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
The results of the Company’s operations for the three and nine months ended September 30, 2023 continue to be impacted by multiple hikes by the FOMC of its federal funds target rate totaling 5.25% from March of 2022 through September of 2023 in response to inflationary pressures. The higher interest rate environment has resulted in increased yields on the Company’s earning assets, higher costs of interest-bearing liabilities and a shift in the mix of those liabilities, including from noninterest-bearing deposits to higher cost deposit products. The provision for credit losses reflects continued downward pressure on commercial real estate values. The Company recognized a gain on the sale of a trust-related business in the second quarter of 2023. A summary of financial results for the Company is provided below:
SUMMARY OF FINANCIAL RESULTS
| Three Months Ended | Percent Change from | Nine Months Ended | |||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | June 30, 2023 | Third Quarter 2022 | Second Quarter 2023 | September 30, 2023 | September 30, 2022 | Percent Change | ||||||||||||||||||||||||
| (Dollars in thousands, except per share) | |||||||||||||||||||||||||||||||
| Net interest income | $ | 1,775,388 | $ | 1,678,691 | $ | 1,799,129 | 6 | % | -1 | % | $ | 5,392,781 | $ | 3,994,582 | 35 | % | |||||||||||||||
| Taxable-equivalent adjustment | 14,335 | 11,827 | 13,886 | 21 | % | 3 | % | 41,683 | 25,787 | 62 | % | ||||||||||||||||||||
| Net interest income (taxable-equivalent basis) | 1,789,723 | 1,690,518 | 1,813,015 | 6 | % | -1 | % | 5,434,464 | 4,020,369 | 35 | % | ||||||||||||||||||||
| Provision for credit losses | 150,000 | 115,000 | 150,000 | 30 | % | — | 420,000 | 427,000 | -2 | % | |||||||||||||||||||||
| Other income | 559,581 | 563,079 | 803,171 | -1 | % | -30 | % | 1,949,885 | 1,675,066 | 16 | % | ||||||||||||||||||||
| Other expense | 1,277,538 | 1,279,253 | 1,292,559 | — | -1 | % | 3,929,327 | 3,642,148 | 8 | % | |||||||||||||||||||||
| Net income | 689,941 | 646,596 | 867,034 | 7 | % | -20 | % | 2,258,599 | 1,226,292 | 84 | % | ||||||||||||||||||||
| Per common share data | |||||||||||||||||||||||||||||||
| Basic earnings | $ | 4.00 | $ | 3.55 | $ | 5.07 | 13 | % | -21 | % | $ | 13.09 | $ | 7.18 | 82 | % | |||||||||||||||
| Diluted earnings | 3.98 | 3.53 | 5.05 | 13 | % | -21 | % | 13.05 | 7.14 | 83 | % | ||||||||||||||||||||
| Performance ratios, annualized | |||||||||||||||||||||||||||||||
| Return on | |||||||||||||||||||||||||||||||
| Average assets | 1.33 | % | 1.28 | % | 1.70 | % | 1.48 | % | .87 | % | |||||||||||||||||||||
| Average common shareholders’ equity | 10.99 | % | 10.43 | % | 14.27 | % | 12.33 | % | 7.24 | % | |||||||||||||||||||||
| Net interest margin | 3.79 | % | 3.68 | % | 3.91 | % | 3.91 | % | 3.15 | % |
On April 1, 2022, M&T 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. The Company 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.
Merger-related expenses incurred in 2022 and associated with the People's United acquisition generally consisted of professional services, temporary help fees and other costs associated with actual or planned conversions of systems and/or integration of operations and the introduction of M&T to its new customers, 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 PCD on the April 1, 2022 acquisition date of People's United. The after-tax impact of merger-related expenses associated with M&T’s acquisition of People’s United for the three- and nine-month periods ended September 30, 2022 was $39 million ($53 million pre-tax) or $.22
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of diluted earnings per common share and $398 million ($535 million pre-tax) or $2.46 of diluted earnings per common share, respectively. The Company did not incur any merger-related expenses during 2023.
Net income increased $43 million to $690 million in the third quarter of 2023, from $647 million in the third quarter of 2022. As compared with the third quarter of 2022, taxable-equivalent net interest income increased $99 million, reflecting higher yields on earnings assets, partially offset by higher costs of interest-bearing liabilities. The net interest margin expanded 11 basis points to 3.79% in the third quarter of 2023 from 3.68% in the corresponding quarter of 2022. The provision for credit losses was $35 million higher in the recent quarter as compared with the year-earlier quarter reflecting a softening of commercial real estate values. Merger-related expenses of $53 million were recognized in the third quarter of 2022.
Net income in the recent quarter declined $177 million from $867 million in the second quarter of 2023. As compared with the second quarter of 2023, taxable-equivalent net interest income declined $23 million as rising costs on interest-bearing liabilities outpaced higher yields on earnings assets. The net interest margin narrowed 12 basis points in the recent quarter from 3.91% in the second quarter of 2023. Noninterest income in the third quarter of 2023 declined $244 million from the second quarter of 2023 reflecting a $225 million gain on the sale of the Company’s CIT business in April 2023 and lower CIT-related trust income as a result of that sale. Noninterest expense declined $15 million due largely to lower salaries and employee benefits expenses.
For the first nine months of 2023, net income increased $1.03 billion to $2.26 billion as compared with $1.23 billion in the comparable 2022 period. The largest contributors to that increase were one additional quarter of operations acquired from People’s United in the first nine months of 2023 and higher yields on earning assets during that same period, partially offset by rising costs of interest-bearing liabilities. The net interest margin expanded 76 basis points to 3.91% in the first nine months of 2023 from 3.15% in the year-earlier period. Reflecting a decline in commercial real estate values, the provision for credit losses for the first nine months of 2023 was $420 million. The provision for credit losses in the first nine months of 2022 totaled $427 million and included a $242 million merger-related provision for credit losses on non-PCD loans. Additionally, merger-related expenses of $535 million were incurred in the first nine months of 2022 and a gain on the sale of the CIT business was recorded in the second quarter of 2023.
M&T repurchased 3,282,449 shares of its common stock at an average cost per share of $182.79 resulting in a total cost of $600 million in 2022's third quarter. No share repurchases occurred in the second and third quarters of 2023. During the first nine months of 2023, M&T repurchased 3,838,157 shares of its common stock at an average cost per share of $154.76 resulting in a total cost, including the share repurchase excise tax, 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.
SUPPLEMENTAL REPORTING OF NON-GAAP RESULTS OF OPERATIONS
| Three Months Ended | Percent Change from | Nine Months Ended | ||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | June 30, 2023 | Third Quarter 2022 | Second Quarter 2023 | September 30, 2023 | September 30, 2022 | Percent Change | |||||||||||||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||||||||||||||
| Net operating income | $ | 701,568 | $ | 700,030 | $ | 878,661 | — | -20 | % | $ | 2,295,164 | $ | 1,653,651 | 39 | % | |||||||||||||||||
| Diluted net operating earnings per common share | $ | 4.05 | $ | 3.83 | $ | 5.12 | 6 | % | -21 | % | $ | 13.26 | $ | 9.78 | 36 | % | ||||||||||||||||
| Annualized return on average tangible assets | 1.41 | % | 1.44 | % | 1.80 | % | 1.57 | % | 1.23 | % | ||||||||||||||||||||||
| Annualized return on average tangible common equity | 17.41 | % | 17.89 | % | 22.73 | % | 19.70 | % | 15.13 | % | ||||||||||||||||||||||
| Efficiency ratio | 53.7 | % | 53.6 | % | 48.9 | % | 52.6 | % | 58.1 | % | ||||||||||||||||||||||
| Tangible equity per common share (a) | $ | 93.99 | $ | 84.28 | $ | 91.58 | 12 | % | 3 | % |
(a) At the period end.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.
Taxable-equivalent Net Interest Income
Interest income earned on certain of the Company's assets is exempt from federal income tax. Taxable-equivalent net interest income is a non-GAAP measure that adjusts income earned on a tax-exempt asset to present it on an equivalent basis to interest income earned on a fully taxable asset.
Expressed on a taxable-equivalent basis net interest income increased $99 million to $1.79 billion in the third quarter of 2023 from $1.69 billion in the year-earlier quarter. That increase reflects an 11 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 3.79% in the recent quarter from 3.68% in the year-earlier quarter. The higher net interest margin was influenced by a rising interest rate environment resulting from actions taken by the Federal Reserve to mitigate inflationary pressures on the U.S. economy. The FOMC raised its target federal funds rate through multiple hikes totaling 5.25% from March 2022 through September 2023, which led to higher yields on loans, deposits at the FRB of New York and investment securities, partially offset by higher rates paid on interest-bearing deposits and borrowings. Taxable-equivalent net interest income in the recent quarter declined from $1.81 billion in the second quarter of 2023 reflecting a 12 basis point narrowing of the net interest margin from 3.91% in the second quarter of 2023, as a rise in the cost of interest-bearing liabilities outpaced the increase in yields on earning assets. Interest-bearing liabilities in the recent quarter increased $3.1 billion to $121.4 billion, compared with $118.3 billion in the second quarter of 2023. Average earning assets increased $1.5 billion to $187.4 billion in the recent quarter from $185.9 billion in 2023's second quarter.
For the first nine months of 2023, taxable-equivalent net interest income was $5.43 billion, up from $4.02 billion recognized in the corresponding 2022 period. The increase was primarily attributable to the higher level of average earning assets and a 76 basis point expansion of the net interest margin to 3.91% in the 2023 period from 3.15% in the year-earlier period, partially offset by an increase in average interest-bearing liabilities. The increase in average earning assets in the first nine months of 2023 includes the impact of one additional quarter from earning assets obtained in the People's United transaction on April 1, 2022, commercial loan growth and purchases of investment securities, partially offset by lower deposits at the FRB of New York. The increase in average interest-bearing liabilities reflects
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interest-bearing liabilities assumed in the People's United acquisition and a continued shift in customer deposits toward higher cost interest-bearing products, including time deposits, and higher average borrowings.
Average loans and leases totaled $132.6 billion in the third quarter of 2023, up $5.1 billion or 4% from $127.5 billion in the similar quarter of 2022. Commercial loans and leases averaged $44.6 billion in the recent quarter, up $6.3 billion or 16% from $38.3 billion in the year-earlier quarter. That increase predominantly reflects growth in loans to financial and insurance industry customers and loans to motor-vehicle and recreational finance dealers. Average commercial real estate loans decreased $2.1 billion or 4% to $44.2 billion in the third quarter of 2023 from $46.3 billion in the year-earlier quarter. That decrease reflects declines of $1.3 billion in average construction loans and $773 million in average permanent commercial real estate loans.
Average residential real estate loans increased $610 million or 3% to $23.6 billion in the third quarter of 2023 from $23.0 billion in the year-earlier quarter. Throughout 2022, M&T retained rather than sold most originated residential mortgage loans. M&T returned to originating for sale the majority of its newly committed residential mortgage loans in the first quarter of 2023. Consumer loans averaged $20.2 billion in the third quarter of 2023, up $229 million or 1% from $20.0 billion in the year-earlier quarter. That growth reflected higher average balances of $719 million and $157 million in M&T's portfolio of recreational finance loans and credit cards, respectively, partially offset by declines of $384 million and $335 million in average balances of automobile loans and home equity loans and lines of credit, respectively.
Average loan and lease balances in the third quarter of 2023 decreased $928 million from $133.5 billion in the second quarter of 2023. The lower balances resulted predominantly from a $714 million decline in average commercial real estate loans from $44.9 billion in the second quarter of 2023, partially offset by a $94 million increase in average commercial loans and leases from $44.5 billion in the second quarter of 2023. Average balances of residential real estate loans in 2023's third quarter declined $208 million from $23.8 billion in the second quarter of 2023. Average consumer loans in the recent quarter decreased less than one percent from the second quarter of 2023 reflecting a lower average balance of automobile loans, partially offset by a higher average balance of recreational finance loans. 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 Change | |||||||||||||
| from | |||||||||||||
| Third Quarter | Third Quarter | Second Quarter | |||||||||||
| 2023 | 2022 | 2023 | |||||||||||
| (In millions) | |||||||||||||
| Commercial, financial, etc. | $ | 44,625 | 16 | % | — | % | |||||||
| Real estate — commercial | 44,230 | -4 | -2 | ||||||||||
| Real estate — consumer | 23,573 | 3 | -1 | ||||||||||
| Consumer | |||||||||||||
| Recreational finance | 9,345 | 8 | 1 | ||||||||||
| Automobile | 3,995 | -9 | -5 | ||||||||||
| Home equity lines and loans | 4,721 | -7 | -2 | ||||||||||
| Other | 2,128 | 12 | 3 | ||||||||||
| Total consumer | 20,189 | 1 | — | ||||||||||
| Total | $ | 132,617 | 4 | % | -1 | % |
For the first nine months of 2023, average loans and leases totaled $132.7 billion, up 15%, from $115.9 billion in the corresponding 2022 period. Loans obtained in the People's United acquisition and growth in commercial and consumer real estate loans were the predominant reasons for that increase, partially offset by lower average balances of commercial real estate loans and PPP loans.
The investment securities portfolio averaged $28.0 billion in the third quarter of 2023, up $4.0 billion from $23.9 billion in the third quarter of 2022 and $630 million lower than the $28.6 billion averaged in 2023's second quarter. The higher average balance in the recent quarter when compared with the year-earlier quarter reflects the purchase of
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$4.4 billion of investment securities during the twelve-month period ended September 30, 2023. Those purchases were predominantly fixed rate mortgage-backed securities. As compared with the second quarter of 2023 the decrease relates to pay downs of fixed rate mortgage-backed securities. For the first nine months of 2023 and 2022, investment securities averaged $28.1 billion and $18.1 billion, respectively. In addition to the purchases described herein, $11.6 billion of investment securities obtained in the acquisition of People's United on April 1, 2022 contributed to the increase in average investment securities during the first nine months of 2023 as compared with the first nine months of 2022. There were no significant sales of investment securities during the nine months ended September 30, 2023 and 2022. The Company routinely has increases and decreases in its holdings of capital stock of the FHLB of New York and the FRB 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 and federal agency notes, but also includes municipal securities and commercial real estate mortgage-backed 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 movements in interest rates and spreads, changes in liquidity needs, 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 gains and losses on such equity securities were not significant in each of the first nine months of 2023 and 2022.
The Company regularly reviews its debt investment securities for declines in value below amortized cost that might be indicative of credit-related losses. In light of such reviews, there were no credit-related losses on debt investment securities recognized in either of the nine months ended September 30, 2023 or 2022. Based on management’s assessment of future cash flows associated with individual investment securities as of September 30, 2023, 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 12 of Notes to Financial Statements.
Other earning assets include interest-bearing deposits at banks, trading account assets, federal funds sold and agreements to resell securities. Those other earning assets in the aggregate averaged $26.8 billion in the recently completed quarter, compared with $30.9 billion in the year-earlier quarter and $23.8 billion in the second quarter of 2023. Interest-bearing deposits at banks averaged $26.7 billion, $30.8 billion and $23.6 billion during the three months ended September 30, 2023, September 30, 2022 and June 30, 2023, respectively. The amounts of interest-bearing deposits at banks at those respective dates were predominantly comprised of deposits held at the FRB of New York. In general, the amount of deposits held at the FRB of New York is influenced by the Company's liquidity and interest rate management activities and fluctuates with changes in levels of the Company's investments, loans, deposits and other borrowings. The lower balance in the recent quarter compared with the year-earlier quarter reflects loan portfolio growth, the purchases of investment securities and treasury stock in the fourth quarter of 2022 and first quarter of 2023 and a decline in noninterest bearing deposits, partially offset by the issuance of long-term debt in the first quarter of 2023 and other short-term borrowings, and an increase in time deposits. As compared with the second quarter of 2023, the higher balance reflects increased liquidity from a rise in average deposits, partially offset by lower average loans and leases and a decline in average investment securities balances.
As a result of the changes described herein, average earning assets totaled $187.4 billion in the most recent quarter, compared with $182.4 billion in the third quarter of 2022 and $185.9 billion in the second quarter of 2023. Average earning assets totaled $185.8 billion and $170.4 billion during the first nine months of 2023 and 2022, respectively.
