filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Net income for M&T Bank Corporation (“M&T”) in the second quarter of 2022 was $218 million, compared with $458 million in the corresponding quarter of 2021 and $362 million in the first quarter of 2022. Diluted and basic earnings per common share were each $1.08 in the recent quarter and $3.41 in the second quarter of 2021, compared with $2.62 and $2.63, respectively, in the first quarter of 2022. M&T's second quarter results reflect a full-quarter impact of its April 1, 2022 acquisition of People's United Financial, Inc. ("People's United"). The after-tax impact of merger-related expenses was $346 million ($465 million pre-tax), or $1.94 of basic and diluted earnings per common share in the recent quarter, $3 million ($4 million pre-tax) or $.02 of basic and diluted earnings per common share in the second quarter of 2021 and $13 million ($17 million pre-tax) or $.10 of basic and diluted earnings per common share in the first quarter of 2022. Such expenses were associated with M&T’s acquisition of People’s United, headquartered in Bridgeport, Connecticut, and included professional services and other temporary help fees associated with actual or planned conversions of systems and/or integration of operations, costs related to terminations of existing contractual arrangements to purchase various services, severance, travel costs and an initial provision for credit losses on loans not deemed to be purchased credit deteriorated ("PCD") on April 1, 2022. GAAP requires that acquired loans be recorded at estimated fair value, which includes the use of interest rate and expected credit loss assumptions to forecast estimated cash flows. GAAP also provides that an allowance for credit losses on loans acquired, but not classified as PCD also be recognized. Accordingly, the Company recorded a $242 million provision related to such loans obtained in the People's United transaction. Given the requirement to recognize such losses above and beyond the impact of forecasted losses used in determining the fair value of acquired loans, the Company considers that provision to be a merger-related expense. Net income aggregated $580 million or $3.45 of diluted and $3.47 of basic earnings per common share in the first six months of 2022, compared with $905 million or $6.73 of diluted and $6.74 of basic earnings per common share in the corresponding 2021 period.
The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in 2022’s second quarter was .42%, compared with 1.22% in the year-earlier quarter and .97% in the first quarter of 2022. The annualized rate of return on average common shareholders’ equity was 3.21% in the recent quarter, 11.55% in the second quarter of 2021 and 8.55% in the initial 2022 quarter. During the six-month period ended June 30, 2022, the annualized rates of return on average assets and average common shareholders’ equity were .65% and 5.34%, respectively, compared with 1.22% and 11.56%, respectively, in the corresponding period of 2021.
On April 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 of April 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 core deposit and other intangible assets are being amortized over periods of three to seven years. The acquisition of People's United forms a banking franchise with more than $200 billion in assets serving communities in the Northeast and Mid-Atlantic from Maine to Virginia, including Washington, D.C. M&T anticipates completing the transfer of financial records of People’s United to M&T’s core operating systems by the end of the third quarter.
In accordance with its capital plan, M&T repurchased 3,505,946 shares of its common stock during the recent quarter at an average cost per share of $171.14 resulting in a total cost of $600 million. On July 19, 2022 the Company's
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Board of Directors authorized a program to repurchase of up to $3.0 billion of M&T's common stock. The action replaced the previous program under which the repurchases in the recent quarter were conducted.
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 $578 million in the second quarter of 2022, compared with $463 million in the year-earlier quarter and $376 million in the initial 2022 quarter. Diluted net operating earnings per common share in the second quarters of 2022 and 2021 were $3.10 and $3.45, respectively, and $2.73 in the first quarter of 2022. For the first six months of 2022, net operating income and diluted net operating earnings per common share were $954 million and $5.88, respectively, compared with $920 million and $6.84, respectively, in the first half of 2021.
Net operating income in the recent quarter expressed as an annualized rate of return on average tangible assets was 1.16%, compared with 1.27% in the second quarter of 2021 and 1.04% in 2022’s first quarter. Net operating income represented an annualized return on average tangible common equity of 14.41% in the second quarter of 2022, 16.68% in the year-earlier quarter and 12.44% in the first quarter of 2022. For the first half of 2022, net operating income represented an annualized return on average tangible assets and average tangible common shareholders’ equity of 1.11% and 13.57%, respectively, compared with 1.28% and 16.68%, 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 $1.42 billion in the second quarter of 2022, 50% higher than $946 million recorded in the year-earlier quarter. That increase reflects the impact of $52.8 billion in additional average earning assets predominantly resulting from the People's United transaction, which added $56.6 billion to earning assets on April 1, 2022, and a 24 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 3.01% in the recent quarter from 2.77% in the second quarter of 2021. That increase resulted from higher yields on loans, deposits at the Federal Reserve Bank of New York, and investment securities, partially offset by a 6 basis point increase in the rates paid on interest-bearing liabilities. Taxable-equivalent net interest income in the recent quarter increased $515 million from the first quarter of 2022 reflecting the increase in earning assets acquired in the People's United transaction and an increase in the net interest margin in the recent quarter from 2.65% in the prior quarter.
For the first six months of 2022, taxable-equivalent net interest income was $2.33 billion, up 21% from $1.93 billion in the corresponding 2021 period. The increase was primarily attributable to the higher level of earning assets resulting from the People's United transaction, partially offset by a one basis point narrowing of the net interest margin to 2.86% in the 2022 period from 2.87% in the year-earlier period.
Average loans and leases totaled $127.6 billion in the second quarter of 2022, up $29.0 billion or 29% from $98.6 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 the April 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 $37.8 billion in the recent quarter, $10.8 billion or 40% 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 the Small Business Administration. PPP loans averaged $545 million in the second quarter of 2022, compared with $5.7
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billion in the second quarter of 2021. Average commercial real estate loans were $47.2 billion in the recent quarter, up $9.8 billion, or 26%, from $37.4 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. Included in average commercial real estate loans in the second quarters of 2022 and 2021 were loans held for sale of $192 million and $82 million, respectively. Average residential real estate loans increased $5.7 billion or 34% to $22.8 billion in the second quarter of 2022 from $17.0 billion in the year-earlier quarter. Included in average residential real estate loans were loans held for sale of $226 million in the recent quarter and $685 million in the second quarter of 2021. 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 $19.8 billion in the second quarter of 2022, up $2.7 billion, or 16%, from $17.1 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) and automobile loans.
Average loan and lease balances in the second quarter of 2022 increased $35.4 billion from $92.2 billion in the first quarter of 2022, predominantly due to the impact of the People's United acquisition. Commercial loan and lease average balances in the recent quarter increased $14.5 billion from $23.3 billion in the first quarter of 2022. Average commercial real estate loans in the second quarter of 2022 increased $12.3 billion from $35.0 billion in the first quarter of 2022. Commercial real estate loans held for sale averaged $234 million in the first quarter of 2022. Average balances of residential real estate loans in the recently completed quarter increased $6.9 billion, from $15.9 billion in 2022’s first quarter. Residential real estate loans held for sale averaged $410 million in the first quarter of 2022. Average consumer loans in the recent quarter increased $1.8 billion from $18.0 billion in 2022’s first 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 | |||||||||||||
| Second Quarter | Second Quarter | First Quarter | |||||||||||
| 2022 | 2021 | 2022 | |||||||||||
| (In millions) | |||||||||||||
| Commercial, financial, etc. | $ | 37,818 | 40 | % | 62 | % | |||||||
| Real estate — commercial | 47,227 | 26 | 35 | ||||||||||
| Real estate — consumer | 22,761 | 34 | 43 | ||||||||||
| Consumer | |||||||||||||
| Recreational finance | 8,323 | 10 | 3 | ||||||||||
| Automobile | 4,615 | 5 | (3 | ) | |||||||||
| Home equity lines and loans | 5,042 | 34 | 43 | ||||||||||
| Other | 1,813 | 27 | 9 | ||||||||||
| Total consumer | 19,793 | 16 | 10 | ||||||||||
| Total | $ | 127,599 | 29 | % | 38 | % |
For the first six months of 2022, average loans and leases totaled $110.0 billion, up 11%, from $99.0 billion in the corresponding 2021 period. Loans obtained in the People's United acquisition were the predominant factor for that increase offset by lower average balances of PPP loans. Those loans averaged $706 million and $5.7 billion in the first six months of 2022 and 2021, respectively.
The investment securities portfolio averaged $22.4 billion in the second quarter of 2022, up $16.2 billion from $6.2 billion in the year-earlier quarter and $14.7 billion higher than the $7.7 billion averaged in the first quarter of 2022. For the first six months of 2022 and 2021, investment securities averaged $15.1 billion and $6.4 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 on April 1, 2022, and the purchase of $2.7 billion of investment securities during each of the quarters ended March 31, 2022 and June 30, 2022. Those purchases consisted
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of $4.6 billion of U.S. Treasury notes and $796 million of fixed rate residential mortgage-backed securities. There were no significant sales of investment securities during the first six months of 2022 or 2021. The Company routinely has increases and decreases in its holdings of capital stock of the Federal Home Loan Bank (“FHLB”) of New York and the Federal Reserve Bank of New 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.
The investment securities portfolio is largely comprised of residential mortgage-backed securities and shorter-term U.S. Treasury, federal agency 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 less than $1 million in each of the second quarter of 2022 and first quarter of 2022, compared with $11 million in the second quarter of 2021. Net unrealized losses for the first six months of 2022 and 2021 were $1 million and $23 million, respectively. Those gains and 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 six month periods ended June 30, 2022 or 2021. Based on management’s assessment of future cash flows associated with individual investment securities as of June 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 Federal Reserve Bank of New York and other banks, trading account assets, federal funds sold and agreements to resell securities. Those other earning assets in the aggregate averaged $39.8 billion in the recently completed quarter, compared with $32.1 billion in the year-earlier quarter and $38.7 billion in the first quarter of 2022. Interest-bearing deposits at banks averaged $39.4 billion, $32.1 billion and $38.7 billion during the three months ended June 30, 2022, June 30, 2021 and March 31, 2022, respectively. The amounts of interest-bearing deposits at banks at the respective dates were predominantly comprised of deposits held at the Federal Reserve Bank of New York. The People's United acquisition resulted in an additional $9.2 billion of interest-bearing deposits at banks at April 1, 2022. During the recent quarter, the Company purchased investment securities and actively managed higher cost deposit relationships. In general, the level of deposits held at the Federal Reserve Bank of New York 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 $189.8 billion in the most recent quarter, compared with $137.0 billion in the second quarter of 2021 and $138.6 billion in the initial 2022 quarter. Average earning assets totaled $164.3 billion and $135.7 billion during the first six 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 $169.6 billion in the second quarter of 2022, up 37% from $124.2 billion in the similar 2021 quarter and up 36% from $124.6 billion in the first quarter of 2022. The People's United acquisition added approximately $50.8 billion of core deposits on April 1, 2022, including $30.8 billion of savings and interest-checking deposits, $2.6 billion of time deposits and $17.4 billion of
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noninterest-bearing deposits. Core deposits obtained in the acquisition of People's United averaged $48.8 billion in the recent quarter. Excluding deposits obtained in that transaction average core deposits decreased $3.4 billion from the second quarter of 2021 and $3.7 billion from the first quarter of 2022. Those declines and the lower levels of deposits obtained in the People's United acquisition reflected lower average deposits of commercial and consumer customers. The following table provides an analysis of quarterly changes in the components of average core deposits.
AVERAGE CORE DEPOSITS
| Percent Increase | |||||||||||||
| (Decrease) from | |||||||||||||
| Second Quarter | Second Quarter | First Quarter | |||||||||||
| 2022 | 2021 | 2022 | |||||||||||
| (In millions) | |||||||||||||
| Savings and interest-checking deposits | $ | 90,902 | 34 | % | 42 | % | |||||||
| Time deposits | 4,672 | 59 | 100 | ||||||||||
| Noninterest-bearing deposits | 74,053 | 39 | 27 | ||||||||||
| Total | $ | 169,627 | 37 | % | 36 | % |
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 $808 million in the recent quarter, compared with $411 million in the second quarter of 2021 and $313 million in the initial 2022 quarter. Cayman Islands office deposits averaged $50 million during the quarter ended June 30, 2021. 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 $4.2 billion during the recent quarter, compared with $3.7 billion in the second quarter of 2021 and $3.2 billion during the first quarter of 2022. The increase from the first quarter of 2022 resulted predominantly from the addition of brokered deposits obtained in the People's United acquisition. Total uninsured deposits, including deposits associated with the People's United acquisition, were estimated to be $79.9 billion at June 30, 2022 and $69.1 billion at December 31, 2021.
