UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 20172018

or

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

Commission File Number 1-9861

 

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

New York

 

16-0968385

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

One M & T Plaza

Buffalo, New York

 

14203

(Address of principal executive offices)

 

(Zip Code)

(716) 635-4000

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes      No

Number of shares of the registrant's Common Stock, $0.50 par value, outstanding as of the close of business on April 28, 2017: 153,863,87230, 2018: 145,235,614 shares.

 

 

 


M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 20172018

 

Table of Contents of Information Required in Report

 

Page

 

 

 

 

 

Part I.  FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements.

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET - March 31, 20172018 and December 31, 20162017

 

3

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF INCOME - Three months ended March 31, 20172018 and 20162017

 

4

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - Three months ended March 31, 20172018 and 20162017

 

5

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS - Three months ended March 31, 20172018 and 20167

 

6

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - Three months ended March 31, 20172018 and 20167

 

7

 

 

 

 

 

 

 

NOTES TO FINANCIAL STATEMENTS

 

8

 

 

 

 

 

Item 2.

 

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

 

4746

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

 

79

 

 

 

 

 

Item 4.

 

Controls and Procedures.

 

79

 

 

 

 

 

Part II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings.

 

79

 

 

 

 

 

Item 1A.

 

Risk Factors.

 

81

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

81

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities.

 

81

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures.

 

81

 

 

 

 

 

Item 5.

 

Other Information.

 

81

 

 

 

 

 

Item 6.

 

Exhibits.

 

82

 

 

 

 

 

SIGNATURES

 

82

 

 

 

 

 

EXHIBIT INDEX

 

83

- 2 -


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

March 31,

 

 

December 31,

 

Dollars in thousands, except per share

Dollars in thousands, except per share

 

2017

 

 

2016

 

Dollars in thousands, except per share

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Cash and due from banks

 

$

1,286,962

 

 

 

1,320,549

 

 

Cash and due from banks

 

$

1,291,664

 

 

$

1,420,888

 

 

Interest-bearing deposits at banks

 

 

6,135,434

 

 

 

5,078,903

 

 

Interest-bearing deposits at banks

 

 

6,945,149

 

 

 

5,000,638

 

 

Federal funds sold

 

 

1,000

 

 

 

 

 

Trading account

 

 

174,854

 

 

 

323,867

 

 

Trading account

 

 

141,134

 

 

 

132,909

 

 

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

    $519,063 at March 31, 2017; $1,203,473 at December 31, 2016)

 

 

 

 

 

 

 

 

 

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

   $470,906 at March 31, 2018; $487,151 at December 31, 2017)

 

 

 

 

 

 

 

 

 

Available for sale (cost: $12,640,244 at March 31, 2017;

   $13,338,301 at December 31, 2016)

 

 

12,631,000

 

 

 

13,332,072

 

 

Available for sale (cost: $10,508,620 at March 31, 2018;

   $10,938,796 at December 31, 2017)

 

 

10,297,856

 

 

 

10,896,284

 

 

Held to maturity (fair value: $2,865,885 at March 31, 2017;

   $2,451,222 at December 31, 2016)

 

 

2,876,119

 

 

 

2,457,278

 

 

Held to maturity (fair value: $3,160,215 at March 31, 2018;

   $3,341,762 at December 31, 2017)

 

 

3,228,756

 

 

 

3,353,213

 

 

Other (fair value: $461,296 at March 31, 2017;

   $461,118 at December 31, 2016)

 

 

461,296

 

 

 

461,118

 

 

Equity and other securities (cost: $526,593 at March 31, 2018;

   $415,028 at December 31, 2017)

 

 

539,952

 

 

 

415,028

 

 

Total investment securities

 

 

15,968,415

 

 

 

16,250,468

 

 

Total investment securities

 

 

14,066,564

 

 

 

14,664,525

 

 

Loans and leases

 

 

89,555,547

 

 

 

91,101,677

 

 

Loans and leases

 

 

87,967,757

 

 

 

88,242,886

 

 

Unearned discount

 

 

(242,545

)

 

 

(248,261

)

 

Unearned discount

 

 

(257,008

)

 

 

(253,903

)

 

Loans and leases, net of unearned discount

 

 

89,313,002

 

 

 

90,853,416

 

 

Loans and leases, net of unearned discount

 

 

87,710,749

 

 

 

87,988,983

 

 

Allowance for credit losses

 

 

