M&T(US:MTB)2023-11-06 21:00markdown Part I. Financial Information [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for M&T Bank Corporation as of September 30, 2023, and for the three and nine months then ended, including detailed notes on accounting policies and financial details [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | $209,124,316 | $200,729,841 | | Loans and leases, net | $130,302,558 | $129,638,832 | | **Total Deposits** | $164,127,807 | $163,514,868 | | **Total Liabilities** | $182,927,814 | $175,411,851 | | **Total Shareholders' Equity** | $26,196,502 | $25,317,990 | Consolidated Income Statement Highlights (Unaudited) | (In thousands, except per share) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $1,775,388 | $1,678,691 | $5,392,781 | $3,994,582 | | Provision for credit losses | $150,000 | $115,000 | $420,000 | $427,000 | | Total Other Income | $559,581 | $563,079 | $1,949,885 | $1,675,066 | | Total Other Expense | $1,277,538 | $1,279,253 | $3,929,327 | $3,642,148 | | **Net Income** | **$689,941** | **$646,596** | **$2,258,599** | **$1,226,292** | | **Diluted EPS** | **$3.98** | **$3.53** | **$13.05** | **$7.14** | [Notes to Financial Statements](index=9&type=section&id=Notes%20to%20Financial%20Statements) - On April 1, 2022, M&T completed the acquisition of People's United Financial, Inc. for a total purchase price of approximately **$8.4 billion**, issuing **50.3 million** common shares, which added **$3.9 billion** in goodwill[23](index=23&type=chunk)[24](index=24&type=chunk)[28](index=28&type=chunk) - The company completed the sale of its Collective Investment Trust (CIT) business on April 29, 2023, resulting in a pre-tax gain of **$225 million**, included in other revenues from operations[31](index=31&type=chunk) Allowance for Credit Losses Activity (Nine Months Ended Sep 30, 2023) | (In thousands) | Commercial, Financial, Leasing, etc. | Real Estate - Commercial | Real Estate - Residential | Consumer | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Beginning balance | $502,153 | $676,684 | $115,092 | $631,402 | $1,925,331 | | Provision for credit losses | $69,801 | $290,672 | ($955) | $60,482 | $420,000 | | Net charge-offs | ($34,256) | ($175,376) | $357 | ($83,929) | ($293,204) | | **Ending balance** | **$537,698** | **$791,980** | **$114,494** | **$607,955** | **$2,052,127** | - The FDIC has proposed a special assessment to recover costs from the Deposit Insurance Fund (DIF) related to the failures of Silicon Valley Bank and Signature Bank, with M&T's total estimated assessment of **$183 million** expected to be recorded as an expense in the quarter of enactment[130](index=130&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) M&T Bank's financial performance in Q3 2023 was shaped by the high interest rate environment, leading to increased net interest income year-over-year but a narrowing net interest margin compared to the prior quarter, with net income rising to **$690 million**, up **7%** from Q3 2022, driven by higher asset yields, though falling **20%** from Q2 2023 due to a **$225 million** gain on the sale of the CIT business in the prior quarter, while the provision for credit losses remained steady at **$150 million**, reflecting ongoing pressure on commercial real estate values, and the bank's capital position remains strong, with a CET1 ratio of **10.95%** [Summary of Financial Results](index=53&type=section&id=Summary%20of%20Financial%20Results) Q3 2023 Key Financial Performance | Metric | Q3 2023 | Q3 2022 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net Income | $690M | $647M | $867M | | Diluted EPS | $3.98 | $3.53 | $5.05 | | Net Interest Income (Taxable-equivalent) | $1.79B | $1.69B | $1.81B | | Net Interest Margin | 3.79% | 3.68% | 3.91% | | Provision for Credit Losses | $150M | $115M | $150M | | Return on Average Assets | 1.33% | 1.28% | 1.70% | - Net income for the first nine months of 2023 increased by **$1.03 billion** to **$2.26 billion** compared to the same period in 2022, primarily due to an additional quarter of operations from the People's United acquisition, higher asset yields, and a **$225 million** gain on the sale of the CIT business, partially offset by the absence of **$535 million** in merger-related expenses incurred in 2022[152](index=152&type=chunk) - The company did not repurchase any common stock in Q2 or Q3 2023, but in the first nine months of 2023, M&T repurchased **3.8 million** shares for **$600 million**, compared to **6.8 million** shares for **$1.2 