M&T BANK CORPORATION Overview
M&T Bank Corporation ("M&T") recorded net income in the first quarter of 2020 of$269 million or$1.93 of diluted earnings per common share, compared with$483 million or$3.35 of diluted earnings per common share in the similar 2019 quarter. During the final quarter of 2019, net income and diluted earnings per common share were$493 million and$3.60 , respectively. Basic earnings per common share were$1.93 in the recent quarter, compared with$3.35 and$3.60 in the first and fourth quarters of 2019, respectively. The annualized rate of return on average total assets for M&T and its consolidated subsidiaries ("the Company") in the initial quarter of 2020 was .90%, compared with 1.68% in the year-earlier quarter and 1.60% in the final quarter of 2019. The annualized rate of return on average common shareholders' equity was 7.00% in the recent quarter, compared with 13.14% in the corresponding 2019 quarter and 12.95% in 2019's the fourth quarter of 2019. EffectiveJanuary 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 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 as ofJanuary 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. M&T's first quarter 2020 results were adversely impacted by the Coronavirus Disease 2019 ("COVID-19") pandemic, asthe United States operates under a state of emergency. Economic forecasts of the impact of COVID-19 as of the end of the recent quarter resulted in higher estimates of expected credit losses in M&T's loan portfolio as compared with that estimated as ofJanuary 1, 2020 . While the full impact of COVID-19 on M&T's future financial results is uncertain and not currently estimable, M&T believes that impact could be material. A provision for credit losses of$250 million was recorded in the first quarter of 2020. OnMarch 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 approvedSmall Business Administration ("SBA") lenders, includingM&T Bank , which is one of the top ten SBA lenders in the country. For commercial and consumer customers, M&T has provided a host of relief options, including loan maturity extensions, payment deferrals, fee waivers and low interest rate loan products. OnApril 6, 2020 , M&T provided an online application solution for small business customers and began accepting loan applications under the PPP. While the updated economic forecasts at the end of the first quarter resulted in higher estimates of expected credit losses in the Company's loan portfolio, resulting in a significant increase in the provision for credit losses, the Company will continue to be negatively impacted by the COVID-19 pandemic afterMarch 31, 2020 . The Company believes that the COVID-19 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:
• Average loan balances are expected to rise, as commercial customers drew on
available lines of credit in late March and as a result of the loans
associated with the PPP being funded. Details of the Main Street Lending
Program, a provision of the CARES Act, are being finalized so that
potential impact is not determinable;
• Net interest income and net interest margin - while the higher loan
balances will add to net interest income, the low interest rate environment
and the 1% rate earned on the PPP loans will negatively affect the
Company's net interest margin;
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• Provision for credit losses - deteriorating economic assumptions used to
calculate the allowance for credit losses at the end of future reporting
periods could result in higher levels of the provision and allowance for
credit losses than have been historically experienced. In addition, theimpact on borrowers' ability to repay loans could be negatively affected,
potentially leading to increased charge-offs;
• Noninterest income will likely be lower as it relates to the trust
businesses, as some of that income is derived from equity marketperformance, and it is likely that fee waivers will resume for proprietary
money market mutual fund management fees. The potential for a prolonged
slowdown in debt capital market activities also exists. Consumer deposit
service charge fees are expected to decline due to fee waivers and lower
debit card transactions. Credit card interchange volumes are also expected
to be lower, resulting in lower fees. Residential mortgage applications are
expected to continue to be strong given the low interest rate environment;
and
• The shelter in place and stay at home mandates around the country will
impact aspects of the Company's expense base, such as the use of
contractors, travel and entertainment costs, and other types of
discretionary expenditures. In addition, the Company has curtailed hiring
and has redeployed employees to address the changing dynamics of the
business given the current environment.
The national effort to mitigate the pandemic has resulted in a widespread and deep contraction of the economy, challenging businesses and their employees. The Company has taken actions to 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, maintain continuity of operations and service levels for customers,
preserve the Company's financial strength, and comply with applicable laws
and regulations. Actions have included placing restrictions on travel,
implementing a limited branch service model, implementing social distancing
requirements, and mandating for all employees whose jobs can be performed
remotely to work from home indefinitely;
• Nearly all M&T Bank branches remain open, with in-person visits by
appointment and normal access to drive-through windows and ATMs;
• Approximately 90% of the Company's non-branch employees are working remotely;
• Loan customers are receiving COVID-19 related relief in various forms,
including modification and forebearance requests that have been approved
through April 30, 2020 as follows:
• Commercial - 6,324 customers with balances of $14.1 billion ;
• Residential real estate - 81,587 customers with balances of $15.2
billion (including 74,989 customers with balances of $13.2 billion
that are serviced for others);
• Consumer - including automobile, recreational finance, home equity
lines and loans, credit cards and personal loans - 17,834 customers
with balances of $555 million .
• Paycheck Protection Program - Through
approved for loans totaling
• Waiving of certain types of transaction and maintenance fees for consumer
and small business deposit account relationships.
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 fromBayview 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. - 47 -
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Supplemental Reporting of Non-GAAP Results of Operations
M&T consistently provides supplemental reporting of its results on a "net operating" or "tangible" basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and expenses associated with merging acquired operations into the Company, since such items are considered by management to be "nonoperating" in nature. Although "net operating income" as defined by M&T is not a GAAP measure, M&T's management believes that this information helps investors understand the effect of acquisition activity in reported results. Net operating income aggregated$272 million in the first three months of 2020, compared with$486 million in the similar 2019 period. Diluted net operating earnings per common share for the first quarter of 2020 were$1.95 , compared with$3.38 in the initial 2019 quarter. Net operating income and diluted net operating earnings per common share were$496 million and$3.62 , respectively, in the fourth quarter of 2019. Net operating income in the recent quarter expressed as an annualized rate of return on average tangible assets was 0.94%, compared with 1.76% and 1.67% in the first and fourth quarters of 2019, respectively. Net operating income represented an annualized return on average tangible common equity of 10.39% in the recent quarter, compared with 19.56% in the year-earlier quarter and 19.08% in the final 2019 quarter.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income was$982 million in the initial quarter of 2020, compared with$1.06 billion in the first quarter of 2019. That decline resulted predominantly from a 39 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 3.65% in the recent quarter from 4.04% in the corresponding 2019 quarter. The narrowing in the net interest margin was largely the result of declines in rates on loans, reflecting the lower interest rate environment due to actions initiated by theFederal 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$2.1 billion from the year-earlier quarter, reflecting growth in loans, interest-bearing deposits at banks and short-term agreements to resell securities. Those increases were partially offset by a decline in average balances of investment securities. Taxable-equivalent net interest income in the recent quarter declined$32 million , or 3%, from the fourth quarter of 2019 primarily due to a$2.4 billion or 2% decrease in average earning assets. The lower earning assets were predominantly due to declines in average balances of interest-bearing deposits at banks and investment securities, partially offset by a rise in average outstanding loans. The recent quarter's net interest margin was little changed from 3.64% in the final 2019 quarter. Average loans and leases totaled$91.7 billion in the recent quarter, up$3.2 billion or 4% from$88.5 billion in the first quarter of 2019. Commercial loans and leases averaged$24.3 billion in the first quarter of 2020,$1.3 billion or 6% higher than in the year-earlier quarter. Commercial loan and lease balances atMarch 31, 2020 totaled$26.2 billion , up 14% from$23.1 billion a year earlier. During late March, the Company's commercial customers began drawing on available lines of credit for liquidity purposes as the pandemic was expanding in scope. Those draws, which totaled approximately$2 billion , are expected to have a more significant effect on average balances in the second quarter of 2020, to the extent such loans amounts remain outstanding. Average commercial real estate loans were$36.0 billion in the recent quarter, up$1.5 billion , or 4%, from$34.5 billion in the initial quarter of 2019. Included in average commercial real estate loans in the first quarters of 2020 and 2019 were loans held for sale of$185 million and$280 million , respectively. Reflecting ongoing repayments of loans obtained in the 2015 acquisition ofHudson City Bancorp, Inc. ("Hudson City"), average residential real estate loans declined$1.0 billion or 6% to$15.9 billion in the first three months of 2020 from$16.9 billion in the year-earlier quarter. Included in average residential real estate loans were loans held for sale of$409 million in the recent quarter and$166 million in the first quarter of 2019. Consumer loans averaged$15.5 billion in the first quarter of 2020, up$1.4 billion , or 10%, from$14.0 billion in the initial 2019 quarter, predominantly due to growth in average recreational finance - 48 - --------------------------------------------------------------------------------
(consisting predominantly of loans secured by recreational vehicles and boats) and automobile loans that was partially offset by declines in outstanding balances of home equity loans and lines of credit.
