holding companies and their subsidiaries, which includes examinations by a number of regulators. Regulation of financial institutions such as M&T and its subsidiaries is intended primarily for the protection of depositors, theDeposit Insurance Fund of the FDIC and the banking and financial system as a whole, and generally is not intended for the protection of shareholders, investors or creditors other than insured depositors. Changes in laws, regulations and regulatory policies applicable to the Company's operations can increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive environment in which the Company operates, all of which could have a material effect on the business, financial condition or results of operations of the Company and in M&T's ability to pay dividends. For additional information concerning this comprehensive regulatory framework, refer to Part I, Item 1 of M&T's Form 10-K for the year endedDecember 31, 2021 .
Segment Information
The Company's reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Financial information about the Company's segments is presented in note 15 of Notes to Financial Statements. The reportable segments are Business Banking, Commercial Banking,Commercial Real Estate , Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.
The Business Banking segment contributed net income of
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quarter, the recent quarter's higher net income primarily reflected a rise in
net interest income of $54 million and higher service charges on deposit
accounts of $5 million partially offset by a $20 million increase in
centrally-allocated costs associated with data processing, risk management and
other support services provided to the Business Banking segment and higher
personnel-related costs of $6 million (each reflecting the impact of the
People's United acquisition). The increase in net interest income resulted
largely from a widening of the net interest margin on deposits of 126 basis
points and higher average deposit balances of $7.1 billion , which was offset, in
part, by a narrowing of the net interest margin on loans. The growth in net
income in the recent quarter as compared with the second quarter of 2022
reflected a $40 million increase in net interest income, resulting largely from
an 80 basis point widening of the net interest margin on deposits. Partially
offsetting that increase in net interest income was a $7 million rise in
centrally-allocated costs associated with data processing, risk management and
other support services provided to the Business Banking segment. Net income for
the Business Banking segment totaled $206 million during the first nine months
of 2022, compared with $160 million in the corresponding 2021 period. The 29%
year-over-year increase reflected a six-month impact of the People's United
acquisition and was predominantly attributable to higher net interest income of
$82 million , an increase in service charges on deposit accounts of $14 million
and higher merchant discount and credit card fees of $8 million , partially
offset by a rise in centrally-allocated costs associated with data processing,
risk management and other support services provided to the Business Banking
segment of $32 million and higher personnel-related costs of $6 million . The
higher net interest income reflected a widening of the net interest margin on
deposits of 59 basis points and higher average balances of deposits of $5.5
billion , partially offset by a narrowing of the net interest margin on loans of
67 basis points.
Net income earned by the Commercial Banking segment totaled $214 million during
the recent quarter, up from $144 million in the year-earlier quarter and $163
million in the second quarter of 2022. As compared with the third quarter of
2021, the recent quarter included a $178 million increase in net interest income
reflecting a 140 basis point widening of the net interest margin on deposits and
an increase in average outstanding loan and deposit balances of $18.8 billion
and $3.2 billion , respectively, and higher credit-related fees each reflecting
the impact of the People's United acquisition. Partially offsetting that higher
net interest income was a $58 million increase in centrally-allocated costs
associated with data processing, risk management and other support services
provided to the Commercial Banking segment, higher personnel-related costs of
$28 million and a $27 million increase in the provision for credit losses. The
31% rise in net income in the recent quarter as compared with the second quarter
of 2022 was primarily due to a $57 million increase in net interest income,
driven by a 94 basis point widening of the net interest margin on deposits and
higher credit-related fees of $13 million . Through the first nine months of the
year, net income for the Commercial Banking segment totaled $522 million in
2022, compared with $378 million in the corresponding 2021 period. That rise in
net income was predominantly due to an increase in net interest income of $305
million , reflecting a widening of the net interest margin on deposits of 98
basis points and higher average outstanding balances in loans of $11.1 billion
(including the six-month impact of the People's United acquisition), an increase
of $35 million in letter of credit and other credit-related fees, and higher
deposit service charges. Those favorable factors were offset, in part, by
increases in centrally-allocated costs associated with data processing, risk
management and other support services provided to the Commercial Banking
segment, personnel-related expenses and other costs of operations (all largely
reflecting the six-month impact of the People's United acquisition).