billion** in the same period of 2022[153](index=153&type=chunk) [Taxable-equivalent Net Interest Income](index=55&type=section&id=Taxable-equivalent%20Net%20Interest%20Income) - Taxable-equivalent net interest income rose to **$1.79 billion** in Q3 2023 from **$1.69 billion** in Q3 2022, with the net interest margin (NIM) expanding **11 basis points** to **3.79%**, driven by higher yields on earning assets due to FOMC rate hikes[159](index=159&type=chunk) - Compared to Q2 2023, taxable-equivalent net interest income fell by **$23 million**, and the NIM narrowed by **12 basis points** from **3.91%**, caused by the rising cost of interest-bearing liabilities outpacing the increase in asset yields[159](index=159&type=chunk) Average Loan and Lease Balances - Q3 2023 | Loan Category (in millions) | Q3 2023 | % Change from Q3 2022 | % Change from Q2 2023 | | :--- | :--- | :--- | :--- | | Commercial, financial, etc. | $44,625 | 16% | 0% | | Real estate — commercial | $44,230 | -4% | -2% | | Real estate — consumer | $23,573 | 3% | -1% | | Consumer | $20,189 | 1% | 0% | | **Total** | **$132,617** | **4%** | **-1%** | - Average core deposits were **$147.3 billion** in Q3 2023, down **9%** from **$162.8 billion** in Q3 2022, as customers shifted funds to higher-rate alternatives, though they saw a slight increase from **$146.8 billion** in Q2 2023[173](index=173&type=chunk) [Provision for Credit Losses and Credit Quality](index=66&type=section&id=Provision%20for%20Credit%20Losses%20and%20Credit%20Quality) - The provision for credit losses was **$150 million** in Q3 2023, consistent with Q2 2023 but up from **$115 million** in Q3 2022, reflecting continued economic uncertainty and downward pressure on commercial real estate values, particularly in the healthcare and office sectors[210](index=210&type=chunk) Net Charge-Offs (NCOs) - Q3 2023 | Loan Category (in thousands) | Q3 2023 NCOs | Annualized NCO Rate | | :--- | :--- | :--- | | Commercial, financial, leasing, etc. | $19,868 | 0.18% | | Real estate - Commercial | $47,284 | 0.42% | | Real estate - Residential | $508 | 0.01% | | Consumer | $28,579 | 0.56% | | **Total** | **$96,239** | **0.29%** | Nonperforming Asset Trends | (In thousands) | Sep 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | | Nonaccrual loans | $2,341,938 | $2,435,581 | $2,438,435 | | **Total nonperforming assets** | **$2,379,035** | **$2,478,301** | **$2,479,810** | | Nonaccrual loans to total loans | 1.77% | 1.83% | 1.85% | - Criticized commercial and commercial real estate loans totaled **$11.1 billion** at September 30, 2023, with investor-owned commercial real estate loans comprising **$8.0 billion** (**72%**) of this total, showing notable pressure in the hotel, office, retail, multi-family, and healthcare sectors[232](index=232&type=chunk) [Other Income](index=75&type=section&id=Other%20Income) Other Income Components - Q3 2023 | (In thousands) | Q3 2023 | Q3 2022 | Q2 2023 | | :--- | :--- | :--- | :--- | | Mortgage banking revenues | $104,478 | $83,041 | $107,112 | | Service charges on deposit accounts | $121,360 | $115,213 | $118,697 | | Trust income | $155,092 | $186,577 | $172,463 | | Other revenues from operations | $142,519 | $153,189 | $362,015 | | **Total other income** | **$559,581** | **$563,079** | **$803,171** | - The significant decrease in 'Other revenues from operations' from Q2 2023 to Q3 2023 is primarily due to the **$225 million** gain on the sale of the CIT business recorded in the second quarter[267](index=267&type=chunk) - Trust income declined **17%** year-over-year and **10%** quarter-over-quarter, mainly due to the divestiture of the CIT business in April 2023, which resulted in a **$41 million** reduction in ICS trust income compared to Q3 2022[263](index=263&type=chunk) [Other Expense](index=79&type=section&id=Other%20Expense) Other Expense Components - Q3 2023 | (In thousands) | Q3 2023 | Q3 2022 | Q2 2023 | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $726,940 | $736,354 | $737,665 | | Equipment and net occupancy | $130,842 | $127,117 | $128,689 | | Outside data processing and software | $110,691 | $95,068 | $106,438 | | Other costs of operations | $227,893 | $238,059 | $234,338 | | **Total other expense** | **$1,277,538** | **$1,279,253** | **$1,292,559** | - Total other expense in Q3 2022 included **$53 million** in merger-related costs; excluding these nonoperating items, noninterest operating expenses increased from **$1.21 billion** in Q3 2022 to **$1.26 billion** in Q3 2023[266](index=266&type=chunk) - The