M&T Bank 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9861

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code:

(716) 635-4000

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Number of shares of the registrant's Common Stock, $0.50 par value, outstanding as of the close of business on November 1, 2022: 172,613,343 shares.

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M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2022

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PART I. FINANCIAL INFORMATION

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)

See accompanying notes to financial statements.

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

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Overview

M&T Bank Corporation (“M&T”) had net income of $647 million in the third quarter of 2022, compared with $495 million in the corresponding quarter of 2021 and $218 million in the second quarter of 2022. Diluted and basic earnings per common share were $3.53 and $3.55, respectively, in the recent quarter, $3.69 and $3.70, respectively, in the third quarter of 2021 and were each $1.08 in the second quarter of 2022. M&T's second and third quarter results each reflect a full-quarter impact of its April 1, 2022 acquisition of People's United Financial, Inc. ("People's United"). The after-tax impact of merger-related expenses was $39 million ($53 million pre-tax) or $.22 of basic and diluted earnings per common share in the recent quarter, $7 million ($9 million pre-tax) or $.05 of basic and diluted earnings per common share in the third quarter of 2021 and $346 million ($465 million pre-tax) or $1.94 of basic and diluted earnings per common share in the second quarter of 2022. Such expenses included professional services and other temporary help fees associated with conversions of systems and/or integration of operations, costs related to terminations of existing contractual arrangements to purchase various services, severance, travel costs and, in the second quarter of 2022, an initial provision for credit losses on loans not deemed to be purchased credit deteriorated ("PCD") on April 1, 2022. Net income aggregated $1.23 billion or $7.14 of diluted and $7.18 of basic earnings per common share in the first nine months of 2022, compared with $1.40 billion or $10.43 of diluted and $10.44 of basic earnings per common share in the corresponding 2021 period. Merger-related expenses were $398 million ($535 million pre-tax) or $2.46 of basic and diluted earnings per common share in the nine months ended September 30, 2022 and $17 million ($23 million pre-tax) or $.13 of basic and diluted earnings per common share in the nine months ended September 30, 2021.

The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in each of the third quarters of 2022 and 2021 was 1.28% compared with .42% in the second quarter of 2022. The annualized rate of return on average common shareholders’ equity was 10.43% in the recent quarter, 12.16% in the third quarter of 2021 and 3.21% in the second quarter of 2022. During the nine-month period ended September 30, 2022, the annualized rates of return on average assets and average common shareholders’ equity were .87% and 7.24%, respectively, compared with 1.24% and 11.76%, respectively, in the corresponding period of 2021.

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 acquisition of People's United formed a banking franchise with approximately $200 billion in assets serving communities in the Northeast and Mid-Atlantic from Maine to Virginia, including Washington, D.C. M&T completed the transfer of most financial records of People’s United to M&T’s core operating systems in the recent quarter.

On July 19, 2022 the Company's Board of Directors authorized a program to repurchase up to $3.0 billion of M&T's common stock. The action replaced the previous program under which the repurchases in the second quarter of 2022 were conducted. In accordance with the program and its capital plan, M&T repurchased 3,282,449 shares of its common stock during the recent quarter at an average cost per share of $182.79 resulting in a total cost of $600 million. During the first nine months of 2022, M&T repurchased 6,788,395 shares of its common stock at an average cost per share of $176.77 resulting in a total cost of $1.2 billion.

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Supplemental Reporting of Non-GAAP Results of Operations

M&T consistently provides supplemental reporting of its results on a “net operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and gains (when realized) and expenses (when incurred) associated with merging acquired operations into the Company, since such items are considered by management to be “nonoperating” in nature. Although “net operating income” as defined by M&T is not a GAAP measure, M&T’s management believes that this information helps investors understand the effect of acquisition activity in reported results.