The accompanying table summarizes average total deposits for the quarters ended June 30, 2022, March 31, 2022 and June 30, 2021.
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AVERAGE DEPOSITS
| Retail | Trust | Commercial and Other | Total | |||||||||||||
| (In millions) | ||||||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||||||
| Savings and interest-checking deposits | $ | 53,092 | $ | 6,852 | $ | 35,205 | $ | 95,149 | ||||||||
| Time deposits | 5,001 | 17 | 462 | 5,480 | ||||||||||||
| Noninterest-bearing deposits | 16,949 | 11,691 | 45,414 | 74,054 | ||||||||||||
| Deposits at Cayman Islands office | — | — | — | — | ||||||||||||
| Total | $ | 75,042 | $ | 18,560 | $ | 81,081 | $ | 174,683 | ||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||
| Savings and interest-checking deposits | $ | 35,957 | $ | 6,529 | $ | 24,781 | $ | 67,267 | ||||||||
| Time deposits | 2,487 | 9 | 151 | 2,647 | ||||||||||||
| Noninterest-bearing deposits | 8,920 | 12,178 | 37,043 | 58,141 | ||||||||||||
| Deposits at Cayman Islands office | — | — | — | — | ||||||||||||
| Total | $ | 47,364 | $ | 18,716 | $ | 61,975 | $ | 128,055 | ||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||
| Savings and interest-checking deposits | $ | 34,087 | $ | 6,023 | $ | 31,451 | $ | 71,561 | ||||||||
| Time deposits | 3,156 | 33 | 169 | 3,358 | ||||||||||||
| Noninterest-bearing deposits | 8,573 | 9,318 | 35,553 | 53,444 | ||||||||||||
| Deposits at Cayman Islands office | — | — | 50 | 50 | ||||||||||||
| Total | $ | 45,816 | $ | 15,374 | $ | 67,223 | $ | 128,413 |
The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, the Federal Reserve Bank of New 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 $1.1 billion in the second quarter of 2022, compared with $61 million in the year-earlier quarter and $56 million in the initial quarter of 2022. Short-term borrowings assumed in connection with the People's United acquisition totaled $895 million.
Long-term borrowings averaged $3.3 billion in the recent quarter, compared with $3.4 billion in each of the second quarter of 2021 and first quarter of 2022. Average balances of the Company’s outstanding senior notes were $1.7 billion during the three months ended June 30, 2022, and $2.4 billion in each of the prior quarter and year-earlier quarter. In April 2022, M&T Bank redeemed $650 million of fixed rate senior notes that were due to mature on May 18, 2022. During May 2022, $250 million of variable rate senior notes of M&T Bank matured. In January 2021, $350 million of variable rate senior notes matured. Subordinated capital notes included in long-term borrowings averaged $983 million in the second quarter of 2022 and $500 million in each of the first quarter of 2022 and second quarter of 2021. On March 1, 2021, M&T Bank redeemed $500 million of subordinated capital notes that were due to mature on December 1, 2021. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $533 million, $529 million and $532 million during the second quarters of 2022 and 2021 and the first quarter of 2022, respectively. Additional information regarding junior subordinated debentures is provided in note 5 of Notes to Financial Statements. As of April 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 of June 30, 2022, interest rate swap agreements were used as fair value hedges of approximately $1.0 billion of outstanding fixed rate long-term borrowings. Additionally, interest rate swap agreements with a notional amount of $15.0 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
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between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 2.92% in the recent quarter, compared with 2.71% in the second quarter of 2021. The yield on earning assets during the second quarter of 2022 was 3.12%, up 27 basis points from 2.85% in the similar 2021 period, while the rate paid on interest-bearing liabilities increased 6 basis points to .20% in the recent quarter from .14% in the year-earlier period. In the first quarter of 2022, the net interest spread was 2.59%, the yield on earning assets was 2.72% and the rate paid on interest-bearing liabilities was .13%. The increase of the net interest spread in the recent quarter reflects the impact of generally rising interest rates that resulted in higher yields on loans and leases, deposits at the Federal Reserve Bank of New York and investment securities, partially offset by higher rates on interest-bearing liabilities. For the first six months of 2022, the net interest spread was 2.78%, down 2 basis points from 2.80% in the year-earlier period. The yield on earning assets and the rate paid on interest-bearing liabilities for the first half of 2022 were 2.96% and .18%, respectively, compared with 2.97% and .17%, respectively, in the initial six months of 2021.
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 $84.7 billion in the second quarter of 2022, compared with $58.5 billion in the year-earlier quarter and $65.2 billion in the first quarter of 2022. During the first six months of 2022 and 2021, average net interest-free funds aggregated $75.0 billion and $57.0 billion, respectively. The increase in average net interest-free funds in the recent quarter as compared with the first quarter of 2022 and second quarter of 2021 reflects higher average balances of noninterest-bearing deposits and shareholders’ equity that reflect the acquisition of People's United. Shareholders’ equity averaged $26.1 billion during the three-month period ended June 30, 2022, up from $16.6 billion during the year-earlier period and $17.9 billion during the three-month period ended March 31 2022. The increase reflects 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 on April 1, 2022. M&T also repurchased $600 million of its common stock during the recent quarter. Goodwill and core deposit and other intangible assets averaged $8.8 billion in the second quarter of 2022, up from $4.6 billion in the immediately preceding and year-earlier quarters. The Company recorded $3.9 billion of goodwill on April 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 on April 1, 2022 and $252 million, on average, for the second quarter of 2022. The cash surrender value of bank owned life insurance averaged $2.61 billion in the second quarter of 2022, compared with $1.87 billion in the three-month period ended March 31, 2022 and $1.86 billion in the second quarter of 2021. Increases 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 .09% in the second quarter of 2022 compared with .06% in each of the second quarter of 2021 and the first quarter of 2022. The increased contribution of net interest-free funds to net interest margin in the most recent quarter as compared with the second quarter of 2021 and first 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 in the first half of 2022 and 2021 was .08% 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 3.01% in the second quarter of 2022, compared with 2.77% in the year-earlier period and 2.65% in the first quarter of 2022. Yields on net earning assets obtained in the People's United acquisition were estimated to have contributed 8 basis points to the increase in the net interest margin in the second quarter of 2022. During the first six months of 2022 and 2021, the net interest margin was 2.86% and 2.87%, 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. The Federal Open Market Committee has conducted a series of basis point increases in short-term interest rates during the first half 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.
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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 $16.0 billion (excluding $3.3 billion of forward-starting swap agreements) at June 30, 2022, $19.0 billion (excluding $14.9 billion of forward-starting swap agreements) at June 30, 2021 and $15.0 billion (excluding $8.4 billion of forward-starting swap agreements) at December 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. At June 30, 2022 interest rate swap agreements with notional amounts of $15.0 billion were serving as cash flow hedges of interest payments associated with variable rate commercial real estate loans, compared with $17.35 billion at June 30, 2021 and $13.35 billion at December 31, 2021. Interest rate swap agreements with notional amounts of $1.0 billion at June 30, 2022, and $1.65 billion at each of June 30, 2021 and December 31, 2021 were serving as fair value hedges of fixed rate long-term borrowings. The Company has entered 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.
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 ended June 30, 2022, June 30, 2021 and March 31, 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.
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INTEREST RATE SWAP AGREEMENTS
| Three Months Ended June 30 | |||||||||||||||||
| . | 2022 | 2021 | |||||||||||||||
| Amount | Rate(a) | Amount | Rate(a) | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Increase (decrease) in: | |||||||||||||||||
| Interest income | $ | 19,947 | .04 | % | $ | 66,611 | .20 | % | |||||||||
| Interest expense | (5,297 | ) | .(02 | ) | (8,706 | ) | .(04 | ) | |||||||||
| Net interest income/margin | $ | 25,244 | .05 | % | $ | 75,317 | .22 | % | |||||||||
| Average notional amount (c) | $ | 14,894,505 | $ | 19,000,000 | |||||||||||||
| Rate received (b) | 1.46 | % | 1.73 | % | |||||||||||||
| Rate paid (b) | .79 | % | .16 | % | |||||||||||||
| Six Months Ended June 30, | |||||||||||||||||
| . | 2022 | 2021 | |||||||||||||||
| Amount | Rate(a) | Amount | Rate(a) | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Increase (decrease) in: | |||||||||||||||||
| Interest income | $ | 57,966 | .07 | % | $ | 148,655 | .22 | % | |||||||||
| Interest expense | (13,785 | ) | .(03 | ) | (17,353 | ) | .(04 | ) | |||||||||
| Net interest income/margin | $ | 71,751 | .09 | % | $ | 166,008 | .25 | % | |||||||||
| Average notional amount (c) | $ | 14,933,149 | $ | 18,911,602 | |||||||||||||
| Rate received (b) | 1.46 | % | 1.93 | % | |||||||||||||
| Rate paid (b) | .51 | % | .18 | % |
(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, 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 Federal Reserve Bank 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 June 30, 2022 and December 31, 2021, long-term borrowings aggregated $3.0 billion and $3.5 billion, respectively.
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 June 30, 2022 and December 31, 2021. The Company
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has benefited from the placement of brokered deposits. The Company had brokered savings and interest-checking deposit accounts which aggregated approximately $3.9 billion at June 30, 2022, $3.2 billion at December 31, 2021 and $4.1 billion at June 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 June 30, 2022 or December 31, 2021. The total amounts of VRDBs outstanding backed by M&T Bank letters of credit were $645 million at June 30, 2022, $662 million at December 31, 2021 and $725 million at June 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 June 30, 2022 approximately $1.1 billion was available for payment of dividends to M&T from bank subsidiaries. M&T also may obtain funding through long-term borrowings. Outstanding senior notes of M&T at June 30, 2022 and December 31, 2021 were $1.25 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. Junior subordinated debentures of M&T associated with trust preferred securities outstanding at June 30, 2022 and December 31, 2021 totaled $534 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.
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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 June 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 $16.0 billion. In addition, the Company has entered into $3.3 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.
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The accompanying table as of June 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.
SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES
| Calculated Increase (Decrease) in Projected Net Interest Income | |||||||||
| Changes in interest rates | June 30, 2022 | December 31, 2021 | |||||||
| (In thousands) | |||||||||
| +200 basis points | $ | 361,414 | 533,317 | ||||||
| +100 basis points | 229,474 | 297,573 | |||||||
| -100 basis points | (301,057 | ) | (204,760 | ) |
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 held for non-trading purposes, 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 since December 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 than December 31, 2021, and for new contracts entered into before December 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 by June 30, 2023. Effective December 31, 2021, the Company essentially discontinued entering into new LIBOR-based contracts.
At June 30, 2022 the Company had LIBOR-based commercial loans and leases and commercial real estate loans of $42.9 billion and residential mortgage and consumer loans of $4.6 billion outstanding. Approximately half of the loans either mature before June 30, 2023 or have been amended to include appropriate alternative language to be effective upon cessation of LIBOR publication. Approximately $730 million of borrowings and $1.1 billion of preferred equity instruments reference LIBOR as of June 30, 2022. The Company’s interest rate swap agreements primarily reference LIBOR. In October 2020, the International 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 in November 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”). At June 30,
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2022 the Company had approximately $15.2 billion and $252 million of outstanding loan balances that reference SOFR and BSBY, respectively. Additionally, as of June 30, 2022, the Company had $13.4 billion of notional amount of interest rate swap agreements designated as cash flow hedges of commercial real estate loans, including $3.3 billion of forward-starting interest rate swap agreements that become effective in 2022 and 2023, and notional amounts of $3.1 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 after June 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 all non-hedging derivative assets and liabilities recognized on the balance sheet were $145 million and $774 million, respectively, at June 30, 2022 and $418 million and $83 million, respectively, at December 31, 2021. The fair value asset and liability amounts at June 30, 2022 have been reduced by contractual settlements of $778 million and $19 million, respectively, and at December 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 at June 30, 2022 as compared with December 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 $134 million at June 30, 2022 and $50 million at each of December 31, 2021 and June 30, 2021. Included in trading account assets were assets related to deferred compensation plans aggregating $17 million at June 30, 2022, compared with $21 million at each of June 30, 2021 and December 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 at June 30, 2022 was $22 million of liabilities related to deferred compensation plans, compared with $24 million at each of June 30, 2021 and December 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 $117 million at June 30, 2022 and $29 million at each of June 30, 2021 and December 31, 2021. The increase at June 30, 2022 as compared with the prior dates resulted from the acquisition of the People's United non-qualified supplemental retirement and other benefit plans.