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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 $147.3 billion in the third quarter of 2023, compared with $162.8 billion in the similar 2022 quarter and $146.8 billion in the second quarter of 2023. The decrease in average core deposits in the recent quarter as compared with the year-earlier quarter was primarily the result of monetary tightening that influenced customers to seek higher rate alternatives, including a shift from operating demand accounts to off-balance sheet sweep accounts for commercial customers. Lower levels of activity in the capital markets also resulted in a reduction of trust demand deposits. As compared with the second quarter of 2023, the modest increase in average core deposits reflects the Company's focus on retaining and growing customer deposits, including targeted promotions in competitive markets. The following table provides an analysis of quarterly changes in the components of average core deposits.
AVERAGE CORE DEPOSITS
| Percent Change | |||||||||||||
| from | |||||||||||||
| Third Quarter | Third Quarter | Second Quarter | |||||||||||
| 2023 | 2022 | 2023 | |||||||||||
| (In millions) | |||||||||||||
| Savings and interest-checking deposits | $ | 84,720 | -1 | % | 2 | % | |||||||
| Time deposits | 8,695 | 102 | 22 | ||||||||||
| Noninterest-bearing deposits | 53,886 | -26 | -4 | ||||||||||
| Total | $ | 147,301 | -9 | % | - | % |
The Company also receives funding from other deposit sources, including branch-related time deposits over $250,000 and brokered deposits. Time deposits over $250,000 averaged $2.4 billion in the recent quarter, compared with $681 million in the third quarter of 2022 and $2.0 billion in the second quarter of 2023. The increase in such deposits in the two most recent quarters as compared with the third quarter of 2022 reflects higher demand for time deposit products in a rising interest rate environment. The Company had brokered savings and interest-bearing transaction accounts that averaged $4.6 billion during the recent quarter and $3.8 billion in each of the year-earlier quarter and the second quarter of 2023. Brokered time deposits averaged $8.4 billion in the third quarter of 2023 compared with $55 million in the third quarter of 2022 and $6.9 billion in the second quarter of 2023. The increase in such deposits from the third quarter of 2022 reflected the Company's liquidity management and funding strategies during a period of rising interest rates and was predominantly due to deposits added late in the fourth quarter of 2022 and through the second quarter of 2023. Additional brokered deposits may be solicited in the future depending on market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time. Total uninsured deposits were estimated to be $68.8 billion at September 30, 2023, compared with $67.0 billion at June 30, 2023, $74.2 billion at December 31, 2022 and $74.7 billion at September 30, 2022. Approximately $11.3 billion, $10.5 billion, $11.4 billion and $13.1 billion of those uninsured deposits were collateralized by the Company at September 30, 2023, June 30, 2023, December 31, 2022 and September 30, 2022, respectively.
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The accompanying table summarizes average total deposits for the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022.
AVERAGE DEPOSITS
| Retail | Trust | Commercial and Other | Total | |||||||||||||
| (In millions) | ||||||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||
| Savings and interest-checking deposits | $ | 41,863 | $ | 6,170 | $ | 41,241 | $ | 89,274 | ||||||||
| Time deposits | 10,501 | 50 | 8,977 | 19,528 | ||||||||||||
| Noninterest-bearing deposits | 13,676 | 8,799 | 31,411 | 53,886 | ||||||||||||
| Total | $ | 66,040 | $ | 15,019 | $ | 81,629 | $ | 162,688 | ||||||||
| Three Months Ended June 30, 2023 | ||||||||||||||||
| Savings and interest-checking deposits | $ | 43,576 | $ | 6,322 | $ | 37,312 | $ | 87,210 | ||||||||
| Time deposits | 8,548 | 16 | 7,445 | 16,009 | ||||||||||||
| Noninterest-bearing deposits | 14,579 | 9,269 | 32,332 | 56,180 | ||||||||||||
| Total | $ | 66,703 | $ | 15,607 | $ | 77,089 | $ | 159,399 | ||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||
| Savings and interest-checking deposits | $ | 51,196 | $ | 7,008 | $ | 31,156 | $ | 89,360 | ||||||||
| Time deposits | 4,607 | 12 | 431 | 5,050 | ||||||||||||
| Noninterest-bearing deposits | 14,414 | 10,927 | 47,520 | 72,861 | ||||||||||||
| Total | $ | 70,217 | $ | 17,947 | $ | 79,107 | $ | 167,271 |
The Company also uses borrowings from banks, the FHLB of New York, the FRB of New York and others as sources of funding. Short-term borrowings represent borrowing arrangements that at the time they were entered into had a contractual maturity of one year or less. Average short-term borrowings totaled $5.3 billion in the third quarter of 2023, compared with $913 million in the year-earlier quarter and $7.5 billion in the second quarter of 2023. Short-term borrowings assumed in connection with the People's United acquisition totaled $895 million on April 1, 2022. In October 2022 M&T redeemed $500 million of unsecured senior notes due to mature in December 2022 that had been assumed in the acquisition of People's United and included in short-term borrowings. In general, the higher levels of short-term borrowings in the third and second quarters of 2023 as compared with the year-earlier quarter reflect the Company's management of liquidity. The $2.2 billion decline in average short-term borrowings in the recent quarter as compared with the second quarter of 2023 was coincident with an increase in comparatively lower cost average brokered deposits described herein.
Long-term borrowings averaged $7.2 billion in the third quarter of 2023, compared with $3.3 billion in the year-earlier quarter and $7.5 billion in the second quarter of 2023. In August 2023, a subsidiary of M&T Bank that specializes in equipment financing issued $550 million of asset-backed notes secured by equipment finance loans and leases at a weighted average interest rate of 5.84%. Average balances of the Company’s outstanding senior notes were $5.4 billion, $1.7 billion and $6.0 billion during the three months ended September 30, 2023, September 30, 2022 and June 30, 2023, respectively. In July 2023, $750 million of fixed and variable senior notes of M&T matured. In January 2023, M&T issued $1.0 billion of senior notes that mature in January 2034 and pay a 5.05% fixed rate semi-annually until January 2033 after which SOFR plus 1.85% will be paid quarterly until maturity. Additionally, in January 2023 M&T Bank issued $1.3 billion of senior notes that mature in January 2026 and pay a fixed rate of 4.65% semi-annually until maturity and $1.2 billion of senior notes that mature in January 2028 and pay a fixed rate of 4.70% semi-annually until maturity. In November 2022, M&T Bank issued $500 million of fixed rate senior notes that pay a rate of 5.4% semi-annually and mature in November 2025. In August 2022, M&T issued $500 million of senior notes that mature in August 2028 and pay a fixed rate of 4.55% semi-annually until August 2027 after which SOFR plus 1.78% will be paid quarterly until maturity. During May 2022, $250 million of variable rate senior notes of M&T Bank matured. In April 2022, M&T Bank redeemed $650 million of fixed rate senior notes that were due to mature on May 18, 2022. 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. Subordinated capital notes included in long-term borrowings averaged $979 million in each of the second and third quarters of 2023, compared with $982 million in the third quarter of 2022. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $538 million during the third quarter of 2023, compared with $534 million in the year-earlier quarter and $537 million in the second quarter of 2023. Additional information
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regarding borrowings is provided in notes 5 and 11 of Notes to Financial Statements and in the 2022 Annual Report. In October 2023, M&T issued $750 million of senior notes that mature in October 2029 and pay a fixed rate of 7.41% semi-annually until October 2028 after which SOFR plus 2.80% will be paid quarterly until maturity.
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 September 30, 2023, interest rate swap agreements were used as fair value hedges of approximately $2.0 billion of outstanding fixed rate long-term borrowings. Additionally, interest rate swap agreements with a notional amount of $14.6 billion (exclusive of forward-starting swap agreements) 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 10 of Notes to Financial Statements.
Net interest income can be impacted by 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. Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 2.79% in the recent quarter, down 70 basis points from 3.49% in the third quarter of 2022. The yield on earning assets during the third quarter of 2023 was 5.62%, up 172 basis points from 3.90% in the similar 2022 period, while the rate paid on interest-bearing liabilities increased 242 basis points to 2.83% in the recent quarter from .41% in the year-earlier period. In the second quarter of 2023, the net interest spread was 3.03%, the yield on earning assets was 5.46% and the rate paid on interest-bearing liabilities was 2.43%. The continued decline in the net interest spread in the recent quarter as compared with the second quarter of 2023 and third quarter of 2022 reflects the impact of higher rates paid on interest-bearing liabilities (predominantly interest-bearing deposits) resulting from a general rise in interest rates and increased competition for deposits, partially offset by higher yields on loans and leases, deposits at the FRB of New York and investment securities. The FOMC raised its target federal funds rate with a series of rate hikes totaling 5.25% from March 2022 through September 2023. For the first nine months of 2023, the net interest spread was 3.02%, relatively unchanged from 3.03% in the year-earlier period. The yield on earning assets and the rate paid on interest-bearing liabilities for the first nine months of 2023 were 5.41% and 2.39%, respectively, compared with 3.30% and .27%, respectively, in the initial nine months of 2022.
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 $66.0 billion in the third quarter of 2023, compared with $83.8 billion in the year-earlier quarter and $67.7 billion in the second quarter of 2023. The lower level of average net interest-free funds in the recent quarter and the second quarter of 2023 as compared with the third quarter of 2022 is predominantly the result of a decline in the average balance of noninterest-bearing deposits. Noninterest-bearing deposits averaged $53.9 billion in the third quarter of 2023 compared with $72.9 billion in the third quarter of 2022 and $56.2 billion in the second quarter of 2023. The decline in average noninterest-bearing deposits since the third quarter of 2022 reflects customer use of off-balance sheet investment products and a shift in deposits to interest-bearing accounts as interest rates rose. During the first nine months of 2023 and 2022, average net interest-free funds aggregated $68.8 billion and $78.0 billion, respectively. Average noninterest-bearing deposits were $57.3 billion in the first nine months of 2023, compared with $68.4 billion in the first three quarters of 2022. That decline in average noninterest-bearing deposits resulted from a shift of customer funds from noninterest-bearing accounts to interest-bearing accounts and off-balance sheet investment products. The Company assumed $17.4 billion of noninterest-bearing deposits in connection with the People's United acquisition on April 1, 2022. Shareholders’ equity averaged $26.0 billion during the three-month period ended September 30, 2023, compared with $25.7 billion during each of the year-earlier quarter and the second quarter of 2023. 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. Repurchases of common stock totaled approximately $600 million (inclusive of the share repurchase excise tax) in the first quarter of 2023 and $1.8 billion in the last three quarters of 2022. There were no repurchases of common stock during the second and third quarters of 2023. Goodwill and core deposit and other intangible assets averaged $8.6 billion in the third quarter of 2023, compared with $8.7 billion in each of the third quarter of 2022 and second quarter of 2023. 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,
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- The cash surrender value of bank owned life insurance averaged $2.6 billion in each of the third quarter of 2023, second quarter of 2023 and year-earlier third quarter. Changes in the cash surrender value of bank owned life insurance and benefits received are not included in interest income, but rather are recorded in “other revenues from operations.” The contribution of net interest-free funds to net interest margin was 1.00% in the third quarter of 2023, compared with .19% and .88% in the third quarter of 2022 and the second quarter of 2023, respectively. The increased contribution of net interest-free funds to net interest margin in the most recent quarter and second quarter of 2023 as compared with the third 2022 quarter reflects higher rates paid on interest-bearing liabilities used to value net interest-free funds. The contribution of net interest-free funds in the first nine months of 2023 and 2022 was .89% and .12%, 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 3.79% in the third quarter of 2023, compared with 3.68% in the year-earlier period. 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 FOMC has conducted a series of basis point increases in short-term interest rates from March 2022 through September 2023 totaling 5.25%. Those 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. The recent quarter's net interest margin narrowed from 3.91% in the second quarter of 2023. That 12 basis point decrease reflects a 24 basis point compression of the net interest spread, partially offset by a 12 basis point increase in the contribution of interest-free funds. During the first nine months of 2023 and 2022, the net interest margin was 3.91% and 3.15%, respectively.
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 $16.6 billion (excluding $9.4 billion of forward-starting swap agreements related to cash flow hedges) at September 30, 2023, $16.8 billion (excluding $4.7 billion of forward-starting swap agreements) at September 30, 2022 and $12.7 billion (excluding $4.7 billion of forward-starting swap agreements) at December 31, 2022. 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 September 30, 2023, interest rate swap agreements with notional amounts of $14.6 billion were serving as cash flow hedges of interest payments associated with variable rate commercial real estate loans, compared with $15.3 billion at September 30, 2022 and $11.2 billion at December 31, 2022. Interest rate swap agreements with notional amounts of $2.0 billion at September 30, 2023 and $1.5 billion at each of September 30, 2022 and December 31, 2022 were serving as fair value hedges of fixed rate long-term borrowings. The Company also enters into forward-starting interest rate swap agreements predominantly to extend the term of its interest rate swap agreements serving as cash flow hedges and provide a hedge against changing interest rates on certain of its variable rate loans.
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 September 30, 2023, September 30, 2022 and June 30, 2023 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 10 of Notes to Financial Statements. Information regarding the valuation of cash flow hedges included in other comprehensive income is presented in note 9 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
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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 10 of Notes to Financial Statements.
INTEREST RATE SWAP AGREEMENTS
| Three Months Ended September 30 | |||||||||||||||||
| . | 2023 | 2022 | |||||||||||||||
| Amount | Rate (a) | Amount | Rate (a) | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Increase (decrease) in: | |||||||||||||||||
| Interest income | $ | (65,321 | ) | -.14 | % | $ | (22,466 | ) | -.05 | % | |||||||
| Interest expense | 13,982 | .05 | (651 | ) | .00 | ||||||||||||
| Net interest income/margin | $ | (79,303 | ) | -.17 | % | $ | (21,815 | ) | -.05 | % | |||||||
| Average notional amount (c) | $ | 15,125,913 | $ | 16,472,826 | |||||||||||||
| Rate received (b) | 3.25 | % | 2.06 | % | |||||||||||||
| Rate paid (b) | 5.29 | % | 2.57 | % | |||||||||||||
| Nine Months Ended September 30 | |||||||||||||||||
| . | 2023 | 2022 | |||||||||||||||
| Amount | Rate(a) | Amount | Rate(a) | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Increase (decrease) in: | |||||||||||||||||
| Interest income | $ | (173,051 | ) | -.12 | % | $ | 35,500 | .03 | % | ||||||||
| Interest expense | 38,290 | .04 | (14,436 | ) | -.02 | ||||||||||||
| Net interest income/margin | $ | (211,341 | ) | -.15 | % | $ | 49,936 | .04 | % | ||||||||
| Average notional amount (c) | $ | 13,089,088 | $ | 15,452,015 | |||||||||||||
| Rate received (b) | 3.05 | % | 1.67 | % | |||||||||||||
| Rate paid (b) | 5.17 | % | 1.25 | % |
(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 cash flows associated with 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 secured borrowings from the FHLB of New York and the FRB of New York, M&T Bank’s Bank Note Program, and other available borrowing facilities. The Bank Note Program enables M&T Bank to offer unsecured senior and subordinated notes. The Company has, in the past, 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 September 30, 2023 and December 31, 2022, long-term borrowings aggregated $7.1 billion and $4.0 billion, respectively and short-term borrowings aggregated $6.7 billion and $3.6 billion, respectively.
The Company has benefited from the placement of brokered deposits. The Company had brokered savings and interest-checking deposit accounts which aggregated approximately $5.6 billion at September 30, 2023, $3.8 billion
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at December 31, 2022 and $3.3 billion at September 30, 2022. Funding from brokered time deposits increased $3.9 billion in the first nine months of 2023 to $8.0 billion at September 30, 2023 from $4.1 billion at December 31, 2022. Brokered time deposits were not a significant source of funding at September 30, 2022.
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. The Company also has the ability to securitize or sell certain financial assets, including various loan types, to provide other liquidity alternatives. On August 7, 2023, Moody's Investor Service reaffirmed M&T Bank's short-term deposit rating at Prime-1, but downgraded M&T's and M&T Bank's senior and subordinated debt ratings from A3 to Baa1 and M&T Bank's long-term deposits rating from Aa3 to A1.
Certain customers of the Company obtain financing through the issuance of 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. There were no such securities in the trading account at September 30, 2023, December 31, 2022 and September 30, 2022. The total amounts of VRDBs outstanding backed by M&T Bank letters of credit were $557 million at September 30, 2023, $604 million at December 31, 2022 and $633 million at September 30, 2022. 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 13 of Notes to Financial Statements.