efficiency ratio was **53.7%** in Q3 2023, compared to **53.6%** in Q3 2022 and **48.9%** in Q2 2023, with the lower ratio in Q2 2023 influenced by the gain on the CIT business sale[269](index=269&type=chunk) [Capital](index=81&type=section&id=Capital) Key Capital Ratios and Metrics | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | CET1 Capital Ratio | 10.95% | N/A | | Tier 1 Capital Ratio | 12.27% | N/A | | Total Capital Ratio | 13.99% | N/A | | Tier 1 Leverage Ratio | 9.43% | N/A | | Tangible Equity per Common Share | $93.99 | $86.59 | | Tangible Common Equity to Tangible Assets | 7.78% | 7.63% | - M&T's stress capital buffer requirement was **4.7%** at September 30, 2023, which was reduced to **4.0%** effective October 1, 2023, based on the Federal Reserve's latest stress test results[284](index=284&type=chunk) - The federal banking agencies issued a proposed rule on July 27, 2023, that would modify regulatory capital requirements for large banks, including M&T, and the company is currently evaluating its potential impact[287](index=287&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=92&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, arising from its core lending and deposit-taking activities, which M&T manages by modeling net interest income under various rate scenarios and using derivatives like interest rate swaps, with a **+100 basis point** parallel rate shift estimated to increase net interest income by **$64.0 million** over 12 months, while a **-100 basis point** shift is estimated to decrease it by **$100.4 million** as of September 30, 2023 Sensitivity of Net Interest Income to Interest Rate Changes | Changes in interest rates | Calculated Increase (Decrease) in Projected Net Interest Income (in thousands) | | :--- | :--- | | | **September 30, 2023** | | +200 basis points | $68,953 | | +100 basis points | $63,958 | | -100 basis points | ($100,361) | | -200 basis points | ($192,878) | - The company uses interest rate swaps to manage interest rate risk, with a notional amount of **$16.6 billion** in effect for risk management and an additional **$9.4 billion** in forward-starting swaps as of September 30, 2023[200](index=200&type=chunk) [Controls and Procedures](index=92&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO concluded that M&T's disclosure controls and procedures were effective as of the end of the period covered by this report (September 30, 2023)[318](index=318&type=chunk) - There were no changes in the company's internal control over financial reporting during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls[319](index=319&type=chunk) Part II. Other Information [Legal Proceedings](index=93&type=section&id=Item%201.%20Legal%20Proceedings) M&T and its subsidiaries are involved in various legal proceedings in the normal course of business, with liabilities recorded for probable and estimable losses, and the range of reasonably possible losses beyond existing liabilities estimated to be between **$0** and **$25 million** as of September 30, 2023 - The company estimates the range of reasonably possible losses for pending legal matters, beyond existing recorded liabilities, to be between **$0** and **$25 million** as of September 30, 2023[322](index=322&type=chunk) [Risk Factors](index=93&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K - No material changes in risk factors have occurred since those disclosed in the 2022 Annual Report[323](index=323&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=93&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the third quarter of 2023, M&T did not repurchase any shares under its publicly announced stock repurchase program, though **1,728** shares were acquired through employee stock plan-related transactions, and as of September 30, 2023, approximately **$1.2 billion** remained authorized for repurchase under the current program Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Program | Maximum Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | :--- | | July 2023 | 0 | $0.00 | 0 | $1,200,060,000 | | August 2023 | 0 | $0.00 | 0 | $1,200,060,000 | | September 2023 | 1,728 | $126.97 | 0 | $1,200,060,000 | [Exhibits](index=94&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications under the Sarbanes-Oxley Act (Sections 302 and 906) and the Inline XBRL data files - The exhibits filed with this report include certifications from the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act, as well as Inline XBRL filings[327](index=327&type=chunk)