Average loan and lease balances in the first quarter of 2020 increased$1.5 billion , or 2%, from$90.2 billion in the fourth quarter of 2019. Average commercial loan and lease balances in the recent quarter were up$742 million , or 3%, from$23.5 billion in the fourth quarter of 2019. Average commercial real estate loans in the first quarter of 2020 increased$1.0 billion , or 3%, from$35.0 billion in the fourth quarter of 2019. Commercial real estate loans held for sale averaged$201 million in the fourth quarter of 2019. Average balances of residential real estate loans in the initial 2020 quarter declined$399 million , or 2%, from$16.3 billion in the fourth quarter of 2019, reflecting the continued pay down of loans obtained in the acquisition of Hudson City. Residential real estate loans held for sale averaged$382 million in the final 2019 quarter. Average consumer loans in the recent quarter increased$124 million , or 1%, from$15.3 billion in 2019's fourth quarter. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio. AVERAGE LOANS AND LEASES (net of unearned discount) Percent Increase (Decrease) from 1st Qtr. 1st Qtr. 4th Qtr. 2020 2019 2019 (In millions) Commercial, financial, etc.$ 24,290 6 % 3 % Real estate - commercial 36,034 4 3 Real estate - consumer 15,931 (6 ) (2 ) Consumer Recreational finance 5,661 34 4 Home equity lines and loans 4,412 (8 ) (3 ) Automobile 3,940 7 2 Other 1,438 11 (1 ) Total consumer 15,451 10 1 Total$ 91,706 4 % 2 % The investment securities portfolio averaged$9.1 billion in the first quarter of 2020, down$3.8 billion , or 30%, from$12.9 billion in the year-earlier quarter and$942 million lower than the$10.0 billion averaged in the fourth quarter of 2019. The lower average balances in the two most recent quarters as compared with the first quarter of 2019 reflect maturities ofU.S. Treasury notes and pay downs of mortgage-backed securities. During the first quarter of 2019, the Company purchased$500 million ofU.S. Treasury notes. There were no significant purchases of investment securities during the first quarter of 2020 or the fourth quarter of 2019. There were no significant sales of investment securities during the three-month periods endedMarch 31, 2020 ,March 31, 2019 orDecember 31, 2019 . The Company routinely has increases and decreases in its holdings of capital stock of theFederal Home Loan Bank of New York and theFederal 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 termU.S. Treasury and federal agency notes, and certain other debt and marketable equity securities. Investment securities also include capital stock of theFederal Home Loan Bank of New York and theFederal 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 - 49 - -------------------------------------------------------------------------------- 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 losses on such equity securities during the first quarter of 2020 and final quarter of 2019 were$21 million and$6 million , respectively, compared with net unrealized gains of$12 million during the first quarter of 2019. 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 first quarters of 2020 or 2019 or in the final 2019 quarter. Based on management's assessment of future cash flows associated with individual investment securities as ofMarch 31, 2020 , the Company did not expect to incur any material credit-related losses in its portfolios of debt investment securities. A further discussion of fair values of investment securities is included herein under the heading "Capital." Additional information about the investment securities portfolio is included in notes 2 and 11 of Notes to Financial Statements. Other earning assets include interest-bearing deposits at theFederal 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$7.4 billion in the recently completed quarter, compared with$4.7 billion in the first quarter of 2019 and$10.3 billion in the final quarter of 2019. Interest-bearing deposits at banks averaged$6.1 billion ,$4.6 billion and$8.9 billion during the three-month periods endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. The amounts of interest-bearing deposits at banks at the respective dates were predominantly comprised of deposits held at theFederal Reserve Bank of New York . The levels of those deposits often fluctuate due to changes in trust-related deposits of commercial entities, purchases or maturities of investment securities, or borrowings to manage the Company's liquidity.
As a result of the changes described herein, average earning assets totaled
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$90.9 billion in the first quarter of 2020,$6.1 billion or 7% above$84.8 billion in the year-earlier quarter. Average balances of savings and interest-checking core deposits rose$4.4 billion or 9% to$53.6 billion in the initial 2020 quarter from$49.2 billion in the year-earlier quarter. That increase was predominantly due to higher residential mortgage escrow deposits resulting from additions to the Company's servicing and sub-servicing portfolios in 2019 and higher commercial deposits. Average noninterest-bearing deposits increased$2.1 billion or 7% to$32.5 billion in the recent quarter from$30.3 billion in the first 2019 quarter. The recent quarter rise in average noninterest-bearing deposits was largely due to higher trust and commercial deposits, and mortgage escrow deposits. As noted earlier, in late March commercial customers drew down available lines of credit for liquidity purposes. A large portion of those funds were deposited in customer deposit accounts atM&T Bank . The impact of those additional deposits is expected to have a more significant effect on average deposit account balances in the second quarter of 2020, to the extent such amounts remain on deposit with the Company. Average core deposits were$91.5 billion in the fourth quarter of 2019. Average savings and interest-checking core deposits declined$756 million or 1% in the initial 2020 quarter from$54.4 billion in the immediately preceding quarter. That decline reflected lower average commercial and mortgage escrow deposits. Average noninterest-bearing deposits in the recent quarter were$387 million or 1 % above the fourth quarter average of$32.1 billion due to higher trust-related deposits. The following table provides an analysis of quarterly changes in the components of average core deposits. - 50 -
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AVERAGE CORE DEPOSITS
Percent Increase
(Decrease) from
1st Qtr. 1st Qtr. 4th Qtr.
2020 2019 2019
(In millions)
Savings and interest-checking deposits $ 53,648 9 % (1 ) %
Time deposits 4,800 (9 ) (5 )
Noninterest-bearing deposits 32,456 7 1
Total $ 90,904 7 % (1 ) %
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 $872 million in the recent
quarter, compared with $1.0 billion in the first quarter of 2019 and $956
million in the final 2019 quarter. The decreases in such deposits since the
first quarter of 2019 were predominantly the result of maturities of higher-rate
time deposits. Cayman Islands office deposits averaged $1.7 billion in each of
the first quarter of 2020 and the final quarter of 2019, compared with $972
million in the initial 2019 quarter. The increases in such deposits in the two
most recent quarters as compared with the first quarter of 2019 were the result
of customers' desire to sweep their deposit balances into higher earning
products. However, balances of Cayman Islands office deposits at March 31, 2020
declined to $1.2 billion from $1.7 billion at December 31, 2019 , largely
reflecting 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 $2.7 billion during each of the first quarter of 2020 and the fourth
quarter of 2019 and $2.9 billion in the first quarter of 2019. 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.
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The table below summarizes average total deposits for the quarters ended
AVERAGE DEPOSITS
Commercial
Retail Trust and Other Total
(In millions)
Three Months Ended March 31, 2020
Savings and interest-checking deposits $ 26,920 $ 6,181 $ 23,265 $ 56,366
Time deposits 5,265 52 355 5,672
Noninterest-bearing deposits 5,661 5,080 21,715 32,456
Deposits at Cayman Islands office - - 1,672 1,672
Total $ 37,846 $ 11,313 $
47,007
Three Months EndedDecember 31, 2019 Savings and interest-checking deposits$ 26,445 $ 6,532 $ 24,126 $ 57,103 Time deposits 5,566 53 396 6,015 Noninterest-bearing deposits 5,409 4,672 21,988 32,069 Deposits at Cayman Islands office - - 1,716 1,716 Total$ 37,420 $ 11,257 $
48,226
Three Months EndedMarch 31, 2019 Savings and interest-checking deposits$ 27,279 $ 6,360 $ 18,456 $ 52,095 Time deposits 5,792 42 517 6,351 Noninterest-bearing deposits 5,214 3,979 21,122 30,315 Deposits at Cayman Islands office - - 972 972 Total$ 38,285 $ 10,381 $ 41,067 $ 89,733 The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, theFederal 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$58 million in the initial 2020 quarter, compared with$1.1 billion in the year-earlier quarter and$675 million in the final quarter of 2019. Short-term borrowings from Federal Home Loan Banks averaged$718 million in the first quarter of 2019 and$548 million in the fourth quarter of 2019. There were no such borrowings outstanding in the initial 2020 quarter. Long-term borrowings averaged$6.2 billion in the recent quarter, compared with$8.5 billion and$6.9 billion in the first and fourth quarters of 2019, respectively. Average balances of outstanding senior notes were$4.2 billion ,$5.5 billion and$4.9 billion during the three months endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. OnJanuary 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 onFebruary 6, 2020 . Also included in average long-term borrowings were amounts borrowed from the Federal Home LoanBanks ofNew York andPittsburgh of$2 million in each of the two most recent quarters and$576 million during the first quarter of 2019. Subordinated capital notes included in long-term borrowings averaged$1.4 billion in each of the three-month periods endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 . Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were$525 million in each of the three-month periods endedMarch 31, 2020 andDecember 31, 2019 and$522 million during the initial three months of 2019. Additional information regarding junior subordinated debentures is provided in note 4 of Notes to Financial Statements. Long-term borrowings also included agreements to repurchase securities, which averaged$101 million in the first quarter of 2020,$408 million in the year-earlier quarter and$102 million in the fourth quarter of 2019. The repurchase agreement held atMarch 31, 2020 totaled$101 million and matures inJuly 2020 , however, the contractual maturities of the underlying securities extend beyond such repurchase date. - 52 - -------------------------------------------------------------------------------- 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 3.35% in the recent quarter, compared with 3.67% in the initial 2019 quarter. The yield on earning assets during the first three months of 2020 was 4.18%, down 53 basis points from 4.71% in the similar 2019 period, while the rate paid on interest-bearing liabilities declined 21 basis points to .83% in the recent quarter from 1.04% in the year-earlier period. The narrowing of the net interest spread in the recent quarter as compared with the corresponding 2019 period reflects the decreases in short-term interest rates initiated by theFederal Reserve during the second half of 2019 and, to a lesser degree, inMarch 2020 . In the fourth quarter of 2019, the net interest spread was 3.30%, the yield on earning assets was 4.27% and the rate paid on interest-bearing liabilities was .97%. 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$38.2 billion in the first three months of 2020, compared with$37.1 billion in the initial 2019 quarter and$38.1 billion in the fourth quarter of 2019. The increase in average net interest-free funds in the most recent quarter as compared with the first quarter of 2019 reflects higher average balances of noninterest-bearing deposits. Those deposits averaged$32.5 billion ,$30.3 billion and$32.1 billion in the quarters endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. The rise in such balances in the recent quarter as compared with the initial quarter of 2019 was due to increased levels of deposits of commercial and trust customers. Partially offsetting the higher average balances of noninterest-bearing deposits in the initial 2020 quarter were increased average balances of mortgage servicing advances. Shareholders' equity averaged$15.7 billion during the three-month period endedMarch 31, 2020 ,$15.6 billion during the three-month period endedMarch 31, 2019 and$15.8 billion during the three-month period endedDecember 31, 2019 .Goodwill and core deposit and other intangible assets averaged$4.6 billion in each of the two most recent quarters and the quarter endedMarch 31, 2019 . The cash surrender value of bank owned life insurance averaged$1.8 billion in each of the three-month periods endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 . 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 .30% in the first quarter of 2020, compared with .37% and .34% in the first quarter of 2019 and fourth quarter of 2019, respectively. The reduced contribution of net interest-free funds to net interest margin in the recent quarter as compared with the first and fourth quarters of 2019 reflects the lower rates on interest-bearing liabilities used to value net interest-free funds. Reflecting the changes to the net interest spread and the contribution of interest-free funds as described herein, the Company's net interest margin was 3.65% in the first quarter of 2020, compared with 4.04% in the similar 2019 period and 3.64% in the fourth quarter of 2019. 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$16.4 billion (excluding$41.8 billion of forward-starting swap agreements) atMarch 31, 2020 ,$17.8 billion (excluding$16.4 billion of forward-starting swap agreements) atMarch 31, 2019 and$17.2 billion (excluding$40.4 billion of forward-starting swap agreements) atDecember 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 ofMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 were serving as cash flow hedges of interest payments associated with variable rate commercial real estate loans. AtMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , interest rate swap agreements with notional amounts of$3.05 billion ,$4.45 billion and$3.80 billion , respectively, were serving as fair - 53 - -------------------------------------------------------------------------------- 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. 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 endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 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 2.54% and 1.14%, respectively, atMarch 31, 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 March 31
. 2020 2019
Amount Rate(a) Amount Rate(a)
(Dollars in thousands)
Increase (decrease) in:
Interest income $ 32,041 .12 % $ (6,625 ) (.03 ) %
Interest expense (3,765 ) (.02 ) 6,385 .04
Net interest income/margin $ 35,806 .13 % $ (13,010 ) (.05 ) %
Average notional amount (c) $ 16,650,549 $ 12,662,778
Rate received (b) 2.51 % 2.28 %
Rate paid (b) 1.66 % 2.69 %
(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.