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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 $302 million and $10 million were recorded in the second and first quarters of 2022, respectively, compared with a credit loss recapture of $15 million in the second quarter of 2021. The provision recorded in the most recent quarter includes $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 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 at June 30, 2022 reflect low unemployment and stable to improving credit quality, but consider risks associated with rising inflation, including a slight reduction of economic growth projections 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 the April 1, 2022 acquisition date were consistent with those used by the Company to estimate credit losses at March 31, 2022 as described herein.
Net charge-offs of loans were $50 million in the recent quarter, compared with net charge-offs of $46 million in the second quarter of 2021 and $7 million in the first quarter of 2022. Net charge-offs as an annualized percentage of average loans and leases were .16% in the second quarter of 2022, .19% in the year-earlier quarter and .03% in the first quarter of 2022. As an annualized percentage by loan type, net charge-offs (recoveries) for the second quarter of 2022, second quarter of 2021 and the first quarter of 2022 were .31%, .43% and .10% for commercial loans and leases, .06%, .12% and (.15%) for commercial real estate loans and .26%, .13% and .31% for consumer loans, respectively. Net charge-offs of residential real estate loans, as annualized percentage of average loan balances, were less than 0.01% in each of the second quarters of 2022 and 2021, compared with .02% in the first quarter of 2022. Net charge-offs for the six-month periods ended June 30, 2022 and 2021 were $56 million and $121 million, respectively, representing an annualized .10% and .25%, respectively, of average loans and leases. A summary of net charge-offs by loan type is presented in the table that follows.
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NET CHARGE-OFFS (RECOVERIES)
BY LOAN/LEASE TYPE
| 2022 | ||||||||||||
| First Quarter | Second Quarter (a) | Year- to-date (a) | ||||||||||
| (In thousands) | ||||||||||||
| Commercial, financial, leasing, etc. | $ | 5,569 | 29,502 | 35,071 | ||||||||
| Real estate: | ||||||||||||
| Commercial | (13,143 | ) | 7,140 | (6,003 | ) | |||||||
| Residential | 865 | 256 | 1,121 | |||||||||
| Consumer | 13,576 | 12,671 | 26,247 | |||||||||
| $ | 6,867 | 49,569 | 56,436 | |||||||||
| 2021 | ||||||||||||
| First Quarter | Second Quarter | Year- to-date | ||||||||||
| (In thousands) | ||||||||||||
| Commercial, financial, leasing, etc. | $ | 4,434 | 29,242 | 33,676 | ||||||||
| Real estate: | ||||||||||||
| Commercial | 54,092 | 11,330 | 65,422 | |||||||||
| Residential | 366 | (149 | ) | 217 | ||||||||
| Consumer | 16,289 | 5,655 | 21,944 | |||||||||
| $ | 75,181 | 46,078 | 121,259 |
(a)
For the quarter ended June 30, 2022, net charge-offs do not reflect $33 million of charge-offs related to PCD acquired loans.
The net charge-offs of commercial loans in the second quarter of 2022 reflect a $23 million charge-off of a loan to a consumer products manufacturer. Net charge-offs of commercial loans in the first quarter of 2022 include a $10 million charge-off of a loan to a skilled nursing facility partially offset by a $7 million recovery of a previously charged off loan to a manufacturing entity. Included in the net recoveries of commercial real estate loans in 2022's initial quarter was a $9 million recovery of a previously charged-off loan to a hotel in the New York City area. Included in net charge-offs of consumer loans were: net recoveries of automobile loans of $1 million in the recent quarter, $2 million in the year-earlier quarter and $1 million in the first quarter of 2022; net charge-offs of recreational finance loans of $7 million in the second quarter of 2022, $1 million in the year-earlier quarter and $4 million in the initial 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 second quarter of 2021 and the first quarter of 2022.
Nonaccrual loans aggregated $2.63 billion or 2.05% of total loans and leases outstanding at June 30, 2022, compared with $2.24 billion or 2.31% at June 30, 2021, $2.06 billion or 2.22% at December 31, 2021 and $2.13 billion or 2.32% at March 31, 2022. Loans obtained in the acquisition of People's United that have been classified as nonaccrual at June 30, 2022 totaled $545 million. 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 $524 million or .41% of loans and leases at June 30, 2022, compared with $1.08 billion or 1.11% at June 30, 2021, $963 million or 1.04% at December 31, 2021 and $777 million or .85% at March 31, 2022. Accruing loans past due 90 days or more were predominantly residential real estate loans and included loans guaranteed by government-related entities of $468 million, $1.03 billion, $928 million and $690 million at June 30, 2022, June 30, 2021, December 31, 2021 and March 31, 2022, respectively. 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 $435 million at June 30, 2022, $1.00 billion a year earlier, $889 million at December 31, 2021 and $652 million at March 31, 2022. The remaining accruing loans past due 90 days or more not guaranteed by government-related entities were loans considered to be with creditworthy
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borrowers that were in the process of collection or renewal. In addition to the past due loans, the Company also has $55 million of government-guaranteed residential mortgage loans that are not considered delinquent because the borrower has requested and received a COVID-19 related payment deferral. In general, those loans were also purchased to reduce associated servicing costs as described above and also remain covered by the insurance or guarantee of the applicable government-related entity, but are not considered to be past due in accordance with generally accepted accounting principles as described in note 1 of Notes to Financial Statements in M&T’s Form 10-K for the year ended December 31, 2021.
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 ended December 31, 2021. COVID-19 related modifications with payment deferrals at June 30, 2022 totaled $109 million and consisted predominantly of residential real estate loans, including $55 million of government-guaranteed loans. Payment deferrals are generally scheduled to expire in 2022 and/or are in the process of formal modification of repayment terms for previously deferred payments.
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 $356 million, $525 million, $425 million and $405 million at June 30, 2022, June 30, 2021, December 31, 2021 and March 31, 2022, respectively.
Commercial loans and leases classified as nonaccrual totaled $442 million, $330 million, $221 million and $275 million at June 30, 2022, June 30, 2021, December 31, 2021 and March 31, 2022, respectively. Commercial real estate loans in nonaccrual status aggregated $1.55 billion at June 30, 2022, compared with $1.2 billion at each of June 30, 2021, December 31, 2021 and March 31, 2022. 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 at June 30, 2022 totaled $188 million and $312 million, respectively.
Nonaccrual residential real estate loans totaled $444 million at June 30, 2022, compared with $509 million at June 30, 2021, $479 million at December 31, 2021 and $465 million at March 31, 2022. The decreases since June 30, 2021 were largely reflective of improving economic conditions partially offset by $35 million of residential real estate loans acquired from People's United and classified as nonaccrual at June 30, 2022. Included in residential real estate loans classified as nonaccrual were limited documentation first mortgage loans of $113 million at June 30, 2022, compared with $137 million at June 30, 2021, $123 million at December 31, 2021 and $124 million at March 31, 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 $474 million at June 30, 2022, compared with $1.03 billion at June 30, 2021, $920 million at December 31, 2021 and $687 million at March 31, 2022. Those amounts related predominantly to government-guaranteed loans as previously noted. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter ended June 30, 2022 is presented in the accompanying table.
Nonaccrual consumer loans were $196 million at June 30, 2022, $173 million at June 30, 2021, $177 million at December 31, 2021 and $182 million at March 31, 2022. Included in nonaccrual consumer loans at June 30, 2022,
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June 30, 2021, December 31, 2021 and March 31, 2022 were: automobile loans of $36 million, $31 million, $34 million and $35 million, respectively; recreational finance loans of $33 million, $23 million, $28 million and $32 million, respectively; and outstanding balances of home equity loans and lines of credit of $79 million, $77 million, $70 million and $71 million, respectively. Consumer loans acquired from People's United and classified as nonaccrual at June 30, 2022 totaled $10 million. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended June 30, 2022 is presented in the accompanying table.
Information about past due and nonaccrual loans as of June 30, 2022 and December 31, 2021 is also included in note 4 of Notes to Financial Statements.
SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA
| Quarter Ended | |||||||||||||||||||||
| June 30, 2022 | June 30, 2022 | ||||||||||||||||||||
| Nonaccrual | Net Charge-offs (Recoveries) | ||||||||||||||||||||
| Percent of | |||||||||||||||||||||
| Percent of | Average | ||||||||||||||||||||
| Outstanding | Outstanding | Outstanding | |||||||||||||||||||
| Balances | Balances | Balances | Balances | Balances | |||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
| Residential mortgages: | |||||||||||||||||||||
| New York | $ | 6,295,045 | $ | 122,891 | 1.95 | % | $ | 189 | .01 | % | |||||||||||
| Mid-Atlantic (a) | 6,260,173 | 118,541 | 1.89 | 178 | .01 | ||||||||||||||||
| New England (b) | 6,429,582 | 65,890 | 1.02 | 65 | .01 | ||||||||||||||||
| Other | 2,575,112 | 22,484 | .87 | (187 | ) | .(03 | ) | ||||||||||||||
| Total | $ | 21,559,912 | $ | 329,806 | 1.53 | % | $ | 245 | .01 | % | |||||||||||
| Residential construction loans: | |||||||||||||||||||||
| New York | $ | 22,804 | $ | 336 | 1.47 | % | $ | — | — | % | |||||||||||
| Mid-Atlantic (a) | 20,578 | 357 | 1.73 | — | — | ||||||||||||||||
| New England (b) | 19,911 | 877 | 4.40 | — | — | ||||||||||||||||
| Other | 3,531 | — | — | — | — | ||||||||||||||||
| Total | $ | 66,824 | $ | 1,570 | 2.35 | % | $ | — | — | % | |||||||||||
| Limited documentation first lien mortgages: | |||||||||||||||||||||
| New York | $ | 523,266 | $ | 49,284 | 9.42 | % | $ | 40 | .03 | % | |||||||||||
| Mid-Atlantic (a) | 464,350 | 39,990 | 8.61 | 62 | .05 | ||||||||||||||||
| New England (b) | 106,237 | 17,585 | 16.55 | — | — | ||||||||||||||||
| Other | 46,518 | 5,749 | 12.36 | (91 | ) | .(78 | ) | ||||||||||||||
| Total | $ | 1,140,371 | $ | 112,608 | 9.87 | % | $ | 11 | — | % | |||||||||||
| First lien home equity loans and lines of credit: | |||||||||||||||||||||
| New York | $ | 790,417 | $ | 17,938 | 2.27 | % | $ | 246 | .12 | % | |||||||||||
| Mid-Atlantic (a) | 639,030 | 20,916 | 3.27 | (24 | ) | .(01 | ) | ||||||||||||||
| New England (b) | 594,254 | 3,939 | .66 | (11 | ) | .(02 | ) | ||||||||||||||
| Other | 808,785 | 1,207 | .15 | — | — | ||||||||||||||||
| Total | $ | 2,832,486 | $ | 44,000 | 1.55 | % | $ | 211 | .03 | % | |||||||||||
| Junior lien home equity loans and lines of credit: | |||||||||||||||||||||
| New York | $ | 565,098 | $ | 13,909 | 2.46 | % | $ | 75 | .05 | % | |||||||||||
| Mid-Atlantic (a) | 442,131 | 15,760 | 3.56 | (304 | ) | .(20 | ) | ||||||||||||||
| New England (b) | 611,950 | 4,637 | .76 | (420 | ) | .(53 | ) | ||||||||||||||
| Other | 608,026 | 1,139 | .19 | 61 | .08 | ||||||||||||||||
| Total (c) | $ | 2,227,205 | $ | 35,445 | 1.59 | % | $ | (588 | ) | .(13 | %) |
(a)
Includes Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia and the District of Columbia.
(b)
Includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.
(c)
Includes limited documentation junior liens with outstanding balance totaling $2.0 million.
Real estate and other foreclosed assets totaled $29 million at June 30, 2022, compared with $28 million at June 30, 2021 and $24 million at each of December 31, 2021 and March 31, 2022. Net gains or losses associated with real estate and other foreclosed assets were not material during the three-months ended June 30, 2022, June 30, 2021 and March 31, 2022. At June 30, 2022, foreclosed assets are comprised predominantly of residential real estate-related properties.