M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases has historically been the receipt of dividends from its bank subsidiaries, which are subject to various regulatory limitations. Dividends from any bank subsidiary to M&T are limited by the amount of earnings of the subsidiary in the current year and the two preceding years. For purposes of that test, at September 30, 2023 approximately $1.67 billion was available for payment of dividends to M&T from bank subsidiaries. M&T also may obtain funding through long-term borrowings. In September 2023, M&T commenced its Medium-Term Note Program under which M&T may issue, from time to time, senior and subordinated medium-term notes. As previously described, in January 2023 M&T issued $1.0 billion of senior notes that mature in January 2034 and in July 2023, $750 million of senior notes matured. In October 2023, M&T issued $750 million of fixed rate to floating rate senior notes that mature in October 2029. Outstanding senior notes of M&T at September 30, 2023 and December 31, 2022 were $1.4 billion and $1.2 billion, respectively. Junior subordinated debentures of M&T associated with trust preferred securities outstanding at September 30, 2023 and December 31, 2022 totaled $539 million and $536 million, respectively.
Management closely monitors the Company’s liquidity position on an ongoing basis for compliance with internal policies and regulatory expectations and believes that available sources of liquidity are adequate to meet funding needs anticipated in the ordinary course of business. Available liquidity at September 30, 2023 included cash on deposit at the FRB of New York of $30.0 billion, unused secured borrowing facilities of $30.1 billion, and unencumbered investment securities (after estimated haircut) of approximately $16.6 billion. Management continually evaluates the use and mix of its various available funding alternatives, including short-term borrowings, issuance of long-term debt,
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the placement of brokered deposits and the securitization of certain loan products. Management does not anticipate engaging in any activities, either currently or in the long term, for which adequate funding would not be available and would therefore result in a significant strain on liquidity at either M&T or its subsidiary banks.
Market risk is the risk of loss from adverse changes in the market prices and/or interest rates of the Company’s financial instruments. The primary market risk the Company is exposed to is interest rate risk. Interest rate risk arises from the Company’s core banking activities of lending and deposit-taking, because assets and liabilities reprice at different times and by different amounts as interest rates change. As a result, net interest income earned by the Company is subject to the effects of changing interest rates. The Company measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives used to manage interest rate risk. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income. The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans and investment securities, and expected maturities of investment securities, loans and deposits. Management uses a “value of equity” model to supplement the modeling technique described above. Those supplemental analyses are based on discounted cash flows associated with on- and off-balance sheet financial instruments. Such analyses are modeled to reflect changes in interest rates and provide management with a long-term interest rate risk metric. The Company has entered into interest rate swap agreements to help manage exposure to interest rate risk. At September 30, 2023, the aggregate notional amount of interest rate swap agreements entered into for interest rate risk management purposes that were currently in effect was $16.6 billion. In addition, the Company has entered into $9.4 billion of forward-starting interest rate swap agreements related to cash flow hedges.
The Company’s Asset-Liability Committee, which includes members of executive 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 with the income calculated under the varying interest rate scenarios. The model considers the impact of ongoing lending and deposit-gathering activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken actions to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.
The accompanying table as of September 30, 2023 and December 31, 2022 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 | September 30, 2023 | December 31, 2022 | |||||||
| (In thousands) | |||||||||
| +200 basis points | $ | 68,953 | 224,555 | ||||||
| +100 basis points | 63,958 | 158,020 | |||||||
| -100 basis points | (100,361 | ) | (216,202 | ) | |||||
| -200 basis points | (192,878 | ) | (439,512 | ) |
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The Company utilized many assumptions to calculate the impact that changes in interest rates may have on net interest income. The more significant of those assumptions included the rate of prepayments of mortgage-related assets, cash flows from derivative and other financial instruments, loan and deposit volumes, mix 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. Changes in amounts presented since December 31, 2022 reflect changes in portfolio composition (including shifts between noninterest-bearing and interest-bearing deposits and higher levels of borrowings), the level of market-implied forward interest rates and hedging actions taken by the Company. Amidst the rising interest rate environment since the first quarter of 2022, M&T's cumulative deposit pricing beta, which is the change in deposit pricing in response to a change in market interest rates, approximated 48 percent. Excluding brokered deposits that cumulative pricing beta approximated 42 percent. The cumulative deposit pricing beta (including and excluding brokered deposits) is assumed to approximate 50 to 55 percent in the interest rate scenarios presented. 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.
Certain of the Company's earning assets, interest-bearing liabilities, preferred equity instruments and interest rate swap agreements historically referenced LIBOR. The determination of LIBOR has effectively ceased after its final publication on June 30, 2023. In preparation for the elimination of LIBOR as a reference rate, the Company essentially had discontinued entering into LIBOR-based contracts at the end of 2021. At September 30, 2023 substantially all customer and other counterparty financial instruments have been transitioned to a new index (generally SOFR) through the amendment of pre-existing agreements to include appropriate alternative language effective upon cessation of LIBOR publication, negotiating new agreements, or other means. The outstanding amount of loans and leases that continue to reference LIBOR at September 30, 2023 was not significant. Prior to its cessation, many of the Company's interest rate swap agreements referenced LIBOR. In October 2020, the International Swaps and Derivatives Association, Inc. published the Supplement and the Protocol. The Protocol enabled market participants to incorporate certain revisions into their legacy non-cleared derivative trades with other counterparties that also chose to adhere to the Protocol. M&T adhered to the Protocol in November 2020. With respect to the Company's cleared interest rate swap agreements that referenced LIBOR, clearinghouses have adopted the same SOFR benchmark alternatives of the Supplement and Protocol. All of the Company's LIBOR-based interest rate swap agreements at September 30, 2023 have reset to a suitable alternative index, primarily SOFR.
In addition to the effect of interest rates, 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 12 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 other 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 10 of Notes to Financial Statements. As with any non-government guaranteed financial instrument, the Company is exposed to credit risk associated with counterparties to the Company’s non-hedging derivative activities. Although the notional amounts of these contracts are not recorded in the Consolidated Balance Sheet, the unsettled fair values of such financial instruments are recorded in the Consolidated Balance Sheet. The fair values of such non-hedging derivative assets and liabilities recognized on the Consolidated Balance Sheet were $339 million and $1.4 billion, respectively, at September 30, 2023 and $380 million and $1.3 billion, respectively, at December 31, 2022. The fair value asset and liability amounts at September 30, 2023 have been reduced by contractual settlements of $1.2 billion and $16 million, respectively, and at December 31, 2022 have been reduced by contractual settlements of $1.1 billion and $29 million,
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respectively. The amounts associated with the Company's non-hedging derivative activities at September 30, 2023 and December 31, 2022 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 $137 million at September 30, 2023, $118 million at December 31, 2022 and $130 million at September 30, 2022. Included in trading account assets were assets related to deferred compensation plans of $22 million at September 30, 2023 and $23 million at each of December 31, 2022 and September 30, 2022. Changes in the fair values of such assets are recorded as “trading account and other non-hedging derivative gains” in the Consolidated Statement of Income. Included in “other liabilities” in the Consolidated Balance Sheet at September 30, 2023 was $27 million of liabilities related to deferred compensation plans, compared with $29 million at each of December 31, 2022 and September 30, 2022. 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 $81 million at September 30, 2023, $95 million at December 31, 2022 and $107 million at September 30, 2022.
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 other 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 10 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. A provision for credit losses of $150 million was recorded in each of the third quarter of 2023 and the second quarter of 2023, compared with $115 million in the year-earlier third quarter. The Company's estimates of expected credit losses at September 30, 2023 reflect a modest increase in the unemployment rate, lower economic activity measured by gross domestic product and a decline in commercial and residential real estate prices. Declines in commercial real estate values persisted in the recent quarter as concerns continue around the healthcare and office building sectors. The Company recorded a $420 million provision for credit losses in the first nine months of 2023, compared with $427 million in the corresponding 2022 period. The provision for credit losses in the first nine months of 2022 included $242 million in the second quarter 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 related to those loans beyond the recognition of credit losses utilized in the determination of the estimated fair value of the loans at the acquisition date. In addition to the recorded provision, the allowance for credit losses was also increased by $99 million in the second quarter of 2022 to reflect the expected credit losses on loans obtained in the acquisition of People's United deemed to be PCD. That addition represented an increase of the carrying values of loans identified as PCD at the time of the acquisition.
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A summary of net charge-offs by loan type and as an annualized percentage of such average loans is presented in the table that follows.
NET CHARGE-OFFS (RECOVERIES)
BY LOAN/LEASE TYPE
| 2023 | ||||||||||||||||||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Year- to-date | |||||||||||||||||||||||||||||
| Net Charge-Offs (Recoveries) | Percentage of Average Loans | Net Charge-Offs (Recoveries) | Percentage of Average Loans | Net Charge-Offs (Recoveries) | Percentage of Average Loans | Net Charge-Offs (Recoveries) | Percentage of Average Loans | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Commercial, financial, leasing, etc. | $ | 9,561 | .09 | % | $ | 4,827 | .04 | % | $ | 19,868 | .18 | % | $ | 34,256 | .10 | % | ||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||
| Commercial | 29,055 | .26 | 99,037 | .88 | 47,284 | .42 | 175,376 | .52 | ||||||||||||||||||||||||
| Residential | 378 | .01 | (1,243 | ) | -.02 | 508 | .01 | (357 | ) | — | ||||||||||||||||||||||
| Consumer | 31,227 | .62 | 24,123 | .48 | 28,579 | .56 | 83,929 | .55 | ||||||||||||||||||||||||
| $ | 70,221 | .22 | % | $ | 126,744 | .38 | % | $ | 96,239 | .29 | % | $ | 293,204 | .30 | % | |||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||
| First Quarter | Second Quarter (a) | Third Quarter | Year- to-date (a) | |||||||||||||||||||||||||||||
| Net Charge-Offs (Recoveries) | Percentage of Average Loans | Net Charge-Offs (Recoveries) | Percentage of Average Loans | Net Charge-Offs (Recoveries) | Percentage of Average Loans | Net Charge-Offs (Recoveries) | Percentage of Average Loans | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Commercial, financial, leasing, etc. | $ | 5,569 | .10 | % | $ | 29,502 | .31 | % | $ | 15,374 | .16 | % | $ | 50,445 | .20 | % | ||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||
| Commercial | (13,143 | ) | -.15 | 7,140 | .06 | 34,812 | .30 | 28,809 | .09 | |||||||||||||||||||||||
| Residential | 865 | .02 | 256 | — | 338 | .01 | 1,459 | .01 | ||||||||||||||||||||||||
| Consumer | 13,576 | .31 | 12,671 | .26 | 12,675 | .25 | 38,922 | .27 | ||||||||||||||||||||||||
| $ | 6,867 | .03 | % | $ | 49,569 | .16 | % | $ | 63,199 | .20 | % | $ | 119,635 | .14 | % |
(a)
For the three months ended June 30, 2022 and nine months ended September 30, 2022, net charge-offs do not reflect $33 million of charge-offs related to PCD acquired loans.
There were no individually notable commercial loan charge-offs or recoveries in the third quarter of 2023. Net charge-offs of commercial loans in the second quarter of 2023 reflected a $9 million recovery of a previously charged off loan to a skilled nursing facility. Net charge-offs of commercial loans in the year-earlier quarter reflected a $23 million charge-off of a loan to a paper distribution company, partially offset by recoveries of previously charged-off loan balances. The net charge-offs of commercial real estate loans in the third quarter of 2023 included a $15 million charge-off of a loan to a real estate development and management company in the mid-Atlantic region. Net charge-offs of commercial real estate loans in the second quarter of 2023 reflected a $38 million charge-off of a loan secured by a multi-tenant office and retail building in New York City, a $28 million charge-off of eight loans related to a single operator of multiple healthcare facilities located in New York, Vermont, and Rhode Island, a $13 million charge-off of a loan secured by a multi-tenant office and retail building in Massachusetts, and a $12 million charge-off to a real estate development and management company in the mid-Atlantic region. Net charge-offs of commercial real estate loans in the year-earlier quarter reflected a $20 million charge-off of a loan to a healthcare provider. Included in net charge-offs of consumer loans were: net charge-offs of automobile loans of $1 million in the recent quarter and less than $1 million in the second quarter of 2023, compared with net recoveries of less than $1 million in the third quarter of 2022; net charge-offs of recreational finance loans of $11 million in the third quarter of 2023, $5 million in the year-earlier quarter and $10 million in the second quarter of 2023; and net charge-offs associated with other consumer loans including credit cards and installment loans that totaled $17 million in the recent quarter, $8 million in the year-earlier quarter and $14 million in the second quarter of 2023.
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A comparative summary of nonperforming assets and certain past due loan data and credit quality ratios is presented in the accompanying table.
NONPERFORMING ASSET AND PAST DUE LOAN DATA
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Nonaccrual loans | $ | 2,341,938 | 2,435,581 | 2,556,799 | 2,438,435 | 2,429,326 | ||||||||||||||
| Real estate and other foreclosed assets | 37,097 | 42,720 | 44,567 | 41,375 | 37,031 | |||||||||||||||
| Total nonperforming assets | $ | 2,379,035 | 2,478,301 | 2,601,366 | 2,479,810 | 2,466,357 | ||||||||||||||
| Accruing loans past due 90 days or more | $ | 354,029 | 380,079 | 407,457 | 491,018 | 476,503 | ||||||||||||||
| Government guaranteed loans included in totals above: | ||||||||||||||||||||
| Nonaccrual loans | $ | 39,801 | 39,846 | 42,102 | 43,536 | 44,797 | ||||||||||||||
| Accruing loans past due 90 days or more (a) | 268,783 | 294,184 | 306,049 | 363,409 | 423,371 | |||||||||||||||
| Nonaccrual loans to total loans and leases, net of unearned discount | 1.77 | % | 1.83 | % | 1.92 | % | 1.85 | % | 1.89 | % | ||||||||||
| Nonperforming assets to total net loans and leases and real estate and other foreclosed assets | 1.80 | % | 1.86 | % | 1.96 | % | 1.88 | % | 1.92 | % | ||||||||||
| Accruing loans past due 90 days or more to total loans and leases, net of unearned discount | .27 | % | .29 | % | .31 | % | .37 | % | .37 | % |
(a)
Predominantly residential real estate loans.
Loans obtained in the acquisition of People's United that have been classified as nonaccrual totaled $556 million at September 30, 2023, $581 million at September 30, 2022, $572 million at December 31, 2022, and $570 million at June 30, 2023. 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 retail, office, healthcare and hospitality sectors.
Government guaranteed loans classified as accruing loans past due 90 days or more included one-to-four family residential mortgage loans serviced by the Company that were repurchased 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 the repurchased loans included in the amounts noted above that are guaranteed by government-related entities totaled $202 million at September 30, 2023, $366 million at September 30, 2022, $294 million at December 31, 2022, and $223 million at June 30, 2023. The remaining accruing loans past due 90 days or more not guaranteed by government-related entities were loans considered to be with creditworthy borrowers that were in the process of collection or renewal.
Loans that were 30-89 days past due were $1.7 billion at September 30, 2023, or 1.32% of total loans outstanding, $1.6 billion or 1.23% of total loans outstanding at September 30, 2022, $1.8 billion or 1.35% of total loans outstanding at December 31, 2022, and $1.7 billion or 1.24% of total loans outstanding at June 30, 2023. At September 30, 2023, 72% of loans 30-89 days past due were less than 60 days delinquent. Information about delinquent loans at September 30, 2023 and December 31, 2022 is included in note 4 of Notes to Financial Statements.
During the normal course of business, the Company modifies loans to maximize recovery efforts. The types of modifications that the Company grants typically include principal deferrals and interest rate reductions but may also include other types of modifications. The Company may offer such modified terms to borrowers experiencing financial difficulty. Such modified loans may be considered nonaccrual if the Company does not expect to collect the contractual cash flows owed under the loan agreement. Information about modifications of loans to borrowers experiencing financial difficulty is included in note 4 of Notes to Financial Statements.
Commercial loans and leases classified as nonaccrual totaled $485 million, $368 million, $347 million and $416 million at September 30, 2023, September 30, 2022, December 31, 2022 and June 30, 2023, respectively. The higher level of commercial loans and leases classified as nonaccrual at the two most recent quarter ends as compared with September 30, 2022 and December 31, 2022 reflects an increase in loans to motor vehicle and recreational finance dealers classified as nonaccrual. Commercial real estate loans in nonaccrual status aggregated $1.4 billion at
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September 30, 2023 and $1.5 billion at each of September 30, 2022, December 31, 2022 and June 30, 2023. Commercial real estate loans in nonaccrual status were largely reflective of loans in the retail, office, healthcare and hospitality sectors. Commercial loans and leases and commercial real estate loans acquired from People's United and classified as nonaccrual totaled $67 million and $428 million, respectively, at September 30, 2023, $136 million and $416 million, respectively, at September 30, 2022, $118 million and $401 million, respectively, at December 31, 2022 and $96 million and $418 million, respectively, at June 30, 2023.
