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Buffalo-based M&T Bank saw deposits decline during the first quarter, a shift the bank expects to stabilize in the coming quarters.

M&T Bank’s total deposits were $159.1 billion at the end of the first quarter, down 2.9 percent from $163.8 billion on Dec. 31. A year earlier, before acquiring People’s United Bank on April 1, the bank had ended the first quarter with $126.3 billion.

Darren King, M&T Bank’s chief financial officer, said during the bank’s first quarter conference call on Monday that the bank had expected deposits to decline during the quarter, attributing some of the outflow to seasonal deposit activity. The changing rate environment also affected deposits.

“We remain focused on growing and retaining deposits,” King said. “Our experience in prior rising rate environments reminds us to expect increased competition for deposits and changing customer behavior, leading to a mix shift within the deposit base.”

King said commercial deposits declined by a net of $2.4 billion as business owners moved $6.3 billion in deposits out of operating demand accounts, in part to earn more interest. About two-thirds of those deposits remained on M&T’s balance sheet. The bank saw consumer deposits decline a net $758 million in the first quarter, he said, with $2.5 billion in outflows partially offset by a $1.7 billion increase in average time deposits.

The decline in first quarter deposits was less than M&T had expected, King said. In response to an analyst’s question, King said the bank saw about 60 percent of the deposit decline in January and February and 40 percent in March.

King said normal deposit activity made it difficult to attribute the March decline in deposits to the fallout from the Silicon Valley Bank and Signature Bank failures. He noted that the bank opened more business and middle-market accounts during March than it would in typical month.

M&T expects to continue to see some deposit outflows, King said, but the activity should stabilize as rates stop increasing.

“For the rest of the year, we think things start to stabilize as we get into the second quarter and second half, and the build-back in commercial checking balances will start in anticipation of next year’s first quarter,” King said. “It’s a cycle that follows itself very predictably every year.”

M&T Bank had first quarter net income of $702 million, or diluted earnings per common share $4.01, compared to $765 million in the fourth quarter of 2022, or diluted earnings per share of $4.29. In the first quarter of 2022, before the bank had completed the People’s United acquisition, net income was $362 million, or diluted earnings per common share of $2.62.

M&T had $203 billion in total assets as of March 31, up from $200.7 billion on Dec. 31 and with $149.9 billion on March 31, 2022, before the acquisition. Loans and leases totaled $132.9 billion at the end of the first quarter compared to $131.6 billion at the end of 2022 and $91.8 billion at the end of the first quarter of 2022.

King said that M&T has already earned back the 4 percent dilution in tangible book value that it saw as a result of the merger. Merger costs were less than expected, he said, adding that targeted expense synergies have largely been realized.

“We’re pleased with the results of the largest acquisition in our company’s history,” King said. He added: “[T]he return on investment and [earnings per share] accretion have exceeded those expected at the time the deal was announced.”