(1,001,430

)

 

 

(988,997

)

 

Allowance for credit losses

 

 

(1,019,671

)

 

 

(1,017,198

)

 

Loans and leases, net

 

 

88,311,572

 

 

 

89,864,419

 

 

Loans and leases, net

 

 

86,691,078

 

 

 

86,971,785

 

 

Premises and equipment

 

 

672,769

 

 

 

675,263

 

 

Premises and equipment

 

 

628,706

 

 

 

646,451

 

 

Goodwill

 

 

4,593,112

 

 

 

4,593,112

 

 

Goodwill

 

 

4,593,112

 

 

 

4,593,112

 

 

Core deposit and other intangible assets

 

 

94,535

 

 

 

97,655

 

 

Core deposit and other intangible assets

 

 

64,957

 

 

 

71,589

 

 

Accrued interest and other assets

 

 

5,175,883

 

 

 

5,323,235

 

 

Accrued interest and other assets

 

 

5,009,175

 

 

 

5,013,325

 

 

Total assets

 

$

123,223,251

 

 

 

123,449,206

 

 

Total assets

 

$

118,622,824

 

 

$

118,593,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Noninterest-bearing deposits

 

$

34,279,591

 

 

 

32,813,896

 

 

Noninterest-bearing deposits

 

$

31,817,516

 

 

$

33,975,180

 

 

Savings and interest-checking deposits

 

 

53,542,149

 

 

 

52,346,207

 

 

Savings and interest-checking deposits

 

 

52,724,608

 

 

 

51,698,008

 

 

Time deposits

 

 

9,028,018

 

 

 

10,131,846

 

 

Time deposits

 

 

6,126,442

 

 

 

6,580,962

 

 

Deposits at Cayman Islands office

 

 

192,763

 

 

 

201,927

 

 

Deposits at Cayman Islands office

 

 

278,064

 

 

 

177,996

 

 

Total deposits

 

 

97,042,521

 

 

 

95,493,876

 

 

Total deposits

 

 

90,946,630

 

 

 

92,432,146

 

 

Federal funds purchased and agreements to repurchase securities

 

 

185,102

 

 

 

163,442

 

 

Short-term borrowings

 

 

1,626,129

 

 

 

175,099

 

 

Accrued interest and other liabilities

 

 

1,694,905

 

 

 

1,811,431

 

 

Accrued interest and other liabilities

 

 

1,749,320

 

 

 

1,593,993

 

 

Long-term borrowings

 

 

8,087,619

 

 

 

9,493,835

 

 

Long-term borrowings

 

 

8,591,051

 

 

 

8,141,430

 

 

Total liabilities

 

 

107,010,147

 

 

 

106,962,584

 

 

Total liabilities

 

 

102,913,130

 

 

 

102,342,668

 

Shareholders' equity

 

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

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

   share: 731,500 shares at March 31, 2017 and December 31,

   2016; Liquidation preference of $10,000 per share: 50,000

   shares at March 31, 2017 and December 31, 2016

 

 

1,231,500

 

 

 

1,231,500

 

 

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

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

   share: 731,500 shares at March 31, 2018 and December 31,

   2017; Liquidation preference of $10,000 per share: 50,000

   shares at March 31, 2018 and December 31, 2017

 

 

1,231,500

 

 

 

1,231,500

 

 

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

   159,825,445 shares issued at March 31, 2017;

   159,945,678 shares issued at December 31, 2016

 

 

79,913

 

 

 

79,973

 

 

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

   159,768,397 shares issued at March 31, 2018;

   159,817,518 shares issued at December 31, 2017

 

 

79,884

 

 

 

79,909

 

 

Common stock issuable, 28,740 shares at March 31, 2017;

   32,403 shares at December 31, 2016

 

 

1,921

 

 

 

2,145

 

 

Common stock issuable, 24,371 shares at March 31, 2018;

   27,138 shares at December 31, 2017

 

 

1,675

 

 

 

1,847

 

 

Additional paid-in capital

 

 

6,603,355

 

 

 

6,676,948

 

 

Additional paid-in capital

 

 

6,572,281

 

 

 

6,590,855

 

 

Retained earnings

 

 

9,437,450

 

 

 

9,222,488

 

 

Retained earnings

 

 

10,404,458

 

 

 

10,164,804

 

 

Accumulated other comprehensive income (loss), net

 

 

(291,567

)

 

 

(294,636

)

 