The Commercial Real Estate segment recorded net income of $95 million in the
third quarter of 2022, compared with $85 million in the similar 2021 period and
$122 million in the second quarter of 2022. The higher net income as compared
with the year-earlier quarter reflected an $18 million increase in net interest
income, a $19 million decrease in the provision for credit losses and a $6
million decline in other costs of operations. The higher net interest income
predominantly resulted from a 129 basis point widening of the net interest
margin on deposits and higher loan balances of $5.1 billion , partially offset by
a reduction in the net interest margin on loans of 56 basis points. A decrease
in commercial mortgage banking revenues and a rise in centrally-allocated costs
associated with data processing, risk management and other support services
provided to the Commercial Real Estate segment largely offset those favorable
factors. The decline in commercial mortgage banking revenues reflects reduced
origination volume and lower servicing revenues. The $27 million decrease in the
recent quarter's net income as compared with the immediately preceding quarter
was largely the result of a $9 million increase in each of centrally-allocated
costs associated with data processing, risk management and other support
services provided to the Commercial Real Estate segment and the
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provision for credit losses, and a decline in commercial mortgage banking
revenues mainly resulting from lower servicing revenues. Net income for the
Commercial Real Estate segment was $314 million during the nine-month period
ended September 30, 2022 , up 30% from $243 million in the corresponding 2021
period. That rise reflects a $72 million decrease in the provision for credit
losses and higher revenues of $46 million that includes an increase in net
interest income of $45 million . Higher credit-related and other fees were offset
by a decline in commercial mortgage banking revenues. The impact of those
overall improvements was reduced by higher centrally-allocated costs associated
with data processing, risk management and other support services provided to the
Commercial Real Estate segment. The increase in net interest income reflected a
widening of the net interest margin on deposits of 56 basis points and higher
average outstanding balances of loans and deposits of $2.7 billion and $2.0
billion , respectively, partially offset by a narrowing of the net interest
margin on loans of 24 basis points.
Net income recorded by the Discretionary Portfolio segment aggregated $12
million during the three-month period ended September 30, 2022 , compared with
$75 million in the year-earlier period and $56 million earned in the second
quarter of 2022. The decline in the recent quarter's net income as compared with
the third quarter of 2021 was due primarily to a $63 million decrease in net
interest income. The lower net interest income was mainly driven by a decline in
average outstanding deposit balances of $4.0 billion and reduced income from
interest rate swap agreements entered into for interest rate risk management
purposes, partially offset by an increase in average balances of investment
securities and loans of $17.8 billion and $7.9 billion , respectively, reflecting
balances obtained in the acquisition of People's United and the purchase of
investment securities during 2022. The lower net income in the recent quarter as
compared with the 2022's second quarter reflected decreases in net interest
income of $57 million . The decline in net interest income was primarily due to
reduced income from interest rate swap agreements entered into for interest rate
risk management purposes. Net income for this segment for the first nine months
totaled $103 million in 2022 and $244 million in 2021. The decline in net income
can be attributed to lower net interest income due to reduced income from
interest rate swap agreements entered into for interest rate risk management
purposes. Intersegment fees paid to the Residential Mortgage Banking segment
during the first nine months of 2022 increased $40 million . Partially offsetting
those unfavorable factors was a $22 million reduction of valuation losses on
investment securities as compared with the corresponding 2021 period.
The Residential Mortgage Banking segment recorded a net loss of $3 million in
the recent quarter, compared with net income of $46 million in the third quarter
of 2021 and $9 million in the second quarter of 2022. The decline in the recent
quarter from the third quarter of 2021 predominantly resulted from a $38 million
decrease in revenues (including intersegment revenues) associated with lower
mortgage origination and sales activities, lower net interest income and a rise
in centrally-allocated costs associated with data processing, risk management
and other support services provided to the Residential Mortgage Banking segment.