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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 | |||||||||||||||||||
| Second | First | Fourth | Third | Second | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Nonaccrual loans | $ | 2,633,005 | 2,134,231 | 2,060,083 | 2,242,263 | 2,242,057 | ||||||||||||||
| Real estate and other foreclosed assets | 28,692 | 23,524 | 23,901 | 24,786 | 27,902 | |||||||||||||||
| Total nonperforming assets | $ | 2,661,697 | 2,157,755 | 2,083,984 | 2,267,049 | 2,269,959 | ||||||||||||||
| Accruing loans past due 90 days or more(a) | $ | 523,662 | 776,751 | 963,399 | 1,026,080 | 1,077,227 | ||||||||||||||
| Government guaranteed loans included in totals above: | ||||||||||||||||||||
| Nonaccrual loans | $ | 46,937 | 46,151 | 51,429 | 47,358 | 49,796 | ||||||||||||||
| Accruing loans past due 90 days or more(a) | 467,834 | 689,831 | 927,788 | 947,091 | 1,029,331 | |||||||||||||||
| Renegotiated loans | $ | 276,584 | 242,108 | 230,408 | 242,955 | 236,377 | ||||||||||||||
| Nonaccrual loans to total loans and leases, net of unearned discount | 2.05 | % | 2.32 | % | 2.22 | % | 2.40 | % | 2.31 | % | ||||||||||
| Nonperforming assets to total net loans and leases and real estate and other foreclosed assets | 2.07 | % | 2.35 | % | 2.24 | % | 2.42 | % | 2.34 | % | ||||||||||
| Accruing loans past due 90 days or more(a) to total loans and leases, net of unearned discount | .41 | % | .85 | % | 1.04 | % | 1.10 | % | 1.11 | % |
(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 of June 30, 2022, concerns existed about the somewhat uneven and incomplete recovery evident in some sectors of the economy; elevated levels of inflation; the volatile nature of global markets and international economic conditions that could impact the U.S. economy; Federal Reserve positioning of monetary policy; the extent to which borrowers, in particular commercial real estate borrowers, may continue to be negatively affected by pandemic-related and general economic conditions; and continued stagnant population and economic growth in the upstate New York and central Pennsylvania regions (approximately 39% of the Company’s loans and leases are to customers in New York State and Pennsylvania). 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. During 2021 and 2020, the Company re-graded significant portions of its commercial loans and commercial real estate loans based on financial results and projections for specific borrowers, particularly those that were affected by COVID-19 impacts. Criticized commercial loans and commercial real estate loans totaled $11.6 billion, including $2.8 billion of loans acquired from People's United, at June 30, 2022, compared with $9.7 billion at June 30, 2021, $9.0 billion at December 31, 2021 and $8.7 billion at March 31, 2022. 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
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comprised $6.7 billion or 58% of total criticized loans at June 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. At June 30, 2022, approximately 56% of the Company’s home equity portfolio consisted of first lien loans and lines of credit and 44% 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. At June 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 seven years, and approximately 22% 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 at June 30, 2022, June 30, 2021 and December 31, 2021 included utilizing macroeconomic assumptions to project losses over a two-year reasonable and supportable forecast period. Subsequent to the forecast period, the Company reverted to longer-term historical loss experience, over a period of one year, to estimate expected
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credit losses over the remaining contractual life. Forward-looking estimates of certain macroeconomic variables are determined by the M&T Scenario Development Group, which is comprised of senior management business leaders and economists. Events posing emerging risks to the macroeconomic environment, such as the war in Ukraine, 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 of June 30, 2022 was that the national unemployment rate will average 3.4% through the reasonable and supportable forecast period. The forecast also assumed gross domestic product grows at a 2.4% average rate during the first year of the reasonable and supportable forecast period 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 of March 31, 2022 the national unemployment rate was assumed to average 3.6% through the reasonable and supportable forecast period. The forecast also assumed gross domestic product would grow during the first year of the reasonable and supportable period at a 3.6% average annual rate and a 3.0% average rate in the second year. Commercial real estate and residential real estate prices were assumed to cumulatively grow 11.0% and 4.3%, respectively, over the two-year reasonable and supportable forecast period. As of December 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 of June 30, 2021 was that the national unemployment rate would continue to be at then elevated levels, on average 5.4%, through 2021, followed by a gradual improvement reaching 3.5% by mid-2023. The forecast assumed that GDP would grow at a 7.4% annual rate during 2021 resulting in GDP returning to pre-pandemic levels during 2021. 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 information available to the Company at or near June 30, 2022, March 31, 2022, December 31, 2021 and June 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 actual 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 2.2% in the first year of the reasonable and supportable forecast period before recovering to 3.4% growth in the second year and commercial real estate and residential real estate prices cumulatively decline 6.2% and 5.5%, respectively, by the end of the reasonable and supportable forecast period.
A potential upside economic scenario assumed the unemployment rate declines to approximately 2.9% for the duration of the reasonable and supportable forecast period. The scenario also assumes gross domestic product grows 5.3% in the initial year of the reasonable and forecast period and 1.9% in the second year while commercial real estate and residential real estate prices cumulatively rise 22.6% and 6.1%, respectively, over the two-year reasonable and supportable forecast period.
The scenario analyses resulted in an additional $319 million of modeled credit losses under the assumptions of the downside economic scenario, whereas under the assumptions of the upside economic scenario an $81 million reduction in modeled credit losses could occur. These examples are only a few of the numerous possible economic
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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.
Using the same methodology and macroeconomic assumptions 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. The combined Company allowance for credit losses at April 1, 2022 as a percentage of loans outstanding was 1.42%. The Company evaluated the allowance for credit losses at June 30, 2022 for those loans in addition the Company's remaining loans and leases outstanding. Management believes that the allowance for credit losses at June 30, 2022 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled $1.82 billion at June 30, 2022, compared with $1.58 billion at June 30, 2021 and $1.47 billion at each of December 31, 2021 and March 31, 2022. As a percentage of loans outstanding, the allowance was 1.42% at June 30, 2022, 1.62% at June 30, 2021, 1.58% at December 31, 2021 and 1.60% at March 31, 2022. 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 at June 30, 2022 and December 31, 2021 was 69% 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 $571 million in the second quarter of 2022, compared with $514 million in the year-earlier quarter. Other income attributable to the People's United acquisition was approximately $79 million in the recent quarter. As compared with the second quarter of 2021 the higher other income in the recent quarter was predominantly from People's United-related revenues but also included higher trust and brokerage services income. Those increases were partially offset by a decline in mortgage banking revenues reflecting the impact of the Company’s decision to retain the substantial majority of recently originated mortgage loans in portfolio rather than sell such loans while still selling select lower-yielding mortgage loans. Other income was $541 million in the first quarter of 2022. The comparative increase in the recent quarter resulted from People's United-related noninterest income, higher trust income and increased merchant discount and credit card fees included in other revenues from operations, partially offset by decreased mortgage banking revenues and the impact of a $30 million distribution resulting from the Company's investment in Bayview Lending Group LLC ("BLG") in 2022's initial quarter, whereas no similar distribution was received in the recent quarter.
Mortgage banking revenues were $83 million in the recent quarter, compared with $133 million in the second quarter of 2021 and $109 million in the first quarter of 2022. 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 the U.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
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related commitments, residential real estate loan servicing fees, and other residential real estate loan-related fees and income, were $50 million in the second quarter of 2022, $98 million in the similar quarter of 2021 and $76 million in the first quarter of 2022. As compared with the prior quarters, the 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 rather than sell such loans and the impact of higher interest rates which suppressed gain-on-sale margins on lower-yielding mortgage loans being sold.
New commitments to originate residential real estate loans to be sold were approximately $78 million in the second quarter of 2022, compared with $1.2 billion in the year-earlier quarter and $161 million in the first 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 to losses of $17 million in the second quarter of 2022 compared with gains of $40 million in the corresponding period of 2021 and $14 million in 2022’s initial quarter.
Loans held for sale that were secured by residential real estate aggregated $65 million at June 30, 2022, $679 million at June 30, 2021 and $474 million at December 31, 2021. Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates totaled $84 million and $69 million, respectively, at June 30, 2022, compared with $1.37 billion and $1.02 billion, respectively, at June 30, 2021 and $617 million and $233 million, respectively, at December 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 less than $1 million at June 30, 2022, $38 million at June 30, 2021 and $10 million at December 31, 2021. Changes in net unrealized gains or losses are recorded in mortgage banking revenues and resulted in net decreases in revenues of $5 million in the recent quarter, $9 million in the second quarter of 2021, and $7 million in the initial 2022 quarter.
Revenues from servicing residential real estate loans for others were $67 million during the quarter ended June 30, 2022, compared with $59 million and $62 million during the three months ended June 30, 2021 and March 31, 2022, respectively. Residential real estate loans serviced for others totaled $102.5 billion at June 30, 2022, $97.1 billion at June 30, 2021, $97.9 billion at December 31, 2021 and $99.6 billion at March 31, 2022. Reflected in residential real estate loans serviced for others were loans sub-serviced for others of $79.0 billion, $72.6 billion, $74.7 billion and $76.6 billion at June 30, 2022, June 30, 2021, December 31, 2021 and March 31, 2022, respectively. Revenues earned for sub-servicing loans totaled $44 million during the recent quarter, $37 million in the second quarter of 2021 and $42 million in the initial quarter of 2022. The contractual servicing rights associated with loans sub-serviced by the Company were predominantly held by affiliates of 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 $215 million at June 30, 2022, $221 million at June 30, 2021, $217 million at December 31, 2021 and $208 million at March 31, 2022.
Commercial mortgage banking revenues totaled $33 million in each of the first two quarters of 2022, compared with $35 million in the second quarter of 2021. Included in such amounts were revenues from loan origination and sales activities of $14 million and $19 million in the second quarters of 2022 and 2021, respectively, compared with $15 million in the first quarter of 2022. Commercial real estate loans originated for sale to other investors were $692 million in the recent quarter, compared with $411 million in the second quarter of 2021 and $606 million in the initial quarter of 2022. Loan servicing revenues totaled $19 million and $16 million in the second quarters of 2022 and 2021, respectively, compared with $18 million in the first quarter of 2022. Capitalized commercial mortgage servicing assets were $130 million and $132 million at June 30, 2022 and June 30, 2021, respectively, and $133 million at December 31, 2021. Commercial real estate loans serviced for other investors totaled $24.4 billion at June 30, 2022, $22.6 billion at June 30, 2021, $23.7 billion at December 31, 2021 and $24.0 billion at March 31, 2022. Those servicing amounts included $3.9 billion at June 30, 2022 and $4.0 billion at each of June 30, 2021, December 31, 2021, and March 31, 2022 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 $3.6 billion at June 30, 2022, $3.3 billion at June 30, 2021 and $3.5 billion at December 31, 2021. Commitments to sell commercial real estate loans and commitments to originate commercial real estate loans for sale were $824 million and $569 million, respectively, at June 30, 2022, $651 million and $445 million, respectively, at June 30, 2021 and $751 million
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and $325 million, respectively, at December 31, 2021. Commercial real estate loans held for sale at June 30, 2022, June 30, 2021 and December 31, 2021 were $255 million, $206 million and $425 million, respectively.
Service charges on deposit accounts were $124 million and $99 million in the second quarters of 2022 and 2021, respectively, and $102 million in the initial quarter of 2022. The People's United acquisition contributed $33 million to the service charges on deposit accounts total in the most recent quarter. Excluding that contribution, the decrease in the recent quarter as compared with the previous quarters reflected the Company's planned elimination, announced in February of 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 $190 million in the second quarter of 2022, compared with $163 million in the year-earlier quarter and $169 million in the first quarter of 2022. Trust income contributed from the acquisition of People's United totaled $14 million in the recent quarter. Revenues associated with the ICS business were $109 million, including $2 million of People's United-related revenue, during the quarter ended June 30, 2022, compared with $91 million and $100 million during the quarters ended June 30, 2021 and March 31, 2022, respectively. The higher revenues in the recent quarter as compared with the prior year second quarter were largely attributable to reduced fee waivers of $9 million resulting from higher rates on money market fund accounts, higher collective fund fees of $5 million resulting from higher assets under management levels, and incremental fees from sales. Relative to the first quarter of 2022, the higher level of ICS revenues resulted from lower money market fund account fee waivers of $8 million and increased fees from new business partially offset by a reduction in collective fund fees from lower assets under management reflecting adverse market conditions. Revenues attributable to WAS, including $10 million of People's United-related fees, totaled approximately $78 million in the three-month period ended June 30, 2022, compared with $65 million and $68 million during the quarters ended June 30, 2021 and March 31, 2022, respectively. The higher level of trust income in the recent quarter compared with the year-earlier quarter reflected incremental fees from sales that were partially offset by lower assets under management. WAS revenues in the recent quarter compared with the first quarter of 2022 reflected annual tax service fees of $4 million, offset by reduced fees on lower assets under management reflecting adverse market conditions. Trust assets under management were $151.8 billion, $149.8 billion, $165.6 billion and $160.1 billion at June 30, 2022, June 30, 2021, December 31, 2021 and March 31, 2022, respectively. Included in assets under management at June 30, 2022 was approximately $1.2 billion attributable to the People's United acquisition. Trust assets under management include the Company’s proprietary mutual funds’ assets of $11.9 billion, $12.7 billion, $13.2 billion and $12.3 billion at June 30, 2022, June 30, 2021, December 31, 2021 and March 31, 2022, respectively. Additional trust income from investment management activities was $3 million in the second quarter of 2022, $7 million in the corresponding quarter of 2021 and $1 million in the first quarter of 2022, and is predominantly comprised of fees earned from retail customer investment accounts. The lower revenues in the two most recent quarters as compared with the second quarter of 2021 reflect the change in product delivery in June 2021 described in the next paragraph, partially offset by People's United-related revenues of $2 million in the recent quarter.
Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, and, since June 2021, sales of select investment products of LPL Financial, totaled $24 million in the second quarter of 2022, $10 million in the second quarter of 2021 and $20 million in the first quarter of 2022. The increase in brokerage services income in the first two quarters of 2022 as compared with the second quarter of 2021 reflects a change in June 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. Additionally, the acquisition of People's United contributed approximately
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$3 million to brokerage services income in the second quarter of 2022. Trading account and non-hedging derivative gains were $2 million, $7 million and $5 million during the quarters ended June 30, 2022, June 30, 2021 and March 31, 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.”
The Company recognized net losses on investment securities of less than $1 million in the recent quarter compared with $11 million in the second quarter of 2021 and $1 million in the first quarter of 2022. The losses recognized in the second quarter of 2021 represented unrealized losses on investments in Fannie Mae and Freddie Mac preferred stock.
Other revenues from operations were $148 million in the second quarter of 2022, compared with $113 million in the corresponding 2021 period and $136 million in the first quarter of 2022. Other revenues from operations associated with the People's United acquisition totaled $29 million in the recent quarter and included $11 million of letter of credit and other credit-related fees, $3 million of merchant discount and credit card fees, $2 million of income from bank owned life insurance, $2 million of other insurance related income, and $11 million from other miscellaneous services. Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees aggregated $38 million in the recent quarter, compared with $28 million in the year-earlier quarter and $27 million in the initial quarter of 2022. The increase in letter of credit and other credit-related fees in the recent quarter compared with the year-earlier quarter and initial quarter of 2022 was primarily the result of operations obtained in the acquisition of People's United. Reflecting increased customer activity and an incremental $3 million of revenue associated with the People's United acquisition, revenues from merchant discount and credit card fees were $45 million in the second 2022 quarter, compared with $36 million in the year-earlier quarter and $34 million in the first quarter of 2022. Tax-exempt income from bank owned life insurance, which includes increases in the cash surrender value of life insurance policies and benefits received, totaled $14 million in the second quarter of 2022, $13 million in the second quarter of 2021 and $10 million in the first quarter of 2022. Insurance-related sales commissions and other revenues totaled $14 million in the quarter ended June 30, 2022, compared with $11 million in the second quarter of 2021 and $15 million in the first quarter of 2022. M&T received a distribution as a result of its investment in BLG of $30 million in the first quarter of 2022. There was no similar distribution in the second quarter of either 2022 or 2021.
Other income totaled $1.11 billion during the first six months of 2022, compared with $1.02 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 increased merchant discount and credit card fees were partially offset by lower mortgage banking revenues. The acquisition of People's United contributed $79 million of the $93 million year-over-year increase in other income.
Mortgage banking revenues totaled $192 million during the first six months of 2022, compared with $272 million during the similar period in 2021. Residential mortgage banking revenues aggregated $126 million and $205 million during the six-month periods ended June 30, 2022 and 2021, respectively. New commitments to originate residential real estate loans to be sold aggregated $239 million and $2.5 billion in the initial six 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 $3 million in the first six months of 2022, compared with gains of $89 million in the first six 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 while selling select lower-yielding mortgage loans. Revenues from servicing residential real estate loans for others were $129 million in the first half of 2022 and $116 million in the corresponding 2021 period. Included in servicing revenues were sub-servicing revenues aggregating $86 million and $71 million in the first six months of 2022 and 2021, respectively. For the six months ended June 30, commercial mortgage banking revenues were $66 million and $67 million in 2022 and 2021, respectively. Commercial real estate loans originated for sale to other investors totaled $1.3 billion and $1.0 billion during the six-month periods ended June 30, 2022 and 2021, respectively.
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Service charges on deposit accounts aggregated $226 million during the first six months of 2022, compared with $191 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 $359 million and $319 million during the first six 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 activities and higher retirement services income from growth in collective fund balances, as well as revenues associated with the People's United acquisition. Brokerage services income totaled $44 million in the first six months of 2022, compared with $23 million in the six-month period ended June 30, 2021. That increase was reflective of the product delivery change related to the LPL transaction described herein.
Net unrealized losses on investment securities totaling $1 million were recognized during the first six months of 2022, compared with net unrealized losses of $23 million, primarily on investments of Fannie Mae and Freddie Mac preferred stock, in the corresponding 2021 period.
Other revenues from operations totaled $284 million in the first six months of 2022, compared with $224 million in the year-earlier period. Other revenues from operations include the following significant components. Letter of credit and other credit-related fees aggregated $65 million and $60 million in 2022 and 2021, respectively. Merchant discount and credit card fees were $79 million and $62 million in the first six months of 2022 and 2021, respectively. Income from bank owned life insurance totaled $24 million in the first six months of 2022, compared with $23 million in the corresponding 2021 period. Insurance-related commissions and other revenues aggregated $29 million and $25 million in the first six months of 2022 and 2021, respectively. M&T’s investment in BLG resulted in income of $30 million in the first six months of 2022; there was no similar income in the first half of 2021.
Other Expense
Other expense totaled $1.40 billion in the second quarter of 2022, compared with $865 million in the year-earlier quarter and $960 million in the first 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, $3 million and $1 million and merger-related expenses of $223 million, $4 million and $17 million in the recent quarter, second quarter of 2021 and first quarter of 2022, respectively. Exclusive of those nonoperating expenses, noninterest operating expenses were $1.16 billion in the recent quarter, compared with $859 million in the year-earlier quarter and $941 million in the initial 2022 quarter. Operations acquired from People's United contributed approximately $259 million to noninterest operating expenses in the second quarter of 2022. As compared with the second quarter of 2021, factors contributing to the increased level of expenses in 2022’s second 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 costs, offset by lower defined benefit pension-related expenses included in other costs of operations. As compared with the first quarter of 2022, the increase due to the operations associated with People's United in the recent quarter was offset by lower costs for salaries and employee benefits, reflecting seasonally higher stock-based compensation, payroll-related taxes and other employee benefits recorded in the first quarter of 2022. Table 2 provides a reconciliation of other expense to noninterest operating expense.
Other expense for the first half of 2022 totaled $2.36 billion, compared with $1.78 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 $20 million and $5 million in the six-month periods ended June 30, 2022 and 2021, respectively, and merger-related expenses of $240 million and $14 million during the same respective periods. Exclusive of those nonoperating expenses, noninterest operating expenses for the first half of 2022 were $2.10 billion, compared with $1.77 billion in the first six months of 2021. In addition to the $259 million of operating expenses associated with the People's United acquisition, the year-over-year increase reflects higher costs for salaries and employee benefits and outside data processing and software, partially offset by lower defined benefit pension-related expenses included in other costs of operations.
Salaries and employee benefits expense totaled $776 million in the second quarter of 2022, compared with $479 million in the year-earlier quarter and $578 million in the first quarter of 2022. Excluding the nonoperating expense
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items described earlier, salaries and employee benefits expense totaled $691 million in the second quarter of 2022. In addition to People's United-related salaries and employee benefits expense of $161 million, the higher operating expense in the recent quarter as compared with the second quarter of 2021 reflects higher employee staffing levels and an increase in incentive compensation. Comparing the recent quarter with the first quarter of 2022, the effect of seasonally higher stock-based compensation, medical plan costs, payroll-related taxes, unemployment insurance and the Company’s contributions for retirement savings plan benefits related to annual incentive compensation payments that totaled $74 million in the initial 2022 quarter, partially offset the impact of annual merit increases and People's United-related salaries and employee benefits. During the first six months of 2022 and 2021, salaries and employee benefits expense aggregated $1.35 billion and $1.02 billion, respectively. Excluding nonoperating expenses described herein, salaries and employee benefits expense in the first half of 2022 totaled $1.27 billion. The higher operating expense level in 2022 largely reflects the addition of People's United employees at the beginning of the second quarter, increased staffing levels, higher salaries resulting from annual merit increases and a rise in incentive compensation, including stock-based 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. As a result, stock-based compensation expense during the first quarters of 2022 and 2021 included $36 million and $34 million, respectively, that would have been recognized over the normal vesting period if not for the accelerated recognition provisions of GAAP. That acceleration had no effect on the value of stock-based compensation awarded to employees. Salaries and employee benefits expense included stock-based compensation of $23 million, $13 million and $50 million, in the three-month periods ended June 30, 2022, June 30, 2021 and March 31, 2022, respectively, and $73 million and $61 million during the six-month periods ended June 30, 2022 and June 30, 2021, respectively. The number of full-time equivalent employees was 22,680 at June 30, 2022, compared with 16,978 and 17,457 at June 30, 2021 and March 31, 2022, respectively. The increase in staffing levels in the recent quarter as compared with the prior periods 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 $471 million, $380 million and $364 million in the quarters ended June 30, 2022, June 30, 2021 and March 31, 2022, respectively. On that same basis, such expenses were $835 million and $745 million in the six-month periods ended June 30, 2022 and 2021, respectively. Expenses in the recent quarter include $98 million associated with the People's United acquired operations. In addition to those expenses, higher costs for equipment and net occupancy, outside data processing and software, and other operating expenses in the recent quarter when compared to the year-earlier quarter 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 have generally 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 in the plan 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. In addition to the People's United-related expenses described herein, the increase in non-personnel operating expenses in 2022’s second quarter as compared with 2022’s first quarter reflects higher professional services expense.
The efficiency ratio measures the relationship of noninterest operating expenses to revenues. The Company’s efficiency ratio was 58.3% during the recent quarter, compared with 58.4% and 64.9% in the second quarter of 2021 and first quarter of 2022, respectively. The efficiency ratios for the six-month periods ended June 30, 2022 and 2021 were 61.1% and 59.4%, respectively. The calculation of the efficiency ratio is presented in Table 2.
Income Taxes
The provision for income taxes was $60 million in the second quarter of 2022, compared with $148 million in the year-earlier quarter and $113 million in the initial 2022 quarter. For the six-month periods ended June 30, 2022 and
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2021, the provisions for income taxes were $173 million and $293 million, respectively. The effective tax rates were 21.7%, 24.4% and 23.8% for the quarters ended June 30, 2022, June 30, 2021 and March 31, 2022, respectively, and 23.0% and 24.4% for the six-month periods ended June 30, 2022 and 2021, respectively.
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 $25.8 billion at June 30, 2022, representing 12.64% of total assets, compared with $16.7 billion or 11.10% a year earlier and $17.9 billion or 11.54% at December 31, 2021. The increase in shareholders' equity resulted predominantly from the issuance of 50,325,004 M&T common shares and other 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 at June 30, 2022, compared with $1.25 billion at June 30, 2021 and $1.75 billion at December 31, 2021. On April 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. Through December 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 to December 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 after April 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 $23.8 billion, or $135.16 per share, at June 30, 2022, compared with $15.5 billion, or $120.22 per share, a year earlier and $16.2 billion, or $125.51 per share, at December 31, 2021. Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $85.78 at the end of the recent quarter, compared with $84.47 at June 30, 2021 and $89.80 at December 31, 2021. The Company’s ratio of tangible common equity to tangible assets was 7.73% at June 30, 2022, compared with 7.44% a year earlier and 7.68% at December 31, 2021. Reconciliations of total common shareholders’ equity and tangible common equity and total assets and tangible assets as of each of those respective 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 $129 million or $.73 per common share, at June 30, 2022 compared with net unrealized gains of $114 million, or $.89 per common share, at June 30, 2021 and $78 million, or $.60 per common share, at December 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 of June 30, 2022 and December 31, 2021 is included in note 3 of Notes to Financial Statements.