Nonaccrual residential real estate loans totaled $303 million at September 30, 2023, compared with $381 million at September 30, 2022, $350 million at December 31, 2022 and $305 million at June 30, 2023. The lower balance of nonaccrual residential real estate loans since September 30, 2022 is reflective of improved customer repayment performance in current economic conditions. Residential real estate loans obtained in the acquisition of People's United and classified as nonaccrual aggregated $40 million at September 30, 2023, $17 million at September 30, 2022, $36 million at December 31, 2022 and $39 million at June 30, 2023. Included in residential real estate loans classified as nonaccrual were limited documentation first lien mortgage loans of $62 million at September 30, 2023, compared with $95 million at September 30, 2022, $78 million at December 31, 2022 and $67 million at June 30, 2023. Limited documentation first lien 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 $261 million at September 30, 2023, compared with $412 million at September 30, 2022, $345 million at December 31, 2022 and $284 million at June 30, 2023. Those amounts related predominantly to government-guaranteed loans. The declining balances of those loans since 2022's third quarter reflect improved borrower repayment performance. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter ended September 30, 2023 is presented in the accompanying table.
Nonaccrual consumer loans were $178 million at September 30, 2023, $206 million at September 30, 2022, $218 million at December 31, 2022 and $184 million at June 30, 2023. Nonaccrual automotive loans were $16 million at September 30, 2023, $40 million at each of September 30, 2022 and December 31, 2022 and $22 million at June 30, 2023. Recreational finance loans classified as nonaccrual were $31 million, $39 million, $45 million and $32 million at September 30, 2023, September 30, 2022, December 31, 2022 and June 30, 2023, respectively. Outstanding balances of home equity loans and lines of credit classified as nonaccrual were $78 million at each of September 30, 2023 and September 30, 2022, compared with $85 million and $77 million at December 31, 2022 and June 30, 2023, respectively. Consumer loans acquired from People's United and classified as nonaccrual were $18 million at September 30, 2023, $12 million at September 30, 2022, $17 million at December 31, 2022 and $16 million at June 30, 2023 and consisted predominantly of home equity loans and lines of credit. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended September 30, 2023 is presented in the accompanying table.
Information about past due and nonaccrual loans as of September 30, 2023 and December 31, 2022 is also included in note 4 of Notes to Financial Statements.
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SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA
| Quarter Ended | |||||||||||||||||||||
| September 30, 2023 | September 30, 2023 | ||||||||||||||||||||
| Nonaccrual | Net Charge-offs (Recoveries) | ||||||||||||||||||||
| Annualized | |||||||||||||||||||||
| Percent of | |||||||||||||||||||||
| Percent of | Average | ||||||||||||||||||||
| Outstanding | Outstanding | Outstanding | |||||||||||||||||||
| Balances | Balances | Balances | Balances | Balances | |||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
| Residential mortgage loans: | |||||||||||||||||||||
| New York | $ | 6,750,999 | $ | 97,829 | 1.45 | % | $ | (19 | ) | — | % | ||||||||||
| Mid-Atlantic (a) | 6,687,467 | 70,652 | 1.06 | 590 | .03 | ||||||||||||||||
| New England (b) | 6,089,505 | 54,261 | .89 | (12 | ) | — | |||||||||||||||
| Other | 2,922,815 | 16,182 | .55 | (38 | ) | -.01 | |||||||||||||||
| Total | $ | 22,450,786 | $ | 238,924 | 1.06 | % | $ | 521 | .01 | % | |||||||||||
| Residential construction loans: | |||||||||||||||||||||
| New York | $ | 17,929 | $ | 1,605 | 8.95 | % | $ | — | — | % | |||||||||||
| Mid-Atlantic (a) | 8,622 | 224 | 2.60 | — | — | ||||||||||||||||
| New England (b) | 10,189 | — | — | — | — | ||||||||||||||||
| Other | 2,759 | — | — | — | — | ||||||||||||||||
| Total | $ | 39,499 | $ | 1,829 | 4.63 | % | $ | — | — | % | |||||||||||
| Limited documentation first lien mortgage loans: | |||||||||||||||||||||
| New York | $ | 437,059 | $ | 27,583 | 6.31 | % | $ | (13 | ) | -.01 | % | ||||||||||
| Mid-Atlantic (a) | 392,062 | 22,386 | 5.71 | — | — | ||||||||||||||||
| New England (b) | 89,958 | 8,919 | 9.91 | — | — | ||||||||||||||||
| Other | 38,906 | 3,362 | 8.64 | — | — | ||||||||||||||||
| Total | $ | 957,985 | $ | 62,250 | 6.50 | % | $ | (13 | ) | -.01 | % | ||||||||||
| First lien home equity loans and lines of credit: | |||||||||||||||||||||
| New York | $ | 882,813 | $ | 16,655 | 1.89 | % | $ | (21 | ) | -.01 | % | ||||||||||
| Mid-Atlantic (a) | 1,026,174 | 19,318 | 1.88 | (73 | ) | -.03 | |||||||||||||||
| New England (b) | 484,359 | 5,343 | 1.10 | 2 | — | ||||||||||||||||
| Other | 13,445 | 288 | 2.14 | (113 | ) | .16 | |||||||||||||||
| Total | $ | 2,406,791 | $ | 41,604 | 1.73 | % | $ | (205 | ) | -.02 | % | ||||||||||
| Junior lien home equity loans and lines of credit: | |||||||||||||||||||||
| New York | $ | 768,591 | $ | 16,543 | 2.15 | % | $ | 46 | .03 | % | |||||||||||
| Mid-Atlantic (a) | 898,832 | 14,174 | 1.58 | 107 | .05 | ||||||||||||||||
| New England (b) | 596,349 | 5,898 | .99 | (11 | ) | -.01 | |||||||||||||||
| Other | 22,148 | 97 | .44 | (21 | ) | -.03 | |||||||||||||||
| Total | $ | 2,285,920 | $ | 36,712 | 1.61 | % | $ | 121 | .02 | % |
(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.
Real estate and other foreclosed assets totaled $37 million at each of September 30, 2023 and September 30, 2022, compared with $41 million at December 31, 2022 and $43 million at June 30, 2023. Net gains or losses associated with real estate and other foreclosed assets were not material during each of the three and nine months ended September 30, 2023 and 2022. At September 30, 2023, foreclosed assets are comprised predominantly of residential real estate-related properties.
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 September 30, 2023 concerns existed about elevated levels of inflation; fears of liquidity shortages and tightening credit in the financial services markets and a slowing economy or possible recession in coming quarters; the volatile nature of global markets and international economic conditions that could impact the U.S. economy; Federal Reserve positioning of monetary policy; downward pressures
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on commercial and residential real estate values especially in the office and healthcare sectors; rising interest rates and wage pressures impacting commercial borrowers; the extent to which borrowers, in particular commercial real estate borrowers, may be negatively affected by general economic conditions; and continued stagnant population and economic growth in the upstate New York and central Pennsylvania regions (approximately 37% of the Company’s loans and leases are to customers in New York State and Pennsylvania) that historically lag other regions of the country. The Company utilizes a loan grading system to differentiate risk amongst its commercial loans and commercial real estate loans. Loans with a lower expectation of default are assigned one of ten possible “pass” loan grades while specific loans determined to have an elevated level of credit risk are classified as “criticized.” A criticized loan may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. Criticized commercial and commercial real estate loans totaled $11.1 billion, $10.9 billion, $10.7 billion, and $10.5 billion and included $2.1 billion, $2.8 billion, $2.5 billion, and $2.2 billion of loans acquired from People's United at September 30, 2023, September 30, 2022, December 31, 2022 and June 30, 2023, respectively. Although economic conditions improved during 2022 as pandemic-related restrictions were lifted and consumer spending increased, the business climate through the first nine months of 2023 has been subjected to inflationary pressures, rising interest rates and liquidity concerns. 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, retail, multi-family and healthcare sectors. Investor-owned commercial real estate loans comprised $8.0 billion or 72% of total criticized loans at September 30, 2023. The weighted-average LTV ratio for loans secured by investor-owned commercial real estate was approximately 56%. Criticized loans secured by investor-owned commercial real estate had a weighted-average LTV ratio of approximately 63%.
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The accompanying tables summarize the outstanding balances of commercial loans and leases and commercial real estate loans by industry or property type at September 30, 2023 and December 31, 2022.
COMMERCIAL LOANS AND LEASES, NET OF UNEARNED DISCOUNT
(Excludes Loans Secured by Real Estate)
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||
| Outstanding | Criticized Accrual | Criticized Nonaccrual | Total Criticized | Outstanding | Criticized Accrual | Criticized Nonaccrual | Total Criticized | ||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||
| Financial and insurance | $ | 9,675 | $ | 11 | $ | 1 | $ | 12 | $ | 7,428 | $ | 139 | $ | 1 | $ | 140 | |||||||||||||||||
| Services | 6,587 | 293 | 30 | 323 | 6,494 | 333 | 35 | 368 | |||||||||||||||||||||||||
| Manufacturing | 5,973 | 395 | 58 | 453 | 5,524 | 299 | 72 | 371 | |||||||||||||||||||||||||
| Motor vehicle and recreational finance dealers | 5,442 | 20 | 97 | 117 | 4,797 | 7 | — | 7 | |||||||||||||||||||||||||
| Wholesale | 3,659 | 235 | 60 | 295 | 4,140 | 183 | 8 | 191 | |||||||||||||||||||||||||
| Transportation, communications, utilities | 3,347 | 205 | 49 | 254 | 3,078 | 217 | 73 | 290 | |||||||||||||||||||||||||
| Retail | 2,809 | 119 | 52 | 171 | 2,525 | 175 | 34 | 209 | |||||||||||||||||||||||||
| Construction | 2,147 | 170 | 55 | 225 | 2,324 | 248 | 46 | 294 | |||||||||||||||||||||||||
| Health services | 1,925 | 321 | 22 | 343 | 1,972 | 171 | 39 | 210 | |||||||||||||||||||||||||
| Real estate investors | 1,743 | 132 | 2 | 134 | 1,882 | 35 | 3 | 38 | |||||||||||||||||||||||||
| Other | 1,751 | 78 | 59 | 137 | 1,686 | 75 | 36 | 111 | |||||||||||||||||||||||||
| Total | $ | 45,058 | $ | 1,979 | $ | 485 | $ | 2,464 | $ | 41,850 | $ | 1,882 | $ | 347 | $ | 2,229 |
COMMERCIAL REAL ESTATE LOANS, NET OF UNEARNED DISCOUNT
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||
| Outstanding | Criticized Accrual | Criticized Nonaccrual | Total Criticized | Outstanding | Criticized Accrual | Criticized Nonaccrual | Total Criticized | ||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||
| Investor-owned | |||||||||||||||||||||||||||||||||
| Permanent finance by property type | |||||||||||||||||||||||||||||||||
| Apartments/Multi-family | $ | 6,198 | $ | 1,006 | $ | 102 | $ | 1,108 | $ | 5,888 | $ | 684 | $ | 78 | $ | 762 | |||||||||||||||||
| Retail/Service | 5,989 | 925 | 246 | 1,171 | 6,296 | 971 | 182 | 1,153 | |||||||||||||||||||||||||
| Office | 4,898 | 859 | 270 | 1,129 | 5,186 | 863 | 208 | 1,071 | |||||||||||||||||||||||||
| Health services | 3,683 | 1,038 | 175 | 1,213 | 3,667 | 1,052 | 222 | 1,274 | |||||||||||||||||||||||||
| Hotel | 2,677 | 614 | 240 | 854 | 2,810 | 676 | 512 | 1,188 | |||||||||||||||||||||||||
| Industrial/Warehouse | 2,114 | 177 | 19 | 196 | 2,238 | 98 | 12 | 110 | |||||||||||||||||||||||||
| Other | 301 | 2 | 5 | 7 | 527 | 42 | 24 | 66 | |||||||||||||||||||||||||
| Total permanent | 25,860 | 4,621 | 1,057 | 5,678 | 26,612 | 4,386 | 1,238 | 5,624 | |||||||||||||||||||||||||
| Construction/development | 7,408 | 2,187 | 139 | 2,326 | 8,257 | 2,169 | 126 | 2,295 | |||||||||||||||||||||||||
| Total investor-owned | 33,268 | 6,808 | 1,196 | 8,004 | 34,869 | 6,555 | 1,364 | 7,919 | |||||||||||||||||||||||||
| Owner-occupied by industry (a) | |||||||||||||||||||||||||||||||||
| Services | 2,275 | 160 | 58 | 218 | 2,253 | 168 | 69 | 237 | |||||||||||||||||||||||||
| Motor vehicle and recreational finance dealers | 1,913 | 7 | 7 | 14 | 1,848 | — | 2 | 2 | |||||||||||||||||||||||||
| Retail | 1,568 | 35 | 30 | 65 | 1,688 | 66 | 11 | 77 | |||||||||||||||||||||||||
| Wholesale | 978 | 40 | 3 | 43 | 978 | 19 | 2 | 21 | |||||||||||||||||||||||||
| Manufacturing | 872 | 74 | 22 | 96 | 841 | 52 | 23 | 75 | |||||||||||||||||||||||||
| Real estate investors | 863 | 27 | 16 | 43 | 732 | 50 | 23 | 73 | |||||||||||||||||||||||||
| Health services | 680 | 49 | 22 | 71 | 989 | 30 | 6 | 36 | |||||||||||||||||||||||||
| Other | 1,157 | 30 | 21 | 51 | 1,167 | 49 | 23 | 72 | |||||||||||||||||||||||||
| Total owner-occupied | 10,306 | 422 | 179 | 601 | 10,496 | 434 | 159 | 593 | |||||||||||||||||||||||||
| Total commercial real estate | $ | 43,574 | $ | 7,230 | $ | 1,375 | $ | 8,605 | $ | 45,365 | $ | 6,989 | $ | 1,523 | $ | 8,512 |
(a)
Includes $422 million and $359 million of construction loans at September 30, 2023 and December 31, 2022, respectively.
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 credit personnel review all criticized commercial loans and commercial real estate loans greater than $5 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
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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 September 30, 2023, approximately 51% of the Company’s home equity portfolio consisted of first lien loans and lines of credit and 49% 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 September 30, 2023, approximately 86% of all outstanding balances of home equity lines of credit related to lines that were still in the draw period, the weighted-average remaining draw periods were approximately five years, and approximately 16% 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 commercial and residential 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 September 30, 2023, June 30, 2023, December 31, 2022 and September 30, 2022 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 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 international conflicts and other events, liquidity concerns, 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, liquidity trends 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 September 30, 2023 was that the national unemployment rate will average 4.6% through the reasonable and supportable forecast period. The forecast also assumed gross domestic product grows at a 0.7% rate during the first year of the reasonable and supportable forecast period and at a 2.0% rate in the second year. Commercial real estate and residential real estate prices were assumed to cumulatively contract 8.5% and 4.8%, respectively over the two-year reasonable and supportable forecast period. The assumptions utilized as of June 30, 2023 included an average national unemployment rate of 4.6% through the
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reasonable and supportable forecast period. The forecast also assumed gross domestic product would grow 0.8% during the first year of the reasonable and supportable forecast period followed by a 2.3% rate in the second year. Commercial real estate prices were assumed to cumulatively contract 11.1% and residential real estate prices were assumed to contract 6.6% over the two-year reasonable and supportable forecast period. The assumptions utilized as of December 31, 2022 included an average national unemployment rate of 4.0% 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 1.0% annual rate followed by a 2.5% rate in the second year. Commercial real estate prices were assumed to cumulatively grow 1.9% and residential real estate prices were assumed to contract 6.2% over the two-year reasonable and supportable forecast period. Among the assumptions utilized as of September 30, 2022 was that the national unemployment rate would average 3.9% through the reasonable and supportable forecast period. The forecast also assumed gross domestic product would grow at a 1.5% rate during the first year of the reasonable and supportable forecast period and at a 2.7% rate in the second year. Commercial real estate prices were assumed to cumulatively grow 6.5% and residential real estate values were assumed to contract 4.4%, over the two-year reasonable and supportable forecast period. The assumptions utilized were based on the information available to the Company at or near the time the Company was preparing its estimate of expected credit losses as of those dates.