As compared with the net income in the second quarter of 2022, the net loss in
the recent quarter reflected lower mortgage banking revenues of $13 million ,
predominantly associated with servicing residential real estate loans (including
intersegment revenues) and a decline in net interest income of $11 million ,
partially offset by higher revenues of $7 million (including intersegment
revenues) associated with mortgage origination and sales activities. The
Residential Mortgage Banking segment earned $35 million in the first nine months
of 2022, compared with $126 million in the similar period of 2021. The decline
compared with the corresponding 2021 period was largely due to a decrease in
revenues of $95 million (including intersegment revenues) resulting from lower
mortgage origination and sales activities, lower net interest income of $31
million and a $19 million rise in centrally-allocated costs associated with data
processing, risk management and other support services provided to the
Residential Mortgage Banking segment, partially offset by an increase of $20
million in revenues associated with servicing residential real estate loans
(including intersegment revenues). The decline in net interest income was driven
by a decline in average outstanding balances in loans and deposits of $1.7
billion and $1.4 billion , respectively.
Net income for the Retail Banking segment totaled $182 million in the third
quarter of 2022, compared with $88 million in the corresponding quarter of 2021
and $114 million in the second quarter of 2022. The rise in net income in the
recent quarter as compared with the year-earlier quarter reflected a $291
million increase in net interest income, largely driven by a widening of the net
interest margin earned on deposits of 119 basis points and higher average
outstanding deposit and loan balances of $24.4 billion and $2.2 billion ,
respectively (reflecting the impact of the People's United acquisition). Those
favorable factors were partially offset by higher expenses, also reflecting the
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impact of the People's United acquisition, including higher personnel-related
costs of $73 million , a rise in centrally-allocated expenses associated with
support services provided to the Retail Banking segment of $32 million , an
increase in equipment and net occupancy costs of $28 million , higher other costs
of operations of $21 million and an increase in the provision for credit losses
of $7 million . The 59% improvement in net income in the current quarter as
compared with the second quarter of 2022 reflected an increase in net interest
income of $137 million , which was offset, in part, by lower service charges on
deposit accounts of $5 million , higher personnel-related costs of $20 million
and increases in other operating expenses of $26 million . The increase in net
interest income reflected a widening of the net interest margin on deposits of
81 basis points, partially offset by lower average deposit balances of $2.0
billion . The Retail Banking segment recorded net income of $380 million and $263
million in the first nine months of 2022 and 2021, respectively. The improvement
from the 2021 period reflected higher net interest income of $449 million and
higher consumer service charges on deposit accounts of $16 million . Those
favorable factors were partially offset by higher personnel-related costs of
$122 million , a rise in centrally-allocated expenses associated with support
services provided to the Retail Banking segment of $104 million , an increase in
equipment and net occupancy costs of $49 million , higher professional services
expense of $20 million , and an increase in the provision for credit losses of $6
million (all reflecting a six-month impact of the People's United acquisition).
The increase in net interest income reflected a 54 basis point widening of the
net interest margin on deposits and higher average outstanding deposit and loan
balances of $18.2 billion and $2.1 billion , respectively, partially offset by a
25 basis point narrowing of the net interest margin on loans.
The "All Other" category reflects other activities of the Company that are not
directly attributable to the reported segments. Reflected in this category are
the amortization of core deposit and other intangible assets resulting from the
acquisitions of financial institutions, distributed income from BLG,
merger-related expenses resulting from acquisitions (when incurred) and the net
impact of the Company's allocation methodologies for internal transfers for
funding charges and credits associated with the earning assets and
interest-bearing liabilities of the Company's reportable segments and the
provision for credit losses. The "All Other" category also includes trust income
of the Company that reflects the ICS and WAS business activities. The various
components of the "All Other" category reported net income totaling $53 million
for the quarter ended September 30, 2022 as compared with net losses of $14
million and $317 million in the year-earlier quarter and second quarter of 2022,
respectively. The "All Other" category had net losses of $333 million and $12
million for the nine-month periods ended September 30, 2022 and 2021,
respectively. As compared with the respective 2021 periods the recent quarter
and first nine months of 2022 each reflected higher net interest income and
trust income, as well as the favorable impact from the Company's allocation
methodologies for internal transfers for funding charges and credits associated
with earning assets and interest-bearing liabilities of the Company's reportable
segments. Those favorable factors were offset by increases in the provision for
credit losses and expenses resulting from the acquisition of People's United
(inclusive of merger-related expenses). The net loss recorded in the second
quarter of 2022 reflected an increased provision for credit losses and
merger-related expenses associated with the acquisition of People's United.