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 March 31, 2019 and December 31, 2019 , outstanding
notional amounts of such agreements totaled $15.6 billion . The fair value of
those interest rate floor agreements was $1.4 million at March 31, 2019 and $362
thousand at December 31, 2019 and was included in trading account assets in the
consolidated balance sheet. Changes in the fair value of those agreements were
recorded as "trading account and foreign exchange gains" in the consolidated
statement of income. 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
- 54 -
-------------------------------------------------------------------------------- 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 ofNew 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 ofNew York , lines of credit with theFederal Reserve Bank of New York ,M&T Bank's Bank Note Program, and other available borrowing facilities. The Bank Note Program enablesM&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. AtMarch 31, 2020 andDecember 31, 2019 , long-term borrowings aggregated$6.3 billion and$7.0 billion , respectively. Short-term federal funds borrowings outstanding atMarch 31, 2019 were$3.4 billion , while there were no such borrowings outstanding atMarch 31, 2020 orDecember 31, 2019 . In general, those borrowings were unsecured, matured on the next business day and were entered into to enhance the Company's overall liquidity position at the time. In addition to satisfying customer demand,Cayman Islands office deposits may be used by the Company as an alternative to short-term borrowings.Cayman Islands office deposits totaled$1.2 billion atMarch 31, 2020 ,$1.1 billion atMarch 31, 2019 and$1.7 billion atDecember 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$3.1 billion atMarch 31, 2020 and$2.8 billion at each ofMarch 31, 2019 andDecember 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 credit-event risk by modeling scenarios that estimate the liquidity impact resulting from a short-term ratings downgrade over various grading levels. Such impact is estimated by attempting to measure the effect on available unsecured lines of credit, available capacity from secured borrowing sources and securitizable assets. In addition to deposits and borrowings, other sources of liquidity include maturities of investment securities and other earning assets, repayments of loans and investment securities, and cash generated from operations, such as fees collected for services. 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 byM&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 atMarch 31, 2020 orDecember 31, 2019 . The total amounts of VRDBs outstanding backed byM&T Bank letters of credit were$850 million atMarch 31, 2020 , compared with$756 million atMarch 31, 2019 and$857 million atDecember 31, 2019 .M&T Bank also serves as remarketing agent for most of those bonds. - 55 - -------------------------------------------------------------------------------- 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, atMarch 31, 2020 approximately$384 million 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 atMarch 31, 2020 andDecember 31, 2019 were$790 million and$770 million , respectively. Junior subordinated debentures of M&T associated with trust preferred securities outstanding atMarch 31, 2020 andDecember 31, 2019 totaled$526 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. AtMarch 31, 2020 , the aggregate notional amount of interest rate swap agreements entered into for risk management purposes that were currently in effect was$16.4 billion . In addition, the Company has entered into$41.8 billion of forward-starting interest rate swap agreements. 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 - 56 - -------------------------------------------------------------------------------- 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 ofMarch 31, 2020 andDecember 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 March 31, 2020 December 31, 2019
(In thousands)
+200 basis points $ 99,883 45,345
+100 basis points 62,141 35,838
-100 basis points (51,028 ) (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 positive 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.
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 herein under the heading "Capital" and 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 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 $36.7 billion at March 31, 2020 , $43.3 billion at March 31,
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 $928 million at March 31, 2020 , compared with $832 million at
March 31, 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
- 57 -
--------------------------------------------------------------------------------
values of all trading account assets and liabilities recognized on the balance
sheet were $1.2 billion and $126 million , respectively, at March 31, 2020 and
$470 million and $80 million , respectively, at December 31, 2019 . The fair value
asset and liability amounts at March 31, 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 March 31,
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 $19 million at March 31, 2020 and $21
million at each of March 31, 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 March 31, 2020 were $22 million of
liabilities related to deferred compensation plans, compared with $24 million at
March 31, 2019 and $25 million at 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 March 31, 2020 , $26 million at March 31, 2019 and
$28 million at December 31, 2020 .
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, effectiveJanuary 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 atJanuary 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 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. - 58 - -------------------------------------------------------------------------------- IMPACT OF ADOPTION OF AMENDED ACCOUNTING GUIDANCE ON ALLOWANCE FOR CREDIT LOSSES Impact of Balance Adoption December 31, Increase Balance 2019 (Decrease) January 1, 2020 (In thousands)
Commercial, financial, leasing, etc.
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 first
quarter of 2020 was $250 million , compared with $22 million in the year-earlier
quarter and $54 million in the fourth quarter of 2019. As noted earlier, the
significant increase in the provision in the recent quarter as compared with the
prior quarters follows adoption of the new accounting guidance on January 1,
2020 and reflects updated assumptions and projections that considered the
deteriorating macroeconomic outlook resulting from the COVID-19 pandemic. Net
charge-offs of loans were $49 million in the recent quarter, compared with $22
million and $41 million in the first and fourth quarters of 2019,
respectively. Net charge-offs as an annualized percentage of average loans and
leases were .22% in the initial 2020 quarter, .10% in the similar quarter of
2019 and .18% in the final quarter of 2019. A summary of net charge-offs by loan
type is presented in the table that follows.
NET CHARGE-OFFS (RECOVERIES)
BY LOAN/LEASE TYPE
First First Fourth
Quarter Quarter Quarter
2020 2019 2019
(In thousands)
Commercial, financial, leasing, etc. $ 13,122 706 13,907
Real estate:
Commercial 834 (543 ) 620
Residential 3,428 1,542 6
Consumer 31,778 20,402 26,833
$ 49,162 22,107 41,366
- 59 -
-------------------------------------------------------------------------------- Included in net charge-offs of consumer loans were net charge-offs of: automobile loans of$7 million in the each of the first quarters of 2020 and 2019 and$4 million in the fourth quarter of 2019; recreational finance loans of$9 million in the first quarter of 2020 and$7 million in each of the year-earlier quarter and the fourth quarter of 2019; and home equity loans and lines of credit secured by one-to-four family residential properties of$2 million in each of the first quarters of 2020 and the final 2019 quarter and$1 million in the first quarter of 2019. Nonaccrual loans aggregated$1.06 billion or 1.13% of total loans and leases outstanding atMarch 31, 2020 , compared with$1.13 billion or 1.25% atJanuary 1, 2020 . The adoption of the new accounting guidance resulted in an increase in nonaccrual loans onJanuary 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. Nonaccrual loans atMarch 31, 2019 andDecember 31, 2019 totaled$882 million and$963 million , respectively, or .99% and 1.06% of total loans outstanding. Accruing loans past due 90 days or more were$530 million or .56% of loans and leases atMarch 31, 2020 . Accruing loans past due 90 days or more (excluding loans acquired at a discount) were$244 million or .28% of total loans outstanding atMarch 31, 2019 and$519 million or .57% of outstanding loans atDecember 31, 2019 . Accruing loans past due 90 days or more included loans guaranteed by government-related entities of$464 million ,$195 million and$480 million atMarch 31, 2020 ,March 31, 2019 , andDecember 31, 2019 , 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$439 million atMarch 31, 2020 ,$169 million atMarch 31, 2019 and$452 million atDecember 31, 2019 . The increase in such loans sinceMarch 31, 2019 resulted from loans associated with servicing the Company added in 2019. 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. Prior to the adoption of the new accounting standard onJanuary 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$279 million atMarch 31, 2019 and$228 million atDecember 31, 2019 .The United States has been operating under a state of emergency related to the COVID-19 pandemic sinceMarch 13, 2020 . The direct and indirect effects of the COVID-19 pandemic have resulted in a dramatic reduction in economic activity that has 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 theFinancial 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. Modifications may include payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment. The Company has begun working with its customers affected by COVID-19 and expects a significant amount of modifications across many of its loan portfolios in the near term. To - 60 - --------------------------------------------------------------------------------
the extent that such modifications meet the criteria previously described, such modifications are not expected to be classified 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$176 million ,$188 million , and$203 million atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. Commercial loans and leases classified as nonaccrual totaled$287 million ,$246 million and$347 million atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. The decline in such loans fromDecember 31, 2019 toMarch 31, 2020 predominantly resulted from payments received from borrowers. Commercial real estate loans in nonaccrual status aggregated$227 million ,$232 million and$195 million atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. Nonaccrual residential real estate loans totaled$413 million atMarch 31, 2020 , compared with$295 million atMarch 31, 2019 and$319 million atDecember 31, 2019 . The increase at the end of the first quarter of 2020 as compared with the prior dates reflects 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$119 million atMarch 31, 2020 , compared with$85 million atMarch 31, 2019 and$83 million atDecember 31, 2019 . 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$474 million atMarch 31, 2020 , compared with$200 million atMarch 31, 2019 and$487 million atDecember 31, 2019 . A substantial portion of such amounts related to repurchased government-guaranteed loans, including the previously noted repurchases of loans associated with servicing that the Company added in 2019. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter endedMarch 31, 2020 is presented in the accompanying table. Nonaccrual consumer loans were$135 million atMarch 31, 2020 , compared with$109 million atMarch 31, 2019 and$102 million atDecember 31, 2019 . Included in nonaccrual consumer loans atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 were: automobile loans of$19 million ,$21 million and$21 million , respectively; recreational finance loans of$13 million ,$11 million and$14 million , respectively; and outstanding balances of home equity loans and lines of credit of$63 million ,$69 million and$63 million , respectively. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter endedMarch 31, 2020 is presented in the accompanying table.