Accumulated other comprehensive income (loss), net

 

 

(483,243

)

 

 

(363,814

)

 

Treasury stock - common, at cost - 6,073,095 shares at March 31, 2017;

   3,764,742 shares at December 31, 2016

 

 

(849,468

)

 

 

(431,796

)

 

Treasury stock — common, at cost — 12,993,850 shares at March 31, 2018;

    9,733,115 shares at December 31, 2017

 

 

(2,096,861

)

 

 

(1,454,282

)

 

Total shareholders’ equity

 

 

16,213,104

 

 

 

16,486,622

 

 

Total shareholders’ equity

 

 

15,709,694

 

 

 

16,250,819

 

 

Total liabilities and shareholders’ equity

 

$

123,223,251

 

 

 

123,449,206

 

 

Total liabilities and shareholders’ equity

 

$

118,622,824

 

 

$

118,593,487

 

 

- 3 -


M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

 

 

 

 

Three Months Ended March 31

 

 

 

 

Three Months Ended March 31

 

In thousands, except per share

In thousands, except per share

 

2017

 

 

2016

 

In thousands, except per share

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

Loans and leases, including fees

 

$

898,038

 

 

 

863,385

 

 

Loans and leases, including fees

 

$

979,969

 

 

 

898,038

 

 

Investment securities

 

 

 

 

 

 

 

 

 

Investment securities

 

 

 

 

 

 

 

 

 

Fully taxable

 

 

95,124

 

 

 

98,015

 

 

Fully taxable

 

 

82,852

 

 

 

95,124

 

 

Exempt from federal taxes

 

 

430

 

 

 

795

 

 

Exempt from federal taxes

 

 

248

 

 

 

430

 

 

Deposits at banks

 

 

12,162

 

 

 

10,337

 

 

Deposits at banks

 

 

18,677

 

 

 

12,162

 

 

Other

 

 

279

 

 

 

302

 

 

Other

 

 

404

 

 

 

279

 

 

Total interest income

 

 

1,006,033

 

 

 

972,834

 

 

Total interest income

 

 

1,082,150

 

 

 

1,006,033

 

Interest expense

 

Savings and interest-checking deposits

 

 

25,634

 

 

 

16,305

 

 

Savings and interest-checking deposits

 

 

40,527

 

 

 

25,634

 

 

Time deposits

 

 

18,998

 

 

 

24,322

 

 

Time deposits

 

 

10,936

 

 

 

18,998

 

 

Deposits at Cayman Islands office

 

 

265

 

 

 

193

 

 

Deposits at Cayman Islands office

 

 

381

 

 

 

265

 

 

Short-term borrowings

 

 

216

 

 

 

2,162

 

 

Short-term borrowings

 

 

883

 

 

 

216

 

 

Long-term borrowings

 

 

46,660

 

 

 

57,888

 

 

Long-term borrowings

 

 

53,906

 

 

 

46,660

 

 

Total interest expense

 

 

91,773

 

 

 

100,870

 

 

Total interest expense

 

 

106,633

 

 

 

91,773

 

 

Net interest income

 

 

914,260

 

 

 

871,964

 

 

Net interest income

 

 

975,517

 

 

 

914,260

 

 

Provision for credit losses

 

 

55,000

 

 

 

49,000

 

 

Provision for credit losses

 

 

43,000

 

 

 

55,000

 

 

Net interest income after provision for credit losses

 

 

859,260

 

 

 

822,964

 

 

Net interest income after provision for credit losses

 

 

932,517

 

 

 

859,260

 

Other income

 

Mortgage banking revenues

 

 

84,692

 

 

 

82,063

 

 

Mortgage banking revenues

 

 

87,306

 

 

 

84,692

 

 

Service charges on deposit accounts

 

 

104,176

 

 

 

102,405

 

 

Service charges on deposit accounts

 

 

105,115

 

 

 

104,176

 

 

Trust income

 

 

120,015

 

 

 

111,077

 

 

Trust income

 

 

131,375

 

 

 

120,015

 

 

Brokerage services income

 

 

17,384

 

 

 

16,004

 

 

Brokerage services income

 

 

13,392

 

 

 

17,384

 

 

Trading account and foreign exchange gains

 

 

9,691

 

 

 

7,458

 

 

Trading account and foreign exchange gains

 

 

4,637

 

 

 

9,691

 

 

Gain on bank investment securities

 

 

 

 

 

4

 

 