Net operating income totaled $700 million in the third quarter of 2022, compared with $504 million in the year-earlier quarter and $578 million in the second 2022 quarter. Diluted net operating earnings per common share in the third quarters of 2022 and 2021 were $3.83 and $3.76, respectively, compared with $3.10 in the second quarter of 2022. For the first nine months of 2022, net operating income and diluted net operating earnings per common share were $1.65 billion and $9.78, respectively, compared with $1.42 billion and $10.61, respectively, in the first nine months of 2021.

Net operating income in the recent quarter expressed as an annualized rate of return on average tangible assets was 1.44%, compared with 1.34% in the third quarter of 2021 and 1.16% in 2022’s second quarter. Net operating income represented an annualized return on average tangible common equity of 17.89% in the third quarter of 2022, 17.54% in the year-earlier quarter and 14.41% in the second quarter of 2022. For the first nine months of 2022, net operating income represented an annualized return on average tangible assets and average tangible common shareholders’ equity of 1.23% and 15.13%, respectively, compared with 1.30% and 17.10%, respectively, in the corresponding 2021 period.

Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.

Taxable-equivalent Net Interest Income

Taxable-equivalent net interest income was $1.69 billion in the third quarter of 2022, 74% higher than $971 million recorded in the year-earlier quarter. That increase reflects the impact of $42.0 billion in additional average earning assets predominantly resulting from the People's United transaction, and a 94 basis point (hundredths of one percent) expansion of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, to 3.68% in the recent quarter from 2.74% in the third quarter of 2021. That increase resulted from higher yields on loans, deposits at the Federal Reserve Bank ("FRB") of New York, and investment securities, partially offset by a 27 basis point increase in the rates paid on interest-bearing liabilities. Taxable-equivalent net in

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Incorporated by reference to the discussion contained under the caption “Taxable-equivalent Net Interest Income” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(a) Evaluation of disclosure controls and procedures. Based upon their evaluation of the effectiveness of M&T’s disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)), René F. Jones, Chairman of the Board and Chief Executive Officer, and Darren J. King, Senior Executive Vice President and Chief Financial Officer, concluded that M&T’s disclosure controls and procedures were effective as of September 30, 2022.

(b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy of its internal control over financial reporting and enhances its controls in response to internal control assessments and internal and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, M&T’s internal control over financial reporting. Management has excluded processes and controls of People’s United from its assessment of internal control over financial reporting for the quarter ended September 30, 2022. Assets and liabilities associated with the People's United transaction that have not yet been converted to M&T's systems or processes as of September 30, 2022 include loans and leases of $5.5 billion, other assets of $106 million and other liabilities of $170 million. Approximately $94 million and $182 million of total revenues for the three and six months ended September 30, 2022, respectively, was contributed from business activities of People's United that have not yet been converted to M&T's systems or processes.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and other matters in which claims for monetary damages are asserted. On an on-going basis management, after consultation with legal counsel, assesses the Company’s liabilities and contingencies in connection with such proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $25 million as of September 30, 2022. Although the Company does not believe that the outcome of pending legal matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

There have been no material changes in risk factors relating to M&T to those disclosed in response to Item 1A. to Part I of Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) – (b) Not applicable.

(c)

(1)

The total number of shares purchased during the periods indicated includes shares purchased as part of publicly announced programs and/or shares deemed to have been received from employees who exercised stock options by attesting to previously acquired common shares in satisfaction of the exercise price or shares received from employees upon the vesting of restricted stock awards in satisfaction of applicable tax withholding obligations, as is permitted under M&T’s stock-based compensation plans.

(2)

In July 2022, M&T's Board of Directors authorized a program under which $3.0 billion of common shares may be repurchased with the exact number, timing, price and terms of such repurchases to be determined at the discretion of management and subject to all regulatory limitations. That authorization replaces the previous program.

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Item 3. Defaults Upon Senior Securities.

(None.)

Item 4. Mine Safety Disclosures.

(Not applicable.)

(None.)

The following exhibits are filed as a part of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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