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Reflected in the carrying amount of available-for-sale investment securities at June 30, 2022 were pre-tax effect unrealized gains of $4 million on securities with an amortized cost of $536 million and pre-tax effect unrealized losses of $179 million on securities with an amortized cost of $8.3 billion. Information concerning the Company’s fair valuations of investment securities is provided in notes 3 and 13 of Notes to Financial Statements.
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 of June 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 of June 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 allowance for credit losses for its investment securities classified as held-to-maturity at June 30, 2022 and December 31, 2021. The Company assessed the potential for expected credit losses on obligations of states and political subdivisions by assigning probabilities of default to pools of such securities using third-party credit ratings and internally developed risk ratings. The amortized cost basis of obligations of states and political subdivisions in the held-to-maturity portfolio totaled $2.7 billion at June 30, 2022 and less than $1 million at December 31, 2021. The increase reflected municipal securities obtained in the acquisition of People's United. Expected credit losses resulting from the analysis for obligations of states and political subdivisions were immaterial. The Company also estimated credit losses on privately issued mortgage-backed securities in the held-to-maturity portfolio by performing internal modeling to estimate bond-specific cash flows considering recent performance of the mortgage loan collateral and utilizing assumptions about future defaults and loss severity. These bond-specific cash flows also reflect the placement of the bond in the overall securitization structure and the remaining subordination levels. In total, at June 30, 2022 and December 31, 2021, the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of $55 million and $62 million, respectively, and a fair value of $55 million and $57 million at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022, 82% 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 has concluded that as of June 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 $261 million, or $1.48 per common share, at June 30, 2022, $451 million or $3.51 per common share, at June 30, 2021 and $267 million or $2.08 per common share, at December 31, 2021.
In January 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. In February 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 the first quarter of 2022 or the first six months of 2021. On July 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 in July 2022 replaced the previous plan.
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Cash dividends declared on M&T's common stock totaled $215 million in the recent quarter, compared with $143 million and $156 million in the quarters ended June 30, 2021 and March 31, 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 dividends during the six-month periods ended June 30, 2022 and 2021 were $371 million and $285 million, respectively. Cash dividends declared on preferred stock aggregated $25 million in the recent quarter compared with $17 million in the second quarter of 2021 and $22 million in the first quarter of 2022. Preferred stock dividends totaled $47 million and $34 million during the first six 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);
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 the Federal Reserve’s supervisory stress tests and M&T’s bank subsidiaries are subject to a capital conservation buffer requirement. The buffer requirement for each entity is currently 2.5% of risk weighted assets and must be composed entirely of CET1. In June 2022, the Federal Reserve released the results of its most recent supervisory stress tests. Based on these results, as of October 1, 2022, M&T's preliminary stress capital buffer is estimated to be 4.7%.
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, M&T Bank and Wilmington Trust, N.A., as of June 30, 2022 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
June 30, 2022
| M&T | M&T | Wilmington | ||||
| (Consolidated) | Bank | Trust, N.A. | ||||
| Common equity Tier 1 | 10.94% | 11.55% | 290.34% | |||
| Tier 1 capital | 12.35% | 11.55% | 290.34% | |||
| Total capital | 14.27% | 13.14% | 290.82% | |||
| Tier 1 leverage | 8.84% | 8.27% | 85.07% |
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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, the Deposit 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 ended December 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 recorded net income of $71 million in the second quarter of 2022, compared with $42 million in the year-earlier quarter and $41 million in the first quarter of 2022. As compared with second quarter of 2021, the increase in the recent quarter reflected higher net interest income of $49 million and higher service charges on deposit accounts of $7 million (each reflecting the impact of the People’s United acquisition). Partially offsetting those favorable factors was a $12 million rise in centrally-allocated costs associated with data processing, risk management and other support services provided to the Business Banking segment and a $3 million increase in salaries and employee benefits expenses. The higher net interest income reflected a widening of the net interest margin on deposits and loans of 43 basis points and 37 basis points, respectively, and higher average outstanding balances of deposits of $7.5 billion. The increase in net income in the recent quarter as compared with the initial quarter of 2022 was predominantly due to higher net interest income of $53 million reflecting higher average outstanding deposits and loan balances of $6.8 billion and $1.5 billion, respectively, and higher service charges on deposit accounts of $5 million (each reflecting the impact of the People’s United acquisition). These favorable factors were partially offset by an $11 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 $4 million. Net income recorded by the Business Banking segment in the first half of 2022 was $112 million, compared with $88 million in the year-earlier period. The improvement resulted from a rise in net interest income of $28 million, higher service charges on deposit accounts of $9 million and higher merchant discount and credit card fees of $6 million. The results reflected a full-quarter impact of the People’s United acquisition. The improvements were offset, in part, by $13 million of higher centrally-allocated costs associated with data processing, risk management and other support services provided to the Business Banking segment. The increase in net interest income reflected increases in average outstanding deposit balances of $4.7 billion and a widening of the net interest margin on deposits of 19 basis points.
The Commercial Banking segment recorded net income of $130 million during the quarter ended June 30, 2022, compared with $111 million in the year-earlier quarter and $145 million in the first quarter of 2022. The increase in net income as compared with the second quarter of 2021 reflected higher net interest income of $53 million (inclusive of the impact of the People’s United acquisition), which was partially offset by a $22 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Commercial Banking segment and higher personnel-related costs of $10 million (including the impact of employees from the People’s United acquisition). The rise in net interest income as compared with the year-earlier quarter was due to increases in average outstanding loans and deposits and a widening of the net interest margin on deposits of 48 basis points. As compared with the initial 2022 quarter, the decrease in net income in the recent quarter was due to a $39 million increase in the provision for credit losses, an $18 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Commercial Banking segment and $9 million increase in personnel-related costs. Partially offsetting those declines was an increase of $44 million in net interest income (inclusive of the impact from the People’s United acquisition), reflecting an increase in average
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outstanding loan and deposit balances of $8.2 billion and $3.8 billion, respectively. Net income earned by the Commercial Banking segment totaled $275 million for the first half of 2022, as compared with $234 million earned in the similar 2021 period. That increase was primarily the result of higher net interest income of $59 million (reflecting the impact of the People’s United acquisition) that was driven by higher average balances of loans and a widening on the net interest margin on deposits of 25 basis points.
The Commercial Real Estate segment recorded net income of $122 million in the second quarter of 2022, compared with $87 million in the year-earlier period and $98 million in the initial 2022 quarter. Contributing to the rise in the recent quarter’s net income as compared with the year-earlier quarter was an increase in net interest income of $29 million (reflecting the impact of the People’s United acquisition) and a decrease in the provision for credit losses. The higher net interest income was predominantly due to increased average outstanding balances of loans and deposits of $6.1 billion and $2.6 billion, respectively, and a widening of the net interest margin on deposits of 35 basis points. The recent quarter's rise in net income as compared with the first quarter of 2022 reflects a $29 million increase in net interest income due to higher average balances of loans and deposits of $8.3 billion and $1.4 billion (reflecting additional loans and deposits obtained in the People’s United acquisition), respectively, offset in part, by a $9 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Commercial Real Estate segment. Net income for the Commercial Real Estate segment totaled $219 million and $158 million during the six-month periods ended June 30, 2022 and 2021, respectively. Contributing to that increase was a $54 million decrease to the provision for credit losses and higher net interest income of $26 million (reflecting a full-quarter impact of People’s United-related net interest income). Those favorable factors were partially offset by $16 million of higher centrally-allocated costs associated with data processing, risk management and other support services provided to the Commercial Real Estate segment. The rise in net interest income in the first half of 2022 as compared with the similar 2021 period was mainly due to higher average outstanding balances of deposits and loans of $2.0 billion and $1.9 billion, respectively, and a widening of the net interest margin on deposits of 16 basis points.
The Discretionary Portfolio segment contributed net income of $56 million during the three-month period ended June 30, 2022, compared with $79 million in the year-earlier period, and $35 million in the first quarter of 2022. The decrease in net income as compared with the second quarter of 2021 was largely driven by higher intersegment fees paid to the Residential Mortgage Banking segment and lower net interest income reflecting narrowed margins on loans and investment securities. The improvement in the recent quarter’s net income as compared with the first quarter of 2022 was primarily due to a $25 million increase in net interest income, reflecting higher average outstanding balances of loans and investment securities reflecting the People’s United acquisition and additions during the recent quarter. Year-to-date net income for this segment totaled $91 million in 2022 and $169 million in 2021. The factors contributing to the year-over-year decrease in net income included a reduction in net interest income of $83 million reflecting compressed margins on loans and deposits plus higher intersegment fees paid to the Residential Mortgage Banking segment.
Net income from the Residential Mortgage Banking segment was $9 million during the quarter ended June 30, 2022, compared with $30 million in the year-earlier quarter and $29 million in the first quarter of 2022. The decline in the recent quarter as compared with the second 2021 quarter was driven by a decrease in gain on sales of residential mortgages of $36 million (including intersegment revenues) and lower net interest income of $9 million that was partially offset by an increase of $14 million from servicing residential real estate loans (including intersegment revenues). The decrease in the recent quarter’s net income as compared with the immediately preceding quarter was due to lower gains on sale of $25 million of residential mortgages (including intersegment revenues), partially offset by $5 million in lower servicing-related costs (including intersegment costs). The Residential Mortgage Banking segment contributed $38 million of net income in the first six months of 2022, compared with $80 million in the corresponding 2021 period. That decline in net income was driven by lower gains on sales of residential mortgages of $57 million from the year earlier period, as well as an $11 million decrease in net interest income due to lower average outstanding balances of loans and deposits of $1.6 billion and $1.4 billion, respectively, and a tightening of the net interest margin on loans of 106 basis points, and $12 million of higher centrally-allocated costs associated with data processing, risk management and other support services provided to the Residential Mortgage Banking segment. Those unfavorable factors were offset, in part, by higher loan servicing revenues of $22 million.
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Net income earned by the Retail Banking segment totaled $139 million in the second quarter of 2022, compared with $89 million in the year-earlier quarter and $84 million in the initial 2022 quarter. The increase in the current quarter as compared with the second quarter of 2021 reflects an increase in net interest income of $211 million, service charges on deposit accounts of $12 million and other fees of $15 million. The rise in net interest income was due to higher average outstanding deposit and loan balances of $29.2 billion and $11.9 billion (including the impact of the People’s United acquisition), respectively, and a widening of the net interest margin on deposits of 33 basis points. Those increases were partially offset by higher personnel related costs of $74 million, a rise in centrally-allocated expenses associated with support services provided to the Retail Banking segment of $55 million, and an increase in equipment and net occupancy costs of $24 million. The higher costs in the second quarter of 2022 compared with the year-earlier quarter also reflect the acquisition of People’s United. The recent quarter’s increase in net income as compared with the first quarter of 2022 reflects higher net interest income of $205 million, mainly driven by increases in average outstanding balances in deposits and loans of $27.7 billion and $10.9 billion, respectively, partially offset by an increase of $70 million in personnel-related costs, an increase of $47 million in centrally-allocated operation expenses associated with data processing, risk management and other support services provided to the Retail Banking segment and $23 million in higher equipment and net occupancy costs, all of which were impacted by the acquisition of People’s United in the recent quarter. Net income recorded by the Retail Banking segment totaled $224 million in the first half of 2022 and $175 million in the like 2021 period. Factors contributing to the year-over-year rise were an increase in net interest income of $214 million, reflecting an increase in average outstanding deposit and loan balances of $16.5 billion and $6.7 billion (inclusive of a full-quarter impact from the People’s United acquisition), respectively, and $17 million of service charges on deposit accounts, partially offset by $77 million in higher personnel-related costs, a $70 million rise in centrally-allocated expenses associated with data processing, risk management and other support services provided to the Retail Banking segment, and higher equipment and net occupancy charges of $23 million. The higher costs reflect, in large part, the full-quarter impact of the People’s United acquisition.
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 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 resulted in a net loss totaling $310 million in the second quarter of 2022, compared with net income of $21 million in the prior-year quarter and a net loss of $70 million in the initial 2022 quarter. The “All Other” category had a net loss of $380 million for the six months ended June 30, 2022, compared with net income of $2 million recorded in the corresponding period of 2021. As compared with the earlier comparable periods, the net loss in the recent quarter and the first six months of 2022 reflected an increased provision for credit losses and higher merger-related expenses associated with the acquisition of People's United that were partially offset by 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.