Recent Accounting Developments
A discussion of recent accounting developments is included in note 17 of Notes to Financial Statements.
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Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the rules and regulations of theSEC . Any statement that does not describe historical or current facts is a forward-looking statement, including statements based on current expectations, estimates and projections about the Company's business, and management's beliefs and assumptions. Statements regarding the potential effects of events or factors specific to the Company and/or the financial industry as a whole, as well as national and global events generally, on the Company's business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Company's control. As described further below, statements regarding M&T's expectations or predictions regarding the acquisition of People's United are also forward-looking statements, including statements regarding the expected financial results, prospects, targets, goals and outlook. Forward-looking statements are typically identified by words such as "believe," "expect," "anticipate," "intend," "target," "estimate," "continue," or "potential," by future conditional verbs such as "will," "would," "should," "could," or "may," or by variations of such words or by similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("future factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Examples of future factors include: the impact of the People's United transaction (as described in the next paragraph); economic conditions including inflation and supply chain issues; the impact of international conflicts and other events; the impact of the COVID-19 pandemic; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; the impact of changes in market values on trust-related revenues; legislation and/or regulations affecting the financial services industry and/or M&T and its subsidiaries individually or collectively, including tax policy; regulatory supervision and oversight, including monetary policy and capital requirements; governmental and public policy changes; the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters; changes in accounting policies or procedures as may be required by theFinancial Accounting Standards Board , regulatory agencies or legislation; increasing price, product and service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products and services; containing costs and expenses; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; continued availability of financing; financial resources in the amounts, at the times and on the terms required to support M&T and its subsidiaries' future businesses; and material differences in the actual financial results of merger, acquisition and investment activities compared with M&T's initial expectations, including the full realization of anticipated cost savings and revenue enhancements. In addition, future factors related to the acquisition of People's United include, among others: the outcome of any legal proceedings that may be instituted against M&T or its subsidiaries; the possibility that the anticipated benefits of the transaction will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company does business; diversion of management's attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships; the Company's success in executing its business plans and strategies and managing the risks involved in the foregoing; the business, economic and political conditions in the markets in which the Company operates; and other factors that may affect future results of the Company. - 83 - -------------------------------------------------------------------------------- Future factors related to the acquisition also include risks, such as, among others: that there could be an adverse effect on the Company's ability to retain customers and retain or hire key personnel and maintain relationships with customers; that integration efforts may be more difficult or time-consuming than anticipated, including in areas such as sales force, cost containment, asset realization, systems integration and other key strategies; that profitability following the combination may be lower than expected including for possible reasons such as lower than expected revenues or higher or unexpected costs, charges or expenses resulting from the transaction; unforeseen risks that may exist; and other factors that may affect future results of the Company. These are representative of the future factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general economic and political conditions, either nationally or in the states in which M&T and its subsidiaries do