In establishing the allowance for credit losses, the Company also considers the impact of portfolio concentrations, imprecision in economic forecasts, geopolitical conditions and other risk factors that might influence the loss estimation process. With respect to economic forecasts, the Company assessed the likelihood of alternative economic scenarios during the two-year reasonable and supportable time period. Generally, an increase in unemployment rate or a decrease in any of the rate of change in gross domestic product, commercial real estate prices or home prices could have an adverse impact on expected credit losses and may result in an increase to the allowance for credit losses. Forward looking economic forecasts are subject to inherent imprecision and future events may differ materially from forecasted events. In consideration of such uncertainty, the following alternative economic scenarios were considered to estimate the possible impact on modeled credit losses.
A potential downside economic scenario assumed the unemployment rate averages 7.1% during the reasonable and supportable forecast period. The scenario also assumed gross domestic product contracts 2.5% in the first year of the reasonable and supportable forecast period before recovering to 1.9% growth in the second year and commercial real estate and residential real estate prices cumulatively decline 25.3% and 11.1%, respectively, by the end of the reasonable and supportable forecast period.
A potential upside economic scenario assumed the unemployment rate averages approximately 3.3% for the duration of the reasonable and supportable forecast period. The scenario also assumes gross domestic product grows 3.4% in the initial year of the reasonable and supportable forecast period and 2.3% in the second year while commercial real estate prices cumulatively decline 0.4% and residential real estate prices cumulatively rise 1.1% over the two-year reasonable and supportable forecast period.
The scenario analyses resulted in an additional $388 million of modeled credit losses under the assumptions of the downside economic scenario, whereas under the assumptions of the upside economic scenario a $180 million reduction in modeled credit losses could occur. These examples are only a few of the numerous possible economic scenarios that could be utilized in assessing the sensitivity of expected credit losses. The estimated impacts on credit losses in such scenarios pertain only to modeled credit losses and do not include consideration of other factors the Company may evaluate when determining its allowance for credit losses.
As a result, it is possible that the Company may, at another point in time, reach different conclusions regarding credit loss estimates. The Company’s process for determining the allowance for credit losses undergoes quarterly and periodic evaluations by independent risk management personnel, which among many other considerations, evaluate the reasonableness of management’s methodology and significant assumptions. Further information about the Company’s methodology to estimate expected credit losses is included in note 4 of Notes to Financial Statements.
Management believes that the allowance for credit losses at September 30, 2023 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled $2.1 billion at September 30, 2023, compared with $1.9 billion at each of September 30, 2022, and at December 31, 2022, and $2.0 billion at June 30, 2023. As a percentage of loans outstanding, the allowance was 1.55% at September 30, 2023, 1.46%
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at each of September 30, 2022 and December 31, 2022, and 1.50% at June 30, 2023. Using the same methodology described herein, the Company added $341 million to the allowance for credit losses related to the $35.8 billion of loans and leases obtained in the acquisition of People's United on April 1, 2022. The combined Company allowance for credit losses at April 1, 2022 as a percentage of loans outstanding was 1.42%. The level of the allowance reflects management’s evaluation of the loan and lease portfolio using the methodology and considering the factors as described herein. Should the various economic forecasts and credit factors considered by management in establishing the allowance for credit losses change and should management’s assessment of losses in the loan portfolio also change, the level of the allowance as a percentage of loans could increase or decrease in future periods. The reported level of the allowance reflects management’s evaluation of the loan and lease portfolio as of each respective date.
The ratio of the allowance for credit losses to total nonaccrual loans at September 30, 2023, September 30, 2022, December 31, 2022 and June 30, 2023 was 88%, 77%, 79% and 82%, 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
The components of other income are presented in the accompanying table.
OTHER INCOME
| Three Months Ended | Percent Change from | Nine Months Ended | ||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | June 30, 2023 | Third Quarter 2022 | Second Quarter 2023 | September 30, 2023 | September 30, 2022 | Percent Change | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Mortgage banking revenues | $ | 104,478 | $ | 83,041 | $ | 107,112 | 26 | % | -2 | % | $ | 296,575 | $ | 275,115 | 8 | % | ||||||||||||||||
| Service charges on deposit accounts | 121,360 | 115,213 | 118,697 | 5 | 2 | 353,603 | 340,890 | 4 | ||||||||||||||||||||||||
| Trust income | 155,092 | 186,577 | 172,463 | -17 | -10 | 521,357 | 545,874 | -4 | ||||||||||||||||||||||||
| Brokerage services income | 26,988 | 21,086 | 25,126 | 28 | 7 | 76,155 | 65,414 | 16 | ||||||||||||||||||||||||
| Trading account and non-hedging derivative gains | 9,379 | 5,081 | 16,754 | 85 | -44 | 37,808 | 12,743 | 197 | ||||||||||||||||||||||||
| Gain (loss) on bank investment securities | (235 | ) | (1,108 | ) | 1,004 | — | — | 353 | (1,913 | ) | — | |||||||||||||||||||||
| Other revenues from operations | 142,519 | 153,189 | 362,015 | -7 | -61 | 664,034 | 436,943 | 52 | ||||||||||||||||||||||||
| Total other income | $ | 559,581 | $ | 563,079 | $ | 803,171 | -1 | % | -30 | % | $ | 1,949,885 | $ | 1,675,066 | 16 | % |
Mortgage banking revenues
Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities, which consist of realized gains and losses from sales of real estate loans and loan servicing rights, unrealized gains and losses on real estate loans held for sale and related commitments, real estate loan servicing fees, and other real estate loan-related fees and income. The Company's involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multi-family loan program of Fannie Mae, Freddie Mac, and the U.S. Department of Housing and Urban Development.
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RESIDENTIAL MORTGAGE BANKING ACTIVITIES
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, 2023 | September 30, 2022 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Residential mortgage banking revenues | ||||||||||||||||||||
| Gains (losses) on loans originated for sale | $ | 8,298 | $ | 988 | $ | 8,380 | $ | 19,530 | $ | (2,082 | ) | |||||||||
| Loan servicing fees | 37,325 | 21,676 | 37,690 | 94,645 | 64,369 | |||||||||||||||
| Loan sub-servicing and other fees | 30,250 | 32,615 | 31,361 | 93,926 | 118,928 | |||||||||||||||
| Total loan servicing revenues | 67,575 | 54,291 | 69,051 | 188,571 | 183,297 | |||||||||||||||
| Total residential mortgage banking revenues | $ | 75,873 | $ | 55,279 | $ | 77,431 | $ | 208,101 | $ | 181,215 | ||||||||||
| New commitments to originate loans for sale | $ | 340,949 | $ | 47,295 | $ | 394,618 | $ | 1,011,367 | $ | 286,081 |
| September 30, 2023 | June 30, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balances at period end | ||||||||||||||||
| Loans held for sale | $ | 204,697 | $ | 216,277 | $ | 31,742 | $ | 42,344 | ||||||||
| Commitments to originate loans for sale | 237,683 | 242,739 | 31,208 | 57,155 | ||||||||||||
| Commitments to sell loans | 383,599 | 393,585 | 52,988 | 80,132 | ||||||||||||
| Capitalized mortgage servicing rights | 480,780 | 505,175 | 194,335 | 207,944 | ||||||||||||
| Loans serviced for others | $ | 40,504,163 | $ | 40,942,973 | $ | 22,329,879 | $ | 22,834,323 | ||||||||
| Loans sub-serviced for others (a) | 114,598,944 | 112,756,135 | 96,026,835 | 81,196,851 | ||||||||||||
| Total loans serviced for others | $ | 155,103,107 | $ | 153,699,108 | $ | 118,356,714 | $ | 104,031,174 |
(a)
The contractual servicing rights associated with residential mortgage 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 15 of Notes to Financial Statements
Throughout 2022, the Company originated the majority of its residential real estate loans for retention in its loan portfolio rather than for sale. In the first quarter of 2023, the Company returned to originating for sale the majority of its newly originated residential mortgage loans. Gains associated with residential mortgage loans originated for sale increased $7 million in the recent quarter as compared with the third quarter of 2022. Similarly, gains associated with residential mortgage loans originated for sale increased $22 million in the first nine months of 2023 as compared with the similar 2022 period.
The increase in residential mortgage loan servicing fees of $16 million and $30 million in the three- and nine-month periods ending September 30, 2023 as compared with the similar 2022 periods, respectively, primarily reflects a $350 million bulk purchase of residential mortgage loan servicing rights associated with $19.5 billion of residential real estate loans on March 31, 2023. The decline in residential mortgage loan sub-servicing and other fees in the first nine months of 2023 as compared with the first nine months of 2022 reflects lower fees on reduced loan modification activity.
The higher balances of capitalized residential mortgage servicing rights and outstanding balances of residential mortgage loans serviced for others at September 30, 2023 and June 30, 2023 as compared with December 31, 2022 and September 30, 2022 each reflect the bulk purchase of residential mortgage loan servicing rights in the first quarter of 2023.
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COMMERCIAL MORTGAGE BANKING ACTIVITIES
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, 2023 | September 30, 2022 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Commercial mortgage banking revenues | ||||||||||||||||||||
| Gains on loans originated for sale | $ | 11,649 | $ | 11,666 | $ | 12,219 | $ | 37,795 | $ | 40,061 | ||||||||||
| Loan servicing fees and other | 16,956 | 16,096 | 17,462 | 50,679 | 53,839 | |||||||||||||||
| Total commercial mortgage banking revenues | $ | 28,605 | $ | 27,762 | $ | 29,681 | $ | 88,474 | $ | 93,900 | ||||||||||
| Loans originated for sale to other investors | $ | 934,047 | $ | 906,032 | $ | 940,442 | $ | 2,546,862 | $ | 2,204,134 |
| September 30, 2023 | June 30, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balances at period end | ||||||||||||||||
| Loans held for sale | $ | 226,022 | $ | 322,029 | $ | 130,652 | $ | 300,373 | ||||||||
| Commitments to originate loans for sale | 338,569 | 309,771 | 348,701 | 401,369 | ||||||||||||
| Commitments to sell loans | 564,591 | 631,800 | 479,353 | 701,742 | ||||||||||||
| Capitalized mortgage servicing rights | 124,907 | 124,472 | 126,391 | 128,651 | ||||||||||||
| Loans serviced for others (a) | $ | 23,933,887 | $ | 23,124,042 | $ | 22,177,153 | $ | 21,360,961 | ||||||||
| Loans sub-serviced for others | 3,749,249 | 3,763,796 | 3,841,235 | 3,692,301 | ||||||||||||
| Total loans serviced for others | $ | 27,683,136 | $ | 26,887,838 | $ | 26,018,388 | $ | 25,053,262 |
(a)
Includes $4.0 billion at September 30, 2023, $3.9 billion at each of June 30,2023 and December 31, 2022, and $3.7 billion at September 30, 2022 of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectible.
The decline in commercial mortgage banking revenues in the first nine months of 2023 as compared with the corresponding 2022 period reflects lower margins on commercial real estate loans originated for sale.
Service charges on deposit accounts
Service charges on deposit accounts increased $6 million in the recent quarter from the similar 2022 quarter predominantly from increased commercial service charges. The increase in service charges on deposit accounts in the first nine months of 2023 as compared with the first three quarters of 2022 reflects one additional quarter of revenues associated with the acquisition of People’s United, partially offset by a full nine-month impact in the 2023 period of the Company’s elimination of certain non-sufficient fund fees and overdraft protection transfer charges from linked deposit accounts beginning in the second quarter of 2022.
Trust income
Trust income includes fees related to two businesses. The 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 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.
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TRUST INCOME AND ASSETS UNDER MANAGEMENT
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, 2023 | September 30, 2022 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Trust income | ||||||||||||||||||||
| ICS | $ | 77,463 | $ | 114,058 | $ | 90,073 | $ | 287,477 | $ | 323,112 | ||||||||||
| WAS | 73,818 | 71,372 | 78,755 | 225,747 | 217,249 | |||||||||||||||
| Other | 3,811 | 1,147 | 3,635 | 8,133 | 5,513 | |||||||||||||||
| Total trust income | $ | 155,092 | $ | 186,577 | $ | 172,463 | $ | 521,357 | $ | 545,874 |
| September 30, 2023 | June 30, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Assets under management at period end | ||||||||||||||||
| Trust assets under management (excluding proprietary funds) | $ | 62,769,192 | $ | 64,397,888 | $ | 152,227,591 | $ | 140,800,339 | ||||||||
| Proprietary mutual fund | 14,835,311 | 14,103,421 | 12,992,062 | 12,696,305 | ||||||||||||
| Total assets under management | $ | 77,604,503 | $ | 78,501,309 | $ | 165,219,653 | $ | 153,496,644 |
In April 2023, M&T completed the divestiture of its CIT business through a sale to a private equity firm. The resulting decline in ICS trust income associated with that business in the recent quarter was $41 million and $15 million when compared with 2022's third quarter and the second quarter of 2023, respectively. For the nine months ended September 30, 2023 ICS trust income associated with the CIT business declined $61 million as compared with the same period of 2022.
ICS trust income not related to the CIT business increased $25 million for the first nine months of 2023 as compared to the similar 2022 period reflecting new business and higher fund management fees.
WAS trust income in the recent quarter declined from the immediately preceding quarter as a result of seasonal tax service fees earned in the second quarter of 2023. The increase in trust income from the WAS business in the first nine months of 2023 as compared with the corresponding 2022 period reflected one additional quarter of operations acquired from People’s United.
The lower assets under management at September 30, 2023 and June 30, 2023 as compared with December 31, 2022 and September 30, 2022 reflect the sale of the CIT business in the second quarter of 2023.
Brokerage services income
Brokerage services income, which includes revenues from the sale of mutual funds and annuities, securities brokerage fees and select investment products of LPL Financial, an independent financial services broker, increased $6 million in the recent quarter as compared with the year-earlier quarter reflecting higher fees from LPL Financial. The increase in revenues in the first nine months of 2023 as compared with the first three quarters of 2022 also reflects one additional quarter of operations from the acquisition of People’s United.
Trading account and non-hedging derivative gains
The Company enters into interest rate swap agreements and foreign exchange contracts with customers who need such services and concomitantly enters into an offsetting trading position with third parties to minimize risks involved with these types of transactions. Information about the notional amount of interest rate, foreign exchange and other non-hedging contracts entered into by the Company is included in note 10 of Notes to Financial Statements and herein under the heading "Taxable-Equivalent Net Interest Income". The comparative increase and decrease in income from trading account and non-hedging derivative gains in the recent quarter as compared with the year-earlier quarter and immediately preceding quarter, respectively, reflects changes in the volume of interest rate swap agreements with commercial customers and changes in market conditions impacting the value of assets related to the Company’s supplemental executive retirement plans. The increase in trading account and non-hedging derivative gains in the first
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nine months of 2023 as compared with the first nine months of 2022 also reflects one additional quarter of operations acquired from People's United.
Other revenues from operations
Other revenues from operations in the recent quarter decreased $11 million from the third quarter of 2022 reflecting lower insurance income due to the sale of MTIA in the fourth quarter of 2022.
Other revenues from operations in the recent quarter declined $219 million from the second quarter of 2023 due to the $225 million gain on the sale of CIT recorded in the second quarter of 2023.
Other revenues from operations in the first nine months of 2023 increased $227 million from the similar nine-month period in 2022 reflecting the $225 million gain on the sale of the CIT business in April 2023, a $15 million increase in letter of credit and other credit-related fees and an $8 million increase in tax-exempt income from bank owned life insurance, partially offset by a $28 million decline in insurance income predominately due to the sale of MTIA in the fourth quarter of 2022.
Other Expense
The components of other expense are presented in the accompanying table.