Recent Accounting Developments
A discussion of recent accounting developments is included in note 17 of Notes to Financial Statements.
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Forward-Looking Statements
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 the SEC. 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.
Future factors include the impact of the People's United transaction (as described in the next paragraph); the impact of the war in Ukraine; the impact of the COVID-19 pandemic; economic conditions including inflation and supply chain issues; 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 the Financial 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.
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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 ended December 31, 2021, including in the Risk Factors section of such report, as well as in other SEC 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.
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M&T BANK CORPORATION AND SUBSIDIARIES
Table 1
QUARTERLY TRENDS
| 2022 Quarters | 2021 Quarters | |||||||||||||||||||||||
| Second | First | Fourth | Third | Second | First | |||||||||||||||||||
| Earnings and dividends | ||||||||||||||||||||||||
| Amounts in thousands, except per share | ||||||||||||||||||||||||
| Interest income (taxable-equivalent basis) | $ | 1,475,868 | 931,490 | 962,081 | 996,649 | 974,090 | 1,020,695 | |||||||||||||||||
| Interest expense | 53,425 | 24,082 | 24,725 | 25,696 | 28,018 | 35,567 | ||||||||||||||||||
| Net interest income | 1,422,443 | 907,408 | 937,356 | 970,953 | 946,072 | 985,128 | ||||||||||||||||||
| Less: provision for credit losses | 302,000 | 10,000 | (15,000 | ) | (20,000 | ) | (15,000 | ) | (25,000 | ) | ||||||||||||||
| Other income | 571,100 | 540,887 | 578,637 | 569,126 | 513,633 | 505,598 | ||||||||||||||||||
| Less: other expense | 1,403,154 | 959,741 | 927,500 | 899,334 | 865,345 | 919,444 | ||||||||||||||||||
| Income before income taxes | 288,389 | 478,554 | 603,493 | 660,745 | 609,360 | 596,282 | ||||||||||||||||||
| Applicable income taxes | 60,141 | 113,146 | 141,962 | 161,582 | 147,559 | 145,300 | ||||||||||||||||||
| Taxable-equivalent adjustment | 10,726 | 3,234 | 3,563 | 3,703 | 3,732 | 3,733 | ||||||||||||||||||
| Net income | $ | 217,522 | 362,174 | 457,968 | 495,460 | 458,069 | 447,249 | |||||||||||||||||
| Net income available to common shareholders-diluted | $ | 192,236 | 339,590 | 434,171 | 475,961 | 438,759 | 428,093 | |||||||||||||||||
| Per common share data | ||||||||||||||||||||||||
| Basic earnings | $ | 1.08 | 2.63 | 3.37 | 3.70 | 3.41 | 3.33 | |||||||||||||||||
| Diluted earnings | 1.08 | 2.62 | 3.37 | 3.69 | 3.41 | 3.33 | ||||||||||||||||||
| Cash dividends | $ | 1.20 | 1.20 | 1.20 | 1.10 | 1.10 | 1.10 | |||||||||||||||||
| Average common shares outstanding | ||||||||||||||||||||||||
| Basic | 177,367 | 128,945 | 128,698 | 128,689 | 128,671 | 128,537 | ||||||||||||||||||
| Diluted | 178,277 | 129,416 | 128,888 | 128,844 | 128,842 | 128,669 | ||||||||||||||||||
| Performance ratios, annualized | ||||||||||||||||||||||||
| Return on | ||||||||||||||||||||||||
| Average assets | .42 | % | .97 | % | 1.15 | % | 1.28 | % | 1.22 | % | 1.22 | % | ||||||||||||
| Average common shareholders’ equity | 3.21 | % | 8.55 | % | 10.91 | % | 12.16 | % | 11.55 | % | 11.57 | % | ||||||||||||
| Net interest margin on average earning assets (taxable-equivalent basis) | 3.01 | % | 2.65 | % | 2.58 | % | 2.74 | % | 2.77 | % | 2.97 | % | ||||||||||||
| Nonaccrual loans to total loans and leases, net of unearned discount | 2.05 | % | 2.32 | % | 2.22 | % | 2.40 | % | 2.31 | % | 1.97 | % | ||||||||||||
| Net operating (tangible) results (a) | ||||||||||||||||||||||||
| Net operating income (in thousands) | $ | 577,622 | 375,999 | 475,477 | 504,030 | 462,959 | 457,372 | |||||||||||||||||
| Diluted net operating income per common share | $ | 3.10 | 2.73 | 3.50 | 3.76 | 3.45 | 3.41 | |||||||||||||||||
| Annualized return on | ||||||||||||||||||||||||
| Average tangible assets | 1.16 | % | 1.04 | % | 1.23 | % | 1.34 | % | 1.27 | % | 1.29 | % | ||||||||||||
| Average tangible common shareholders’ equity | 14.41 | % | 12.44 | % | 15.98 | % | 17.54 | % | 16.68 | % | 17.05 | % | ||||||||||||
| Efficiency ratio (b) | 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) | $ | 208,865 | 151,648 | 157,722 | 154,037 | 150,641 | 148,157 | |||||||||||||||||
| Total tangible assets (c) | 200,170 | 147,053 | 153,125 | 149,439 | 146,041 | 143,554 | ||||||||||||||||||
| Earning assets | 189,755 | 138,624 | 144,420 | 140,420 | 136,951 | 134,355 | ||||||||||||||||||
| Investment securities | 22,384 | 7,724 | 6,804 | 6,019 | 6,211 | 6,605 | ||||||||||||||||||
| Loans and leases, net of unearned discount | 127,599 | 92,159 | 93,250 | 95,314 | 98,610 | 99,356 | ||||||||||||||||||
| Deposits | 174,683 | 128,055 | 134,444 | 131,255 | 128,413 | 125,733 | ||||||||||||||||||
| Common shareholders’ equity (c) | 24,079 | 16,144 | 15,863 | 15,614 | 15,321 | 15,077 | ||||||||||||||||||
| Tangible common shareholders’ equity (c) | 15,384 | 11,549 | 11,266 | 11,016 | 10,721 | 10,474 | ||||||||||||||||||
| At end of quarter | ||||||||||||||||||||||||
| Total assets (c) | $ | 204,033 | 149,864 | 155,107 | 151,901 | 150,623 | 150,481 | |||||||||||||||||
| Total tangible assets (c) | 195,344 | 145,269 | 150,511 | 147,304 | 146,023 | 145,879 | ||||||||||||||||||
| Earning assets | 185,109 | 137,237 | 141,990 | 138,257 | 137,171 | 137,367 | ||||||||||||||||||
| Investment securities | 22,802 | 9,357 | 7,156 | 6,448 | 6,143 | 6,611 | ||||||||||||||||||
| Loans and leases, net of unearned discount | 128,486 | 91,808 | 92,912 | 93,583 | 97,113 | 99,299 | ||||||||||||||||||
| Deposits | 170,358 | 126,319 | 131,543 | 128,701 | 128,269 | 128,476 | ||||||||||||||||||
| Common shareholders’ equity (c) | 23,784 | 16,126 | 16,153 | 15,779 | 15,470 | 15,197 | ||||||||||||||||||
| Tangible common shareholders’ equity (c) | 15,095 | 11,531 | 11,557 | 11,182 | 10,870 | 10,595 | ||||||||||||||||||
| Equity per common share | 135.16 | 124.93 | 125.51 | 122.60 | 120.22 | 118.12 | ||||||||||||||||||
| Tangible equity per common share | 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 | |||||||||||||||||||||||
| Second | First | Fourth | Third | Second | First | |||||||||||||||||||
| Income statement data (in thousands, except per share) | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Net income | $ | 217,522 | 362,174 | 457,968 | 495,460 | 458,069 | 447,249 | |||||||||||||||||
| Amortization of core deposit and other intangible assets (a) | 14,138 | 933 | 1,447 | 2,028 | 2,023 | 2,034 | ||||||||||||||||||
| Merger-related expenses (a) | 345,962 | 12,892 | 16,062 | 6,542 | 2,867 | 8,089 | ||||||||||||||||||
| Net operating income | $ | 577,622 | 375,999 | 475,477 | 504,030 | 462,959 | 457,372 | |||||||||||||||||
| Earnings per common share | ||||||||||||||||||||||||
| Diluted earnings per common share | $ | 1.08 | 2.62 | 3.37 | 3.69 | 3.41 | 3.33 | |||||||||||||||||
| Amortization of core deposit and other intangible assets (a) | .08 | .01 | .01 | .02 | .02 | .02 | ||||||||||||||||||
| Merger-related expenses (a) | 1.94 | .10 | .12 | .05 | .02 | .06 | ||||||||||||||||||
| Diluted net operating earnings per common share | $ | 3.10 | 2.73 | 3.50 | 3.76 | 3.45 | 3.41 | |||||||||||||||||
| Other expense | ||||||||||||||||||||||||
| Other expense | $ | 1,403,154 | 959,741 | 927,500 | 899,334 | 865,345 | 919,444 | |||||||||||||||||
| Amortization of core deposit and other intangible assets | (18,384 | ) | (1,256 | ) | (1,954 | ) | (2,738 | ) | (2,737 | ) | (2,738 | ) | ||||||||||||
| Merger-related expenses | (222,809 | ) | (17,372 | ) | (21,190 | ) | (8,826 | ) | (3,893 | ) | (9,951 | ) | ||||||||||||
| Noninterest operating expense | $ | 1,161,961 | 941,113 | 904,356 | 887,770 | 858,715 | 906,755 | |||||||||||||||||
| Merger-related expenses | ||||||||||||||||||||||||
| Salaries and employee benefits | $ | 85,299 | 87 | 112 | 60 | 4 | — | |||||||||||||||||
| Equipment and net occupancy | 502 | 1,807 | 340 | 1 | — | — | ||||||||||||||||||
| Outside data processing and software | 716 | 252 | 250 | 625 | 244 | — | ||||||||||||||||||
| Advertising and marketing | 1,199 | 628 | 337 | 505 | 24 | — | ||||||||||||||||||
| Printing, postage and supplies | 2,460 | 722 | 186 | 730 | 2,049 | — | ||||||||||||||||||
| Other costs of operations | 132,633 | 13,876 | 19,965 | 6,905 | 1,572 | 9,951 | ||||||||||||||||||
| Other expense | 222,809 | 17,372 | 21,190 | 8,826 | 3,893 | 9,951 | ||||||||||||||||||
| Provision for credit losses | 242,000 | — | — | — | — | — | ||||||||||||||||||
| Total | $ | 464,809 | $ | 17,372 | $ | 21,190 | $ | 8,826 | $ | 3,893 | $ | 9,951 | ||||||||||||
| Efficiency ratio | ||||||||||||||||||||||||
| Noninterest operating expense (numerator) | $ | 1,161,961 | 941,113 | 904,356 | 887,770 | 858,715 | 906,755 | |||||||||||||||||
| Taxable-equivalent net interest income | $ | 1,422,443 | 907,408 | 937,356 | 970,953 | 946,072 | 985,128 | |||||||||||||||||
| Other income | 571,100 | 540,887 | 578,637 | 569,126 | 513,633 | 505,598 | ||||||||||||||||||
| Less: Gain (loss) on bank investment securities | (62 | ) | (743 | ) | 1,426 | 291 | (10,655 | ) | (12,282 | ) | ||||||||||||||
| Denominator | $ | 1,993,605 | 1,449,038 | 1,514,567 | 1,539,788 | 1,470,360 | 1,503,008 | |||||||||||||||||
| Efficiency ratio | 58.3 | % | 64.9 | % | 59.7 | % | 57.7 | % | 58.4 | % | 60.3 | % | ||||||||||||
| Balance sheet data (in millions) | ||||||||||||||||||||||||
| Average assets | ||||||||||||||||||||||||
| Average assets | $ | 208,865 | 151,648 | 157,722 | 154,037 | 150,641 | 148,157 | |||||||||||||||||
| Goodwill | (8,501 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | ||||||||||||
| Core deposit and other intangible assets | (254 | ) | (3 | ) | (5 | ) | (7 | ) | (10 | ) | (13 | ) | ||||||||||||
| Deferred taxes | 60 | 1 | 1 | 2 | 3 | 3 | ||||||||||||||||||
| Average tangible assets | $ | 200,170 | 147,053 | 153,125 | 149,439 | 146,041 | 143,554 | |||||||||||||||||
| Average common equity | ||||||||||||||||||||||||
| Average total equity | $ | 26,090 | 17,894 | 17,613 | 17,109 | 16,571 | 16,327 | |||||||||||||||||
| Preferred stock | (2,011 | ) | (1,750 | ) | (1,750 | ) | (1,495 | ) | (1,250 | ) | (1,250 | ) | ||||||||||||
| Average common equity | 24,079 | 16,144 | 15,863 | 15,614 | 15,321 | 15,077 | ||||||||||||||||||
| Goodwill | (8,501 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | ||||||||||||
| Core deposit and other intangible assets | (254 | ) | (3 | ) | (5 | ) | (7 | ) | (10 | ) | (13 | ) | ||||||||||||
| Deferred taxes | 60 | 1 | 1 | 2 | 3 | 3 | ||||||||||||||||||
| Average tangible common equity | $ | 15,384 | 11,549 | 11,266 | 11,016 | 10,721 | 10,474 | |||||||||||||||||
| At end of quarter | ||||||||||||||||||||||||
| Total assets | ||||||||||||||||||||||||
| Total assets | $ | 204,033 | 149,864 | 155,107 | 151,901 | 150,623 | 150,481 | |||||||||||||||||
| Goodwill | (8,501 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | ||||||||||||
| Core deposit and other intangible assets | (245 | ) | (3 | ) | (4 | ) | (6 | ) | (9 | ) | (12 | ) | ||||||||||||
| Deferred taxes | 57 | 1 | 1 | 2 | 2 | 3 | ||||||||||||||||||
| Total tangible assets | $ | 195,344 | 145,269 | 150,511 | 147,304 | 146,023 | 145,879 | |||||||||||||||||
| Total common equity | ||||||||||||||||||||||||
| Total equity | $ | 25,795 | 17,876 | 17,903 | 17,529 | 16,720 | 16,447 | |||||||||||||||||
| Preferred stock | (2,011 | ) | (1,750 | ) | (1,750 | ) | (1,750 | ) | (1,250 | ) | (1,250 | ) | ||||||||||||
| Common equity | 23,784 | 16,126 | 16,153 | 15,779 | 15,470 | 15,197 | ||||||||||||||||||
| Goodwill | (8,501 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | (4,593 | ) | ||||||||||||
| Core deposit and other intangible assets | (245 | ) | (3 | ) | (4 | ) | (6 | ) | (9 | ) | (12 | ) | ||||||||||||
| Deferred taxes | 57 | 1 | 1 | 2 | 2 | 3 | ||||||||||||||||||
| Total tangible common equity | $ | 15,095 | 11,531 | 11,557 | 11,182 | 10,870 | 10,595 |
(a)
After any related tax effect.