Gain (loss) on bank investment securities

 

 

(9,431

)

 

 

 

 

Other revenues from operations

 

 

110,887

 

 

 

101,922

 

 

Other revenues from operations

 

 

126,302

 

 

 

110,887

 

 

Total other income

 

 

446,845

 

 

 

420,933

 

 

Total other income

 

 

458,696

 

 

 

446,845

 

Other expense

 

Salaries and employee benefits

 

 

449,862

 

 

 

431,785

 

 

Salaries and employee benefits

 

 

463,428

 

 

 

449,741

 

 

Equipment and net occupancy

 

 

74,366

 

 

 

74,178

 

 

Equipment and net occupancy

 

 

74,797

 

 

 

74,366

 

 

Outside data processing and software

 

 

44,301

 

 

 

43,015

 

 

Outside data processing and software

 

 

48,429

 

 

 

44,301

 

 

FDIC assessments

 

 

28,827

 

 

 

25,225

 

 

FDIC assessments

 

 

20,280

 

 

 

28,827

 

 

Advertising and marketing

 

 

16,110

 

 

 

21,454

 

 

Advertising and marketing

 

 

16,248

 

 

 

16,110

 

 

Printing, postage and supplies

 

 

9,708

 

 

 

11,986

 

 

Printing, postage and supplies

 

 

9,319

 

 

 

9,708

 

 

Amortization of core deposit and other intangible assets

 

 

8,420

 

 

 

12,319

 

 

Amortization of core deposit and other intangible assets

 

 

6,632

 

 

 

8,420

 

 

Other costs of operations

 

 

156,258

 

 

 

156,133

 

 

Other costs of operations

 

 

294,211

 

 

 

156,379

 

 

Total other expense

 

 

787,852

 

 

 

776,095

 

 

Total other expense

 

 

933,344

 

 

 

787,852

 

 

Income before taxes

 

 

518,253

 

 

 

467,802

 

 

Income before taxes

 

 

457,869

 

 

 

518,253

 

 

Income taxes

 

 

169,326

 

 

 

169,274

 

 

Income taxes

 

 

105,259

 

 

 

169,326

 

 

Net income

 

$

348,927

 

 

 

298,528

 

 

Net income

 

$

352,610

 

 

 

348,927

 

 

Net income available to common shareholders

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

 

 

 

 

 

 

 

 

Basic

 

$

328,562

 

 

 

275,744

 

 

Basic

 

$

332,748

 

 

 

328,562

 

 

Diluted

 

 

328,567

 

 

 

275,748

 

 

Diluted

 

 

332,749

 

 

 

328,567

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

2.13

 

 

 

1.74

 

 

Basic

 

$

2.24

 

 

 

2.13

 

 

Diluted

 

 

2.12

 

 

 

1.73

 

 

Diluted

 

 

2.23

 

 

 

2.12

 

 

Cash dividends per common share

 

$

.75

 

 

 

.70

 

 

Cash dividends per common share

 

$

.75

 

 

 

.75

 

 

Average common shares outstanding

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

 

154,427

 

 

 

158,734

 

 

Basic

 

 

148,688

 

 

 

154,427

 

 

Diluted

 

 

154,949

 

 

 

159,181

 

 

Diluted

 

 

148,905

 

 

 

154,949

 

 

 

- 4 -


M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

 

Three Months Ended March 31

 

 

 

Three Months Ended March 31

 

 

In thousands

 

2017

 

 

2016

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

348,927

 

 

 

298,528

 

 

 

$

352,610

 

 

 

348,927

 

 

Other comprehensive income, net of tax and reclassification adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on investment securities

 

 

(1,356

)

 

 

97,194

 

 

 

 

(100,684

)

 

 

(1,356

)

 

Cash flow hedges adjustments

 

 

(23

)

 

 

(24

)

 

 

 

(10,442

)

 

 

(23

)

 

Foreign currency translation adjustment

 

 

476

 

 

 

(53

)

 

 

 

1,290

 

 

 

476

 

 

Defined benefit plans liability adjustments

 

 

3,972

 

 

 

4,321

 

 

 

 

7,260

 

 

 

3,972

 

 

Total other comprehensive income

 

 

3,069

 

 

 

101,438

 

 

Total other comprehensive income (loss)

 

 

(102,576

)

 

 

3,069

 

 

Total comprehensive income

 

$

351,996

 

 

 

399,966

 

 

 