Information about past due and nonaccrual loans as of
- 61 -
--------------------------------------------------------------------------------SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA
Quarter Ended
March 31, 2020 March 31, 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 $ 4,703,403 $ 101,335 2.15 % $ 2,635 .22 %
Pennsylvania 1,089,994 13,977 1.28 421 .15
Maryland 1,138,757 15,563 1.37 (1 ) -
New Jersey 2,956,288 75,402 2.55 689 .09
Other Mid-Atlantic (a) 1,044,795 14,676 1.40 67 .03
Other 2,661,585 71,713 2.69 43 .01
Total $ 13,594,822 $ 292,666 2.15 % $ 3,854 .11 %
Residential construction loans:
New York $ 27,556 $ 147 .53 % $ - - %
Pennsylvania 6,229 240 3.85 - -
Maryland 10,381 - - - -
New Jersey 14,744 556 3.77 - -
Other Mid-Atlantic (a) 22,197 - - - -
Other 5,346 29 .54 29 1.71
Total $ 86,453 $ 972 1.12 % $ 29 1.13 %
Limited documentation first
mortgages:
New York $ 880,900 $ 51,502 5.85 % $ (76 ) (.03 %)
Pennsylvania 39,680 5,296 13.35 (9 ) (.09 )
Maryland 23,681 3,045 12.86 21 .35
New Jersey 724,369 35,110 4.85 11 .01
Other Mid-Atlantic (a) 20,114 973 4.84 1 .04
Other 272,995 23,391 8.57 (403 ) (.57 )
Total $ 1,961,739 $ 119,317 6.08 % $ (455 ) (.09 %)
First lien home equity loans and
lines of credit:
New York $ 1,090,756 $ 13,259 1.22 % $ 102 .04 %
Pennsylvania 659,319 8,224 1.25 63 .04
Maryland 543,700 7,277 1.34 161 .12
New Jersey 70,141 772 1.10 64 .37
Other Mid-Atlantic (a) 180,954 2,014 1.11 23 .05
Other 31,735 1,546 4.87 63 .79
Total $ 2,576,605 $ 33,092 1.28 % $ 476 .07 %
Junior lien home equity loans and
lines of credit:
New York $ 667,536 $ 13,679 2.05 % $ 21 .01 %
Pennsylvania 245,463 3,035 1.24 833 1.35
Maryland 512,619 7,710 1.50 154 .12
New Jersey 98,171 1,103 1.12 75 .31
Other Mid-Atlantic (a) 233,746 2,889 1.24 (55 ) (.09 )
Other 41,439 1,152 2.78 16 .16
Total $ 1,798,974 $ 29,568 1.64 % $ 1,044 .23 %
Limited documentation junior lien:
New York $ 566 $ 56 9.89 % $ (1 ) (.77 %)
Pennsylvania 207 - - (19 ) (35.94 )
Maryland 1,068 75 7.02 - -
New Jersey 122 - - - -
Other Mid-Atlantic (a) 535 32 5.98 - -
Other 2,828 248 8.77 27 3.80
Total $ 5,326 $ 411 7.72 % $ 7 .53 %
(a)Includes Delaware,
- 62 -
--------------------------------------------------------------------------------
Real estate and other foreclosed assets totaled $84 million at March 31, 2020 ,
compared with $81 million at March 31, 2019 and $86 million at December 31,
2019 . Net gains or losses associated with real estate and other foreclosed
assets were not material during the three-months ended March 31, 2020 , March 31,
2019 or December 31, 2019 . At March 31, 2020 , the Company's holdings of
residential real estate-related properties comprised approximately 89% of
foreclosed assets.
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 2019 Quarters
First
Quarter Fourth Third Second First
(Dollars in thousands)
Nonaccrual loans $ 1,061,748 963,112 1,005,249 865,384 881,611
Real estate and other foreclosed assets 83,605 85,646 79,735 72,907 81,335
Total nonperforming assets $ 1,145,353 1,048,758 1,084,984 938,291 962,946
Accruing loans past due 90 days or
more(a) $ 530,317 518,728 461,162 348,725 244,257
Government guaranteed loans included in
totals above:
Nonaccrual loans $ 50,561 50,891 43,144 36,765 35,481
Accruing loans past due 90 days or more 464,243 479,829 434,132 320,305 194,510
Renegotiated loans $ 232,439 234,424 240,781 254,332 267,952
Acquired accruing loans past due 90 days
or more(b) N/A 39,632 40,733 43,079 43,995
Purchased impaired loans(c):
Outstanding customer balance N/A 415,413 453,382 473,834 495,163
Carrying amount N/A 227,545 253,496 263,025 278,783
Nonaccrual loans to total loans and
leases, net of
unearned discount 1.13 % 1.06 % 1.12 % .96 % .99 %
Nonperforming assets to total net loans
and leases and
real estate and other foreclosed assets 1.22 % 1.15 %
1.21 % 1.04 % 1.09 %
Accruing loans past due 90 days or
more(a) to total
loans and leases, net of unearned
discount .56 % .57 % .51 % .39 % .28 %
(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 endedDecember 31, 2019 . In establishing the allowance for credit losses subsequent toDecember 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 - 63 - --------------------------------------------------------------------------------March 31, 2020 , there existed substantial concerns about the likely economic decline related to the COVID-19 pandemic; the volatile nature of global commodity and export markets, including the impact international economic conditions could have on theU.S. economy;Federal Reserve positioning of monetary policy; and continued stagnant population growth in the upstateNew York and centralPennsylvania regions (approximately 52% of the Company's loans and leases are to customers inNew York State andPennsylvania ). 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 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 higher 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. Criticized commercial loans and commercial real estate loans totaled$2.4 billion atMarch 31, 2020 , compared with$3.0 billion atMarch 31, 2019 and$2.5 billion atDecember 31, 2019 . The declines from the first quarter of 2019 to the two most recent quarter-ends reflect payments received on criticized loans during 2019 and early 2020 and the removal of loans to customers experiencing improved financial condition. The governmental responses to COVID-19 have led to a significant reduction in economic activity that has been detrimental to many businesses across the Company's geographic regions. As a result, borrowers have been and will likely be significantly impacted by the shut-downs caused by theMarch 13, 2020 nationwide state of emergency resulting from the COVID-19 pandemic. Summaries of the commercial loan and lease and commercial real estate loan portfolios as ofMarch 31, 2020 andDecember 31, 2019 are provided below.March 31 , December
31,
Commercial, financial, leasing, etc. 2020 2019
(In millions)
Industry
Motor vehicle and recreational finance dealers$ 5,413 $ 5,089 Services 4,212 3,769 Manufacturing 3,391 2,995 Wholesale 2,231 2,296 Financial and insurance 2,688 1,816 Health services 1,592 1,621 Transportation, communications, utilities 1,476 1,450 Real estate investors 1,646 1,507 Retail 1,566 1,403 Construction 1,244 1,156 Other 785 736 Total$ 26,244 $ 23,838 - 64 -
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March 31, December 31,
Commercial real estate 2020 2019
(In millions)
Investor-owned
Permanent finance by property type
Office $ 4,491 $ 4,468
Apartments/Multifamily 4,634 4,226
Retail/Service 4,601 4,366
Hotel 2,672 2,629
Health facilities 2,563 2,442
Industrial/Warehouse 1,499 1,529
Other 322 219
Total permanent $ 20,782 $ 19,879
Total construction/development 8,761 8,501
Total investor-owned $ 29,543 $ 28,380
Owner-occupied by industry
Other services 1,445 1,467
Retail 1,168 1,157
Motor vehicle and recreational finance dealers 1,161 1,164
Health services 899 903
Wholesale 763 781
Manufacturing 589 591
Other 1,116 1,099
Total owner-occupied 7,141 7,162
Total $ 36,684 $ 35,542
In preparing its financial statements as of March 31, 2020 , the Company did not
attempt to re-grade its commercial loans and commercial real estate loans for
COVID-19 impacts unless it had individual borrower-specific information
indicating it should do so. The Company expects that loans will likely be
re-graded in subsequent periods as more information becomes available.