business, including interest rate and currency exchange rate fluctuations, changes and trends in the securities markets, and other future factors. M&T provides further detail regarding these risks and uncertainties in its Form 10-K for the year endedDecember 31, 2021 , including in the Risk Factors section of such report, as well as in otherSEC filings. Forward-looking statements speak only as of the date made, and M&T does not assume any duty and does not undertake to update forward-looking statements. - 84 - -------------------------------------------------------------------------------- M&T BANK CORPORATION AND SUBSIDIARIES Table 1 QUARTERLY TRENDS 2022 Quarters 2021 Quarters Third Second First Fourth Third Second First Earnings and dividends Amounts in thousands, except per share Interest income (taxable-equivalent basis)$ 1,793,340 $ 1,475,868 931,490 962,081 996,649 974,090 1,020,695 Interest expense 102,822 53,425 24,082 24,725 25,696 28,018 35,567 Net interest income 1,690,518 1,422,443
907,408 937,356 970,953 946,072 985,128 Less: provision for credit losses
115,000 302,000 10,000 (15,000 ) (20,000 ) (15,000 ) (25,000 )
Other income 563,079 571,100 540,887 578,637 569,126 513,633 505,598
Less: other expense 1,279,253 1,403,154 959,741 927,500 899,334 865,345 919,444
Income before income taxes 859,344 288,389 478,554 603,493 660,745 609,360 596,282
Applicable income taxes 200,921 60,141 113,146 141,962 161,582 147,559 145,300 Taxable-equivalent adjustment
11,827 10,726 3,234 3,563 3,703 3,732 3,733
Net income $ 646,596 $ 217,522 362,174 457,968 495,460 458,069 447,249
Net income available to common
shareholders-diluted $ 620,554 $ 192,236 339,590 434,171 475,961 438,759 428,093
Per common share data
Basic earnings $ 3.55 $ 1.08 2.63 3.37 3.70 3.41 3.33
Diluted earnings 3.53 1.08 2.62 3.37 3.69 3.41 3.33
Cash dividends $ 1.20 $ 1.20 1.20 1.20 1.10 1.10 1.10
Average common shares outstanding
Basic 174,609 177,367 128,945 128,698 128,689 128,671 128,537 Diluted
175,682 178,277 129,416 128,888 128,844 128,842 128,669
Performance ratios, annualized
Return on
Average assets 1.28 % .42 % .97 % 1.15 % 1.28 % 1.22 % 1.22 % Average common shareholders' equity
10.43 % 3.21 % 8.55 % 10.91 % 12.16 % 11.55 % 11.57 % Net interest margin on average earning assets
(taxable-equivalent basis) 3.68 % 3.01 %
2.65 % 2.58 % 2.74 % 2.77 % 2.97 % Nonaccrual loans to total loans and leases, net of
unearned discount 1.89 % 2.05 %
2.32 % 2.22 % 2.40 % 2.31 % 1.97 %
Net operating (tangible) results (a)
Net operating income (in thousands)
375,999 475,477 504,030 462,959 457,372
Diluted net operating income per common
share $ 3.83 $ 3.10 2.73 3.50 3.76 3.45 3.41
Annualized return on
Average tangible assets 1.44 % 1.16 % 1.04 % 1.23 % 1.34 % 1.27 % 1.29 %
Average tangible common shareholders'
equity 17.89 % 14.41 % 12.44 % 15.98 % 17.54 % 16.68 % 17.05 %
Efficiency ratio (b) 53.6 % 58.3 % 64.9 % 59.7 % 57.7 % 58.4 % 60.3 %
Balance sheet data
In millions, except per share
Average balances
Total assets (c) $ 201,131 $ 208,865 151,648 157,722 154,037 150,641 148,157
Total tangible assets (c) 192,450 200,170 147,053 153,125 149,439 146,041 143,554
Earning assets 182,382 189,755 138,624 144,420 140,420 136,951 134,355
Investment securities 23,945 22,384 7,724 6,804 6,019 6,211 6,605
Loans and leases, net of unearned
discount 127,525 127,599 92,159 93,250 95,314 98,610 99,356 Deposits
167,271 174,683 128,055 134,444 131,255 128,413 125,733 Common shareholders' equity (c)
23,654 24,079 16,144 15,863 15,614 15,321 15,077 Tangible common shareholders' equity (c) 14,973 15,384
11,549 11,266 11,016 10,721 10,474 At end of quarter Total assets (c)$ 197,955 $ 204,033 149,864 155,107 151,901 150,623 150,481 Total tangible assets (c) 189,281 195,344 145,269 150,511 147,304 146,023 145,879 Earning assets 178,351 185,109 137,237 141,990 138,527 137,171 137,367 Investment securities 24,604 22,802 9,357 7,156 6,448 6,143 6,611 Loans and leases, net of unearned discount 128,226 128,486
91,808 92,912 93,583 97,113 99,299 Deposits
163,845 170,358 126,319 131,543 128,701 128,269 128,476 Common shareholders' equity (c)
23,245 23,784 16,126 16,153 15,779 15,470 15,197 Tangible common shareholders' equity (c) 14,571 15,095
11,531 11,557 11,182 10,870 10,595 Equity per common share
134.45 135.16 124.93 125.51 122.60 120.22 118.12 Tangible equity per common share
84.28 85.78 89.33 89.80 86.88 84.47 82.35
(a)
Excludes amortization and balances related to goodwill and core deposit and
other intangible assets and merger-related expenses which, except in the
calculation of the efficiency ratio, are net of applicable income tax effects. A
reconciliation of net income and net operating income appears in Table 2.