$

250,034

 

 

 

351,996

 

 

 

 

- 5 -


M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

 

 

 

Three Months Ended March 31

 

 

 

 

Three Months Ended March 31

 

In thousands

 

 

 

2017

 

 

2016

 

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating

activities

 

Net income

 

$

348,927

 

 

 

298,528

 

 

Net income

 

$

352,610

 

 

 

348,927

 

 

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

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

55,000

 

 

 

49,000

 

 

Provision for credit losses

 

 

43,000

 

 

 

55,000

 

 

Depreciation and amortization of premises and equipment

 

 

27,429

 

 

 

27,141

 

 

Depreciation and amortization of premises and equipment

 

 

27,281

 

 

 

27,429

 

 

Amortization of capitalized servicing rights

 

 

13,543

 

 

 

12,249

 

 

Amortization of capitalized servicing rights

 

 

11,656

 

 

 

13,543

 

 

Amortization of core deposit and other intangible assets

 

 

8,420

 

 

 

12,319

 

 

Amortization of core deposit and other intangible assets

 

 

6,632

 

 

 

8,420

 

 

Provision for deferred income taxes

 

 

36,731

 

 

 

50,075

 

 

Provision for deferred income taxes

 

 

(124,772

)

 

 

36,731

 

 

Asset write-downs

 

 

5,118

 

 

 

8,940

 

 

Asset write-downs

 

 

3,192

 

 

 

5,118

 

 

Net gain on sales of assets

 

 

(11,647

)

 

 

(5,399

)

 

Net gain on sales of assets

 

 

(4,547

)

 

 

(11,647

)

 

Net change in accrued interest receivable, payable

 

 

(23,782

)

 

 

(16,530

)

 

Net change in accrued interest receivable, payable

 

 

(14,803

)

 

 

(23,782

)

 

Net change in other accrued income and expense

 

 

(209

)

 

 

70,766

 

 

Net change in other accrued income and expense

 

 

165,114

 

 

 

(209

)

 

Net change in loans originated for sale

 

 

712,954

 

 

 

211

 

 

Net change in loans originated for sale

 

 

(72,403

)

 

 

712,954

 

 

Net change in trading account assets and liabilities

 

 

113,332

 

 

 

(59,080

)

 

Net change in trading account assets and liabilities

 

 

91,219

 

 

 

113,332

 

 

Net cash provided by operating activities

 

 

1,285,816

 

 

 

448,220

 

 

Net cash provided by operating activities

 

 

484,179

 

 

 

1,285,816

 

Cash flows from investing

activities

 

Proceeds from sales of investment securities

 

 

 

 

 

 

 

 

 

Proceeds from sales of investment securities

 

 

 

 

 

 

 

 

 

Available for sale

 

 

 

 

 

518

 

 

Available for sale

 

 

100

 

 

 

 

 

Other

 

 

100

 

 

 

18,121

 

 

Other

 

 

254,860

 

 

 

100

 

 

Proceeds from maturities of investment securities

 

 

 

 

 

 

 

 

 

Proceeds from maturities of investment securities

 

 

 

 

 

 

 

 

 

Available for sale

 

 

697,756

 

 

 

511,549

 

 

Available for sale

 

 

349,294

 

 

 

697,756

 

 

Held to maturity

 

 

121,455

 

 

 

132,636

 

 

Held to maturity

 

 

123,923

 

 

 

121,455

 

 

Purchases of investment securities

 

 

 

 

 

 

 

 

 

Purchases of investment securities

 

 

 

 

 

 

 

 

 

Available for sale

 

 

(5,143

)

 

 

(311,302

)

 

Available for sale

 

 

(100

)

 

 

(5,143

)

 

Held to maturity

 

 

(539,516

)

 

 

(5,343

)

 

Held to maturity

 

 

 

 

 

(539,516

)

 

Other

 

 

(278

)

 

 

(124

)

 

Other

 

 

(288,259

)

 

 

(278

)

 

Net decrease (increase) in loans and leases

 

 

797,351

 

 

 

(439,712

)

 

Net decrease in loans and leases

 

 

303,886

 

 

 

797,351

 

 

Net increase in interest-bearing deposits at banks

 

 

(1,944,511

)

 

 

(1,950,831

)

 

Net increase in interest-bearing deposits at banks

 

 

(1,056,531

)

 

 

(1,944,511

)

 

Capital expenditures, net

 

 

(21,521

)

 