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 will be re-assessing its loan grades for those borrowers
most impacted by COVID-19 in the second quarter of 2020. 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. 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 March 31, 2020 ,
approximately 59% 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,
- 65 -
--------------------------------------------------------------------------------
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. At March
31, 2020 , the balance of junior lien loans and lines that were in nonaccrual
status solely as a result of first lien loan performance was $6 million ,
compared with $8 million at March 31, 2019 and $6 million at December 31,
2019 . 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 estimating incurred 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. 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 March 31,
2020 , approximately 83% 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 25% 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 March 31, 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 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 March 31, 2020 primarily reflect the
projected impact of the COVID-19 pandemic. Specifically, 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 real gross domestic product as low as (26.1%).
Additionally, commercial real estate prices were anticipated to decline by an
average of 15.6% in the first forecast year, followed by improvement of 9.8% in
year 2. The forecast utilized as of March 31 contemplated an 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 real 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 March 31, 2020 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 March 31, 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
- 66 -
-------------------------------------------------------------------------------- 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 positive change in real 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.
Management believes that the allowance for credit losses atMarch 31, 2020 appropriately reflected expected credit losses inherent in the portfolio as of that date. The allowance for credit losses totaled$1.38 billion atMarch 31, 2020 , compared with$1.18 billion onJanuary 1, 2020 when the new accounting pronouncement became effective. The increase in the allowance for credit losses during the first quarter was primarily the result of deteriorated forecasted economic conditions as a result of the COVID-19 pandemic. The allowance for credit losses totaled$1.02 billion atMarch 31, 2019 and$1.05 billion atDecember 31, 2019 . As a percentage of loans and leases outstanding, the allowance was 1.47% atMarch 31, 2020 compared with 1.30% atJanuary 1, 2020 , 1.15% as ofMarch 31, 2019 and 1.16% atDecember 31, 2019 . 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$529 million in the first quarter of 2020, compared with$501 million in the corresponding 2019 quarter and$521 million in the final quarter of 2019. The recent quarter's improvement as compared with the first three months of 2019 reflects higher mortgage banking revenues, trust income and trading account and foreign exchange gains, partially offset by unrealized valuation losses on equity securities and a reduction in distributed income from BLG of$14 million . As compared with the fourth quarter of 2019, the recent quarter's increase reflected higher levels of distributed income from BLG of$23 million in the initial 2020 quarter and increased mortgage banking revenues that were partially offset by unrealized valuation losses on equity securities and declines in loan syndication and other credit-related fees of$11 million . Mortgage banking revenues were$128 million in the initial 2020 quarter, compared with$95 million in the year-earlier period and$118 million in the fourth quarter of 2019. 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 theU.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$98 million in the first quarter of 2020, compared with$66 million in the corresponding quarter of 2019 and$91 million in the final 2019 quarter. As compared with the first quarter of 2019, 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, and higher servicing income. The recent quarter's improvement from the last quarter of 2019 was predominantly due to higher gains associated with loans held for sale and related commitments. New commitments to originate residential real estate loans to be sold were approximately$919 million in the initial quarter of 2020, compared with$422 million in the year-earlier quarter and$697 million in the final 2019 quarter. 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 - 67 - -------------------------------------------------------------------------------- sale and commitments to sell loans totaled to gains of$31 million in the first three months of 2020,$10 million in the similar period of 2019 and$26 million in 2019's fourth quarter. Loans held for sale that were secured by residential real estate aggregated$374 million atMarch 31, 2020 ,$178 million atMarch 31, 2019 and$414 million atDecember 31, 2019 . Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates totaled$782 million and$712 million , respectively, atMarch 31, 2020 , compared with$380 million and$314 million , respectively, atMarch 31, 2019 and$713 million and$423 million , respectively, atDecember 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$17 million and$8 million atMarch 31, 2020 andMarch 31, 2019 , respectively, compared with$12 million atDecember 31, 2019 . Changes in net unrealized gains or losses are recorded in mortgage banking revenues and resulted in net increases in revenues of$5 million and$1 million in the first quarters of 2020 and 2019, respectively. The impact of such changes in the fourth quarter of 2019 was nil. Revenues from servicing residential real estate loans for others were$67 million during the three-month period endedMarch 31, 2020 , compared with$56 million and$65 million during the quarters endedMarch 31, 2019 andDecember 31, 2019 , respectively. Residential real estate loans serviced for others totaled$93.5 billion atMarch 31, 2020 ,$90.1 billion atMarch 31, 2019 and$95.1 billion atDecember 31, 2019 . Reflected in residential real estate loans serviced for others were loans sub-serviced for others of$61.9 billion ,$54.9 billion and$62.8 billion atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. Revenues earned for sub-servicing loans totaled$37 million during the recent quarter, compared with$28 million in the first quarter of 2019 and$35 million in the final quarter of 2019. The Company added approximately$16.6 billion to its residential mortgage loan sub-servicing portfolio during the second quarter of 2019 and another$1.0 billion was added during the fourth quarter of 2019. 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$224 million atMarch 31, 2020 (net of a$17 million valuation allowance),$260 million atMarch 31, 2019 and$237 million atDecember 31, 2019 (net of a$7 million valuation allowance). A provision for impairment of capitalized residential mortgage servicing rights of$10 million was recorded in the initial 2020 quarter resulting 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. During the fourth quarter of 2019, the Company reduced the valuation allowance for capitalized residential mortgage servicing rights by$16 million , reflecting the impact of higher interest rates at that time. Commercial mortgage banking revenues totaled$30 million in the recent quarter, compared with$29 million and$27 million in the first and fourth quarters of 2019, respectively. Included in such amounts were revenues from loan origination and sales activities of$14 million in the first quarter of 2020,$15 million in the year-earlier quarter and$11 million in the final quarter of 2019. Commercial real estate loans originated for sale to other investors were approximately$611 million in the recent quarter, compared with$777 million in the first quarter of 2019 and$709 million in the fourth quarter of 2019. Loan servicing revenues totaled$16 million in each of the two most recent quarters, compared with$14 million in the initial 2019 quarter. Capitalized commercial mortgage servicing assets were$129 million and$117 million atMarch 31, 2020 and 2019, respectively, and$131 million atDecember 31, 2019 . Commercial real estate loans serviced for other investors totaled$21.0 billion at each ofMarch 31, 2020 andDecember 31, 2019 and$19.2 billion atMarch 31, 2019 . Those servicing amounts included$3.8 billion atMarch 31, 2020 ,$3.5 billion atMarch 31, 2019 and$3.9 billion atDecember 31, 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$542 million and$291 million , respectively, atMarch 31, 2020 ,$366 million and$200 million , respectively, atMarch 31, 2019 and$193 million and$164 million , respectively, atDecember 31, 2019 . Commercial real estate loans held for sale atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 were$250 million ,$166 million and$28 million , respectively. Service charges on deposit accounts were$106 million and$103 million in the first quarters of 2020 and 2019, respectively, and$111 million in the fourth quarter of 2019. The decline in such service charges in the recent - 68 - -------------------------------------------------------------------------------- quarter as compared with the immediately preceding quarter resulted largely from seasonally lower consumer service charges related to overdraft fees and debit card transactions. 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 helps high net worth clients grow their wealth, protect it, and transfer it to their heirs. A comprehensive array of wealth management services are offered, including asset management, fiduciary services and family office services. Trust income aggregated$149 million in the first quarter of 2020, compared with$133 million in the year-earlier quarter and$151 million in the fourth quarter of 2019. Revenues associated with the ICS business were approximately$85 million ,$71 million and$84 million during the quarters endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. The higher revenues in the most recent quarter as compared with the year-earlier quarter reflect the impact of higher sales activities and increased retirement services income resuting from growth in collective fund balances. Revenues attributable to WAS totaled approximately$56 million ,$55 million and$60 million for the three-month periods endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. The lower revenues in the recent quarter as compared with the final 2019 quarter largely reflect lower recurring fees due to declining equity market performance, changing product mix and competitive factors. Trust assets under management were$103.6 billion ,$92.9 billion and$113.0 billion atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. Trust assets under management include the Company's proprietary mutual funds' assets of$12.8 billion ,$11.3 billion and$12.5 billion atMarch 31, 2020 ,March 31, 2019 andDecember 31, 2019 , respectively. Additional trust income from investment management activities was$8 million in the two most recent quarters, compared with$7 million in the first quarter of 2019 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$13 million in the recent quarter, compared with$12 million in each of the first and fourth quarters of 2019. Trading account and foreign exchange activity resulted in gains of$21 million and$11 million during the quarters endedMarch 31, 2020 and 2019, respectively, compared with gains of$17 million in the fourth quarter of 2019. The higher gains in the recent quarter as compared with the first and fourth quarters of 2019 were predominantly due to increased 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 losses on investment securities of$21 million in the recent quarter and$6 million in the fourth quarter of 2019, compared with net gains of$12 million in the first quarter of 2019. The gains and losses represented unrealized gains and losses on investments in Fannie Mae and Freddie Mac preferred stock holdings. Other revenues from operations were$133 million in the first three months of 2020, compared with$134 million in the similar 2019 period and$118 million in the fourth quarter of 2019. The most significant contributor to the higher revenues in the initial 2020 quarter as compared with the final three months of 2019 was a$23 million income distribution from BLG in 2020, partially offset by lower loan syndication fees of$10 million . Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees aggregated$32 million in the recent quarter, compared with$24 million in the year-earlier quarter and$43 million in the fourth quarter of 2019. Revenues from merchant discount and credit card fees were$30 million in the initial quarter of 2020, compared with$27 million in the year-earlier quarter and$28 million in the final 2019 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 first quarters of 2020 and 2019 and in - 69 - -------------------------------------------------------------------------------- the fourth quarter of 2019. Insurance-related sales commissions and other revenues totaled$15 million in the quarter endedMarch 31, 2020 , compared with$14 million and$11 million in 2019's first and fourth quarters, respectively. M&T's investment in BLG resulted in income in the first quarters of 2020 and 2019 of$23 million and$37 million , respectively. There was no such income in the fourth quarter of 2019.