OTHER EXPENSE
| Three Months Ended | Percent Change From | Nine Months Ended | ||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 (a) | June 30, 2023 | Third Quarter 2022 | Second Quarter 2023 | September 30, 2023 | September 30, 2022 (a) | Percent Change | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 726,940 | $ | 736,354 | $ | 737,665 | -1 | % | -1 | % | $ | 2,272,547 | $ | 2,090,075 | 9 | % | ||||||||||||||||
| Equipment and net occupancy | 130,842 | 127,117 | 128,689 | 3 | 2 | 386,435 | 337,584 | 14 | ||||||||||||||||||||||||
| Outside data processing and software | 110,691 | 95,068 | 106,438 | 16 | 4 | 322,909 | 268,607 | 20 | ||||||||||||||||||||||||
| FDIC assessments | 29,364 | 28,105 | 27,932 | 4 | 5 | 87,054 | 66,266 | 31 | ||||||||||||||||||||||||
| Advertising and marketing | 22,898 | 21,398 | 28,353 | 7 | -19 | 82,314 | 58,057 | 42 | ||||||||||||||||||||||||
| Printing, postage and supplies | 13,964 | 14,768 | 14,199 | -5 | -2 | 42,346 | 40,488 | 5 | ||||||||||||||||||||||||
| Amortization of core deposit and other intangible assets | 14,946 | 18,384 | 14,945 | -19 | — | 47,099 | 38,024 | 24 | ||||||||||||||||||||||||
| Other costs of operations | 227,893 | 238,059 | 234,338 | -4 | -3 | 688,623 | 743,047 | -7 | ||||||||||||||||||||||||
| Total other expense | $ | 1,277,538 | $ | 1,279,253 | $ | 1,292,559 | — | % | -1 | % | $ | 3,929,327 | $ | 3,642,148 | 8 | % |
(a)
Included in the 2022 amounts are expenses considered "nonoperating" in nature. Table 2 provides a summary of merger-related expenses in the reconciliation of quarterly GAAP amounts to non-GAAP measures.
Other expense aggregated $1.28 billion in each of the third quarter of 2023 and 2022, compared with $1.29 billion in the second quarter of 2023. Included in those amounts are expenses considered to be "nonoperating" in nature consisting of amortization of core deposit and other intangible assets of $15 million in each of the third and second quarters of 2023, compared with $18 million in the third quarter of 2022, and merger-related costs of $53 million in the third quarter of 2022. There were no merger-related expenses incurred in the second and third quarters of 2023. Exclusive of those nonoperating expenses, noninterest operating expenses were $1.26 billion and $1.21 billion in the third quarter of 2023 and 2022, respectively, and $1.28 billion in 2023's second quarter. Other expense for the first nine months of 2023 totaled $3.93 billion, an increase of $287 million from $3.64 billion in the first nine months of 2022. Excluding nonoperating expenses consisting of amortization of core deposit and other intangible assets of $47 million and $38 million in the first nine months of 2023 and 2022, respectively, and merger-related costs of $293 million in the first three quarters of 2022, noninterest operating expenses aggregated $3.88 billion and $3.31 billion in the first nine months of 2023 and 2022, respectively. There were no merger-related costs in the first nine months of 2023. Changes in operating expenses for the periods presented are described below:
Salaries and employee benefits
Merger-related salaries and employee benefits expenses were $13 million and $98 million, respectively, for the three and nine months ended September 30, 2022.
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The number of full time equivalent employees was 22,424 at September 30, 2023, compared with 22,879 at September 30, 2022 and 22,946 at June 30, 2023.
Salaries and employee benefits operating expenses increased a modest $4 million in the recent quarter as compared with the year-earlier quarter. Salaries and employee benefits operating expenses decreased $11 million in the recent quarter from the second quarter of 2023 reflecting lower average full-time equivalent employees and a decline in expenses for contracted resources and overtime.
Salaries and employee benefits operating expenses increased $281 million in the first three quarters of 2023 as compared with the corresponding year-earlier period reflecting the addition of People's United employees at the beginning of the second quarter of 2022, higher salaries from increased average legacy staffing levels, annual merit increases, a rise in incentive compensation, including stock-based compensation, and increases in employee benefits costs.
Nonpersonnel operating expenses
Nonpersonnel merger-related expenses aggregated $40 million in the third quarter of 2022 and $195 million in the first nine months of 2022.
Nonpersonnel operating expenses increased $51 million to $536 million in the recent quarter from $485 million in the year-earlier third quarter. That increase includes higher outside data processing and software costs of $18 million and a $23 million rise in other costs of operations resulting from the amortization of the bulk purchase of residential mortgage loan servicing rights purchased in March 2023 and losses associated with certain retail banking activities, partially offset by lower professional and other outside services expenses reflecting lower sub-advisory fees following the sale of the CIT business.
Nonpersonnel operating expenses aggregated $540 million in the second quarter of 2023. The $4 million decline in those expenses for the recent quarter as compared with 2023's second quarter reflects lower sub-advisory fees following the sale of the CIT business in April 2023 and a decline in legal-related expenses, partially offset by losses associated with certain retail banking activities.
Nonpersonnel operating expenses were $1.61 billion in the first nine months of 2023, compared with $1.32 billion in the corresponding 2022 period. The $290 million increase in nonpersonnel operating expenses in the first nine months of 2023 as compared with the year-earlier period reflects one additional quarter of operations associated with the acquisition of People's United. Also contributing to that increase were higher professional and other outside services expense, outside data processing and software expenses, deposit insurance, check fraud and other losses associated with certain retail banking activities and expenses related to the bulk purchase of residential mortgage loan servicing rights.
The efficiency ratio, or noninterest operating expenses divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses from bank investment securities), measures the relationship of noninterest operating expenses to revenues. The Company’s efficiency ratio was 53.7% during the recent quarter, compared with 53.6% and 48.9% in the third quarter of 2022 and second quarter of 2023, respectively. The efficiency ratio for the nine-month periods ended September 30, 2023 and 2022 were 52.6% and 58.1%, respectively.
On May 11, 2023, the FDIC released a proposed rule that would impose a special assessment to recover the costs to the DIF resulting from the FDIC’s use, in March 2023, of the systemic risk exception in connection with the receiverships of Silicon Valley Bank and Signature Bank. Under the proposed rule, the assessment base would be the estimated uninsured deposits of an insured depository institution at December 31, 2022, excluding the first $5 billion of those estimated uninsured deposits. The special assessments would be collected at an annual rate of approximately 12.5 basis points per year (3.13 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024. Under the proposed rule, the estimated loss pursuant to the systemic risk determination may be periodically adjusted by the FDIC. M&T expects the special assessments, as currently contemplated, would be tax deductible. Although the proposal could be revised, the total of the assessments for the Company is estimated at $183 million and such amount is expected to be recorded as an expense in the quarter of
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enactment. Such expense would significantly affect noninterest expense and results of operations for that future quarter. Refer to note 13 of Notes to Financial Statements for additional information on the FDIC special assessment.
Income Taxes
Income tax expense was $217 million in the third quarter of 2023, compared with $201 million in the year-earlier quarter and $293 million in the second quarter of 2023. For the nine-month periods ended September 30, 2023 and 2022, the provisions for income taxes were $735 million and $374 million, respectively. The effective tax rates were 24.0%, 23.7% and 25.2% for the quarters ended September 30, 2023, September 30, 2022 and June 30, 2023, respectively, and 24.5% and 23.4% for the nine-month periods ended September 30, 2023 and 2022, 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 amount 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 $26.2 billion at September 30, 2023, representing 12.53% of total assets, compared with $25.3 billion or 12.76% a year earlier and $25.3 billion or 12.61% at December 31, 2022. Shareholders' equity at each period end reflects the issuance of 50,325,004 M&T common shares and other common equity consideration totaling $8.4 billion for the acquisition of People's United and the conversion of People's United preferred stock into 10,000,000 shares of Series H Preferred Stock amounting to $261 million on April 1, 2022. Included in shareholders’ equity was preferred stock with financial statement carrying values of $2.0 billion at each of September 30, 2023, December 31, 2022 and September 30, 2022.
Common shareholders’ equity was $24.2 billion, or $145.72 per share, at September 30, 2023, compared with $23.2 billion, or $134.45 per share, a year earlier and $23.3 billion, or $137.68 per share, at December 31, 2022. Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $93.99 at the end of the recent quarter, compared with $84.28 at September 30, 2022 and $86.59 at December 31, 2022. The Company’s ratio of tangible common equity to tangible assets was 7.78% at September 30, 2023, compared with 7.70% a year earlier and 7.63% at December 31, 2022. Reconciliations of total common shareholders’ equity and tangible common equity and total assets and tangible assets as of each of those dates are presented in table 2.
Shareholders’ equity reflects accumulated other comprehensive income or loss, which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale, remaining unrealized losses on held-to-maturity securities transferred from available for sale that have not yet been amortized, gains or losses associated with interest rate swap agreements designated as cash flow hedges, foreign currency translation adjustments and adjustments to reflect the funded status of defined benefit pension and other postretirement plans. Net unrealized losses on investment securities reflected in shareholders’ equity, net of applicable tax effect, were $331 million or $2.00 per common share at September 30, 2023, $348 million or $2.01 per common share at September 30, 2022 and $329 million, or $1.94 per common share, at December 31, 2022. 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 on investment securities as of September 30, 2023 and December 31, 2022 is included in note 3 of Notes to Financial Statements.
Reflected in the carrying amount of available-for-sale investment securities at September 30, 2023 were pre-tax effect unrealized gains of $154 thousand on securities with an amortized cost of $6 million and pre-tax effect unrealized losses of $447 million on securities with an amortized cost of $11.0 billion. Information concerning the Company’s fair valuations of investment securities is provided in notes 3 and 12 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
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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 September 30, 2023, 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 September 30, 2023, the Company did not intend to sell nor is it anticipated that it would be required to sell any securities for which fair value was less than the amortized cost basis of the security. The Company intends to continue to closely monitor the performance of its securities because changes in their underlying credit performance or other events could cause the amortized cost basis of those securities to become uncollectable.
Accounting guidance requires investment securities held to maturity to be presented at their net carrying value that is expected to be collected over their contractual term. The Company estimated no material credit losses for its investment securities classified as held-to-maturity at September 30, 2023 and December 31, 2022. The amortized cost basis of obligations of states and political subdivisions in the held-to-maturity portfolio totaled $2.5 billion at September 30, 2023 and $2.6 billion at December 31, 2022. At September 30, 2023 and December 31, 2022, the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of $44 million and $50 million, respectively, and a fair value of $46 million and $51 million, respectively. At September 30, 2023, 81% of those mortgage-backed securities were in the most senior tranche of the securitization structure. The mortgage-backed securities are generally collateralized by residential and small-balance commercial real estate loans originated between 2004 and 2008. After considering the repayment structure and estimated future collateral cash flows of each individual bond, the Company concluded that as of September 30, 2023, 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 $207 million or $1.25 per common share at September 30, 2023, $258 million or $1.49 per common share at September 30, 2022 and $202 million or $1.19 per common share at December 31, 2022.
Other adjustments, substantially comprised of net unrealized losses on interest rate swaps designated as cash flow hedges, net of applicable tax effect, reduced accumulated other comprehensive income by $404 million or $2.43 per common share at September 30, 2023, $294 million or $1.70 per common share at September 30, 2022 and $259 million or $1.53 per common share at December, 31, 2022. Information about net unrealized losses on interest rate swaps designated as cash flow hedges is provided in note 10 of the Notes to Financial Statements.
On July 19, 2022, M&T's Board of Directors authorized a stock purchase program to repurchase up to $3.0 billion of common shares subject to all applicable regulatory reporting limitations. The plan authorized in July 2022 replaced a previously authorized stock repurchase program. M&T repurchased 3,282,449 shares of its common stock for a total cost of $600 million under the program in the third quarter of 2022. No share repurchases occurred in the second and third quarter of 2023. M&T repurchased 3,838,157 shares totaling $600 million and 6,788,395 shares totaling $1.2 billion during the nine-month periods ended September 30, 2023 and 2022, respectively. Discretion as to the amount and timing of authorized share repurchases in a given period has been delegated, through the authorization of the Board of Directors, to management and can be influenced by capital and liquidity requirements, including funding of future loan growth and other balance sheet management activities, as well as market and economic conditions.
Cash dividends declared on M&T's common stock totaled $217 million in each of the two most recent quarters, compared with $210 million in the quarter ended September 30, 2022. Common stock dividends during the nine-month periods ended September 30, 2023 and 2022 were $653 million and $581 million, respectively. Cash dividends declared on preferred stock aggregated $25 million in each quarter ended September 30, 2023, June 30, 2023 and September 30, 2022. Preferred stock dividends totaled $75 million and $72 million during the first nine months of 2023 and 2022, respectively.
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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% 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 2.5% capital conservation buffer requirement. The buffer requirement must be composed entirely of CET1. M&T's stress capital buffer at September 30, 2023 was 4.7%. In June 2023, the Federal Reserve released the results of its most recent supervisory stress tests. Based on those results, on October 1, 2023, M&T's stress capital buffer of 4.0% became effective.
The regulatory capital ratios of the Company and its bank subsidiaries, M&T Bank and Wilmington Trust, N.A., as of September 30, 2023 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
September 30, 2023
| M&T | M&T | Wilmington | ||||||||||
| (Consolidated) | Bank | Trust, N.A. | ||||||||||
| CET1 | 10.95 | % | 11.66 | % | 262.54 | % | ||||||
| Tier 1 capital | 12.27 | % | 11.66 | % | 262.54 | % | ||||||
| Total capital | 13.99 | % | 13.10 | % | 262.97 | % | ||||||
| Tier 1 leverage | 9.43 | % | 8.95 | % | 71.61 | % |
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 DIF 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 the 2022 Annual Report.
On July 27, 2023 the federal banking agencies issued a notice of proposed rulemaking to modify the regulatory capital requirements applicable to large banking organizations with over $100 billion of total assets and their depository institution subsidiaries. The proposed rule would generally require banking organizations subject to Category III and IV standards, like the Company, to compute their regulatory capital consistent with Category I and II standards. Management is in the process of evaluating the impact of the proposed rule on the regulatory capital requirements of M&T and its subsidiary banks.
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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 14 of Notes to Financial Statements. The reportable segments are Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking. As described in the 2022 Annual Report, certain lending relationships within the hospitality sector were realigned from the Commercial Banking segment to the Commercial Real Estate segment and certain expenses were reallocated from the All Other segment to various reportable segments in the fourth quarter of 2022. During 2022, the Company also realigned certain acquired operations associated with People's United requiring reclassifications of certain revenues and expenses among the reportable segments. The results and analysis provided herein are reflective of those changes.
The Business Banking segment contributed net income of $117 million during the quarter ended September 30, 2023, compared with $93 million in the year-earlier quarter and $116 million in the second quarter of 2023. As compared with the third quarter of 2022, the improved performance reflected an increase in net interest income of $48 million resulting from a comparatively higher interest rate environment in the recent quarter, partially offset by a $9 million increase in the provision for credit losses and a $6 million rise in centrally-allocated costs associated with data processing, risk management and other support services provided to the Business Banking segment. The higher net interest income reflected a 120 basis point widening of the net interest margin on deposits that was partially offset by a decline in average outstanding deposit balances of $2.3 billion. The recent quarter’s modest increase in net income as compared with 2023’s second quarter reflected a $14 million increase in net interest income resulting from a widening of the net interest margin on loans and deposits of 41 and 8 basis points, respectively, partially offset by an increase in the provision for credit losses of $8 million. Net income earned by the Business Banking segment totaled $347 million during the first nine months of 2023, compared with $200 million in the year-earlier period. That increase was attributable to a $247 million rise in net interest income, reflecting a 173 basis point widening of the net interest margin on deposits that was partially offset by a 78 basis point narrowing of the net interest margin on loans. Those favorable factors were partially offset by a $29 million increase in centrally-allocated costs associated with data processing, risk management and other support services, a $13 million increase in the provision for credit losses and higher personnel-related costs of $12 million, all reflecting one additional quarter of operations associated with the acquisition of People’s United.
Net income of the Commercial Banking segment was $168 million in the recent quarter, compared with $211 million in 2022’s third quarter and $166 million in the second quarter of 2023. The decline in net income in the third quarter of 2023 as compared with the year-earlier quarter reflected a $51 million decrease in net interest income, higher centrally-allocated costs associated with data processing, risk management and other support services provided to the Commercial Banking segment of $18 million and reduced credit-related fees (predominantly loan syndication fees) of $12 million, partially offset by a $15 million decrease in the provision for credit losses. The lower net interest income was mainly driven by a 48 basis point narrowing of the net interest margin on loans and a shift to lower margin deposit balances, partially offset by an increase in average outstanding loan balances of $4.6 billion. The modestly higher net income in the recent quarter as compared with the second quarter of 2023 was due to an $11 million decrease in the provision for credit losses, partially offset by lower credit-related fees of $6 million. Net income for the first nine months of 2023 aggregated $553 million, compared with $501 million in the similar 2022 period, reflecting the impact of one additional quarter of operations associated with the acquisition of People’s United. Higher net interest income of $128 million, an increase in credit-related fees of $22 million and a $14 million decrease in the provision for credit losses were partially offset by a $77 million rise in centrally-allocated costs associated with data processing, risk management and other support services and higher personnel-related costs of $39 million reflecting an additional quarter of salaries and employee benefits expenses associated with People's United personnel. The higher net interest income resulted primarily from a 68 basis point widening of the net interest margin on deposits and higher average outstanding loan balances (reflecting loans obtained in the People’s United acquisition and lending activities to financial services customers) of $10.3 billion, partially offset by a 43 basis point narrowing of the net interest margin on loans.