 

(16,307

)

 

Capital expenditures, net

 

 

(9,544

)

 

 

(21,521

)

 

Net decrease in loan servicing advances

 

 

56,437

 

 

 

37,600

 

 

Net decrease in loan servicing advances

 

 

115,163

 

 

 

56,437

 

 

Other, net

 

 

11,863

 

 

 

7,920

 

 

Other, net

 

 

(41,322

)

 

 

11,863

 

 

Net cash used by investing activities

 

 

(826,007

)

 

 

(2,015,275

)

 

Net cash used by investing activities

 

 

(248,530

)

 

 

(826,007

)

Cash flows from financing

activities

 

Net increase in deposits

 

 

1,550,297

 

 

 

2,264,623

 

 

Net increase (decrease) in deposits

 

 

(1,484,629

)

 

 

1,550,297

 

 

Net increase (decrease) in short-term borrowings

 

 

21,660

 

 

 

(343,838

)

 

Net increase in short-term borrowings

 

 

1,451,030

 

 

 

21,660

 

 

Payments on long-term borrowings

 

 

(1,401,410

)

 

 

(317,187

)

 

Proceeds from long-term borrowings

 

 

999,594

 

 

 

 

 

Purchases of treasury stock

 

 

(532,073

)

 

 

(100,000

)

 

Payments on long-term borrowings

 

 

(504,192

)

 

 

(1,401,410

)

 

Dividends paid — common

 

 

(116,566

)

 

 

(112,000

)

 

Purchases of treasury stock

 

 

(720,966

)

 

 

(532,073

)

 

Dividends paid — preferred

 

 

(17,368

)

 

 

(17,368

)

 

Dividends paid — common

 

 

(112,318

)

 

 

(116,566

)

 

Other, net

 

 

2,064

 

 

 

2,960

 

 

Dividends paid — preferred

 

 

(17,368

)

 

 

(17,368

)

 

Net cash provided (used) by financing activities

 

 

(493,396

)

 

 

1,377,190

 

 

Other, net

 

 

24,976

 

 

 

2,064

 

 

Net decrease in cash and cash equivalents

 

 

(33,587

)

 

 

(189,865

)

 

Net cash used by financing activities

 

 

(363,873

)

 

 

(493,396

)

 

Cash and cash equivalents at beginning of period

 

 

1,320,549

 

 

 

1,368,040

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(128,224

)

 

 

(33,587

)

 

Cash and cash equivalents at end of period

 

$

1,286,962

 

 

 

1,178,175

 

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,420,888

 

 

 

1,320,549

 

 

Cash, cash equivalents and restricted cash at end of period

 

$

1,292,664

 

 

 

1,286,962

 

Supplemental disclosure of cash

flow information

 

Interest received during the period

 

$

1,001,129

 

 

 

968,223

 

 

Interest received during the period

 

$

1,077,676

 

 

 

1,001,129

 

 

Interest paid during the period

 

 

116,183

 

 

 

146,568

 

 

Interest paid during the period

 

 

118,342

 

 

 

116,183

 

 

Income taxes paid (refunded) during the period

 

 

29,272

 

 

 

(86,146

)

 

Income taxes paid during the period

 

 

37,999

 

 

 

29,272

 

Supplemental schedule of

noncash investing and financing

activities

 

Real estate acquired in settlement of loans

 

$

23,607

 

 

 

33,737

 

 

Real estate acquired in settlement of loans

 

$

15,410

 

 

 

23,607

 

 

Securitization of residential mortgage loans allocated to

 

 

 

 

 

 

 

 

 

Securitization of residential mortgage loans allocated to

 

 

 

 

 

 

 

 

 

Available-for-sale investment securities

 

 

3,684

 

 

 

8,452

 

 

Available-for-sale investment securities

 

 

5,128

 

 

 

3,684

 

 

Capitalized servicing rights

 

 

36

 

 

 

92

 

 

Capitalized servicing rights

 

 

64

 

 

 

36

 

 

 

 

- 6 -


M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Stock

 

 

Paid-in

 

 

Retained

 

 

Income

 

 

Treasury

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Stock

 

 

Paid-in

 

 

Retained

 

 

Income

 

 

Treasury

 

 

 

 

 

In thousands, except per share

 

Stock

 

 

Stock

 

 

Issuable

 

 

Capital

 

 

Earnings

 

 

(Loss), Net

 

 

Stock

 

 