Other Expense
Other expense totaled$906 million in the first quarter of 2020, compared with$894 million in the corresponding quarter of 2019 and$824 million in the final three months of 2019. 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, compared with$5 million in the first quarter of 2019. Exclusive of those nonoperating expenses, noninterest operating expenses were$903 million in the recent quarter, compared with$889 million in the year-earlier period and$819 million in the final quarter of 2019. Factors contributing to the higher level of expenses in the recent quarter as compared with the year-earlier quarter were increased costs for salaries and employee benefits, outside data processing and software, and a$10 million increase to the valuation allowance for capitalized residential mortgage servicing rights, partially offset by lower costs of$60 million for legal-related matters and professional and outside services. The recent quarter's rise in noninterest operating expenses as compared with the fourth quarter of 2019 was largely attributable to higher salaries and employee benefits expenses, reflecting seasonally higher stock-based compensation and employee benefits expenses, and changes in the valuation allowance for capitalized residential mortgage servicing rights. That allowance was increased by$10 million during the recent quarter, compared with a reduction of$16 million in the fourth quarter of 2019. Table 2 provides a reconciliation of other expense to noninterest operating expense. Salaries and employee benefits expense totaled$537 million in the initial quarter of 2020, compared with$499 million in the similar 2019 quarter and$469 million in the fourth quarter of 2019. The higher salaries and employee benefits expenses in the recent quarter as compared with the year-earlier period reflect the impact of higher staffing levels, as well as merit and other increases for employees, higher incentive-based compensation and increased employee benefit costs. The increase in salaries and employee benefits expense in the recent quarter as compared with 2019's fourth quarter reflects seasonally higher stock-based compensation, medical plan costs, payroll-related taxes, unemployment insurance and the Company's contributions for retirement savings plan benefits related to annual incentive compensation payments. The Company, in accordance with GAAP, has accelerated the recognition of compensation costs for stock-based awards granted to retirement-eligible employees and employees who will become retirement-eligible prior to full vesting of the award. As a result, stock-based compensation expense during the first quarters of 2020 and 2019 included$31 million and$27 million , respectively, that would have been recognized over the normal vesting period if not for the accelerated recognition provisions of GAAP. That acceleration had no effect on the value of stock-based compensation awarded to employees. Salaries and employee benefits expense included stock-based compensation of$43 million and$40 million in the three-month periods endedMarch 31, 2020 andMarch 31, 2019 , respectively, and$11 million in the three-month period endedDecember 31, 2019 . The number of full-time equivalent employees was 17,416 atMarch 31, 2020 , compared with 17,080 and 17,503 atMarch 31, 2019 andDecember 31, 2019 , respectively. Excluding the nonoperating expense items described earlier from each quarter, nonpersonnel operating expenses were$366 million and$390 million in the quarters endedMarch 31, 2020 andMarch 31, 2019 , respectively, and$350 million in the final quarter of 2019. The decline in nonpersonnel expenses in the recent quarter as compared with the first quarter of 2019 reflects lower costs of$60 million for legal-related matters and professional and outside services, largely resulting from a first quarter 2019 addition to the reserve for legal matters of$50 million . The higher level of nonpersonnel operating expenses in the recent quarter as compared with the final 2019 quarter was predominantly attributable to the$10 million addition to the valuation allowance for capitalized residential mortgage servicing rights in the initial 2020 quarter, compared with a reduction in that valuation allowance of$16 million in the final three months of 2019. The efficiency ratio measures the relationship of noninterest operating expenses to revenues. The Company's efficiency ratio was 58.9% during the recent quarter, compared with 57.6% and 53.1% in the first and fourth quarters of 2019, respectively. The calculation of the efficiency ratio is presented in Table 2. - 70 - --------------------------------------------------------------------------------
Income Taxes
The provision for income taxes was$81 million in the first quarter of 2020, compared with$152 million in the year-earlier quarter and$159 million in the final 2019 quarter. The effective tax rates were 23.1%, 23.9% and 24.4% for the quarters endedMarch 31, 2020 ,March 31, 2019 andDecember 31, 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$15.8 billion atMarch 31, 2020 , representing 12.70% of total assets, compared with$15.6 billion or 12.99% a year earlier and$15.7 billion or 13.11% atDecember 31, 2019 .
Included in shareholders' equity was preferred stock with financial statement
carrying values of
Reflecting the impact of repurchases of M&T's common stock, common shareholders' equity was$14.6 billion , or$113.54 per share, atMarch 31, 2020 , compared with$14.4 billion , or$105.04 per share, a year earlier and$14.5 billion , or$110.78 per share, atDecember 31, 2019 . Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was$77.60 at the end of the recent quarter, compared with$71.19 atMarch 31, 2019 and$75.44 atDecember 31, 2019 . The Company's ratio of tangible common equity to tangible assets was 8.30% atMarch 31, 2020 , compared with 8.43% a year earlier and 8.55% atDecember 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$135 million , or$1.05 per common share, atMarch 31, 2020 and$37 million , or$.29 per common share, atDecember 31, 2019 , compared with net unrealized losses of$63 million , or$.46 per common share atMarch 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 ofMarch 31, 2020 andDecember 31, 2019 is included in note 2 of Notes to Financial Statements. Reflected in the carrying amount of available-for-sale investment securities atMarch 31, 2020 were pre-tax effect unrealized gains of$212 million on securities with an amortized cost of$5.7 billion and pre-tax effect unrealized losses of$20 million on securities with an amortized cost of$245 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 amortized cost basis of a debt security a credit loss is recognized and such loss would be recognized in the consolidated statement of income. BeginningJanuary 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. - 71 - -------------------------------------------------------------------------------- As ofMarch 31, 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 ofMarch 31, 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. OnJanuary 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 atJanuary 1, 2020 andMarch 31, 2020 as the substantial majority of such investment securities were obligations backed by theU.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, atMarch 31, 2020 andDecember 31, 2019 , the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of$90 million and$93 million , respectively, and a fair value of$78 million and$87 million , respectively. AtMarch 31, 2020 , 82% of the mortgage-backed securities were in the most senior tranche of the securitization structure with 19% 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 and had a weighted-average credit enhancement of 10% atMarch 31, 2020 , calculated by dividing the remaining unpaid principal balance of bonds subordinate to the bonds owned by the Company plus any overcollateralization remaining in the securitization structure by the remaining unpaid principal balance of all bonds in the securitization structure. The weighted-average default percentage and loss severity assumptions utilized in the Company's internal modeling were 32% and 68% respectively. 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 senior and subordinate tranche bond, the Company has concluded that as ofMarch 31, 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$333 million or$2.60 per common share, atMarch 31, 2020 ,$259 million or$1.90 per common share, atMarch 31, 2019 and$342 million , or$2.62 per common share, atDecember 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. During the initial 2019 quarter, M&T repurchased 2,150,000 common shares at a total cost of$366 million . Repurchases of common stock in the final 2019 quarter totaled 1,724,000 shares at a cost of$282 million . In light of the COVID-19 pandemic impact on overall economic conditions, M&T has ceased repurchasing its common stock for the time being. Cash dividends declared on M&T's common stock totaled$143 million in the initial quarter of 2020, compared with$139 million and$145 million in the three-month periods endedMarch 31, 2019 andDecember 31, 2019 , respectively. During the fourth quarter of 2019, M&T's Board of Directors authorized an increase in the quarterly common stock dividend to$1.10 per common share, from the previous rate of$1.00 per common share. Cash dividends declared on preferred stock aggregated$17 million in each of the first quarter of 2020 and fourth quarter of 2019, compared with$18 million in the initial quarter of 2019. - 72 -
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M&T and its subsidiary banks are required to comply with applicable capital adequacy standards established by the federal banking agencies. Pursuant to those regulations, the minimum capital ratios are as follows:
• 4.5% 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) torisk-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 these 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,
REGULATORY CAPITAL RATIOSMarch 31, 2020 M&T M&T Wilmington (Consolidated) Bank Trust, N.A. Common equity Tier 1 9.19% 9.84% 48.72% Tier 1 capital 10.35% 9.84% 48.72% Total capital 12.54% 11.56% 48.88% Tier 1 leverage 9.59% 9.13% 11.98% The Company is subject to the comprehensive regulatory framework applicable to bank and financial holding companies and their subsidiaries, which includes regular 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, theDeposit 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 endedDecember 31, 2019 .
