UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
Commission File Number 1-9861
M&T BANK CORPORATION
(Exact name of registrant as specified in its charter)
New York
16-0968385
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One M&T Plaza
Buffalo, New York
14203
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:
(716) 635-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbols
Name of Each Exchange on Which Registered
Common Stock, $0.50 par value
MTB
New York Stock Exchange
Perpetual Fixed-to-Floating RateNon-Cumulative Preferred Stock, Series H
MTBPrH
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Number of shares of the registrant's Common Stock, $0.50 par value, outstanding as of the close of business on May 1, 2024: 166,854,421 shares.
- 1 -
For the Quarterly Period Ended March 31, 2024
Table of Contents of Information Required in Report
Page
Glossary of Terms
3
Part I. FINANCIAL INFORMATION
Item 1.
Financial Statements
CONSOLIDATED BALANCE SHEET – March 31, 2024 and December 31, 2023
4
CONSOLIDATED STATEMENT OF INCOME – Three months ended March 31, 2024 and 2023
5
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME – Three months ended March 31, 2024 and 2023
6
CONSOLIDATED STATEMENT OF CASH FLOWS – Three months ended March 31, 2024 and 2023
7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY – Three months ended March 31, 2024 and 2023
8
NOTES TO FINANCIAL STATEMENTS
9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
39
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
76
Item 4.
Controls and Procedures
Part II. OTHER INFORMATION
Legal Proceedings
77
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
78
Item 6.
Exhibits
SIGNATURES
79
- 2 -
GLOSSARY OF TERMS
The following listing includes acronyms and terms used throughout the document.
Term
Definition
2023 Annual Report
Form 10-K for the year ended December 31, 2023
Bayview Financial
Bayview Financial Holdings, L.P. together with its affiliates
BLG
Bayview Lending Group, LLC
Capital Rules
Capital adequacy standards established by the federal banking agencies
CET1
Common Equity Tier 1
CIT
Collective Investment Trust
Company
M&T Bank Corporation and its consolidated subsidiaries
DIF
Deposit Insurance Fund
DUS
Delegated Underwriting and Servicing
Executive ALCO Committee
Executive Asset-Liability Liquidity Capital Committee of M&T
FDIC
Federal Deposit Insurance Corporation
FHLB
Federal Home Loan Bank
FOMC
Federal Open Market Committee
FRB
Federal Reserve Bank
GAAP
Accounting principles generally accepted in the U.S.
GDP
Gross Domestic Product
Junior subordinated debentures
Fixed and variable rate junior subordinated deferrable interest debentures
LTV
Loan-to-value
M&T
M&T Bank Corporation
M&T Bank
Manufacturers and Traders Trust Company
People’s United
People’s United Financial, Inc.
RWA
Risk-weighted assets
SCB
Stress capital buffer
SOFR
Secured Overnight Financing Rate
U.S.
United States of America
- 3 -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
March 31,
December 31,
(Dollars in millions, except per share)
2024
2023
Assets
Cash and due from banks
$
1,695
1,731
Interest-bearing deposits at banks
32,144
28,069
Trading account
99
106
Investment securities
Available for sale (cost: $12,397 at March 31, 2024; $10,691 at December 31, 2023)
12,134
10,440
Held to maturity (fair value: $13,865 at March 31, 2024; $14,308 at December 31, 2023)
15,078
15,330
Equity and other securities (cost: $1,279 at March 31, 2024; $1,125 at December 31, 2023)
1,284
1,127
Total investment securities
28,496
26,897
Loans and leases, net of unearned discount of $928 at March 31, 2024 and $868 at December 31, 2023
134,973
134,068
Allowance for credit losses
(2,191
)
(2,129
Loans and leases, net
132,782
131,939
Premises and equipment
1,707
1,739
Goodwill
8,465
Core deposit and other intangible assets
132
147
Accrued interest and other assets
9,617
9,171
Total assets
215,137
208,264
Liabilities
Noninterest-bearing deposits
50,578
49,294
Savings and interest-checking deposits
96,339
93,221
Time deposits
20,279
20,759
Total deposits
167,196
163,274
Short-term borrowings
4,795
5,316
Accrued interest and other liabilities
4,527
4,516
Long-term borrowings
11,450
8,201
Total liabilities
187,968
181,307
Shareholders' equity
Preferred stock, $1.00 par, 20,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: 350,000 shares at March 31, 2024 and December 31, 2023; Liquidation preference of $10,000 per share: 140,000 shares at March 31, 2024 and December 31, 2023; Liquidation preference of $25 per share: 10,000,000 shares at March 31, 2024 and December 31, 2023
2,011
Common stock, $0.50 par, 250,000,000 shares authorized, 179,436,779 shares issued at March 31, 2024 and December 31, 2023
90
Common stock issuable, 11,458 shares at March 31, 2024; 12,217 shares at December 31, 2023
1
Additional paid-in capital
9,976
10,020
Retained earnings
17,812
17,524
Accumulated other comprehensive income (loss), net
(589
(459
Treasury stock — common, at cost — 12,724,121 shares at March 31, 2024; 13,300,298 shares at December 31, 2023
(2,132
(2,230
Total shareholders’ equity
27,169
26,957
Total liabilities and shareholders’ equity
See accompanying notes to financial statements.
- 4 -
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended March 31,
(Dollars in millions, except per share, shares in thousands)
Interest income
Loans and leases, including fees
2,097
1,850
Fully taxable
212
181
Exempt from federal taxes
16
17
Deposits at banks
419
278
Other
Total interest income
2,745
2,327
Interest expense
615
277
225
89
84
58
141
85
Total interest expense
1,065
509
Net interest income
1,680
1,818
Provision for credit losses
200
120
Net interest income after provision for credit losses
1,480
1,698
Other income
Mortgage banking revenues
104
Service charges on deposit accounts
124
113
Trust income
160
194
Brokerage services income
29
24
Trading account and other non-hedging derivative gains
12
Gain (loss) on bank investment securities
2
—
Other revenues from operations
152
159
Total other income
580
587
Other expense
Salaries and employee benefits
833
808
Equipment and net occupancy
129
127
Outside data processing and software
Professional and other services
125
FDIC assessments
60
30
Advertising and marketing
20
31
Amortization of core deposit and other intangible assets
15
Other costs of operations
134
115
Total other expense
1,396
1,359
Income before taxes
664
926
Income taxes
133
224
Net income
531
702
Net income available to common shareholders
Basic
505
676
Diluted
Net income per common share
3.04
4.03
3.02
4.01
Average common shares outstanding
166,460
167,732
167,084
168,410
- 5 -
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in millions)
Other comprehensive income (loss), net of tax and reclassification adjustments:
Net unrealized gains (losses) on investment securities
(10
65
Cash flow hedges adjustments
(117
81
Defined benefit plans liability adjustments
(1
(2
Foreign currency translation adjustments
Total other comprehensive income (loss)
(130
145
Total comprehensive income
401
847
- 6 -
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment
80
Amortization of capitalized servicing rights
35
Provision for deferred income taxes
11
Asset write-downs
Net gain on sales of assets
(12
Net change in accrued interest receivable, payable
27
55
Net change in other accrued income and expense
(74
(43
Net change in loans originated for sale
(352
(274
Net change in trading account and other non-hedging derivative assets and liabilities
139
(245
Net cash provided by operating activities
608
428
Cash flows from investing activities
Proceeds from sales of investment securities:
Available for sale
Equity and other securities
110
521
Proceeds from maturities of investment securities:
1,989
Held to maturity
257
281
Purchases of investment securities:
(4,145
(337
(2,948
(264
(792
Net increase in loans and leases
(724
(1,166
Net (increase) decrease in interest-bearing deposits at banks
(4,075
2,652
Capital expenditures, net
(35
(55
Net decrease in loan servicing advances
207
Other, net
(280
(251
Net cash used by investing activities
(7,082
(1,747
Cash flows from financing activities
Net increase (decrease) in deposits
3,921
(4,441
Net increase (decrease) in short-term borrowings
(521
3,440
Proceeds from long-term borrowings
3,357
3,486
Payments on long-term borrowings
(49
Purchases of treasury stock
(594
Dividends paid — common
(221
Dividends paid — preferred
(34
(15
(19
Net cash provided by financing activities
6,438
1,617
Net increase (decrease) in cash, cash equivalents and restricted cash
(36
298
Cash, cash equivalents and restricted cash at beginning of period
1,520
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of cash flow information
Interest received during the period
2,716
2,289
Interest paid during the period
999
410
Income taxes paid during the period
41
22
Supplemental schedule of noncash investing and financing activities
Real estate acquired in settlement of loans
19
Additions to right-of-use assets under operating leases
- 7 -
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
Accumulated
Common
Additional
Comprehensive
Preferred
Stock
Paid-in
Retained
Income
Treasury
Issuable
Capital
Earnings
(Loss), Net
Total
Three Months Ended March 31, 2024
Balance — January 1, 2024
Preferred stock cash dividends (a)
(25
Stock-based compensation transactions, net
(44
98
54
Common stock cash dividends — $1.30 per share
(218
Balance — March 31, 2024
Three Months Ended March 31, 2023
Balance — January 1, 2023
10,002
15,754
(790
(1,750
25,318
(600
(16
72
Balance — March 31, 2023
9,986
16,212
(645
(2,278
25,377
- 8 -
1. Significant accounting policies
The consolidated interim financial statements of the Company were compiled in accordance with GAAP using the accounting policies set forth in note 1 of Notes to Financial Statements included in the 2023 Annual Report, except as described in the following table. The financial statements contain all adjustments which are, in the opinion of management, necessary for a fair statement of the Company's financial position, results of operations and cash flows for the interim periods presented.
Recent accounting developments
Standard
Description
Required date
of adoption
Effect on consolidated financial statements
Standards Adopted in 2024
Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
The amendments permit an election to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.
Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the income tax credits and other income tax benefits received and the net amortization and income tax credits and other income tax benefits are recognized in the income statement as a component of income tax expense (benefit).
January 1, 2024
As described in note 11, the Company adopted the amended guidance effective January 1, 2024 using a modified retrospective transition. The guidance did not have a material impact on the Company’s consolidated financial statements.
2. Divestiture
On April 29, 2023, the Company sold its CIT business to a private equity firm. The transaction resulted in a pre-tax gain of $225 million ($157 million after-tax effect) that has been included in “other revenues from operations” in the Consolidated Statement of Income in the second quarter of 2023. Prior to the sale, the CIT business contributed $45 million to trust income in the three months ended March 31, 2023. After considering expenses, the results of operations from the CIT business were not material to the Company's consolidated results of operations in that period.
- 9 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities
The amortized cost and estimated fair value of investment securities were as follows:
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
EstimatedFair Value
March 31, 2024
Investment securities available for sale:
U.S. Treasury and federal agencies
7,818
7,719
Mortgage-backed securities:
Government issued or guaranteed:
Commercial
1,355
13
1,343
Residential
3,053
143
2,910
Other debt securities
171
162
12,397
264
Investment securities held to maturity:
1,007
33
974
Obligations of states and political subdivisions
2,466
94
2,372
2,035
154
1,881
9,527
935
8,592
Privately issued
44
1,222
13,865
Total debt securities
27,475
10
1,486
25,999
Equity and other securities:
Readily marketable equity — at fair value
351
356
Other — at cost
928
Total equity and other securities
1,279
December 31, 2023
7,705
425
416
2,272
118
2,154
176
165
10,691
251
1,005
2,501
67
2,434
2,033
130
1,903
9,747
802
8,949
42
46
1,035
14,308
26,021
1,286
24,748
266
268
859
1,125
- 10 -
3. Investment securities, continued
There were no significant gross realized gains or losses from sales of investment securities for the three-month periods ended March 31, 2024 and 2023. Unrealized losses on equity securities are included in "gain (loss) on bank investment securities" in the Consolidated Statement of Income.
At March 31, 2024, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:
Debt securities available for sale:
Due in one year or less
3,248
3,209
Due after one year through five years
4,691
4,628
Due after five years through ten years
50
Due after ten years
7,989
7,881
Mortgage-backed securities
4,408
4,253
Debt securities held to maturity:
588
575
635
611
1,369
1,333
883
829
3,475
3,348
11,603
10,517
- 11 -
A summary of investment securities that as of March 31, 2024 and December 31, 2023 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:
Less Than 12 Months
12 Months or More
FairValue
UnrealizedLosses
2,242
5,177
765
393
813
1,964
137
156
3,820
7,690
242
49
925
32
43
2,284
172
1,709
1,133
7,459
923
1,397
12,410
1,200
5,217
20,100
1,442
229
7,474
112
74
330
151
1,959
116
460
9,917
247
924
218
2,172
64
328
1,575
121
955
7,139
791
34
1,551
23
11,844
1,012
21,761
1,259
- 12 -
The Company owned 4,088 individual debt securities with aggregate gross unrealized losses of $1.5 billion at March 31, 2024. Based on a review of each of the securities in the investment securities portfolio at March 31, 2024, the Company concluded that it expected to recover the amortized cost basis of its investment. As of March 31, 2024, the Company does not intend to sell, nor is it anticipated that it would be required to sell, any of its impaired investment securities at a loss. At March 31, 2024, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $928 million of cost method equity securities.
The Company estimated no material allowance for credit losses for its investment securities classified as held-to-maturity at March 31, 2024 or December 31, 2023.
At March 31, 2024 and December 31, 2023, investment securities with carrying values of $9.6 billion (including $357 million related to repurchase transactions) and $8.2 billion (including $393 million related to repurchase transactions), respectively, were pledged to secure borrowings, lines of credit and governmental deposits.