(b)
Excludes impact of merger-related expenses and net securities transactions.
(c)
The difference between total assets and total tangible assets, and common
shareholders' equity and tangible common shareholders' equity, represents
goodwill, core deposit and other intangible assets, net of applicable deferred
tax balances. A reconciliation of such balances appears in Table 2.
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--------------------------------------------------------------------------------M&T BANK CORPORATION AND SUBSIDIARIES
Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
2022 Quarters 2021 Quarters
Third Second First Fourth Third Second First
Income statement data (in thousands,
except per share) Net income Net income 646,596$ 217,522 362,174
457,968 495,460 458,069 447,249 Amortization of core deposit and other
intangible assets (a) 14,141 14,138 933 1,447 2,028 2,023 2,034
Merger-related expenses (a) 39,293 345,962 12,892
16,062 6,542 2,867 8,089
Net operating income 700,030 $ 577,622 375,999 475,477 504,030 462,959 457,372
Earnings per common share
Diluted earnings per common
share 3.53 $ 1.08 2.62 3.37 3.69 3.41 3.33
Amortization of core deposit
and other
intangible assets (a) .08 .08 .01 .01 .02 .02 .02
Merger-related expenses (a) .22 1.94 .10 .12 .05 .02 .06
Diluted net operating
earnings per
common share 3.83 $ 3.10 2.73 3.50 3.76 3.45 3.41
Other expense
Other expense 1,279,253 $ 1,403,154 959,741 927,500 899,334 865,345 919,444
Amortization of core deposit
and other
intangible assets (18,384 ) (18,384 ) (1,256 ) (1,954 ) (2,738 ) (2,737 ) (2,738 )
Merger-related expenses (53,027 ) (222,809 ) (17,372 ) (21,190 ) (8,826 ) (3,893 ) (9,951 )
Noninterest operating
expense 1,207,842 $ 1,161,961 941,113 904,356 887,770 858,715 906,755
Merger-related expenses
Salaries and employee
benefits 13,094 $ 85,299 87 112 60 4 -
Equipment and net occupancy 2,106 502 1,807 340 1 - -
Outside data processing and
software 2,277 716 252 250 625 244 -
Advertising and marketing 2,177 1,199 628 337 505 24 -
Printing, postage and
supplies 651 2,460 722 186 730 2,049 -
Other costs of operations 32,722 132,633 13,876 19,965 6,905 1,572 9,951
Other expense 53,027 222,809 17,372 21,190 8,826 3,893 9,951
Provision for credit losses - 242,000 - - - - -
Total 53,027 $ 464,809 $ 17,372 $ 21,190 $ 8,826 $ 3,893 $ 9,951
Efficiency ratio
Noninterest operating
expense (numerator) 1,207,842 $ 1,161,961 941,113 904,356 887,770 858,715 906,755 Taxable-equivalent net interest income
1,690,518 $ 1,422,443 907,408 937,356 970,953 946,072 985,128 Other income
563,079 571,100 540,887 578,637 569,126 513,633 505,598
Less: Gain (loss) on bank
investment
securities (1,108 ) (62 ) (743 ) 1,426 291 (10,655 ) (12,282 )
Denominator 2,254,705 $ 1,993,605 1,449,038 1,514,567 1,539,788 1,470,360 1,503,008
Efficiency ratio 53.6 % 58.3 % 64.9 % 59.7 % 57.7 % 58.4 % 60.3 %
Balance sheet data (in
millions)
Average assets
Average assets 201,131 $ 208,865 151,648 157,722 154,037 150,641 148,157
Goodwill (8,501 ) (8,501 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (236 ) (254 ) (3 ) (5 ) (7 ) (10 ) (13 )
Deferred taxes 56 60 1 1 2 3 3