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. Net income of the Business Banking segment was$33 million during the quarter endedMarch 31, 2020 , compared with$43 million in the year-earlier quarter and$37 million in the fourth quarter of 2019. As compared - 73 - -------------------------------------------------------------------------------- with the initial 2019 quarter, the recent quarter's decline reflected an$8 million increase in the provision for credit losses, due to higher net charge-offs and a$4 million decrease in net interest income. The lower net interest income reflected a narrowing of the net interest margin on deposits of 42 basis points offset, in part, by a 21 basis point widening of the net interest margin on loans and higher average balances of loans of$300 million and deposits of$304 million . The decrease in net income in the recent quarter as compared with the final quarter of 2019 was predominantly due to an increase in the provision for credit losses of$6 million , due to higher net charge-offs, and lower net interest income of$5 million , partially offset by a$5 million decrease in centrally-allocated costs, largely associated with data processing, risk management and other support services provided to the Business Banking segment. The decline in net interest income reflected a narrowing of the net interest margin on deposits of 10 basis points and lower average deposit balances of$452 million . The Commercial Banking segment contributed net income of$144 million in the recent quarter, compared with$132 million in each of the first and fourth quarters of 2019. The 9% improvement in the first quarter of 2020 as compared with the corresponding quarter of 2019 was primarily the result of an increase in letter of credit and other credit-related fees of$8 million , a$7 million increase in net interest income and a$5 million rise in trading account and foreign exchange gains, due largely to increased activity related to interest rate swap transactions executed on behalf of commercial customers. The higher net interest income reflected increases in average outstanding loan and deposit balances of$1.2 billion and$1.1 billion , respectively, and a seven basis point expansion of the net interest margin on loans, partially offset by a 40 basis point narrowing of the net interest margin on deposits. Partially offsetting those favorable factors was an$8 million increase in the provision for credit losses, mainly resulting from higher net charge-offs (due to net recoveries of previously charged-off loans in 2019's initial quarter). As compared with 2019's fourth quarter, the higher recent quarter net income was primarily due to an$8 million decrease in centrally-allocated costs associated with data processing, risk management and other support services provided to the Commercial Banking segment, a$7 million increase to net interest income and a$5 million decline in the provision for credit losses, mainly due to lower charge-offs, offset, in part, by a$8 million decline in letter of credit and other credit-related fees resulting from lower loan syndication fees. The higher net interest income reflected a widening of the net interest margin on loans of four basis points and an increase in average outstanding loan balances of$889 million . Net income of theCommercial Real Estate segment was$117 million in each of the first quarters of 2020 and 2019, compared with$115 million in the fourth quarter of 2019. The results in the recent quarter as compared with the initial 2019 quarter reflected a$6 million increase in trading account and foreign exchange gains due largely to increased activity related to interest rate swap transactions executed on behalf of commercial customers, partially offset by a decrease of$4 million in net interest income. The lower net interest income was predominantly attributable to a narrowing of the net interest margin on deposits of 42 basis points. The increase in net income in the recent quarter as compared with the final quarter of 2019 resulted primarily from an increase of$5 million in commercial mortgage banking revenues, reflecting higher origination and servicing income, partially offset by a$3 million decline in net interest income, driven by a narrowing of the net interest margin on loans of 11 basis points offset, in part, by higher average outstanding loan balances of$750 million . Net income earned by the Discretionary Portfolio segment totaled$26 million during the three-month period endedMarch 31, 2020 , compared with$39 million in the year-earlier period and$37 million in the fourth quarter of 2019. As compared with the first quarter of 2019, the recent quarter's decline in net income was primarily due to$21 million of unrealized valuation losses on marketable equity securities in 2020 (compared with unrealized valuation gains of$12 million in 2019), offset, in part, by a$19 million increase in net interest income. That increase reflected a widening of the net interest margin on average loan balances of 83 basis points. The decline in net income in the recent quarter as compared with the immediately preceding quarter reflected higher unrealized losses on equity securities of$14 million in the recent quarter and a$4 million increase in the provision for credit losses, due to higher net charge-offs, partially offset by an increase of$3 million in net interest income. The improvement in net interest income reflected a 32 basis point widening of the net interest margin on loans, partially offset by a 31 basis point narrowing of the margin on investment securities. - 74 - -------------------------------------------------------------------------------- The Residential Mortgage Banking segment contributed net income of$25 million in the initial 2020 quarter, compared with$13 million in the year-earlier quarter and$36 million in 2019's fourth quarter. The higher net income in the recent quarter as compared with the first quarter of 2019 was due to higher revenues of$27 million associated with mortgage origination and sales activities (including intersegment revenues) and$10 million in servicing revenues (including intersegment revenues), partially offset by a$10 million addition to the valuation allowance for capitalized mortgage servicing rights,$7 million of higher servicing-related costs and a$4 million rise in personnel-related costs. As compared with the final quarter of 2019, lower net income in the recent quarter was primarily the result of changes in the valuation allowance for capitalized mortgage servicing rights. That allowance was increased by$10 million during the recent quarter, compared with a reduction of$16 million in the fourth quarter of 2019. Partially offsetting that unfavorable impact were higher revenues of$7 million associated with mortgage origination and sales activities (including intersegment revenues). Net income of the Retail Banking segment totaled$110 million in each of the first quarter of 2020 and the fourth quarter of 2019, compared with$145 million in the first quarter of 2019. The 24% decline in net income in the recent quarter as compared with the year-earlier period reflected a$25 million decrease in net interest income, a$6 million increase in the provision for credit losses, due to higher net charge-offs, a$6 million increase in personnel-related costs and a$6 million increase in centrally-allocated costs, largely associated with data processing, risk management and other support services provided to the Retail Banking segment. The lower net interest income reflected a narrowing of the net interest margin on deposits of 41 basis points, partially offset by an increase in average outstanding loan balances of$1.6 billion and a widening of the net interest margin on loans of 14 basis points. As compared with the fourth quarter of 2019, the recent quarter's results reflected decreases of$9 million in advertising and marketing expenses and$8 million in centrally-allocated costs largely associated with data processing, risk management and other support services provided to the Retail Banking segment. Those favorable factors were offset, in part, by$7 million decreases in service charges on deposit accounts, due to seasonally lower charges related to overdraft fees and debit card transactions, and net interest income, reflecting a narrowing of the net interest margin on deposits of 14 basis points. 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 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$186 million and$7 million in the first quarters of 2020 and 2019, respectively, compared with net income of$26 million in the fourth quarter of 2019. The net loss in the first quarter of 2020 as compared with the year-earlier quarter reflected an increase to the provision for credit losses of$204 million , higher personnel-related expenses of$22 million , lower income from BLG (a$23 million income distribution in 2020, compared with a$37 million income distribution in 2019), 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 a$50 million addition to the reserve for legal matters in the initial quarter of 2019 and higher trust income in the recent quarter of$16 million . As compared with the immediately preceding quarter, the net loss in the recent quarter reflected an increase to the provision for credit losses of$190 million and higher personnel-related expenses of$66 million , reflecting annual merit increases and seasonally higher incentive compensation, stock-based compensation and employee benefits expenses. Those unfavorable factors were offset, in part, by a$23 million income distribution from BLG in the first quarter of 2020.
Recent Accounting Developments
A discussion of recent accounting developments is included in note 15 of Notes to Financial Statements.
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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.
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M&T BANK CORPORATION AND SUBSIDIARIES
Table 1
QUARTERLY TRENDS
2020 2019 Quarters
First Quarter Fourth Third Second First
Earnings and dividends
Amounts in thousands, except per share
Interest income (taxable-equivalent
basis) $ 1,125,482 1,191,295 1,235,048 1,243,838 1,232,276
Interest expense 143,614 177,070 199,579 196,432 176,249
Net interest income 981,868 1,014,225 1,035,469 1,047,406 1,056,027
Less: provision for credit losses 250,000 54,000 45,000 55,000 22,000
Other income 529,360 521,040 527,779 512,095 500,765
Less: other expense 906,416 823,683 877,619 873,032 894,348
Income before income taxes 354,812 657,582 640,629 631,469 640,444
Applicable income taxes 80,927 159,124 154,969 152,284 151,735
Taxable-equivalent adjustment 5,063 5,392 5,579 5,925 5,967
Net income $ 268,822 493,066 480,081 473,260 482,742
Net income available to common
shareholders-diluted $ 250,701 473,372 461,410 452,633 462,086
Per common share data
Basic earnings $ 1.93 3.60 3.47 3.34 3.35
Diluted earnings 1.93 3.60 3.47 3.34 3.35
Cash dividends $ 1.10 1.10 1.00 1.00 1.00
Average common shares outstanding
Basic 129,696 131,512 132,965 135,433 137,889
Diluted 129,755 131,549 132,999 135,464 137,920
Performance ratios, annualized
Return on
Average assets .90 % 1.60 % 1.58 % 1.60 % 1.68 %
Average common shareholders' equity 7.00 % 12.95 % 12.73 % 12.68 % 13.14 %
Net interest margin on average earning
assets
(taxable-equivalent basis) 3.65 % 3.64 % 3.78 % 3.91 % 4.04 %
Nonaccrual loans to total loans and
leases, net of
unearned discount 1.13 % 1.06 % 1.12 % .96 % 0.99 %
Net operating (tangible) results (a)
Net operating income (in thousands) $ 271,705 496,237 483,830 477,001 486,440
Diluted net operating income per
common share $ 1.95 3.62 3.50 3.37 3.38
Annualized return on
Average tangible assets .94 % 1.67 % 1.66 % 1.68 % 1.76 %
Average tangible common shareholders'
equity 10.39 % 19.08 % 18.85 % 18.83 % 19.56 %
Efficiency ratio (b) 58.91 % 53.15 % 55.95 % 55.98 % 57.56 %
Balance sheet data
In millions, except per share
Average balances
Total assets (c) $ 120,585 122,554 120,388 118,487 116,839
Total tangible assets (c) 115,972 117,938 115,769 113,864 112,213
Earning assets 108,226 110,581 108,643 107,511 106,096
Investment securities 9,102 10,044 11,075 12,170 12,949
Loans and leases, net of unearned
discount 91,706 90,244 90,078 89,150 88,477
Deposits 96,166 96,903 94,095 91,371 89,733
Common shareholders' equity (c) 14,470 14,582 14,464 14,398 14,337
Tangible common shareholders' equity
(c) 9,857 9,966 9,845 9,775 9,711
At end of quarter
Total assets (c) $ 124,578 119,873 125,501 121,555 120,025
Total tangible assets (c) 119,966 115,258 120,883 116,934 115,400
Earning assets 112,046 107,673 113,067 110,323 108,849
Investment securities 8,957 9,497 10,678 11,580 12,537
Loans and leases, net of unearned
discount 94,142 90,923 89,823 89,878 88,640
Deposits 100,183 94,770 95,114 91,681 90,470
Common shareholders' equity, net of
undeclared
cumulative preferred dividends (c) 14,566 14,467 14,530 14,457 14,353
Tangible common shareholders' equity
(c) 9,954 9,852 9,912 9,836 9,728
Equity per common share 113.54 110.78 109.84 107.73 105.04
Tangible equity per common share 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.