4. Loans and leases and the allowance for credit losses
A summary of current, past due and nonaccrual loans as of March 31, 2024 and December 31, 2023 follows:
Current
30-89 DaysPast Due
AccruingLoans PastDue 90Days orMore
Nonaccrual
Commercial and industrial
56,803
219
864
57,897
Real estate:
Commercial (a)
24,119
163
855
25,168
Residential builder and developer
984
48
Other commercial construction
5,915
155
6,213
Residential (b)
21,118
627
245
202
22,192
Residential — limited documentation
801
53
884
Consumer:
Home equity lines and loans
4,437
87
4,558
Recreational finance
10,553
71
10,654
Automobile
4,252
4,308
1,982
2,064
130,964
1,410
297
2,302
56,091
238
670
57,010
24,072
311
25
869
25,277
1,073
6,322
6,653
21,080
763
295
215
22,353
825
911
4,528
40
4,649
9,935
36
10,058
3,918
14
3,992
2,003
52
2,092
129,839
1,724
339
2,166
- 13 -
4. Loans and leases and the allowance for credit losses, continued
Credit quality indicators
The Company utilizes a loan grading system to differentiate risk amongst its commercial and industrial loans and commercial real estate loans. Loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans 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.
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. Factors considered in assigning loan grades include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information. The Company’s policy is that at least annually, updated financial information be 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 and industrial 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.
The following table summarizes the loan grades applied at March 31, 2024 to the various classes of the Company’s commercial and industrial loans and commercial real estate loans and gross charge-offs for those types of loans for the three-month period ended March 31, 2024 by origination year.
Term Loans by Origination Year
Revolving
Revolving Loans Converted to Term
2022
2021
2020
Prior
Loans
Commercial and industrial:
Pass
2,012
8,129
7,567
4,441
2,099
6,456
22,719
53,497
Criticized accrual
306
422
117
602
1,745
3,536
Criticized nonaccrual
62
206
364
Total commercial and industrial
2,046
8,489
8,078
4,780
2,287
7,264
24,828
Gross charge-offs
Commercial:
696
1,783
1,652
1,331
2,013
11,278
435
19,188
273
815
464
558
3,008
5,125
101
695
Total commercial real estate
2,056
2,513
1,806
2,672
14,981
444
Residential builder and developer:
187
102
940
21
92
Total residential builder and developer
511
208
57
61
Other commercial construction:
990
1,231
590
589
45
3,745
75
538
567
687
Total other commercial construction
1,780
1,060
885
1,351
- 14 -
The Company considers repayment performance a significant indicator of credit quality for its residential real estate loan and consumer loan portfolios. A summary of loans in accrual and nonaccrual status at March 31, 2024 for the various classes of the Company’s residential real estate loans and consumer loans and gross charge-offs for those types of loans for the three-month period ended March 31, 2024 by origination year follows:
Residential:
478
1,499
4,667
3,717
2,533
8,131
93
30-89 days past due
107
Accruing loans past due 90 days or more
188
173
Total residential
1,508
4,810
3,808
2,580
8,914
Residential - limited documentation:
Total residential - limited documentation
Home equity lines and loans:
105
2,972
1,356
Total home equity lines and loans
2,973
1,468
Recreational finance:
1,028
2,531
2,252
1,790
1,233
1,719
Total recreational finance
1,029
2,546
2,270
1,810
1,250
1,749
Automobile:
684
1,026
1,004
942
371
Total automobile
685
1,017
956
379
236
Other:
69
28
1,378
51
Total other
221
1,449
Total loans and leases at March 31, 2024
5,121
17,431
20,835
14,385
10,088
35,581
29,937
1,595
Total gross charge-offs for the three months ended March 31, 2024
68
- 15 -
The following table summarizes the loan grades applied at December 31, 2023 to the various classes of the Company’s commercial and industrial loans and commercial real estate loans by origination year.
2019
8,689
8,087
4,800
2,248
2,169
4,843
22,345
70
53,251
292
279
142
481
1,460
3,089
56
150
243
9,010
8,434
5,133
2,465
2,332
5,474
24,048
114
2,048
1,742
1,367
3,059
8,491
440
19,158
227
891
465
456
966
2,238
5,250
2,275
2,679
1,835
4,118
11,340
450
530
252
959
18
59
111
270
119
1,366
651
373
646
4,066
391
390
691
565
326
2,416
866
1,771
1,051
1,110
1,261
562
- 16 -
A summary of loans in accrual and nonaccrual status at December 31, 2023 for the various classes of the Company’s residential real estate loans and consumer loans by origination year follows:
1,726
4,709
3,732
2,543
1,215
7,060
95
88
457
205
179
1,746
4,876
3,858
2,615
7,901
96
3,022
1,391
37
73
3,025
1,501
2,653
2,338
1,857
781
1,020
2,667
2,359
1,884
1,306
797
1,045
1,063
1,096
1,047
427
198
1,114
1,067
438
250
1,392
255
180
1,467
Total loans and leases at December 31, 2023
18,423
21,683
15,025
10,555
10,062
27,464
29,237
1,619
- 17 -
For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by type. Changes in the allowance for credit losses for the three months ended March 31, 2024 and 2023 were as follows:
Commercial and
Real Estate
industrial
Consumer
Beginning balance
620
764
629
2,129
Net charge-offs:
Charge-offs
(78
(59
(163
Recoveries
Net charge-offs
(73
(46
(138
Ending balance
754
2,191
568
631
1,925
86
(20
(29
(95
(28
(31
(70
579
669
614
1,975
Despite the allocation in the preceding tables, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type. In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company utilizes statistically developed models to project principal balances over the remaining contractual lives of the loan portfolios and to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators, including loan grade and borrower repayment performance, can inform the models, which have been statistically developed based on historical correlations of credit losses with prevailing economic metrics, including unemployment, GDP and real estate prices. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At each of March 31, 2024 and December 31, 2023, the Company utilized a reasonable and supportable forecast period of two years. Subsequent to this forecast period the Company reverted, ratably over a one-year period, to historical loss experience to inform its estimate of losses for the remaining contractual life of each portfolio.
- 18 -
The Company also estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes. The amounts of specific loss components in the Company’s loan and lease portfolios are determined through a loan-by-loan analysis of larger balance commercial and industrial loans and commercial real estate loans that are in nonaccrual status. Such loss estimates are typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. To the extent that those loans are collateral-dependent, they are evaluated based on the fair value of the loan’s collateral as estimated at or near the financial statement date. As the quality of a loan deteriorates to the point of classifying the loan as “criticized,” the process of obtaining updated collateral valuation information is usually initiated, unless it is not considered warranted given factors such as the relative size of the loan, the characteristics of the collateral or the age of the last valuation. In those cases where current appraisals may not yet be available, prior appraisals are utilized with adjustments, as deemed necessary, for estimates of subsequent declines in values as determined by line of business and/or loan workout personnel. Those adjustments are reviewed and assessed for reasonableness by the Company’s credit risk personnel. Accordingly, for real estate collateral securing larger nonaccrual commercial and industrial loans and commercial real estate loans, estimated collateral values are based on current appraisals and estimates of value. For non-real estate loans, collateral is assigned a discounted estimated liquidation value and, depending on the nature of the collateral, is verified through field exams or other procedures. In assessing collateral, real estate and non-real estate values are reduced by an estimate of selling costs.
For residential real estate 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. When evaluating individual home equity loans and lines of credit for charge-off and for purposes of estimating losses in determining the allowance for credit losses, the Company gives consideration to the required repayment of any first lien positions related to collateral property.
Changes in the amount of the allowance for credit losses reflect the outcome of the procedures described herein, including the impact of changes in macroeconomic forecasts as compared with previous forecasts, as well as the impact of portfolio concentrations, imprecision in economic forecasts, geopolitical conditions and other risk factors that might influence the loss estimation process.
The Company’s reserve for off-balance sheet credit exposures was not material at March 31, 2024 and December 31, 2023.
- 19 -
Information with respect to loans and leases that were considered nonaccrual at the beginning and end of the reporting period and the interest income recognized on such loans for the three-month periods ended March 31, 2024 and 2023 follows:
Amortized Cost with Allowance
Amortized Cost without Allowance
Amortized Cost
Interest Income Recognized
274
476
108
82
1,232
1,070
March 31, 2023
January 1, 2023
342
569
504
1,330
1,240
254
272
47
986
1,571
2,557
2,439
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Loan modifications
During the normal course of business, the Company modifies loans to maximize recovery efforts from borrowers experiencing financial difficulty. Such loan modifications typically include payment deferrals and interest rate reductions but may also include other modified terms. Those modified loans may be considered nonaccrual if the Company does not expect to collect the contractual cash flows owed under the loan agreement. The table that follows summarizes the Company’s loan modification activities to borrowers experiencing financial difficulty for the three-month periods ended March 31, 2024 and 2023:
Amortized cost at March 31, 2024
Payment Deferral
Interest Rate Reduction
Combination of Modification Types (a)
Total (b) (c)
Percent of Total Loan Class
184
.32
%
267
1.07
.18
131
2.11
.22
.17
634
638
.47
Amortized cost at March 31, 2023
.13
.35
.64
1.39
.15
.51
302
304
.23
- 21 -
The financial effects of the modifications for the three-month periods ended March 31, 2024 and 2023 include an increase in the weighted-average remaining term for commercial and industrial loans of 0.7 years and 1.2 years, respectively, for commercial real estate loans, inclusive of residential builder and development loans and other commercial construction loans of 0.8 years and 1.2 years, respectively, and for residential real estate loans of 11.4 years and 9.1 years, respectively.
Modified loans to borrowers experiencing financial difficulty are subject to the allowance for credit losses methodology described herein, including the use of models to inform credit loss estimates and, to the extent larger balance commercial and industrial loans and commercial real estate loans are in nonaccrual status, a loan-by-loan analysis of expected credit losses on those individual loans. Loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023 and for which there was a subsequent payment default during that period were not material. The following table summarizes the payment status, at March 31, 2024, of loans that were modified during the twelve-month period ended March 31, 2024.
Payment status at March 31, 2024 (amortized cost)
30-89 Days Past Due
Past Due 90 Days or More (a)
Twelve Months Ended March 31, 2024
310
327
715
772
534
539
177
1,693
1,878
(a) Predominantly loan modifications with payment deferrals.
(b) Includes loans guaranteed by government-related entities classified as 30 to 89 days past due of $30 million and as past due 90 days or more of $27 million.
The amount of foreclosed property held by the Company, predominantly consisting of residential real estate, was $38 million and $39 million at March 31, 2024 and December 31, 2023, respectively. There were $165 million and $170 million at March 31, 2024 and December 31, 2023, respectively, of loans secured by residential real estate that were in the process of foreclosure. Of all loans in the process of foreclosure at March 31, 2024, approximately 35% were government guaranteed.
At March 31, 2024, approximately $14.9 billion of commercial and industrial loans, including leases, $16.2 billion of commercial real estate loans, $18.6 billion of one-to-four family residential real estate loans, $2.6 billion of home equity loans and lines of credit and $10.9 billion of other consumer loans were pledged to secure outstanding borrowings and available lines of credit from FHLB and the FRB of New York. At December 31, 2023, approximately $13.4 billion of commercial and industrial loans, including leases, $16.4 billion of commercial real estate loans, $18.8 billion of one-to-four family residential real estate loans, $2.6 billion of home equity loans and lines of credit and $11.0 billion of other consumer loans were pledged to secure outstanding borrowings and available lines of credit from the FHLB and the FRB of New York as described in note 5.
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5. Borrowings
Federal funds purchased and repurchase agreements
316
FHLB advances
4,500
5,000
Total short-term borrowings
Senior notes - M&T
3,276
2,482
Senior notes - M&T Bank
3,743
3,741
2,005
Subordinated notes - M&T
Subordinated notes - M&T Bank
873
Junior subordinated debentures - M&T
541
540
Asset-backed notes
934
474
Total long-term borrowings
In February 2024, M&T Bank advanced $2.0 billion from the FHLB of New York which matures in February 2025 at a variable rate of SOFR plus 25 basis points payable quarterly until maturity. In March 2024, M&T issued $850 million of senior notes that mature in March 2032 and pay a 6.082% fixed rate semi-annually until March 2031 after which SOFR plus 2.26% will be paid quarterly until maturity. Also in March 2024, M&T Bank issued asset-backed notes secured by automobile loans. A total of $511 million of such notes were purchased by third parties. Those asset-backed notes had a weighted-average estimated life of approximately two years and a weighted-average interest rate of 5.29% at the time of securitization. Further information about this financing transaction is provided in note 11.
M&T Bank had secured borrowing facilities available with the FHLB of New York and the FRB of New York totaling approximately $14.6 billion and $18.4 billion, respectively, at March 31, 2024. M&T Bank is required to pledge loans and investment securities as collateral for these borrowing facilities and could increase the availability under such facilities by pledging additional assets.
- 23 -
6. Revenue from contracts with customers
The Company generally charges customer accounts or otherwise bills customers upon completion of its services. Typically, the Company’s contracts with customers have a duration of one year or less and payment for services is received at least annually, but oftentimes more frequently as services are provided. At March 31, 2024 and December 31, 2023, the Company had $63 million and $68 million, respectively, of amounts receivable related to recognized revenue from the sources in the accompanying tables. Such amounts are classified in "accrued interest and other assets" in the Company’s Consolidated Balance Sheet. In certain situations, the Company is paid in advance of providing services and defers the recognition of revenue until its service obligation is satisfied. At March 31, 2024 and December 31, 2023, the Company had deferred revenue of $52 million and $54 million, respectively, related to the sources in the accompanying tables recorded in "accrued interest and other liabilities" in the Consolidated Balance Sheet.
The following tables summarize sources of the Company’s noninterest income during the three-month periods ended March 31, 2024 and 2023 that are subject to the revenue recognition accounting guidance.
Commercial Bank
Retail Bank
Institutional Services and Wealth Management
Classification in Consolidated Statement of Income
Other revenues from operations:
Merchant discount and credit card interchange fees
367
217
383
7. Pension plans and other postretirement benefits
The Company provides defined pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. Net periodic benefit for defined benefit plans consisted of the following:
Pension Benefits
OtherPostretirementBenefits
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
(51
Amortization of net actuarial gain
Net periodic benefit
Service cost is reflected in "salaries and employee benefits" and the other components of net periodic benefit cost are reflected in "other costs of operations" in the Consolidated Statement of Income. Expenses incurred in connection with the Company's defined contribution pension and retirement savings plans totaled $45 million and $44 million for the three months ended March 31, 2024 and 2023, respectively.
- 24 -
8. Earnings per common share
The computations of basic earnings per common share follow:
Income available to common shareholders:
Less: Preferred stock dividends
Net income available to common equity
506
677
Less: Income attributable to unvested stock-based compensation awards
Weighted-average shares outstanding:
Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards
166,738
168,010
Less: Unvested stock-based compensation awards
(278
Weighted-average shares outstanding
Basic earnings per common share
The computations of diluted earnings per common share follow:
Adjusted weighted-average shares outstanding:
Plus: Incremental shares from assumed conversion of stock-based compensation awards
624
678
Adjusted weighted-average shares outstanding
Diluted earnings per common share
GAAP defines unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities that shall be included in the computation of earnings per common share pursuant to the two-class method. The Company has issued stock-based compensation awards in the form of restricted stock and restricted stock units which, in accordance with GAAP, are considered participating securities.
Stock-based compensation awards to purchase common stock of M&T representing 1,328,190 common shares and 1,367,054 common shares during the three months ended March 31, 2024 and 2023, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.
- 25 -
9. Comprehensive income
The following tables display the components of other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income (loss) to net income:
Investment
Cash Flow
Defined Benefit
Total Amount
Securities
Hedges
Plans
Before Tax
Tax
Net
(203
(155
(7
(616
157
Other comprehensive income (loss) before reclassifications:
Unrealized holding losses, net
(13
(11
Foreign currency translation adjustment
Unrealized losses on cash flow hedges
(243
(183
Total other comprehensive income (loss) before reclassifications
(258
(196
Amounts reclassified from accumulated other comprehensive income (loss) that (increase) decrease net income:
Losses realized in net income
Net yield adjustment from cash flow hedges currently in effect
(a)
(21
66
Amortization of actuarial losses
(b)
(156
(171
(263
(359
(9
(787
(444
(336
(273
(1,066
276
Unrealized holding gains, net
(24
38
(38
199
(54
(355
(226
(275
(867
222
Accumulated other comprehensive income (loss), net consisted of the following:
Defined
Benefit
Balance — December 31, 2023
(187
(151
(115
(6
Net loss during period
(197
(268
(116
(8
- 26 -
10. Derivative financial instruments
As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk inherent in these contracts was not material as of March 31, 2024.
The net effect of interest rate swap agreements was to decrease net interest income by $100 million and $69 million during the three-month periods ended March 31, 2024 and 2023, respectively.
Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:
Average
Weighted-
Estimated
Notional
Maturity
Average Rate
Fair Value
Amount
(In years)
Fixed
Variable
Gain (Loss) (a)
Fair value hedges:
Fixed rate long-term borrowings (b) (c)
3,850
5.9
3.48
5.51
Cash flow hedges:
Interest payments on variable rate commercial real estate loans (b) (d)
23,427
1.7
3.38
5.33
27,277
2.3
Fixed rate long-term borrowings (b) (e)
3,000
5.8
3.45
5.62
Interest payments on variable rate commercial real estate loans (b) (f)
23,977
5.36
26,977
2.2
The Company utilizes commitments to sell residential and commercial real estate loans to hedge the exposure to changes in the fair value of real estate loans held for sale. Such commitments have generally been designated as fair value hedges. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in the fair value of certain commitments to originate real estate loans for sale.
Other derivative financial instruments not designated as hedging instruments included interest rate contracts, foreign exchange and other option and futures contracts. Interest rate contracts not designated as hedging instruments had notional values of $43.4 billion and $44.4 billion at March 31, 2024 and December 31, 2023, respectively. The notional amounts of foreign exchange and other option and futures contracts not designated as hedging instruments aggregated $1.7 billion and $1.5 billion at March 31, 2024 and December 31, 2023, respectively.
- 27 -
10. Derivative financial instruments, continued
Information about the fair values of derivative instruments in the Company’s Consolidated Balance Sheet and Consolidated Statement of Income follows:
Asset Derivatives
Liability Derivatives
Derivatives designated and qualifying as hedging instruments (a)
Interest rate swap agreements
Commitments to sell real estate loans
Derivatives not designated and qualifying as hedging instruments (a)
Mortgage banking:
Commitments to originate real estate loans for sale
Interest rate contracts (b)
237
1,019
879
Foreign exchange and other option and futures contracts
258
256
1,032
898
Total derivatives
318
324
1,072
943
Amount of Gain (Loss) Recognized
Derivative
Hedged Item
Derivatives in fair value hedging relationships
Interest rate swap agreements:
Fixed rate long-term borrowings (a)
(60
Derivatives not designated as hedging instruments
Foreign exchange and other option and futures contracts (b)
Carrying Amount of the Hedged Item
Cumulative Amount of Fair Value Hedging Adjustment Increasing (Decreasing) the Carrying Amount of the Hedged Item
Location in the Consolidated Balance Sheet of the Hedged Items in Fair Value Hedges
3,742
2,954
(104
The amount of interest income recognized in the Consolidated Statement of Income associated with derivatives designated as cash flow hedges was a decrease of $87 million and $59 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the unrealized net loss recognized in other comprehensive income related to cash flow hedges was $359 million, of which losses of $1 million, $227 million, $129 million and $2 million relate to interest rate swap agreements maturing in 2024, 2025, 2026 and 2027, respectively.
- 28 -
The Company does not offset derivative asset and liability positions in its consolidated financial statements. The Company’s exposure to credit risk by entering into derivative contracts is mitigated through master netting agreements and collateral posting or settlement requirements. Master netting agreements covering interest rate and foreign exchange contracts with the same party include a right to set-off that becomes enforceable in the event of default, early termination or under other specific conditions.
The aggregate fair value of derivative financial instruments in a liability position, which are subject to enforceable master netting arrangements and the related collateral posted, was not material at each of March 31, 2024 and December 31, 2023. Certain of the Company’s derivative financial instruments contain provisions that require the Company to maintain specific credit ratings from credit rating agencies to avoid higher collateral posting requirements. If the Company’s debt ratings were to fall below specified ratings, the counterparties of the derivative financial instruments could demand immediate incremental collateralization on those instruments in a net liability position. The aggregate fair value of all derivative financial instruments with such credit risk-related contingent features in a net liability position on March 31, 2024 was not material.
The aggregate fair value of derivative financial instruments in an asset position with counterparties, which are subject to enforceable master netting arrangements, was $232 million at March 31, 2024 and $179 million at December 31, 2023. Counterparties posted collateral relating to those positions of $231 million at March 31, 2024 and $179 million at December 31, 2023, respectively. Interest rate swap agreements entered into with customers are subject to the Company’s credit risk standards and often contain collateral provisions.
In addition to the derivative contracts noted above, the Company clears certain derivative transactions through a clearinghouse, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position. The amount of initial margin collateral posted by the Company was $146 million and $129 million at March 31, 2024 and December 31, 2023, respectively. The fair value asset and liability amounts of derivative contracts have been reduced by variation margin payments treated as settlements as described herein. Variation margin on derivative contracts not treated as settlements continues to represent collateral posted or received by the Company.
11. Variable interest entities and asset securitizations
The Company’s securitization activity includes securitizing loans originated for sale into government issued or guaranteed mortgage-backed securities. The Company has not recognized any material losses as a result of having securitized assets.
In March 2024, M&T Bank issued asset-backed notes secured by automobile loans. Approximately $526 million of such loans were sold into a special purpose trust which in turn issued asset-backed notes to investors. The loans continue to be serviced by the Company. A total of $511 million of such notes, representing the senior-most notes in the securitization, were purchased by third parties. Those asset-backed notes had a weighted-average estimated life of approximately two years and a weighted-average interest rate of 5.29% at the time of securitization. Additionally, $15 million of certificates representing the residual interests of the trust were retained by the Company. As a result of the retention of the residual interests and its continued role as servicer of the loans, the Company is considered to be the primary beneficiary of the securitization trust and, accordingly, the trust has been included in the Company's consolidated financial statements.
- 29 -
11. Variable interest entities and asset securitizations, continued
M&T has issued junior subordinated debentures payable to various trusts that have issued preferred capital securities. M&T owns the common securities of those trust entities. The Company is not considered to be the primary beneficiary of those entities and, accordingly, the trusts are not included in the Company’s consolidated financial statements. At each of March 31, 2024 and December 31, 2023, the Company included the junior subordinated debentures as “long-term borrowings” in its Consolidated Balance Sheet and recognized $22 million in other assets for its “investment” in the common securities of the trusts that will be concomitantly repaid to M&T by the respective trust from the proceeds of M&T’s repayment of the junior subordinated debentures associated with preferred capital securities.
The Company has invested as a limited partner in various partnerships that collectively had total assets of approximately $9.8 billion at each of March 31, 2024 and December 31, 2023. Those partnerships generally construct or acquire properties, including properties and facilities that produce renewable energy, for which the investing partners are eligible to receive certain federal income tax credits in accordance with government guidelines. Such investments may also provide tax deductible losses to the partners. The partnership investments also assist the Company in achieving its community reinvestment initiatives. The Company, in its position as limited partner, does not direct the activities that most significantly impact the economic performance of the partnerships and, therefore, the partnership entities are not included in the Company's consolidated financial statements. The Company's investments in qualified affordable housing projects are accounted for using the proportional amortization method whereby those investments are amortized to "income taxes" in the Consolidated Statement of Income as tax credits and other tax benefits resulting from deductible losses associated with the projects are received. Effective January 1, 2024, the Company adopted amended guidance which permits an election to account for other tax equity investments using the proportional amortization method if certain conditions are met. The Company has elected to apply the proportional amortization method to eligible renewable energy and certain other tax credit investments in addition to the low income housing tax credit investments for which the proportional amortization method had previously been applied. Information on the Company’s carrying amount of its investments in tax equity partnerships and its related future funding commitments are presented in the following table:
Affordable housing projects:
Carrying amount (a)
1,323
1,340
Amount of future funding commitments included in carrying amount (b)
Contingent commitments
Renewable energy:
- 30 -
The reduction to income tax expense recognized from the Company's investments in partnerships accounted for using the proportional amortization method was $7 million (net of $43 million of investment amortization) and $6 million (net of $41 million of investment amortization) for the three months ended March 31, 2024 and 2023, respectively. The net reduction to income tax expense has been reported in "net change in other accrued income and expense" in the Consolidated Statement of Cash Flows. While the Company has elected to apply the proportional amortization method for renewable energy credit investments, at March 31, 2024 no such investments met the eligibility criteria for application of that method. The reduction to income tax expense recognized from renewable energy credit investments was $11 million and $8 million for the three months ended March 31, 2024 and 2023, respectively. As a limited partner, there is no recourse to the Company by creditors of the partnerships. However, the tax credits that result from the Company’s investments in such partnerships are generally subject to recapture should a partnership fail to comply with the respective government regulations. The Company has not provided financial or other support to the partnerships that was not contractually required. Although the Company currently estimates that no material losses are probable, its maximum exposure to loss from its investments in such partnerships as of March 31, 2024 was $2.2 billion, including possible recapture of certain tax credits.
The Company serves as investment advisor for certain registered money-market funds. The Company has no explicit arrangement to provide support to those funds, but may waive portions of its allowable management fees as a result of market conditions.
12. Fair value measurements
GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has not made any fair value elections at March 31, 2024.
Pursuant to GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy exists in GAAP for fair value measurements based upon the inputs to the valuation of an asset or liability.
When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. The following is a description of the valuation methodologies used for the Company's assets and liabilities that are measured on a recurring basis at estimated fair value.
- 31 -
12. Fair value measurements, continued
Mutual funds held in connection with deferred compensation and other arrangements have been classified as Level 1 valuations. Valuations of investments in debt securities can generally be obtained through reference to quoted prices in less active markets for the same or similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.
Available-for-sale investment securities and equity securities
The majority of the Company's available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments in mutual funds and equity securities are actively traded and, therefore, have been classified as Level 1 valuations.
Real estate loans held for sale
The Company utilizes commitments to sell real estate loans to hedge the exposure to changes in fair value of real estate loans held for sale. The carrying value of hedged real estate loans held for sale includes changes in estimated fair value during the hedge period. Typically, the Company attempts to hedge real estate loans held for sale from the date of close through the sale date. The fair value of hedged real estate loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans with similar characteristics and, accordingly, such loans have been classified as a Level 2 valuation.
Commitments to originate real estate loans for sale and commitments to sell real estate loans
The Company enters into various commitments to originate real estate loans for sale and commitments to sell real estate loans. Such commitments are accounted for as derivative financial instruments and, therefore, are carried at estimated fair value on the Consolidated Balance Sheet. The estimated fair values of such commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans to certain government-sponsored entities and other parties. The fair valuations of commitments to sell real estate loans generally result in a Level 2 classification. The estimated fair value of commitments to originate real estate loans for sale are adjusted to reflect the Company's anticipated commitment expirations. The estimated commitment expirations are considered significant unobservable inputs contributing to the Level 3 classification of commitments to originate real estate loans for sale. Significant unobservable inputs used in the determination of estimated fair value of commitments to originate real estate loans for sale are included in the accompanying table of significant unobservable inputs to Level 3 measurements.
Interest rate swap agreements used for interest rate risk management
The Company utilizes interest rate swap agreements as part of the management of interest rate risk to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. The Company generally determines the fair value of its interest rate swap agreements using externally developed pricing models based on market observable inputs and, therefore, classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its interest rate swap agreement assets and has considered its own credit risk in the valuation of its interest rate swap agreement liabilities.
Other non-hedging derivatives
Other non-hedging derivatives consist primarily of interest rate contracts and foreign exchange contracts with customers who require such services with offsetting positions with third parties to minimize the Company's risk with respect to such transactions. The Company generally determines the fair value of its other non-hedging derivative assets and liabilities using externally developed pricing models based on market observable inputs and, therefore, classifies such valuations as Level 2.
- 32 -
The following tables present assets and liabilities at March 31, 2024 and December 31, 2023 measured at estimated fair value on a recurring basis:
Fair Value Measurements
Level 1
Level 2
Level 3 (a)
Government issued or guaranteed
Equity securities
343
728
Other assets (b)
312
13,635
442
13,187
Other liabilities (b)
1,036
309
11,517
359
11,143
- 33 -
The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements. The more significant of those assets follow.
Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectable portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have been classified as Level 2, unless significant adjustments have been made to the valuation that are not readily observable by market participants. Non-real estate collateral supporting commercial and industrial loans generally consists of business assets such as receivables, inventory and equipment. Fair value estimations are typically determined by discounting recorded values of those assets to reflect estimated net realizable value considering specific borrower facts and circumstances and the experience of credit personnel in their dealings with similar borrower collateral liquidations. Such discounts were in the range of 10% to 90% with a weighted-average of 38% at March 31, 2024. As these discounts are not readily observable and are considered significant, the valuations have been classified as Level 3. Automobile collateral is typically valued by reference to independent pricing sources based on recent sales transactions of similar vehicles and, accordingly, the related nonrecurring fair value measurement adjustments have been classified as Level 2. Collateral values for other consumer installment loans are generally estimated based on historical recovery rates for similar types of loans which at March 31, 2024 was 46%. As these recovery rates are not readily observable by market participants, such valuation adjustments have been classified as Level 3. Loans subject to nonrecurring fair value measurement were $1.0 billion at March 31, 2024 ($312 million and $707 million of which were classified as Level 2 and Level 3, respectively), $923 million at December 31, 2023 ($234 million and $689 million of which were classified as Level 2 and Level 3, respectively) and $670 million at March 31, 2023 ($374 million and $296 million of which were classified as Level 2 and Level 3, respectively). Changes in the fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on March 31, 2024 and 2023 were decreases of $175 million and $69 million for the three-month periods ended March 31, 2024 and 2023, respectively.
Assets taken in foreclosure of defaulted loans
Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and are generally measured at the lower of cost or fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2. Assets taken into foreclosure of defaulted loans subject to nonrecurring fair value measurement were not material at each of March 31, 2024 and 2023. Changes in fair value recognized for those foreclosed assets held by the Company were not material during the three-month periods ended March 31, 2024 and 2023.
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Capitalized servicing rights
Capitalized servicing rights are initially measured at fair value in the Company’s Consolidated Balance Sheet. The Company utilizes the amortization method to subsequently measure its capitalized servicing assets. In accordance with GAAP, the Company must record impairment charges, on a nonrecurring basis, when the carrying value of certain strata exceed their estimated fair value. To estimate the fair value of servicing rights, the Company considers market prices for similar assets, if available, and the present value of expected future cash flows associated with the servicing rights calculated using assumptions that market participants would use in estimating future servicing income and expense. Such assumptions include estimates of the cost of servicing loans, loan default rates, an appropriate discount rate and prepayment speeds. For purposes of evaluating and measuring impairment of capitalized servicing rights, the Company stratifies such assets based on the predominant risk characteristics of the underlying financial instruments that are expected to have the most impact on projected prepayments, cost of servicing and other factors affecting future cash flows associated with the servicing rights. Such factors may include financial asset or loan type, note rate and term. The amount of impairment recognized is the amount by which the carrying value of the capitalized servicing rights for a stratum exceed estimated fair value. Impairment is recognized through a valuation allowance. The determination of fair value of capitalized servicing rights is considered a Level 3 valuation. Capitalized servicing rights related to residential mortgage loans required no valuation allowance at each of March 31, 2024, December 31, 2023 and March 31, 2023.
Disclosures of fair value of financial instruments
The carrying amounts and estimated fair value for certain financial instruments that are not recorded at fair value in the Consolidated Balance Sheet are presented in the following tables:
CarryingAmount
Estimated Fair Value
Level 3
Financial assets:
Cash and cash equivalents
299
Investment securities held to maturity
13,821
129,771
7,354
122,417
Financial liabilities:
20,236
11,370
1,668
63
14,262
129,138
7,240
121,898
20,715
8,107
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With the exception of marketable securities and mortgage loans originated for sale, the Company's financial instruments presented in the preceding tables are not readily marketable and market prices do not exist. The Company, in attempting to comply with the provisions of GAAP that require disclosures of fair value of financial instruments, has not attempted to market its financial instruments to potential buyers, if any exist. Since negotiated prices in illiquid markets depend greatly upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time.
The Company does not believe that the estimated information presented herein is representative of the earnings power or value of the Company. The preceding analysis, which is inherently limited in depicting fair value, also does not consider any value associated with existing customer relationships nor the ability of the Company to create value through loan origination, deposit gathering or fee generating activities. Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable between financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Furthermore, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.
13. Commitments and contingencies
In the normal course of business, various commitments and contingent liabilities are outstanding. The following table presents the Company's significant commitments. Certain of these commitments are not included in the Company's Consolidated Balance Sheet.
Commitments to extend credit:
28,439
28,566
Commercial real estate loans to be sold
451
916
Other commercial real estate
4,413
5,019
Residential real estate loans to be sold
211
Other residential real estate
331
Home equity lines of credit
8,080
8,109
Credit cards
5,651
5,578
389
413
Standby letters of credit
2,230
Commercial letters of credit
Financial guarantees and indemnification contracts
4,129
4,036
1,329
1,400
Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. In addition to the amounts in the preceding table, the Company had discretionary funding commitments to commercial customers of $12.4 billion and $12.3 billion at March 31, 2024 and December 31, 2023, respectively, that the Company had the unconditional right to cancel prior to funding. Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, whereas commercial letters of credit are issued to facilitate commerce and typically result in the commitment being funded when the underlying transaction is consummated between the customer and a third party. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management's assessment of the customer's creditworthiness.
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13. Commitments and contingencies, continued
Financial guarantees and indemnification contracts are predominantly comprised of recourse obligations associated with sold loans and other guarantees and commitments. Included in financial guarantees and indemnification contracts are loan principal amounts sold with recourse in conjunction with the Company's involvement in the Fannie Mae DUS program. The Company's maximum credit risk for recourse associated with loans sold under this program totaled approximately $4.0 billion and $3.9 billion at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, the Company estimated that the recourse obligations described above were not material to the Company's consolidated financial position. There have been no material losses incurred as a result of those credit recourse arrangements.
Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.
The Company utilizes commitments to sell real estate loans to hedge exposure to changes in the fair value of real estate loans held for sale. Such commitments are accounted for as derivatives and along with commitments to originate real estate loans to be held for sale are recorded in the Consolidated Balance Sheet at estimated fair market value.
The Company is contractually obligated to repurchase previously sold residential real estate loans that do not ultimately meet investor sale criteria related to underwriting procedures or loan documentation. When required to do so, the Company may reimburse loan purchasers for losses incurred or may repurchase certain loans. The Company reduces residential mortgage banking revenues by an estimate for losses related to its obligations to loan purchasers. The amount of those charges is based on the volume of loans sold, the level of reimbursement requests received from loan purchasers and estimates of losses that may be associated with previously sold loans. At March 31, 2024, the Company's estimated obligation to loan purchasers was not material to the Company’s consolidated financial position.
M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and other matters in which claims for monetary damages are asserted. On an on-going basis management, after consultation with legal counsel, assesses the Company’s liabilities and contingencies in connection with such proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $25 million as of March 31, 2024. Although the Company does not believe that the outcome of pending legal matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
In February 2024, the FDIC notified member banks that the loss estimate attributable to certain failed banks in 2023 was approximately $20.4 billion, an increase of approximately $4.1 billion from the estimate of $16.3 billion described in the final rule. The FDIC also indicated that through the receivership of one of the failed banks, it had estimated residual interests in securities that were sold into trusts that could potentially reduce that loss estimate in the amount of $1.7 billion. The FDIC is expected to provide an updated estimate of the Company's special assessment amount with its first quarter 2024 invoice, which is anticipated to be received in June 2024. Reflecting the update to the loss estimate and related residual interest, the Company recorded an expense of $29 million in the Consolidated Statement of Income in the first quarter of 2024 in addition to the $197 million recorded in the fourth quarter of 2023, resulting in an accrued liability recorded in "accrued interest and other liabilities" in the Company's Consolidated Balance Sheet of $226 million at March 31, 2024 and $197 million at December 31, 2023. The FDIC has indicated that the amount of the special assessment will be adjusted as its loss estimates change.
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14. Segment information
Reportable segments have been determined based upon the Company's organizational structure and its internal profitability reporting system, which is organized by strategic business unit. The reportable segments are Commercial Bank, Retail Bank and Institutional Services and Wealth Management.
The financial information of the Company's segments was compiled utilizing the accounting policies described in note 23 of Notes to Financial Statements in the 2023 Annual Report. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, the financial information of the reported segments is not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data.
Information about the Company's segments follows:
Total Revenues(a)
Inter-segmentRevenues
Net Income(Loss)
Total Average Assets
699
201
81,083
811
333
79,034
1,268
446
52,232
1,234
452
51,293
377
128
3,636
3,655
All Other
(84
(5
(244
74,527
(30
(193
68,617
2,260
211,478
2,405
202,599
15. Relationship with BLG and Bayview Financial
M&T holds a 20% minority interest in BLG, a privately-held commercial mortgage company. That investment had no remaining carrying value at March 31, 2024 as a result of cumulative losses recognized and cash distributions received in prior years. Cash distributions now received from BLG are recognized as income by M&T and included in "other revenues from operations" in the Consolidated Statement of Income. That income totaled $25 million and $20 million for the three-month periods ended March 31, 2024 and 2023, respectively.
Bayview Financial, a privately-held specialty finance company, is BLG's majority investor. In addition to their common investment in BLG, the Company and Bayview Financial conduct other business activities with each other. The Company has obtained loan servicing rights for mortgage loans from BLG and Bayview Financial having outstanding principal balances of $1.1 billion and $1.2 billion at March 31, 2024 and December 31, 2023, respectively. Revenues from those servicing rights were $1 million and $2 million in the three-month periods ended March 31, 2024 and 2023, respectively. The Company sub-services residential mortgage loans for Bayview Financial having outstanding principal balances of $112.0 billion and $115.3 billion at March 31, 2024 and December 31, 2023, respectively. Revenues earned for sub-servicing loans for Bayview Financial were $32 million in each of the three-month periods ended March 31, 2024 and 2023. In addition, the Company held $41 million and $42 million of mortgage-backed securities in its held-to-maturity portfolio at March 31, 2024 and December 31, 2023, respectively, that were securitized by Bayview Financial. At March 31, 2024, the Company held $674 million of Bayview Financial's $3.7 billion syndicated loan facility.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and other information included in this Quarterly Report on Form 10-Q as well as with M&T's 2023 Annual Report. Information regarding the Company's business, its supervision and regulation and potential risks and uncertainties that may affect the Company's business, financial condition, liquidity and results of operations are also included in M&T's 2023 Annual Report.
As described in note 1 of Notes to Financial Statements in M&T's 2023 Annual Report, certain financial reporting changes became effective in the fourth quarter of 2023. Prior periods have been presented in conformity with the new classifications.
Overview
The Company's results of operations for the first quarter of 2024 reflect an elevated interest rate environment which has led to higher costs of interest-bearing liabilities that have modestly outpaced increased yields on the Company's earning assets and an elevated level of provision for credit losses. The FOMC hiked its federal funds target rate four times in the first three quarters of 2023, totaling 100 basis points, but has not adjusted that rate since. Included in each of the first quarters of 2024 and 2023 results were seasonal salaries and employee benefits expenses of $99 million. Results for the first quarter of 2024 also included a $29 million estimated increase in the Company's FDIC special assessment. In the fourth quarter of 2023, an estimate of the FDIC special assessment for M&T of $197 million was recorded in the Consolidated Statement of Income. Additional information about the FDIC special assessment is included in note 13 of Notes to Financial Statements. A summary of financial results for the Company is provided below:
SUMMARY OF FINANCIAL RESULTS
Three Months Ended
Change
March 31,2024
March 31,2023
1,722
(42
-2
-8
Taxable-equivalent adjustment (a)
-6
Net interest income (taxable-equivalent basis) (a)
1,692
1,735
1,832
(140
-11
578
-1
1,450
-4
482
-24
Per common share data:
Basic earnings
2.75
0.29
(0.99
-25
Diluted earnings
2.74
0.28
Performance ratios, annualized
Return on:
Average assets
1.01
.92
1.40
Average common shareholders’ equity
8.14
7.41
11.74
Net interest margin
3.52
3.61
4.04
The increase in net income in the recent quarter as compared with the fourth quarter of 2023 resulted from the following:
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The decrease in net income in the first quarter of 2024 as compared with 2023's initial quarter reflects the following:
The Company's effective tax rate was 20.0% in the first quarter of 2024, compared with 22.9% in the fourth quarter of 2023 and 24.2% in the first quarter of 2023. The first quarter of 2024 income tax expense reflects a net discrete benefit related to the resolution of a tax matter inherited from the acquisition of People's United.
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
(Dollars in millions, except per share data)
Net operating income
543
494
(172
Diluted net operating earnings per share
3.09
2.81
4.09
(1.00
Average tangible assets
1.08
.98
1.49
Average tangible common equity
12.67
11.70
19.00
Efficiency ratio
60.8
62.1
55.5
Tangible equity per common share (a)
99.54
98.54
1.00
88.81
10.73
The efficiency ratio measures the relationship of noninterest operating expenses, which exclude expenses M&T considers to be "nonoperating" in nature consisting of amortization of core deposit and other intangible assets and merger-related expenses, to revenues. The calculations of the Company’s 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), and reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 2.
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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. The Company's average balance sheets accompanied by the annualized taxable-equivalent interest income and expense and the average rate on the Company's earning assets and interest-bearing liabilities are presented as follows.
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
2024 First Quarter
2023 Fourth Quarter
2023 Third Quarter
AverageBalance
Interest
AverageRate
Earning assets:
Loans and leases, net of unearned discount (a):
56,821
987
6.99
55,420
979
7.01
54,567
6.86
Commercial real estate
32,696
526
6.36
33,455
560
6.54
34,288
570
6.50
Residential real estate
23,136
4.28
23,339
248
4.25
23,573
244
4.14
21,143
20,556
332
6.42
20,189
313
6.16
Total loans and leases, net
133,796
2,103
6.32
132,770
2,119
6.33
132,617
2,070
6.19
30,647
5.49
30,153
5.48
26,657
363
5.40
3.42
123
3.80
136
4.05
Investment securities (b):
24,625
191
3.11
23,675
2.90
24,166
2,489
3.77
2,507
3.75
2,527
3.70
1,473
5.54
1,308
6.04
1,300
6.51
28,587
234
3.30
27,490
3.13
27,993
3.14
Total earning assets
193,135
2,757
5.74
190,536
2,753
5.73
187,403
2,656
(2,156
(2,073
(1,998
1,687
1,634
1,730
Other assets
18,812
18,655
18,656
208,752
205,791
Liabilities and shareholders’ equity
Interest-bearing liabilities:
Interest-bearing deposits:
94,867
2.61
93,365
606
2.58
89,274
2.20
20,583
4.41
21,224
230
4.30
19,528
Total interest-bearing deposits
115,450
840
2.93
114,589
836
108,802
2.54
6,228
5.42
5,156
5.27
5,346
5.16
9,773
5.81
5.70
5.52
Total interest-bearing liabilities
131,451
3.26
127,646
1,018
3.17
121,388
2.83
48,615
50,124
53,886
Other liabilities
4,393
4,482
4,497
184,459
182,252
179,771
Shareholders’ equity
27,019
26,500
26,020
Net interest spread
2.48
2.56
2.79
Contribution of interest-free funds
1.04
1.05
Net interest income/margin on earning assets
3.79
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AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
2023 Second Quarter
2023 First Quarter
54,572
901
6.63
52,510
816
6.30
34,903
563
6.38
35,245
519
5.89
23,781
4.10
23,770
235
3.96
20,289
5.88
20,487
287
5.67
133,545
2,006
6.02
132,012
23,617
5.14
24,312
4.64
2.66
2.32
24,630
2.92
23,795
167
2.85
2,555
3.71
2,570
1,438
4.83
1,257
4.38
28,623
27,622
3.00
185,936
2,530
5.46
184,069
2,341
(1,985
(1,938
1,747
1,952
18,678
18,516
204,376
87,210
369
1.69
88,053
1.28
16,009
11,630
103,219
2.02
99,683
366
7,539
5.11
4,994
4.69
7,516
5.43
6,511
118,274
717
2.43
111,188
1.86
56,180
61,854
4,237
4,180
178,691
177,222
25,685
3.03
.88
.74
1,813
3.91
Expressed on a taxable-equivalent basis net interest income was $1.69 billion in the first quarter of 2024, compared with $1.74 billion and $1.83 billion, respectively, in the fourth and first quarters of 2023. The decrease in net interest income in the recent quarter reflects a 9 basis point reduction from the fourth quarter of 2023 and a 52 basis point reduction from the year-earlier quarter of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, to 3.52% in the recent quarter. The lower net interest margin in the first quarter of 2024 compared with the fourth and first quarters of 2023 predominantly reflects a comparatively higher interest rate environment, which has resulted in increases in rates paid on interest-bearing deposit products and borrowings outpacing increases in yields on the Company's interest-earning assets. Although the FOMC has not raised its federal funds target rate since July 2023, interest rates have remained elevated and the Company has experienced increased competition for customer deposits in the marketplace and a mix shift in those deposits toward higher cost interest-bearing products, including time deposits. The Company has also altered its use of other funding sources including borrowings and placement of brokered deposits. Average short-term and long-term borrowings in the recent quarter collectively rose by $2.9 billion, or 23%, while average brokered deposits decreased $736 million, or 5%, from the fourth quarter of 2023. As compared with the first quarter of 2023, average short-term and long-term borrowings collectively rose by $4.5 billion, or 39%, and average brokered deposits increased $5.2 billion, or 64% in the recent quarter.
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Lending Activities
The following table summarizes average loans and leases outstanding in the first quarter of 2024 and percentage changes in the major components of the portfolio over comparable periods.
AVERAGE LOANS AND LEASES
Percent Change from
First Quarter 2024
Fourth Quarter 2023
First Quarter 2023
-7
-3
10,306
4,177
4,597
2,063
Total consumer
Average loans and leases totaled $133.8 billion in the first quarter of 2024, up $1.0 billion or 1% from the fourth quarter of 2023.
Average loans and leases increased $1.8 billion or 1% from $132.0 billion in the similar quarter of 2023.
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Investing Activities
The investment securities portfolio averaged $28.6 billion in the first quarter of 2024, up $1.1 billion and $965 million from the fourth and first quarters of 2023, respectively. The higher average balance in the recent quarter when compared with the fourth quarter of 2023 and year-earlier quarter reflects the purchase of $4.1 billion of debt securities during the three-month period ended March 31, 2024. Those purchases were predominantly U.S. Treasury notes and fixed rate government issued or guaranteed mortgage-backed securities. There were no significant sales of investment securities during the three months ended March 31, 2024, December 31, 2023 and March 31, 2023. The Company routinely increases and decreases its holdings of capital stock of the FHLB of New York and the FRB of New York based on amounts of outstanding borrowings and available lines of credit with those entities.
The investment securities portfolio is largely comprised of government issued or guaranteed residential mortgage-backed securities and shorter-term U.S. Treasury and federal agency notes, but also includes commercial mortgage-backed securities and municipal securities. When purchasing investment securities, the Company considers its liquidity position and its overall interest rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. The Company may occasionally sell investment securities as a result of 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.
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 any of the three months ended March 31, 2024, December 31, 2023 and March 31, 2023. A further discussion of fair values of investment securities is included herein under the heading "Capital." 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 $30.8 billion in the recently completed quarter, compared with $30.3 billion and $24.4 billion during the three months ended December 31, 2023 and March 31, 2023, respectively. Interest-bearing deposits at banks averaged $30.6 billion, $30.2 billion and $24.3 billion during the three months ended March 31, 2024, December 31, 2023 and March 31, 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 levels of those deposits often fluctuate due to changes in deposits of retail and commercial customers, trust-related deposits and additions to or maturities of investment securities or borrowings.
Funding Activities - Deposits
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 $147.4 billion, or 76% of average earning assets, for the quarter ended March 31, 2024, compared with $147.6 billion, or 77%, and $152.0 billion, or 83%, for the quarters ended December 31, 2023 and March 31, 2023, respectively. The lower level of core deposits in the two most recent quarters as compared with the first quarter of 2023 reflects a shift in the mix of funding sources, including from other deposit sources such as branch-related time deposits over $250,000 and brokered deposits. Brokered savings and interest-bearing transaction accounts and brokered time deposit accounts averaged $8.0 billion and $5.2 billion, respectively, in the recent quarter, compared with $6.7 billion and $7.3 billion, respectively, in the fourth quarter of 2023 and $3.4 billion and $4.6 billion, respectively, in the first quarter of 2023. Additional brokered deposits may be added 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 that time. The following table provides an analysis of quarterly changes in the components of average deposits.
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AVERAGE DEPOSITS
-21
86,837
Time deposits of $250,000 or less
11,985
Total core deposits
147,437
Time deposits greater than $250,000
3,405
Brokered deposits
13,223
-5
164,065
Deposits averaged $164.1 billion in the recent quarter, a $648 million decline from $164.7 billion in the fourth quarter of 2023.
Average deposits increased $2.5 billion from $161.5 billion in the year-earlier quarter.
- 45 -
The accompanying table summarizes the components of average total deposits by segment for the quarters ended March 31, 2024, December 31, 2023 and March 31, 2023.
AVERAGE DEPOSITS BY SEGMENT
13,459
25,380
9,081
29,721
51,274
7,131
6,741
353
14,995
5,198
43,533
91,649
16,249
12,634
Three Months Ended December 31, 2023
14,527
26,474
8,477
28,702
51,941
6,728
5,994
13,507
7,261
43,654
91,922
15,236
13,901
164,713
20,206
30,552
10,363
733
22,263
54,650
7,957
3,183
6,667
4,620
42,799
91,869
18,333
8,536
161,537
Funding Activities - Borrowings
The following table summarizes the average balances utilized from the Company's short-term and long-term borrowing facilities and note programs.
AVERAGE BORROWINGS
Short-term borrowings:
307
404
5,921
4,752
4,630
Long-term borrowings:
Senior notes
6,418
5,863
4,979
Subordinated notes
977
989
980
537
495
Total borrowed funds
16,001
13,057
11,505
The Company also uses borrowing capacity from banks, the FHLBs, the FRB of New York and others as sources of funding. Short-term borrowings represent arrangements that at the time they were entered into had a contractual maturity of one year or less. The higher levels of short-term borrowings in the first quarter of 2024 as compared with the fourth quarter of 2023 and year-earlier first quarter reflect the Company's management of liquidity.
Long-term borrowings averaged $9.8 billion, $7.9 billion and $6.5 billion in the three-month periods ending March 31, 2024, December 31, 2023 and March 31, 2023, respectively. In February 2024, M&T Bank advanced $2.0 billion from the FHLB of New York which matures in February 2025 at a variable rate of SOFR plus 25 basis points payable quarterly until maturity. In March 2024, M&T issued $850 million of senior notes that mature in March 2032 and pay a 6.08% fixed rate semi-annually until March 2031 after which SOFR plus 2.26% will be paid quarterly until maturity. Also in March 2024, M&T Bank issued $511 million of asset-backed notes secured by automobile loans with a weighted-average estimated life of approximately two years and a weighted-average interest rate of 5.29% at the time
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of securitization. The increased usage of borrowing facilities reflects the Company's strategies to diversify its wholesale funding options to provide long-term funding stabilization and prepare for proposed regulations enumerating certain long-term debt requirements as described in Part I, Item 1 of M&T's 2023 Annual Report.
Additional information regarding borrowings is provided in notes 5 and 11 of Notes to Financial Statements.
Net Interest Margin
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 2.48% in the recent quarter, down 8 basis points from 2.56% in the fourth quarter of 2023. The decline in the net interest spread from the fourth quarter of 2023 reflects higher levels of average borrowings, partially offset by higher rates earned on investment securities. The yield on earning assets during the first quarter of 2024 was 5.74%, up 1 basis point from 5.73% in the fourth quarter of 2023. The rate paid on interest-bearing liabilities was 3.26% in the recent quarter, compared with 3.17% in the final quarter of 2023. In the first quarter of 2023, the net interest spread was 3.30%, the yield on earning assets was 5.16% and the rate paid on interest-bearing liabilities was 1.86%. The decline in the net interest spread in the recent quarter as compared with the first quarter of 2023 reflects the impact of higher rates paid on interest-bearing liabilities (predominantly interest-bearing deposits) resulting from a general rise in interest rates during the first three quarters of 2023, which outpaced higher yields earned on loans and leases, deposits at the FRB of New York and investment securities.
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 $61.7 billion in the first quarter of 2024, compared with $62.9 billion in the fourth quarter of 2023 and $72.9 billion in the year-earlier quarter. The lower level of average net interest-free funds in the recent quarter as compared with the fourth and first quarters of 2023 is predominantly the result of a decline in the average balance of noninterest-bearing deposits, partially offset by increases in common shareholders equity from retained earnings, net of common and preferred stock dividends. Noninterest-bearing deposits averaged $48.6 billion in the first quarter of 2024, compared with $50.1 billion in the last quarter of 2023 and $61.9 billion in the first quarter of 2023. The decline in average noninterest-bearing deposits since the first quarter of 2023 reflects customer use of off-balance sheet investment products and a shift in deposits to interest-bearing accounts as interest rates rose. The contribution of net interest-free funds to net interest margin was 1.04% in the first quarter of 2024, compared with 1.05% in the fourth quarter of 2023 and .74% in the first quarter of 2023. The increased contribution of net interest-free funds to net interest margin in the two most recent quarters as compared with the first 2023 quarter reflects higher rates paid on interest-bearing liabilities used to value net interest-free funds.
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 3.52% in the first quarter of 2024, compared with 3.61% in the fourth quarter of 2023 and 4.04% in the year-earlier period. The higher interest rate environment has led to an increase in the rates paid on the Company's sources of funding which has outpaced the rise in yields on earning assets. 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.
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. 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. 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 Company enters into forward-starting interest rate swap agreements predominantly to hedge interest rate exposures expected in future periods. The following table summarizes information about interest rate swap agreements entered into for interest rate risk management purposes at March 31, 2024 and December 31, 2023.
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INTEREST RATE SWAP AGREEMENTS - DESIGNATED AS HEDGES
Notional Amount
Forward-
Active
Starting
Fixed rate long-term borrowings
2,000
Interest payments on variable rate commercial real estate loans
17,477
5,950
19,477
7,800
1,000
14,977
9,000
16,977
10,000
Information regarding the fair value of interest rate swap agreements is presented in note 10 of Notes to Financial Statements. The average notional amounts of interest rate swap agreements entered into for interest rate risk management purposes (excluding forward-starting interest rate swap agreements not in effect during the quarter), the related effect on net interest income and margin and the weighted-average interest rates paid or received on those swap agreements is presented in the table that follows.
INTEREST RATE SWAP AGREEMENTS - EFFECT ON NET INTEREST INCOME
.
Rate (a)
Increase (decrease) in:
Interest income (cash flow hedges)
(87
-.18
-.13
Interest expense (fair value hedges)
.04
Net interest income/margin
(100
-.21
(69
-.15
Average notional amount (b)
19,202
11,069
Rate received (c)
3.32
2.68
Rate paid (c)
5.38
5.17
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 $200 million was recorded in the first quarter of 2024, compared with $225 million in the fourth quarter of 2023 and $120 million in the year-earlier quarter. The comparatively higher provisions for credit losses in the most recent two quarters as compared with the first quarter of 2023 reflect declines in commercial real estate values and higher interest rates contributing to a deterioration in the performance of loans to commercial borrowers, including nonautomotive dealers and healthcare facilities, as well as growth in certain sectors of M&T's commercial and industrial and consumer loan portfolios. Net charge-offs totaled $138 million in 2024's first quarter as compared with $148 million in 2023's final quarter and $70 million in the year-earlier quarter. The lower level of net charge-offs in the first quarter of 2024 as compared with the preceding quarter included a decline in commercial real estate loan net charge-offs, partially offset by an increase in net charge-offs of commercial and industrial and consumer loans. As compared with year-earlier first quarter, the recent quarter net charge-offs reflect higher levels of commercial and industrial and consumer loan net charge-offs.
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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-OFF (RECOVERY) INFORMATION
Net Charge-Offs (Recoveries)
Annualized Percentage of Average Loans
.30
.08
.43
.03
.10
.48
.69
.39
-.09
-.01
.07
.01
Residential - limited documentation
.02
.80
.72
.50
.46
.21
2.14
3.51
138
.42
148
.44
Asset Quality
A 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
Nonaccrual loans
Real estate and other foreclosed assets
Total nonperforming assets
2,340
2,205
2,601
Accruing loans past due 90 days or more (a)
407
Government-guaranteed loans included in totals above:
Loans 30-89 days past due
1,892
Nonaccrual loans to total net loans and leases
1.71
1.62
1.92
Nonperforming assets to total net loans and leases and real estate and other foreclosed assets
1.73
1.64
1.96
Accruing loans past due 90 days or more to total net loans and leases
.25
.31
Loans 30-89 days past due to total net loans and leases
1.29
1.42
Nonaccrual loans were $2.3 billion at March 31, 2024, $136 million higher than December 31, 2023 and $255 million lower than March 31, 2023. The higher level of nonaccrual loans at the recent quarter end as compared with the immediately preceding quarter end was largely attributable to an increase in commercial and industrial nonaccrual loans, most notably loans to nonautomotive finance dealers and the manufacturing and services industries, partially offset by a decrease in commercial real estate nonaccrual loans. The decrease in nonaccrual loans at March 31, 2024 as compared with year-earlier quarter was predominantly due to lower levels of commercial real estate nonaccrual loans, including net charge-offs, and residential real estate nonaccrual loans, partially offset by a rise in commercial and industrial nonaccrual loans.
- 49 -
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 herein that are guaranteed by government-related entities totaled $195 million at March 31, 2024, $228 million at December 31, 2023 and $242 million at March 31, 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.
Approximately 73% of loans 30 to 89 days past due were less than 60 days delinquent at each of March 31, 2024 and December 31, 2023. Information about past due and nonaccrual loans at March 31, 2024 and December 31, 2023 is also 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.
The Company utilizes a loan grading system to differentiate risk amongst its commercial and industrial 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.
Line of business personnel in different geographic locations with support from and review by the Company’s credit risk personnel review and reassign loan grades based on their detailed knowledge of individual borrowers and their judgment of the impact on such borrowers resulting from changing conditions in their respective regions. The Company’s policy is that, at least annually, updated financial information is obtained from commercial borrowers associated with pass grade loans and additional analysis performed. On a quarterly basis, the Company’s centralized credit risk department personnel reviews all criticized commercial and industrial 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 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.
Targeted loan reviews have periodically been performed over segments of loan portfolios that are experiencing heightened credit risk due to current or anticipated economic conditions. The intention of such reviews is to identify trends across such portfolios and inform portfolio risk limits and loss mitigation strategies. The business climate in the first quarter of 2024 has continued to be subjected to inflationary pressures and elevated interest rates. These conditions have impacted many borrowers, particularly those with investor-owned commercial real estate loans in the hotel, office, retail, multifamily and healthcare sectors, including construction-related financing, and commercial and industrial loans to nonautomotive dealers and manufacturing and transportation industries. In 2023 and 2024, the Company completed targeted loan reviews covering the majority of its investor-owned commercial real estate portfolio, inclusive of construction loans, with a focus on criticized loans and loans with maturities in the next twelve months. The primary source of repayment of these loans is typically tenant lease payments to the investor/borrower. Vacancies, which have been influenced by certain demographic changes, and higher interest rates have contributed to lower current and anticipated future debt service coverage ratios, which has and could continue to influence the ability of borrowers to make existing loan payments. Lower debt service coverage ratios and reduced commercial real estate values also impact the ability of borrowers to refinance their obligations at loan maturity. As a result, criticized
- 50 -
investor-owned commercial real estate loans have remained elevated at $8.5 billion or 26% of such loans at March 31, 2024 and $8.8 billion or 27% of such loans at December 31, 2023. Investor-owned commercial real estate loans comprised 66% and 70% of total criticized loans at March 31, 2024 and December 31, 2023, respectively. The weighted-average LTV ratios for investor-owned commercial real estate loans was approximately 56% at each of March 31, 2024 and December 31, 2023. Criticized loans secured by investor-owned commercial real estate had a weighted-average LTV ratio of approximately 62% at March 31, 2024 and 61% at December 31, 2023.
The Company monitors its concentration of commercial real estate lending as a percentage of its Tier 1 capital plus its allowable allowance for credit losses, consistent with a metric utilized to differentiate such concentrations amongst regulated financial institutions. This metric, as prescribed in supervisory guidance, excludes loans secured by commercial real estate considered to be owner-occupied, but includes certain other loans, such as loans to real estate investment trusts, that are classified as commercial and industrial loans. The Company's commercial real estate loan concentration approximated 176% of Tier 1 capital plus its allowable allowance for credit losses at March 31, 2024, compared with 183% at December 31, 2023. The Company has reduced its relative concentration of investor-owned commercial real estate loans throughout 2023 and the first quarter of 2024.
The accompanying tables summarize the outstanding balances, and associated criticized balances, of commercial and industrial loans and leases by industry and commercial real estate loans by property type, respectively, at March 31, 2024 and December 31, 2023.
CRITICIZED COMMERCIAL AND INDUSTRIAL LOANS
Outstanding
Criticized Accrual
Criticized Nonaccrual
Total Criticized
Commercial and industrial excluding owner-occupied real estate by industry:
Financial and insurance
10,538
261
10,679
346
349
Services
7,180
260
6,715
100
395
Motor vehicle and recreational finance dealers
6,268
525
109
6,242
164
Manufacturing
6,226
616
122
738
5,981
549
Wholesale
3,955
3,803
Transportation, communications, utilities
3,525
233
303
3,342
195
Retail
2,893
83
2,727
Construction
2,089
Health services
1,991
286
320
1,950
325
Real estate investors
1,618
1,684
189
193
1,676
1,889
Total commercial and industrial excluding owner-occupied real estate
47,959
3,003
703
3,706
47,104
2,613
514
3,127
Owner-occupied real estate by industry:
2,122
140
2,162
1,922
1,867
1,587
146
1,541
944
837
842
795
818
26
639
656
1,092
1,080
Total owner-occupied real estate
9,938
533
161
694
9,906
632
4,400
3,759
- 51 -
CRITICIZED COMMERCIAL REAL ESTATE LOANS
Permanent finance by property type:
Apartments/Multifamily
6,441
1,003
1,115
6,165
1,184
1,299
Retail/Service
5,795
1,039
5,912
1,075
1,302
Office
4,599
1,011
1,158
4,727
185
1,064
3,626
1,409
1,586
3,615
1,364
1,481
Hotel
2,485
485
175
660
2,510
496
210
706
Industrial/Warehouse
2,034
314
Total permanent
5,980
6,119
Construction/Development
7,248
2,419
144
2,563
7,726
174
2,701
32,416
7,544
8,543
33,003
7,777
1,043
8,820
Total criticized commercial and industrial loans and commercial real estate loans were $12.9 billion and $12.6 billion at March 31, 2024 and December 31, 2023, respectively. Criticized loans represented 14.3% of the total commercial and industrial and commercial real estate loans at March 31, 2024, compared with 14.0% at December 31, 2023. At March 31, 2024 and December 31, 2023, permanent finance commercial real estate loans comprised 46% and 49% of total criticized loans, respectively, whereas commercial and industrial loans represented 34% and 30%, respectively, and construction loans represented 20% and 21%, respectively. Loans to nonautomotive finance dealers and manufacturing, wholesale and transportation companies mainly contributed to the $641 million increase in commercial and industrial criticized loans from December 31, 2023 to March 31, 2024.
The Company’s loss identification and estimation techniques with respect to loans secured by residential real estate 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. 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. 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 considers the required repayment of any first lien positions related to collateral property. Information about the location of loans secured by residential real estate is presented in the following table.
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NONACCRUAL LOANS SECURED BY RESIDENTIAL REAL ESTATE
Percent of
Balances
Residential mortgage loans:
6,625
Mid-Atlantic (a)
6,605
.86
New England (b)
6,010
2,952
.58
.91
Limited documentation first lien mortgage loans:
403
361
8.76
6.53
6.00
First lien home equity loans and lines of credit:
2.06
967
1.25
16.54
2,255
2.16
Junior lien home equity loans and lines of credit:
767
2.15
910
600
1.11
.52
2,303
1.66
Factors that influence the Company’s credit loss experience include overall economic conditions affecting businesses and consumers, generally, but also residential and commercial real estate valuations, in particular, given the size of the Company’s real estate loan portfolios. Commercial real estate valuations can be highly subjective, as they are based upon many assumptions. Such valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, interest rates and, in many cases, the results of operations of businesses and other occupants of the real property. Similarly, residential real estate valuations can be impacted by housing trends, the availability of financing at reasonable interest rates and general economic conditions affecting consumers.
A comparative summary of consumer loans in nonaccrual status by product is presented in the following table.
NONACCRUAL CONSUMER LOANS
183
- 53 -
Allowance for Credit Losses
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 March 31, 2024 concerns existed about elevated levels of inflation; potential liquidity shortages and tightening credit in the financial services markets; a slowing economy or possible recession during the remainder of 2024; 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 on commercial and residential real estate values especially in the office, retail and healthcare sectors; higher interest rates and wage pressures impacting commercial borrowers, including nonautomotive finance dealers; 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 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 March 31, 2024 and December 31, 2023 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 Review Committee, which is comprised of senior management business leaders and economists. The assumptions utilized as of March 31, 2024 and December 31, 2023 are presented in the following table and were based on information available at or near the time the Company was preparing its estimate of expected credit losses as of those dates.
ALLOWANCE FOR CREDIT LOSSES MACROECONOMIC ASSUMPTIONS
Year 1
Year 2
Cumulative
National unemployment rate
4.4
4.7
Real GDP growth rate
1.0
1.8
2.8
.9
1.9
Commercial real estate price index growth/decline rate
-6.9
5.5
-1.5
-9.1
4.8
-4.5
Home price index growth/ decline rate
-2.0
.4
-1.6
-3.2
-.1
-3.3
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 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 GDP, 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.
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ALLOWANCE FOR CREDIT LOSSES SENSITIVITIES
Potential downside economic scenario:
6.5
7.4
Real GDP growth/decline rate
-2.3
1.6
-.8
Commercial real estate price index decline rate
-18.0
-19.6
Home price index growth/decline rate
-10.4
.5
-10.0
Potential upside economic scenario:
3.3
3.2
3.5
2.4
6.0
-1.8
9.2
7.3
Home price index growth rate
2.7
5.0
Impact to Modeled Credit Losses Increase (Decrease)
Potential downside economic scenario
347
Potential upside economic scenario
(170
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 has assessed that the allowance for credit losses at March 31, 2024 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled $2.2 billion at March 31, 2024, compared with $2.1 billion at December 31, 2023. As a percentage of loans outstanding, the allowance was 1.62% at March 31, 2024 and 1.59% at December 31, 2023. The increase in the allowance for credit losses as a percentage of loans and leases outstanding reflects a higher level of credit losses expected on certain commercial borrowers, including nonautomotive dealers and healthcare facilities. Included in the allocation of the allowance for credit losses were reserves for loans secured by office properties of 4.37% at each of March 31, 2024 and December 31, 2023. 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. Furthermore, the Company's allowance is general in nature and is available to absorb losses from any loan or lease category.
The ratio of the allowance for credit losses to total nonaccrual loans at March 31, 2024 and December 31, 2023 was 95% and 98%, 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.
- 55 -
Other Income
The components of other income are presented in the accompanying table.
OTHER INCOME
-17
-19
(3
-35
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 multifamily loan programs of Fannie Mae, Freddie Mac, and the U.S. Department of Housing and Urban Development.
RESIDENTIAL MORTGAGE BANKING ACTIVITIES
Residential mortgage banking revenues
Gains on loans originated for sale
Loan servicing fees
Loan sub-servicing and other fees
Total loan servicing revenues
Total residential mortgage banking revenues
New commitments to originate loans for sale
288
Balances at period end
Loans held for sale
190
Commitments to originate loans for sale
Commitments to sell loans
315
284
Capitalized mortgage loan servicing assets
432
532
Loans serviced for others
39,598
40,021
41,547
Loans sub-serviced for others (a)
111,964
115,321
97,989
Total loans serviced for others
151,562
155,342
139,536
- 56 -
COMMERCIAL MORTGAGE BANKING ACTIVITIES
Commercial mortgage banking revenues
-62
-45
Loan servicing fees and other
Total commercial mortgage banking revenues
-32
(4
-14
Loans originated for sale to other investors
1,044
672
372
321
1,014
1,105
909
Loans serviced for others (a)
24,771
24,157
22,389
Loans sub-serviced for others
3,906
3,873
3,786
28,677
28,030
26,175
Service charges on deposit accounts in the recent quarter increased $3 million from the fourth quarter of 2023 reflecting higher commercial service charges from pricing changes. The $11 million increase in the recent quarter as compared with the similar 2023 quarter also reflects the increased customer usage of sweep products.
Trust income includes fees from two significant businesses managed within the Company's Institutional Services and Wealth Management segment. The Institutional Services 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 assets (including retirement plan assets prior to the sale of CIT); and (iii) need investment and cash management services. The Wealth Management business offers personal trust, planning, fiduciary, asset management, family office and other services designed to help high net worth individuals and families grow, preserve and transfer wealth.
TRUST INCOME AND ASSETS UNDER MANAGEMENT
Institutional Services
(39
Wealth Management
Total trust income
Assets under management at period end
Trust assets under management (excluding proprietary funds)
65,191
63,963
161,495
Proprietary mutual funds
15,280
14,772
14,124
Total assets under management
80,471
78,735
175,619
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The components of other revenues from operations are presented in the accompanying table.
OTHER REVENUES FROM OPERATIONS
Letter of credit and other credit-related fees
Merchant discount and credit card fees
Bank owned life insurance revenue (a)
-18
Equipment operating lease income
-49
BLG income (b)
-26
Total other revenues from operations
Other Expense
The components of other expense are presented in the accompanying table.
OTHER EXPENSE
724
(14
-13
(40
-31
228
(168
-74
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Nonpersonnel expenses
Income Taxes
Income tax expense was $133 million in the first quarter of 2024, compared with $143 million in the fourth quarter of 2023 and $224 million in the year-earlier quarter. The effective tax rates were 20.0%, 22.9% and 24.2% for the quarters ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively. The first quarter of 2024 income tax expense included a net discrete benefit related to the resolution of a tax matter inherited from the acquisition of People's United. 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 may 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.
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Liquidity Risk
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. Core deposits totaled $151.5 billion and $146.5 billion at March 31, 2024 and December 31, 2023, respectively. The increase in core deposits at March 31, 2024 as compared with December 31, 2023 reflects a higher level of trust customer deposits.
The Company supplements funding provided through deposits with various short-term and long-term wholesale borrowings, including overnight federal funds purchased, repurchase agreements, advances from FHLBs, 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. Beginning in the first quarter of 2024, M&T Bank became a counterparty to the FRB of New York standing repurchase agreement facility, which allows it to enter into overnight repurchase transactions using eligible investment securities. 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. At March 31, 2024 and December 31, 2023, long-term borrowings aggregated $11.5 billion and $8.2 billion, respectively and short-term borrowings aggregated $4.8 billion and $5.3 billion, respectively. Information about the Company's borrowings is presented in note 5 of Notes to Financial Statements.
The Company has benefited from the placement of brokered deposits. The Company had brokered savings and interest-checking deposit accounts which aggregated $7.9 billion at March 31, 2024 and $7.8 billion at December 31, 2023. Brokered time deposits totaled $4.7 billion at March 31, 2024 and $6.1 billion at December 31, 2023. Approximately 87% of brokered time deposits at March 31, 2024 have a contractual maturity date in the next 12 months.
Total uninsured deposits were estimated to be $71.9 billion at March 31, 2024 and $67.0 billion at December 31, 2023. Approximately $11.4 billion and $10.7 billion of those uninsured deposits were collateralized by the Company at March 31, 2024 and December 31, 2023, respectively. The Company maintains available liquidity sources which represent approximately 135% of uninsured deposits that are not collateralized by the Company at March 31, 2024.
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 risks by conducting scenario analyses that estimate the liquidity impact resulting from a debt ratings downgrade and other market events. 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.
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 March 31, 2024 approximately $1.2 billion was available for payment of dividends to M&T from bank subsidiaries. M&T also may obtain funding through long-term borrowings. Further information about the long-term outstanding borrowings of M&T is provided in note 5 of Notes to Financial Statements. As a bank holding company, M&T is obligated to serve as a managerial and financial source of strength to its bank subsidiaries as described in Part I, Item 1, "Business" in the 2023 Annual Report. As its ability to access the capital markets may be affected by market disruptions, M&T maintains sufficient cash resources at its parent company to satisfy projected cash outflows for an extended period without reliance on dividends from subsidiaries or external financing. As of March 31, 2024, M&T's parent company liquidity covered projected cash
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outflows for more than 24 months, including dividends on common and preferred stock, debt service and scheduled debt maturities.
In addition to deposits and borrowings, other sources of liquidity include maturities and repayments of investment securities, loans and other earning assets, as well as 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. U.S. Treasury and federal agency securities and government issued or guaranteed mortgage-backed securities comprised 90% of the Company's debt securities portfolio at March 31, 2024. The weighted-average durations of debt investment securities available for sale and held to maturity at March 31, 2024 were 2.0 years and 5.4 years, respectively.
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.
The Company's Executive ALCO Committee closely monitors the Company’s liquidity position on an ongoing basis for compliance with internal policies and regulatory expectations. As a Category IV institution, the Company adheres to enhanced liquidity standards which require the performance of internal liquidity stress testing. The stress testing is designed to ensure the Company has sufficient liquidity to withstand both institution-specific and market-wide stress scenarios. For each scenario, the Company applies liquidity stress which may include deposit run-off, increased draws on unfunded loan commitments, increased collateral need for margin calls, increased haircuts on investment security-based funding and reductions in unsecured and secured borrowing capacity. Stress scenarios are measured over various time frames ranging from overnight to twelve months. As required by regulation, the Company maintains a liquidity buffer comprised of cash and highly liquid unencumbered securities to cover a 30-day stress horizon. Liquidity stress events occurring over longer time horizons can be mitigated by the availability of secured funding sources at the FHLB of New York and FRB of New York. The following table is a summary of the Company's available sources of liquidity at March 31, 2024.
AVAILABLE LIQUIDITY SOURCES
Deposits at the FRB of New York
32,033
Unused secured borrowing facilities:
FRB of New York
18,404
FHLB of New York
14,589
Unencumbered investment securities (after estimated haircuts)
16,506
81,532
Management continuously evaluates the use and mix of its various available funding alternatives, including short-term borrowings, issuances of long-term debt, 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. In accordance with liquidity regulations, the Company maintains a contingency funding plan to facilitate on-going liquidity management in times of liquidity stress. The plan outlines various funding options available during a liquidity stress event and establishes a clear escalation protocol to be followed within the Company's risk management framework. The plan sets forth funding strategies and procedures that management can quickly leverage to assist in decision-making and specifies roles and responsibilities for departments impacted by a potential liquidity stress event.
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Market Risk and Interest Rate Sensitivity
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 hedge 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. The Company has entered into interest rate swap agreements to help manage exposure to interest rate risk. At March 31, 2024, the aggregate notional amount of interest rate swap agreements entered into for interest rate risk management purposes that were currently in effect was $19.5 billion. In addition, the Company has entered into $7.8 billion of forward-starting interest rate swap agreements predominantly related to cash flow hedges. Information about interest rate swap agreements entered into for interest rate risk management purposes is included herein under the heading “Net Interest Margin” and in note 10 of Notes to Financial Statements.
The Company’s Executive ALCO Committee 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 March 31, 2024 and December 31, 2023 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
Changes in interest rates
Calculated Changein Projected Net Interest Income
+200 basis points
(50
(18
+100 basis points
-100 basis points
-200 basis points
(83
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, 2023 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
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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 55 percent. Excluding brokered deposits that cumulative pricing beta approximated 50 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. Management also uses an “economic value of equity” model to supplement the modeling technique described above and provide a long-term interest rate risk metric. Economic value of equity is a point-in-time analysis of the economic sensitivity of assets, liabilities and off-balance sheet positions that incorporates all cash flows over their estimated remaining lives. Management measures the impact of changes in market values due to interest rates under a number of scenarios, including immediate shifts of the yield curve.
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. Information about the fair valuation of financial instruments is presented in note 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 $258 million and $1.0 billion, respectively, at March 31, 2024 and $256 million and $898 million, respectively, at December 31, 2023. The fair value asset and liability amounts at March 31, 2024 have been reduced by contractual settlements of $893 million and $16 million, respectively, and at December 31, 2023 have been reduced by contractual settlements of $783 million and $32 million, respectively. The amounts associated with the Company's non-hedging derivative activities at March 31, 2024 and December 31, 2023 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 $99 million at March 31, 2024 and $106 million at December 31, 2023. Included in trading account assets were assets related to deferred compensation plans of $22 million at each of March 31, 2024 and December 31, 2023. 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 accrued interest and other liabilities in the Consolidated Balance Sheet was $27 million of liabilities related to deferred compensation plans at each of March 31, 2024 and December 31, 2023. Changes in the balances of such liabilities due to the valuation of allocated investment options to which the liabilities are indexed and 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 $77 million at March 31, 2024 and $80 million at December 31, 2023.
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
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related to the Company’s actions to mitigate foreign currency and interest rate risk associated with customer activities. Information about the Company’s use of derivative financial instruments is included in note 10 of Notes to Financial Statements.
The following table presents components related to shareholders' equity and dividends. 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, DIVIDENDS AND SELECT RATIOS
Preferred stock
(2,011
Common shareholders' equity
25,158
24,946
23,366
Per share:
Common shareholders’ equity
150.90
150.15
140.88
Tangible common shareholders’ equity
Ratios:
Shareholder's equity to total assets
12.63
12.94
12.50
Tangible common shareholders' equity to tangible assets
8.03
8.20
7.58
Cash dividends declared for quarter ended:
Common stock
Common stock per share
1.30
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, gains or losses associated with interest rate swap agreements designated as cash flow hedges and adjustments to reflect the funded status of defined benefit pension and other postretirement plans. The components of other comprehensive income (loss) are presented in the following table.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - NET OF INCOME TAX
Investment securities unrealized losses, net (a)
Cash flow hedges unrealized losses, net (b)
(169
Defined benefit plans adjustments, net (c)
(204
Accumulated other comprehensive income (loss), net, per common share
(3.53
(2.76
(3.89
Reflected in the carrying amount of available-for-sale investment securities at March 31, 2024 were pre-tax effect unrealized gains of $1 million on securities with an amortized cost of $622 million and pre-tax effect unrealized losses of $264 million on securities with an amortized cost of $11.8 billion. Information concerning the Company’s fair valuations of investment securities is provided in notes 3 and 12 of Notes to Financial Statements. As also described in note 3 of Notes to Financial Statements, the Company does not expect any material credit-related losses with respect to its investment securities portfolio at March 31, 2024.
Pursuant to previously approved capital plans and authorizations approved by M&T's Board of Directors, M&T repurchased 3,838,157 shares of its common stock for a total cost of $600 million, including the share repurchase excise tax, under the program in the first quarter of 2023. There were no shares of common stock repurchased in the fourth quarter of 2023 and the first quarter of 2024.
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M&T and its subsidiary banks are required to comply with applicable Capital Rules. Pursuant to those regulations, the minimum capital ratios are as follows:
Capital Rules require buffers in addition to the minimum risk-based capital ratios noted above. M&T is subject to a SCB 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. Based on the Federal Reserve's most recent supervisory stress tests M&T's SCB is 4.0%.
The regulatory capital ratios of the Company and its bank subsidiaries, M&T Bank and Wilmington Trust, N.A., as of March 31, 2024 are presented in the accompanying table.
REGULATORY CAPITAL RATIOS
Wilmington
(Consolidated)
Bank
Trust, N.A.
11.08
11.66
260.57
Tier 1 capital
12.38
Total capital
14.04
13.11
260.98
Tier 1 leverage
9.47
8.90
86.02
155,338
154,730
Capital Rules generally require the deduction of goodwill and core deposit and other intangible assets, net of applicable deferred taxes, from the calculation of capital in the determination of the minimum capital ratios. As a result of previous business acquisitions, the Company recorded goodwill of $8.5 billion and core deposit and other intangible assets of $132 million at March 31, 2024. Goodwill, as required by GAAP, is not amortized, but rather is tested for impairment at least annually at the business reporting unit level. The Company completed its annual goodwill impairment test in the fourth quarter of 2023 and concluded the amount of goodwill was not impaired at the testing date. The Company has not identified events or circumstances that would more likely than not reduce the fair value of a business reporting unit below its carrying amount at March 31, 2024. Should a business reporting unit with assigned goodwill experience declines in revenue, increased credit losses or expenses, or other adverse developments due to economic, regulatory, competition or other factors, that would be material to that reporting unit, an impairment of goodwill could occur in a future period that could be material to the Company's Consolidated Balance Sheet and its Consolidated Statement of Income. Although a goodwill impairment charge would not have a significant impact on the Company's regulatory tangible capital ratios, it would reduce the capacity of its bank subsidiary, M&T Bank, to dividend earnings to M&T. As described herein under the heading "Liquidity Risk", M&T's parent company liquidity at March 31, 2024 covered projected cash outflows for more than 24 months, including dividends on common and preferred stock, debt service and scheduled debt maturities. Information concerning goodwill and other intangible assets is included in note 8 of Notes to Financial Statements in the 2023 Annual Report.
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The Company is subject to the comprehensive regulatory framework applicable to bank and financial holding companies and their subsidiaries, which includes examinations by a number of regulators. Regulation of financial institutions such as M&T and its subsidiaries is intended primarily for the protection of depositors, the 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 2023 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 and currently estimates the proposed rules would increase the Company's RWA by a percentage in the mid-single digits.
Segment Information
Reportable segments have been determined based upon the Company's organizational structure and its internal profitability reporting system. Financial information about the Company's segments is presented in note 14 of Notes to Financial Statements. The reportable segments are Commercial Bank, Retail Bank, and Institutional Services and Wealth Management. All other business activities that are not included in the three reportable segment results have been included in the "All Other" category.
NET INCOME (LOSS) BY SEGMENT
Net income (loss)
220
-9
(132
-40
(281
Total net income
The Commercial Bank segment provides a wide range of credit products and banking services to middle-market and large commercial customers, mainly within the markets served by the Company. Services provided by this segment include commercial lending and leasing, credit facilities which are secured by various types of commercial real estate, letters of credit, deposit products and cash management services. Commercial real estate loans may be secured by multifamily residential buildings, hotels, office, retail and industrial space or other types of collateral. Activities of this segment include the origination, sales and servicing of commercial real estate loans through the Fannie Mae DUS program and other programs. Commercial real estate loans held for sale are included in this segment.
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COMMERCIAL BANK SEGMENT FINANCIAL SUMMARY
Income Statement
548
583
649
(101
-16
Noninterest income
Total revenue
759
(112
Noninterest expense
345
344
322
455
(178
-39
-38
Average Balance Sheet
Loans and leases:
49,048
47,717
44,655
30,747
31,489
(742
33,280
(2,533
447
329
80,267
79,671
596
78,289
1,978
Deposits:
Noninterest-bearing
(1,068
(6,747
-33
Interest-bearing
30,074
29,127
947
22,593
7,481
(121
734
The Commercial Bank segment’s net income was $201 million in the first quarter of 2024, compared with $220 million in the fourth quarter of 2023.
Net income for the Commercial Bank segment declined $132 million in the first quarter of 2024 from $333 million in the year-earlier quarter.
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The Retail Bank segment provides a wide range of services to consumers and small businesses through the Company’s branch network and several other delivery channels such as telephone banking, internet banking and automated teller machines. The Company has branch offices in New York State, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Massachusetts, Maine, Vermont, New Hampshire, Virginia, West Virginia and the District of Columbia. The segment offers to its customers deposit products, including demand, savings and time accounts, and other services. Credit services offered by this segment include automobile and recreational finance loans (originated both directly and indirectly through dealers), home equity loans and lines of credit, credit cards and other loan products. This segment also originates and services residential mortgage loans and either sells those loans in the secondary market to investors or retains them for investment purposes. Residential mortgage loans are also originated and serviced on behalf of the Institutional Services and Wealth Management segment. The Company periodically purchases the rights to service residential real estate loans that have been originated by other entities and also sub-services residential real estate loans for others. Residential real estate loans held for sale are included in this segment. This segment also provides various business loans, including loans guaranteed by the SBA, business credit cards, deposit products and services such as cash management, payroll and direct deposit, merchant credit card and letters of credits to small businesses and professionals through the Company's branch network and other delivery channels.
RETAIL BANK SEGMENT FINANCIAL SUMMARY
1,071
1,083
197
170
1,277
599
601
592
6,874
6,766
6,819
1,904
1,908
1,909
20,843
21,057
(214
21,721
(878
20,387
19,762
625
19,645
742
50,008
49,493
515
50,094
(86
(1,094
(5,172
66,269
65,448
821
61,317
4,952
(220
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The Retail Bank segment’s net income increased $8 million to $446 million in the first quarter of 2024 from $438 million in the final quarter of 2023.
Net income for the Retail Bank segment decreased $6 million in the recent quarter from $452 million in the first quarter of 2023.
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Institutional Services & Wealth Management
The Institutional Services and Wealth Management segment 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, as well as 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. This segment also provides investment products, including mutual funds and annuities and other services to customers.
INSTITUTIONAL SERVICES & WEALTH MANAGEMENT SEGMENT FINANCIAL SUMMARY
186
362
241
-15
149
783
761
787
1,846
1,838
1,720
126
722
766
812
(90
3,399
3,421
(22
3,372
604
(1,282
-12
7,168
6,759
409
7,970
(802
-10
1,013
(2,084
The Institutional Services and Wealth Management segment’s net income increased $23 million to $128 million in the first quarter of 2024 from $105 million in the last quarter of 2023.
Net income for the Institutional Services and Wealth Management segment increased $18 million in the recent quarter from $110 million in the year-earlier first quarter.
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The “All Other” category reflects other activities of the Company that are not directly attributable to the reported segments. Reflected in this category are the difference between the provision for credit losses and the calculated provision allocated to the reportable segments; goodwill and core deposit and other intangible assets resulting from the acquisitions of financial institutions; merger-related gains and expenses related to acquisitions; the net impact of the Company’s internal funds transfer pricing methodology; eliminations of transactions between reportable segments; certain non-recurring transactions; and the residual effects of unallocated support systems and general and administrative expenses. The Company’s investment securities portfolio, brokered deposits and short-term and long-term borrowings are generally included in the “All Other” category. In its management of interest rate risk, the Company utilizes interest rate swap agreements to modify the repricing characteristics of certain portfolios of earning assets and interest-bearing liabilities. The results of such activities are captured in the "All Other" category.
ALL OTHER CATEGORY FINANCIAL SUMMARY
Net interest income (expense)
(125
(120
(65
91
Total revenue (expense)
(98
216
(386
(412
(289
(97
(142
(131
(96
The “All Other” category recorded a net loss in the first quarter of 2024 of $244 million, compared with a net loss of $281 million in the fourth quarter of 2023.
The net loss recorded for the “All Other” category was $193 million in the first quarter 2023.
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Other Matters
On March 6, 2024, the SEC adopted a final rule to enhance and standardize climate-related disclosures by public companies. The final rule requires registrants, including the Company, to disclose their risk management processes for material climate-related risks, governance and oversight of material climate-risks and any risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations or financial condition. Additionally, the final rule requires disclosure of material Scope 1 and Scope 2 greenhouse gas emissions, material climate targets and goals and certain disclosures related to severe weather events and other natural conditions. Such disclosures will be required in a registrant’s annual reporting under a phased-in approach beginning with annual reports for the year ending December 31, 2025 for calendar-year-end large accelerated filers, such as M&T. On April 4, 2024, the SEC issued an order to stay the final rule pending the completion of judicial review by the United States Court of Appeals for the Eighth Circuit.
Recent Accounting Developments
A discussion of the Company's significant accounting policies and critical accounting estimates can be found in the 2023 Annual Report. A summary of recent accounting developments is included in note 1 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. Any statement that does not describe historical or current facts is a forward-looking statement, including statements based on current expectations, estimates and projections about the Company’s business, and management's beliefs and assumptions.
Statements regarding the potential effects of events or factors specific to the Company and/or the financial industry as a whole, as well as national and global events generally, on the Company's business, financial condition, liquidity and results of operations may constitute forward-looking statements. 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 certain risks, uncertainties and assumptions which are difficult to predict and may cause actual outcomes to differ materially from what is expressed or forecasted.
While there can be no assurance that any list of risks and uncertainties is complete, important factors that could cause actual outcomes and results to differ materially from those contemplated by forward-looking statements include the following, without limitation: economic conditions and growth rates, including inflation and market volatility; events and developments in the financial services industry, including industry conditions; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, loan concentrations by type and industry, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; levels of client deposits; ability to contain costs and expenses; changes in the Company's credit ratings; the impact of the People's United acquisition; domestic or international political developments and other geopolitical events, including international conflicts and hostilities; changes and trends in the securities markets; 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; federal, state or local legislation and/or regulations affecting the financial services industry, or M&T and its subsidiaries individually or collectively, including tax policy; regulatory supervision and oversight, including monetary policy and capital requirements; governmental and public policy changes; political conditions, either nationally or in the states in which M&T and its subsidiaries do business; 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
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by the Financial Accounting Standards Board, regulatory agencies or legislation; increasing price, product and service competition by competitors, including new entrants; 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; 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.
These are representative of the 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 the Company does business, and other factors.
The Company provides further detail regarding these risks and uncertainties in the 2023 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 they are made, and the Company assumes no duty and does not undertake to update forward-looking statements.
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Table 1
QUARTERLY TRENDS
2023 Quarters
First Quarter
Fourth
Third
Second
First
Earnings and dividends
Interest income (taxable-equivalent basis)
Less: provision for credit losses
803
Less: other expense
1,278
1,293
Income before income taxes
922
1,173
Applicable income taxes
Taxable-equivalent adjustment
690
867
Net income available to common shareholders-diluted
841
4.00
5.07
3.98
5.05
Cash dividends
Average common shares outstanding:
165,985
165,909
165,842
166,731
166,570
166,320
1.33
1.70
10.99
14.27
Net interest margin on average earning assets (taxable-equivalent basis)
Nonaccrual loans to total loans and leases, net of unearned discount
1.77
1.83
Net operating (tangible) results (a)
Diluted net operating income per common share
5.12
Annualized return on:
1.41
1.80
Average tangible common shareholders’ equity
17.41
22.73
Efficiency ratio (b)
53.7
48.9
Balance sheet data
Average balances:
Total assets (c)
Total tangible assets (c)
202,906
200,172
197,199
195,764
193,957
Earning assets
Loans and leases, net of unearned discount
Deposits
162,688
159,399
Borrowings
12,585
15,055
Common shareholders’ equity (c)
25,008
24,489
24,009
23,674
Tangible common shareholders’ equity (c)
16,436
15,909
15,417
15,062
14,724
At end of quarter:
209,124
207,672
202,956
206,574
199,689
200,538
199,074
194,321
195,712
189,140
189,942
188,504
183,853
27,336
27,916
28,443
132,355
133,344
132,938
164,128
162,058
159,075
16,245
13,517
13,854
15,325
14,458
24,186
23,790
16,595
16,371
15,600
15,192
14,731
Equity per common share
145.72
143.41
Tangible equity per common share
93.99
91.58
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Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
Income statement data
Amortization of core deposit and other intangible assets (a)
Earnings per common share
Diluted net operating earnings per common share
(17
Noninterest operating expense
1,381
1,435
1,263
1,342
Noninterest operating expense (numerator)
Taxable-equivalent net interest income
Less: Gain (loss) on bank investment securities
Denominator
2,309
2,350
(8,465
(8,473
(8,490
(154
(185
(201
Deferred taxes
Average common equity
Average total equity
At end of quarter
(147
(162
(177
(192
Total tangible assets
Total common equity
Total equity
26,197
25,801
Common equity
Total tangible common equity
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference to the discussion contained in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the captions "Liquidity Risk," "Market Risk and Interest Rate Sensitivity" and "Capital."
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Based upon their evaluation of the effectiveness of M&T’s disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)), René F. Jones, Chairman of the Board and Chief Executive Officer, and Daryl N. Bible, Senior Executive Vice President and Chief Financial Officer, concluded that M&T’s disclosure controls and procedures were effective as of March 31, 2024.
(b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy of its internal control over financial reporting and enhances its controls in response to internal control assessments and internal and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, M&T’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and other matters in which claims for monetary damages are asserted. On an on-going basis management, after consultation with legal counsel, assesses the Company’s liabilities and contingencies in connection with such proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $25 million as of March 31, 2024. Although the Company does not believe that the outcome of pending legal matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
Item 1A. Risk Factors.
There have been no material changes in risk factors relating to M&T to those disclosed in response to Part I, Item 1A of the 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) – (b) Not applicable.
(c)
Issuer Purchases of Equity Securities
Period
TotalNumberof Shares(or Units)Purchased (1)
AveragePrice Paidper Share(or Unit)
TotalNumber ofShares(or Units)Purchasedas Part ofPubliclyAnnouncedPlans orPrograms
MaximumNumber (orApproximateDollar Value)of Shares(or Units)that may yetbe PurchasedUnder thePlans orPrograms (2)
January 1 - January 31, 2024
136.94
1,200,060,000
February 1 - February 29, 2024
March 1 - March 31, 2024
18,205
140.05
18,415
140.01
Item 3. Defaults Upon Senior Securities.
(None.)
Item 4. Mine Safety Disclosures.
(Not applicable.)
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Item 5. Other Information.
(c) Certain of our officers or directors have made elections to participate in, and are participating in, our tax-qualified 401(k) plan and nonqualified deferred compensation plans, or have made, and may from time to time make, elections to reinvest dividends in M&T Bank Corporation common stock, or have shares withheld to cover withholding taxes upon the vesting of equity awards or to pay the exercise price of options, each of which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
Item 6.Exhibits.
The following exhibits are filed as a part of this report.
Exhibit
No.
10.1
Retirement and Consulting Agreement, dated as of February 8, 2024, by and between Doris Meister and M&T Bank. Filed herewith.*
31.1
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1
Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2
Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101.INS
Inline XBRL Instance Document. Filed herewith.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. Filed herewith.
The cover page from M&T Bank Corporation’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2024 has been formatted in Inline XBRL.
* Management contract or compensatory plan or arrangement.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 3, 2024
By:
/s/ Daryl N. Bible
Daryl N. Bible
Senior Executive Vice President
and Chief Financial Officer
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