Average tangible assets 192,450 $ 200,170 147,053 153,125 149,439 146,041 143,554 Average common equity Average total equity
25,665 $ 26,090 17,894 17,613 17,109 16,571 16,327 Preferred stock
(2,011 ) (2,011 ) (1,750 ) (1,750 ) (1,495 ) (1,250 ) (1,250 ) Average common equity
23,654 24,079 16,144
15,863 15,614 15,321 15,077
(8,501 ) (8,501 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (236 ) (254 ) (3 ) (5 ) (7 ) (10 ) (13 )
Deferred taxes 56 60 1 1 2 3 3
Average tangible common
equity 14,973 $ 15,384 11,549 11,266 11,016 10,721 10,474
At end of quarter
Total assets
Total assets 197,955 $ 204,033 149,864 155,107 151,901 150,623 150,481
Goodwill (8,501 ) (8,501 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (227 ) (245 ) (3 ) (4 ) (6 ) (9 ) (12 )
Deferred taxes 54 57 1 1 2 2 3
Total tangible assets 189,281 $ 195,344 145,269
150,511 147,304 146,023 145,879
Total common equity
Total equity 25,256 $ 25,795 17,876 17,903 17,529 16,720 16,447
Preferred stock (2,011 ) (2,011 ) (1,750 ) (1,750 ) (1,750 ) (1,250 ) (1,250 )
Common equity 23,245 23,784 16,126 16,153 15,779 15,470 15,197
Goodwill (8,501 ) (8,501 ) (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (227 ) (245 ) (3 ) (4 ) (6 ) (9 ) (12 )
Deferred taxes 54 57 1 1 2 2 3
Total tangible common equity 14,571
11,557 11,182 10,870 10,595
(a)After any related tax effect.
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M&T BANK CORPORATION AND SUBSIDIARIESTable 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
2022 Third Quarter 2022 Second Quarter 2022 First Quarter
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Average balance in millions;
interest in thousands
Assets
Earning assets
Loans and leases, net of unearned
discount (a)
Commercial, financial, etc. $ 38,321 $ 470,738 4.87 % $ 37,818 $ 373,543 3.96 % $ 23,305 $ 207,715 3.61 %
Real estate - commercial 46,282 531,225 4.49 47,227 461,594 3.87 34,957 337,100 3.86
Real estate - consumer 22,962 220,464 3.84 22,761 207,080 3.64 15,870 141,001 3.55
Consumer 19,960 239,471 4.76 19,793 210,290 4.26 18,027 188,017 4.23 Total loans and leases, net
127,525 1,461,898 4.55 127,599 1,252,507 3.94 92,159 873,833 3.85 Interest-bearing deposits at banks 30,752 172,956 2.23 39,386 80,773
.82 38,693 18,280 .19
Federal funds sold and agreements
to resell securities 29 41 .55 250 253 .41 - - .71 Trading account 131 583 1.78 136 199 .59 48 194 1.61 Investment securities (b) U.S. Treasury and federal agencies 20,227 124,084 2.43 18,644 109,755 2.36 7,077 35,911 2.06 Obligations of states and political subdivisions 2,688 23,626 3.49 2,768 23,344 3.38 - 3 6.99 Other 1,030 10,152 3.91 972 9,037 3.73 647 3,269 2.05 Total investment securities 23,945 157,862 2.62 22,384 142,136 2.55 7,724 39,183 2.06 Total earning assets 182,382 1,793,340 3.90 189,755 1,475,868 3.12 138,624 931,490 2.72 Allowance for credit losses (1,822 ) (1,814 ) (1,475 ) Cash and due from banks 1,962 1,690 1,448 Other assets 18,609 19,234 13,051 Total assets$ 201,131 $ 208,865 $ 151,648 Liabilities and shareholders' equity Interest-bearing liabilities Interest-bearing deposits Savings and interest-checking deposits$ 89,360 $ 68,690 .31$ 95,149 $ 27,907 .12$ 67,267 $ 6,747 .04 Time deposits 5,050 1,124 .09 5,480 1,227 .09 2,647 1,397