Total

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2016

 

$

1,231,500

 

 

 

79,782

 

 

 

2,364

 

 

 

6,680,768

 

 

 

8,430,502

 

 

 

(251,627

)

 

 

 

 

 

16,173,289

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

298,528

 

 

 

101,438

 

 

 

 

 

 

399,966

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,318

)

 

 

 

 

 

 

 

 

(20,318

)

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100,000

)

 

 

(100,000

)

Stock-based compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense, net

 

 

 

 

 

178

 

 

 

 

 

 

(978

)

 

 

 

 

 

 

 

 

745

 

 

 

(55

)

Exercises of stock options, net

 

 

 

 

 

18

 

 

 

 

 

 

2,335

 

 

 

 

 

 

 

 

 

265

 

 

 

2,618

 

Stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

275

 

 

 

 

 

 

 

 

 

10,319

 

 

 

10,594

 

Directors’ stock plan

 

 

 

 

 

2

 

 

 

 

 

 

471

 

 

 

 

 

 

 

 

 

 

 

 

473

 

Deferred compensation plans, net,

including dividend equivalents

 

 

 

 

 

2

 

 

 

(184

)

 

 

234

 

 

 

(23

)

 

 

 

 

 

 

 

 

29

 

Other

 

 

 

 

 

 

 

 

 

 

 

394

 

 

 

 

 

 

 

 

 

 

 

 

394

 

Common stock cash dividends —

$.70 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(111,937

)

 

 

 

 

 

 

 

 

(111,937

)

Balance — March 31, 2016

 

$

1,231,500

 

 

 

79,982

 

 

 

2,180

 

 

 

6,683,499

 

 

 

8,596,752

 

 

 

(150,189

)

 

 

(88,671

)

 

 

16,355,053

 

Dollars in thousands, except per share

 

Stock

 

 

Stock

 

 

Issuable

 

 

Capital

 

 

Earnings

 

 

(Loss), Net

 

 

Stock

 

 

Total

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2017

 

$

1,231,500

 

 

 

79,973

 

 

 

2,145

 

 

 

6,676,948

 

 

 

9,222,488

 

 

 

(294,636

)

 

 

(431,796

)

 

 

16,486,622

 

 

$

1,231,500

 

 

 

79,973

 

 

 

2,145

 

 

 

6,676,948

 

 

 

9,222,488

 

 

 

(294,636

)

 

 

(431,796

)

 

 

16,486,622

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

348,927

 

 

 

3,069

 

 

 

 

 

 

351,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

348,927

 

 

 

3,069

 

 

 

 

 

 

351,996

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,237

)

 

 

 

 

 

 

 

 

(18,237

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,237

)

 

 

 

 

 

 

 

 

(18,237

)

Exercise of 87,515 Series A stock

warrants into 47,954 shares of

common stock

 

 

 

 

 

 

 

 

 

 

 

(5,934

)

 

 

 

 

 

 

 

 

5,934

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,934

)

 

 

 

 

 

 

 

 

5,934

 

 

 

 

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(532,073

)

 

 

(532,073

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(532,073

)

 

 

(532,073

)

Stock-based compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense, net

 

 

 

 

 

(60

)

 

 

 

 

 

(67,016

)

 

 

 

 

 

 

 

 

55,667

 

 

 

(11,409

)

 

 

 

 

 

(60

)

 

 

 

 

 

(67,016

)

 

 

 

 

 

 

 

 

55,667

 

 

 

(11,409

)

Exercises of stock options, net

 

 

 

 

 

 

 

 

 

 

 

(3,127

)

 

 

 

 

 

 

 

 

43,789

 

 

 

40,662

 

 

 

 

 

 

 

 

 

 

 

 

(3,127

)

 

 

 

 

 

 

 

 

43,789

 

 

 

40,662

 

Stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

2,563

 

 

 

 

 

 

 

 

 

8,268

 

 

 

10,831

 

 

 

 

 

 

 

 

 

 

 

 

2,563

 

 

 

 

 

 

 

 

 

8,268

 

 

 

10,831

 

Directors’ stock plan

 

 

 

 

 

 

 

 

 

 

 

126

 

 

 

 

 

 

 

 

 

347

 

 

 

473

 

 

 

 

 

 

 

 

 

 

 

 

126

 

 

 

 

 

 

 

 

 

347

 

 

 

473

 

Deferred compensation plans, net,

including dividend equivalents

 

 