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M&T BANK CORPORATION AND SUBSIDIARIES
Table 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
| 2022 Second Quarter | 2022 First Quarter | 2021 Fourth Quarter | |||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | |||||||||||||||||||||||||||||
| Average balance in millions; interest in thousands | |||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||
| Earning assets | |||||||||||||||||||||||||||||||||||||
| Loans and leases, net of unearned discount (a) | |||||||||||||||||||||||||||||||||||||
| Commercial, financial, etc. | $ | 37,818 | $ | 373,543 | 3.96 | % | $ | 23,305 | $ | 207,715 | 3.61 | % | $ | 22,330 | $ | 205,491 | 3.65 | % | |||||||||||||||||||
| Real estate – commercial | 47,227 | 461,594 | 3.87 | 34,957 | 337,100 | 3.86 | 36,717 | 364,795 | 3.89 | ||||||||||||||||||||||||||||
| Real estate – consumer | 22,761 | 207,080 | 3.64 | 15,870 | 141,001 | 3.55 | 16,290 | 143,675 | 3.53 | ||||||||||||||||||||||||||||
| Consumer | 19,793 | 210,290 | 4.26 | 18,027 | 188,017 | 4.23 | 17,913 | 194,619 | 4.31 | ||||||||||||||||||||||||||||
| Total loans and leases, net | 127,599 | 1,252,507 | 3.94 | 92,159 | 873,833 | 3.85 | 93,250 | 908,580 | 3.87 | ||||||||||||||||||||||||||||
| Interest-bearing deposits at banks | 39,386 | 80,773 | .82 | 38,693 | 18,280 | .19 | 44,316 | 16,984 | .15 | ||||||||||||||||||||||||||||
| Federal funds sold and agreements to resell securities | 250 | 253 | .41 | — | — | .71 | — | — | .47 | ||||||||||||||||||||||||||||
| Trading account | 136 | 199 | .59 | 48 | 194 | 1.61 | 50 | 202 | 1.62 | ||||||||||||||||||||||||||||
| Investment securities (b) | |||||||||||||||||||||||||||||||||||||
| U.S. Treasury and federal agencies | 18,644 | 109,755 | 2.36 | 7,077 | 35,911 | 2.06 | 6,150 | 32,516 | 2.10 | ||||||||||||||||||||||||||||
| Obligations of states and political subdivisions | 2,768 | 23,344 | 3.38 | — | 3 | 6.99 | — | 3 | 6.82 | ||||||||||||||||||||||||||||
| Other | 972 | 9,037 | 3.73 | 647 | 3,269 | 2.05 | 654 | 3,796 | 2.30 | ||||||||||||||||||||||||||||
| Total investment securities | 22,384 | 142,136 | 2.55 | 7,724 | 39,183 | 2.06 | 6,804 | 36,315 | 2.12 | ||||||||||||||||||||||||||||
| Total earning assets | 189,755 | 1,475,868 | 3.12 | 138,624 | 931,490 | 2.72 | 144,420 | 962,081 | 2.64 | ||||||||||||||||||||||||||||
| Allowance for credit losses | (1,814 | ) | (1,475 | ) | (1,521 | ) | |||||||||||||||||||||||||||||||
| Cash and due from banks | 1,690 | 1,448 | 1,483 | ||||||||||||||||||||||||||||||||||
| Other assets | 19,234 | 13,051 | 13,340 | ||||||||||||||||||||||||||||||||||
| Total assets | $ | 208,865 | $ | 151,648 | $ | 157,722 | |||||||||||||||||||||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||||||||||
| Savings and interest-checking deposits | $ | 95,149 | $ | 27,907 | .12 | $ | 67,267 | $ | 6,747 | .04 | $ | 70,518 | $ | 6,443 | .04 | ||||||||||||||||||||||
| Time deposits | 5,480 | 1,227 | .09 | 2,647 | 1,397 | .21 | 2,914 | 2,968 | .40 | ||||||||||||||||||||||||||||
| Deposits at Cayman Islands office | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Total interest-bearing deposits | 100,629 | 29,134 | .12 | 69,914 | 8,144 | .05 | 73,432 | 9,411 | .05 | ||||||||||||||||||||||||||||
| Short-term borrowings | 1,126 | 3,419 | 1.22 | 56 | 1 | .01 | 58 | — | .01 | ||||||||||||||||||||||||||||
| Long-term borrowings | 3,282 | 20,872 | 2.55 | 3,442 | 15,937 | 1.88 | 3,441 | 15,314 | 1.77 | ||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 105,037 | 53,425 | .20 | 73,412 | 24,082 | .13 | 76,931 | 24,725 | .12 | ||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 74,054 | 58,141 | 61,012 | ||||||||||||||||||||||||||||||||||
| Other liabilities | 3,684 | 2,201 | 2,166 | ||||||||||||||||||||||||||||||||||
| Total liabilities | 182,775 | 133,754 | 140,109 | ||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 26,090 | 17,894 | 17,613 | ||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 208,865 | $ | 151,648 | $ | 157,722 | |||||||||||||||||||||||||||||||
| Net interest spread | 2.92 | 2.59 | 2.52 | ||||||||||||||||||||||||||||||||||
| Contribution of interest-free funds | .09 | .06 | .06 | ||||||||||||||||||||||||||||||||||
| Net interest income/margin on earning assets | $ | 1,422,443 | 3.01 | % | $ | 907,408 | 2.65 | % | $ | 937,356 | 2.58 | % |
(a)
Includes nonaccrual loans.
(b)
Includes available-for-sale securities at amortized cost.
(continued)
- 88 -
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
| 2021 Third Quarter | 2021 Second Quarter | ||||||||||||||||||||||||
| Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | ||||||||||||||||||||
| Average balance in millions; interest in thousands | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||
| Earning assets | |||||||||||||||||||||||||
| Loans and leases, net of unearned discount (a) | |||||||||||||||||||||||||
| Commercial, financial, etc. | $ | 23,730 | $ | 236,820 | 3.96 | % | $ | 27,055 | $ | 219,686 | 3.26 | % | |||||||||||||
| Real estate – commercial | 37,547 | 371,150 | 3.87 | 37,419 | 371,050 | 3.92 | |||||||||||||||||||
| Real estate – consumer | 16,379 | 146,898 | 3.59 | 17,022 | 150,704 | 3.54 | |||||||||||||||||||
| Consumer | 17,658 | 193,256 | 4.34 | 17,114 | 189,254 | 4.44 | |||||||||||||||||||
| Total loans and leases, net | 95,314 | 948,124 | 3.95 | 98,610 | 930,694 | 3.79 | |||||||||||||||||||
| Interest-bearing deposits at banks | 39,036 | 14,922 | .15 | 32,081 | 8,711 | .11 | |||||||||||||||||||
| Federal funds sold and agreements to resell securities | — | — | — | — | — | — | |||||||||||||||||||
| Trading account | 51 | 345 | 2.71 | 49 | 216 | 1.76 | |||||||||||||||||||
| Investment securities (b) | |||||||||||||||||||||||||
| U.S. Treasury and federal agencies | 5,352 | 30,362 | 2.25 | 5,525 | 31,621 | 2.30 | |||||||||||||||||||
| Obligations of states and political subdivisions | — | 3 | 6.44 | 1 | 10 | 5.77 | |||||||||||||||||||
| Other | 667 | 2,893 | 1.72 | 685 | 2,838 | 1.66 | |||||||||||||||||||
| Total investment securities | 6,019 | 33,258 | 2.19 | 6,211 | 34,469 | 2.23 | |||||||||||||||||||
| Total earning assets | 140,420 | 996,649 | 2.82 | 136,951 | 974,090 | 2.85 | |||||||||||||||||||
| Allowance for credit losses | (1,577 | ) | (1,642 | ) | |||||||||||||||||||||
| Cash and due from banks | 1,480 | 1,409 | |||||||||||||||||||||||
| Other assets | 13,714 | 13,923 | |||||||||||||||||||||||
| Total assets | $ | 154,037 | $ | 150,641 | |||||||||||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||
| Savings and interest-checking deposits | $ | 70,976 | $ | 7,000 | .04 | $ | 71,561 | $ | 8,052 | .05 | |||||||||||||||
| Time deposits | 3,061 | 3,573 | .46 | 3,358 | 5,085 | .61 | |||||||||||||||||||
| Deposits at Cayman Islands office | — | — | — | 50 | 15 | .12 | |||||||||||||||||||
| Total interest-bearing deposits | 74,037 | 10,573 | .06 | 74,969 | 13,152 | .07 | |||||||||||||||||||
| Short-term borrowings | 91 | 2 | .01 | 61 | 2 | .01 | |||||||||||||||||||
| Long-term borrowings | 3,431 | 15,121 | 1.75 | 3,429 | 14,864 | 1.74 | |||||||||||||||||||
| Total interest-bearing liabilities | 77,559 | 25,696 | .14 | 78,459 | 28,018 | .14 | |||||||||||||||||||
| Noninterest-bearing deposits | 57,218 | 53,444 | |||||||||||||||||||||||
| Other liabilities | 2,151 | 2,167 | |||||||||||||||||||||||
| Total liabilities | 136,928 | 134,070 | |||||||||||||||||||||||
| Shareholders’ equity | 17,109 | 16,571 | |||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 154,037 | $ | 150,641 | |||||||||||||||||||||
| Net interest spread | 2.68 | 2.71 | |||||||||||||||||||||||
| Contribution of interest-free funds | .06 | .06 | |||||||||||||||||||||||
| Net interest income/margin on earning assets | $ | 970,953 | 2.74 | % | $ | 946,072 | 2.77 | % |
(a)
Includes nonaccrual loans.
(b)
Includes available-for-sale securities at amortized cost.
- 89 -
Previous: Item 1. Financial Statements. · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk.