Companies: 10,652     total market cap: $140.709 T
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M&T Bank
MTB
#691
Rank
$36.16 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$231.40
Share price
-1.41%
Change (1 day)
19.71%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
M&T Bank Corporation is an American bank holding company headquartered in Buffalo, New York, It operates 780 branches in New York, New Jersey, Pennsylvania, Maryland, Delaware, Virginia, West Virginia, Washington, D.C., and Connecticut.
  1. M&T Bank
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2020 Q3

M&T Bank - 10-Q quarterly report FY2020 Q3


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

☒

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

For the quarterly period ended September 30, 2020

or

☐

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

Commission File Number 1-9861

 

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

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, $.50 par value

MTB

New York Stock Exchange

 

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 October 30, 2020: 128,292,616 shares.

 

 

 

 

 

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2020

 

Table of Contents of Information Required in Report

 

Page

 

 

 

 

 

Part I.  FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements.

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET – September 30, 2020 and December 31, 2019

 

3

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF INCOME – Three and nine months ended September 30, 2020 and 2019

 

4

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME – Three and nine months ended September 30, 2020 and 2019

 

5

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS – Nine months ended September 30, 2020 and 2019

 

6

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY – Three and nine months ended September 30, 2020 and 2019

 

7

 

 

 

 

 

 

 

NOTES TO FINANCIAL STATEMENTS

 

8

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

53

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

 

93

 

 

 

 

 

Item 4.

 

Controls and Procedures.

 

93

 

 

 

 

 

Part II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

93

 

 

 

 

 

Item 1A.

 

Risk Factors.

 

93

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

95

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities.

 

95

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures.

 

95

 

 

 

 

 

Item 5.

 

Other Information.

 

95

 

 

 

 

 

Item 6.

 

Exhibits.

 

96

 

 

 

 

 

SIGNATURES

 

96

 

 

 

 

 

 

 

 

- 2 -

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)

 

 

 

September 30,

 

 

December 31,

 

(Dollars in thousands, except per share)

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

1,489,232

 

 

$

1,432,805

 

Interest-bearing deposits at banks

 

 

20,197,937

 

 

 

7,190,154

 

Federal funds sold

 

 

—

 

 

 

3,500

 

Trading account

 

 

1,215,573

 

 

 

470,129

 

Investment securities (includes pledged securities that can be sold or repledged of

   $89,351 at September 30, 2020; $200,339 at December 31, 2019)

 

 

 

 

 

 

 

 

Available for sale (cost: $5,090,064 at September 30, 2020;

   $6,258,276 at December 31, 2019)

 

 

5,302,338

 

 

 

6,318,776

 

Held to maturity (fair value: $2,031,926 at September 30, 2020;

   $2,699,206 at December 31, 2019)

 

 

1,938,694

 

 

 

2,656,917

 

Equity and other securities (cost: $458,498 at September 30, 2020;

   $487,041 at December 31, 2019)

 

 

481,972

 

 

 

521,558

 

Total investment securities

 

 

7,723,004

 

 

 

9,497,251

 

Loans and leases

 

 

98,849,533

 

 

 

91,188,525

 

Unearned discount

 

 

(402,485

)

 

 

(265,656

)

Loans and leases, net of unearned discount

 

 

98,447,048

 

 

 

90,922,869

 

Allowance for credit losses

 

 

(1,758,505

)

 

 

(1,051,071

)

Loans and leases, net

 

 

96,688,543

 

 

 

89,871,798

 

Premises and equipment

 

 

1,146,681

 

 

 

1,140,924

 

Goodwill

 

 

4,593,112

 

 

 

4,593,112

 

Core deposit and other intangible assets

 

 

17,294

 

 

 

29,034

 

Accrued interest and other assets

 

 

5,555,367

 

 

 

5,644,050

 

Total assets

 

$

138,626,743

 

 

$

119,872,757

 

Liabilities

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

44,201,670

 

 

$

32,396,407

 

Savings and interest-checking deposits

 

 

65,732,130

 

 

 

54,932,162

 

Time deposits

 

 

4,329,550

 

 

 

5,757,456

 

Deposits at Cayman Islands office

 

 

899,989

 

 

 

1,684,044

 

Total deposits

 

 

115,163,339

 

 

 

94,770,069

 

Short-term borrowings

 

 

46,123

 

 

 

62,363

 

Accrued interest and other liabilities

 

 

1,857,383

 

 

 

2,337,490

 

Long-term borrowings

 

 

5,458,885

 

 

 

6,986,186

 

Total liabilities

 

 

122,525,730

 

 

 

104,156,108

 

Shareholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par, 1,000,000 shares authorized;

   Issued and outstanding: Liquidation preference of $1,000 per

   share: 350,000 shares at September 30, 2020 and December 31, 2019; Liquidation preference of

   $10,000 per share: 90,000 shares at September 30, 2020 and December 31, 2019

 

 

1,250,000

 

 

 

1,250,000

 

Common stock, $.50 par, 250,000,000 shares authorized,

   159,741,898 shares issued at September 30, 2020 and December 31, 2019

 

 

79,871

 

 

 

79,871

 

Common stock issuable, 17,999 shares at September 30, 2020;

   21,534 shares at December 31, 2019

 

 

1,327

 

 

 

1,566

 

Additional paid-in capital

 

 

6,609,573

 

 

 

6,593,539

 

Retained earnings

 

 

13,132,374

 

 

 

12,820,916

 

Accumulated other comprehensive income (loss), net

 

 

175,503

 

 

 

(206,680

)

Treasury stock — common, at cost — 31,456,705 shares at September 30, 2020;

   29,174,402 shares at December 31, 2019

 

 

(5,147,635

)

 

 

(4,822,563

)

Total shareholders’ equity

 

 

16,101,013

 

 

 

15,716,649

 

Total liabilities and shareholders’ equity

 

$

138,626,743

 

 

$

119,872,757

 

See accompanying notes to financial statements.

- 3 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

 

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

(In thousands, except per share)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, including fees

 

$

956,594

 

 

$

1,119,662

 

 

$

2,983,787

 

 

$

3,363,152

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully taxable

 

 

38,529

 

 

 

69,059

 

 

 

135,858

 

 

 

225,048

 

Exempt from federal taxes

 

 

59

 

 

 

98

 

 

 

163

 

 

 

270

 

Deposits at banks

 

 

4,163

 

 

 

40,388

 

 

 

27,308

 

 

 

104,120

 

Other

 

 

1,816

 

 

 

262

 

 

 

6,706

 

 

 

1,101

 

Total interest income

 

 

1,001,161

 

 

 

1,229,469

 

 

 

3,153,822

 

 

 

3,693,691

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

 

22,403

 

 

 

104,724

 

 

 

126,859

 

 

 

272,419

 

Time deposits

 

 

14,519

 

 

 

25,456

 

 

 

56,274

 

 

 

71,468

 

Deposits at Cayman Islands office

 

 

241

 

 

 

6,218

 

 

 

3,821

 

 

 

16,995

 

Short-term borrowings

 

 

1

 

 

 

6,967

 

 

 

26

 

 

 

21,573

 

Long-term borrowings

 

 

20,902

 

 

 

56,214

 

 

 

89,805

 

 

 

189,805

 

Total interest expense

 

 

58,066

 

 

 

199,579

 

 

 

276,785

 

 

 

572,260

 

Net interest income

 

 

943,095

 

 

 

1,029,890

 

 

 

2,877,037

 

 

 

3,121,431

 

Provision for credit losses

 

 

150,000

 

 

 

45,000

 

 

 

725,000

 

 

 

122,000

 

Net interest income after provision for credit losses

 

 

793,095

 

 

 

984,890

 

 

 

2,152,037

 

 

 

2,999,431

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage banking revenues

 

 

153,267

 

 

 

137,004

 

 

 

426,200

 

 

 

339,636

 

Service charges on deposit accounts

 

 

91,355

 

 

 

111,092

 

 

 

274,971

 

 

 

321,991

 

Trust income

 

 

149,937

 

 

 

143,915

 

 

 

450,570

 

 

 

421,083

 

Brokerage services income

 

 

11,602

 

 

 

12,077

 

 

 

35,194

 

 

 

37,031

 

Trading account and foreign exchange gains

 

 

4,026

 

 

 

16,072

 

 

 

33,332

 

 

 

45,327

 

Gain (loss) on bank investment securities

 

 

2,773

 

 

 

3,737

 

 

 

(11,040

)

 

 

24,489

 

Other revenues from operations

 

 

107,601

 

 

 

103,882

 

 

 

327,967

 

 

 

351,082

 

Total other income

 

 

520,561

 

 

 

527,779

 

 

 

1,537,194

 

 

 

1,540,639

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

478,897

 

 

 

476,780

 

 

 

1,474,582

 

 

 

1,431,717

 

Equipment and net occupancy

 

 

81,080

 

 

 

82,690

 

 

 

237,809

 

 

 

241,187

 

Outside data processing and software

 

 

64,660

 

 

 

60,360

 

 

 

190,446

 

 

 

168,011

 

FDIC assessments

 

 

12,121

 

 

 

9,906

 

 

 

38,599

 

 

 

29,104

 

Advertising and marketing

 

 

11,855

 

 

 

22,088

 

 

 

44,072

 

 

 

66,409

 

Printing, postage and supplies

 

 

9,422

 

 

 

10,201

 

 

 

31,534

 

 

 

30,380

 

Amortization of core deposit and other intangible assets

 

 

3,914

 

 

 

5,088

 

 

 

11,740

 

 

 

15,185

 

Other costs of operations

 

 

164,825

 

 

 

210,506

 

 

 

511,450

 

 

 

663,006

 

Total other expense

 

 

826,774

 

 

 

877,619

 

 

 

2,540,232

 

 

 

2,644,999

 

Income before taxes

 

 

486,882

 

 

 

635,050

 

 

 

1,148,999

 

 

 

1,895,071

 

Income taxes

 

 

114,746

 

 

 

154,969

 

 

 

266,987

 

 

 

458,988

 

Net income

 

$

372,136

 

 

$

480,081

 

 

$

882,012

 

 

$

1,436,083

 

Net income available to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

353,399

 

 

$

461,410

 

 

$

827,203

 

 

$

1,376,128

 

Diluted

 

 

353,400

 

 

 

461,410

 

 

 

827,204

 

 

 

1,376,129

 

Net income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.75

 

 

$

3.47

 

 

$

6.42

 

 

$

10.16

 

Diluted

 

 

2.75

 

 

 

3.47

 

 

 

6.42

 

 

 

10.16

 

Average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

128,285

 

 

 

132,965

 

 

 

128,750

 

 

 

135,411

 

Diluted

 

 

128,355

 

 

 

132,999

 

 

 

128,813

 

 

 

135,443

 

See accompanying notes to financial statements.

- 4 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

(In thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

372,136

 

 

$

480,081

 

 

$

882,012

 

 

$

1,436,083

 

Other comprehensive income (loss), net of tax and

   reclassification adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on investment securities

 

 

(17,948

)

 

 

22,605

 

 

 

114,451

 

 

 

177,049

 

Cash flow hedges adjustments

 

 

(63,199

)

 

 

8,695

 

 

 

240,562

 

 

 

155,666

 

Foreign currency translation adjustments

 

 

2,733

 

 

 

(1,704

)

 

 

(261

)

 

 

(2,104

)

Defined benefit plans liability adjustments

 

 

9,287

 

 

 

3,054

 

 

 

27,431

 

 

 

9,162

 

Total other comprehensive income (loss)

 

 

(69,127

)

 

 

32,650

 

 

 

382,183

 

 

 

339,773

 

Total comprehensive income

 

$

303,009

 

 

$

512,731

 

 

$

1,264,195

 

 

$

1,775,856

 

 

See accompanying notes to financial statements.

- 5 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

 

 

Nine Months Ended September 30

 

(In thousands)

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

882,012

 

 

$

1,436,083

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

725,000

 

 

 

122,000

 

Depreciation and amortization of premises and equipment

 

 

164,323

 

 

 

155,721

 

Amortization of capitalized servicing rights

 

 

63,992

 

 

 

53,137

 

Amortization of core deposit and other intangible assets

 

 

11,740

 

 

 

15,185

 

Provision for deferred income taxes

 

 

(119,913

)

 

 

16,683

 

Asset write-downs

 

 

17,692

 

 

 

53,850

 

Net gain on sales of assets

 

 

(14,736

)

 

 

(13,938

)

Net change in accrued interest receivable, payable

 

 

(135,825

)

 

 

8,771

 

Net change in other accrued income and expense

 

 

(344,085

)

 

 

(75,564

)

Net change in loans originated for sale

 

 

(422,773

)

 

 

(20,325

)

Net change in trading account assets and liabilities

 

 

(702,362

)

 

 

(524,755

)

Net cash provided by operating activities

 

 

125,065

 

 

 

1,226,848

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from sales of investment securities

 

 

 

 

 

 

 

 

Equity and other securities

 

 

55,499

 

 

 

878,405

 

Proceeds from maturities of investment securities

 

 

 

 

 

 

 

 

Available for sale

 

 

1,149,281

 

 

 

1,932,168

 

Held to maturity

 

 

719,379

 

 

 

787,655

 

Purchases of investment securities

 

 

 

 

 

 

 

 

Available for sale

 

 

(5,860

)

 

 

(9,791

)

Held to maturity

 

 

(8,995

)

 

 

(495,277

)

Equity and other securities

 

 

(26,955

)

 

 

(821,120

)

Net increase in loans and leases

 

 

(7,227,304

)

 

 

(1,484,135

)

Net increase in interest-bearing deposits at banks

 

 

(13,007,783

)

 

 

(4,390,327

)

Capital expenditures, net

 

 

(125,370

)

 

 

(119,522

)

Net (increase) decrease in loan servicing advances

 

 

149,838

 

 

 

(333,079

)

Other, net

 

 

351,278

 

 

 

55,356

 

Net cash used by investing activities

 

 

(17,976,992

)

 

 

(3,999,667

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

20,394,732

 

 

 

4,959,327

 

Net increase (decrease) in short-term borrowings

 

 

(16,240

)

 

 

1,115,518

 

Payments on long-term borrowings

 

 

(1,605,041

)

 

 

(1,552,533

)

Purchases of treasury stock

 

 

(373,750

)

 

 

(1,067,575

)

Dividends paid — common

 

 

(426,204

)

 

 

(406,967

)

Dividends paid — preferred

 

 

(55,444

)

 

 

(54,642

)

Proceeds from issuance of Series G preferred stock

 

 

—

 

 

 

396,000

 

Redemption of Series A and Series C preferred stock

 

 

—

 

 

 

(381,500

)

Other, net

 

 

(13,199

)

 

 

(21,187

)

Net cash provided by financing activities

 

 

17,904,854

 

 

 

2,986,441

 

Net increase in cash, cash equivalents and restricted cash

 

 

52,927

 

 

 

213,622

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,436,305

 

 

 

1,605,439

 

Cash, cash equivalents and restricted cash at end of period

 

$

1,489,232

 

 

$

1,819,061

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest received during the period

 

$

3,121,917

 

 

$

3,700,206

 

Interest paid during the period

 

 

319,079

 

 

 

577,291

 

Income taxes paid during the period

 

 

254,471

 

 

 

302,441

 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

 

 

 

Real estate acquired in settlement of loans

 

$

20,047

 

 

$

66,018

 

Securitization of residential mortgage loans allocated to

 

 

 

 

 

 

 

 

Available-for-sale investment securities

 

$

—

 

 

$

5,379

 

Capitalized servicing rights

 

 

—

 

 

 

83

 

Adoption of lease accounting standard

 

 

 

 

 

 

 

 

Right-of-use assets

 

$

—

 

 

$

393,877

 

Other liabilities

 

 

—

 

 

 

398,810

 

Additions to right-of-use assets under operating leases

 

$

45,888

 

 

$

69,305

 

 

See accompanying notes to financial statements.

 

 

- 6 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Stock

 

 

Paid-in

 

 

Retained

 

 

Income

 

 

Treasury

 

 

 

 

 

Dollars in thousands, except per share

 

Stock

 

 

Stock

 

 

Issuable

 

 

Capital

 

 

Earnings

 

 

(Loss), Net

 

 

Stock

 

 

Total

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — July 1, 2020

 

$

1,250,000

 

 

 

79,871

 

 

 

1,308

 

 

 

6,599,069

 

 

 

12,919,345

 

 

 

244,630

 

 

 

(5,149,118

)

 

$

15,945,105

 

Total comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

372,136

 

 

 

(69,127

)

 

 

—

 

 

 

303,009

 

Preferred stock cash dividends (a)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(17,050

)

 

 

—

 

 

 

—

 

 

 

(17,050

)

Stock-based compensation transactions, net

 

 

—

 

 

 

—

 

 

 

19

 

 

 

10,504

 

 

 

(104

)

 

 

—

 

 

 

1,483

 

 

 

11,902

 

Common stock cash dividends —

   $1.10 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(141,953

)

 

 

—

 

 

 

—

 

 

 

(141,953

)

Balance — September 30, 2020

 

$

1,250,000

 

 

 

79,871

 

 

 

1,327

 

 

 

6,609,573

 

 

 

13,132,374

 

 

 

175,503

 

 

 

(5,147,635

)

 

$

16,101,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2020

 

$

1,250,000

 

 

 

79,871

 

 

 

1,566

 

 

 

6,593,539

 

 

 

12,820,916

 

 

 

(206,680

)

 

 

(4,822,563

)

 

$

15,716,649

 

Adoption of new accounting standard for

   credit losses

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(91,925

)

 

 

—

 

 

 

—

 

 

 

(91,925

)

Total comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

882,012

 

 

 

382,183

 

 

 

—

 

 

 

1,264,195

 

Preferred stock cash dividends (a)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(51,178

)

 

 

—

 

 

 

—

 

 

 

(51,178

)

Purchases of treasury stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(373,750

)

 

 

(373,750

)

Stock-based compensation transactions, net

 

 

—

 

 

 

—

 

 

 

(239

)

 

 

16,034

 

 

 

(310

)

 

 

—

 

 

 

48,678

 

 

 

64,163

 

Common stock cash dividends —

   $3.30 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(427,141

)

 

 

—

 

 

 

—

 

 

 

(427,141

)

Balance — September 30, 2020

 

$

1,250,000

 

 

 

79,871

 

 

 

1,327

 

 

 

6,609,573

 

 

 

13,132,374

 

 

 

175,503

 

 

 

(5,147,635

)

 

$

16,101,013

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — July 1, 2019

 

$

1,231,500

 

 

 

79,871

 

 

 

1,526

 

 

 

6,577,603

 

 

 

12,162,278

 

 

 

(112,958

)

 

 

(4,247,993

)

 

$

15,691,827

 

Total comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

480,081

 

 

 

32,650

 

 

 

—

 

 

 

512,731

 

Preferred stock cash dividends (a)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(19,144

)

 

 

—

 

 

 

—

 

 

 

(19,144

)

Redemption of Series A and Series C preferred stock

 

 

(381,500

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(381,500

)

Issuance of Series G preferred stock

 

 

400,000

 

 

 

—

 

 

 

—

 

 

 

(4,000

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

396,000

 

Purchases of treasury stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(299,963

)

 

 

(299,963

)

Stock-based compensation transactions, net

 

 

—

 

 

 

—

 

 

 

21

 

 

 

11,102

 

 

 

(50

)

 

 

—

 

 

 

1,719

 

 

 

12,792

 

Common stock cash dividends —

   $1.00 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(132,932

)

 

 

—

 

 

 

—

 

 

 

(132,932

)

Balance — September 30, 2019

 

$

1,250,000

 

 

 

79,871

 

 

 

1,547

 

 

 

6,584,705

 

 

 

12,490,233

 

 

 

(80,308

)

 

 

(4,546,237

)

 

$

15,779,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2019

 

$

1,231,500

 

 

 

79,883

 

 

 

1,726

 

 

 

6,579,342

 

 

 

11,516,672

 

 

 

(420,081

)

 

 

(3,528,851

)

 

$

15,460,191

 

Total comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,436,083

 

 

 

339,773

 

 

 

—

 

 

 

1,775,856

 

Preferred stock cash dividends (a)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(55,404

)

 

 

—

 

 

 

—

 

 

 

(55,404

)

Redemption of Series A and Series C preferred stock

 

 

(381,500

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(381,500

)

Issuance of Series G preferred stock

 

 

400,000

 

 

 

—

 

 

 

—

 

 

 

(4,000

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

396,000

 

Purchases of treasury stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,067,575

)

 

 

(1,067,575

)

Stock-based compensation transactions, net

 

 

—

 

 

 

(12

)

 

 

(179

)

 

 

9,363

 

 

 

(151

)

 

 

—

 

 

 

50,189

 

 

 

59,210

 

Common stock cash dividends —

   $3.00 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(406,967

)

 

 

—

 

 

 

—

 

 

 

(406,967

)

Balance — September 30, 2019

 

$

1,250,000

 

 

 

79,871

 

 

 

1,547

 

 

 

6,584,705

 

 

 

12,490,233

 

 

 

(80,308

)

 

 

(4,546,237

)

 

$

15,779,811

 

 

 

(a)

For the three-month and nine-month periods ended September 30, 2020, dividends per preferred share were: Preferred Series E - $16.125 and $48.375, respectively; Preferred Series F - $128.125 and $384.375, respectively; and Preferred Series G - $125.00 and $375.694, respectively.  Dividends per preferred share for the three-month and nine-month periods ended September 30, 2019 were:  Preferred Series A - $15.9375 and $47.8125, respectively; Preferred Series C - $15.9375 and $47.8125, respectively; Preferred Series E - $16.125 and $48.375, respectively; and Preferred Series F - $128.125 and $384.375, respectively.

 

See accompanying notes to financial statements.

 

 

- 7 -

 

NOTES TO FINANCIAL STATEMENTS

 

1. Significant accounting policies and current environment

The consolidated interim financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in Form 10-K for the year ended December 31, 2019 (“2019 Annual Report”), except that effective January 1, 2020 the Company adopted accounting guidance related to the recognition of expected credit losses that is discussed in notes 2, 3 and 15 herein. 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.

The United States has been operating under a state of emergency related to the Coronavirus Disease 2019 (“COVID-19”) pandemic since March 13, 2020.  The direct and indirect effects of the COVID-19 pandemic resulted in a dramatic reduction in economic activity that severely hampered the ability for businesses and consumers to meet their repayment obligations. The effects of the pandemic contributed to a significant increase in the provision for credit losses during the first nine months of 2020. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), in addition to providing financial assistance to both businesses and consumers, creates a forbearance program for federally-backed mortgage loans, protects borrowers from negative credit  reporting due to loan  accommodations related to the national  emergency, and provides financial  institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings to account for the effects of COVID-19. The bank regulatory agencies likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board, and provisions of the CARES Act allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings nor be reported as past due. Modifications may include payment deferrals, fee waivers, extensions of repayment term, or other delays in payment. The Company has been working with its customers affected by COVID-19 and has granted modifications across many of its loan portfolios. To the extent that such modifications meet the criteria previously described, the modified loans have not been classified as troubled debt restructurings nor reported as past due.

- 8 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

2. Investment securities

The amortized cost and estimated fair value of investment securities were as follows:

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

9,154

 

 

$

226

 

 

$

10

 

 

$

9,370

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

4,944,979

 

 

 

221,561

 

 

 

839

 

 

 

5,165,701

 

Privately issued

 

 

16

 

 

 

—

 

 

 

—

 

 

 

16

 

Other debt securities

 

 

135,915

 

 

 

1,328

 

 

 

9,992

 

 

 

127,251

 

 

 

 

5,090,064

 

 

 

223,115

 

 

 

10,841

 

 

 

5,302,338

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

3,000

 

 

 

—

 

 

 

—

 

 

 

3,000

 

Obligations of states and political subdivisions

 

 

1,855

 

 

 

10

 

 

 

—

 

 

 

1,865

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

1,850,864

 

 

 

100,104

 

 

 

92

 

 

 

1,950,876

 

Privately issued

 

 

80,013

 

 

 

11,010

 

 

 

17,800

 

 

 

73,223

 

Other debt securities

 

 

2,962

 

 

 

—

 

 

 

—

 

 

 

2,962

 

 

 

 

1,938,694

 

 

 

111,124

 

 

 

17,892

 

 

 

2,031,926

 

Total debt securities

 

$

7,028,758

 

 

$

334,239

 

 

$

28,733

 

 

$

7,334,264

 

Equity and other securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Readily marketable equity — at fair value

 

$

77,708

 

 

$

23,474

 

 

$

—

 

 

$

101,182

 

Other — at cost

 

 

380,790

 

 

 

—

 

 

 

—

 

 

 

380,790

 

Total equity and other securities

 

$

458,498

 

 

$

23,474

 

 

$

—

 

 

$

481,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

9,742

 

 

$

41

 

 

$

16

 

 

$

9,767

 

Obligations of states and political subdivisions

 

 

776

 

 

 

2

 

 

 

3

 

 

 

775

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

6,113,913

 

 

 

88,634

 

 

 

21,607

 

 

 

6,180,940

 

Privately issued

 

 

16

 

 

 

—

 

 

 

—

 

 

 

16

 

Other debt securities

 

 

133,829

 

 

 

2,046

 

 

 

8,597

 

 

 

127,278

 

 

 

 

6,258,276

 

 

 

90,723

 

 

 

30,223

 

 

 

6,318,776

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

249,862

 

 

 

286

 

 

 

—

 

 

 

250,148

 

Obligations of states and political subdivisions

 

 

4,140

 

 

 

16

 

 

 

—

 

 

 

4,156

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

2,306,180

 

 

 

50,381

 

 

 

1,992

 

 

 

2,354,569

 

Privately issued

 

 

93,496

 

 

 

11,779

 

 

 

18,181

 

 

 

87,094

 

Other debt securities

 

 

3,239

 

 

 

—

 

 

 

—

 

 

 

3,239

 

 

 

 

2,656,917

 

 

 

62,462

 

 

 

20,173

 

 

 

2,699,206

 

Total debt securities

 

$

8,915,193

 

 

$

153,185

 

 

$

50,396

 

 

$

9,017,982

 

Equity and other securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Readily marketable equity — at fair value

 

$

105,524

 

 

$

34,786

 

 

$

269

 

 

$

140,041

 

Other — at cost

 

 

381,517

 

 

 

—

 

 

 

—

 

 

 

381,517

 

Total equity and other securities

 

$

487,041

 

 

$

34,786

 

 

$

269

 

 

$

521,558

 

 

- 9 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

2. Investment securities, continued

There were no significant gross realized gains or losses from sales of investment securities for the three-month and nine-month periods ended September 30, 2020 and 2019. Unrealized gains on equity securities during the three months ended September 30, 2020 were $3 million and unrealized losses during the nine months ended September 30, 2020 were $11 million, compared with unrealized gains of $4 million and $24 million during the three months and nine months ended September 30, 2019, respectively.

At September 30, 2020, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:

 

 

Amortized

Cost

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

Debt securities available for sale:

 

 

 

 

 

 

 

 

Due in one year or less

 

$

5,197

 

 

 

5,207

 

Due after one year through five years

 

 

11,446

 

 

 

12,009

 

Due after five years through ten years

 

 

98,426

 

 

 

95,033

 

Due after ten years

 

 

30,000

 

 

 

24,372

 

 

 

 

145,069

 

 

 

136,621

 

Mortgage-backed securities available for sale

 

 

4,944,995

 

 

 

5,165,717

 

 

 

$

5,090,064

 

 

 

5,302,338

 

Debt securities held to maturity:

 

 

 

 

 

 

 

 

Due in one year or less

 

$

4,680

 

 

 

4,688

 

Due after one year through five years

 

 

175

 

 

 

177

 

Due after ten years

 

 

2,962

 

 

 

2,962

 

 

 

 

7,817

 

 

 

7,827

 

Mortgage-backed securities held to maturity

 

 

1,930,877

 

 

 

2,024,099

 

 

 

$

1,938,694

 

 

 

2,031,926

 

- 10 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

 2. Investment securities, continued

A summary of investment securities that as of September 30, 2020 and December 31, 2019 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

 

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

985

 

 

 

(10

)

 

 

—

 

 

 

—

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

20,313

 

 

 

(364

)

 

 

21,735

 

 

 

(475

)

Other debt securities

 

 

42,385

 

 

 

(1,087

)

 

 

62,659

 

 

 

(8,905

)

 

 

 

63,683

 

 

 

(1,461

)

 

 

84,394

 

 

 

(9,380

)

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

11,357

 

 

 

(92

)

 

 

—

 

 

 

—

 

Privately issued

 

 

7,476

 

 

 

(32

)

 

 

46,048

 

 

 

(17,768

)

 

 

 

18,833

 

 

 

(124

)

 

 

46,048

 

 

 

(17,768

)

Total

 

$

82,516

 

 

 

(1,585

)

 

 

130,442

 

 

 

(27,148

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

1,406

 

 

 

(7

)

 

 

2,893

 

 

 

(9

)

Obligations of states and political subdivisions

 

 

—

 

 

 

—

 

 

 

277

 

 

 

(3

)

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

117,299

 

 

 

(222

)

 

 

2,002,364

 

 

 

(21,385

)

Other debt securities

 

 

6,600

 

 

 

(354

)

 

 

56,313

 

 

 

(8,243

)

 

 

 

125,305

 

 

 

(583

)

 

 

2,061,847

 

 

 

(29,640

)

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

2,727

 

 

 

(5

)

 

 

145,235

 

 

 

(1,987

)

Privately issued

 

 

—

 

 

 

—

 

 

 

49,656

 

 

 

(18,181

)

 

 

 

2,727

 

 

 

(5

)

 

 

194,891

 

 

 

(20,168

)

Total

 

$

128,032

 

 

 

(588

)

 

 

2,256,738

 

 

 

(49,808

)

 

 

The Company owned 290 individual debt securities with aggregate gross unrealized losses of $29 million at September 30, 2020. Based on a review of each of the securities in the investment securities portfolio at September 30, 2020, the Company concluded that it expected to recover the amortized cost basis of its investment.  As of September 30, 2020, 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 September 30, 2020, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $381 million of cost method equity securities.

 

- 11 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

2. Investment securities, continued

As described in notes 3 and 15, on January 1, 2020 the Company adopted amended accounting guidance that requires an allowance for credit losses be deducted from the amortized cost basis of financial assets, including investment securities held to maturity, to present the net carrying value at the amount that is expected to be collected over their contractual term.  The Company estimated no material allowance for credit losses for its investment securities classified as held-to-maturity at January 1, 2020 or September 30, 2020, as the substantial majority of such investment securities are obligations backed by the U.S. government or its agencies.

3. Loans and leases and the allowance for credit losses

Effective January 1, 2020 the Company adopted amended accounting guidance which requires an allowance for credit losses be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over their contractual term considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.  The amended guidance also requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination.  The initial allowance for these assets will be added to the purchase price at acquisition rather than being reported as an expense.  Subsequent changes in the allowance will be recorded in the income statement as an adjustment to the provision for credit losses.  The new guidance replaced the previous incurred loss model for determining the allowance for credit losses.  The adoption resulted in a $132 million increase in the allowance for credit losses at January 1, 2020.  Prior to January 1, 2020, the Company generally recognized the excess of cash flows expected at acquisition over the estimated fair value of the acquired loans as interest income over the remaining lives of such loans regardless of the borrowers’ repayment status. Effective with the adoption of the new accounting standard, the Company’s nonaccrual loan policy now applies to loans acquired at a discount.  That change added $171 million to nonaccrual loans as of the January 1, 2020 adoption date.

Past due and nonaccrual loans

A summary of current, past due and nonaccrual loans as of  September 30, 2020 and December 31, 2019 follows:

 

 

 

Current

 

 

30-89 Days

Past Due

 

 

Accruing

Loans Past

Due 90

Days or

More

 

 

Nonaccrual

 

 

Total

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

27,249,552

 

 

 

282,917

 

 

 

8,551

 

 

 

350,628

 

 

$

27,891,648

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

27,250,676

 

 

 

197,881

 

 

 

8,189

 

 

 

252,515

 

 

 

27,709,261

 

Residential builder and developer

 

 

1,353,863

 

 

 

7,282

 

 

 

—

 

 

 

1,833

 

 

 

1,362,978

 

Other commercial construction

 

 

8,405,525

 

 

 

66,599

 

 

 

94

 

 

 

37,627

 

 

 

8,509,845

 

Residential

 

 

13,934,309

 

 

 

185,420

 

 

 

503,450

 

 

 

297,636

 

 

 

14,920,815

 

Residential — limited documentation

 

 

1,606,130

 

 

 

20,980

 

 

 

—

 

 

 

115,783

 

 

 

1,742,893

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

4,000,829

 

 

 

22,209

 

 

 

—

 

 

 

78,820

 

 

 

4,101,858

 

Recreational finance

 

 

6,838,126

 

 

 

36,003

 

 

 

—

 

 

 

24,191

 

 

 

6,898,320

 

Automobile

 

 

3,829,968

 

 

 

42,906

 

 

 

—

 

 

 

42,374

 

 

 

3,915,248

 

Other

 

 

1,337,042

 

 

 

11,601

 

 

 

6,974

 

 

 

38,565

 

 

 

1,394,182

 

Total

 

$

95,806,020

 

 

 

873,798

 

 

 

527,258

 

 

 

1,239,972

 

 

$

98,447,048

 

 

- 12 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

 

 

Current

 

 

30-89 Days

Past Due

 

 

Accruing

Loans Past

Due 90

Days or

More (a)

 

 

Accruing

Loans

Acquired at

a Discount

Past Due

90 days

or More (b)

 

 

Purchased

Impaired (c)

 

 

Nonaccrual

 

 

Total

 

 

 

(In thousands)

 

December 31, 2019

 

 

 

Commercial, financial, leasing, etc.

 

$

23,290,797

 

 

 

184,011

 

 

 

16,776

 

 

 

27

 

 

 

—

 

 

 

346,557

 

 

$

23,838,168

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

26,311,414

 

 

 

165,579

 

 

 

6,740

 

 

 

—

 

 

 

15,601

 

 

 

158,474

 

 

 

26,657,808

 

Residential builder and developer

 

 

1,521,315

 

 

 

21,195

 

 

 

—

 

 

 

—

 

 

 

753

 

 

 

3,982

 

 

 

1,547,245

 

Other commercial construction

 

 

7,204,148

 

 

 

95,346

 

 

 

3,360

 

 

 

—

 

 

 

1,237

 

 

 

32,770

 

 

 

7,336,861

 

Residential

 

 

12,760,040

 

 

 

451,274

 

 

 

486,515

 

 

 

5,788

 

 

 

143,145

 

 

 

235,663

 

 

 

14,082,425

 

Residential — limited

   documentation

 

 

1,858,037

 

 

 

65,215

 

 

 

181

 

 

 

—

 

 

 

66,809

 

 

 

83,427

 

 

 

2,073,669

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

4,386,511

 

 

 

30,229

 

 

 

—

 

 

 

1,662

 

 

 

—

 

 

 

63,215

 

 

 

4,481,617

 

Recreational finance

 

 

5,484,997

 

 

 

36,827

 

 

 

—

 

 

 

99

 

 

 

—

 

 

 

14,219

 

 

 

5,536,142

 

Automobile

 

 

3,787,221

 

 

 

78,478

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21,293

 

 

 

3,886,992

 

Other

 

 

1,395,240

 

 

 

45,978

 

 

 

5,156

 

 

 

32,056

 

 

 

—

 

 

 

3,512

 

 

 

1,481,942

 

Total

 

$

87,999,720

 

 

 

1,174,132

 

 

 

518,728

 

 

 

39,632

 

 

 

227,545

 

 

 

963,112

 

 

$

90,922,869

 

(a)

Excludes loans acquired at a discount.

(b)

Loans acquired at a discount that were recorded at fair value at acquisition date.  This category does not include purchased impaired loans that are presented separately.

(c)

Accruing loans acquired at a discount that were impaired at acquisition date and recorded at fair value.

A summary of outstanding loan balances for which COVID-19 related modifications were granted as of September 30, 2020 and June 30, 2020 is presented below. These loans meet the criteria described in note 1 and, as such, are not considered past due or otherwise in default of loan terms as of the dates presented.

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

June 30, 2020

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

815,186

 

 

$

5,302,196

 

Real estate:

 

 

 

 

 

 

 

 

Commercial

 

 

4,452,846

 

 

 

7,802,006

 

Residential builder and developer

 

 

1,473

 

 

 

18,253

 

Other commercial construction

 

 

671,378

 

 

 

861,536

 

Residential

 

 

2,852,740

 

 

 

1,737,483

 

Residential — limited documentation

 

 

454,378

 

 

 

538,671

 

Consumer:

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

25,658

 

 

 

88,162

 

Recreational finance

 

 

39,754

 

 

 

254,205

 

Automobile

 

 

62,871

 

 

 

326,113

 

Other

 

 

2,336

 

 

 

16,611

 

Total

 

$

9,378,620

 

 

$

16,945,236

 

Substantially all of the loan modifications outstanding at September 30, 2020 are scheduled to expire in the fourth quarter of 2020. Should borrowers request further forbearance, the credit quality of the loans and the ability and willingness of borrowers to repay such loans will be re-assessed to determine whether the Company expects to receive all principal and interest payments due.

- 13 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

One-to-four family residential mortgage loans held for sale were $571 million and $414 million at September 30, 2020 and December 31, 2019, respectively.  Commercial real estate loans held for sale were $336 million at September 30, 2020 and $28 million at December 31, 2019.

 

The outstanding principal balance and the carrying amount of loans acquired at a discount that were recorded at fair value at the acquisition date for which interest income was recognized based on expected future cash flows that were included in the consolidated balance sheet at December 31, 2019 were as follows:  

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

Outstanding principal balance

 

$

769,414

 

Carrying amount:

 

 

 

 

Commercial, financial, leasing, etc.

 

 

21,114

 

Commercial real estate

 

 

94,890

 

Residential real estate

 

 

341,807

 

Consumer

 

 

77,785

 

 

 

$

535,596

 

 

Purchased impaired loans included in the table above totaled  $228 million at December 31, 2019, representing less than 1% of the Company’s assets at that date.  A summary of changes in the accretable yield for loans acquired at a discount for the three months and nine months ended September 30, 2019 follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

September 30, 2019

 

 

Nine Months Ended

September 30, 2019

 

 

 

Purchased

 

 

Other

 

 

Purchased

 

 

Other

 

 

 

Impaired

 

 

Acquired

 

 

Impaired

 

 

Acquired

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

147,104

 

 

$

90,911

 

 

$

147,210

 

 

$

96,907

 

Interest income

 

 

(9,564

)

 

 

(9,238

)

 

 

(37,278

)

 

 

(28,621

)

Reclassifications from nonaccretable balance

 

 

9,079

 

 

 

3,990

 

 

 

36,687

 

 

 

12,312

 

Other (a)

 

 

—

 

 

 

41

 

 

 

—

 

 

 

5,106

 

Balance at end of period

 

$

146,619

 

 

$

85,704

 

 

$

146,619

 

 

$

85,704

 

 

(a)

Other changes in expected cash flows included changes in interest rates and prepayment assumptions.

Credit quality indicators

The Company utilizes a loan grading system to differentiate risk amongst its commercial loans and commercial real estate loans.  Loans with a lower expectation of default are assigned one of ten possible “pass” loan grades 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.

Loan officers in different geographic locations with the support of the Company’s credit department personnel continuously 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

 

- 14 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

operating results, collateral values, geographic location, financial condition and performance, payment status, and other information.  At least annually, updated financial information is obtained from commercial borrowers associated with pass grade loans and additional analysis is performed.  On a quarterly basis, the Company’s centralized credit department reviews all criticized commercial loans and commercial real estate loans greater than $1 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 September 30, 2020 to the various classes of the Company’s commercial loans and commercial real estate loans by origination year.

 

 

 

Term Loans by Origination Year

 

 

Revolving

 

 

Revolving Loans Converted to Term

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Loans

 

 

Loans

 

 

Total

 

 

 

(In thousands)

 

Commercial, financial, leasing, etc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Loan grades:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Pass

 

$

8,209,336

 

 

 

2,387,719

 

 

 

1,638,389

 

 

 

1,001,452

 

 

 

816,518

 

 

 

1,488,463

 

 

 

10,444,292

 

 

 

27,536

 

 

$

26,013,705

 

          Criticized accrual

 

 

389,682

 

 

 

75,106

 

 

 

141,774

 

 

 

50,144

 

 

 

45,345

 

 

 

57,137

 

 

 

758,594

 

 

 

9,533

 

 

 

1,527,315

 

          Criticized nonaccrual

 

 

2,793

 

 

 

23,546

 

 

 

49,840

 

 

 

16,456

 

 

 

18,790

 

 

 

66,410

 

 

 

165,625

 

 

 

7,168

 

 

 

350,628

 

Total commercial, financial,

   leasing, etc.

 

$

8,601,811

 

 

 

2,486,371

 

 

 

1,830,003

 

 

 

1,068,052

 

 

 

880,653

 

 

 

1,612,010

 

 

 

11,368,511

 

 

 

44,237

 

 

$

27,891,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Loan grades:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Pass

 

$

2,773,454

 

 

 

4,911,992

 

 

 

3,458,071

 

 

 

2,851,599

 

 

 

2,823,120

 

 

 

6,188,879

 

 

 

810,180

 

 

 

—

 

 

$

23,817,295

 

          Criticized accrual

 

 

343,722

 

 

 

436,191

 

 

 

531,848

 

 

 

294,994

 

 

 

728,208

 

 

 

1,252,953

 

 

 

51,535

 

 

 

—

 

 

 

3,639,451

 

          Criticized nonaccrual

 

 

242

 

 

 

43,342

 

 

 

5,168

 

 

 

31,506

 

 

 

21,507

 

 

 

149,629

 

 

 

1,121

 

 

 

—

 

 

 

252,515

 

Total commercial real estate

 

$

3,117,418

 

 

 

5,391,525

 

 

 

3,995,087

 

 

 

3,178,099

 

 

 

3,572,835

 

 

 

7,591,461

 

 

 

862,836

 

 

 

—

 

 

$

27,709,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential builder and developer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Loan grades:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Pass

 

$

399,778

 

 

 

399,923

 

 

 

207,188

 

 

 

26,378

 

 

 

11,668

 

 

 

14,190

 

 

 

233,182

 

 

 

—

 

 

$

1,292,307

 

          Criticized accrual

 

 

32,441

 

 

 

12,744

 

 

 

15,255

 

 

 

3,421

 

 

 

—

 

 

 

1,410

 

 

 

3,567

 

 

 

—

 

 

 

68,838

 

          Criticized nonaccrual

 

 

—

 

 

 

518

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,315

 

 

 

—

 

 

 

—

 

 

 

1,833

 

Total residential builder and

   developer

 

$

432,219

 

 

 

413,185

 

 

 

222,443

 

 

 

29,799

 

 

 

11,668

 

 

 

16,915

 

 

 

236,749

 

 

 

—

 

 

$

1,362,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other commercial construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Loan grades:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Pass

 

$

721,942

 

 

 

2,613,554

 

 

 

2,229,748

 

 

 

1,137,823

 

 

 

352,930

 

 

 

299,184

 

 

 

77,873

 

 

 

—

 

 

$

7,433,054

 

          Criticized accrual

 

 

26,338

 

 

 

223,956

 

 

 

365,284

 

 

 

243,108

 

 

 

166,048

 

 

 

14,430

 

 

 

—

 

 

 

—

 

 

 

1,039,164

 

          Criticized nonaccrual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,340

 

 

 

3,254

 

 

 

24,913

 

 

 

5,120

 

 

 

—

 

 

 

37,627

 

Total other commercial

   construction

 

$

748,280

 

 

 

2,837,510

 

 

 

2,595,032

 

 

 

1,385,271

 

 

 

522,232

 

 

 

338,527

 

 

 

82,993

 

 

 

—

 

 

$

8,509,845

 

 

Increases to criticized loans during 2020 were predominantly attributable to effects of the COVID-19 pandemic and the related re-grading of loans.

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 September 30, 2020 for the various classes of the Company’s residential real estate loans and consumer loans by origination year is as follows.

- 15 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

 

 

 

Term Loans by Origination Year

 

 

Revolving

 

 

Revolving Loans Converted to Term

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Loans

 

 

Loans

 

 

Total

 

 

 

(In thousands)

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Current

 

$

2,089,095

 

 

 

1,489,244

 

 

 

664,588

 

 

 

1,282,631

 

 

 

756,137

 

 

 

7,583,780

 

 

 

68,834

 

 

 

—

 

 

$

13,934,309

 

          30-89 days past due

 

 

4,319

 

 

 

8,534

 

 

 

5,234

 

 

 

17,517

 

 

 

6,758

 

 

 

143,058

 

 

 

—

 

 

 

—

 

 

 

185,420

 

          Accruing loans past due 90

            days or more

 

 

387

 

 

 

9,213

 

 

 

26,596

 

 

 

124,510

 

 

 

30,048

 

 

 

312,696

 

 

 

—

 

 

 

—

 

 

 

503,450

 

          Nonaccrual

 

 

761

 

 

 

4,590

 

 

 

1,653

 

 

 

5,257

 

 

 

1,002

 

 

 

284,167

 

 

 

206

 

 

 

—

 

 

 

297,636

 

Total residential

 

$

2,094,562

 

 

 

1,511,581

 

 

 

698,071

 

 

 

1,429,915

 

 

 

793,945

 

 

 

8,323,701

 

 

 

69,040

 

 

 

—

 

 

$

14,920,815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential - limited documentation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Current

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,606,130

 

 

 

—

 

 

 

—

 

 

$

1,606,130

 

          30-89 days past due

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,980

 

 

 

—

 

 

 

—

 

 

 

20,980

 

          Accruing loans past due 90

            days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

          Nonaccrual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

115,783

 

 

 

—

 

 

 

—

 

 

 

115,783

 

Total residential - limited

   documentation

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,742,893

 

 

 

—

 

 

 

—

 

 

$

1,742,893

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Current

 

$

668

 

 

 

4,357

 

 

 

1,961

 

 

 

2,155

 

 

 

163

 

 

 

57,998

 

 

 

2,622,825

 

 

 

1,310,702

 

 

$

4,000,829

 

          30-89 days past due

 

 

—

 

 

 

—

 

 

 

72

 

 

 

—

 

 

 

—

 

 

 

1,809

 

 

 

1,374

 

 

 

18,954

 

 

 

22,209

 

          Accruing loans past due 90

            days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

          Nonaccrual

 

 

—

 

 

 

20

 

 

 

—

 

 

 

52

 

 

 

—

 

 

 

5,018

 

 

 

6,988

 

 

 

66,742

 

 

 

78,820

 

Total home equity lines and loans

 

$

668

 

 

 

4,377

 

 

 

2,033

 

 

 

2,207

 

 

 

163

 

 

 

64,825

 

 

 

2,631,187

 

 

 

1,396,398

 

 

$

4,101,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 16 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

 

 

Term Loans by Origination Year

 

 

Revolving

 

 

Revolving Loans Converted to Term

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Loans

 

 

Loans

 

 

Total

 

 

 

(In thousands)

 

Recreational finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Current

 

$

2,323,314

 

 

 

1,881,732

 

 

 

969,243

 

 

 

674,896

 

 

 

379,441

 

 

 

609,500

 

 

 

—

 

 

 

—

 

 

$

6,838,126

 

          30-89 days past due

 

 

5,130

 

 

 

9,073

 

 

 

6,755

 

 

 

5,091

 

 

 

3,168

 

 

 

6,786

 

 

 

—

 

 

 

—

 

 

 

36,003

 

          Accruing loans past due

             90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

          Nonaccrual

 

 

1,314

 

 

 

3,961

 

 

 

3,790

 

 

 

4,175

 

 

 

2,379

 

 

 

8,572

 

 

 

—

 

 

 

—

 

 

 

24,191

 

Total recreational finance

 

$

2,329,758

 

 

 

1,894,766

 

 

 

979,788

 

 

 

684,162

 

 

 

384,988

 

 

 

624,858

 

 

 

—

 

 

 

—

 

 

$

6,898,320

 

Automobile:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Current

 

$

1,084,223

 

 

 

1,223,790

 

 

 

711,515

 

 

 

513,607

 

 

 

208,741

 

 

 

88,092

 

 

 

—

 

 

 

—

 

 

$

3,829,968

 

          30-89 days past due

 

 

2,884

 

 

 

10,573

 

 

 

11,193

 

 

 

10,126

 

 

 

5,170

 

 

 

2,960

 

 

 

—

 

 

 

—

 

 

 

42,906

 

          Accruing loans past due

             90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

          Nonaccrual

 

 

1,244

 

 

 

7,754

 

 

 

11,224

 

 

 

11,010

 

 

 

6,461

 

 

 

4,681

 

 

 

—

 

 

 

—

 

 

 

42,374

 

Total automobile

 

$

1,088,351

 

 

 

1,242,117

 

 

 

733,932

 

 

 

534,743

 

 

 

220,372

 

 

 

95,733

 

 

 

—

 

 

 

—

 

 

$

3,915,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Current

 

$

132,769

 

 

 

154,094

 

 

 

62,966

 

 

 

39,231

 

 

 

6,252

 

 

 

31,356

 

 

 

908,567

 

 

 

1,807

 

 

$

1,337,042

 

          30-89 days past due

 

 

1,874

 

 

 

890

 

 

 

537

 

 

 

243

 

 

 

29

 

 

 

570

 

 

 

6,954

 

 

 

504

 

 

 

11,601

 

          Accruing loans past due

             90 days or more

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

287

 

 

 

6,687

 

 

 

—

 

 

 

6,974

 

          Nonaccrual

 

 

1,540

 

 

 

446

 

 

 

442

 

 

 

226

 

 

 

43

 

 

 

383

 

 

 

35,186

 

 

 

299

 

 

 

38,565

 

Total other

 

$

136,183

 

 

 

155,430

 

 

 

63,945

 

 

 

39,700

 

 

 

6,324

 

 

 

32,596

 

 

 

957,394

 

 

 

2,610

 

 

$

1,394,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases at

   September 30, 2020

 

$

18,549,250

 

 

 

15,936,862

 

 

 

11,120,334

 

 

 

8,351,948

 

 

 

6,393,180

 

 

 

20,443,519

 

 

 

16,208,710

 

 

 

1,443,245

 

 

$

98,447,048

 

 

The following table summarizes the loan grades applied at December 31, 2019 to the various classes of the Company’s commercial loans and commercial real estate loans.

 

 

 

 

 

 

Real Estate

 

 

 

Commercial,

 

 

 

 

 

 

Residential

 

 

Other

 

 

 

Financial,

 

 

 

 

 

 

Builder and

 

 

Commercial

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Developer

 

 

Construction

 

 

 

(In thousands)

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

22,595,821

 

 

 

25,728,725

 

 

 

1,419,162

 

 

 

7,092,799

 

Criticized accrual

 

 

895,790

 

 

 

770,609

 

 

 

124,101

 

 

 

211,292

 

Criticized nonaccrual

 

 

346,557

 

 

 

158,474

 

 

 

3,982

 

 

 

32,770

 

Total

 

$

23,838,168

 

 

 

26,657,808

 

 

 

1,547,245

 

 

 

7,336,861

 

 

- 17 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

Allowance for credit losses

For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type.  Changes in the allowance for credit losses for the three months ended September 30, 2020 were as follows:

 

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

398,257

 

 

 

576,321

 

 

 

118,921

 

 

 

544,737

 

 

$

1,638,236

 

Provision for credit losses

 

 

25,450

 

 

 

87,403

 

 

 

(683

)

 

 

37,830

 

 

 

150,000

 

Net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(14,434

)

 

 

(4,522

)

 

 

(1,516

)

 

 

(31,754

)

 

 

(52,226

)

Recoveries

 

 

4,475

 

 

 

2,578

 

 

 

960

 

 

 

14,482

 

 

 

22,495

 

Net charge-offs

 

 

(9,959

)

 

 

(1,944

)

 

 

(556

)

 

 

(17,272

)

 

 

(29,731

)

Ending balance

 

$

413,748

 

 

 

661,780

 

 

 

117,682

 

 

 

565,295

 

 

$

1,758,505

 

Changes in the allowance for credit losses for the three months ended September 30, 2019 were as follows:

 

 

 

Commercial, Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

335,855

 

 

 

343,296

 

 

 

61,011

 

 

 

211,220

 

 

 

78,485

 

 

$

1,029,867

 

Provision for credit losses

 

 

24,538

 

 

 

(16,713

)

 

 

(309

)

 

 

37,735

 

 

 

(251

)

 

 

45,000

 

Net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(15,678

)

 

 

(1,107

)

 

 

(2,721

)

 

 

(40,735

)

 

 

—

 

 

 

(60,241

)

Recoveries

 

 

6,730

 

 

 

1,656

 

 

 

1,511

 

 

 

13,914

 

 

 

—

 

 

 

23,811

 

Net (charge-offs) recoveries

 

 

(8,948

)

 

 

549

 

 

 

(1,210

)

 

 

(26,821

)

 

 

—

 

 

 

(36,430

)

Ending balance

 

$

351,445

 

 

 

327,132

 

 

 

59,492

 

 

 

222,134

 

 

 

78,234

 

 

$

1,038,437

 

 

Changes in the allowance for credit losses for the nine months ended September 30, 2020 were as follows:

 

 

Commercial, Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

366,094

 

 

 

322,201

 

 

 

56,033

 

 

 

229,118

 

 

 

77,625

 

 

$

1,051,071

 

Adoption of new accounting standard

 

 

(61,474

)

 

 

23,656

 

 

 

53,896

 

 

 

194,004

 

 

 

(77,625

)

 

 

132,457

 

Provision for credit losses

 

 

161,444

 

 

 

335,159

 

 

 

11,458

 

 

 

216,939

 

 

 

—

 

 

 

725,000

 

Net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(63,425

)

 

 

(23,266

)

 

 

(8,227

)

 

 

(116,409

)

 

 

—

 

 

 

(211,327

)

Recoveries

 

 

11,109

 

 

 

4,030

 

 

 

4,522

 

 

 

41,643

 

 

 

—

 

 

 

61,304

 

Net charge-offs

 

 

(52,316

)

 

 

(19,236

)

 

 

(3,705

)

 

 

(74,766

)

 

 

—

 

 

 

(150,023

)

Ending balance

 

$

413,748

 

 

 

661,780

 

 

 

117,682

 

 

 

565,295

 

 

 

—

 

 

$

1,758,505

 

- 18 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

Changes in the allowance for credit losses for the nine months ended September 30, 2019 were as follows:

 

 

Commercial, Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

330,055

 

 

 

341,655

 

 

 

69,125

 

 

 

200,564

 

 

 

78,045

 

 

$

1,019,444

 

Provision for credit losses

 

 

41,146

 

 

 

(6,415

)

 

 

(5,132

)

 

 

92,212

 

 

 

189

 

 

 

122,000

 

Net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(40,786

)

 

 

(11,555

)

 

 

(9,356

)

 

 

(113,050

)

 

 

—

 

 

 

(174,747

)

Recoveries

 

 

21,030

 

 

 

3,447

 

 

 

4,855

 

 

 

42,408

 

 

 

—

 

 

 

71,740

 

Net charge-offs

 

 

(19,756

)

 

 

(8,108

)

 

 

(4,501

)

 

 

(70,642

)

 

 

—

 

 

 

(103,007

)

Ending balance

 

$

351,445

 

 

 

327,132

 

 

 

59,492

 

 

 

222,134

 

 

 

78,234

 

 

$

1,038,437

 

 

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.  A description of the methodologies used by the Company to estimate its allowance for credit losses prior to January 1, 2020 is included in note 4 of Notes to Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

In establishing the allowance for credit losses subsequent to December 31, 2019, the Company estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes and also estimates losses for loans and leases with similar risk characteristics on a collective basis. 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 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 department.  Accordingly, for real estate collateral securing larger nonaccrual commercial 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. Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.

- 19 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

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 and nine-month periods ended September 30, 2020 and 2019 follows.

 

 

September 30, 2020

 

 

June 30, 2020

 

 

January 1, 2020

 

 

Three Months Ended September 30,

2020

 

Nine Months

Ended September 30,

2020

 

 

 

Amortized Cost with Allowance

 

 

Amortized Cost without Allowance

 

 

Total

 

 

Amortized Cost

 

 

Amortized Cost

 

 

Interest Income Recognized

 

Interest Income Recognized

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

264,515

 

 

 

86,113

 

 

 

350,628

 

 

 

284,654

 

 

 

346,743

 

 

 

5,999

 

 

9,035

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

86,199

 

 

 

166,316

 

 

 

252,515

 

 

 

172,488

 

 

 

173,796

 

 

 

993

 

 

6,782

 

Residential builder and developer

 

 

1,833

 

 

 

—

 

 

 

1,833

 

 

 

1,748

 

 

 

4,708

 

 

 

114

 

 

173

 

Other commercial construction

 

 

15,441

 

 

 

22,186

 

 

 

37,627

 

 

 

85,426

 

 

 

35,881

 

 

 

232

 

 

6,809

 

Residential

 

 

66,302

 

 

 

231,334

 

 

 

297,636

 

 

 

306,907

 

 

 

322,504

 

 

 

3,410

 

 

15,258

 

Residential — limited documentation

 

 

29,824

 

 

 

85,959

 

 

 

115,783

 

 

 

118,695

 

 

 

114,667

 

 

 

114

 

 

571

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

36,134

 

 

 

42,686

 

 

 

78,820

 

 

 

77,094

 

 

 

65,039

 

 

 

1,017

 

 

3,236

 

Recreational finance

 

 

17,637

 

 

 

6,554

 

 

 

24,191

 

 

 

24,152

 

 

 

14,308

 

 

 

155

 

 

461

 

Automobile

 

 

37,355

 

 

 

5,019

 

 

 

42,374

 

 

 

42,736

 

 

 

21,293

 

 

 

47

 

 

139

 

Other

 

 

3,567

 

 

 

34,998

 

 

 

38,565

 

 

 

42,750

 

 

 

35,394

 

 

 

174

 

 

489

 

Total

 

$

558,807

 

 

 

681,165

 

 

 

1,239,972

 

 

 

1,156,650

 

 

 

1,134,333

 

 

 

12,255

 

 

42,953

 

- 20 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

 

 

September 30, 2019

 

 

June 30, 2019

 

 

January 1, 2019

 

 

Three Months Ended September 30,

2019

 

Nine Months

Ended September 30,

2019

 

 

 

Amortized Cost with Allowance

 

 

Amortized Cost without Allowance

 

 

Total

 

 

Amortized Cost

 

 

Amortized Cost

 

 

Interest Income Recognized

 

Interest Income Recognized

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

223,183

 

 

 

159,626

 

 

 

382,809

 

 

 

223,733

 

 

 

234,423

 

 

 

836

 

 

7,552

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

40,203

 

 

 

144,429

 

 

 

184,632

 

 

 

203,116

 

 

 

203,672

 

 

 

1,802

 

 

5,212

 

Residential builder and developer

 

 

1,596

 

 

 

3,379

 

 

 

4,975

 

 

 

5,985

 

 

 

4,798

 

 

 

89

 

 

308

 

Other commercial construction

 

 

15,501

 

 

 

15,940

 

 

 

31,441

 

 

 

32,769

 

 

 

22,205

 

 

 

488

 

 

1,669

 

Residential

 

 

57,070

 

 

 

166,496

 

 

 

223,566

 

 

 

210,922

 

 

 

233,352

 

 

 

3,425

 

 

10,014

 

Residential — limited documentation

 

 

27,803

 

 

 

53,876

 

 

 

81,679

 

 

 

87,551

 

 

 

84,685

 

 

 

269

 

 

795

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

23,908

 

 

 

36,007

 

 

 

59,915

 

 

 

66,927

 

 

 

71,292

 

 

 

1,846

 

 

4,617

 

Recreational finance

 

 

6,577

 

 

 

5,275

 

 

 

11,852

 

 

 

11,153

 

 

 

11,199

 

 

 

147

 

 

431

 

Automobile

 

 

14,596

 

 

 

6,443

 

 

 

21,039

 

 

 

20,170

 

 

 

23,359

 

 

 

54

 

 

161

 

Other

 

 

3,066

 

 

 

275

 

 

 

3,341

 

 

 

3,058

 

 

 

4,623

 

 

 

145

 

 

392

 

Total

 

$

413,503

 

 

 

591,746

 

 

 

1,005,249

 

 

 

865,384

 

 

 

893,608

 

 

 

9,101

 

 

31,151

 

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 inform the models, which have been statistically developed based on historical correlations of credit losses with prevailing economic metrics, including unemployment, gross domestic product 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 both January 1 and September 30, 2020, 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.  The Company also considered the impact of portfolio concentrations, changes in underwriting practices, product expansions into new markets, imprecision in its economic forecasts, geopolitical conditions and other risk factors that might influence its loss estimation process.

The Company’s reserve for off-balance sheet credit exposures was not material at September 30, 2020 and December 31, 2019.

Loan modifications

During the normal course of business, the Company modifies loans to maximize recovery efforts.  If the borrower is experiencing financial difficulty and a concession is granted, the Company considers such modifications as troubled debt restructurings and classifies those loans as either nonaccrual loans or renegotiated loans.  The types of concessions that the Company grants typically include principal deferrals and interest rate concessions, but may also include other types of concessions.

- 21 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

The table that follows summarizes the Company’s loan modification activities that were considered troubled debt restructurings for the three-month and nine-month periods ended September 30, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

Post-modification (a)

 

 

 

Number

 

 

Pre-

modification Recorded Investment

 

 

Principal Deferral

 

 

Interest Rate Reduction

 

 

Other

 

 

Combination of Concession Types

 

 

Total

 

Three Months Ended September 30, 2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

112

 

 

$

35,037

 

 

$

7,145

 

 

$

298

 

 

$

—

 

 

$

27,512

 

 

$

34,955

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

50

 

 

 

13,293

 

 

 

12,506

 

 

 

172

 

 

 

30

 

 

 

600

 

 

 

13,308

 

Residential

 

 

30

 

 

 

8,544

 

 

 

5,517

 

 

 

—

 

 

 

—

 

 

 

3,616

 

 

 

9,133

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

33

 

 

 

3,410

 

 

 

129

 

 

 

—

 

 

 

—

 

 

 

3,286

 

 

 

3,415

 

Recreational finance

 

 

74

 

 

 

2,734

 

 

 

2,734

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,734

 

Automobile

 

 

403

 

 

 

7,007

 

 

 

7,005

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

7,007

 

Other

 

 

383

 

 

 

3,046

 

 

 

142

 

 

 

—

 

 

 

—

 

 

 

2,904

 

 

 

3,046

 

Total

 

 

1,085

 

 

$

73,071

 

 

$

35,178

 

 

$

470

 

 

$

30

 

 

$

37,920

 

 

$

73,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

26

 

 

$

6,145

 

 

$

1,441

 

 

$

—

 

 

$

—

 

 

$

4,666

 

 

$

6,107

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

9

 

 

 

2,986

 

 

 

383

 

 

 

—

 

 

 

—

 

 

 

2,589

 

 

 

2,972

 

Residential

 

 

20

 

 

 

5,161

 

 

 

3,046

 

 

 

—

 

 

 

—

 

 

 

2,535

 

 

 

5,581

 

Residential — limited documentation

 

 

1

 

 

 

236

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

240

 

 

 

240

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

12

 

 

 

1,392

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,399

 

 

 

1,399

 

Recreational finance

 

 

3

 

 

 

61

 

 

 

61

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

61

 

Automobile

 

 

26

 

 

 

485

 

 

 

457

 

 

 

—

 

 

 

—

 

 

 

28

 

 

 

485

 

Total

 

 

97

 

 

$

16,466

 

 

$

5,388

 

 

$

—

 

 

$

—

 

 

$

11,457

 

 

$

16,845

 

 

- 22 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Loans and leases and the allowance for credit losses, continued

 

 

 

 

 

 

 

 

 

 

 

Post-modification (a)

 

 

 

Number

 

 

Pre-

modification Recorded Investment

 

 

Principal Deferral

 

 

Interest Rate Reduction

 

 

Other

 

 

Combination of Concession Types

 

 

Total

 

Nine Months Ended September 30, 2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

279

 

 

$

102,865

 

 

$

29,762

 

 

$

298

 

 

$

31,605

 

 

$

40,013

 

 

$

101,678

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

106

 

 

 

94,807

 

 

 

24,372

 

 

 

505

 

 

 

4,830

 

 

 

52,916

 

 

 

82,623

 

Residential builder and developer

 

 

1

 

 

 

91

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

90

 

 

 

90

 

Residential

 

 

82

 

 

 

27,594

 

 

 

11,865

 

 

 

—

 

 

 

—

 

 

 

19,126

 

 

 

30,991

 

Residential — limited documentation

 

 

9

 

 

 

2,980

 

 

 

2,667

 

 

 

—

 

 

 

—

 

 

 

1,232

 

 

 

3,899

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

159

 

 

 

11,719

 

 

 

688

 

 

 

—

 

 

 

—

 

 

 

11,057

 

 

 

11,745

 

Recreational finance

 

 

348

 

 

 

13,619

 

 

 

13,619

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

13,619

 

Automobile

 

 

1,873

 

 

 

33,541

 

 

 

33,539

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

33,541

 

Other

 

 

718

 

 

 

5,229

 

 

 

824

 

 

 

—

 

 

 

—

 

 

 

4,405

 

 

 

5,229

 

Total

 

 

3,575

 

 

$

292,445

 

 

$

117,336

 

 

$

803

 

 

$

36,435

 

 

$

128,841

 

 

$

283,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

115

 

 

$

39,357

 

 

$

8,582

 

 

$

—

 

 

$

—

 

 

$

30,827

 

 

$

39,409

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

38

 

 

 

22,567

 

 

 

3,947

 

 

 

—

 

 

 

—

 

 

 

18,197

 

 

 

22,144

 

Residential builder and developer

 

 

2

 

 

 

1,330

 

 

 

1,068

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,068

 

Other commercial construction

 

 

2

 

 

 

1,456

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

1,399

 

 

 

1,399

 

Residential

 

 

63

 

 

 

16,490

 

 

 

8,805

 

 

 

—

 

 

 

—

 

 

 

8,842

 

 

 

17,647

 

Residential — limited documentation

 

 

4

 

 

 

1,084

 

 

 

399

 

 

 

—

 

 

 

—

 

 

 

705

 

 

 

1,104

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

32

 

 

 

3,141

 

 

 

90

 

 

 

—

 

 

 

—

 

 

 

3,078

 

 

 

3,168

 

Recreational finance

 

 

8

 

 

 

164

 

 

 

164

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

164

 

Automobile

 

 

58

 

 

 

991

 

 

 

926

 

 

 

—

 

 

 

—

 

 

 

65

 

 

 

991

 

Total

 

 

322

 

 

$

86,580

 

 

$

23,981

 

 

$

—

 

 

$

—

 

 

$

63,113

 

 

$

87,094

 

(a)

Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages.  The present value of interest rate concessions, discounted at the effective rate of the original loan, was not material.

Troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.  Impairment of troubled debt restructurings that have subsequently defaulted may also be measured based on the loan’s observable market price or the fair value of collateral if the loan is collateral-dependent.  Charge-offs may also be recognized on troubled debt restructurings that have subsequently defaulted. Loans that were modified as troubled debt restructurings during the twelve months ended September 30, 2020 and 2019 and for which there was a subsequent payment default during the nine-month periods ended September 30, 2020 and 2019, respectively, were not material.

The amount of foreclosed residential real estate property held by the Company was $43 million and $76 million at September 30, 2020 and December 31, 2019, respectively. There were $231 million and $402 million at September 30, 2020 and December 31, 2019, respectively, of loans secured by residential real estate that were in the process of foreclosure. Of all loans in the process of foreclosure at September 30, 2020, approximately 42% were government guaranteed.

- 23 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Borrowings           

M&T had $527 million of fixed and variable rate junior subordinated deferrable interest debentures ("Junior Subordinated Debentures") outstanding at September 30, 2020 that are held by various trusts that were issued in connection with the issuance by those trusts of preferred capital securities ("Capital Securities") and common securities ("Common Securities").  The proceeds from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures.  The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust's securities possessing general voting powers.  The Capital Securities represent preferred undivided interests in the assets of the corresponding trust. Under the Federal Reserve Board’s risk-based capital guidelines, the securities are includable in M&T’s Tier 2 regulatory capital.

Holders of the Capital Securities receive preferential cumulative cash distributions unless M&T exercises its right to extend the payment of interest on the Junior Subordinated Debentures as allowed by the terms of each such debenture, in which case payment of distributions on the respective Capital Securities will be deferred for comparable periods. During an extended interest period, M&T may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock.  In general, the agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T of the payment of distributions on, the redemption of, and any liquidation distribution with respect to the Capital Securities. The obligations under such guarantee and the Capital Securities are subordinate and junior in right of payment to all senior indebtedness of M&T.

The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the trusts. The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates (ranging from 2027 to 2033) of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after an optional redemption prior to contractual maturity contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part, subject to possible regulatory approval.

On January 7, 2020, M&T Bank, the principal bank subsidiary of M&T, redeemed $750 million of fixed rate senior notes that were due to mature on February 6, 2020. In addition, M&T Bank redeemed $750 million of fixed rate senior notes on July 17, 2020 that were due to mature on August 17, 2020.

Also included in long-term borrowings was an agreement to repurchase securities that totaled $102 million at December 31, 2019.  The outstanding agreement matured in July 2020.  The agreement was subject to legally enforceable master netting arrangements, however, the Company did not offset any amounts related to the agreement in its consolidated financial statements.  The Company posted collateral consisting primarily of government guaranteed mortgage-backed securities of $108 million at December 31, 2019.

 

5. Revenue from contracts with customers

A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, mortgage banking revenues, trading account and foreign exchange gains, investment securities gains, loan and letter of credit fees, income from bank-owned life insurance, and certain other revenues that are generally excluded from the scope of accounting guidance for revenue from contracts with customers.

For noninterest income revenue streams, the Company recognizes the expected amount of consideration as revenue when the performance obligations related to the services under the terms of a contract are satisfied. The Company’s contracts generally do not contain terms that necessitate significant judgment to determine the amount of revenue to recognize.

- 24 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

5. Revenue from contracts with customers, continued

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 September 30, 2020 and December 31, 2019, the Company had $61 million and $62 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 September 30, 2020 and December 31, 2019, the Company had deferred revenue of $41 million and $43 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 and nine-month periods ended September 30, 2020 and 2019 that are subject to the noted accounting guidance.

 

 

Business Banking

 

 

Commercial Banking

 

 

Commercial Real Estate

 

 

Discretionary Portfolio

 

 

Residential Mortgage Banking

 

 

Retail Banking

 

 

All Other

 

 

Total

 

Three Months Ended September 30, 2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classification in consolidated

   statement of income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

11,527

 

 

 

22,816

 

 

 

2,347

 

 

 

—

 

 

 

—

 

 

 

53,379

 

 

 

1,286

 

 

$

91,355

 

Trust income

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

149,936

 

 

 

149,937

 

Brokerage services income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

11,602

 

 

 

11,602

 

Other revenues from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant discount and credit card fees

 

 

10,533

 

 

 

10,785

 

 

 

492

 

 

 

—

 

 

 

—

 

 

 

4,159

 

 

 

(315

)

 

 

25,654

 

Other

 

 

—

 

 

 

2,940

 

 

 

929

 

 

 

205

 

 

 

1,127

 

 

 

5,994

 

 

 

10,212

 

 

 

21,407

 

 

 

$

22,060

 

 

 

36,542

 

 

 

3,768

 

 

 

205

 

 

 

1,127

 

 

 

63,532

 

 

 

172,721

 

 

$

299,955

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classification in consolidated

   statement of income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

15,131

 

 

 

23,427

 

 

 

2,415

 

 

 

—

 

 

 

—

 

 

 

68,455

 

 

 

1,664

 

 

$

111,092

 

Trust income

 

 

9

 

 

 

242

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

143,664

 

 

 

143,915

 

Brokerage services income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

12,077

 

 

 

12,077

 

Other revenues from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant discount and credit card fees

 

 

9,692

 

 

 

13,409

 

 

 

670

 

 

 

—

 

 

 

—

 

 

 

4,150

 

 

 

269

 

 

 

28,190

 

Other

 

 

—

 

 

 

1,239

 

 

 

1,372

 

 

 

503

 

 

 

816

 

 

 

9,347

 

 

 

7,076

 

 

 

20,353

 

 

 

$

24,832

 

 

 

38,317

 

 

 

4,457

 

 

 

503

 

 

 

816

 

 

 

81,952

 

 

 

164,750

 

 

$

315,627

 

 

- 25 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

5. Revenue from contracts with customers, continued

 

 

 

Business Banking

 

 

Commercial Banking

 

 

Commercial Real Estate

 

 

Discretionary Portfolio

 

 

Residential Mortgage Banking

 

 

Retail Banking

 

 

All Other

 

 

Total

 

Nine Months Ended September 30, 2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classification in consolidated

   statement  of income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

38,048

 

 

 

69,487

 

 

 

7,724

 

 

 

—

 

 

 

—

 

 

 

155,073

 

 

 

4,639

 

 

$

274,971

 

Trust income

 

 

18

 

 

 

442

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

450,110

 

 

 

450,570

 

Brokerage services income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

35,194

 

 

 

35,194

 

Other revenues from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant discount and credit card fees

 

 

29,023

 

 

 

32,992

 

 

 

1,720

 

 

 

—

 

 

 

—

 

 

 

9,880

 

 

 

261

 

 

 

73,876

 

Other

 

 

—

 

 

 

5,913

 

 

 

2,960

 

 

 

1,212

 

 

 

3,101

 

 

 

15,142

 

 

 

32,149

 

 

 

60,477

 

 

 

$

67,089

 

 

 

108,834

 

 

 

12,404

 

 

 

1,212

 

 

 

3,101

 

 

 

180,095

 

 

 

522,353

 

 

$

895,088

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classification in consolidated

   statement of income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

45,415

 

 

 

69,731

 

 

 

7,303

 

 

 

—

 

 

 

4

 

 

 

195,267

 

 

 

4,271

 

 

$

321,991

 

Trust income

 

 

21

 

 

 

680

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

420,382

 

 

 

421,083

 

Brokerage services income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

37,031

 

 

 

37,031

 

Other revenues from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant discount and credit card fees

 

 

28,469

 

 

 

38,630

 

 

 

1,772

 

 

 

—

 

 

 

—

 

 

 

11,854

 

 

 

1,291

 

 

 

82,016

 

Other

 

 

—

 

 

 

5,386

 

 

 

5,840

 

 

 

1,545

 

 

 

2,913

 

 

 

27,170

 

 

 

26,159

 

 

 

69,013

 

 

 

$

73,905

 

 

 

114,427

 

 

 

14,915

 

 

 

1,545

 

 

 

2,917

 

 

 

234,291

 

 

 

489,134

 

 

$

931,134

 

 

- 26 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

6. Pension plans and other postretirement benefits

The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees.  Net periodic defined benefit cost for defined benefit plans consisted of the following:

 

 

 

Pension

Benefits

 

 

Other

Postretirement

Benefits

 

 

 

Three Months Ended September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

4,986

 

 

 

4,324

 

 

 

242

 

 

215

 

Interest cost on projected benefit obligation

 

 

17,855

 

 

 

20,394

 

 

 

436

 

 

 

586

 

Expected return on plan assets

 

 

(31,378

)

 

 

(30,534

)

 

 

—

 

 

 

—

 

Amortization of prior service cost (credit)

 

 

125

 

 

 

139

 

 

 

(1,175

)

 

 

(1,182

)

Amortization of net actuarial loss (gain)

 

 

13,950

 

 

 

5,498

 

 

 

(300

)

 

 

(312

)

Net periodic cost (benefit)

 

$

5,538

 

 

 

(179

)

 

 

(797

)

 

 

(693

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension

Benefits

 

 

Other

Postretirement

Benefits

 

 

 

Nine Months Ended September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

14,958

 

 

 

12,970

 

 

 

727

 

 

 

644

 

Interest cost on projected benefit obligation

 

 

53,565

 

 

 

61,184

 

 

 

1,306

 

 

 

1,758

 

Expected return on plan assets

 

 

(94,134

)

 

 

(91,604

)

 

 

—

 

 

 

—

 

Amortization of prior service cost (credit)

 

 

404

 

 

 

418

 

 

 

(3,544

)

 

 

(3,547

)

Amortization of net actuarial loss (gain)

 

 

42,998

 

 

 

16,494

 

 

 

(918

)

 

 

(935

)

Net periodic cost (benefit)

 

$

17,791

 

 

 

(538

)

 

 

(2,429

)

 

 

(2,080

)

 

Service cost is reflected in salaries and employee benefits expense in the consolidated statement of income. The other components of net periodic benefit cost are reflected in other costs of operations. Expenses incurred in connection with the Company's defined contribution pension and retirement savings plans totaled $23 million and $21 million for the three months ended September 30, 2020 and 2019, respectively, and $73 million and $61 million for the nine months ended September 30, 2020 and 2019, respectively, and are included in salaries and employee benefits expense.

 

 

- 27 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

7. Earnings per common share

The computations of basic earnings per common share follow:

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

372,136

 

 

 

480,081

 

 

 

882,012

 

 

 

1,436,083

 

Less: Preferred stock dividends

 

 

(17,050

)

 

 

(16,103

)

 

 

(51,178

)

 

 

(52,364

)

Net income available to common equity

 

 

355,086

 

 

 

463,978

 

 

 

830,834

 

 

 

1,383,719

 

Less: Income attributable to unvested stock-based

   compensation awards

 

 

(1,687

)

 

 

(2,568

)

 

 

(3,631

)

 

 

(7,591

)

Net income available to common shareholders

 

$

353,399

 

 

 

461,410

 

 

 

827,203

 

 

 

1,376,128

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding (including common stock

   issuable) and unvested stock-based compensation

   awards

 

 

129,061

 

 

 

133,703

 

 

 

129,518

 

 

 

136,156

 

Less: Unvested stock-based compensation awards

 

 

(776

)

 

 

(738

)

 

 

(768

)

 

 

(745

)

Weighted-average shares outstanding

 

 

128,285

 

 

 

132,965

 

 

 

128,750

 

 

 

135,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

2.75

 

 

 

3.47

 

 

 

6.42

 

 

 

10.16

 

 

 

The computations of diluted earnings per common share follow:

 

 

Three Months Ended September 30

 

 

Nine Months Ended September 30

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common equity

 

$

355,086

 

 

 

463,978

 

 

 

830,834

 

 

 

1,383,719

 

Less: Income attributable to unvested stock-based

   compensation awards

 

 

(1,686

)

 

 

(2,568

)

 

 

(3,630

)

 

 

(7,590

)

Net income available to common shareholders

 

$

353,400

 

 

 

461,410

 

 

 

827,204

 

 

 

1,376,129

 

Adjusted weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common and unvested stock-based compensation

   awards

 

 

129,061

 

 

 

133,703

 

 

 

129,518

 

 

 

136,156

 

Less: Unvested stock-based compensation awards

 

 

(776

)

 

 

(738

)

 

 

(768

)

 

 

(745

)

Plus: Incremental shares from assumed conversion of

   stock-based compensation awards and warrants to

   purchase common stock

 

 

70

 

 

 

34

 

 

 

63

 

 

 

32

 

Adjusted weighted-average shares outstanding

 

 

128,355

 

 

 

132,999

 

 

 

128,813

 

 

 

135,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

2.75

 

 

 

3.47

 

 

 

6.42

 

 

 

10.16

 

 

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 and warrants to purchase common stock of M&T representing 483,182 and 277,840 common shares during the three-month periods ended September 30, 2020 and 2019, respectively, and 477,144 and 224,639 common shares during the nine-month periods ended September 30, 2020 and 2019, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.

- 28 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

8. 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

 

 

Defined Benefit

 

 

 

 

 

 

Total

Amount

 

 

 

Income

 

 

 

 

 

 

 

Securities

 

 

Plans

 

 

Other

 

 

Before Tax

 

 

 

Tax

 

 

Net

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2020

 

$

50,701

 

 

 

(464,548

)

 

 

133,888

 

 

$

(279,959

)

 

 

 

73,279

 

 

$

(206,680

)

Other comprehensive income before reclassifications:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains, net

 

 

151,777

 

 

 

—

 

 

 

—

 

 

 

151,777

 

 

 

 

(39,277

)

 

 

112,500

 

Foreign currency translation adjustment

 

 

—

 

 

 

—

 

 

 

(222

)

 

 

(222

)

 

 

 

(39

)

 

 

(261

)

Unrealized gains on cash flow hedges

 

 

—

 

 

 

—

 

 

 

508,226

 

 

 

508,226

 

 

 

 

(131,504

)

 

 

376,722

 

Total other comprehensive income before

   reclassifications

 

 

151,777

 

 

 

—

 

 

 

508,004

 

 

 

659,781

 

 

 

 

(170,820

)

 

 

488,961

 

Amounts reclassified from accumulated other

   comprehensive income that (increase) decrease net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on

   held-to-maturity (“HTM”) securities

 

 

2,678

 

 

 

—

 

 

 

—

 

 

 

2,678

 

(a)

 

 

(725

)

 

 

1,953

 

Gains realized in net income

 

 

(3

)

 

 

—

 

 

 

—

 

 

 

(3

)

(b)

 

 

1

 

 

 

(2

)

Accretion of net gain on terminated cash flow hedges

 

 

 

 

 

 

—

 

 

 

(94

)

 

 

(94

)

(c)

 

 

26

 

 

 

(68

)

Net yield adjustment from cash flow hedges currently in effect

 

 

—

 

 

 

—

 

 

 

(183,598

)

 

 

(183,598

)

(a)

 

 

47,506

 

 

 

(136,092

)

Amortization of prior service credit

 

 

—

 

 

 

(3,140

)

 

 

—

 

 

 

(3,140

)

(d)

 

 

927

 

 

 

(2,213

)

Amortization of actuarial losses

 

 

—

 

 

 

42,080

 

 

 

—

 

 

 

42,080

 

(d)

 

 

(12,436

)

 

 

29,644

 

Total other comprehensive income

 

 

154,452

 

 

 

38,940

 

 

 

324,312

 

 

 

517,704

 

 

 

 

(135,521

)

 

 

382,183

 

Balance — September 30, 2020

 

$

205,153

 

 

 

(425,608

)

 

 

458,200

 

 

$

237,745

 

 

 

 

(62,242

)

 

$

175,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2019

 

$

(200,107

)

 

 

(354,502

)

 

 

(14,719

)

 

$

(569,328

)

 

 

 

149,247

 

 

$

(420,081

)

Other comprehensive income before reclassifications:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains, net

 

 

237,615

 

 

 

—

 

 

 

—

 

 

 

237,615

 

 

 

 

(62,432

)

 

 

175,183

 

Foreign currency translation adjustment

 

 

—

 

 

 

—

 

 

 

(2,663

)

 

 

(2,663

)

 

 

 

559

 

 

 

(2,104

)

Unrealized gains on cash flow hedges

 

 

—

 

 

 

—

 

 

 

204,587

 

 

 

204,587

 

 

 

 

(53,786

)

 

 

150,801

 

Total other comprehensive income before

   reclassifications

 

 

237,615

 

 

 

—

 

 

 

201,924

 

 

 

439,539

 

 

 

 

(115,659

)

 

 

323,880

 

Amounts reclassified from accumulated other

   comprehensive income that (increase) decrease net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on

   HTM securities

 

 

2,524

 

 

 

—

 

 

 

—

 

 

 

2,524

 

(a)

 

 

(663

)

 

 

1,861

 

Losses realized in net income

 

 

7

 

 

 

—

 

 

 

—

 

 

 

7

 

(b)

 

 

(2

)

 

 

5

 

Accretion of net gain on terminated cash flow hedges

 

 

—

 

 

 

—

 

 

 

(93

)

 

 

(93

)

(c)

 

 

25

 

 

 

(68

)

Net yield adjustment from cash flow hedges currently in effect

 

 

—

 

 

 

—

 

 

 

6,693

 

 

 

6,693

 

(a)

 

 

(1,760

)

 

 

4,933

 

Amortization of prior service credit

 

 

—

 

 

 

(3,129

)

 

 

—

 

 

 

(3,129

)

(d)

 

 

823

 

 

 

(2,306

)

Amortization of actuarial losses

 

 

—

 

 

 

15,559

 

 

 

—

 

 

 

15,559

 

(d)

 

 

(4,091

)

 

 

11,468

 

Total other comprehensive income

 

 

240,146

 

 

 

12,430

 

 

 

208,524

 

 

 

461,100

 

 

 

 

(121,327

)

 

 

339,773

 

Balance — September 30, 2019

 

$

40,039

 

 

 

(342,072

)

 

 

193,805

 

 

$

(108,228

)

 

 

 

27,920

 

 

$

(80,308

)

(a)

Included in interest income.

(b)

Included in gain (loss) on bank investment securities.

(c)

Included in interest expense.

(d)

Included in other costs of operations.

 

- 29 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

8. Comprehensive income, continued

Accumulated other comprehensive income (loss), net consisted of the following:

 

 

 

 

 

 

 

Defined

 

 

Cash Flow

 

 

 

 

 

 

 

Investment

 

 

Benefit

 

 

Hedges

 

 

 

 

 

 

 

Securities

 

 

Plans

 

 

and Other

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — December 31, 2019

 

$

37,380

 

 

 

(342,419

)

 

 

98,359

 

 

$

(206,680

)

Net gain during period

 

 

114,451

 

 

 

27,431

 

 

 

240,301

 

 

 

382,183

 

Balance — September 30, 2020

 

$

151,831

 

 

 

(314,988

)

 

 

338,660

 

 

$

175,503

 

 

9. 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 September 30, 2020.

The net effect of interest rate swap agreements was to increase net interest income by $95 million and $212 million during the three-month and nine-month periods ended September 30, 2020, respectively, and to increase net interest income by $1 million during the three-month period ended September 30, 2019 and decrease net interest income by $23 million during the nine-month period ended September 30, 2019.

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Estimated

 

 

 

Notional

 

 

Average

 

 

Average Rate

 

 

Fair Value

 

 

 

Amount

 

 

Maturity

 

 

Fixed

 

 

Variable

 

 

Gain (Loss) (a)

 

 

 

(In thousands)

 

 

(In years)

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (b)

 

$

2,300,000

 

 

 

2.7

 

 

 

2.80

%

 

 

0.69

%

 

$

(513

)

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Interest payments on variable rate

         commercial real estate loans (b)(c)

 

 

52,250,000

 

 

 

1.1

 

 

 

2.40

%

 

 

0.15

%

 

 

890

 

     Total

 

$

54,550,000

 

 

 

1.1

 

 

 

 

 

 

 

 

 

 

$

377

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (b)

 

$

3,800,000

 

 

 

2.2

 

 

 

2.51

%

 

 

2.27

%

 

$

(567

)

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Interest payments on variable rate

         commercial real estate loans (b)(d)

 

 

53,750,000

 

 

 

1.4

 

 

 

2.44

%

 

 

1.73

%

 

 

(1,195

)

     Total

 

$

57,550,000

 

 

 

1.5

 

 

 

 

 

 

 

 

 

 

$

(1,762

)

 

(a)

Certain clearinghouse exchanges consider payments by counterparties for variation margin on derivative instruments to be settlements of those positions. The impact of such treatment at September 30, 2020 and December 31, 2019 was a reduction of the estimated fair value gains on interest rate swap agreements designated as fair value hedges of $120.8 million and $45.1 million, respectively, and on interest rate swap agreements designated as cash flow hedges of $463.3 million and $140.7 million, respectively.

(b)

Under the terms of these agreements, the Company receives settlement amounts at a fixed rate and pays at a variable rate.

(c)

Includes notional amount and terms of $38.9 billion of forward-starting interest rate swap agreements that become effective in 2020 - 2022.

(d)

Includes notional amount and terms of $40.4 billion of forward-starting interest rate swap agreements that become effective in  2020 - 2022.

- 30 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

9. Derivative financial instruments, continued

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 fair value of certain commitments to originate real estate loans for sale.

Derivative financial instruments used for trading account purposes included interest rate contracts, foreign exchange and other option contracts, foreign exchange forward and spot contracts, and financial futures. Interest rate contracts entered into for trading account purposes had notional values of $36.6 billion and $48.6 billion at September 30, 2020 and December 31, 2019, respectively.  The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes aggregated $877 million and $1.2 billion at September 30, 2020 and December 31, 2019, respectively.

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

 

 

 

Fair Value

 

 

Fair Value

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Derivatives designated and qualifying as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements (a)

 

$

1,710

 

 

$

232

 

 

$

1,333

 

 

$

1,994

 

Commitments to sell real estate loans (a)

 

 

1,525

 

 

 

1,195

 

 

 

2,264

 

 

 

421

 

 

 

 

3,235

 

 

 

1,427

 

 

 

3,597

 

 

 

2,415

 

Derivatives not designated and qualifying as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-related commitments to originate real estate loans

    for sale (a)

 

 

51,786

 

 

 

11,965

 

 

 

283

 

 

 

1,225

 

Commitments to sell real estate loans (a)

 

 

1,795

 

 

 

3,074

 

 

 

11,066

 

 

 

3,548

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (b)

 

 

1,157,856

 

 

 

398,295

 

 

 

115,361

 

 

 

68,103

 

Foreign exchange and other option and futures contracts (b)

 

 

7,694

 

 

 

12,506

 

 

 

7,624

 

 

 

11,800

 

 

 

 

1,219,131

 

 

 

425,840

 

 

 

134,334

 

 

 

84,676

 

Total derivatives

 

$

1,222,366

 

 

$

427,267

 

 

$

137,931

 

 

$

87,091

 

(a)

Asset derivatives are reported in other assets and liability derivatives are reported in other liabilities.

(b)

Asset derivatives are reported in trading account assets and liability derivatives are reported in other liabilities.  The impact of variation margin payments at September 30, 2020 and December 31, 2019 was a reduction of the estimated fair value of interest rate contracts in the trading account in an asset position of $2.9 million and $43.3 million, respectively, and in a liability position of $944.9 million and $281.3 million, respectively.

 

 

 

 

Amount of Gain (Loss) Recognized

 

 

 

Three Months Ended September 30, 2020

 

 

Three Months Ended September 30, 2019

 

 

 

Derivative

 

 

Hedged Item

 

 

Derivative

 

 

Hedged Item

 

 

 

(In thousands)

 

Derivatives in fair value hedging relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (a)

 

$

(13,067

)

 

 

12,822

 

 

$

22,582

 

 

 

(22,412

)

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (b)

 

$

(4,776

)

 

 

 

 

 

$

6,435

 

 

 

 

 

Foreign exchange and other option and futures contracts (b)

 

 

1,486

 

 

 

 

 

 

 

2,598

 

 

 

 

 

Total

 

$

(3,290

)

 

 

 

 

 

$

9,033

 

 

 

 

 

 

- 31 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

9. Derivative financial instruments, continued

 

 

Amount of Gain (Loss) Recognized

 

 

 

Nine Months Ended September 30, 2020

 

 

Nine Months Ended September 30, 2019

 

 

 

Derivative

 

 

Hedged Item

 

 

Derivative

 

 

Hedged Item

 

 

 

(In thousands)

 

Derivatives in fair value hedging relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (a)

 

$

75,760

 

 

 

(75,607

)

 

$

113,441

 

 

 

(112,884

)

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (b)

 

$

8,988

 

 

 

 

 

 

$

17,639

 

 

 

 

 

Foreign exchange and other option and futures contracts (b)

 

 

6,555

 

 

 

 

 

 

 

6,690

 

 

 

 

 

Total

 

$

15,543

 

 

 

 

 

 

$

24,329

 

 

 

 

 

 

(a)

Reported as an adjustment to interest expense.

 

(b)

Reported as trading account and foreign exchange gains.  

 

 

 

Carrying Amount of the Hedged Item

 

 

Cumulative Amount of Fair Value Hedging Adjustment Increasing (Decreasing) the Carrying Amount of the

Hedged Item

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Location in the Consolidated Balance Sheet

   of the Hedged Items in Fair Value Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

2,417,559

 

 

$

3,840,775

 

 

$

119,247

 

 

$

43,640

 

The amount of gain (loss) recognized in the consolidated statement of income associated with derivatives designated as cash flow hedges was not material.

The Company also has commitments to sell and commitments to originate residential and commercial real estate loans that are considered derivatives.  The Company designates certain of the commitments to sell real estate loans as fair value hedges of real estate loans held for sale.  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.  As a result of these activities, net unrealized pre-tax gains related to hedged loans held for sale, commitments to originate loans for sale and commitments to sell loans were approximately $66 million and $18 million at September 30, 2020 and December 31, 2019, respectively.  Changes in unrealized gains and losses are included in mortgage banking revenues and, in general, are realized in subsequent periods as the related loans are sold and commitments satisfied.

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.

- 32 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

9. Derivative financial instruments, continued

The aggregate fair value of derivative financial instruments in a liability position and the net liability positions with counterparties, which are subject to master netting arrangements, was $127 million and $51 million at September 30, 2020 and December 31, 2019, respectively.  The Company was required to post collateral relating to those positions of $123 million and $50 million at September 30, 2020 and December 31, 2019, respectively.   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 rating 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 September 30, 2020 was not significant.

The aggregate fair value of derivative financial instruments in an asset position and the net asset positions with counterparties, which are subject to enforceable master netting arrangements, was nil at September 30, 2020 and $6 million at December 31, 2019.  Counterparties posted collateral relating to those positions of $5 million at December 31, 2019.  Trading account 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 $125 million and $84 million at September 30, 2020 and December 31, 2019, 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.

10. Variable interest entities and asset securitizations

The Company’s securitization activity has consisted of securitizing loans originated for sale into government issued or guaranteed mortgage-backed securities that are then retained by the Company. The amounts of those securitizations during the nine-month periods ended September 30, 2020 and 2019 are presented in the Company’s consolidated statement of cash flows. The Company has not recognized any losses as a result of having securitized assets.

As described in note 4, M&T has issued junior subordinated debentures payable to various trusts that have issued 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 September 30, 2020 and December 31, 2019, the Company included the junior subordinated debentures as “long-term borrowings” in its consolidated balance sheet and recognized $23 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 described in note 4.

- 33 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

10. Variable interest entities and asset securitizations, continued

The Company has invested as a limited partner in various partnerships that collectively had total assets of approximately $2.1 billion at September 30, 2020 and $1.5 billion at December 31, 2019. Those partnerships generally construct or acquire properties 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. 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’s carrying amount of its investments in such partnerships was $791 million, including $380 million of unfunded commitments, at September 30, 2020 and $748 million, including $414 million of unfunded commitments, at December 31, 2019.  Contingent commitments to provide additional capital contributions to these partnerships were not material at September 30, 2020. The Company has not provided financial or other support to the partnerships that was not contractually required. The Company’s maximum exposure to loss from its investments in such partnerships as of September 30, 2020 was $978 million, including possible recapture of certain tax credits.  Management currently estimates that no material losses are probable as a result of the Company’s involvement with such entities.  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, in accordance with the accounting provisions for variable interest entities, the partnership entities are not included in the Company’s consolidated financial statements.  The Company’s investment in qualified affordable housing projects is 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. The Company amortized $22 million and $65 million of its investments in qualified affordable housing projects to income tax expense during the three-month and nine-month periods ended September 30, 2020, respectively, and recognized $26 million and $78 million of tax credits and other tax benefits during those periods. Similarly, for the three-month and nine-month periods ended September 30, 2019, the Company amortized $17 million and $51 million, respectively, of its investments in qualified affordable housing projects to income tax expense and recognized $21 million and $62 million of tax credits and other tax benefits during those respective periods.

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.

11. 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 September 30, 2020.

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.

 

•

Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.

 

•

Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

 

•

Level 3 — Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company's own estimates about the assumptions that market participants would use to value the 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,

- 34 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

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.

Trading account assets and liabilities

Trading account assets and liabilities 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 derivative trading account assets and liabilities using externally developed pricing models based on market observable inputs and, therefore, classifies such valuations as Level 2.  Mutual funds held in connection with deferred compensation and other arrangements have been classified as Level 1 valuations. Valuations of investments in municipal and other bonds 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.

Investment securities available for sale 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 considered to be 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

- 35 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

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.

The following tables present assets and liabilities at September 30, 2020 and December 31, 2019 measured at estimated fair value on a recurring basis:

 

 

 

Fair Value Measurements

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading account assets

 

$

1,215,573

 

 

$

50,023

 

 

$

1,165,550

 

 

$

—

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

9,370

 

 

 

—

 

 

 

9,370

 

 

 

—

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

5,165,701

 

 

 

—

 

 

 

5,165,701

 

 

 

—

 

Privately issued

 

 

16

 

 

 

—

 

 

 

—

 

 

 

16

 

Other debt securities

 

 

127,251

 

 

 

—

 

 

 

127,251

 

 

 

—

 

 

 

 

5,302,338

 

 

 

—

 

 

 

5,302,322

 

 

 

16

 

Equity securities

 

 

101,182

 

 

 

72,856

 

 

 

28,326

 

 

 

—

 

Real estate loans held for sale

 

 

909,335

 

 

 

—

 

 

 

909,335

 

 

 

—

 

Other assets (a)

 

 

56,816

 

 

 

—

 

 

 

5,030

 

 

 

51,786

 

Total assets

 

$

7,585,244

 

 

$

122,879

 

 

$

7,410,563

 

 

$

51,802

 

Trading account liabilities

 

$

122,985

 

 

$

—

 

 

$

122,985

 

 

$

—

 

Other liabilities (a)

 

 

14,946

 

 

 

—

 

 

 

14,663

 

 

 

283

 

Total liabilities

 

$

137,931

 

 

$

—

 

 

$

137,648

 

 

$

283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading account assets

 

$

470,129

 

 

$

49,040

 

 

$

421,089

 

 

$

—

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

9,767

 

 

 

—

 

 

 

9,767

 

 

 

—

 

Obligations of states and political subdivisions

 

 

775

 

 

 

—

 

 

 

775

 

 

 

—

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

6,180,940

 

 

 

—

 

 

 

6,180,940

 

 

 

—

 

Privately issued

 

 

16

 

 

 

—

 

 

 

—

 

 

 

16

 

Other debt securities

 

 

127,278

 

 

 

—

 

 

 

127,278

 

 

 

—

 

 

 

 

6,318,776

 

 

 

—

 

 

 

6,318,760

 

 

 

16

 

Equity securities

 

 

140,041

 

 

 

100,637

 

 

 

39,404

 

 

 

—

 

Real estate loans held for sale

 

 

442,079

 

 

 

—

 

 

 

442,079

 

 

 

—

 

Other assets (a)

 

 

16,466

 

 

 

—

 

 

 

4,501

 

 

 

11,965

 

Total assets

 

$

7,387,491

 

 

$

149,677

 

 

$

7,225,833

 

 

$

11,981

 

Trading account liabilities

 

$

79,903

 

 

$

—

 

 

$

79,903

 

 

$

—

 

Other liabilities (a)

 

 

7,188

 

 

 

—

 

 

 

5,963

 

 

 

1,225

 

Total liabilities

 

$

87,091

 

 

$

—

 

 

$

85,866

 

 

$

1,225

 

 

 (a)

Comprised predominantly of interest rate swap agreements used for interest rate risk management (Level 2), commitments to sell real estate loans (Level 2) and commitments to originate real estate loans to be held for sale (Level 3).

- 36 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended September 30, 2020 and 2019 were as follows:

 

 

 

Investment

Securities

Available for Sale

 

 

 

 

 

 

 

 

Privately Issued Mortgage-Backed Securities

 

 

Other Assets and Other Liabilities

 

 

2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Balance — June 30, 2020

 

$

16

 

 

 

40,106

 

 

Total gains realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

—

 

 

 

57,819

 

(a)

Settlements

 

 

—

 

 

 

—

 

 

Transfers out of Level 3

 

 

—

 

 

 

(46,422

)

(b)

Balance — September 30, 2020

 

$

16

 

 

 

51,503

 

 

Changes in unrealized gains included in earnings

   related to assets still held at September 30, 2020

 

$

—

 

 

 

44,127

 

(a)

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — June 30, 2019

 

$

16

 

 

 

17,200

 

 

Total gains realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

—

 

 

 

62,178

 

(a)

Settlements

 

 

—

 

 

 

—

 

 

Transfers out of Level 3

 

 

—

 

 

 

(55,104

)

(b)

Balance — September 30, 2019

 

$

16

 

 

 

24,274

 

 

Changes in unrealized gains included in earnings

   related to assets still held at September 30, 2019

 

$

—

 

 

 

19,350

 

(a)

 

- 37 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the nine months ended September 30, 2020 and 2019 were as follows:

 

 

Investment

Securities

Available for Sale

 

 

 

 

 

 

 

 

Privately Issued Mortgage-Backed Securities

 

 

Other Assets and Other Liabilities

 

 

2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2020

 

$

16

 

 

 

10,740

 

 

Total gains realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

—

 

 

 

150,632

 

(a)

Settlements

 

 

—

 

 

 

—

 

 

Transfers out of Level 3

 

 

—

 

 

 

(109,869

)

(b)

Balance — September 30, 2020

 

$

16

 

 

 

51,503

 

 

Changes in unrealized gains included in earnings

   related to assets still held at September 30, 2020

 

$

—

 

 

 

50,411

 

(a)

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2019

 

$

22

 

 

 

7,712

 

 

Total gains realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

—

 

 

 

115,187

 

(a)

Settlements

 

 

(6

)

 

 

—

 

 

Transfers out of Level 3

 

 

—

 

 

 

(98,625

)

(b)

Balance — September 30, 2019

 

$

16

 

 

 

24,274

 

 

Changes in unrealized gains included in earnings

   related to assets still held at September 30, 2019

 

$

—

 

 

 

24,981

 

(a)

(a)

Reported as mortgage banking revenues in the consolidated statement of income and includes the fair value of commitment issuances and expirations.

(b)

Transfers out of Level 3 consist of interest rate locks transferred to closed loans.

  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

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 uncollectible 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 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

- 38 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

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 15% to 90% with a weighted-average of 59% at September 30, 2020.  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 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 September 30, 2020 was 50%.  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 $387 million at September 30, 2020 ($159 million and $228 million of which were classified as Level 2 and Level 3, respectively), $305 million at December 31, 2019 ($115 million and $190 million of which were classified as Level 2 and Level 3, respectively) and $302 million at September 30, 2019 ($122 million and $180 million of which were classified as Level 2 and Level 3, respectively).  Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on September 30, 2020 were decreases of $82 million and $153 million for the three-month and nine-month periods ended September 30, 2020, respectively. Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on September 30, 2019 were decreases of $51 million and $85 million for the three-month and nine-month periods ended September 30, 2019, 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 in foreclosure of defaulted loans subject to nonrecurring fair value measurement were $27 million and $17 million at September 30, 2020 and 2019, respectively.  Changes in fair value recognized for those foreclosed assets held by the Company were not material during the three-month and nine-month periods ended September 30, 2020 and 2019.

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 of $165 million and $188 million at September 30, 2020 and December 31, 2019, respectively, required a valuation allowance of $27 million and $7 million, respectively. Significant unobservable inputs used in this Level 3 valuation included weighted-average prepayment speeds of 17.19% and 18.50% at September 30, 2020 and December 31, 2019, respectively, and a weighted-average option-adjusted spread of 900 basis points at each date. There was no impairment charge for

- 39 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

capitalized servicing rights during the three months ended September 30, 2020, but a $20 million valuation charge was recognized during the nine months ended September 30, 2020. Changes recognized for impairment of capitalized servicing rights were $14 million and $23 million for the three months and nine months ended September 30, 2019, respectively.

Significant unobservable inputs to Level 3 measurements

 

The following tables present quantitative information about significant unobservable inputs used in the fair value measurements for certain Level 3 assets and liabilities at September 30, 2020 and December 31, 2019:

 

 

 

Fair Value

 

 

Valuation

Technique

 

Unobservable

Inputs/Assumptions

 

 

Range

(Weighted-

Average)

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring fair value measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Privately issued mortgage-

   backed securities

 

$

16

 

 

Two independent pricing quotes

 

 

—

 

 

 

—

 

Net other assets (liabilities) (a)

 

 

51,503

 

 

Discounted cash flow

 

Commitment expirations

 

 

0% - 90%(18%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring fair value measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Privately issued mortgage-

   backed securities

 

$

16

 

 

Two independent pricing quotes

 

 

—

 

 

 

—

 

Net other assets (liabilities) (a)

 

 

10,740

 

 

Discounted cash flow

 

Commitment expirations

 

 

0% - 99% (13%)

 

(a)

Other Level 3 assets (liabilities) consist of commitments to originate real estate loans.

 

Sensitivity of fair value measurements to changes in unobservable inputs

 

An increase (decrease) in the estimate of expirations for commitments to originate real estate loans would generally result in a lower (higher) fair value measurement. Estimated commitment expirations are derived considering loan type, changes in interest rates and remaining length of time until closing.

 

- 40 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

Disclosures of fair value of financial instruments

The carrying amounts and estimated fair value for financial instrument assets (liabilities) are presented in the following table:

 

 

 

September 30, 2020

 

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,489,232

 

 

 

1,489,232

 

 

 

1,437,569

 

 

 

51,663

 

 

 

—

 

Interest-bearing deposits at banks

 

 

20,197,937

 

 

 

20,197,937

 

 

 

—

 

 

 

20,197,937

 

 

 

—

 

Trading account assets

 

 

1,215,573

 

 

 

1,215,573

 

 

 

50,023

 

 

 

1,165,550

 

 

 

—

 

Investment securities

 

 

7,723,004

 

 

 

7,816,236

 

 

 

72,856

 

 

 

7,670,141

 

 

 

73,239

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases

 

 

27,891,648

 

 

 

27,422,525

 

 

 

—

 

 

 

—

 

 

 

27,422,525

 

Commercial real estate loans

 

 

37,582,084

 

 

 

36,343,024

 

 

 

—

 

 

 

336,039

 

 

 

36,006,985

 

Residential real estate loans

 

 

16,663,708

 

 

 

16,935,950

 

 

 

—

 

 

 

4,070,917

 

 

 

12,865,033

 

Consumer loans

 

 

16,309,608

 

 

 

16,149,710

 

 

 

—

 

 

 

—

 

 

 

16,149,710

 

Allowance for credit losses

 

 

(1,758,505

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Loans and leases, net

 

 

96,688,543

 

 

 

96,851,209

 

 

 

—

 

 

 

4,406,956

 

 

 

92,444,253

 

Accrued interest receivable

 

 

429,751

 

 

 

429,751

 

 

 

—

 

 

 

429,751

 

 

 

—

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

(44,201,670

)

 

 

(44,201,670

)

 

 

—

 

 

 

(44,201,670

)

 

 

—

 

Savings and interest-checking deposits

 

 

(65,732,130

)

 

 

(65,732,130

)

 

 

—

 

 

 

(65,732,130

)

 

 

—

 

Time deposits

 

 

(4,329,550

)

 

 

(4,357,963

)

 

 

—

 

 

 

(4,357,963

)

 

 

—

 

Deposits at Cayman Islands office

 

 

(899,989

)

 

 

(899,989

)

 

 

—

 

 

 

(899,989

)

 

 

—

 

Short-term borrowings

 

 

(46,123

)

 

 

(46,123

)

 

 

—

 

 

 

(46,123

)

 

 

—

 

Long-term borrowings

 

 

(5,458,885

)

 

 

(5,540,675

)

 

 

—

 

 

 

(5,540,675

)

 

 

—

 

Accrued interest payable

 

 

(66,158

)

 

 

(66,158

)

 

 

—

 

 

 

(66,158

)

 

 

—

 

Trading account liabilities

 

 

(122,985

)

 

 

(122,985

)

 

 

—

 

 

 

(122,985

)

 

 

—

 

Other financial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to originate real estate

   loans for sale

 

$

51,503

 

 

 

51,503

 

 

 

—

 

 

 

—

 

 

 

51,503

 

Commitments to sell real estate loans

 

 

(10,010

)

 

 

(10,010

)

 

 

—

 

 

 

(10,010

)

 

 

—

 

Other credit-related commitments

 

 

(135,416

)

 

 

(135,416

)

 

 

—

 

 

 

—

 

 

 

(135,416

)

Interest rate swap agreements used for

   interest rate risk management

 

 

377

 

 

 

377

 

 

 

—

 

 

 

377

 

 

 

—

 

- 41 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

11. Fair value measurements, continued

 

 

 

December 31, 2019

 

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,432,805

 

 

 

1,432,805

 

 

 

1,394,984

 

 

 

37,821

 

 

 

—

 

Interest-bearing deposits at banks

 

 

7,190,154

 

 

 

7,190,154

 

 

 

—

 

 

 

7,190,154

 

 

 

—

 

Federal funds sold

 

 

3,500

 

 

 

3,500

 

 

 

—

 

 

 

3,500

 

 

 

—

 

Trading account assets

 

 

470,129

 

 

 

470,129

 

 

 

49,040

 

 

 

421,089

 

 

 

—

 

Investment securities

 

 

9,497,251

 

 

 

9,539,540

 

 

 

100,637

 

 

 

9,351,793

 

 

 

87,110

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases

 

 

23,838,168

 

 

 

23,510,908

 

 

 

—

 

 

 

—

 

 

 

23,510,908

 

Commercial real estate loans

 

 

35,541,914

 

 

 

35,517,180

 

 

 

—

 

 

 

28,338

 

 

 

35,488,842

 

Residential real estate loans

 

 

16,156,094

 

 

 

16,227,274

 

 

 

—

 

 

 

3,990,848

 

 

 

12,236,426

 

Consumer loans

 

 

15,386,693

 

 

 

15,413,262

 

 

 

—

 

 

 

—

 

 

 

15,413,262

 

Allowance for credit losses

 

 

(1,051,071

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Loans and leases, net

 

 

89,871,798

 

 

 

90,668,624

 

 

 

—

 

 

 

4,019,186

 

 

 

86,649,438

 

Accrued interest receivable

 

 

333,142

 

 

 

333,142

 

 

 

—

 

 

 

333,142

 

 

 

—

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

(32,396,407

)

 

 

(32,396,407

)

 

 

—

 

 

 

(32,396,407

)

 

 

—

 

Savings and interest-checking deposits

 

 

(54,932,162

)

 

 

(54,932,162

)

 

 

—

 

 

 

(54,932,162

)

 

 

—

 

Time deposits

 

 

(5,757,456

)

 

 

(5,829,347

)

 

 

—

 

 

 

(5,829,347

)

 

 

—

 

Deposits at Cayman Islands office

 

 

(1,684,044

)

 

 

(1,684,044

)

 

 

—

 

 

 

(1,684,044

)

 

 

—

 

Short-term borrowings

 

 

(62,363

)

 

 

(62,363

)

 

 

—

 

 

 

(62,363

)

 

 

—

 

Long-term borrowings

 

 

(6,986,186

)

 

 

(7,063,165

)

 

 

—

 

 

 

(7,063,165

)

 

 

—

 

Accrued interest payable

 

 

(105,374

)

 

 

(105,374

)

 

 

—

 

 

 

(105,374

)

 

 

—

 

Trading account liabilities

 

 

(79,903

)

 

 

(79,903

)

 

 

—

 

 

 

(79,903

)

 

 

—

 

Other financial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to originate real estate

   loans for sale

 

$

10,740

 

 

 

10,740

 

 

 

—

 

 

 

—

 

 

 

10,740

 

Commitments to sell real estate loans

 

 

300

 

 

 

300

 

 

 

—

 

 

 

300

 

 

 

—

 

Other credit-related commitments

 

 

(136,470

)

 

 

(136,470

)

 

 

—

 

 

 

—

 

 

 

(136,470

)

Interest rate swap agreements used for

   interest rate risk management

 

 

(1,762

)

 

 

(1,762

)

 

 

—

 

 

 

(1,762

)

 

 

—

 

With the exception of marketable securities, certain off-balance sheet financial instruments and mortgage loans originated for sale, the Company’s financial instruments 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.

- 42 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12. 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.

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Commitments to extend credit

 

 

 

 

 

 

 

 

Home equity lines of credit

 

$

5,557,722

 

 

$

5,442,160

 

Commercial real estate loans to be sold

 

 

216,353

 

 

 

164,076

 

Other commercial real estate

 

 

8,031,403

 

 

 

9,029,608

 

Residential real estate loans to be sold

 

 

1,134,097

 

 

 

423,056

 

Other residential real estate

 

 

712,964

 

 

 

448,375

 

Commercial and other

 

 

19,921,166

 

 

 

16,170,731

 

Standby letters of credit

 

 

2,354,799

 

 

 

2,441,432

 

Commercial letters of credit

 

 

32,422

 

 

 

41,059

 

Financial guarantees and indemnification contracts

 

 

4,250,654

 

 

 

4,108,572

 

Commitments to sell real estate loans

 

 

1,895,436

 

 

 

906,037

 

 

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 $10.1 billion and $9.1 billion at September 30, 2020 and December 31, 2019, 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.

Financial guarantees and indemnification contracts are oftentimes similar to standby letters of credit and include mandatory purchase agreements issued to ensure that customer obligations are fulfilled, recourse obligations associated with sold loans, and other guarantees of customer performance or compliance with designated rules and regulations.  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 Delegated Underwriting and Servicing program.  The Company's maximum credit risk for recourse associated with loans sold under this program totaled approximately $3.9 billion at each of September 30, 2020 and December 31, 2019.

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 considered derivatives and along with commitments to originate real estate loans to be held for sale are generally 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.  

- 43 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12. Commitments and contingencies, continued

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 September 30, 2020, the Company believes that its 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 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 the recorded 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 estimated to be between $0 and $25 million as of September 30, 2020.  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.

 

13. Segment information

Reportable segments have been determined based upon the Company's internal profitability reporting system, which is organized by strategic business unit.  Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar.  The reportable segments are Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.

The financial information of the Company's segments was compiled utilizing the accounting policies described in note 22 of Notes to Financial Statements in the 2019 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.  

- 44 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

13. Segment information, continued

Information about the Company's segments is presented in the following table:

 

 

Three Months Ended September 30

 

 

 

2020

 

 

2019

 

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking

 

$

131,566

 

 

 

(1

)

 

 

35,614

 

 

$

143,741

 

 

 

912

 

 

 

46,147

 

Commercial Banking

 

 

276,125

 

 

 

117

 

 

 

131,414

 

 

 

282,757

 

 

 

980

 

 

 

132,668

 

Commercial Real Estate

 

 

202,987

 

 

 

(17

)

 

 

87,095

 

 

 

238,364

 

 

 

458

 

 

 

131,161

 

Discretionary Portfolio

 

 

140,135

 

 

 

(10,748

)

 

 

97,399

 

 

 

50,871

 

 

 

(10,550

)

 

 

29,604

 

Residential Mortgage Banking

 

 

161,151

 

 

 

22,190

 

 

 

45,318

 

 

 

115,239

 

 

 

19,363

 

 

 

15,846

 

Retail Banking

 

 

351,312

 

 

 

268

 

 

 

85,229

 

 

 

432,339

 

 

 

1,808

 

 

 

131,638

 

All Other

 

 

200,380

 

 

 

(11,809

)

 

 

(109,933

)

 

 

294,358

 

 

 

(12,971

)

 

 

(6,983

)

Total

 

$

1,463,656

 

 

 

—

 

 

 

372,136

 

 

$

1,557,669

 

 

 

—

 

 

 

480,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30

 

 

 

2020

 

 

2019

 

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking

 

$

407,485

 

 

 

1,028

 

 

 

106,103

 

 

$

423,830

 

 

 

2,772

 

 

 

131,668

 

Commercial Banking

 

 

855,426

 

 

 

1,419

 

 

 

386,176

 

 

 

828,357

 

 

 

2,707

 

 

 

388,393

 

Commercial Real Estate

 

 

653,405

 

 

 

452

 

 

 

311,586

 

 

 

682,979

 

 

 

1,218

 

 

 

370,288

 

Discretionary Portfolio

 

 

328,181

 

 

 

(33,646

)

 

 

218,758

 

 

 

175,764

 

 

 

(29,140

)

 

 

106,816

 

Residential Mortgage Banking

 

 

428,757

 

 

 

64,623

 

 

 

107,334

 

 

 

295,449

 

 

 

51,027

 

 

 

36,429

 

Retail Banking

 

 

1,107,516

 

 

 

802

 

 

 

281,973

 

 

 

1,299,823

 

 

 

7,106

 

 

 

417,198

 

All Other

 

 

633,461

 

 

 

(34,678

)

 

 

(529,918

)

 

 

955,868

 

 

 

(35,690

)

 

 

(14,709

)

Total

 

$

4,414,231

 

 

 

—

 

 

 

882,012

 

 

$

4,662,070

 

 

 

—

 

 

 

1,436,083

 

 

- 45 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

13. Segment information, continued

 

 

Average Total Assets

 

 

 

Nine Months Ended September 30

 

 

Year Ended

December 31

 

 

 

2020

 

 

2019

 

 

2019

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking

 

$

7,902

 

 

 

5,758

 

 

 

5,793

 

Commercial Banking

 

 

30,450

 

 

 

28,089

 

 

 

28,142

 

Commercial Real Estate

 

 

25,594

 

 

 

23,893

 

 

 

23,921

 

Discretionary Portfolio

 

 

27,878

 

 

 

29,355

 

 

 

29,081

 

Residential Mortgage Banking

 

 

3,530

 

 

 

2,444

 

 

 

2,611

 

Retail Banking

 

 

16,231

 

 

 

14,839

 

 

 

15,083

 

All Other

 

 

20,845

 

 

 

14,206

 

 

 

14,953

 

Total

 

$

132,430

 

 

 

118,584

 

 

 

119,584

 

(a)

Total revenues are comprised of net interest income and other income.  Net interest income is the difference between taxable-equivalent interest earned on assets and interest paid on liabilities owed by a segment and a funding charge (credit) based on the Company's internal funds transfer and allocation methodology.  Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit for any funds provided (e.g. deposits).  The taxable-equivalent adjustment aggregated $4,019,000 and $5,579,000 for the three-month periods ended September 30, 2020 and 2019, respectively, and $13,316,000 and $17,471,000 for the nine-month periods ended September 30, 2020 and 2019, respectively, and is eliminated in "All Other" total revenues.  Intersegment revenues are included in total revenues of the reportable segments.  The elimination of intersegment revenues is included in the determination of "All Other" total revenues.

14. Relationship with Bayview Lending Group LLC and Bayview Financial Holdings, L.P.

M&T holds a minority interest in Bayview Lending Group LLC ("BLG"), a privately-held commercial mortgage company. That investment had no remaining carrying value at September 30, 2020 as a result of cumulative losses recognized and cash distributions received in prior years.  Income recognized by M&T is included in other revenues from operations and totaled $23 million and $37 million for the nine-month periods ended September 30, 2020 and 2019, respectively. There was no similar income recognized during the three-month periods ended September 30, 2020 and 2019.

Bayview Financial Holdings, L.P. (together with its affiliates, "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 $2.0 billion and $2.2 billion at September 30, 2020 and December 31, 2019, respectively. Revenues from those servicing rights were $2 million and $3 million for the three-month periods ended September 30, 2020 and 2019, respectively, and $7 million and $9 million for the nine-month periods ended September 30, 2020 and 2019, respectively. The Company sub-services residential mortgage loans for Bayview Financial having outstanding principal balances of $67.0 billion and $62.8 billion at September 30, 2020 and December 31, 2019, respectively.  Revenues earned for sub-servicing loans for Bayview Financial were $30 million and $33 million for the three-month periods ended September 30, 2020 and 2019, respectively and $101 million and $90 million for the nine-month periods ended September 30, 2020 and 2019, respectively. In addition, the Company held $80 million and $93 million of mortgage-backed securities in its held-to-maturity portfolio at September 30, 2020 and December 31, 2019, respectively, that were securitized by Bayview Financial. At September 30, 2020, the Company held $164 million of Bayview Financial’s $1.0 billion syndicated loan facility. Also, in the second quarter the Company extended two $100 million secured loan facilities to certain funds managed by Bayview Financial. One of the two loans was still outstanding as of September 30, 2020 with a remaining balance of $87 million.

- 46 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

15. Recent accounting developments

The following table provides a description of accounting standards that were adopted by the Company in 2020 as well as standards that are not effective that could have an impact to M&T’s consolidated financial statements upon adoption.

 

 

Standard

 

 

 

Description

 

 

Required date

of adoption

 

 

 

Effect on consolidated financial statements

 

 

 

Standards Adopted in 2020

 

 

Measurement of Credit Losses on Financial Instruments

 

 

 

The amended guidance replaces the incurred loss model for determining the allowance for credit losses. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected.  The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.  The amended guidance also requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination.  The initial allowance for these assets will be added to the purchase price at acquisition rather than being reported as an expense.  Subsequent changes in the allowance will be recorded in the income statement as an adjustment the to the provision for credit losses.  In addition, the amended guidance requires credit losses relating to debt securities to be recorded through an allowance for credit losses.

 

 

 

January 1, 2020

 

 

 

The Company adopted the guidance on January 1, 2020.  The Company’s approach for estimating current expected credit losses for loans includes utilizing macro-economic assumptions to project losses over a two-year reasonable and supportable forecast period.  Subsequent to the forecast period, the Company reverts to longer term historical loss experience to estimate expected credit losses over the remaining contractual life.

  

Based on portfolio composition, then current economic conditions, and reasonable and supportable forecasts of future conditions, the Company recognized an increase to the allowance for credit losses of $132 million upon adoption of the standard as of January 1, 2020 as compared with the allowance for credit losses recognized on its consolidated balance sheet at December 31, 2019. The $132 million increase was recognized as a cumulative-effect adjustment to retained earnings as of January 1, 2020.

 

The effect on the allowance for credit losses was primarily attributable to increases in reserves for residential mortgage loans and consumer loans, which generally have longer estimated lives as compared with commercial and commercial real estate loans. The adoption did not have a material effect on the allowance for credit losses for debt securities.

 

 

 

Simplifying the Test for Goodwill Impairment

 

 

 

The amended guidance eliminates step 2 from the goodwill impairment test.

 

 

 

January 1, 2020

 

 

 

The Company adopted the amended guidance effective January 1, 2020 using a prospective transition method and will incorporate the guidance as necessary when circumstances arise for the guidance to be utilized. The Company does not expect the guidance will have a material impact on its consolidated financial statements, unless at some point in the future one of its reporting units were to fail step 1 of the goodwill impairment test.

 

- 47 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

15. Recent accounting developments, continued

 

 

 

Standard

 

 

 

Description

 

 

Required date

of adoption

 

 

 

Effect on consolidated financial statements

 

 

 

Standards Adopted in 2020

 

 

Changes to the Disclosure Requirements for Fair Value Measurements

 

 

The amended guidance modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements.  The amendments are a result of the disclosure framework project that focuses on improvements to the effectiveness of disclosures in the notes to financial statements.  The amendments remove, modify, and add certain disclosure requirements.  The disclosure requirements removed relating to public companies are (1) the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation process for Level 3 fair value measurements.  The disclosure requirements modified relating to public companies are (1) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s asset and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly, and (2) the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as a result of the use of unobservable inputs.  The disclosure requirements added relating to public companies are (1) to disclose the changes in unrealized gains and losses for the period for recurring Level 3 fair value measurements, and (2) to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

 

 

 

January 1, 2020

 

 

 

 

The Company adopted the amended guidance effective January 1, 2020.  A prospective transition method is being used for the amendments relating to disclosures being added under the guidance.  Such disclosures relate to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty.  All other amendments relating to removing or modifying certain disclosures are applied retrospectively.  The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.

 

 

 

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

 

 

 

 

The amended guidance requires a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize and which costs to expense.

 

 

 

January 1, 2020

 

 

 

 

 

The Company adopted the amended guidance effective January 1, 2020 using a prospective transition method. The impact of the guidance on the Company’s consolidated financial statements is dependent on the nature and amount of actual expenditures, but was not material for the nine months ended September 30,2020.

 

 

Improvements to Related Party Guidance for VIEs

 

 

The amended guidance requires that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.

 

 

January 1, 2020

 

 

 

 

The guidance did not have a material impact on the Company’s consolidated financial statements.

 

- 48 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

15. Recent accounting developments, continued

 

 

 

Standard

 

 

 

Description

 

 

Required date

of adoption

 

 

 

Effect on consolidated financial statements

 

 

 

Standards Not Yet Adopted as of September 30, 2020

 

 

 

Changes to the Disclosure Requirements for Defined Benefit Plans

 

 

 

The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The disclosure requirements being removed relating to public companies are (1) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, (2) the amount and timing of plan assets expected to be returned to the employer, (3) the 2001 disclosure requirement relating to Japanese Welfare Pension Insurance Law, (4) related party disclosures about the amount of future annual benefits covered by insurance, and (5) the effects of a one-percentage-point change in assumed health care cost trends on the benefit cost and obligation.  The disclosure requirements being added relating to public companies are (1) the weighted-average interest crediting rates for cash balance plans , and (2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

 

 

 

January 1, 2021

 

Early adoption permitted

 

 

 

The amendments should be applied retrospectively.  The Company does not expect the guidance to have a material impact on its consolidated financial statements.

 

 

 

Clarifying the Interactions Between Equity Securities, Equity Method and Joint Ventures, and Derivatives and Hedging

 

 

 

The amendments clarify the following guidance:

1. That an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in the equity securities investments guidance immediately before applying or upon discontinuing the equity method of accounting.

2. For the purpose of applying the derivatives and hedging guidance an entity should not consider whether, upon the settlement of a forward contract or exercise of a purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method of accounting or the fair value option in accordance with the financial instruments guidance. An entity also would evaluate the remaining characteristics in the derivatives and hedging guidance to determine the accounting for those forward contracts and purchased options.

 

 

 

January 1, 2021

 

Early adoption permitted

 

 

 

The amendments should be applied on a prospective basis.  The Company does not expect the guidance will have a material impact on its consolidated financial statements.

 

- 49 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

15. Recent accounting developments, continued

 

 

 

Standard

 

 

 

Description

 

 

Required date

of adoption

 

 

 

Effect on consolidated financial statements

 

 

 

Standards Not Yet Adopted as of September 30, 2020

 

 

Simplifying the Accounting for Income Taxes

 

 

 

The amendments remove the following exceptions for accounting for income taxes:

1. Exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income)

2. Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment

3. Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary

4. Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

 

The amendments also simplify the accounting for income taxes by doing the following:

1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax.  

2. Requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.

3. Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority.

4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

5. Making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

 

 

January 1, 2021

 

Early adoption permitted

 

 

The amendments related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis.

Early adoption of the amendments in an interim period would require recognition of any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an early adoption election would require adoption of all the amendments in the same period. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

 

 

- 50 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

15. Recent accounting developments, continued

 

 

 

Standard

 

 

 

Description

 

 

Required date

of adoption

 

 

 

Effect on consolidated financial statements

 

 

 

Standards Not Yet Adopted as of September 30, 2020

 

 

Reference Rate Reform

 

 

The amendments provide optional expedients and exceptions for applying GAAP to contracts,hedging

relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments (1) apply to contract modifications that replace a reference rate affected by reference rate reform, (2)  provide exceptions to existing guidance related to changes to the critical terms of a hedging relationship due to reference rate reform (3) provide optional expedients for fair value hedging relationships, cash flow hedging relationships, and net investment hedging relationships, and (4) provide a onetime election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.

 

 

Beginning

March 12, 2020

 

 

The amendments for contract modifications can be elected to be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. The amendments for existing hedging relationships can be elected to be applied as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

 

 

 


- 51 -

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

15. Recent accounting developments, continued

 

 

 

Standard

 

 

 

Description

 

 

Required date

of adoption

 

 

 

Effect on consolidated financial statements

 

 

 

Standards Not Yet Adopted as of September 30, 2020

 

 

Changes to Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

 

 

The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock.  The amendments also reduce form-over-substance-based guidance for the derivatives scope exception for contacts in an entity’s own equity. For convertible instruments, embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate on the instrument.  The amendments also require certain changes to EPS calculations for convertible instruments as well as additional disclosures relating to conditions that cause conversion features to be met.

For contacts in an entity’s own equity, the amendments  revise the derivatives scope exception guidance as follows:

1. Remove the settlement in unregistered shares, collateral, and shareholder rights conditions from the settlement guidance.

2. Clarify that payment penalties for failure to timely file do not preclude equity classification.

3. Require instruments that are required to be classified as an asset or liability to be measured subsequently at fair value, with changes reported in earnings and disclosed in the financial statements. 4. Clarifiy that the scope of the disclosure requirements in the Contracts in an Entity’s Own Equity section of the Derivatives guidance applies only to freestanding instruments.

5. Clarify that the scope of the reassessment guidance in the Contracts in an Entity’s Own Equity section of the Derivatives guidance applies to both freestanding instruments and embedded features.

 

 

January 1, 2022

 

Early adoption permitted but no earlier than January 1, 2021

 

 

The amendments can be applied either on a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, the guidance should be applied to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If applying the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented.

 

The fair value option is allowed to be irrevocably elected for any financial instrument that is a convertible security upon adoption of the amendments.

 

The Company has not yet decided on which transition method will be applied to the extent applicable. The Company does not expect the guidance will have a material impact on its consolidated financial statements.

 

 

 

 

- 52 -

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Net income for M&T Bank Corporation (“M&T”) in the third quarter of 2020 was $372 million compared with $480 million in the corresponding quarter of 2019 and $241 million in the second quarter of 2020. Diluted and basic earnings per common share were $2.75 in the recent quarter, $3.47 in the third quarter of 2019 and $1.74 in the second quarter of 2020. Net income totaled $882 million or $6.42 of diluted and basic earnings per common share during the first nine months of 2020, compared with $1.44 billion or $10.16 of diluted and basic earnings per common share in the similar period of 2019.

The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in 2020’s third quarter was 1.06%, compared with 1.58% in the year-earlier quarter and .71% in the second quarter of 2020. The annualized rate of return on average common shareholders’ equity was 9.53% in the recent quarter,  12.73% in the third quarter of 2019 and 6.13% in the second 2020 quarter. During the nine-month period ended September 30, 2020, the annualized rates of return on average assets and average common shareholders’ equity were .89% and 7.57%, respectively, compared with 1.62% and 12.85%, respectively, in the first nine months of 2019.

Effective January 1, 2020, M&T adopted amended accounting guidance for the measurement of credit losses on financial instruments.  That guidance requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value that is expected to be collected over the contractual term of the assets considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.  The new accounting guidance replaced the previous incurred loss model for determining the allowance for credit losses.  The adoption of the amended guidance resulted in a $132 million increase in the allowance for credit losses as of January 1, 2020. Additional information on the new accounting guidance is provided under the heading “Provision for Credit Losses” and in note 3 of Notes to Financial Statements.

Financial results for the first three quarters of 2020 have been adversely impacted by the Coronavirus Disease 2019 (“COVID-19”) pandemic. Large portions of the U.S. economy were substantially curtailed for extended periods of time and, as a result, many commercial and consumer customers were adversely impacted. Specifically, those adverse economic impacts, coupled with the accounting change noted previously, resulted in the Company recognizing significantly higher provisions for credit losses during the first three quarters of 2020 as compared with previous years. The provision for credit losses in the recent quarter was $150 million, compared with $325 million in the second 2020 quarter, $250 million in the first quarter of 2020 and $45 million in the third quarter of 2019. For the nine-month periods ended September 30, 2020 and 2019, the provision totaled $725 million and $122 million, respectively.  The 2020 periods reflect the new accounting guidance for the measurement of expected credit losses on financial instruments. Prior to 2020, the provision for credit losses reflected incurred losses only. In response to the pandemic, the Federal Reserve has taken action to lower interest rates that has negatively affected the Company’s net interest income. Taxable-equivalent net interest income totaled $947 million and $961 million in the third and second quarters of 2020, respectively, compared with $1.04 billion in the third quarter of 2019. For the first nine months of each year, taxable-equivalent net interest income was $2.89 billion in 2020 and $3.14 billion in 2019.  

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Among other things, the CARES Act provides relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing, and also provides funding opportunities for small businesses under the Paycheck Protection Program (“PPP”) from approved Small Business Administration (“SBA”) lenders, including M&T Bank. For commercial and consumer customers, the Company has provided a host of relief options, including loan maturity extensions, payment deferrals, fee waivers and low interest rate loan products.  M&T Bank funded PPP loans during 2020 that totaled $6.5 billion at September 30, 2020.

Updated economic forecasts at the end of each of the first three quarters of 2020 resulted in higher estimates of expected credit losses in the Company’s loan portfolio than at January 1, 2020, resulting in higher levels of the provision for credit losses in each of those quarters as compared with the comparable 2019 periods. Specifically, for

- 53 -

 

the third quarter of 2020, the level of the provision reflects the ongoing impacts of the pandemic on economic activity in the hospitality and retail sectors, the uncertainty at September 30, 2020 coming from Washington, D.C. over providing additional stimulus to the economy, and concerns about ultimate collectibility of commercial real estate loans where the borrowers are requesting re-payment forbearance.  The Company expects that it will continue to be negatively impacted by the COVID-19 pandemic after September 30, 2020 and believes that the  pandemic could have a material impact on its future financial results. Specifically, the Company expects the following balance sheet and income statement categories to be affected:

 

•

Net interest income and net interest margin –the low interest rate environment will continue to negatively affect the Company’s net interest margin;

 

•

Provision for credit losses – although the economy has seen some signs of recovery during the recent quarter, it is possible that deteriorating economic assumptions used to calculate the allowance for credit losses at the end of future reporting periods could result in continued higher levels of the provision and allowance for credit losses.  In addition, the impact on borrowers’ ability to repay loans could be negatively affected, potentially leading to increased charge-offs;

 

•

Significant portions of noninterest income could be adversely affected. For example, consumer deposit service charge fees may continue to be lower than historical levels due to lower customer transaction activity; credit card interchange volumes may be lower than historical norms, resulting in lower fees, until the economy returns to pre-pandemic activity levels; and portions of trust income may be reduced due to fee waivers associated with proprietary money market mutual fund management fees; and

 

•

A resurgence of the pandemic in large parts of the country may result in government mandates that could impact customer demand for many of the Company’s credit-related products and other services.

The national effort to mitigate the pandemic has resulted in a challenging environment for businesses and their employees.  The Company has taken actions designed to help provide a safe environment for its customers and employees and to provide relief to customers in a variety of ways.  Examples of those actions include:

 

•

The deployment of a Pandemic Response Plan to manage the pandemic’s effects on operations, employees and customers, including seeking to ensure employee safety, maintaining continuity of operations and service levels for customers, preserving the Company’s financial strength, and complying with applicable laws and regulations.  Actions have included placing restrictions on travel, implementing social distancing, health screening, sanitation and other protocols, and mandating for all employees whose jobs can be performed remotely to work from home where possible.  The Company continues to assess the appropriateness of employees returning to the office while seeking to ensure a safe work environment;

 

•

Nearly all M&T Bank branches remain open, with open lobbies and normal access to drive-through windows and ATMs;

 

•

Approximately 90% of the Company’s non-branch employees continue to work remotely;

 

•

While down significantly from June 30 due to customers not requesting an extension of previously granted relief terms, many loan customers are still receiving COVID-19 related relief in various forms, including modification and forbearance requests as of September 30, 2020 as follows:

 

•

Commercial – 1,500 customers with balances of $5.9 billion, down from $14.0 billion at June 30 (including loans to automobile and recreation finance dealers of $63 million and $4.2 billion at September 30 and June 30 respectively);

 

•

Residential real estate – 13,500 customers with balances of $3.3 billion (excluding approximately 62,000 customers with balances of $10.1 billion that are serviced for others and, therefore not included in the Company’s assets), up from $2.3 billion at June 30 reflecting the impact of modified government-guaranteed loans repurchased by the Company from the portfolio of loans serviced for others and not previously included in the Company’s assets;

 

•

Consumer – including automobile, recreational finance, home equity lines and loans, credit cards and personal loans – 4,200 customers with balances of $131 million, down from $685 million at June 30.

 

•

Paycheck Protection Program – At September 30, 2020, 34,600 customers have outstanding loans totaling $6.5 billion, little changed from June 30; and

- 54 -

 

 

•

Waiving certain types of transaction and maintenance fees for consumer and small business deposit account relationships.

Notable events reflected in the Company’s financial results for the first nine months of 2019 included the following:

 

•

In July 2019, M&T agreed to sell its non-controlling interest in an asset manager obtained in the 2011 acquisition of Wilmington Trust Corporation that had been accounted for using the equity method of accounting and, as a result, as of June 30, 2019 recorded a $48 million charge (reflected in “other costs of operations”) to reduce the carrying value of the investment to its net realizable value.  Similar to other active investment managers, the investee entity had experienced a decrease in assets under management and during the second quarter of 2019 the entity’s chief executive and investment officer announced his retirement. Following that announcement, successor management submitted a proposal to M&T to restructure the organization of the entity. The after-tax impact of the charge was a reduction in net income of $36 million, or $.27 of diluted earnings per common share in the second quarter of 2019. The sale of M&T’s interest in the asset manager was effective September 30, 2019.

 

•

During the first quarter of 2019, the Company increased its reserve for legal matters by $50 million in conjunction with matters associated with a subsidiary’s role as trustee of Employee Stock Ownership Plans in its Institutional Client Services business. That increase, on an after-tax basis, reduced net income in that quarter by $37 million, or $.27 of diluted earnings per common share. Also during that quarter, M&T realized $37 million of distributed income from Bayview Lending Group LLC (“BLG”), increasing net income by $28 million, or $.20 of diluted earnings per common share. A similar distribution of $23 million was received in the first quarter of 2020, increasing net income by $17 million, or $.13 of diluted earnings per common share.

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 expenses associated with merging acquired operations (when incurred) into the Company, since such items are considered by management to be “nonoperating” in nature.  Although “net operating income” as defined by M&T is not a GAAP measure, M&T’s management believes that this information helps investors understand the effect of acquisition activity in reported results.

Net operating income totaled $375 million in the third quarter of 2020, compared with $484 million in the year-earlier quarter.  Diluted net operating earnings per common share in the third quarters of 2020 and 2019 were $2.77 and $3.50, respectively. Net operating income and diluted net operating earnings per share were $244 million and $1.76, respectively, in the second quarter of 2020. For the first nine months of 2020, net operating income and diluted net operating earnings per common share were $891 million and $6.49, respectively, compared with $1.45 billion and $10.24, respectively, in the corresponding 2019 period.

Net operating income in the recent quarter expressed as an annualized rate of return on average tangible assets was 1.10%, compared with 1.66% in the third quarter of 2019 and .74% in the 2020’s second quarter. Net operating income represented an annualized return on average tangible common equity of 13.94% in the third quarter of 2020,  18.85% in the year-earlier quarter and 9.04% in the second quarter of 2020. For the first three quarters of 2020, net operating income represented an annualized return on average tanglibe assets and average tanglible common shareholders’ equity of .93% and 11.15%, respectively, compared with 1.70% and 19.07%, respectively, in the first nine months of 2019.  

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

- 55 -

 

Taxable-equivalent Net Interest Income

Taxable-equivalent net interest income was $947 million in the third quarter of 2020, compared with $1.04 billion in the year-earlier quarter. That decline resulted predominantly from an 83 basis point (hundredths of one percent) narrowing of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, to 2.95% in the recent quarter from 3.78% in the third quarter of 2019. The narrowing of the net interest margin was largely the result of declines in rates earned on loans and deposits at the Federal Reserve Bank of New York, reflecting the lower interest rate environment due to actions initiated by the Federal Reserve to decrease its target Federal funds rate three times in the second half of 2019 (each by a .25% increment) and twice in March of 2020 (first by .50%, than another by 1.0%). The impact of the recent quarter’s lower net interest margin on net interest income was partially offset by an increase in average earning assets of $19.0 billion from the year-earlier quarter. The increase in average earning assets in the recent quarter as compared with the third quarter of 2019  resulted from higher average balances of loans and leases and interest-bearing deposits at the Federal Reserve Bank of New York, partially offset by lower average investment securities balances. Taxable-equivalent net interest income in the recent quarter declined $14 million, or 1%, from the second quarter of 2020 primarily driven by an 18 basis point narrowing of the net interest margin from 3.13% in the prior quarter, partially offset by a $4.2 billion rise in average earning assets.  

For the first nine months of 2020, taxable-equivalent net interest income was $2.89 billion, down 8% from $3.14 billion in the corresponding 2019 period. That decrease was primarily attributable to a 69 basis point narrowing of the margin to 3.22% in the 2020 period from 3.91% in the year-earlier period, partially offset by a $12.4 billion increase in average earning assets.

Average loans and leases totaled $98.2 billion in the third quarter of 2020, up $8.1 billion or 9% from $90.1 billion in the similar quarter of 2019.  Commercial loans and leases averaged $28.3 billion in the third quarter of 2020, $5.0 billion or 21% higher than in the year-earlier quarter.  That increase was the result of average outstanding PPP loans of $6.5 billion that were predominantly funded in the second quarter of 2020. Average commercial real estate loans were $37.2 billion in the recent quarter, up $2.0 billion, or 6%, from $35.2 billion in the similar 2019 quarter.  Included in average commercial real estate loans in the third quarters of 2020 and 2019 were loans held for sale of $260 million and $492 million, respectively.  Reflecting the offsetting impacts of ongoing repayments of loans by customers and repurchases of government-guaranteed loans from Ginnie Mae pools that are serviced by the Company, average residential real estate loans declined $115 million or 1% to $16.6 billion in the third quarter of 2020 from $16.7 billion in the year-earlier quarter. The Company repurchases government-guaranteed loans to reduce associated servicing costs, namely a requirement to advance principal and interest payments that had not been received from individual mortgagors, including payments deferred under COVID-19 forbearance arrangements.  The loans repurchased from Ginnie Mae pools averaged $2.1 billion in the recent quarter, including $1.6 billion of repurchases during the quarter, up from $889 million in the year-earlier period. Also included in average residential real estate loans were loans held for sale of $494 million in the recent quarter and $327 million in the third quarter of 2019.  Consumer loans averaged $16.1 billion in the third quarter of 2020, up $1.2 billion, or 8%, from $14.9 billion in the year-earlier quarter, due to growth in average recreational finance loans (consisting predominantly of loans secured by recreational vehicles and boats) and, to a lesser extent, automobile loans that was partially offset by declines in outstanding balances of home equity loans and lines of credit.

- 56 -

 

Average loan and lease balances in the third quarter of 2020 increased $413 million from $97.8 billion in the second quarter of 2020.  Commercial loan and lease average balances in the recent quarter were down $1.4 billion, or 5%, from $29.7 billion in the second quarter of 2020. That decline was due to lower outstanding balances of floor plan inventory loans to dealers that were largely seasonal in nature. Average commercial real estate loans in the third quarter of 2020 increased $296 million from $36.9 billion in the second quarter of 2020.  Commercial real estate loans held for sale averaged $287 million in the second quarter of 2020.  Average balances of residential real estate loans in the recently completed quarter rose $958 million, or 6%, from $15.6 billion in 2020’s second quarter, predominantly reflecting the repurchases of government guaranteed loans of $1.6 billion. The repurchased loans averaged $2.1 billion in 2020’s third quarter, compared with $774 million in the immediately preceding quarter.  Residential real estate loans held for sale averaged $406 million in the second quarter of 2020.  Average consumer loans in the recent quarter increased $558 million, or 4%, from $15.5 billion in 2020’s second quarter, reflecting growth in recreational finance loans.  The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.

AVERAGE LOANS AND LEASES

(net of unearned discount)

 

 

 

 

 

 

 

Percent Increase

 

 

 

 

 

 

 

 

(Decrease) from

 

 

 

 

3rd Qtr.

 

 

3rd Qtr.

 

 

2nd Qtr.

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, etc.

 

$

28,333

 

 

 

21

 

%

 

(5

)

%

Real estate — commercial

 

 

37,243

 

 

 

6

 

 

 

1

 

 

Real estate — consumer

 

 

16,558

 

 

 

(1

)

 

 

6

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreational finance

 

 

6,696

 

 

 

32

 

 

 

11

 

 

Home equity lines and loans

 

 

4,153

 

 

 

(10

)

 

 

(3

)

 

Automobile

 

 

3,831

 

 

 

1

 

 

 

—

 

 

Other

 

 

1,396

 

 

 

—

 

 

 

—

 

 

Total consumer

 

 

16,076

 

 

 

8

 

 

 

4

 

 

Total

 

$

98,210

 

 

 

9

 

%

 

—

 

%

For the first nine months of 2020, average loans and leases totaled $95.9 billion, up 7%, from $89.2 billion in the corresponding 2019 period. Contributing to the rise were a $4.2 billion increase in average commercial loan and lease balances (due largely to PPP loans), a $1.9 billion increase in average commercial real estate loans and a $1.3 billion increase in average consumer loan balances, partially offset by a $746 million decline in average residential real estate loan balances.

The investment securities portfolio averaged $7.9 billion in the third quarter of 2020, down $3.2 billion, or 29%, from $11.1 billion in the year-earlier quarter and $624 million lower than the $8.5 billion averaged in the second quarter of 2020.  For the first nine months of 2020 and 2019, investment securities averaged $8.5 billion and $12.1 billion, respectively.  As compared with the 2019 periods, the lower average balances in the three-month and nine-month periods ended September 30, 2020 reflect maturities of U.S. Treasury notes and pay downs of mortgage-backed securities.  The decline from the second to the third quarter of 2020 resulted from pay downs of mortgage-backed securities.  There were no significant sales of investment securities during the first nine months of 2020 or 2019. During the first quarter of 2019, the Company purchased $500 million of U.S. Treasury notes. There were no other significant purchases of investment securities during the first nine months of 2020 or 2019.  The Company routinely has increases and decreases in its holdings of capital stock of the Federal Home Loan Bank of New York and the Federal Reserve Bank of New York.  Those holdings are accounted for at cost and are adjusted based on amounts of outstanding borrowings and available lines of credit with those entities.

The investment securities portfolio is predominantly comprised of residential mortgage-backed securities, short term U.S. Treasury and federal agency notes, and certain other debt and marketable equity securities. Investment

- 57 -

 

securities also include capital stock of the Federal Home Loan Bank of New York and the Federal Reserve Bank of New York.   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 changes in interest rates and spreads, 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 factors such as demand for loans, which generally yield more than investment securities and other earning assets, ongoing repayments, the levels of deposits, and management of liquidity and balance sheet size and resulting capital ratios.

Fair value changes in equity securities with readily determinable fair values are recognized in the consolidated statement of income.  Net unrealized gains on such equity securities were $3 million in the recent quarter, compared with $4 million in the third quarter of 2019 and $7 million in the second 2020 quarter. Net unrealized losses on equity securities were $11 million during the first nine months of 2020, compared with net unrealized gains of $24 million in the prior year period.  Those gains and losses were predominantly related to the Company’s holdings of Fannie Mae and Freddie Mac preferred stock.  

The Company regularly reviews its debt investment securities for declines in value below amortized cost that might be indicative of credit-related losses. In light of such reviews, there were no credit-related losses on debt investment securities recognized in either of the nine-month periods ended September 30, 2020 or 2019. Based on management’s assessment of future cash flows associated with individual investment securities as of September 30, 2020, the Company did not expect to incur any material credit-related losses in its portfolios of debt investment securities. Additional information about the investment securities portfolio is included in notes 2 and 11 of Notes to Financial Statements.

Other earning assets include interest-bearing deposits at the Federal Reserve Bank of New York and other banks, trading account assets, federal funds sold and agreements to resell securities.  Those other earning assets in the aggregate averaged $21.6 billion in the third quarter of 2020, compared with $7.5 billion in the year-earlier quarter and $17.2 billion in the second quarter of 2020.  Interest-bearing deposits at banks averaged $16.4 billion, $7.4 billion and $16.5 billion for the three months ended September 30, 2020, September 30, 2019 and June 30, 2020, respectively.  The amounts of interest-bearing deposits at banks at the respective dates were predominantly comprised of deposits held at the Federal Reserve Bank of New York.  The levels of those deposits often fluctuate due to changes in trust-related deposits and other deposits of commercial entities, purchases or maturities of investment securities, or borrowings to manage the Company’s liquidity. The higher amount at September 30, 2020 and June 30, 2020 as compared with the prior year period reflects the impact of increased commercial and consumer deposit balances.  Agreements to resell securities averaged $5.1 billion, $18 million and $692 million during the quarters ended September 30, 2020, September 30, 2019 and June 30, 2020, respectively. The higher average balance in the recent quarter also reflects the impact of increased customer deposit levels.

As a result of the changes described herein, average earning assets totaled $127.7 billion in the third quarter of 2020, compared with $108.6 billion in the year-earlier quarter and $123.5 billion in the second 2020 quarter.  Average earning assets totaled $119.8 billion and $107.4 billion during the first nine months of 2020 and 2019, respectively.  

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 $110.6 billion in the third quarter of 2020, compared with $88.8 billion in the similar 2019 quarter. The increase in average core deposits in the recent quarter as compared with the third quarter of 2019 reflected higher balances of noninterest-bearing deposits and savings and interest-checking deposits. Average balances of savings and interest-checking core deposits rose $8.7 billion or 16% to $61.7 billion in the third 2020 quarter from $53.0 billion in the year-earlier quarter.  Average noninterest-bearing deposits increased $14.2 billion or 47% to $44.8 billion in the recent quarter from $30.6 billion in the third 2019 quarter. Those increases were largely due to higher average deposits of commercial

- 58 -

 

customers, but also reflect higher levels of consumer deposits and deposits associated with residential mortgage servicing activities. Average core deposits were $106.1 billion in the second quarter of 2020. Average savings and interest-checking core deposits increased $2.7 billion or 5% in the third 2020 quarter from $59.0 billion in the immediately preceding quarter. Average noninterest-bearing deposits in the recent quarter were $2.3 billion or 5% higher than the second quarter 2020 average of $42.5 billion predominantly due to higher deposits of commercial customers as liquidity and economic concerns result in continued deposit rentention by clients. The following table provides an analysis of quarterly changes in the components of average core deposits.  

AVERAGE CORE DEPOSITS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent Increase

 

 

 

 

 

 

 

 

(Decrease) from

 

 

 

 

3rd Qtr.

 

 

3rd Qtr.

 

 

2nd Qtr.

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

$

61,664

 

 

 

16

 

%

 

5

 

%

Time deposits

 

 

4,103

 

 

 

(22

)

 

 

(11

)

 

Noninterest-bearing deposits

 

 

44,786

 

 

 

47

 

 

 

5

 

 

Total

 

$

110,553

 

 

 

24

 

%

 

4

 

%

The Company also receives funding from other deposit sources, including branch-related time deposits over $250,000, deposits associated with the Company’s Cayman Islands office and brokered deposits.  Time deposits over $250,000, excluding brokered deposits, averaged $612 million in the recent quarter, compared with $1.1 billion in the third quarter of 2019 and $733 million in the second 2020 quarter. The decreases in such deposits since the third quarter of 2019 were predominantly the result of maturities of higher-rate time deposits. Cayman Islands office deposits averaged $1.0 billion for each of the quarters ended September 30 and June 30, 2020, compared with $1.5 billion for the quarter ended September 30, 2019. The decreases in such deposits in the two most recent quarters as compared with the third quarter of 2019 reflect customer reaction to the declines in short-term interest rates that followed actions by the Federal Reserve in March 2020. The Company had brokered savings and interest-bearing transaction accounts, which in the aggregate averaged $4.2 billion during the recent quarter, compared with $2.6 billion in the third quarter of 2019 and $4.0 billion in the second quarter of 2020.  The amounts of Cayman Islands office deposits or brokered deposits is largely dependent on demand by customers and other investors for those types of deposit products.

- 59 -

 

The table below summarizes average total deposits for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019.

AVERAGE DEPOSITS

 

 

Retail

 

 

Trust

 

 

Commercial

and Other

 

 

Total

 

 

 

(In millions)

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

$

29,902

 

 

$

5,323

 

 

$

30,623

 

 

$

65,848

 

Time deposits

 

 

4,452

 

 

 

49

 

 

 

214

 

 

 

4,715

 

Noninterest-bearing deposits

 

 

6,977

 

 

 

5,408

 

 

 

32,401

 

 

 

44,786

 

Deposits at Cayman Islands office

 

 

—

 

 

 

—

 

 

 

957

 

 

 

957

 

Total

 

$

41,331

 

 

$

10,780

 

 

$

64,195

 

 

$

116,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2020

 

 

 

Savings and interest-checking deposits

 

$

28,665

 

 

$

5,524

 

 

$

28,738

 

 

$

62,927

 

Time deposits

 

 

5,051

 

 

 

51

 

 

 

252

 

 

 

5,354

 

Noninterest-bearing deposits

 

 

6,570

 

 

 

5,369

 

 

 

30,558

 

 

 

42,497

 

Deposits at Cayman Islands office

 

 

—

 

 

 

—

 

 

 

1,017

 

 

 

1,017

 

Total

 

$

40,286

 

 

$

10,944

 

 

$

60,565

 

 

$

111,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

$

26,535

 

 

$

6,627

 

 

$

22,518

 

 

$

55,680

 

Time deposits

 

 

5,762

 

 

 

52

 

 

 

529

 

 

 

6,343

 

Noninterest-bearing deposits

 

 

5,370

 

 

 

4,016

 

 

 

21,164

 

 

 

30,550

 

Deposits at Cayman Islands office

 

 

—

 

 

 

—

 

 

 

1,522

 

 

 

1,522

 

Total

 

$

37,667

 

 

$

10,695

 

 

$

45,733

 

 

$

94,095

 

 

The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, the Federal Reserve Bank of New York and others as sources of funding.  Short-term borrowings represent borrowing arrangements that at the time they were entered into had a contractual maturity of one year or less. Average short-term borrowings totaled $62 million in the third quarter of 2020, compared with $1.2 billion in the year-earlier quarter and $63 million in the second quarter of 2020. In general, the higher short-term borrowings in the prior year period were entered into for liquidity management purposes.

Long-term borrowings averaged $5.5 billion in the recent quarter, compared $7.1 billion in the third quarter of 2019 and $6.2 billion in the second quarter of 2020. Average balances of outstanding senior notes were $3.5 billion, $5.1 billion and $4.1 billion during the three months ended September 30, 2020, September 30, 2019 and June 30, 2020, respectively. On January 7, 2020, M&T Bank, the principal bank subsidiary of M&T, redeemed $750 million of fixed rate senior notes that were due to mature on February 6, 2020. In addition, M&T Bank redeemed $750 million of fixed rate senior notes on July 17, 2020 that were due to mature on August 17, 2020. Subordinated capital notes included in long-term borrowings averaged $1.4 billion in each of the three-month periods ended September 30, 2020, September 30, 2019 and June 30, 2020.  Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $527 million, $524 million and $526 million during the third quarters of 2020 and 2019 and the second 2020 quarter, respectively. Additional information regarding junior subordinated debentures is provided in note 4 of Notes to Financial Statements.

Net interest income can be impacted by changes in the composition of the Company’s earning assets and interest-bearing liabilities, as discussed herein, as well as changes in interest rates and spreads.  Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 2.83% in the recent quarter, compared with 3.41% in the third quarter of 2019.  The yield on earning assets during the third quarter of 2020 was 3.13%, down 138 basis points from 4.51% in the year-earlier period, while the rate paid on interest-bearing liabilities declined 80 basis points to .30% in the recent quarter from 1.10% in the year-earlier period. In the second quarter of 2020, the net interest spread was 2.98%, the yield on earning assets

- 60 -

 

was 3.38% and the rate paid on interest-bearing liabilities was .40%.  The narrowing of the net interest spread in the recent quarters as compared with the prior year period reflects the impact of the decreases in short-term interest rates initiated by the Federal Reserve during the second half of 2019 and in March 2020.  For the first nine months of 2020, the net interest spread was 3.03%, down 50 basis points from 3.53% in the year-earlier period.  The yield on earning assets and the rate paid on interest-bearing liabilities for the first nine months of 2020 were 3.53% and .50%, respectively, compared with 4.62% and 1.09% respectively, in the initial nine months of 2019.

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 $50.6 billion in the third quarter of 2020, compared with $36.8 billion in the year-earlier quarter and $47.9 billion in the second 2020 quarter.  The increase in average net interest-free funds in the two most recent quarters as compared with the prior year period reflects higher average balances of noninterest-bearing deposits. Those deposits averaged $44.8 billion, $30.6 billion and $42.5 billion in the quarters ended September 30, 2020, September 30, 2019 and June 30, 2020, respectively. The rise in such balances in the most recent quarters as compared with the year-earlier period was largely due to increased levels of deposits of commercial customers.  During the first nine months of 2020 and 2019, average net interest-free funds aggregated $45.6 billion and $36.9 billion, respectively.  Shareholders’ equity averaged $16.1 billion during the three-month period ended September 30, 2020, $15.8 billion during the year-earlier period and $16.0 billion during the three-month period ended June 30, 2020.  Goodwill and core deposit and other intangible assets averaged $4.6 billion in each of the two most recent quarters and in the quarter ended September 30, 2019. The cash surrender value of bank owned life insurance averaged $1.8 billion in each of the three-month periods ended September 30, 2020, September 30, 2019 and June 30, 2020. Increases in the cash surrender value of bank owned life insurance and benefits received are not included in interest income, but rather are recorded in “other revenues from operations.”  The contribution of net interest-free funds to net interest margin was .12% in the third quarter of 2020, compared with .37% and .15% in the third quarter of 2019 and the second quarter of 2020, respectively. The reduced contribution of net interest-free funds to net interest margin in the two most recent quarters as compared with the third quarter of 2019 reflects the lower rates on interest-bearing liabilities used to value net interest-free funds.  The contribution of net interest-free funds for the first nine months of 2020 and 2019 was .19% and .38%, respectively.

Reflecting the changes to the net interest spread and the contribution of net interest-free funds as described herein, the Company’s net interest margin was 2.95% in the third quarter of 2020, compared with 3.78% in the year-earlier period and 3.13% in the second quarter of 2020.  During the first nine months of 2020 and 2019, the net interest margin was 3.22% and 3.91%, respectively.  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 reductions in spreads, could adversely 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.  Periodic settlement amounts arising from these agreements are reflected in either the yields on earning assets or the rates paid on interest-bearing liabilities.  The notional amount of interest rate swap agreements entered into for interest rate risk management purposes was $15.7 billion (excluding $38.9 billion of forward-starting swap agreements) at September 30, 2020, $17.2 billion (excluding $30.3 billion of forward-starting swap agreements) at September 30, 2019 and $17.2 billion (excluding $40.4 billion of forward-starting swap agreements) at December 31, 2019. 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. Interest rate swap agreements with notional amounts of $13.35 billion that were in effect at each of September 30, 2020, September 30, 2019 and December 31, 2019 were serving as cash flow hedges of interest payments associated with variable rate commercial real estate loans.  Interest rate swap agreements with notional amounts of $2.30 billion at September 30, 2020 and $3.80 billion at each of September 30, 2019 and December 31, 2019 were serving as fair value hedges of fixed rate long-term borrowings. The Company has entered into forward-starting interest rate swap agreements predominantly to extend the term of its interest rate swap agreements serving as cash flow hedges, and provide a hedge against changing interest rates on certain of its variable rate loans.

- 61 -

 

In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings.  The difference between changes in the fair value of the interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded as an adjustment to the interest income or interest expense of the respective hedged item.  In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings.  The ineffective portion of the derivative’s gain or loss on cash flow hedges is accounted for similar to that associated with fair value hedges.  The amounts of hedge ineffectiveness recognized during each of the quarters ended September 30, 2020, September 30, 2019 and June 30, 2020 were not material to the Company’s consolidated results of operations.  Information regarding the fair value of interest rate swap agreements and hedge ineffectiveness is presented in note 9 of Notes to Financial Statements. The changes in the fair values of the interest rate swap agreements and the hedged items primarily result from the effects of changing interest rates and spreads.  

The weighted-average rates to be received and paid under interest rate swap agreements currently in effect were 2.46% and .23%, respectively, at September 30, 2020.  The average notional amounts of interest rate swap agreements entered into for interest rate risk management purposes, the related effect on net interest income and margin, and the weighted-average interest rates paid or received on those swap agreements are presented in the accompanying table.  Additional information about the Company’s use of interest rate swap agreements and other derivatives is included in note 9 of Notes to Financial Statements.

INTEREST RATE SWAP AGREEMENTS

 

 

 

Three Months Ended September 30

 

 

.

 

2020

 

 

2019

 

 

 

 

Amount

 

 

Rate(a)

 

 

Amount

 

 

Rate(a)

 

 

 

 

(Dollars in thousands)

Increase (decrease) in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

82,404

 

 

 

.26

 

%

$

4,483

 

 

 

.02

 

%

Interest expense

 

 

(12,312

)

 

 

(.06

)

 

 

3,340

 

 

 

.02

 

 

Net interest income/margin

 

$

94,716

 

 

 

.29

 

%

$

1,143

 

 

 

—

 

%

Average notional amount (c)

 

$

15,780,436

 

 

 

 

 

 

$

17,319,565

 

 

 

 

 

 

Rate received (b)

 

 

 

 

 

 

2.60

 

%

 

 

 

 

 

2.39

 

%

Rate paid (b)

 

 

 

 

 

.25

 

%

 

 

 

 

 

2.37

 

%

 

 

 

Nine Months Ended September 30

 

 

 

 

2020

 

 

2019

 

 

 

 

Amount

 

 

Rate(a)

 

 

Amount

 

 

Rate(a)

 

 

 

 

(Dollars in thousands)

 

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

183,598

 

 

 

.20

 

%

$

(6,693

)

 

 

(.01

)

%

Interest expense

 

 

(28,258

)

 

 

(.05

)

 

 

16,068

 

 

 

.03

 

 

Net interest income/margin

 

$

211,856

 

 

 

.23

 

%

$

(22,761

)

 

 

(.02

)

%

Average notional amount (c)

 

$

16,275,182

 

 

 

 

 

 

$

15,944,505

 

 

 

 

 

 

Rate received (b)

 

 

 

 

 

 

2.55

 

%

 

 

 

 

 

2.35

 

%

Rate paid (b)

 

 

 

 

 

.84

 

%

 

 

 

 

 

2.54

 

%

(a)

Computed as an annualized percentage of average earning assets or interest-bearing liabilities.

(b)

Weighted-average rate paid or received on interest rate swap agreements in effect during the period.

(c)    

Excludes forward-starting interest rate swap agreements not in effect during the period.

- 62 -

 

In addition to interest rate swap agreements, the Company had entered into interest rate floor agreements that were accounted for in the trading account rather than as hedging instruments but, nevertheless, provided the Company with protection against the possibility of future declines in interest rates on earning assets.  At each of September 30, 2019 and December 31, 2019, outstanding notional amounts of such agreements totaled $15.6 billion. The interest rate floor agreements matured during the first quarter of 2020.

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 the maturities of financial instruments included in assets and liabilities differ. Core deposits represent the most significant source of funding for the Company and are generated from a large base of consumer, corporate and institutional customers. That customer base has, over the past several years, become more geographically diverse as a result of expansion of the Company’s businesses. Nevertheless, the Company faces competition in offering products and services from a large array of financial market participants, including banks, thrifts, mutual funds, securities dealers and others.  The Company supplements funding provided through deposits with various short-term and long-term wholesale borrowings, including overnight federal funds purchased, short-term advances from the FHLB of New York, brokered deposits, Cayman Islands office deposits and longer-term borrowings.  M&T Bank has access to additional funding sources through borrowings from the FHLB of New York, lines of credit with the Federal Reserve Bank of New York, M&T Bank’s Bank Note Program, and other available borrowing facilities.  The Bank Note Program enables M&T Bank to offer unsecured senior and subordinated notes.  The Company has, from time to time, also issued subordinated capital notes and junior subordinated debentures associated with trust preferred securities to provide liquidity and enhance regulatory capital ratios.  The Company’s junior subordinated debentures associated with trust preferred securities and other subordinated capital notes are considered Tier 2 capital and are includable in total regulatory capital.  At September 30, 2020 and December 31, 2019, long-term borrowings aggregated $5.5 billion and $7.0 billion, respectively.

Short-term federal funds borrowings outstanding were $2.6 billion at September 30, 2019. There were no such borrowings outstanding at September 30, 2020 or December 31, 2019.  In general, those borrowings were unsecured, matured on the next business day and were entered into for liquidity management purposes.  While predominantly used to satisfy customer demand, Cayman Islands office deposits may also be used by the Company as an alternative to short-term borrowings.  Cayman Islands office deposits totaled $900 million at September 30, 2020, $1.6 billion at September 30, 2019 and $1.7 billion at December 31, 2019. The Company has also benefited from the placement of brokered deposits.  The Company had brokered savings and interest-bearing checking deposit accounts which aggregated approximately $4.2 billion at September 30, 2020, $2.7 billion at September 30, 2019 and $2.8 billion at December 31, 2019.  Brokered time deposits were not a significant source of funding as of those dates.

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 impact by performing stress tests that assess the effect on liquidity resulting from various levels of internal and external stress factors. The liquidity impact of such events is estimated by attempting to measure the effect on deposit levels, available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets.  In addition to deposits and borrowings, other sources of liquidity include maturities of investment securities and other earning assets, repayments of loans and investment securities, and cash generated from operations, such as fees collected for services.

- 63 -

 

Certain customers of the Company obtain financing through the issuance of variable rate demand bonds (“VRDBs”).  The VRDBs are generally enhanced by letters of credit provided by M&T Bank.  M&T Bank oftentimes acts as remarketing agent for the VRDBs and, at its discretion, may from time-to-time own some of the VRDBs while such instruments are remarketed.  When this occurs, the VRDBs are classified as trading account assets in the Company’s consolidated balance sheet.  Nevertheless, M&T Bank is not contractually obligated to purchase the VRDBs.  The value of VRDBs in the Company’s trading account was not material at September 30, 2020 or December 31, 2019.  The total amounts of VRDBs outstanding backed by M&T Bank letters of credit were $831 million at September 30, 2020, compared with $838 million at September 30, 2019 and $857 million at December 31, 2019.  M&T Bank also serves as remarketing agent for most of those bonds.

The Company enters into contractual obligations in the normal course of business that require future cash payments.  Such obligations include, among others, payments related to deposits, borrowings, leases and other contractual commitments.  Off-balance sheet commitments to customers may impact liquidity, including commitments to extend credit, standby letters of credit, commercial letters of credit, financial guarantees and indemnification contracts, and commitments to sell real estate loans.  Because many of these commitments or contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.  Further discussion of these commitments is provided in note 12 of Notes to Financial Statements.

M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases has historically been the receipt of dividends from its bank subsidiaries, which are subject to various regulatory limitations.  Dividends from any bank subsidiary to M&T are limited by the amount of earnings of the subsidiary in the current year and the two preceding years.  For purposes of that test, at September 30, 2020 approximately $1.0 billion was available for payment of dividends to M&T from bank subsidiaries.  M&T also may obtain funding through long-term borrowings.  Outstanding senior notes of M&T at September 30, 2020 and December 31, 2019 were $787 million and $770 million, respectively.  Junior subordinated debentures of M&T associated with trust preferred securities outstanding at September 30, 2020 and December 31, 2019 totaled $527 million and $525 million, respectively.  

Management closely monitors the Company’s liquidity position on an ongoing basis for compliance with internal policies and believes that available sources of liquidity are adequate to meet anticipated funding needs.  Management does not anticipate engaging in any activities, either currently or in the long-term, for which adequate funding would not be available and would therefore result in a significant strain on liquidity at either M&T or its subsidiary banks.

Market risk is the risk of loss from adverse changes in the market prices and/or interest rates of the Company’s financial instruments.  The primary market risk the Company is exposed to is interest rate risk.  Interest rate risk arises from the Company’s core banking activities of lending and deposit-taking, because assets and liabilities reprice at different times and by different amounts as interest rates change.  As a result, net interest income earned by the Company is subject to the effects of changing interest rates.  The Company measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives used to manage interest rate risk.  Management’s philosophy toward interest rate risk management is to limit the variability of net interest income.  The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans and investment securities, and expected maturities of investment securities, loans and deposits.  Management uses a “value of equity” model to supplement the modeling technique described above.  Those supplemental analyses are based on discounted cash flows associated with on- and off-balance sheet financial instruments.  Such analyses are modeled to reflect changes in interest rates and provide management with a long-term interest rate risk metric.  The Company has entered into interest rate swap agreements to help manage exposure to interest rate risk.  At September 30, 2020, the aggregate notional amount of interest rate swap agreements entered into for risk management purposes that were currently in effect was $15.7 billion.  In addition, the Company has entered into $38.9 billion of forward-starting interest rate swap agreements.

- 64 -

 

The Company’s Asset-Liability Committee, which includes members of senior management, monitors the sensitivity of the Company’s net interest income to changes in interest rates with the aid of a computer model that forecasts net interest income under different interest rate scenarios.  In modeling changing interest rates, the Company considers different yield curve shapes that consider both parallel (that is, simultaneous changes in interest rates at each point on the yield curve) and non-parallel (that is, allowing interest rates at points on the yield curve to vary by different amounts) shifts in the yield curve.  In utilizing the model, market-implied forward interest rates over the subsequent twelve months are generally used to determine a base interest rate scenario for the net interest income simulation.  That calculated base net interest income is then compared to the income calculated under the varying interest rate scenarios.  The model considers the impact of ongoing lending and deposit-gathering activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities.  When deemed prudent, management has taken actions to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments and intends to do so in the future.  Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

The accompanying table as of September 30, 2020 and December 31, 2019 displays the estimated impact on net interest income in the base scenario described above resulting from parallel changes in interest rates across repricing categories during the first modeling year.

SENSITIVITY OF NET INTEREST INCOME

TO CHANGES IN INTEREST RATES

 

 

Calculated Increase (Decrease)

in Projected Net Interest Income

 

 

Changes in interest rates

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

+200 basis points

 

$

224,647

 

 

 

45,345

 

 

+100 basis points

 

 

127,554

 

 

 

35,838

 

 

-100 basis points

 

 

(37,516

)

 

 

(94,616

)

 

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 held for non-trading purposes, loan and deposit volumes 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.  In the declining rate scenario, the rate changes may be limited to lesser amounts such that interest rates remain at or above zero on all points of the yield curve.  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. The sensitivity of net interest income to changes in interest rates has increased as of September 30, 2020 as compared with December 31, 2019 due to the lower interest rate environment and composition of the Company’s portfolios of earning assets and interest-bearing liabilities, in particular the increased balance of interest-bearing deposits at banks.

Changes in fair value of the Company’s financial instruments can also result from a lack of trading activity for similar instruments in the financial markets.  That impact is most notable on the values assigned to some of the Company’s investment securities.  Information about the fair valuation of investment securities is presented in notes 2 and 11 of Notes to Financial Statements.

The Company engages in limited trading account activities to meet the financial needs of customers and to fund the Company’s obligations under certain deferred compensation plans.  Financial instruments utilized for trading account activities consist predominantly of interest rate contracts, such as interest rate swap agreements, and forward

- 65 -

 

and futures contracts related to foreign currencies.  The Company generally mitigates the foreign currency and interest rate risk associated with trading account activities by entering into offsetting trading positions that are also included in the trading account.  The fair values of trading account positions associated with interest rate contracts and foreign currency and other option and futures contracts are presented in note 9 of Notes to Financial Statements.  The amounts of gross and net trading account positions, as well as the type of trading account activities conducted by the Company, are subject to a well-defined series of potential loss exposure limits established by management and approved by M&T’s Board of Directors.  However, as with any non-government guaranteed financial instrument, the Company is exposed to credit risk associated with counterparties to the Company’s trading account activities.

The notional amounts of interest rate contracts entered into for trading account purposes totaled $36.6 billion at September 30, 2020, $47.6 billion at September 30, 2019 and $48.6 billion at December 31, 2019. The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes were $877 million at September 30, 2020, compared with $843 million at September 30, 2019 and $1.2 billion at December 31, 2019.  Although the notional amounts of these contracts are not recorded in the consolidated balance sheet, the unsettled fair values of all financial instruments used for trading account activities are recorded in the consolidated balance sheet.  The fair values of all trading account assets and liabilities recognized on the balance sheet were $1.2 billion and $123 million, respectively, at September 30, 2020 and $470 million and $80 million, respectively, at December 31, 2019.  The fair value asset and liability amounts at September 30, 2020 have been reduced by contractual settlements of $3 million and $945 million, respectively, and at December 31, 2019 have been reduced by contractual settlements of $43 million and $281 million, respectively. The higher balance of trading account assets at September 30, 2020 as compared with December 31, 2019 was largely the result of increased values associated with interest rate swap agreements entered into with commercial customers that are not subject to periodic variation margin settlement payments. Included in trading account assets were assets related to deferred compensation plans aggregating $21 million at each of September 30, 2020, September 30, 2019 and December 31, 2019.  Changes in the fair values of such assets are recorded as “trading account and foreign exchange gains” in the consolidated statement of income.  Included in “other liabilities” in the consolidated balance sheet at September 30, 2020 were $24 million of liabilities related to deferred compensation plans, compared with $25 million at each of September 30, 2019 and December 31, 2019.  Changes in the balances of such liabilities due to the valuation of allocated investment options to which the liabilities are indexed are recorded in “other costs of operations” in the consolidated statement of income.  Also included in trading account assets were investments in mutual funds and other assets that the Company was required to hold under terms of certain non-qualified supplemental retirement and other benefit plans that were assumed by the Company in various acquisitions.  Those assets totaled $29 million at September 30, 2020 and $28 million at each of September 30, 2019 and December 31, 2019.

Given the Company’s policies, limits and positions, management believes that the potential loss exposure to the Company resulting from market risk associated with trading account activities was not material, however, as previously noted, the Company is exposed to credit risk associated with counterparties to transactions related to the Company’s trading account activities.  Additional information about the Company’s use of derivative financial instruments in its trading account activities is included in note 9 of Notes to Financial Statements.

Provision for Credit Losses

As described in note 3 of Notes to Financial Statements, effective January 1, 2020 the Company adopted amended accounting guidance for the measurement of credit losses on financial instruments.  That guidance requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value that is expected to be collected over the contractual term of the assets considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.  The new guidance replaces the previous incurred loss model for determining the allowance for credit losses.  The adoption of the amended guidance resulted in a $132 million increase in the allowance for credit losses at January 1, 2020.  Increases in the allowance for residential real estate loans and consumer loans, reflecting the longer-dated maturities of such portfolios, were offset somewhat by net decreases in the allowance for commercial loans resulting from lower loss estimates on demand loan products due to the assumption that the Company could

- 66 -

 

require full repayment of such loans in the near-term.  The following table depicts the changes in the allowance for credit losses by loan category resulting from the adoption of the amended guidance.

IMPACT OF ADOPTION OF AMENDED ACCOUNTING GUIDANCE ON ALLOWANCE FOR CREDIT LOSSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

December 31, 2019

 

 

Impact of Adoption

Increase (Decrease)

 

 

Balance

January 1, 2020

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

366,094

 

 

$

(61,474

)

 

$

304,620

 

Commercial real estate

 

 

322,201

 

 

 

23,656

 

 

 

345,857

 

Residential real estate

 

 

56,033

 

 

 

53,896

 

 

 

109,929

 

Consumer

 

 

229,118

 

 

 

194,004

 

 

 

423,122

 

Unallocated

 

 

77,625

 

 

 

(77,625

)

 

 

—

 

Total

 

$

1,051,071

 

 

$

132,457

 

 

$

1,183,528

 

The amended guidance requires estimated credit losses on loans acquired at a discount to be reflected in the allowance for credit losses.  Previously, such losses were netted in the carrying value of the loans unless there was an increased loss expectation subsequent to their acquisition. The gross-up of the estimated losses on loans acquired at a discount that was previously not recognized in the allowance for credit losses was $18 million on January 1, 2020.  Prior to January 1, 2020, the Company generally recognized interest income on loans acquired at a discount regardless of the borrowers’ repayment status.  Effective with the adoption of the new accounting guidance, the Company’s nonaccrual loan policy now applies to loans acquired at a discount.  Loans acquired at a discount at December 31, 2019 included $171 million of loans that, effective with the adoption of the new guidance, were classified as non-accrual loans on January 1, 2020.

A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management.  The provision for credit losses in the third quarter of 2020 was $150 million, compared with $45 million in the year-earlier quarter and $325 million in the second quarter of 2020. As noted earlier, the significant increases in the provision in 2020 as compared with the third quarter of 2019 follow the adoption of new accounting guidance on January 1, 2020 and reflect updated economic assumptions and projections that considered the macroeconomic outlook associated with the COVID-19 pandemic as of the end of each quarter of 2020. The Company’s estimates of expected losses reflect the ongoing impacts of the COVID-19 pandemic on economic activity, generally, and in the hospitality and retail sectors, specifically, the uncertainty in Washington D.C. that existed at September 30, 2020 over providing additional stimulus to the economy, and concerns about commercial real estate values and the ultimate collectibility of commercial real estate loans where borrowers are requesting repayment forbearance. Net charge-offs of loans were $30 million in the recent quarter, $36 million in the third quarter of 2019 and $71 million in the second quarter of 2020.  Net charge-offs as an annualized percentage of average loans and leases were .12% in the third quarter of 2020, .16% in the year-earlier quarter and .29% in the second 2020 quarter. Net charge-offs for the nine-month periods ended September 30, 2020 and 2019 were $150 million and $103 million, respectively, representing an annualized .21% and .15%, repectively, of average loans and leases. A summary of net charge-offs by loan type is presented in the table that follows.

- 67 -

 

NET CHARGE-OFFS (RECOVERIES)

BY LOAN/LEASE TYPE

 

 

2020

 

 

 

First Quarter

 

 

Second Quarter

 

 

Third Quarter

 

 

Year-

to-date

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

13,122

 

 

 

29,235

 

 

 

9,959

 

 

 

52,316

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

834

 

 

 

16,458

 

 

 

1,944

 

 

 

19,236

 

Residential

 

 

3,428

 

 

 

(279

)

 

 

556

 

 

 

3,705

 

Consumer

 

 

31,778

 

 

 

25,716

 

 

 

17,272

 

 

 

74,766

 

 

 

$

49,162

 

 

 

71,130

 

 

 

29,731

 

 

 

150,023

 

 

 

 

2019

 

 

 

First Quarter

 

 

Second Quarter

 

 

Third Quarter

 

 

Year-

to-date

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

706

 

 

 

10,102

 

 

 

8,948

 

 

 

19,756

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

(543

)

 

 

9,200

 

 

 

(549

)

 

 

8,108

 

Residential

 

 

1,542

 

 

 

1,749

 

 

 

1,210

 

 

 

4,501

 

Consumer

 

 

20,402

 

 

 

23,419

 

 

 

26,821

 

 

 

70,642

 

 

 

$

22,107

 

 

 

44,470

 

 

 

36,430

 

 

 

103,007

 

Included in net charge-offs of consumer loans were net charge-offs of: automobile loans of $2 million in the recent quarter, $7 million in the third quarter of 2019 and $9 million in the second quarter of 2020; recreational finance loans of $5 million in the third quarter of 2020, $7 million in the year-earlier quarter and $5 million in the second 2020 quarter; and home equity loans and lines of credit secured by one-to-four family residential properties of less than $1 million in each of the two most recent quarters and $2 million in last year’s third quarter.

Nonaccrual loans aggregated $1.24 billion or 1.26% of total loans and leases outstanding at September 30, 2020, compared with $1.16 billion or 1.18% at June 30, 2020 and $1.13 billion or 1.25% at January 1, 2020. The adoption of the new accounting guidance resulted in an increase in nonaccrual loans on January 1, 2020 of approximately $171 million.  Previously such loans would have been classified as either purchased impaired loans or acquired accruing loans past due 90 days or more. Loans classified as nonaccrual at September 30, 2019 and December 31, 2019 totaled $1.01 billion and $963 million, respectively, or 1.12% and 1.06% of total loans outstanding.

Accruing loans past due 90 days or more were $527 million or .54% of loans and leases at September 30, 2020, compared with $536 million or .55% at June 30, 2020. Accruing loans past due 90 days or more (excluding loans acquired at a discount) were $461 million or .51% of total loans outstanding at September 30, 2019 and $519 million or .57% of outstanding loans at December 31, 2019.  Accruing loans past due 90 days or more included loans guaranteed by government-related entities of $505 million, $434 million, $480 million and $454 million at September 30, 2020, September 30, 2019, December 31, 2019 and June 30, 2020, respectively.  Guaranteed loans 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 that are guaranteed by government-related entities totaled $480 million at September 30, 2020, $410 million a year earlier, $452 million at December 31, 2019 and $428 million at June 30, 2020.  The increase in such loans as compared with the prior dates resulted from higher levels of loans repurchased during the recent quarter.  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. In addition to

- 68 -

 

the past due loans, the Company has also repurchased $1.4 billion of government guaranteed residential mortgage loans in the recent quarter that are not considered delinquent because the borrower has requested and received a COVID-19 related payment deferral. Those loans were also repurchased to reduce associated servicing costs as described above and also remain covered by the insurance or guarantee of the applicable government-related entity.

Loans that were 30-89 days past due were $874 million at September 30, 2020, compared with $1.2 billion at December 31, 2019 and $618 million at June 30, 2020.  The lower levels of such past due loans at September 30 and June 30, 2020 were a result of loan paydowns, many of which resulted in return to current status, and migrations of loans to nonaccrual status.  COVID-19 related payment deferral modifications resulted in such loans being classified as current in accordance with regulatory guidance and, as a result, did not contribute in incremental additions to loans categorized as 30-89 days past due.

Prior to the adoption of the new accounting standard on January 1, 2020, the Company reported purchased impaired loans. Those loans were impaired at the date of acquisition, were recorded at estimated fair value and were generally delinquent in payments, but, in accordance with GAAP, the Company continued to accrue interest income on such loans based on the estimated expected cash flows associated with the loans.  The amended accounting guidance requires estimated credit losses on loans acquired at a discount to now be reflected in the allowance for credit losses and effective with the adoption of the guidance, the Company’s nonaccrual loan policy now applies to such loans.  The carrying amount of purchased impaired loans was $253 million at September 30, 2019 and $228 million at December 31, 2019.

The United States has been operating under a state of emergency related to the COVID-19 pandemic since March 13, 2020.  The direct and indirect effects of the COVID-19 pandemic resulted in a dramatic reduction in economic activity that severely hampered the ability of some businesses and consumers to meet their repayment obligations.  The CARES Act, in addition to providing financial assistance to both businesses and consumers, created a forbearance program for federally-backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the national emergency, and provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board and provisions of the CARES Act, allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as delinquent or as troubled debt restructurings. Modifications may include payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment. The Company has worked with its customers affected by COVID-19 and, as previously noted, has granted a significant amount of modifications across many of its loan portfolios.  To the extent that such modifications met the criteria previously described, such modifications have not been classified as delinquent or as troubled debt restructurings.

The Company also modified the terms of select loans in an effort to assist borrowers that were not related to the COVID-19 pandemic. If the borrower was experiencing financial difficulty and a concession was granted, the Company considered such modifications as troubled debt restructurings.  Loan modifications included such actions as the extension of loan maturity dates and the lowering of interest rates and monthly payments.  The objective of the modifications was to increase loan repayments by customers and thereby reduce net charge-offs. The modified loans are included in impaired loans for purposes of determining the level of the allowance for credit losses.  Information about modifications of loans that are considered troubled debt restructurings is included in note 3 of Notes to Financial Statements.

Residential real estate loans modified under specified loss mitigation programs prescribed by government guarantors that were not related to the COVID-19 pandemic have not been included in renegotiated loans because the loan guarantee remains in full force and, accordingly, the Company has not granted a concession with respect to the ultimate collection of the original loan balance. Such loans aggregated $267 million, $177 million, and $203 million at September 30, 2020, September 30, 2019 and December 31, 2019, respectively.

- 69 -

 

Commercial loans and leases classified as nonaccrual totaled $351 million, $383 million, $347 million, and $285 million at September 30, 2020, September 30, 2019, December 31, 2019, and June 30, 2020, respectively. Commercial real estate loans in nonaccrual status aggregated $292 million, $221 million, $195 million and $260 million at September 30, 2020, September 30, 2019, December 31, 2019, and June 30, 2020, respectively.

Nonaccrual residential real estate loans totaled $413 million at September 30, 2020, compared with $305 million at September 30, 2019, $319 million at December 31, 2019 and $426 million at June 30, 2020. The increase at the two most recent quarter-ends as compared with the prior year dates is largely reflective of the impact of the adoption of the amended accounting guidance as noted earlier. Included in residential real estate loans classified as nonaccrual were limited documentation first mortgage loans of $116 million at September 30, 2020, compared with $82 million at September 30, 2019, $83 million at December 31, 2019 and $119 million at June 30, 2020.  Limited documentation first mortgage loans represent loans secured by residential real estate that at origination typically included some form of limited borrower documentation requirements as compared with more traditional loans. The Company no longer originates limited documentation loans.  Residential real estate loans past due 90 days or more and accruing interest (excluding loans acquired at a discount at the 2019 dates) aggregated $503 million at September 30, 2020, compared with $440 million at September 30, 2019, $487 million at December 31, 2019 and $479 million at June 30, 2020. A substantial portion of such amounts related to repurchased government-guaranteed loans, including the previously noted higher level of repurchases of loans associated with the Company’s loan servicing portfolio. However, loans that have been modified under COVID-19 forbearance are not considered to be past due in accordance with the previously noted regulatory guidance and provisions of the CARES Act. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter ended September 30, 2020 is presented in the accompanying table.

Nonaccrual consumer loans were $184 million at September 30, 2020, compared with $96 million at September 30, 2019, $102 million at December 31, 2019 and $187 million at June 30, 2020. Included in nonaccrual consumer loans at September 30, 2020, September 30, 2019, December 31, 2019 and June 30, 2020 were: automobile loans of $42 million, $21 million, $21 million and $43 million, respectively; recreational finance loans of $24 million, $12 million, $14 million and $24 million,  respectively; and outstanding balances of home equity loans and lines of credit of $79 million, $60 million, $63 million and $77 million, respectively.  Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended September 30, 2020 is presented in the accompanying table.

Information about past due and nonaccrual loans as of September 30, 2020 and December 31, 2019 is also included in note 3 of Notes to Financial Statements.

- 70 -

 

SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

September 30, 2020

 

 

September 30, 2020

 

 

 

 

 

 

 

Nonaccrual

 

 

Net Charge-offs (Recoveries)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Average

 

 

 

Outstanding

 

 

 

 

 

 

Outstanding

 

 

 

 

 

 

Outstanding

 

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

 

(Dollars in thousands)

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

5,153,998

 

 

$

112,001

 

 

 

2.17

%

 

$

(199

)

 

 

(.02

%)

Pennsylvania

 

 

1,100,845

 

 

 

11,013

 

 

 

1.00

 

 

 

(55

)

 

 

(.02

)

Maryland

 

 

1,329,097

 

 

 

14,168

 

 

 

1.07

 

 

 

32

 

 

 

.01

 

New Jersey

 

 

2,879,628

 

 

 

76,381

 

 

 

2.65

 

 

 

195

 

 

 

.03

 

Other Mid-Atlantic (a)

 

 

1,171,572

 

 

 

11,914

 

 

 

1.02

 

 

 

163

 

 

 

.06

 

Other

 

 

3,200,975

 

 

 

71,744

 

 

 

2.24

 

 

 

433

 

 

 

.06

 

Total

 

$

14,836,115

 

 

$

297,221

 

 

 

2.00

%

 

$

569

 

 

 

.02

%

Residential construction loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

24,376

 

 

$

147

 

 

 

.60

%

 

$

—

 

 

 

—

%

Pennsylvania

 

 

4,714

 

 

 

240

 

 

 

5.09

 

 

 

—

 

 

 

—

 

Maryland

 

 

13,915

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

New Jersey

 

 

14,418

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other Mid-Atlantic (a)

 

 

19,916

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other

 

 

7,361

 

 

 

28

 

 

 

.38

 

 

 

—

 

 

 

—

 

Total

 

$

84,700

 

 

$

415

 

 

 

.49

%

 

$

—

 

 

 

—

%

Limited documentation first mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

794,475

 

 

$

53,031

 

 

 

6.67

%

 

$

4

 

 

 

—

%

Pennsylvania

 

 

36,048

 

 

 

4,783

 

 

 

13.27

 

 

 

—

 

 

 

—

 

Maryland

 

 

20,580

 

 

 

1,296

 

 

 

6.30

 

 

 

4

 

 

 

.08

 

New Jersey

 

 

639,053

 

 

 

34,744

 

 

 

5.44

 

 

 

—

 

 

 

—

 

Other Mid-Atlantic (a)

 

 

17,086

 

 

 

1,410

 

 

 

8.25

 

 

 

—

 

 

 

—

 

Other

 

 

235,651

 

 

 

20,519

 

 

 

8.71

 

 

 

(21

)

 

 

(.03

)

Total

 

$

1,742,893

 

 

$

115,783

 

 

 

6.64

%

 

$

(13

)

 

 

—

%

First lien home equity loans and lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

1,035,060

 

 

$

18,494

 

 

1,79

 

 

$

41

 

 

 

.02

%

Pennsylvania

 

 

628,542

 

 

 

10,269

 

 

 

1.63

 

 

 

78

 

 

 

.05

 

Maryland

 

 

506,866

 

 

 

9,474

 

 

 

1.87

 

 

 

138

 

 

 

.11

 

New Jersey

 

 

69,039

 

 

 

970

 

 

 

1.41

 

 

 

(13

)

 

 

(.07

)

Other Mid-Atlantic (a)

 

 

177,886

 

 

 

1,994

 

 

 

1.12

 

 

 

25

 

 

 

.06

 

Other

 

 

31,539

 

 

 

1,598

 

 

 

5.07

 

 

 

(1

)

 

 

(.02

)

Total

 

$

2,448,932

 

 

$

42,799

 

 

 

1.75

%

 

$

268

 

 

 

.04

%

Junior lien home equity loans and lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

622,702

 

 

$

16,490

 

 

 

2.65

%

 

$

1,126

 

 

 

.71

%

Pennsylvania

 

 

223,789

 

 

 

3,363

 

 

 

1.50

 

 

 

(405

)

 

 

(.71

)

Maryland

 

 

456,416

 

 

 

9,818

 

 

 

2.15

 

 

 

(240

)

 

 

(.20

)

New Jersey

 

 

92,542

 

 

 

1,448

 

 

 

1.56

 

 

 

(233

)

 

 

(.99

)

Other Mid-Atlantic (a)

 

 

213,091

 

 

 

3,753

 

 

 

1.76

 

 

 

(353

)

 

 

(.65

)

Other

 

 

39,754

 

 

 

957

 

 

 

2.41

 

 

 

(139

)

 

 

(1.39

)

Total

 

$

1,648,294

 

 

$

35,829

 

 

 

2.17

%

 

$

(244

)

 

 

(.06

%)

Limited documentation junior lien:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

410

 

 

$

55

 

 

 

13.41

%

 

$

(1

)

 

 

(.75

%)

Pennsylvania

 

 

201

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Maryland

 

 

928

 

 

 

25

 

 

 

2.69

 

 

 

(6

)

 

 

(2.13

)

New Jersey

 

 

120

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other Mid-Atlantic (a)

 

 

484

 

 

 

32

 

 

 

6.61

 

 

 

—

 

 

 

—

 

Other

 

 

2,489

 

 

 

80

 

 

 

3.21

 

 

 

(31

)

 

 

(4.62

)

Total

 

$

4,632

 

 

$

192

 

 

 

4.14

%

 

$

(38

)

 

 

(2.97

%)

(a)Includes Delaware, Virginia, West Virginia and the District of Columbia.

- 71 -

 

Real estate and other foreclosed assets totaled $50 million at September 30, 2020, compared with $80 million at September 30, 2019, $86 million at December 31, 2019 and $67 million at June 30, 2020.  Net gains or losses associated with real estate and other foreclosed assets were not material during the three-months ended September 30, 2020, September 30, 2019 and June 30, 2019. At September 30, 2020, the Company’s holdings of residential real estate-related properties comprised approximately 86% of foreclosed assets. During the COVID-19 pandemic, government authorities have restricted the ability of mortgage servicers to initiate foreclosure procedures.

A comparative summary of nonperforming assets and certain past due, renegotiated and impaired loan data and credit quality ratios is presented in the accompanying table.

NONPERFORMING ASSET AND PAST DUE, RENEGOTIATED AND IMPAIRED LOAN DATA

 

 

 

2020 Quarters

 

 

2019 Quarters

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third

 

 

Second

 

 

First

 

 

Fourth

 

 

Third

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$

1,239,972

 

 

 

1,156,650

 

 

 

1,061,748

 

 

 

963,112

 

 

 

1,005,249

 

Real estate and other foreclosed assets

 

 

49,872

 

 

 

66,763

 

 

 

83,605

 

 

 

85,646

 

 

 

79,735

 

Total nonperforming assets

 

$

1,289,844

 

 

 

1,223,413

 

 

 

1,145,353

 

 

 

1,048,758

 

 

 

1,084,984

 

Accruing loans past due 90 days or more(a)

 

$

527,258

 

 

 

535,755

 

 

 

530,317

 

 

 

518,728

 

 

 

461,162

 

Government guaranteed loans included in totals above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$

45,975

 

 

 

51,165

 

 

 

50,561

 

 

 

50,891

 

 

 

43,144

 

Accruing loans past due 90 days or more

 

 

505,446

 

 

 

454,269

 

 

 

464,243

 

 

 

479,829

 

 

 

434,132

 

Renegotiated loans

 

$

242,581

 

 

 

234,768

 

 

 

232,439

 

 

 

234,424

 

 

 

240,781

 

Acquired accruing loans past due 90 days or more(b)

 

N/A

 

 

N/A

 

 

N/A

 

 

 

39,632

 

 

 

40,733

 

Purchased impaired loans(c):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding customer balance

 

N/A

 

 

N/A

 

 

N/A

 

 

 

415,413

 

 

 

453,382

 

Carrying amount

 

N/A

 

 

N/A

 

 

N/A

 

 

 

227,545

 

 

 

253,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans to total loans and leases, net of

   unearned discount

 

 

1.26

%

 

 

1.18

%

 

 

1.13

%

 

 

1.06

%

 

 

1.12

%

Nonperforming assets to total net loans and leases and

   real estate and other foreclosed assets

 

 

1.31

%

 

 

1.25

%

 

 

1.22

%

 

 

1.15

%

 

 

1.21

%

Accruing loans past due 90 days or more(a) to total

   loans and leases, net of unearned discount

 

 

.54

%

 

 

.55

%

 

 

.56

%

 

 

.57

%

 

 

.51

%

 

(a)Predominantly residential real estate loans. Prior to 2020, excludes loans acquired at a discount.

(b)

Prior to 2020, loans acquired at a discount that were recorded at fair value at acquisition date. This category does not include purchased impaired loans that are presented separately.

(c)

Prior to 2020, accruing loans acquired at a discount that were impaired at acquisition date and recorded at fair value.

Beginning in 2020, management determines the allowance for credit losses under new accounting guidance that requires estimating the amount of current expected credit losses over the remaining contractual term of the loan and leases portfolio.  A description of the methodologies used by the Company to estimate its allowance for credit losses in 2020 can be found in note 3 of Notes to Financial Statements contained in this quarterly report on Form 10-Q. For periods prior to 2020, a description of the methodologies used by the Company for determining the allowance for credit losses may be found in the Provision for Credit Losses section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in M&T’s Annual Report on Form 10-K for the year ended December 31, 2019.

- 72 -

 

In establishing the allowance for credit losses subsequent to December 31, 2019, 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 loan type. At the time of the Company’s analysis regarding the determination of the allowance for credit losses as of September 30, 2020, there existed substantial concerns about the national and regional economic decline related to the COVID-19 pandemic; the lack of additional economic stimulus being provided by the Federal government; the volatile nature of global markets, including the impact international economic conditions could have on the U.S. economy; Federal Reserve positioning of monetary policy; the extent to which additional repayment forbearance might be requested by borrowers, in particular commercial real estate borrowers; and continued stagnant population and economic growth in the upstate New York and central Pennsylvania regions (approximately 52% of the Company’s loans and leases are to customers in New York State and Pennsylvania) that could see lingering effects of the economic downturn. The Company utilizes a loan grading system to differentiate risk amongst its commercial loans and commercial real estate loans.  Loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and through the loss estimation modeling and other techniques used by the Company are generally considered to possess lower expected losses when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed higher expected loss amounts 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. During 2020, the Company re-graded a significant portion of its commercial loans and commercial real estate loans, particularly those that were modified as a result of COVID-19 impacts. Criticized commercial loans and commercial real estate loans totaled $6.9 billion at September 30, 2020, compared with $2.6 billion at September 30, 2019, $2.5 billion at December 31, 2019, and $6.2 billion at June 30, 2020. The rise in criticized loans at the two most recent quarter-ends as compared to December 31, 2019 reflect the impact of the pandemic on borrowers’ financial condition and the re-grading of loans by the Company.  

The COVID-19 pandemic and related regulatory and governmental responses led to a significant reduction in economic activity that has been detrimental to many businesses across the Company’s geographic regions. Borrowers have been and will likely continue to be adversely impacted by the economic effects of the COVID-19 pandemic. Summaries of the commercial loan and lease and commercial real estate loan portfolios as of September 30, 2020 are provided below. Of the COVID-19 related modifications outstanding at September 30, 2020 provided in the table below, substantially all are scheduled to expire during 2020’s fourth quarter. Should those borrowers request further forbearance, the credit quality of such loans will be re-assessed to determine whether the Company expects to receive all contractual principal and interest payments.

 

 

 

September 30, 2020

 

Commercial, financial, leasing , etc.

 

Total

 

 

PPP

 

 

COVID-19 Related Modifications

 

 

 

(In millions)

 

Industry

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

5,763

 

 

$

2,029

 

 

$

177

 

Motor vehicle and recreational finance dealers

 

 

3,739

 

 

 

383

 

 

 

62

 

Manufacturing

 

 

3,761

 

 

 

689

 

 

 

120

 

Financial and insurance

 

 

2,295

 

 

 

104

 

 

 

82

 

Health services

 

 

2,183

 

 

 

759

 

 

 

18

 

Wholesale

 

 

2,091

 

 

 

432

 

 

 

85

 

Construction

 

 

2,029

 

 

 

980

 

 

 

46

 

Retail

 

 

1,744

 

 

 

450

 

 

 

57

 

Transportation, communications, utilities

 

 

1,693

 

 

 

303

 

 

 

71

 

Real estate investors

 

 

1,652

 

 

 

193

 

 

 

81

 

Other

 

 

942

 

 

 

213

 

 

 

16

 

Total

 

$

27,892

 

 

$

6,535

 

 

$

815

 

- 73 -

 

 

 

 

September 30, 2020

 

Commercial real estate

 

Total

 

 

COVID-19 Related Modifications

 

 

 

(In millions)

 

Investor-owned

 

 

 

 

 

 

 

 

Permanent finance by property type

 

 

 

 

 

 

 

 

Retail/Service

 

$

4,765

 

 

$

1,135

 

Apartments/Multifamily

 

 

4,680

 

 

 

301

 

Office

 

 

4,390

 

 

 

344

 

Hotel

 

 

2,689

 

 

 

2,035

 

Health facilities

 

 

2,569

 

 

 

107

 

Industrial/Warehouse

 

 

1,535

 

 

 

85

 

Other

 

 

349

 

 

 

-

 

Total permanent

 

$

20,977

 

 

$

4,007

 

Total construction/development

 

 

9,524

 

 

 

666

 

Total investor-owned

 

$

30,501

 

 

$

4,673

 

Owner-occupied by industry

 

 

 

 

 

 

 

 

Other services

 

 

1,416

 

 

 

169

 

Retail

 

 

1,181

 

 

 

85

 

Motor vehicle and recreational finance dealers

 

 

1,143

 

 

 

1

 

Health services

 

 

859

 

 

 

51

 

Wholesale

 

 

769

 

 

 

79

 

Manufacturing

 

 

563

 

 

 

22

 

Other

 

 

1,150

 

 

 

46

 

Total owner-occupied

 

 

7,081

 

 

 

453

 

Total

 

$

37,582

 

 

$

5,126

 

The table below provides information on the residential real estate and consumer loan portfolios and outstanding COVID-19 related modifications outstanding at September 30, 2020.

 

 

September 30, 2020

 

 

 

Total

 

 

COVID-19 Related Modifications

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

16,664

 

 

$

3,307

 

Consumer

 

 

 

 

 

 

 

 

Homes equity lines and loans

 

$

4,102

 

 

$

26

 

Recreational finance

 

 

6,899

 

 

 

40

 

Automobile

 

 

3,915

 

 

 

63

 

Other

 

 

1,394

 

 

 

2

 

Total consumer

 

$

16,310

 

 

$

131

 

As commercial loans and commercial real estate loans are approved for modifications related to COVID-19, loan officers and credit department personnel review and reassign loan grades. Investor-owned commercial real estate loans in the hotel and retail sectors have been significantly affected by the pandemic, and borrowers may seek further payment deferrals during the fourth quarter of 2020 as their initial payment deferrals expire. The Company will assess any further payment deferral requests considering collateral values, the financial condition of any guarantors, and the expected collectibility of contractual principal and interest payments. Loan-to-collateral values on these investor-owned loans are generally relatively low and oftentimes the loans include some form of recourse. To the extent borrowers with residential real estate loans begin to request COVID-19 related payment deferrals in the fourth quarter that will result in aggregate deferrals greater than 180 days, such loans will also be reviewed for expected collectibility.

- 74 -

 

Loan officers in different geographic locations with the support of the Company’s credit department personnel review and reassign loan grades based on their detailed knowledge of individual borrowers and the regions in which they operate. The Company re-assessed its loan grades for those borrowers most impacted by COVID-19 in 2020 and expects that loans will continue to be re-graded in subsequent periods as more information becomes available. At least annually, however, updated financial information is obtained from commercial borrowers associated with pass grade loans and additional analysis is performed.  On a quarterly basis, the Company’s centralized credit department reviews all criticized commercial loans and commercial real estate loans greater than $1 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.

With regard to residential real estate loans, the Company’s loss identification and estimation techniques make reference to loan performance and house price data in specific areas of the country where collateral securing the Company’s residential real estate loans is located. For residential real estate-related loans, including home equity loans and lines of credit, the excess of the loan balance over the net realizable value of the property collateralizing the loan is charged-off when the loan becomes 150 days delinquent.  That charge-off is based on recent indications of value from external parties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are generally charged off to estimated net collateral value shortly after the Company is notified of such filings. At September 30, 2020, approximately 60% of the Company’s home equity portfolio consisted of first lien loans and lines of credit.  Of the remaining junior lien loans in the portfolio, approximately 61% (or approximately 24% of the aggregate home equity portfolio) consisted of junior lien loans that were behind a first lien mortgage loan that was not owned or serviced by the Company.  To the extent known by the Company, if a senior lien loan would be on nonaccrual status because of payment delinquency, even if such senior lien loan was not owned by the Company, the junior lien loan or line that is owned by the Company is placed on nonaccrual status. In monitoring the credit quality of its home equity portfolio for purposes of determining the allowance for credit losses, the Company reviews delinquency and nonaccrual information and considers recent charge-off experience. When evaluating individual home equity loans and lines of credit for charge off and for purposes of determining the allowance for credit losses, the Company gives consideration to the required repayment of any first lien positions related to collateral property.  Home equity line of credit terms vary but such lines are generally originated with an open draw period of ten years followed by an amortization period of up to twenty years. At September 30, 2020, approximately 84% of all outstanding balances of home equity lines of credit related to lines that were still in the draw period, the weighted-average remaining draw periods were approximately six years, and approximately 7% were making contractually allowed payments that do not include any repayment of principal.

Factors that influence the Company’s credit loss experience include overall economic conditions affecting businesses and consumers, generally, but also 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.

The Company generally estimates current expected credit losses on loans with similar risk characteristics on a collective basis.  To estimate expected losses, the Company utilizes statistically developed models to project principal balances over the remaining contractual lives of the loan portfolios and determine estimated credit losses through a reasonable and supportable forecast period.  The Company’s approach for estimating current expected credit losses for loans and leases at September 30, 2020, June 30, 2020 and January 1, 2020 included utilizing macro-economic 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

- 75 -

 

one year, to estimate expected credit losses over the remaining contractual life.  Forward-looking estimates of certain macro-economic variables are determined by the M&T Scenario Development Group, which is comprised of senior management business leaders and economists.  Changes in the forecasted economic assumptions from January 1, 2020 to September 30, 2020 primarily reflect the projected impact of the COVID-19 pandemic. The assumptions utilized as of September 30, 2020 included an increase in the unemployment rate in the fourth quarter of 2020 to approximately 10% from 8% at the end of the third quarter of 2020, followed by a sustained high single-digit unemployment rate through 2022. The forecast also assumed gross domestic product to contract nearly 5.1% in 2020 and to then recover to pre-pandemic levels by the third quarter of 2022. Commercial real estate prices were assumed to decline by 17% in 2020, followed by improvement.  Residential real estate prices were not assumed to fluctuate significantly.  The assumptions utilized at June 30, 2020 include a decline in the unemployment rate in the third quarter of 2020 to approximately 9% from a peak of nearly 14% in the second quarter of 2020, followed by a sustained high single-digit unemployment rate through 2022.  The forecast also assumed gross domestic product to contract nearly 7% in 2020 and then to recover to pre-pandemic levels by the second quarter of 2022.  Residential real estate prices were not assumed to fluctuate significantly.  The forecast at March 31, 2020 reflected a sharp contraction of economic activity in the second quarter of 2020 resulting in a projected unemployment rate of 9.3% and an annualized rate of decrease in gross domestic product as low as 26.1% with a decrease of 2.9% during 2020.  The forecast utilized as of March 31 contemplated a significant economic recovery beginning in the third quarter of 2020.  The assumptions utilized as of January 1, 2020 at the time of adoption of the expected credit loss accounting standard were significantly less severe. Those assumptions anticipated unemployment rates that averaged under 4% and steady growth in gross domestic product of 3.3% over the eight quarter forecast period. Forecasted changes in real estate prices as of that date were not significant.  The assumptions utilized were based on information available to the Company at or near September 30, June 30, March 31 and January 1, 2020 at the time it was preparing its estimate of expected credit losses as of those dates.

In establishing the allowance for credit losses the Company also considers the impact of portfolio concentrations, changes in underwriting practices, product expansions into new markets, imprecision in its economic forecasts, geopolitical conditions and other risk factors that influence its loss estimation process.  Geopolitical conditions assessed at the end of each quarter in 2020 included the potential impact of COVID-19 on economic activity that could influence the ability of customers to repay loan amounts in accordance with their contractual obligations.  With respect to economic forecasts the Company assessed the likelihood of alternative economic scenarios during the two-year reasonable and supportable time period and of more negative or positive outcomes on its allowance for credit losses. Economic forecasts have changed rapidly in the recent past due to the uncertain impacts of COVID-19.  Generally, an increase in unemployment rate or a decrease in any of the rate of change in gross domestic product, commercial real estate prices or home prices would have an adverse impact on expected credit losses and would likely result in an increase to the allowance for credit losses.

Further information about the Company’s methodology to estimate expected credit losses is included in note 3 of Notes to Financial Statements.

- 76 -

 

Management believes that the allowance for credit losses at September 30, 2020 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled $1.76 billion at September 30, 2020, compared with $1.18 billion on January 1, 2020 when the new accounting pronouncement became effective.  The increases in the allowance for credit losses during each of the quarters of 2020 were primarily the result of  forecasted economic conditions as a result of the COVID-19 pandemic and the expected impact of such conditions on borrowers’ abilities to repay loans.  The allowance for credit losses totaled $1.04 billion at September 30, 2019, and $1.05 billion at December 31, 2019. As a percentage of loans and leases outstanding, the allowance was 1.79% at September 30, 2020, compared with 1.68% at June 30, 2020, 1.30% at January 1, 2020 and 1.16% at each of September 30, 2019 and December 31, 2019. Excluding the impact of $6.5 billion of government-guaranteed PPP loans originated by the Company in the second quarter of 2020, the allowance as a percentage of total loans and leases at September 30, 2020 was 1.91%. The level of the allowance reflects management’s evaluation of the loan and lease portfolio using the methodology and considering the factors previously referred to.  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.

Other Income

Other income totaled $521 million in the third quarter of 2020, compared with $528 million in the year-earlier quarter and $487 million in the second quarter of 2020.  As compared with the third quarter of 2019, the recent quarter’s higher residential mortgage banking revenues and trust income were more than offset by lower service charges on deposit accounts and trading account and foreign exchange gains. The recent quarter’s improvement as compared with the second quarter of 2020 predominantly reflects higher service charges on deposit accounts, residential mortgage banking revenues and merchant discount and credit card fees.

Mortgage banking revenues were $153 million in the recent quarter, up from $137 million in the third quarter of 2019 and $145 million in the second 2020 quarter.  Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities. The Company’s involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multi-family loan programs of Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development.

Residential mortgage banking revenues, consisting of realized gains from sales of residential real estate loans and loan servicing rights, unrealized gains and losses on residential real estate loans held for sale and related commitments, residential real estate loan servicing fees, and other residential real estate loan-related fees and income, were $119 million in the third quarter of 2020, $88 million in the similar quarter of 2019 and $111 million in the second quarter of 2020. As compared with the earlier quarters, the higher residential mortgage banking revenues in the recent quarter resulted from increased gains associated with loans held for sale and related commitments, reflecting higher origination volumes and improved margins.

New commitments to originate residential real estate loans to be sold were approximately $1.2 billion in the third quarter of 2020, compared with $835 million in the year-earlier quarter and $1.1 billion in the second quarter of 2020. Realized gains from sales of residential real estate loans and loan servicing rights and recognized net unrealized gains or losses attributable to residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans totaled to gains of  $64 million in the third quarter of 2020, $23 million in the corresponding period of 2019 and $52 million in 2020’s second quarter.

Loans held for sale that were secured by residential real estate aggregated $571 million at September 30, 2020, $391 million at September 30, 2019 and $414 million at December 31, 2019.  Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates totaled $1.34 billion and $1.13 billion, respectively, at September 30, 2020, compared with $759 million and $530 million, respectively, at September 30, 2019 and $713 million and $423 million, respectively, at December 31, 2019.  Net recognized unrealized gains on residential real estate loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $59 million at September 30, 2020 and $12 million at each of

- 77 -

 

September 30, 2019 and December 31, 2019. Changes in net unrealized gains or losses are recorded in mortgage banking revenues and resulted in net increases in revenues of $15 million in the recent quarter, $2 million in the third quarter of 2019 and $26 million in the second quarter of 2020.

Revenues from servicing residential real estate loans for others were $55 million during the quarter ended September 30, 2020, compared with $65 million and $59 million during the three months ended September 30, 2019 and June 30, 2020, respectively. Residential real estate loans serviced for others totaled $94.9 billion at September 30, 2020, $98.3 billion at September 30, 2019 and $95.1 billion at each of June 30, 2020 and December 31, 2019. Reflected in residential real estate loans serviced for others were loans sub-serviced for others of $67.0 billion, $65.1 billion, $62.8 billion and $64.7 billion at September 30, 2020, September 30, 2019, December 31, 2019 and June 30, 2020, respectively. Revenues earned for sub-servicing loans totaled $30 million during the recent quarter, $33 million in the third quarter of 2019 and $34 million in the second quarter of 2020. During 2020, the Company added loans to its residential mortgage loan sub-servicing portfolio totaling approximately $2.0 billion in the first quarter, $6.9 billion in the second quarter and $7.0 billion in the third quarter. The contractual servicing rights associated with loans sub-serviced by the Company were predominantly held by affiliates of BLG. Information about the Company’s relationship with BLG and its affiliates is included in note 14 of Notes to Financial Statements.

Capitalized residential mortgage servicing assets totaled $202 million at September 30, 2020 (net of a $27 million valuation allowance), $226 million at September 30, 2019 (net of a $23 million valuation allowance), $237 million at December 31, 2019 (net of a $7 million valuation allowance) and $211 million at June 30, 2020 (net of a $27 million valuation allowance).  Provisions for impairment of capitalized residential mortgage servicing rights of $10 million and $14 million were recorded in the second quarter of 2020 and the third quarter of 2019, respectively. Those provisions resulted from changes in the estimated fair value of capitalized mortgage servicing rights that reflected the impact of lower interest rates on the expected rate of residential mortgage loan prepayments.  There was no similar provision in the third quarter of 2020.

Commercial mortgage banking revenues totaled $34 million in each of the third and second quarters of 2020 and $49 million in the third quarter of 2019.  Included in such amounts were revenues from loan origination and sales activities of $19 million in each of the two most recent quarters and $32 million in 2019’s third quarter. Commercial real estate loans originated for sale to other investors were approximately $785 million in the recent quarter, compared with $1.5 billion in the third quarter of 2019 and $729 million in the second quarter of 2020. Loan servicing revenues totaled $15 million in each of the third and second quarters of 2020, compared with $17 million in the third quarter of 2019. Capitalized commercial mortgage servicing assets were $129 million and $128 million at September 30, 2020 and 2019, respectively, and $131 million at December 31, 2019. Commercial real estate loans serviced for other investors totaled $21.7 billion at September 30, 2020, $20.5 billion at September 30, 2019 and $21.0 billion at December 31, 2019. Those servicing amounts included $3.9 billion at each of September 30, 2020 and December 31, 2019 and $3.8 billion at September 30, 2019 of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectible. Commitments to sell commercial real estate loans and commitments to originate commercial real estate loans for sale were $552 million and $216 million, respectively, at September 30, 2020, $591 million and $393 million, respectively, at September 30, 2019 and $193 million and $164 million, respectively, at December 31, 2019. Commercial real estate loans held for sale at September 30, 2020, September 30, 2019 and December 31, 2019 were $336 million, $197 million and $28 million, respectively.

Service charges on deposit accounts were $91 million and $111 million in the third quarters of 2020 and 2019, respectively, and $77 million in the second quarter of 2020.  The declines in such service charges in the two most recent quarters as compared with the third quarter of 2019 resulted from lower consumer service charges, predominantly resulting from COVID-19 related fee waivers and lower customer transaction activity, and decreased commercial service charges, largely due to higher customer deposit levels that can be used by those customers to offset transaction-related fees.  The improvement from the second to the third quarter of 2020 reflects increased customer transaction activity and the re-establishment of ATM fees.

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Trust income includes fees related to two significant businesses. The Institutional Client Services (“ICS”) business provides a variety of trustee, agency, investment management and administrative services for corporations and institutions, investment bankers, corporate tax, finance and legal executives, and other institutional clients who: (i) use capital markets financing structures; (ii) use independent trustees to hold retirement plan and other assets; and (iii) need investment and cash management services.  The Wealth Advisory Services (“WAS”) business offers personal trust, planning, fiduciary, asset management, family office and other services designed to help high net worth individuals and families grow, preserve and transfer wealth. A comprehensive array of wealth management services are offered, including asset management, fiduciary services and family office services.  Trust income aggregated $150 million in the third quarter of 2020, compared with $144 million in the year-earlier quarter and $152 million in the second quarter of 2020.  Revenues associated with the ICS business were approximately $87 million during the quarter ended September 30, 2020, compared with $79 million and $85 million during the quarters ended September 30, 2019 and June 30, 2020, respectively. The higher revenues in the two most recent quarters as compared with the third quarter of 2019 reflect the impact of higher sales activities and increased retirement services income resulting from growth in collective fund balances. Revenues attributable to WAS totaled approximately $57 million during each of the three-month periods ended September 30, 2020 and 2019 and $60 million for the three-month period ended June 30, 2020. The lower revenues in the recent quarter as compared with the 2020 second quarter were largely attributable to annual tax service fees in the second quarter earned for assisting customers with their tax filings.  Trust assets under management were $123.4 billion, $107.0 billion, $114.4 billion and $113.0 billion at September 30, 2020, September 30, 2019, June 30, 2020 and December 31, 2019, respectively.  Trust assets under management include the Company’s proprietary mutual funds’ assets of $12.5 billion, $12.3 billion, $12.6 billion and $12.5 billion at September 30, 2020, September 30, 2019, June 30, 2020 and December 31, 2019, respectively.  Additional trust income from investment management activities was $6 million and $8 million in the third quarters of 2020 and 2019, respectively, and $7 million in the second 2020 quarter, and is predominantly comprised of fees earned from retail customer investment accounts.

Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, totaled $12 million in each of the third quarters of 2020 and 2019 and $10 million in the second quarter of 2020.  Trading account and foreign exchange activity resulted in gains of $4 million, $16 million and $8 million during the quarters ended September 30, 2020, September 30, 2019 and June 30, 2020, respectively.  The lower gains in the two most recent quarters as compared with the third quarter of 2019 were predominantly due to decreased activity related to interest rate swap agreements executed on behalf of commercial customers.  The Company enters into interest rate and foreign exchange contracts with customers who need such services and concomitantly enters into offsetting trading positions with third parties to minimize the risks involved with these types of transactions.  Information about the notional amount of interest rate, foreign exchange and other contracts entered into by the Company for trading account purposes is included in note 9 of Notes to Financial Statements and herein under the heading “Taxable-equivalent Net Interest Income.”

The Company recognized net gains on investment securities of $3 million in the recent quarter, $4 million in the third quarter of 2019 and $7 million in the second quarter of 2020. The gains represented unrealized gains on investments in Fannie Mae and Freddie Mac preferred stock.

Other revenues from operations were $108 million in the third quarter of 2020, compared with $104 million in the corresponding 2019 period and $87 million in the second quarter of 2020. Contributing to the increase in such revenues in the recent quarter as compared with the immediately preceding quarter were higher transaction-based merchant discount and credit card fees, credit-related fees, and other miscellaneous income. Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees aggregated $27 million in the recent quarter, $28 million in the year-earlier quarter and $25 million in the second quarter of 2020.  Revenues from merchant discount and credit card fees were $28 million in the third quarter of 2020, compared with $31 million in the year-earlier quarter and $23 million in the second 2020 quarter. Tax-exempt income from bank owned life insurance, which includes increases in the cash surrender value of life insurance policies and benefits received, totaled $12 million in each of the third quarters of 2020 and 2019 and $13 million in the second quarter of 2020. Insurance-related sales commissions and other revenues totaled $11 million in the

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quarter ended September 30, 2020, compared with $10 million in each of 2019’s third quarter and the second quarter of 2020.

Other income totaled $1.54 billion during each of the first nine months of 2020 and 2019.  Higher mortgage banking revenues and trust income in 2020 were offset by decreases in service charges on deposit accounts, trading account and foreign exchange gains, income from BLG and merchant discount and credit card fees, and unrealized losses on investment securities.

Mortgage banking revenues totaled $426 million during the first nine months of 2020, compared with $340 million during the similar period in 2019. Residential mortgage banking revenues aggregated $329 million and $226 million during the nine-month periods ended September 30, 2020 and 2019, respectively. New commitments to originate residential real estate loans to be sold aggregated $3.3 billion and $2.0 billion in the initial nine months of 2020 and 2019, respectively. Realized gains from sales of residential real estate loans and loan servicing rights and recognized unrealized gains and losses on residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans aggregated to gains of $148 million and $46 million in the nine-month periods ended September 30, 2020 and 2019, respectively. Revenues from servicing residential real estate loans for others were $181 million in the first nine months of 2020 and $180 million in the corresponding 2019 period. Included in servicing revenues were sub-servicing revenues aggregating $101 million and $90 million in the first nine months of 2020 and 2019, respectively. For the nine months ended September 30, commercial mortgage banking revenues were $98 million and $114 million in 2020 and 2019, respectively. Commercial real estate loans originated for sale to other investors totaled $2.2 billion and $3.3 billion during the nine-month periods ended September 30, 2020 and 2019, respectively.

Service charges on deposit accounts aggregated $275 million during the first nine month of 2020, compared with $322 million in the year-earlier period. That decline was predominantly due to lower consumer service charges resulting from the impact of the pandemic, reflecting waived fees and lower customer transaction activity. Trust income totaled $451 million and $421 million during the first nine months of 2020 and 2019, respectively. The increase in trust income in 2020 as compared with 2019 was largely due to higher revenues from the ICS business, reflecting both sales activities and higher retirement services income from growth in collective fund balances. Brokerage services income totaled $35 million in the first nine months of 2020, compared with $37 million in the nine-month period ended September 30, 2019. Trading account and foreign exchange activity resulted in gains of $33 million and $45 million in the first nine months of 2020 and 2019, respectively.  The lower gains in 2020 were predominantly due to decreased activity related to interest rate swap agreements executed on behalf of commercial customers.

Net unrealized losses on investment securities totaling $11 million were recognized during the first nine months of 2020, compared with net unrealized gains of $24 million in the corresponding 2019 period.  

Other revenues from operations totaled $328 million in the first nine months of 2020, compared with $351 million in the year-earlier period. Other revenues from operations include the following significant components. Letter of credit and other credit-related fees aggregated $83 million and $81 million in 2020 and 2019, respectively. Income from bank owned life insurance totaled $37 million in the first nine months of 2020, compared with $38 million in the corresponding 2019 period. Merchant discount and credit card fees were $80 million and $89 million in the first nine months of 2020 and 2019, respectively. Insurance-related commissions and other revenues aggregated $36 million in each of 2020 and 2019. M&T’s investment in BLG resulted in income of $23 million in the first nine months of 2020 and $37 million in the similar 2019 period.

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Other Expense

Other expense totaled $827 million in the third quarter of 2020, compared with $878 million in the year-earlier quarter and $807 million in the second quarter of 2020. Included in those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $4 million in each of the two most recent quarters and $5 million in the third quarter of 2019. Exclusive of those nonoperating expenses, noninterest operating expenses were $823 million in the recent quarter, compared with $873 million in the third quarter of 2019 and $803 million in the second 2020 quarter. The lower level of expenses in the recent quarter as compared with the third quarter of 2019 was largely attributable to lower costs for professional and outside services, advertising and marketing, and travel and entertainment. The last two categories reflect reduced business activities associated with the COVID-19 pandemic. Additionally, the third quarter of 2019 included a $14 million addition to the valuation allowance for capitalized mortgage servicing rights. There was no similar expense in the recent quarter. As compared with the second quarter of 2020, higher salaries and employee benefits in the recent quarter contributed to the increased expenses, partially offset by a $10 million addition to the valuation allowance for capitalized mortgage servicing rights recognized in the second quarter of 2020.  Table 2 provides a reconciliation of other expense to noninterest operating expense.

Other expense for the first nine months of 2020 totaled $2.54 billion, compared with $2.64 billion in the year-earlier period. Included in those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $12 million and $15 million in the nine-month periods ended September 30, 2020 and 2019, respectively. Exclusive of those nonoperating expenses, noninterest operating expenses for the first three quarters of 2020 were $2.53 billion, compared with $2.63 billion in the similar 2019 period. The decline in noninterest operating expenses was largely attributable to a $48 million charge recorded in the second quarter of 2019 to reduce the carrying value of an investment in an asset manager that had been accounted for using the equity method of accounting to its estimated realizable value.  The sale of that investment was completed in September 2019.  Also contributing to the decline were lower costs for legal-related matters and professional and outside services, partially offset by higher salaries and employee benefits expenses in the 2020 period.

Salaries and employee benefits expense totaled $479 million in the third quarter of 2020, compared with $477 million in the year-earlier quarter and $459 million in the second quarter of 2020.  The increase in salaries and employee benefits expense in the recent quarter as compared with the second quarter of 2020 was predominantly due to higher incentive compensation, resulting in part from increased business activities and one more business day.  During the first nine months of 2020 and 2019, salaries and employee benefits expense aggregated $1.47 billion and $1.43 billion, respectively. The higher expense level in 2020 largely reflects the impact of merit and other increases for employees and increased employee benefit costs, partially offset by lower incentive compensation costs. Salaries and employee benefits expense included stock-based compensation of $12 million in each of the three-month periods ended September 30, 2020 and September 30, 2019 and $13 million in the three-month period ended June 30, 2020, and $69 million and $65 million during the nine-month periods ended September 30, 2020 and 2019, respectively. The number of full-time equivalent employees was 16,980 at September 30, 2020, compared with 17,536 and 17,098 at September 30, 2019 and June 30, 2020, respectively.

Excluding the nonoperating expense items described earlier from each quarter, nonpersonnel operating expenses were $344 million in each of the quarters ended September 30, 2020 and June 30, 2020 and $396 million in the quarter ended September 30, 2019. On that same basis, such expenses were $1.05 billion and $1.20 billion in the nine-month periods ended September 30, 2020 and 2019, respectively. The decline in nonpersonnel expenses in the recent quarter as compared with the third quarter of 2019 reflects lower costs for professional and outside services,  advertising and marketing, and travel and entertainment. The decline in nonpersonnel operating expenses in the first nine months of 2020 as compared with the similar 2019 period reflected the $48 million charge related to the asset manager investment in the second quarter of 2019 and reduced costs for legal-related matters, professional services, advertising and marketing, and travel and entertainment.

The efficiency ratio measures the relationship of noninterest operating expenses to revenues.  The Company’s efficiency ratio was 56.2% during the recent quarter, compared with 56.0% and 55.7% in the third quarter of 2019

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and second quarter of 2020, respectively. The efficiency ratios for the nine-month periods ended September 30, 2020 and 2019 were 57.0% and 56.5%, respectively. The calculation of the efficiency ratio is presented in Table 2.

Income Taxes

The provision for income taxes was $115 million in the third quarter of 2020, compared with $155 million and $71 million in the year-earlier quarter and the second quarter of 2020, respectively. For the nine-month periods ended September 30, 2020 and 2019, the provisions for income taxes were $267 million and $459 million, respectively. The effective tax rates were 23.6%, 24.4% and 22.8% for the quarters ended September 30, 2020, September 30, 2019 and June 30, 2020, respectively, and 23.2% and 24.2% for the nine-month periods ended September 30, 2020 and 2019, respectively.

The effective tax rate is affected by the level of income earned that is exempt from tax relative to the overall level of pre-tax income, the level of income allocated to the various state and local jurisdictions where the Company operates, because tax rates differ among such jurisdictions, and the impact of any large discrete or infrequently occurring items.  The Company’s effective tax rate in future periods will also be affected by any change in income tax laws or regulations and interpretations of income tax regulations that differ from the Company’s interpretations by any of various tax authorities that may examine tax returns filed by M&T or any of its subsidiaries.

Capital

Shareholders’ equity was $16.1 billion at September 30, 2020, representing 11.61% of total assets, compared with $15.8 billion or 12.57% a year earlier and $15.7 billion or 13.11% at December 31, 2019.

Included in shareholders’ equity was preferred stock with financial statement carrying values of $1.25 billion at each of September 30, 2020, September 30, 2019 and December 31, 2019.

Common shareholders’ equity was $14.9 billion, or $115.75 per share, at September 30, 2020, compared with $14.5 billion, or $109.84 per share, a year earlier and $14.5 billion, or $110.78 per share, at December 31, 2019.  Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $79.85 at the end of the recent quarter, compared with $74.93 at September 30, 2019 and $75.44 at December 31, 2019.  The Company’s ratio of tangible common equity to tangible assets was 7.64% at September 30, 2020, compared with 8.20% a year earlier and 8.55% at December 31, 2019.  Reconciliations of total common shareholders’ equity and tangible common equity and total assets and tangible assets as of each of those respective dates are presented in table 2.

Shareholders’ equity reflects accumulated other comprehensive income or loss, which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale, remaining unrealized losses on held-to-maturity securities transferred from available for sale that have not yet been amortized, gains or losses associated with interest rate swap agreements designated as cash flow hedges, foreign currency translation adjustments and adjustments to reflect the funded status of defined benefit pension and other postretirement plans.  Net unrealized gains on investment securities reflected in shareholders’ equity, net of applicable tax effect, were $152 million, or $1.18 per common share, at September 30, 2020, $30 million, or $.22 per common share, at September 30, 2019 and $37 million, or $.29 per common share, at December 31, 2019.  Changes in unrealized gains and losses on investment securities are predominantly reflective of the impact of changes in interest rates on the values of such securities.  Information about unrealized gains and losses as of September 30, 2020 and December 31, 2019 is included in note 2 of Notes to Financial Statements.

Reflected in the carrying amount of available-for-sale investment securities at September 30, 2020 were pre-tax effect unrealized gains of $223 million on securities with an amortized cost of $4.9 billion and pre-tax effect unrealized losses of $11 million on securities with an amortized cost of $159 million.  Information concerning the Company’s fair valuations of investment securities is provided in notes 2 and 11 of Notes to Financial Statements.

Each reporting period the Company reviews its available-for-sale investment securities for declines in value that might be indicative of credit-related losses through an analysis of the creditworthiness of the issuer or the credit performance of the underlying collateral supporting the bond.  If the Company does not expect to recover the entire

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amortized cost basis of a debt security a credit loss is recognized and such loss would be recognized in the consolidated statement of income.  Beginning January 1, 2020, an allowance for credit losses would reduce the carrying value of available-for-sale investment securities.  Previously if a credit-related loss was deemed to have occurred, the investment security’s cost basis was adjusted, as appropriate for the circumstances. A loss is also recognized in the consolidated statement of income if the Company intends to sell a bond or it more likely than not will be required to sell a bond before recovery of the amortized cost basis.

As of September 30, 2020, based on a review of each of the securities in the available-for-sale investment securities portfolio, the Company concluded that it expected to realize the amortized cost basis of each security. As of September 30, 2020, the Company did not intend to sell nor is it anticipated that it would be required to sell any securities for which fair value was less than the amortized cost basis of the security. The Company intends to continue to closely monitor the performance of its securities because changes in their underlying credit performance or other events could cause the amortized cost basis of those securities to become uncollectible.

On January 1, 2020 the Company adopted amended accounting guidance that requires investment securities held to maturity to be presented at their net carrying value that is expected to be collected over their contractual term.  The Company estimated no material allowance for credit losses for its investment securities classified as held-to-maturity at January 1, 2020 and September 30, 2020 as the substantial majority of such investment securities were obligations backed by the U.S. government or its agencies.  The Company assessed the potential for expected credit losses on privately issued mortgage-backed securities in the held-to-maturity portfolio by performing internal modeling to estimate bond-specific cash flows considering recent performance of the mortgage loan collateral and utilizing assumptions about future defaults and loss severity. These bond-specific cash flows also reflect the placement of the bond in the overall securitization structure and the remaining subordination levels.  In total, at September 30, 2020 and December 31, 2019, the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of $80 million and $93 million, respectively, and a fair value of $73 million and $87 million, respectively.  At September 30, 2020, 82% of the mortgage-backed securities were in the most senior tranche of the securitization structure with 14% being independently rated as investment grade.  The mortgage-backed securities are generally collateralized by residential and small-balance commercial real estate loans originated between 2004 and 2008. Given the securitization structure, some of the bonds held by the Company may defer interest payments in certain circumstances, but after considering the repayment structure and estimated future collateral cash flows of each individual bond, the Company has concluded that as of September 30, 2020, it expected to recover the amortized cost basis of those privately issued mortgage-backed securities.  Nevertheless, it is possible that adverse changes in the estimated future performance of mortgage loan collateral underlying such securities could impact the Company’s conclusions.

Adjustments to reflect the funded status of defined benefit pension and other postretirement plans, net of applicable tax effect, reduced accumulated other comprehensive income by $315 million, or $2.46 per common share, at September 30, 2020, $252 million, or $1.91 per common share, at September 30, 2019 and $342 million, or $2.62 per common share, at December 31, 2019. 

Pursuant to previously approved capital plans and authorizations by M&T’s Board of Directors, M&T repurchased 2,577,000 shares of its common stock for $374 million in the first quarter of 2020.  There were no repurchases of common stock in either of the two most recent quarters. In light of the COVID-19 pandemic impact on overall economic conditions and consistent with regulatory guidance, M&T has ceased repurchasing its common stock for the time being and does not anticipate repurchasing any shares during the fourth quarter of 2020.  M&T repurchased 1,933,000 shares of its common stock for $300 million in the third quarter of 2019 and 6,533,000 shares for $1.07 billion during the first nine months of 2019.

M&T’s Board of Directors authorized an increase in the quarterly common stock dividend to $1.10 per common share in the fourth quarter of 2019, up from the previous rate of $1.00 per common share.  Cash dividends declared on M&T’s common stock totaled $142 million during each of the quarters ended September 30, 2020 and June 30, 2020 and $133 million in the third quarter of 2019.  Common stock dividends during the nine-month periods ended September 30, 2020 and 2019 were $427 million and $407 million, respectively.  Cash dividends declared on preferred stock aggregated $17 million in each of the two most recent quarters and $19 million in the third quarter of

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2019. Cash dividends on preferred stock totaled $51 million and $55 million during the nine months ended September 30, 2020 and 2019, respectively.

M&T and its subsidiary banks are required to comply with applicable capital adequacy standards established by the federal banking agencies. Pursuant to those regulations, the minimum capital ratios are as follows:

 

•

4.5% Common Equity Tier 1 (“CET1”) to risk-weighted assets (each as defined in the capital regulations);

 

•

6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets (each as defined in the capital regulations);

 

•

8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets (each as defined in the capital regulations); and

 

•

4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”), as defined in the capital regulations.

In addition, capital regulations require a “capital conservation buffer” of 2.5% composed entirely of CET1 on top of the minimum risk-weighted asset ratios.

The federal bank regulatory agencies have issued rules that allow banks and bank holding companies to phase -in the impact of adopting the expected credit loss accounting model on regulatory capital. Those rules allow banks and bank holding companies to delay for two years the day one impact on retained earnings of adopting the expected loss accounting standard and 25% of the cumulative change in the reported allowance for credit losses subsequent to the initial adoption, followed by a three-year transition period. M&T and its subsidiary banks have elected to adopt these rules and the impact is reflected in the regulatory capital ratios presented below.

The regulatory capital ratios of the Company and its bank subsidiaries, M&T Bank and Wilmington Trust, N.A., as of September 30, 2020 are presented in the accompanying table.

REGULATORY CAPITAL RATIOS  

September 30, 2020

 

 

 

M&T

 

 

M&T

 

 

Wilmington

 

 

 

(Consolidated)

 

 

Bank

 

 

Trust, N.A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1

 

 

9.81%

 

 

 

10.78%

 

 

 

61.96%

 

Tier 1 capital

 

 

11.01%

 

 

 

10.78%

 

 

 

61.96%

 

Total capital

 

 

13.31%

 

 

 

12.60%

 

 

 

62.17%

 

Tier 1 leverage

 

 

8.51%

 

 

 

8.34%

 

 

 

12.48%

 

 

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 Deposit Insurance Fund 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 M&T’s Form 10-K for the year ended December 31, 2019.

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Segment Information

The Company's reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Financial information about the Company's segments is presented in note 13 of Notes to Financial Statements. The reportable segments are Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.

The Business Banking segment recorded net income of $36 million in the third quarter of 2020, down from $46 million in the third quarter of 2019 and $38 million in the second quarter of 2020. As compared with 2019’s third quarter, the recent quarter’s lower net income primarily reflected declines of $8 million in net interest income and $4 million in service charges on deposit accounts. The decrease in net interest income resulted largely from a narrowing of the net interest margin on deposits and loans of 111 basis points and 74 basis points, respectively, partially offset by higher average outstanding balances of deposits and loans of $4.1 billion and $3.4 billion, respectively. The lower service charges on deposit accounts reflect the impact of the COVID-19 pandemic that has resulted in waived fees and lower customer transaction activity. The modest decrease in net income in the recent quarter as compared with the second quarter of 2020 reflected a $9 million decline in net interest income, resulting largely from a 48 basis point narrowing of the net interest margin on deposits. Partially offsetting that unfavorable factor were a $4 million decrease in the provision for credit losses, due to lower net charge-offs, and higher merchant discount and credit card fees of $2 million. Net income for the Business Banking segment totaled $106 million during the first nine months of 2020, compared with $132 million in the corresponding 2019 period. That 19% decrease was predominantly attributable to an $11 million increase in the provision for credit losses, due largely to higher net charge-offs, $7 million of declines in each of net interest income and service charges on deposit accounts, and a $6 million increase in salaries and employee benefits expenses. The lower net interest income reflected a narrowing of the net interest margin on deposits and loans of 83 basis points and 43 basis points, respectively, partially offset by an increase in average outstanding deposit and loan balances of $2.6 billion and $2.1 billion, respectively. The decrease in service charges on deposit accounts reflected the impact of the pandemic that has resulted in waived fees and reduced customer transaction activity.

Net income earned by the Commercial Banking segment totaled $131 million during the recent quarter, down slightly from $133 million in the year-earlier quarter, but up from $111 million in the second quarter of 2020. As compared with the third quarter of 2019, unfavorable factors in the recent quarter included a $4 million decrease in net interest income that reflected a 101 basis point narrowing of the net interest margin on deposits, partially offset by higher average outstanding deposits of $7.8 billion, and a $4 million decline in trading account and foreign exchange gains that resulted from decreased activity related to interest rate swap agreements executed on behalf of commercial customers. Those unfavorable factors were partially offset by increased gains on the sale of equipment previously leased to customers of $5 million. The 18% rise in net income in the recent quarter as compared with the second quarter of 2020 was driven by a $38 million decrease in the provision for credit losses, due to lower loan balances and net charge-offs, $5 million of gains on the sale of previously leased equipment in the recent quarter and a $9 million write-down of equipment leased to customers under operating leases during the second 2020 quarter. Partially offsetting those positive factors was a decrease in net interest income of $23 million, reflecting a 57 basis point narrowing of the net interest margin on deposits. Through the first nine months of the year, net income for the Commercial Banking segment totaled $386 million in 2020, little changed from $388 million in 2019. The largely offsetting factors contributing to the slight decline were a $34 million increase in the provision for credit losses, due to higher loan balances and net charge-offs, and a $9 million write-down of equipment in 2020 that was leased to customers, offset by a $26 million increase in net interest income, a $7 million increase in credit-related fees, and increased gains on the sale of equipment previously leased to customers of $5 million. The higher net interest income reflected higher average outstanding deposit and loan balances of $5.3 billion and $2.3 billion, respectively, partially offset by a 76 basis point narrowing of the net interest margin on deposits.

The Commercial Real Estate segment contributed net income of $87 million in the third quarter of 2020, down from $131 million in the similar 2019 period and $107 million in the second quarter of 2020. The 34% decline in net income as compared with the third quarter of 2019 reflected a $19 million increase in the provision for credit losses, due to higher net charge-offs and loan growth, a $14 million decrease in net interest income, a $12 million decline in

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mortgage banking revenues reflecting decreased gains on loans originated for sale, and lower trading account and foreign exchange gains of $7 million. The decrease in net interest income reflected a narrowing of the net interest margin on deposits and loans of 99 basis points and 26 basis points, respectively, partially offset by a $1.7 billion increase in average outstanding loan balances. The $20 million decrease in the recent quarter’s net income as compared with the immediately preceding quarter was largely the result of a $22 million decline in net interest income and a $7 million increase in salaries and employee benefits, partially offset by a $4 million decrease in the provision for credit losses, mainly due to lower net charge-offs. The decrease in net interest income resulted from a 30 basis point narrowing of the net interest margin on loans. Net income for the Commercial Real Estate segment was $312 million during the nine-month period ended September 30, 2020, down 16% from $370 million in the corresponding 2019 period. That decline resulted from a $41 million increase in the provision for credit losses, due to higher net charge-offs and loan growth, lower net interest income of $11 million, a $10 million decrease in mortgage banking revenues reflecting decreased gains on loans originated for sale, and higher FDIC assessments of $5 million. The decrease in net interest income resulted from a narrowing of the net interest margin on deposits and loans of 71 basis points and 13 basis points, respectively, partially offset by higher average outstanding loan balances of $1.5 billion.

Net income recorded by the Discretionary Portfolio segment aggregated $97 million during the three-month period ended September 30, 2020, compared with $30 million in the year-earlier period and $96 million in the second quarter of 2020. The significant rise in the recent quarter’s net income as compared with the third quarter of 2019 was due primarily to an $86 million increase in net interest income that reflects higher income from interest rate swap agreements. The slight improvement in net income in the recent quarter as compared with the immediately preceding quarter reflected an increase in net interest income of $5 million, partially offset by a $4 million decrease in valuation gains associated with marketable equity securities. Net income for this segment for the first nine months totaled $219 million in 2020 and $107 million in 2019. The primary factor contributing to that increase was a $191 million rise in net interest income, reflecting additional income from interest rate swap agreements utilized as part of the Company’s management of interest rate risk. Partially offsetting that factor were valuation losses associated with marketable equity securities (compared with gains in the 2019 period) representing a change of $35 million and higher centrally-allocated costs of $7 million associated with data processing, risk management and other support services provided to the Discretionary Portfolio segment.

The Residential Mortgage Banking segment contributed net income of $45 million in the recent quarter, compared with $16 million in the third quarter of 2019 and $37 million in the second quarter of 2020. The recent quarter improvement from the third quarter of 2019 was largely driven by a $43 million increase in revenues associated with mortgage origination and sales activities (including intersegment revenues) and a $12 million increase in net interest income, reflecting an increase in average outstanding loan balances of $1.4 billion that was predominantly the result of repurchases of previously sold government guaranteed loans of $1.6 billion during the third quarter. Offsetting those favorable factors were lower servicing-related fees (including intersegment costs) of $11 million and a $10 million rise in centrally-allocated costs associated with data processing, risk management and other support services provided to the Residential Mortgage Banking segment. As compared with the second quarter of 2020, the higher net income in the recent quarter reflected a $12 million increase in revenues associated with mortgage origination and sales activities (including intersegment revenues) and a $10 million increase in net interest income that reflected an increase in average outstanding loan balances of $1.4 billion, partially offset by a $6 million rise in centrally-allocated costs associated with data processing, risk management and other support services provided to this segment and lower revenues from servicing residential real estate loans (including intersegment revenues) of $4 million. The Residential Mortgage Banking segment earned $107 million in the first nine months of 2020, compared with $36 million in the similar period of 2019. Higher revenues associated with mortgage origination and sales activities (including intersegment revenues) of $113 million and a $17 million increase in net interest income, reflecting an increase in average outstanding loan balances of $713 million, were partially offset by a $16 million increase in personnel-related costs largely associated with increased origination activities and a $10 million rise in centrally-allocated costs associated with data processing, risk management and other support services provided to the Residential Mortgage Banking segment.

- 86 -

 

Net income for the Retail Banking segment totaled $85 million in the third quarter of 2020, compared with $132 million in the corresponding quarter of 2019 and $86 million in the second quarter of 2020. The decline as compared with the third quarter of 2019 reflected a $62 million decrease in net interest income,  a $15 million decline in service charges on deposit accounts and a $10 million increase in centrally-allocated costs associated with data processing, risk management and other support services provided to the Retail Banking segment. The lower net interest income reflected a 92 basis point narrowing of the net interest margin on deposits, partially offset by higher average outstanding deposit balances of $3.7 billion. The decline in service charges reflected fee waivers and lower customer transaction activity as a result of the COVID-19 pandemic. Partially offsetting those factors were a $10 million decrease in the provision for credit losses, reflecting lower net charge-offs, a $5 million decline in advertising and marketing expense, and lower salaries and employee benefits of $4 million. The modest decline in net income in the recent quarter as compared with the second quarter of 2020 reflected a decrease in net interest income of $20 million and a $6 million rise in centrally-allocated costs associated with data processing, risk management and other support services provided to the Retail Banking segment, partially offset by increased consumer service charges on deposit accounts of $13 million and lower personnel-related costs of $9 million. The decrease in net interest income reflected a narrowing of the net interest margin on deposits of 33 basis points, partially offset by higher average deposit balances of $1.1 billion. The increased consumer service charges on deposit accounts reflect lower fee waivers and increased customer transaction activity. The Retail Banking segment recorded net income of $282 million and $417 million in the first nine months of 2020 and 2019, respectively. The decline from 2019 reflected lower net interest income of $137 million, a $39 million decrease in consumer service charges on deposit accounts, and an $8 million increase in salaries and employee benefits expenses. The decrease in net interest income reflected a 71 basis point narrowing of the net interest margin on deposits, offset, in part, by higher average outstanding deposit and loan balances of $1.7 billion and $1.4 billion, respectively. The lower consumer service charges on deposit accounts reflect fee waivers and lower customer transaction activity as a result of the COVID-19 pandemic. Lower advertising and promotional expenses of $8 million and a $7 million decrease in the provision for credit losses partially offset the unfavorable factors.

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 amortization of core deposit and other intangible assets resulting from the acquisitions of financial institutions, distributed income from BLG, merger-related expenses resulting from acquisitions (when incurred) and the net impact of the Company’s allocation methodologies for internal transfers for funding charges and credits associated with the earning assets and interest-bearing liabilities of the Company’s reportable segments and the provision for credit losses. The “All Other” category also includes trust income of the Company that reflects the ICS and WAS business activities. The various components of the “All Other” category resulted in net losses totaling $110 million for the quarter ended September 30, 2020, $7 million in the year-earlier quarter and $234 million in the second quarter of 2020. As compared with the third quarter of 2019, the increased net loss in the recent quarter resulted from an increase in the provision for credit losses of $96 million and the unfavorable impact from the Company’s allocation methodologies for internal transfers for funding charges and credits associated with earning assets and interest-bearing liabilities of the Company’s reportable segments. Those unfavorable factors were partially offset by decreased costs for legal and professional services of $36 million. As compared with the second quarter of 2020, a $130 million decrease in the provision for credit losses and the favorable impact from the Company’s allocation methodologies for internal transfers for funding charges and credits associated with earning assets and interest-bearing liabilities of the Company’s reportable segments were partially offset by higher personnel-related costs of $16 million. The “All Other” category had net losses of $530 million and $15 million for the nine-month periods ended September 30, 2020 and 2019, respectively. The increased net loss in the current year reflected an increase in the provision for credit losses of $526 million, the unfavorable impact from the Company’s allocation methodologies for internal transfers for funding charges and credits associated with earning assets and interest-bearing liabilities of the Company’s reportable segments, a $22 million increase in outside data processing and software expenses, and higher personnel-related costs of $19 million. Partially offsetting those factors was a $77 million decrease in professional services costs, a $48 million charge in the second quarter of 2019 to reduce the carrying value of an investment in an asset manager, and higher trust income of $30 million.

- 87 -

 

Recent Accounting Developments

A discussion of recent accounting developments is included in note 15 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 that are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management.  Any statement that does not describe historical or current facts is a forward-looking statement, including statements regarding the potential effects of the COVID-19 pandemic on the Company’s business, financial condition, liquidity and results of operations. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “prospects” 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 (“Future Factors”) which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Forward-looking statements speak only as of the date they are made and the Company assumes no duty to update forward-looking statements.

Future Factors include changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; risks and uncertainties relating to the impact of the COVID-19 pandemic; the impact of changes in market values on trust-related revenues; legislation and/or regulation affecting the financial services industry as a whole, and M&T and its subsidiaries individually or collectively, including tax legislation or regulation; regulatory supervision and oversight, including monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board, regulatory agencies or legislation; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters; 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 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 Future Factors that could affect the outcome of the forward-looking statements.  In addition, such statements could be affected by general industry and market conditions and growth rates, general economic and political conditions, either nationally or in the states in which M&T and its subsidiaries do business, including interest rate and currency exchange rate fluctuations, changes and trends in the securities markets, and other Future Factors.

Further, statements about the potential effects of the COVID-19 pandemic on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements and 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, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on customers, clients, third parties and the Company.

M&T provides further detail regarding these risks, uncertainties and other factors elsewhere in this quarterly report and in other public filings, including the risk factors described in Form 10-K for the year ended December 31, 2019 and this quarterly report.

- 88 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 1

QUARTERLY TRENDS

 

 

 

2020 Quarters

 

 

2019 Quarters

 

 

 

 

Third

 

 

Second

 

 

First

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

Earnings and dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands, except per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (taxable-equivalent basis)

 

$

1,005,180

 

 

 

1,036,476

 

 

 

1,125,482

 

 

 

1,191,295

 

 

 

1,235,048

 

 

 

1,243,838

 

 

 

1,232,276

 

 

Interest expense

 

 

58,066

 

 

 

75,105

 

 

 

143,614

 

 

 

177,070

 

 

 

199,579

 

 

 

196,432

 

 

 

176,249

 

 

Net interest income

 

 

947,114

 

 

 

961,371

 

 

 

981,868

 

 

 

1,014,225

 

 

 

1,035,469

 

 

 

1,047,406

 

 

 

1,056,027

 

 

Less: provision for credit losses

 

 

150,000

 

 

 

325,000

 

 

 

250,000

 

 

 

54,000

 

 

 

45,000

 

 

 

55,000

 

 

 

22,000

 

 

Other income

 

 

520,561

 

 

 

487,273

 

 

 

529,360

 

 

 

521,040

 

 

 

527,779

 

 

 

512,095

 

 

 

500,765

 

 

Less: other expense

 

 

826,774

 

 

 

807,042

 

 

 

906,416

 

 

 

823,683

 

 

 

877,619

 

 

 

873,032

 

 

 

894,348

 

 

Income before income taxes

 

 

490,901

 

 

 

316,602

 

 

 

354,812

 

 

 

657,582

 

 

 

640,629

 

 

 

631,469

 

 

 

640,444

 

 

Applicable income taxes

 

 

114,746

 

 

 

71,314

 

 

 

80,927

 

 

 

159,124

 

 

 

154,969

 

 

 

152,284

 

 

 

151,735

 

 

Taxable-equivalent adjustment

 

 

4,019

 

 

 

4,234

 

 

 

5,063

 

 

 

5,392

 

 

 

5,579

 

 

 

5,925

 

 

 

5,967

 

 

Net income

 

$

372,136

 

 

 

241,054

 

 

 

268,822

 

 

 

493,066

 

 

 

480,081

 

 

 

473,260

 

 

 

482,742

 

 

Net income available to common shareholders-diluted

 

$

353,400

 

 

 

223,099

 

 

 

250,701

 

 

 

473,372

 

 

 

461,410

 

 

 

452,633

 

 

 

462,086

 

 

Per common share data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

2.75

 

 

 

1.74

 

 

 

1.93

 

 

 

3.60

 

 

 

3.47

 

 

 

3.34

 

 

 

3.35

 

 

Diluted earnings

 

 

2.75

 

 

 

1.74

 

 

 

1.93

 

 

 

3.60

 

 

 

3.47

 

 

 

3.34

 

 

 

3.35

 

 

Cash dividends

 

$

1.10

 

 

 

1.10

 

 

 

1.10

 

 

 

1.10

 

 

 

1.00

 

 

 

1.00

 

 

 

1.00

 

 

Average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

128,285

 

 

 

128,275

 

 

 

129,696

 

 

 

131,512

 

 

 

132,965

 

 

 

135,433

 

 

 

137,889

 

 

Diluted

 

 

128,355

 

 

 

128,333

 

 

 

129,755

 

 

 

131,549

 

 

 

132,999

 

 

 

135,464

 

 

 

137,920

 

 

Performance ratios, annualized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

 

1.06

 

%

 

.71

 

%

 

.90

 

%

 

1.60

 

%

 

1.58

 

%

 

1.60

 

%

 

1.68

 

%

Average common shareholders’ equity

 

 

9.53

 

%

 

6.13

 

%

 

7.00

 

%

 

12.95

 

%

 

12.73

 

%

 

12.68

 

%

 

13.14

 

%

Net interest margin on average earning assets

   (taxable-equivalent basis)

 

 

2.95

 

%

 

3.13

 

%

 

3.65

 

%

 

3.64

 

%

 

3.78

 

%

 

3.91

 

%

 

4.04

 

%

Nonaccrual loans to total loans and leases, net of

    unearned discount

 

 

1.26

 

%

 

1.18

 

%

 

1.13

 

%

 

1.06

 

%

 

1.12

 

%

 

.96

 

%

 

.99

 

%

Net operating (tangible) results (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income (in thousands)

 

$

375,029

 

 

 

243,958

 

 

 

271,705

 

 

 

496,237

 

 

 

483,830

 

 

 

477,001

 

 

 

486,440

 

 

Diluted net operating income per common share

 

$

2.77

 

 

 

1.76

 

 

 

1.95

 

 

 

3.62

 

 

 

3.50

 

 

 

3.37

 

 

 

3.38

 

 

Annualized return on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average tangible assets

 

 

1.10

 

%

 

.74

 

%

 

.94

 

%

 

1.67

 

%

 

1.66

 

%

 

1.68

 

%

 

1.76

 

%

Average tangible common shareholders’ equity

 

 

13.94

 

%

 

9.04

 

%

 

10.39

 

%

 

19.08

 

%

 

18.85

 

%

 

18.83

 

%

 

19.56

 

%

Efficiency ratio (b)

 

 

56.17

 

%

 

55.71

 

%

 

58.91

 

%

 

53.15

 

%

 

55.95

 

%

 

55.98

 

%

 

57.56

 

%

Balance sheet data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In millions, except per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (c)

 

$

140,181

 

 

 

136,446

 

 

 

120,585

 

 

 

122,554

 

 

 

120,388

 

 

 

118,487

 

 

 

116,839

 

 

Total tangible assets (c)

 

 

135,574

 

 

 

131,836

 

 

 

115,972

 

 

 

117,938

 

 

 

115,769

 

 

 

113,864

 

 

 

112,213

 

 

Earning assets

 

 

127,689

 

 

 

123,492

 

 

 

108,226

 

 

 

110,581

 

 

 

108,643

 

 

 

107,511

 

 

 

106,096

 

 

Investment securities

 

 

7,876

 

 

 

8,500

 

 

 

9,102

 

 

 

10,044

 

 

 

11,075

 

 

 

12,170

 

 

 

12,949

 

 

Loans and leases, net of unearned discount

 

 

98,210

 

 

 

97,797

 

 

 

91,706

 

 

 

90,244

 

 

 

90,078

 

 

 

89,150

 

 

 

88,477

 

 

Deposits

 

 

116,306

 

 

 

111,795

 

 

 

96,166

 

 

 

96,903

 

 

 

94,095

 

 

 

91,371

 

 

 

89,733

 

 

Common shareholders’ equity (c)

 

 

14,823

 

 

 

14,703

 

 

 

14,470

 

 

 

14,582

 

 

 

14,464

 

 

 

14,398

 

 

 

14,337

 

 

Tangible common shareholders’ equity (c)

 

 

10,216

 

 

 

10,093

 

 

 

9,857

 

 

 

9,966

 

 

 

9,845

 

 

 

9,775

 

 

 

9,711

 

 

At end of quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (c)

 

$

138,627

 

 

 

139,537

 

 

 

124,578

 

 

 

119,873

 

 

 

125,501

 

 

 

121,555

 

 

 

120,025

 

 

Total tangible assets (c)

 

 

134,021

 

 

 

134,928

 

 

 

119,966

 

 

 

115,258

 

 

 

120,883

 

 

 

116,934

 

 

 

115,400

 

 

Earning assets

 

 

126,418

 

 

 

127,149

 

 

 

112,046

 

 

 

107,673

 

 

 

113,067

 

 

 

110,323

 

 

 

108,849

 

 

Investment securities

 

 

7,723

 

 

 

8,454

 

 

 

8,957

 

 

 

9,497

 

 

 

10,678

 

 

 

11,580

 

 

 

12,537

 

 

Loans and leases, net of unearned discount

 

 

98,447

 

 

 

97,758

 

 

 

94,142

 

 

 

90,923

 

 

 

89,823

 

 

 

89,878

 

 

 

88,640

 

 

Deposits

 

 

115,163

 

 

 

114,968

 

 

 

100,183

 

 

 

94,770

 

 

 

95,114

 

 

 

91,681

 

 

 

90,470

 

 

Common shareholders’ equity, net of undeclared

     cumulative preferred dividends (c)

 

 

14,851

 

 

 

14,695

 

 

 

14,566

 

 

 

14,467

 

 

 

14,530

 

 

 

14,457

 

 

 

14,353

 

 

Tangible common shareholders’ equity (c)

 

 

10,245

 

 

 

10,086

 

 

 

9,954

 

 

 

9,852

 

 

 

9,912

 

 

 

9,836

 

 

 

9,728

 

 

Equity per common share

 

 

115.75

 

 

 

114.54

 

 

 

113.54

 

 

 

110.78

 

 

 

109.84

 

 

 

107.73

 

 

 

105.04

 

 

Tangible equity per common share

 

 

79.85

 

 

 

78.62

 

 

 

77.60

 

 

 

75.44

 

 

 

74.93

 

 

 

73.29

 

 

 

71.19

 

 

(a)

Excludes amortization and balances related to goodwill and core deposit and other intangible assets and merger-related expenses which, except in the calculation of the efficiency ratio, are net of applicable income tax effects. A reconciliation of net income and net operating income appears in Table 2.

(b)

Excludes impact of merger-related expenses and net securities transactions.

(c)

The difference between total assets and total tangible assets, and common shareholders’ equity and tangible common shareholders’ equity, represents goodwill, core deposit and other intangible assets, net of applicable deferred tax balances. A reconciliation of such balances appears in Table 2.

- 89 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 2

RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES

 

 

 

2020 Quarters

 

 

2019 Quarters

 

 

 

 

Third

 

 

Second

 

 

First

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

Income statement data (in thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

372,136

 

 

 

241,054

 

 

 

268,822

 

 

 

493,066

 

 

 

480,081

 

 

 

473,260

 

 

 

482,742

 

 

Amortization of core deposit and other

   intangible assets (a)

 

 

2,893

 

 

 

2,904

 

 

 

2,883

 

 

 

3,171

 

 

 

3,749

 

 

 

3,741

 

 

 

3,698

 

 

Net operating income

 

$

375,029

 

 

 

243,958

 

 

 

271,705

 

 

 

496,237

 

 

 

483,830

 

 

 

477,001

 

 

 

486,440

 

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

2.75

 

 

 

1.74

 

 

 

1.93

 

 

 

3.60

 

 

 

3.47

 

 

 

3.34

 

 

 

3.35

 

 

Amortization of core deposit and other

   intangible assets (a)

 

 

.02

 

 

 

.02

 

 

 

.02

 

 

 

.02

 

 

 

.03

 

 

 

.03

 

 

 

.03

 

 

Diluted net operating earnings per common share

 

$

2.77

 

 

 

1.76

 

 

 

1.95

 

 

 

3.62

 

 

 

3.50

 

 

 

3.37

 

 

 

3.38

 

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

$

826,774

 

 

 

807,042

 

 

 

906,416

 

 

 

823,683

 

 

 

877,619

 

 

 

873,032

 

 

 

894,348

 

 

Amortization of core deposit and other

   intangible assets

 

 

(3,914

)

 

 

(3,913

)

 

 

(3,913

)

 

 

(4,305

)

 

 

(5,088

)

 

 

(5,077

)

 

 

(5,020

)

 

Noninterest operating expense

 

$

822,860

 

 

 

803,129

 

 

 

902,503

 

 

 

819,378

 

 

 

872,531

 

 

 

867,955

 

 

 

889,328

 

 

Efficiency ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest operating expense (numerator)

 

$

822,860

 

 

 

803,129

 

 

 

902,503

 

 

 

819,378

 

 

 

872,531

 

 

 

867,955

 

 

 

889,328

 

 

Taxable-equivalent net interest income

 

$

947,114

 

 

 

961,371

 

 

 

981,868

 

 

 

1,014,225

 

 

 

1,035,469

 

 

 

1,047,406

 

 

 

1,056,027

 

 

Other income

 

 

520,561

 

 

 

487,273

 

 

 

529,360

 

 

 

521,040

 

 

 

527,779

 

 

 

512,095

 

 

 

500,765

 

 

Less: Gain (loss) on bank investment securities

 

 

2,773

 

 

 

6,969

 

 

 

(20,782

)

 

 

(6,452

)

 

 

3,737

 

 

 

8,911

 

 

 

11,841

 

 

Denominator

 

$

1,464,902

 

 

 

1,441,675

 

 

 

1,532,010

 

 

 

1,541,717

 

 

 

1,559,511

 

 

 

1,550,590

 

 

 

1,544,951

 

 

Efficiency ratio

 

 

56.17

%

 

 

55.71

%

 

 

58.91

%

 

 

53.15

%

 

 

55.95

%

 

 

55.98

%

 

 

57.56

%

 

Balance sheet data (in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

$

140,181

 

 

 

136,446

 

 

 

120,585

 

 

 

122,554

 

 

 

120,388

 

 

 

118,487

 

 

 

116,839

 

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

Core deposit and other intangible assets

 

 

(19

)

 

 

(23

)

 

 

(27

)

 

 

(31

)

 

 

(36

)

 

 

(41

)

 

 

(45

)

 

Deferred taxes

 

 

5

 

 

 

6

 

 

 

7

 

 

 

8

 

 

 

10

 

 

 

11

 

 

 

12

 

 

Average tangible assets

 

$

135,574

 

 

 

131,836

 

 

 

115,972

 

 

 

117,938

 

 

 

115,769

 

 

 

113,864

 

 

 

112,213

 

 

Average common equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average total equity

 

$

16,073

 

 

 

15,953

 

 

 

15,720

 

 

 

15,832

 

 

 

15,837

 

 

 

15,630

 

 

 

15,569

 

 

Preferred stock

 

 

(1,250

)

 

 

(1,250

)

 

 

(1,250

)

 

 

(1,250

)

 

 

(1,373

)

 

 

(1,232

)

 

 

(1,232

)

 

Average common equity

 

 

14,823

 

 

 

14,703

 

 

 

14,470

 

 

 

14,582

 

 

 

14,464

 

 

 

14,398

 

 

 

14,337

 

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

Core deposit and other intangible assets

 

 

(19

)

 

 

(23

)

 

 

(27

)

 

 

(31

)

 

 

(36

)

 

 

(41

)

 

 

(45

)

 

Deferred taxes

 

 

5

 

 

 

6

 

 

 

7

 

 

 

8

 

 

 

10

 

 

 

11

 

 

 

12

 

 

Average tangible common equity

 

$

10,216

 

 

 

10,093

 

 

 

9,857

 

 

 

9,966

 

 

 

9,845

 

 

 

9,775

 

 

 

9,711

 

 

At end of quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

138,627

 

 

 

139,537

 

 

 

124,578

 

 

 

119,873

 

 

 

125,501

 

 

 

121,555

 

 

 

120,025

 

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

Core deposit and other intangible assets

 

 

(17

)

 

 

(21

)

 

 

(25

)

 

 

(29

)

 

 

(33

)

 

 

(38

)

 

 

(44

)

 

Deferred taxes

 

 

4

 

 

 

5

 

 

 

6

 

 

 

7

 

 

 

8

 

 

 

10

 

 

 

12

 

 

Total tangible assets

 

$

134,021

 

 

 

134,928

 

 

 

119,966

 

 

 

115,258

 

 

 

120,883

 

 

 

116,934

 

 

 

115,400

 

 

Total common equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

$

16,101

 

 

 

15,945

 

 

 

15,816

 

 

 

15,717

 

 

 

15,780

 

 

 

15,692

 

 

 

15,588

 

 

Preferred stock

 

 

(1,250

)

 

 

(1,250

)

 

 

(1,250

)

 

 

(1,250

)

 

 

(1,250

)

 

 

(1,232

)

 

 

(1,232

)

 

Undeclared dividends - cumulative preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3

)

 

 

(3

)

 

Common equity, net of undeclared

   cumulative preferred dividends

 

 

14,851

 

 

 

14,695

 

 

 

14,566

 

 

 

14,467

 

 

 

14,530

 

 

 

14,457

 

 

 

14,353

 

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

Core deposit and other intangible assets

 

 

(17

)

 

 

(21

)

 

 

(25

)

 

 

(29

)

 

 

(33

)

 

 

(38

)

 

 

(44

)

 

Deferred taxes

 

 

4

 

 

 

5

 

 

 

6

 

 

 

7

 

 

 

8

 

 

 

10

 

 

 

12

 

 

Total tangible common equity

 

$

10,245

 

 

 

10,086

 

 

 

9,954

 

 

 

9,852

 

 

 

9,912

 

 

 

9,836

 

 

 

9,728

 

 

(a)

After any related tax effect.

- 90 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 3

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES

 

 

 

2020 Third Quarter

 

 

2020 Second Quarter

 

 

2020 First Quarter

 

 

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average balance in millions; interest

   in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, net of unearned

    discount (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, etc.

 

$

28,333

 

 

$

217,171

 

 

 

3.05

 

%

 

29,733

 

 

 

229,058

 

 

 

3.10

 

%

 

24,290

 

 

 

247,344

 

 

 

4.10

 

%

Real estate – commercial

 

 

37,243

 

 

 

398,619

 

 

 

4.19

 

 

 

36,947

 

 

 

412,362

 

 

 

4.42

 

 

 

36,034

 

 

 

440,291

 

 

 

4.83

 

 

Real estate – consumer

 

 

16,558

 

 

 

152,594

 

 

 

3.69

 

 

 

15,599

 

 

 

156,135

 

 

 

4.00

 

 

 

15,931

 

 

 

160,650

 

 

 

4.03

 

 

Consumer

 

 

16,076

 

 

 

192,223

 

 

 

4.76

 

 

 

15,518

 

 

 

187,041

 

 

 

4.85

 

 

 

15,451

 

 

 

203,546

 

 

 

5.30

 

 

Total loans and leases, net

 

 

98,210

 

 

 

960,607

 

 

 

3.89

 

 

 

97,797

 

 

 

984,596

 

 

 

4.05

 

 

 

91,706

 

 

 

1,051,831

 

 

 

4.61

 

 

Interest-bearing deposits at banks

 

 

16,440

 

 

 

4,163

 

 

 

.10

 

 

 

16,454

 

 

 

4,179

 

 

 

.10

 

 

 

6,130

 

 

 

18,966

 

 

 

1.24

 

 

Federal funds sold and agreements

   to resell securities

 

 

5,113

 

 

 

1,615

 

 

 

.13

 

 

 

692

 

 

 

197

 

 

 

.11

 

 

 

1,224

 

 

 

4,072

 

 

 

1.34

 

 

Trading account

 

 

50

 

 

 

201

 

 

 

1.62

 

 

 

49

 

 

 

248

 

 

 

2.04

 

 

 

64

 

 

 

419

 

 

 

2.64

 

 

Investment securities (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

7,177

 

 

 

37,157

 

 

 

2.06

 

 

 

7,796

 

 

 

43,889

 

 

 

2.26

 

 

 

8,359

 

 

 

45,449

 

 

 

2.19

 

 

Obligations of states and political

   subdivisions

 

 

2

 

 

 

23

 

 

 

4.51

 

 

 

3

 

 

 

37

 

 

 

5.11

 

 

 

3

 

 

 

41

 

 

 

5.01

 

 

Other

 

 

697

 

 

 

1,414

 

 

 

.81

 

 

 

701

 

 

 

3,330

 

 

 

1.91

 

 

 

740

 

 

 

4,704

 

 

 

2.56

 

 

Total investment securities

 

 

7,876

 

 

 

38,594

 

 

 

1.95

 

 

 

8,500

 

 

 

47,256

 

 

 

2.24

 

 

 

9,102

 

 

 

50,194

 

 

 

2.22

 

 

Total earning assets

 

 

127,689

 

 

 

1,005,180

 

 

 

3.13

 

 

 

123,492

 

 

 

1,036,476

 

 

 

3.38

 

 

 

108,226

 

 

 

1,125,482

 

 

 

4.18

 

 

Allowance for credit losses

 

 

(1,649

)

 

 

 

 

 

 

 

 

 

 

(1,401

)

 

 

 

 

 

 

 

 

 

 

(1,191

)

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

1,390

 

 

 

 

 

 

 

 

 

 

 

1,245

 

 

 

 

 

 

 

 

 

 

 

1,298

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

12,751

 

 

 

 

 

 

 

 

 

 

 

13,110

 

 

 

 

 

 

 

 

 

 

 

12,252

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

140,181

 

 

 

 

 

 

 

 

 

 

 

136,446

 

 

 

 

 

 

 

 

 

 

 

120,585

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking

   deposits

 

$

65,848

 

 

 

22,403

 

 

 

.14

 

 

 

62,927

 

 

 

26,454

 

 

 

.17

 

 

 

56,366

 

 

 

78,002

 

 

 

.56

 

 

Time deposits

 

 

4,715

 

 

 

14,519

 

 

 

1.22

 

 

 

5,354

 

 

 

19,883

 

 

 

1.49

 

 

 

5,672

 

 

 

21,872

 

 

 

1.55

 

 

Deposits at Cayman Islands office

 

 

957

 

 

 

241

 

 

 

.10

 

 

 

1,017

 

 

 

161

 

 

 

.06

 

 

 

1,672

 

 

 

3,419

 

 

 

.82

 

 

Total interest-bearing deposits

 

 

71,520

 

 

 

37,163

 

 

 

.21

 

 

 

69,298

 

 

 

46,498

 

 

 

.27

 

 

 

63,710

 

 

 

103,293

 

 

 

.65

 

 

Short-term borrowings

 

 

62

 

 

 

1

 

 

 

.01

 

 

 

63

 

 

 

2

 

 

 

.01

 

 

 

58

 

 

 

23

 

 

 

.16

 

 

Long-term borrowings

 

 

5,499

 

 

 

20,902

 

 

 

1.51

 

 

 

6,189

 

 

 

28,605

 

 

 

1.86

 

 

 

6,240

 

 

 

40,298

 

 

 

2.60

 

 

Total interest-bearing liabilities

 

 

77,081

 

 

 

58,066

 

 

 

.30

 

 

 

75,550

 

 

 

75,105

 

 

 

.40

 

 

 

70,008

 

 

 

143,614

 

 

 

.83

 

 

Noninterest-bearing deposits

 

 

44,786

 

 

 

 

 

 

 

 

 

 

 

42,497

 

 

 

 

 

 

 

 

 

 

 

32,456

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

2,241

 

 

 

 

 

 

 

 

 

 

 

2,446

 

 

 

 

 

 

 

 

 

 

 

2,401

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

124,108

 

 

 

 

 

 

 

 

 

 

 

120,493

 

 

 

 

 

 

 

 

 

 

 

104,865

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

16,073

 

 

 

 

 

 

 

 

 

 

 

15,953

 

 

 

 

 

 

 

 

 

 

 

15,720

 

 

 

 

 

 

 

 

 

 

Total liabilities and

    shareholders’ equity

 

$

140,181

 

 

 

 

 

 

 

 

 

 

 

136,446

 

 

 

 

 

 

 

 

 

 

 

120,585

 

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

2.83

 

 

 

 

 

 

 

 

 

 

 

2.98

 

 

 

 

 

 

 

 

 

 

 

3.35

 

 

Contribution of interest-free funds

 

 

 

 

 

 

 

 

 

 

.12

 

 

 

 

 

 

 

 

 

 

 

.15

 

 

 

 

 

 

 

 

 

 

 

.30

 

 

Net interest income/margin on

    earning assets

 

 

 

 

 

$

947,114

 

 

 

2.95

 

%

 

 

 

 

 

961,371

 

 

 

3.13

 

%

 

 

 

 

 

981,868

 

 

 

3.65

 

%

 

(a)

Includes nonaccrual loans.

(b)

Includes available-for-sale securities at amortized cost.

(continued)

- 91 -

 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 3 (continued)

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)

 

 

 

2019 Fourth Quarter

 

 

2019 Third Quarter

 

 

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average balance in millions; interest in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, net of unearned

    discount (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, etc.

 

$

23,548

 

 

$

258,969

 

 

 

4.36

 

%

 

23,326

 

 

 

283,291

 

 

 

4.82

 

%

Real estate – commercial

 

 

35,039

 

 

 

452,752

 

 

 

5.06

 

 

 

35,200

 

 

 

462,759

 

 

 

5.14

 

 

Real estate – consumer

 

 

16,330

 

 

 

169,371

 

 

 

4.15

 

 

 

16,673

 

 

 

175,098

 

 

 

4.20

 

 

Consumer

 

 

15,327

 

 

 

203,205

 

 

 

5.26

 

 

 

14,879

 

 

 

204,097

 

 

 

5.44

 

 

Total loans and leases, net

 

 

90,244

 

 

 

1,084,297

 

 

 

4.77

 

 

 

90,078

 

 

 

1,125,245

 

 

 

4.96

 

 

Interest-bearing deposits at banks

 

 

8,944

 

 

 

37,277

 

 

 

1.65

 

 

 

7,405

 

 

 

40,388

 

 

 

2.16

 

 

Federal funds sold and agreements

   to resell securities

 

 

1,279

 

 

 

5,405

 

 

 

1.68

 

 

 

18

 

 

 

93

 

 

 

2.01

 

 

Trading account

 

 

70

 

 

 

765

 

 

 

4.36

 

 

 

67

 

 

 

149

 

 

 

.89

 

 

Investment securities (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

9,272

 

 

 

57,123

 

 

 

2.44

 

 

 

10,271

 

 

 

62,506

 

 

 

2.41

 

 

Obligations of states and political subdivisions

 

 

5

 

 

 

64

 

 

 

4.96

 

 

 

6

 

 

 

74

 

 

 

4.99

 

 

Other

 

 

767

 

 

 

6,364

 

 

 

3.29

 

 

 

798

 

 

 

6,593

 

 

 

3.28

 

 

Total investment securities

 

 

10,044

 

 

 

63,551

 

 

 

2.51

 

 

 

11,075

 

 

 

69,173

 

 

 

2.48

 

 

Total earning assets

 

 

110,581

 

 

 

1,191,295

 

 

 

4.27

 

 

 

108,643

 

 

 

1,235,048

 

 

 

4.51

 

 

Allowance for credit losses

 

 

(1,040

)

 

 

 

 

 

 

 

 

 

 

(1,034

)

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

1,298

 

 

 

 

 

 

 

 

 

 

 

1,303

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

11,715

 

 

 

 

 

 

 

 

 

 

 

11,476

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

122,554

 

 

 

 

 

 

 

 

 

 

 

120,388

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

$

57,103

 

 

 

95,585

 

 

 

.66

 

 

 

55,680

 

 

 

104,724

 

 

 

.75

 

 

Time deposits

 

 

6,015

 

 

 

23,958

 

 

 

1.58

 

 

 

6,343

 

 

 

25,456

 

 

 

1.59

 

 

Deposits at Cayman Islands office

 

 

1,716

 

 

 

4,922

 

 

 

1.14

 

 

 

1,522

 

 

 

6,218

 

 

 

1.62

 

 

Total interest-bearing deposits

 

 

64,834

 

 

 

124,465

 

 

 

.76

 

 

 

63,545

 

 

 

136,398

 

 

 

.85

 

 

Short-term borrowings

 

 

675

 

 

 

3,168

 

 

 

1.86

 

 

 

1,212

 

 

 

6,967

 

 

 

2.28

 

 

Long-term borrowings

 

 

6,941

 

 

 

49,437

 

 

 

2.83

 

 

 

7,121

 

 

 

56,214

 

 

 

3.13

 

 

Total interest-bearing liabilities

 

 

72,450

 

 

 

177,070

 

 

 

.97

 

 

 

71,878

 

 

 

199,579

 

 

 

1.10

 

 

Noninterest-bearing deposits

 

 

32,069

 

 

 

 

 

 

 

 

 

 

 

30,550

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

2,203

 

 

 

 

 

 

 

 

 

 

 

2,123

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

106,722

 

 

 

 

 

 

 

 

 

 

 

104,551

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

15,832

 

 

 

 

 

 

 

 

 

 

 

15,837

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

122,554

 

 

 

 

 

 

 

 

 

 

 

120,388

 

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

3.30

 

 

 

 

 

 

 

 

 

 

 

3.41

 

 

Contribution of interest-free funds

 

 

 

 

 

 

 

 

 

 

.34

 

 

 

 

 

 

 

 

 

 

 

.37

 

 

Net interest income/margin on earning assets

 

 

 

 

 

$

1,014,225

 

 

 

3.64

 

%

 

 

 

 

 

1,035,469

 

 

 

3.78

 

%

 

(a)

Includes nonaccrual loans.

(b)

Includes available-for-sale securities at amortized cost.

 

 

- 92 -

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

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

 

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 Darren J. King, Executive Vice President and Chief Financial Officer, concluded that M&T’s disclosure controls and procedures were effective as of September 30, 2020.

 

(b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy of its internal control over financial reporting and enhances its controls in response to internal control assessments and internal and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, M&T’s internal control over financial reporting.

 

The emergence of the COVID-19 pandemic during the first quarter of 2020 necessitated the execution of several M&T contingency plans.  Beginning in March 2020 and continuing through this filing date, the Company had a substantial number of its employees working remotely under such contingency plans.  

 

 

PART II. OTHER INFORMATION

 

Item 1.

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. 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.

In addition to the risk factors relating to M&T as disclosed in response to Item 1A. to Part I of Form 10-K for the year ended December 31, 2019, a supplemental risk factor is presented below.

M&T’s business, financial condition, liquidity, capital and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.

The Coronavirus Disease 2019 (“COVID-19”) pandemic has caused severe disruption to the U.S. and global economy and created significant volatility in the financial markets.  The duration of this disruption and impact cannot be reasonably estimated at this time.

- 93 -

 

The pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the Company’s business, financial condition, liquidity, capital and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect the Company’s business, financial condition, liquidity, capital and results of operations will depend on future developments (including the scope and duration of the pandemic, the continued effectiveness of M&T’s business continuity plans, the direct and indirect impact of the pandemic on the Company’s employees, customers, clients, counterparties, vendors, service providers and other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic), which are highly uncertain and cannot be reasonably predicted.

The COVID-19 pandemic contributed to:

 

•

Increased unemployment levels, interrupted income of consumers and decreased consumer confidence  generally, leading to an increased risk of delinquencies, defaults and foreclosures;

 

•

Increased disruption to businesses, permanent or temporary closure of businesses and decreased business confidence generally, leading to increased risk of delinquencies, defaults and bankruptcies;

 

•

A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets;

 

•

A decrease in the rates and yields on U.S. Treasury securities, which has negatively impacted the Company’s net interest income and margin;

 

•

Declines in collateral values;

 

•

Increased demands on capital and liquidity, leading M&T to cease repurchases of its common stock for the time being;

 

•

A reduction in the value of the assets that the Company manages or otherwise administers or services for customers, affecting related fee income and demand for the Company’s services;

 

•

Heightened cybersecurity, information security and operational risks to the Company, including as a result of work-from-home arrangements;

 

•

Disruptions to the business operations of the Company, including disruptions to branch and office openings, supply chains and employee travel and working arrangements; and

 

•

Disruptions to business operations at counterparties, vendors and other service providers.

 

The pandemic is likely to continue to contribute to these risks and impacts. As a result, the Company’s credit, operational and other risks are generally expected to increase until the pandemic subsides. In addition, the Company’s business operations continue to be at risk of adverse disruption if significant portions of the Company’s workforce are unable to work effectively, including because of illness, quarantines, government actions, failures in systems or technology that disrupt work-from-home arrangements or other effects of the pandemic, or if the Company is unable to keep branches or offices open, including because of risk of infection.

 

Governmental authorities have taken unprecedented measures to provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is not yet entirely known and those measures may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. Additionally, some measures, such as a suspension of mortgage and other loan payments and foreclosures, may have a negative impact on the Company’s business, financial condition, liquidity, capital and results of operations. If such measures are not effective in mitigating the effects of the COVID-19 pandemic on the Company’s borrowers, the Company may also experience higher rates of default and increased credit losses in future periods. The Company also faces an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on market and economic conditions and actions governmental authorities take in response to those conditions. Furthermore, various government programs such as the Paycheck Protection Program are complex and the Company’s participation may lead to litigation and governmental, regulatory and third party scrutiny, negative publicity and damage to its reputation.

 

The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. It is unknown when there will be a return to normal business activity and a subsiding of the economic

- 94 -

 

stress associated with the pandemic. Prolonged continuation of the pandemic could worsen these risks and impacts.   Until the pandemic subsides, the Company expects continued draws on lines of credit, reduced revenues in many of its fee-related businesses and increased customer and client defaults, including defaults in unsecured loans. Even after the pandemic subsides, the U.S. economy may experience a prolonged economic slowdown or recession, and M&T anticipates the Company’s businesses would be materially and adversely affected by a prolonged economic slowdown or recession. To the extent the pandemic adversely affects the Company’s business, financial condition, liquidity, capital or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in M&T’s 2019 Annual Report on Form 10-K for the year ended December 31, 2019 and M&T’s other filings with the Securities and Exchange Commission.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

(a) – (b) Not applicable.

(c)

 

 

 

Issuer Purchases of Equity Securities

 

Period

 

(a)Total

Number

of Shares

(or Units)

Purchased (1)

 

 

(b)Average

Price Paid

per Share

(or Unit)

 

 

(c)Total

Number of

Shares

(or Units)

Purchased

as Part of

Publicly

Announced

Plans or

Programs

 

 

(d)Maximum

Number (or

Approximate

Dollar Value)

of Shares

(or Units)

that may yet

be Purchased

Under the

Plans or

Programs (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 1 - July 31, 2020

 

 

—

 

 

 

—

 

 

 

—

 

 

$

—

 

August 1 - August 31, 2020

 

 

300

 

 

 

105.95

 

 

 

—

 

 

 

—

 

September 1 - September 30, 2020

 

 

230

 

 

 

103.26

 

 

 

—

 

 

 

—

 

Total

 

 

530

 

 

 

104.78

 

 

 

—

 

 

 

 

 

 

(1)

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

(2)

The authorization by M&T’s Board of Directors on July 17, 2019 for a stock repurchase program ended as of the end of the second quarter of 2020.

 

 

Item 3.

Defaults Upon Senior Securities.

(Not applicable.)

 

 

Item 4.

Mine Safety Disclosures.

(None.)

 

 

Item 5.

Other Information.

(None.)

 

- 95 -

 

Item 6.

Exhibits.

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

  

Exhibit

No.

 

 

 

 

  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. Filed herewith.

 

 

101.CAL

  

Inline XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase. Filed herewith.

 

 

101.LAB

  

Inline XBRL Taxonomy Extension Label Linkbase. Filed herewith.

 

 

101.PRE

  

Inline XBRL Taxonomy Extension Presentation Linkbase. Filed herewith.

 

 

104

  

The cover page from M&T Bank Corporation’s Quarterly Report on Form 10-Q for the quarter ended

September 30, 2020 has been formatted in Inline XBRL.

 

 

SIGNATURES

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

 

 

 

M&T BANK CORPORATION

 

 

 

Date: November 4, 2020

 

By:

 

/s/ Darren J. King

 

 

 

 

Darren J. King

 

 

 

 

Executive Vice President

and Chief Financial Officer

 

- 96 -

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