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The Commercial Real Estate segment recorded net income of $72 million in the third quarter of 2023, compared with $110 million in the year-earlier period and $39 million in the second quarter of 2023. The decline in net income in 2023's third quarter as compared with the third quarter of 2022 was due to a $15 million decrease in net interest income and a $30 million increase in the provision for credit losses. The lower net interest income was predominantly due to a decline in average outstanding loan and deposit balances of $1.0 billion and $680 million, respectively. The improvement in net income in the recent quarter as compared with the immediately preceding quarter reflected a $29 million decrease in the provision for credit losses, due to lower net charge-offs, and higher net interest income of $14 million driven by an 18 basis point widening of the net interest margin on loans. Net income for the Commercial Real Estate segment totaled $193 million during the first three quarters of 2023, compared with $339 million in the similar 2022 period. That year-over-year decline resulted from a $136 million increase in the provision for credit losses, due to higher net charge-offs, a $37 million rise in centrally-allocated costs associated with data processing, risk management and other support services provided to the Commercial Real Estate segment and a $30 million decrease in net interest income. The lower net interest income was driven by a 36 basis point narrowing of the net interest margin on loans, partially offset by an 82 basis point widening of the net interest margin on deposits and higher average outstanding loan balances of $1.2 billion reflecting an additional quarter of loans obtained in the acquisition of People's United.
The Discretionary Portfolio segment recognized a net loss of $22 million during the three-month period ended September 30, 2023, compared with $6 million in the year-earlier period and $32 million in the second quarter of 2023. The decline in the recent quarter’s results as compared with the third quarter of 2022 reflected a $46 million decrease in net interest income, driven by increased interest expense from interest rate swap agreements utilized as part of the Company's management of interest rate risk, partially offset by a decrease of $8 million in intersegment fees paid to the Residential Mortgage Banking segment reflecting the Company's return in the first quarter of 2023 to originating for sale the majority of its newly originated residential mortgage loans. The improved performance in 2023’s third quarter as compared with the immediately preceding quarter resulted from lower personnel-related and other costs. For the first nine months, the Discretionary Portfolio segment recorded a net loss of $94 million in 2023, compared with net income of $73 million in the similar 2022 period. That decline was predominantly due to lower net interest income of $272 million, reflecting the Company's management of interest rate risk through interest rate swap agreements as well as increased balances of lower margin wholesale funding. Favorable factors partially offsetting that decrease were lower intersegment fees paid to the Residential Mortgage Banking segment of $41 million and a rise in trading and non-hedging derivative gains of $11 million reflecting one additional quarter of activity from operations acquired from People's United as compared with the same 2022 period.
The Residential Mortgage Banking segment recorded a net loss of $14 million in the third quarter of 2023, compared with net losses in the year-earlier quarter and 2023’s second quarter of $2 million and $15 million, respectively. The higher net loss in the recent quarter as compared with the similar 2022 period was predominantly attributable to lower revenues associated with mortgage loan origination and sales activities (including intersegment revenues) of $7 million. Net losses in the first nine months of 2023 for the Residential Mortgage Banking segment aggregated $42 million, compared with net income of $33 million in the corresponding 2022 period. That decline was attributable to lower revenues associated with residential mortgage loan origination and sales activities (including intersegment revenues) of $34 million, lower net interest income of $29 million, reflecting higher costs to fund mortgage loan servicing assets, and higher foreclosure expenses of $10 million.
Net income for the Retail Banking segment totaled $343 million in the recent quarter, compared with $183 million in the third quarter of 2022 and $337 million in the second quarter of 2023. The increase from the third quarter of 2022 was largely attributable to a $224 million increase in net interest income reflecting a 152 basis point widening of the net interest margin on deposits, partially offset by lower average outstanding deposit balances of $4.6 billion. Net income in the recent quarter increased as compared with the second quarter of 2023 primarily due to higher net interest income of $12 million. The Retail Banking segment recorded net income of $996 million and $366 million in the first nine months of 2023 and 2022, respectively. That increase was predominantly due to a $1.0 billion rise in net interest income, reflecting a 199 basis point widening of the net interest margin on deposits and higher average outstanding deposit balances of $3.3 billion due, in part, to deposits assumed on April 1, 2022 in the People's United transaction. Partially offsetting that favorable factor was an increase in the provision for credit losses of $46 million and higher
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levels of personnel, occupancy and other expenses reflecting an additional three months of operations acquired from People’s United as compared with the same period in 2022.
The “All Other” category includes 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, distributions 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 net income of $26 million in the third quarter of 2023, compared with $58 million in the third 2022 quarter and $256 million in the second quarter of 2023. The lower net income in the recent quarter as compared with the third quarter of 2022 resulted from lower net interest income of $62 million and lower trust income of $31 million due mainly to the divestiture of the CIT business in April 2023, offset partially 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. The lower net income in the recent quarter as compared with 2023’s second quarter was primarily due to the $225 million gain on sale of the CIT business recorded in the second quarter of 2023. The “All Other” category recorded net income of $306 million in the first nine months of 2023, compared with net losses of $286 million in the similar 2022 period. The primary factors contributing to the improved performance in the 2023 period was a rise in net interest income of $310 million attributable to a 201 basis point widening of the net interest margin on deposits related to the WAS and ICS businesses, the $225 million gain on the sale of the CIT business in the second quarter of 2023, a decline in the provision for credit losses of $183 million reflecting a $242 million provision for credit losses in the second quarter of 2022 on loans acquired from People’s United not deemed to be PCD, 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, and lower merger-related costs associated with People’s United. Increased expenses generally resulting from one additional quarter of operations from People's United partially offset those favorable factors.
Recent Accounting Developments
A discussion of recent accounting developments is included in note 16 of Notes to Financial Statements.
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, including economic conditions, on the Company's business, financial condition, liquidity and results of operations may constitute forward-looking statements. Such statements 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.
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 Future Factors which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.
Examples of Future Factors include: the impact of the Company's acquisition of People's United (as described in the next paragraph); events and developments in the financial services industry, including legislation, regulations and
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other governmental actions as well as business conditions affecting the industry and/or M&T and its subsidiaries, individually or collectively; economic conditions, including inflation and market volatility; 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; regulatory supervision and oversight, including monetary policy and capital requirements; domestic or international political developments and other geopolitical events, including international conflicts; governmental and public policy changes, including tax policy; 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, divestment 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 possibility that the anticipated benefits of the transaction will not be realized when expected or at all; potential adverse reactions or changes to business, customer or employee relationships; the Company's success in executing its business plans and strategies and managing the risks involved in the foregoing; the results and costs of integration efforts; the business, economic and political conditions in the markets in which M&T and its subsidiaries operate; the outcome of any legal proceedings that may be instituted against M&T or its subsidiaries; and other factors related to the acquisition 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, as noted, 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 the 2022 Annual Report, 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
| 2023 Quarters | 2022 Quarters | |||||||||||||||||||||||||||
| Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||
| Earnings and dividends | ||||||||||||||||||||||||||||
| Amounts in thousands, except per share | ||||||||||||||||||||||||||||
| Interest income (taxable-equivalent basis) | $ | 2,655,734 | 2,529,511 | 2,340,447 | 2,085,594 | 1,793,340 | 1,475,868 | 931,490 | ||||||||||||||||||||
| Interest expense | 866,011 | 716,496 | 508,721 | 244,835 | 102,822 | 53,425 | 24,082 | |||||||||||||||||||||
| Net interest income | 1,789,723 | 1,813,015 | 1,831,726 | 1,840,759 | 1,690,518 | 1,422,443 | 907,408 | |||||||||||||||||||||
| Less: provision for credit losses | 150,000 | 150,000 | 120,000 | 90,000 | 115,000 | 302,000 | 10,000 | |||||||||||||||||||||
| Other income | 559,581 | 803,171 | 587,133 | 681,537 | 563,079 | 571,100 | 540,887 | |||||||||||||||||||||
| Less: other expense | 1,277,538 | 1,292,559 | 1,359,230 | 1,408,288 | 1,279,253 | 1,403,154 | 959,741 | |||||||||||||||||||||
| Income before income taxes | 921,766 | 1,173,627 | 939,629 | 1,024,008 | 859,344 | 288,389 | 478,554 | |||||||||||||||||||||
| Applicable income taxes | 217,490 | 292,707 | 224,543 | 245,252 | 200,921 | 60,141 | 113,146 | |||||||||||||||||||||
| Taxable-equivalent adjustment | 14,335 | 13,886 | 13,462 | 13,385 | 11,827 | 10,726 | 3,234 | |||||||||||||||||||||
| Net income | $ | 689,941 | 867,034 | 701,624 | 765,371 | 646,596 | 217,522 | 362,174 | ||||||||||||||||||||
| Net income available to common shareholders-diluted | $ | 663,766 | 840,524 | 675,511 | 739,126 | 620,554 | 192,236 | 339,590 | ||||||||||||||||||||
| Per common share data | ||||||||||||||||||||||||||||
| Basic earnings | $ | 4.00 | 5.07 | 4.03 | 4.32 | 3.55 | 1.08 | 2.63 | ||||||||||||||||||||
| Diluted earnings | 3.98 | 5.05 | 4.01 | 4.29 | 3.53 | 1.08 | 2.62 | |||||||||||||||||||||
| Cash dividends | $ | 1.30 | 1.30 | 1.30 | 1.20 | 1.20 | 1.20 | 1.20 | ||||||||||||||||||||
| Average common shares outstanding | ||||||||||||||||||||||||||||
| Basic | 165,909 | 165,842 | 167,732 | 171,187 | 174,609 | 177,367 | 128,945 | |||||||||||||||||||||
| Diluted | 166,570 | 166,320 | 168,410 | 172,149 | 175,682 | 178,277 | 129,416 | |||||||||||||||||||||
| Performance ratios, annualized | ||||||||||||||||||||||||||||
| Return on | ||||||||||||||||||||||||||||
| Average assets | 1.33 | % | 1.70 | % | 1.40 | % | 1.53 | % | 1.28 | % | .42 | % | .97 | % | ||||||||||||||
| Average common shareholders’ equity | 10.99 | % | 14.27 | % | 11.74 | % | 12.59 | % | 10.43 | % | 3.21 | % | 8.55 | % | ||||||||||||||
| Net interest margin on average earning assets (taxable-equivalent basis) | 3.79 | % | 3.91 | % | 4.04 | % | 4.06 | % | 3.68 | % | 3.01 | % | 2.65 | % | ||||||||||||||
| Nonaccrual loans to total loans and leases, net of unearned discount | 1.77 | % | 1.83 | % | 1.92 | % | 1.85 | % | 1.89 | % | 2.05 | % | 2.32 | % | ||||||||||||||
| Net operating (tangible) results (a) | ||||||||||||||||||||||||||||
| Net operating income (in thousands) | $ | 701,568 | 878,661 | 714,935 | 812,359 | 700,030 | 577,622 | 375,999 | ||||||||||||||||||||
| Diluted net operating income per common share | $ | 4.05 | 5.12 | 4.09 | 4.57 | 3.83 | 3.10 | 2.73 | ||||||||||||||||||||
| Annualized return on | ||||||||||||||||||||||||||||
| Average tangible assets | 1.41 | % | 1.80 | % | 1.49 | % | 1.70 | % | 1.44 | % | 1.16 | % | 1.04 | % | ||||||||||||||
| Average tangible common shareholders’ equity | 17.41 | % | 22.73 | % | 19.00 | % | 21.29 | % | 17.89 | % | 14.41 | % | 12.44 | % | ||||||||||||||
| Efficiency ratio (b) | 53.7 | % | 48.9 | % | 55.5 | % | 53.3 | % | 53.6 | % | 58.3 | % | 64.9 | % | ||||||||||||||
| Balance sheet data | ||||||||||||||||||||||||||||
| In millions, except per share | ||||||||||||||||||||||||||||
| Average balances | ||||||||||||||||||||||||||||
| Total assets (c) | $ | 205,791 | 204,376 | 202,599 | 198,592 | 201,131 | 208,865 | 151,648 | ||||||||||||||||||||
| Total tangible assets (c) | 197,199 | 195,764 | 193,957 | 189,934 | 192,450 | 200,170 | 147,053 | |||||||||||||||||||||
| Earning assets | 187,403 | 185,936 | 184,069 | 179,914 | 182,382 | 189,755 | 138,624 | |||||||||||||||||||||
| Investment securities | 27,993 | 28,623 | 27,622 | 25,297 | 23,945 | 22,384 | 7,724 | |||||||||||||||||||||
| Loans and leases, net of unearned discount | 132,617 | 133,545 | 132,012 | 129,406 | 127,525 | 127,599 | 92,159 | |||||||||||||||||||||
| Deposits | 162,688 | 159,399 | 161,537 | 163,468 | 167,271 | 174,683 | 128,055 | |||||||||||||||||||||
| Borrowings | 12,585 | 15,055 | 11,505 | 5,385 | 4,194 | 4,408 | 3,498 | |||||||||||||||||||||
| Common shareholders’ equity (c) | 24,009 | 23,674 | 23,366 | 23,335 | 23,654 | 24,079 | 16,144 | |||||||||||||||||||||
| Tangible common shareholders’ equity (c) | 15,417 | 15,062 | 14,724 | 14,677 | 14,973 | 15,384 | 11,549 | |||||||||||||||||||||
| At end of quarter | ||||||||||||||||||||||||||||
