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Acquisition
6 Months Ended
Jun. 30, 2022
Business Combinations [Abstract]  
Acquisition

2. Acquisition

On April 1, 2022, M&T completed the acquisition of People's United. Through subsidiaries, People's United provided commercial banking, retail banking and wealth management services to individual, corporate and municipal customers through a network of branches located in Connecticut, southeastern New York, Massachusetts, Vermont, New Hampshire and Maine. Following the merger, People's United Bank, National Association, a national banking association and a wholly owned subsidiary of People's United, merged with and into Manufacturers and Traders Trust Company ("M&T Bank"), the principal banking subsidiary of M&T, with M&T Bank as the surviving entity. The results of operations acquired from People's United have been included in the Company's financial results since April 1, 2022.

Pursuant to the terms of the merger agreement dated February 22, 2021, 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). M&T issued 50,325,004 common shares in completing the transaction. Additionally, People’s United outstanding preferred stock was converted into new shares of Series H Preferred Stock of M&T. The acquisition of People's United expanded the Company's geographical footprint and management expects the Company will benefit from greater geographical diversity and the advantages of scale associated with a larger company.

 

2. Acquisition, continued

The People’s United transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and preferred stock converted were recorded at estimated fair value on the acquisition date. The consideration paid for People’s United common equity and the preliminary amounts of identifiable assets acquired, liabilities assumed and preferred stock converted as of the acquisition date follows.

 

 

(In thousands)

 

Consideration:

 

 

 

Common stock issued (50,325,004 shares)

 

$

8,286,515

 

Common stock awards converted

 

 

104,810

 

Cash

 

 

1,824

 

Total consideration

 

 

8,393,149

 

 

 

 

 

Net assets acquired:

 

 

 

Identifiable assets

 

 

 

Cash and due from banks

 

 

395,747

 

Interest-bearing deposits at banks

 

 

9,193,346

 

Investment securities

 

 

11,574,689

 

Loans and leases

 

 

35,840,648

 

Core deposit and other intangible assets

 

 

261,000

 

Other assets

 

 

2,979,388

 

Total identifiable assets acquired

 

 

60,244,818

 

Liabilities and preferred stock

 

 

 

Deposits

 

 

52,967,915

 

Borrowings

 

 

1,389,012

 

Other liabilities

 

 

1,142,387

 

Total liabilities assumed

 

 

55,499,314

 

Preferred stock

 

 

260,600

 

Total liabilities and preferred stock

 

 

55,759,914

 

Net assets acquired

 

 

4,484,904

 

Goodwill

 

$

3,908,245

 

The following is a description of the methodologies used to estimate the fair values of the significant assets acquired, liabilities assumed and preferred stock converted at the acquisition date:

Cash and due from banks and interest-bearing deposits in banks: Given the short-term nature of these assets, the carrying amount was determined to be a reasonable estimate of fair value.

Investment securities: Investment securities have been determined using quoted market prices, if available. If quoted market prices were not available, investment securities were valued by reference to quoted prices for similar securities or through model-based techniques.

Loans and leases: The fair values of loans and leases were generally based on a discounted cash flow methodology that considered market interest rates, expected credit losses, prepayment assumptions and other market factors for loans with similar characteristics including loan type, collateral, fixed or variable interest rate and credit risk characteristics. Expected credit losses were determined based on credit characteristics and other factors such as default and recovery rates of similar products.

Core deposit and other intangible assets: The core deposit intangible asset represents the value of certain customer deposit relationships. The fair value of the core deposit intangible asset was based on a discounted cash flow methodology that considered expected customer attrition rates, costs associated with maintaining the deposit relationships and alternative funding costs. Other intangible assets were also valued using expected and contractual cash flows.

Deposits: The fair value of deposits with no maturity date was determined to be the amount payable on demand at the acquisition date. The fair value of time deposits was determined by discounting contractual cash flows, that considered market interest rates in relation to contractual interest rates for instruments with like remaining maturities.

2. Acquisition, continued

Borrowings: The fair value of borrowings was determined using quoted market prices for the instrument, if available. If quoted market prices for the instrument were not available, similar instruments with quoted market prices were referenced.

Preferred stock: The fair value of preferred stock converted was determined using quoted market prices.