.21
Total interest-bearing deposits 94,410 69,814 .29 100,629 29,134 .12 69,914 8,144 .05 Short-term borrowings 913 2,670 1.16 1,126 3,419 1.22 56 1 .01 Long-term borrowings 3,281 30,338
3.67 3,282 20,872 2.55 3,442 15,937 1.88 Total interest-bearing liabilities 98,604 102,822 .41 105,037 53,425
.20 73,412 24,082 .13
Noninterest-bearing deposits 72,861 74,054 58,141
Other liabilities 4,001 3,684 2,201
Total liabilities 175,466 182,775 133,754
Shareholders' equity 25,665 26,090 17,894
Total liabilities and
shareholders' equity $ 201,131 $ 208,865 $ 151,648
Net interest spread 3.49 2.92 2.59
Contribution of interest-free
funds .19 .09 .06
Net interest income/margin on
earning assets $ 1,690,518 3.68 %$ 1,422,443 3.01 %$ 907,408 2.65 % (a) Includes nonaccrual loans. (b) Includes available-for-sale securities at amortized cost.
(continued)
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M&T BANK CORPORATION AND SUBSIDIARIES
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
2021 Fourth Quarter 2021 Third Quarter
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Average balance in millions;
interest in thousands
Assets
Earning assets
Loans and leases, net of
unearned
discount (a)
Commercial, financial,
etc. $ 22,330 $ 205,491 3.65 % $ 23,730 $ 236,820 3.96 %
Real estate - commercial 36,717 364,795 3.89 37,547 371,150 3.87
Real estate - consumer 16,290 143,675 3.53 16,379 146,898 3.59
Consumer 17,913 194,619 4.31 17,658 193,256 4.34
Total loans and leases,
net 93,250 908,580 3.87 95,314 948,124 3.95
Interest-bearing
deposits at banks 44,316 16,984 .15 39,036 14,922 .15
Federal funds sold and
agreements
to resell securities - - .47 - - -
Trading account 50 202 1.62 51 345 2.71
Investment securities
(b)
U.S. Treasury and
federal agencies 6,150 32,516 2.10 5,352 30,362 2.25
Obligations of states
and political
subdivisions - 3 6.82 - 3 6.44
Other 654 3,796 2.30 667 2,893 1.72
Total investment
securities 6,804 36,315 2.12 6,019 33,258 2.19
Total earning assets 144,420 962,081 2.64 140,420 996,649 2.82
Allowance for credit
losses (1,521 ) (1,577 )
Cash and due from banks 1,483 1,480
Other assets 13,340 13,714
Total assets $ 157,722 $ 154,037
Liabilities and
shareholders' equity
Interest-bearing
liabilities
Interest-bearing
deposits
Savings and
interest-checking
deposits $ 70,518 $ 6,443 .04 $ 70,976 $ 7,000 .04
Time deposits 2,914 2,968 .40 3,061 3,573 .46
Total interest-bearing
deposits 73,432 9,411 .05 74,037 10,573 .06
Short-term borrowings 58 - .01 91 2 .01
Long-term borrowings 3,441 15,314 1.77 3,431 15,121 1.75
Total interest-bearing
liabilities 76,931 24,725 .12 77,559 25,696 .14
Noninterest-bearing
deposits 61,012 57,218
Other liabilities 2,166 2,151
Total liabilities 140,109 136,928
Shareholders' equity 17,613 17,109
Total liabilities and
shareholders' equity $ 157,722 $ 154,037
Net interest spread 2.52 2.68
Contribution of
interest-free funds .06 .06
Net interest
income/margin on earning
assets $ 937,356 2.58 % $ 970,953 2.74 %
(a)
Includes nonaccrual loans.
(b)
Includes available-for-sale securities at amortized cost.
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