| Total assets (c) | $ | 209,124 | 207,672 | 202,956 | 200,730 | 197,955 | 204,033 | 149,864 | ||||||||||||||||||||
| Total tangible assets (c) | 200,538 | 199,074 | 194,321 | 192,082 | 189,281 | 195,344 | 145,269 | |||||||||||||||||||||
| Earning assets | 189,942 | 188,504 | 183,853 | 181,855 | 178,351 | 185,109 | 137,237 | |||||||||||||||||||||
| Investment securities | 27,336 | 27,916 | 28,443 | 25,211 | 24,604 | 22,802 | 9,357 | |||||||||||||||||||||
| Loans and leases, net of unearned discount | 132,355 | 133,344 | 132,938 | 131,564 | 128,226 | 128,486 | 91,808 | |||||||||||||||||||||
| Deposits | 164,128 | 162,058 | 159,075 | 163,515 | 163,845 | 170,358 | 126,319 | |||||||||||||||||||||
| Borrowings | 13,854 | 15,325 | 14,458 | 7,519 | 4,377 | 4,137 | 3,494 | |||||||||||||||||||||
| Common shareholders’ equity (c) | 24,186 | 23,790 | 23,366 | 23,307 | 23,245 | 23,784 | 16,126 | |||||||||||||||||||||
| Tangible common shareholders’ equity (c) | 15,600 | 15,192 | 14,731 | 14,659 | 14,571 | 15,095 | 11,531 | |||||||||||||||||||||
| Equity per common share | 145.72 | 143.41 | 140.88 | 137.68 | 134.45 | 135.16 | 124.93 | |||||||||||||||||||||
| Tangible equity per common share | 93.99 | 91.58 | 88.81 | 86.59 | 84.28 | 85.78 | 89.33 |
(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
| 2023 Quarters | 2022 Quarters | |||||||||||||||||||||||||||
| Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||
| Income statement data (in thousands, except per share) | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Net income | $ | 689,941 | 867,034 | 701,624 | 765,371 | 646,596 | 217,522 | 362,174 | ||||||||||||||||||||
| Amortization of core deposit and other intangible assets (a) | 11,627 | 11,627 | 13,311 | 13,559 | 14,141 | 14,138 | 933 | |||||||||||||||||||||
| Merger-related expenses (a) | — | — | — | 33,429 | 39,293 | 345,962 | 12,892 | |||||||||||||||||||||
| Net operating income | $ | 701,568 | 878,661 | 714,935 | 812,359 | 700,030 | 577,622 | 375,999 | ||||||||||||||||||||
| Earnings per common share | ||||||||||||||||||||||||||||
| Diluted earnings per common share | $ | 3.98 | 5.05 | 4.01 | 4.29 | 3.53 | 1.08 | 2.62 | ||||||||||||||||||||
| Amortization of core deposit and other intangible assets (a) | .07 | .07 | .08 | .08 | .08 | .08 | .01 | |||||||||||||||||||||
| Merger-related expenses (a) | — | — | — | .20 | .22 | 1.94 | .10 | |||||||||||||||||||||
| Diluted net operating earnings per common share | $ | 4.05 | 5.12 | 4.09 | 4.57 | 3.83 | 3.10 | 2.73 | ||||||||||||||||||||
| Other expense | ||||||||||||||||||||||||||||
| Other expense | $ | 1,277,538 | 1,292,559 | 1,359,230 | 1,408,288 | 1,279,253 | 1,403,154 | 959,741 | ||||||||||||||||||||
| Amortization of core deposit and other intangible assets | (14,946 | ) | (14,945 | ) | (17,208 | ) | (17,600 | ) | (18,384 | ) | (18,384 | ) | (1,256 | ) | ||||||||||||||
| Merger-related expenses | — | — | — | (45,113 | ) | (53,027 | ) | (222,809 | ) | (17,372 | ) | |||||||||||||||||
| Noninterest operating expense | $ | 1,262,592 | 1,277,614 | 1,342,022 | 1,345,575 | 1,207,842 | 1,161,961 | 941,113 | ||||||||||||||||||||
| Merger-related expenses | ||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | — | — | — | 3,670 | 13,094 | 85,299 | 87 | ||||||||||||||||||||
| Equipment and net occupancy | — | — | — | 2,294 | 2,106 | 502 | 1,807 | |||||||||||||||||||||
| Outside data processing and software | — | — | — | 2,193 | 2,277 | 716 | 252 | |||||||||||||||||||||
| Advertising and marketing | — | — | — | 5,258 | 2,177 | 1,199 | 628 | |||||||||||||||||||||
| Printing, postage and supplies | — | — | — | 2,953 | 651 | 2,460 | 722 | |||||||||||||||||||||
| Other costs of operations | — | — | — | 28,745 | 32,722 | 132,633 | 13,876 | |||||||||||||||||||||
| Other expense | — | — | — | 45,113 | 53,027 | 222,809 | 17,372 | |||||||||||||||||||||
| Provision for credit losses | — | — | — | — | — | 242,000 | — | |||||||||||||||||||||
| Total | $ | — | — | — | 45,113 | 53,027 | 464,809 | 17,372 | ||||||||||||||||||||
| Efficiency ratio | ||||||||||||||||||||||||||||
| Noninterest operating expense (numerator) | $ | 1,262,592 | 1,277,614 | 1,342,022 | 1,345,575 | 1,207,842 | 1,161,961 | 941,113 | ||||||||||||||||||||
| Taxable-equivalent net interest income | $ | 1,789,723 | 1,813,015 | 1,831,726 | 1,840,759 | 1,690,518 | 1,422,443 | 907,408 | ||||||||||||||||||||
| Other income | 559,581 | 803,171 | 587,133 | 681,537 | 563,079 | 571,100 | 540,887 | |||||||||||||||||||||
| Less: Gain (loss) on bank investment securities | (235 | ) | 1,004 | (416 | ) | (3,773 | ) | (1,108 | ) | (62 | ) | (743 | ) | |||||||||||||||
| Denominator | $ | 2,349,539 | 2,615,182 | 2,419,275 | 2,526,069 | 2,254,705 | 1,993,605 | 1,449,038 | ||||||||||||||||||||
| Efficiency ratio | 53.7 | % | 48.9 | % | 55.5 | % | 53.3 | % | 53.6 | % | 58.3 | % | 64.9 | % | ||||||||||||||
| Balance sheet data (in millions) | ||||||||||||||||||||||||||||
| Average assets | ||||||||||||||||||||||||||||
| Average assets | $ | 205,791 | 204,376 | 202,599 | 198,592 | 201,131 | 208,865 | 151,648 | ||||||||||||||||||||
| Goodwill | (8,465 | ) | (8,473 | ) | (8,490 | ) | (8,494 | ) | (8,501 | ) | (8,501 | ) | (4,593 | ) | ||||||||||||||
| Core deposit and other intangible assets | (170 | ) | (185 | ) | (201 | ) | (218 | ) | (236 | ) | (254 | ) | (3 | ) | ||||||||||||||
| Deferred taxes | 43 | 46 | 49 | 54 | 56 | 60 | 1 | |||||||||||||||||||||
| Average tangible assets | $ | 197,199 | 195,764 | 193,957 | 189,934 | 192,450 | 200,170 | 147,053 | ||||||||||||||||||||
| Average common equity | ||||||||||||||||||||||||||||
| Average total equity | $ | 26,020 | 25,685 | 25,377 | 25,346 | 25,665 | 26,090 | 17,894 | ||||||||||||||||||||
| Preferred stock | (2,011 | ) | (2,011 | ) | (2,011 | ) | (2,011 | ) | (2,011 | ) | (2,011 | ) | (1,750 | ) | ||||||||||||||
| Average common equity | 24,009 | 23,674 | 23,366 | 23,335 | 23,654 | 24,079 | 16,144 | |||||||||||||||||||||
| Goodwill | (8,465 | ) | (8,473 | ) | (8,490 | ) | (8,494 | ) | (8,501 | ) | (8,501 | ) | (4,593 | ) | ||||||||||||||
| Core deposit and other intangible assets | (170 | ) | (185 | ) | (201 | ) | (218 | ) | (236 | ) | (254 | ) | (3 | ) | ||||||||||||||
| Deferred taxes | 43 | 46 | 49 | 54 | 56 | 60 | 1 | |||||||||||||||||||||
| Average tangible common equity | $ | 15,417 | 15,062 | 14,724 | 14,677 | 14,973 | 15,384 | 11,549 | ||||||||||||||||||||
| At end of quarter | ||||||||||||||||||||||||||||
| Total assets | ||||||||||||||||||||||||||||
| Total assets | $ | 209,124 | 207,672 | 202,956 | 200,730 | 197,955 | 204,033 | 149,864 | ||||||||||||||||||||
| Goodwill | (8,465 | ) | (8,465 | ) | (8,490 | ) | (8,490 | ) | (8,501 | ) | (8,501 | ) | (4,593 | ) | ||||||||||||||
| Core deposit and other intangible assets | (162 | ) | (177 | ) | (192 | ) | (209 | ) | (227 | ) | (245 | ) | (3 | ) | ||||||||||||||
| Deferred taxes | 41 | 44 | 47 | 51 | 54 | 57 | 1 | |||||||||||||||||||||
| Total tangible assets | $ | 200,538 | 199,074 | 194,321 | 192,082 | 189,281 | 195,344 | 145,269 | ||||||||||||||||||||
| Total common equity | ||||||||||||||||||||||||||||
| Total equity | $ | 26,197 | 25,801 | 25,377 | 25,318 | 25,256 | 25,795 | 17,876 | ||||||||||||||||||||
| Preferred stock | (2,011 | ) | (2,011 | ) | (2,011 | ) | (2,011 | ) | (2,011 | ) | (2,011 | ) | (1,750 | ) | ||||||||||||||
| Common equity | 24,186 | 23,790 | 23,366 | 23,307 | 23,245 | 23,784 | 16,126 | |||||||||||||||||||||
| Goodwill | (8,465 | ) | (8,465 | ) | (8,490 | ) | (8,490 | ) | (8,501 | ) | (8,501 | ) | (4,593 | ) | ||||||||||||||
| Core deposit and other intangible assets | (162 | ) | (177 | ) | (192 | ) | (209 | ) | (227 | ) | (245 | ) | (3 | ) | ||||||||||||||
| Deferred taxes | 41 | 44 | 47 | 51 | 54 | 57 | 1 | |||||||||||||||||||||
| Total tangible common equity | $ | 15,600 | 15,192 | 14,731 | 14,659 | 14,571 | 15,095 | 11,531 |
(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
| 2023 Third Quarter | 2023 Second Quarter | 2023 First 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. | $ | 44,625 | $ | 787,973 | 7.01 | % | $ | 44,531 | $ | 754,312 | 6.79 | % | $ | 42,428 | $ | 676,194 | 6.46 | % | |||||||||||||||||||
| Real estate – commercial | 44,230 | 724,911 | 6.41 | 44,944 | 710,284 | 6.25 | 45,327 | 659,099 | 5.82 | ||||||||||||||||||||||||||||
| Real estate – consumer | 23,573 | 243,684 | 4.14 | 23,781 | 243,896 | 4.10 | 23,770 | 235,141 | 3.96 | ||||||||||||||||||||||||||||
| Consumer | 20,189 | 313,275 | 6.16 | 20,289 | 297,217 | 5.88 | 20,487 | 286,596 | 5.67 | ||||||||||||||||||||||||||||
| Total loans and leases, net | 132,617 | 2,069,843 | 6.19 | 133,545 | 2,005,709 | 6.02 | 132,012 | 1,857,030 | 5.70 | ||||||||||||||||||||||||||||
| Interest-bearing deposits at banks | 26,657 | 362,840 | 5.40 | 23,617 | 302,429 | 5.14 | 24,312 | 278,417 | 4.64 | ||||||||||||||||||||||||||||
| Federal funds sold and agreements to resell securities | — | — | 5.79 | — | 6 | 5.53 | — | 2 | 4.89 | ||||||||||||||||||||||||||||
| Trading account | 136 | 1,377 | 4.05 | 151 | 994 | 2.66 | 123 | 712 | 2.32 | ||||||||||||||||||||||||||||
| Investment securities (b) | |||||||||||||||||||||||||||||||||||||
| U.S. Treasury and federal agencies | 24,166 | 176,780 | 2.90 | 24,630 | 179,452 | 2.92 | 23,795 | 166,978 | 2.85 | ||||||||||||||||||||||||||||
| Obligations of states and political subdivisions | 2,527 | 23,549 | 3.70 | 2,555 | 23,600 | 3.71 | 2,570 | 23,751 | 3.75 | ||||||||||||||||||||||||||||
| Other | 1,300 | 21,345 | 6.51 | 1,438 | 17,321 | 4.83 | 1,257 | 13,557 | 4.38 | ||||||||||||||||||||||||||||
| Total investment securities | 27,993 | 221,674 | 3.14 | 28,623 | 220,373 | 3.09 | 27,622 | 204,286 | 3.00 | ||||||||||||||||||||||||||||
| Total earning assets | 187,403 | 2,655,734 | 5.62 | 185,936 | 2,529,511 | 5.46 | 184,069 | 2,340,447 | 5.16 | ||||||||||||||||||||||||||||
| Allowance for credit losses | (1,998 | ) | (1,985 | ) | (1,938 | ) | |||||||||||||||||||||||||||||||
| Cash and due from banks | 1,730 | 1,747 | 1,952 | ||||||||||||||||||||||||||||||||||
| Other assets | 18,656 | 18,678 | 18,516 | ||||||||||||||||||||||||||||||||||
| Total assets | $ | 205,791 | $ | 204,376 | $ | 202,599 | |||||||||||||||||||||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||||||||||
| Savings and interest-checking deposits | $ | 89,274 | $ | 494,219 | 2.20 | $ | 87,210 | $ | 368,362 | 1.69 | $ | 88,053 | $ | 277,068 | 1.28 | ||||||||||||||||||||||
| Time deposits | 19,528 | 201,541 | 4.09 | 16,009 | 150,337 | 3.77 | 11,630 | 89,197 | 3.11 | ||||||||||||||||||||||||||||
| Total interest-bearing deposits | 108,802 | 695,760 | 2.54 | 103,219 | 518,699 | 2.02 | 99,683 | 366,265 | 1.49 | ||||||||||||||||||||||||||||
| Short-term borrowings | 5,346 | 69,481 | 5.16 | 7,539 | 95,996 | 5.11 | 4,994 | 57,776 | 4.69 | ||||||||||||||||||||||||||||
| Long-term borrowings | 7,240 | 100,770 | 5.52 | 7,516 | 101,801 | 5.43 | 6,511 | 84,680 | 5.27 | ||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 121,388 | 866,011 | 2.83 | 118,274 | 716,496 | 2.43 | 111,188 | 508,721 | 1.86 | ||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 53,886 | 56,180 | 61,854 | ||||||||||||||||||||||||||||||||||
| Other liabilities | 4,497 | 4,237 | 4,180 | ||||||||||||||||||||||||||||||||||
| Total liabilities | 179,771 | 178,691 | 177,222 | ||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 26,020 | 25,685 | 25,377 | ||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 205,791 | $ | 204,376 | $ | 202,599 | |||||||||||||||||||||||||||||||
| Net interest spread | 2.79 | 3.03 | 3.30 | ||||||||||||||||||||||||||||||||||
| Contribution of interest-free funds | 1.00 | .88 | .74 | ||||||||||||||||||||||||||||||||||
| Net interest income/margin on earning assets | $ | 1,789,723 | 3.79 | % | $ | 1,813,015 | 3.91 | % | $ | 1,831,726 | 4.04 | % |
(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)
| 2022 Fourth Quarter | 2022 Third 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. | $ | 40,038 | $ | 581,161 | 5.76 | % | $ | 38,321 | $ | 470,738 | 4.87 | % | |||||||||||||
| Real estate – commercial | 45,690 | 591,290 | 5.06 | 46,282 | 531,225 | 4.49 | |||||||||||||||||||
| Real estate – consumer | 23,334 | 228,391 | 3.92 | 22,962 | 220,464 | 3.84 | |||||||||||||||||||
| Consumer | 20,344 | 270,590 | 5.28 | 19,960 | 239,471 | 4.76 | |||||||||||||||||||
| Total loans and leases, net | 129,406 | 1,671,432 | 5.12 | 127,525 | 1,461,898 | 4.55 | |||||||||||||||||||
| Interest-bearing deposits at banks | 25,089 | 237,021 | 3.75 | 30,752 | 172,956 | 2.23 | |||||||||||||||||||
| Federal funds sold and agreements to resell securities | — | 4 | 4.32 | 29 | 41 | .55 | |||||||||||||||||||
| Trading account | 122 | 652 | 2.13 | 131 | 583 | 1.78 | |||||||||||||||||||
| Investment securities (b) | |||||||||||||||||||||||||
| U.S. Treasury and federal agencies | 21,590 | 140,315 | 2.58 | 20,227 | 124,084 | 2.43 | |||||||||||||||||||
| Obligations of states and political subdivisions | 2,607 | 24,228 | 3.67 | 2,688 | 23,626 | 3.49 | |||||||||||||||||||
| Other | 1,100 | 11,942 | 4.31 | 1,030 | 10,152 | 3.91 | |||||||||||||||||||
| Total investment securities | 25,297 | 176,485 | 2.77 | 23,945 | 157,862 | 2.62 | |||||||||||||||||||
| Total earning assets | 179,914 | 2,085,594 | 4.60 | 182,382 | 1,793,340 | 3.90 | |||||||||||||||||||
| Allowance for credit losses | (1,888 | ) | (1,822 | ) | |||||||||||||||||||||
| Cash and due from banks | 1,989 | 1,962 | |||||||||||||||||||||||
| Other assets | 18,577 | 18,609 | |||||||||||||||||||||||
| Total assets | $ | 198,592 | $ | 201,131 | |||||||||||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||||
| Interest-bearing liabilities | |||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||
| Savings and interest-checking deposits | $ | 87,068 | $ | 167,421 | .76 | $ | 89,360 | $ | 68,690 | .31 | |||||||||||||||
| Time deposits | 6,182 | 20,119 | 1.29 | 5,050 | 1,124 | .09 | |||||||||||||||||||
| Total interest-bearing deposits | 93,250 | 187,540 | .80 | 94,410 | 69,814 | .29 | |||||||||||||||||||
| Short-term borrowings | 1,632 | 13,336 | 3.24 | 913 | 2,670 | 1.16 | |||||||||||||||||||
| Long-term borrowings | 3,753 | 43,959 | 4.65 | 3,281 | 30,338 | 3.67 | |||||||||||||||||||
| Total interest-bearing liabilities | 98,635 | 244,835 | .98 | 98,604 | 102,822 | .41 | |||||||||||||||||||
| Noninterest-bearing deposits | 70,218 | 72,861 | |||||||||||||||||||||||
| Other liabilities | 4,393 | 4,001 | |||||||||||||||||||||||
| Total liabilities | 173,246 | 175,466 | |||||||||||||||||||||||
| Shareholders’ equity | 25,346 | 25,665 | |||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 198,592 | $ | 201,131 | |||||||||||||||||||||
| Net interest spread | 3.62 | 3.49 | |||||||||||||||||||||||
| Contribution of interest-free funds | .44 | .19 | |||||||||||||||||||||||
| Net interest income/margin on earning assets | $ | 1,840,759 | 4.06 | % | $ | 1,690,518 | 3.68 | % |
(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.