GAAP requires loans and leases obtained through an acquisition that have experienced a more-than-insignificant deterioration in credit quality since origination be considered purchased credit deteriorated (“PCD”). The Company considered several factors in the determination of PCD loans, including loan grades assigned to acquired commercial loans and leases and commercial real estate loans utilizing the Company's loan grading system and delinquency status and history for acquired loans backed by residential real estate. Loans and leases acquired from People's United and identified as PCD totaled $3.4 billion at April 1, 2022. For those loans and leases, the initial estimate of expected credit losses of $99 million was established through an adjustment to increase both the initial carrying value and allowance for credit losses. GAAP also provides that an allowance for credit losses on loans acquired, but not classified as PCD, also be recognized. Accordingly, the Company recorded $242 million of provision for credit losses for non-PCD acquired loans and leases at the acquisition date. The following table reconciles the unpaid principal balance to the fair value of PCD loans and leases at April 1, 2022:

 

Total

 

 

 

 

Unpaid principal balance (a)

$

3,410,506

 

Allowance for credit losses at acquisition (a)

 

(99,000

)

Non-credit discount

 

(106,814

)

Fair value

$

3,204,692

 

 

(a)
The unpaid principal balance and allowance for credit losses at acquisition is net of charge-offs of $33 million recognized on the PCD loans.

In connection with the acquisition, the Company recorded approximately $3.9 billion of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired, and $261 million of core deposit and other intangible assets. The core deposit and other intangible assets are being amortized over periods of three to seven years. The preliminary allocation of goodwill recorded as a result of the acquisition to the Company’s reportable segments is as follows:

 

December 31, 2021

 

 

Acquisition of People's United

 

 

June 30, 2022

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

Business Banking

$

864,366

 

 

$

693,905

 

 

$

1,558,271

 

Commercial Banking

 

1,401,873

 

 

 

2,686,253

 

 

 

4,088,126

 

Commercial Real Estate

 

654,389

 

 

 

291,217

 

 

 

945,606

 

Discretionary Portfolio

 

 

 

 

 

 

 

 

Residential Mortgage Banking

 

 

 

 

 

 

 

 

Retail Banking

 

1,309,191

 

 

 

221,196

 

 

 

1,530,387

 

All Other

 

363,293

 

 

 

15,674

 

 

 

378,967

 

Total

$

4,593,112

 

 

$

3,908,245

 

 

$

8,501,357

 

Included in the Consolidated Statement of Income from the acquisition date through June 30, 2022 are total revenues of approximately $492 million and a net loss of approximately $176 million from the results of the acquired assets and assumed liabilities of People's United. Due to the integration of certain People's United operating systems and activities into those of the Company, the Company's ability to report on the former operations of People's United is inherently limited and will likely not be practical in future periods.

2. Acquisition, continued

The following table presents certain pro forma information as if People’s United had been acquired on January 1, 2021. These results combine the historical results of People’s United into the Company’s consolidated statement of income and, while adjustments were made for the estimated impact of certain fair valuation adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place as indicated. For example, merger-related expenses noted below are included in the periods where such expenses were incurred. Additionally, the Company expects to achieve operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts that follow:

 

 

Pro forma

 

 

Pro forma

 

 

 

Six Months Ended June 30,

 

 

Three Months Ended June 30

 

 

 

2022

 

2021

 

 

2021

 

 

 

(In thousands)

 

 

(In thousands)

 

Total revenues(a)

 

$

3,900,483

 

$

4,001,902

 

 

$

1,982,458

 

Net income

 

 

757,459

 

 

1,104,961

 

 

 

657,899

 

 

(a)
Represents the total of net interest income and other income.

In connection with the People’s United acquisition, the Company incurred merger-related expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with preparing for systems conversions and/or integration of operations; costs related to termination of existing contractual arrangements for various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; severance (for former People’s United employees); travel costs; and other costs of completing the transaction and commencing operations in new markets and offices. The Company expects that there will be additional merger-related expenses in 2022. A summary of merger-related expenses included in the consolidated statement of income follows.

 

 

Three Months Ended June 30

 

 

Six Months Ended June 30

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

 

(In thousands)

 

Salaries and employee benefits

 

$

85,299

 

 

$

4

 

 

$

85,386

 

 

$

4

 

Equipment and net occupancy

 

 

502

 

 

 

 

 

 

2,309

 

 

 

 

Outside data processing software

 

 

716

 

 

 

244

 

 

 

968

 

 

 

244

 

Advertising and marketing

 

 

1,199

 

 

 

24

 

 

 

1,827

 

 

 

24

 

Printing, postage and supplies

 

 

2,460

 

 

 

2,049

 

 

 

3,182

 

 

 

2,049

 

Other cost of operations

 

 

132,633

 

 

 

1,572

 

 

 

146,509

 

 

 

11,523

 

Other expense

 

$

222,809

 

 

$

3,893

 

 

$

240,181

 

 

$

13,844

 

The Company also recognized a $242 million provision for credit losses on acquired loans that were not deemed to be PCD on April 1, 2022. GAAP requires that acquired loans be recorded at estimated fair value, which includes the use of interest rate and expected credit loss assumptions to forecast estimated cash flows. GAAP also provides that an allowance for credit losses on loans acquired, but not classified as PCD also be recognized above and beyond the impact of forecasted losses used in determining the fair value of acquired loans. Accordingly, the Company recorded a $242 million provision for credit losses related to such loans obtained in the People's United transaction.