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M&T BANK CORPORATION AND SUBSIDIARIES
Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
2020 2019 Quarters
First Quarter Fourth Third Second First
Income statement data (in
thousands, except per share)
Net income
Net income $ 268,822 493,066 480,081 473,260 482,742
Amortization of core deposit
and other
intangible assets (a) 2,883 3,171 3,749 3,741 3,698
Net operating income $ 271,705 496,237 483,830 477,001 486,440
Earnings per common share
Diluted earnings per common
share $ 1.93 3.60 3.47 3.34 3.35
Amortization of core deposit
and other
intangible assets (a) .02 .02 .03 .03 .03
Diluted net operating
earnings per common share $ 1.95 3.62 3.50 3.37 3.38
Other expense
Other expense $ 906,416 823,683 877,619 873,032 894,348
Amortization of core deposit
and other
intangible assets (3,913 ) (4,305 ) (5,088 ) (5,077 ) (5,020 )
Noninterest operating expense $ 902,503 819,378 872,531 867,955 889,328
Efficiency ratio
Noninterest operating expense
(numerator) $ 902,503 819,378 872,531 867,955 889,328
Taxable-equivalent net
interest income $ 981,868 1,014,225 1,035,469 1,047,406 1,056,027
Other income 529,360 521,040 527,779 512,095 500,765
Less: Gain (loss) on bank
investment securities (20,782 ) (6,452 ) 3,737 8,911 11,841
Denominator $ 1,532,010 1,541,717 1,559,511 1,550,590 1,544,951
Efficiency ratio 58.91 % 53.15 % 55.95 % 55.98 % 57.56 %
Balance sheet data (in
millions)
Average assets
Average assets $ 120,585 122,554 120,388 118,487 116,839
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (27 ) (31 ) (36 ) (41 ) (45 )
Deferred taxes 7 8 10 11 12
Average tangible assets $ 115,972 117,938 115,769 113,864 112,213
Average common equity
Average total equity $ 15,720 15,832 15,837 15,630 15,569
Preferred stock (1,250 ) (1,250 ) (1,373 ) (1,232 ) (1,232 )
Average common equity 14,470 14,582 14,464 14,398 14,337
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (27 ) (31 ) (36 ) (41 ) (45 )
Deferred taxes 7 8 10 11 12
Average tangible common
equity $ 9,857 9,966 9,845 9,775 9,711
At end of quarter
Total assets
Total assets $ 124,578 119,873 125,501 121,555 120,025
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (25 ) (29 ) (33 ) (38 ) (44 )
Deferred taxes 6 7 8 10 12
Total tangible assets $ 119,966 115,258 120,883 116,934 115,400
Total common equity
Total equity $ 15,816 15,717 15,780 15,692 15,588
Preferred stock (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 14,566 14,467 14,530 14,457 14,353
Goodwill (4,593 ) (4,593 ) (4,593 ) (4,593 ) (4,593 )
Core deposit and other
intangible assets (25 ) (29 ) (33 ) (38 ) (44 )
Deferred taxes 6 7 8 10 12
Total tangible common equity $ 9,954 9,852 9,912 9,836 9,728
(a) After any related tax effect.
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M&T BANK CORPORATION AND SUBSIDIARIES
Table 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
2020 First Quarter 2019 Fourth Quarter 2019 Third Quarter
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Average balance in millions;
interest in thousands
Assets
Earning assets
Loans and leases, net of
unearned
discount (a)
Commercial, financial, etc. $ 24,290 $ 247,344 4.10 % 23,548 258,969 4.36 % 23,326 283,291 4.82 %
Real estate - commercial 36,034 440,291 4.83 35,039 452,752 5.06 35,200 462,759 5.14
Real estate - consumer 15,931 160,650 4.03 16,330 169,371 4.15 16,673 175,098 4.20
Consumer 15,451 203,546 5.30 15,327 203,205 5.26 14,879 204,097 5.44
Total loans and leases, net 91,706 1,051,831 4.61 90,244 1,084,297 4.77 90,078 1,125,245 4.96
Interest-bearing deposits at
banks 6,130 18,966 1.24 8,944 37,277 1.65 7,405 40,388 2.16
Federal funds sold and
agreements
to resell securities 1,224 4,072 1.34 1,279 5,405 1.68 18 93 2.01
Trading account 64 419 2.64 70 765 4.36 67 149 0.89
Investment securities (b)
U.S. Treasury and federal
agencies 8,359 45,449 2.19 9,272 57,123 2.44 10,271 62,506 2.41
Obligations of states and
political
subdivisions 3 41 5.01 5 64 4.96 6 74 4.99
Other 740 4,704 2.56 767 6,364 3.29 798 6,593 3.28
Total investment securities 9,102 50,194 2.22 10,044 63,551 2.51 11,075 69,173 2.48
Total earning assets 108,226 1,125,482 4.18 110,581 1,191,295 4.27 108,643 1,235,048 4.51
Allowance for credit losses (1,191 ) (1,040 ) (1,034 )
Cash and due from banks 1,298 1,298 1,303
Other assets 12,252 11,715 11,476
Total assets $ 120,585 122,554 120,388
Liabilities and shareholders'
equity
Interest-bearing liabilities
Interest-bearing deposits
Savings and interest-checking
deposits $ 56,366 78,002 .56 57,103 95,585 .66 55,680 104,724 .75
Time deposits 5,672 21,872 1.55 6,015 23,958 1.58 6,343 25,456 1.59
Deposits at Cayman Islands
office 1,672 3,419 .82 1,716 4,922 1.14 1,522 6,218 1.62
Total interest-bearing deposits 63,710 103,293 .65 64,834 124,465 .76 63,545 136,398 .85
Short-term borrowings 58 23 .16 675 3,168 1.86 1,212 6,967
2.28
Long-term borrowings 6,240 40,298 2.60
6,941 49,437 2.83 7,121 56,214
3.13
Total interest-bearing liabilities 70,008 143,614 0.83 72,450 177,070 .97 71,878 199,579
1.10
Noninterest-bearing deposits 32,456 32,069 30,550 Other liabilities 2,401 2,203 2,123 Total liabilities 104,865 106,722 104,551 Shareholders' equity 15,720 15,832 15,837 Total liabilities and shareholders' equity$ 120,585 122,554 120,388 Net interest spread 3.35 3.30 3.41 Contribution of interest-free funds .30 .34
.37
Net interest income/margin on
earning assets$ 981,868 3.65 % 1,014,225 3.64 % 1,035,469 3.78 %
(a) Includes nonaccrual loans.
(b) Includes available-for-sale securities at amortized cost.
(continued)
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M&T BANK CORPORATION AND SUBSIDIARIES
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
2019 Second Quarter 2019 First Quarter
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Average balance in millions;
interest in thousands
Assets
Earning assets
Loans and leases, net of unearned
discount (a)
Commercial, financial, etc. $ 23,335 $ 288,914 4.97 % 23,010 287,676 5.07 %
Real estate - commercial 34,768 465,911 5.30 34,524 461,050 5.34
Real estate - consumer 16,723 179,218 4.29 16,939 184,868 4.37
Consumer 14,324 197,418 5.53 14,004 190,193 5.51
Total loans and leases, net 89,150 1,131,461 5.09 88,477 1,123,787 5.15
Interest-bearing deposits at banks 6,122 36,325 2.38 4,605 27,407 2.41
Federal funds sold and agreements
to resell securities 1 5 2.83 - 4 2.84
Trading account 68 372 2.20 65 556 3.40
Investment securities (b)
U.S. Treasury and federal agencies 11,364 68,755 2.43 12,151 72,967 2.44
Obligations of states and political
subdivisions 7 93 5.11 8 67 3.25
Other 799 6,827 3.43 790 7,488 3.84
Total investment securities 12,170 75,675 2.49 12,949 80,522 2.52
Total earning assets 107,511 1,243,838 4.64 106,096 1,232,276 4.71
Allowance for credit losses (1,024 ) (1,021 )
Cash and due from banks 1,260 1,317
Other assets 10,740 10,447
Total assets $ 118,487 116,839
Liabilities and shareholders'
equity
Interest-bearing liabilities
Interest-bearing deposits
Savings and interest-checking
deposits $ 53,495 91,556 .69 52,095 76,139 .59
Time deposits 6,530 24,931 1.53 6,351 21,081 1.35
Deposits at Cayman Islands office 1,247 6,040 1.94 972 4,737 1.98
Total interest-bearing deposits 61,272 122,527 .80 59,418 101,957 .70
Short-term borrowings 1,263 7,893 2.51 1,091 6,713 2.49
Long-term borrowings 8,278 66,012 3.20 8,494 67,579 3.23
Total interest-bearing liabilities 70,813 196,432 1.11 69,003 176,249 1.04
Noninterest-bearing deposits 30,099 30,315
Other liabilities 1,945 1,952
Total liabilities 102,857 101,270
Shareholders' equity 15,630 15,569
Total liabilities and shareholders'
equity $ 118,487 116,839
Net interest spread 3.53 3.67 Contribution of interest-free funds .38 .37 Net interest income/margin on earning assets$ 1,047,406 3.91 % 1,056,027 4.04 %
(a) Includes nonaccrual loans.
(b) Includes available-for-sale securities at amortized cost.
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