 

 

 

 

 

 

(224

)

 

 

(205

)

 

 

(21

)

 

 

 

 

 

396

 

 

 

(54

)

 

 

 

 

 

 

 

 

(224

)

 

 

(205

)

 

 

(21

)

 

 

 

 

 

396

 

 

 

(54

)

Common stock cash dividends —

$.75 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(115,707

)

 

 

 

 

 

 

 

 

(115,707

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(115,707

)

 

 

 

 

 

 

 

 

(115,707

)

Balance — March 31, 2017

 

$

1,231,500

 

 

 

79,913

 

 

 

1,921

 

 

 

6,603,355

 

 

 

9,437,450

 

 

 

(291,567

)

 

 

(849,468

)

 

 

16,213,104

 

 

$

1,231,500

 

 

 

79,913

 

 

 

1,921

 

 

 

6,603,355

 

 

 

9,437,450

 

 

 

(291,567

)

 

 

(849,468

)

 

 

16,213,104

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2018

 

$

1,231,500

 

 

 

79,909

 

 

 

1,847

 

 

 

6,590,855

 

 

 

10,164,804

 

 

 

(363,814

)

 

 

(1,454,282

)

 

 

16,250,819

 

Cumulative effect of change in

accounting principle — equity

securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,853

 

 

 

(16,853

)

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

352,610

 

 

 

(102,576

)

 

 

 

 

 

250,034

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,130

)

 

 

 

 

 

 

 

 

(18,130

)

Exercise of 36,974 Series A stock

warrants into 22,553 shares of

common stock

 

 

 

 

 

 

 

 

 

 

 

(3,455

)

 

 

 

 

 

 

 

 

3,455

 

 

 

 

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(720,966

)

 

 

(720,966

)

Stock-based compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense, net

 

 

 

 

 

(25

)

 

 

 

 

 

(15,362

)

 

 

 

 

 

 

 

 

21,220

 

 

 

5,833

 

Exercises of stock options, net

 

 

 

 

 

 

 

 

 

 

 

(1,945

)

 

 

 

 

 

 

 

 

44,045

 

 

 

42,100

 

Stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

2,358

 

 

 

 

 

 

 

 

 

8,766

 

 

 

11,124

 

Directors’ stock plan

 

 

 

 

 

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

515

 

 

 

589

 

Deferred compensation plans, net,

including dividend equivalents

 

 

 

 

 

 

 

 

(172

)

 

 

(244

)

 

 

(18

)

 

 

 

 

 

386

 

 

 

(48

)

Common stock cash dividends —

$.75 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(111,661

)

 

 

 

 

 

 

 

 

(111,661

)

Balance — March 31, 2018

 

$

1,231,500

 

 

 

79,884

 

 

 

1,675

 

 

 

6,572,281

 

 

 

10,404,458

 

 

 

(483,243

)

 

 

(2,096,861

)

 

 

15,709,694

 

 

 

 

- 7 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

NOTES TO FINANCFINANCIAL STATEMENTS

 

1. Significant accounting policies

The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in Form 10-K for the year ended December 31, 20162017 (“20162017 Annual Report”), except that effective January 20171, 2018 the Company adopted amended accounting guidance that is discussed in notenotes 2, 15 and 16 herein.  The most significant of those changes related to the accounting for excess tax benefits or deficiencies associated with share-based compensation whereby beginning in 2017 those amounts are recognized in income tax expense.  Previously, tax effects resulting from changes in M&T’s share price subsequent to the grant date were recorded through shareholders’ equity.  The adoption of this new accounting guidance resulted in a reduction of income tax expense for the quarter ended March 31, 2017 of $18 million, or $.12 of diluted earnings per common share.  In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.

 

2. AcquisitionsInvestment securities

In connection with the acquisition of Hudson City Bancorp, Inc. (“Hudson City”) on NovemberOn January 1, 20152018, the Company incurred merger-related expenses relatedadopted amended guidance requiring equity investments with readily determinable fair values to systems conversionsbe measured at fair value with changes in fair value recognized in the consolidated statement of income.  This amended guidance excludes equity method investments, investments in consolidated subsidiaries, exchange membership ownership interests, and Federal Home Loan Bank of New York and Federal Reserve Bank of New York capital stock.  Upon adoption the Company reclassified $17 million, after-tax effect, from accumulated other costscomprehensive income to retained earnings, representing the difference between fair value and the cost basis of integrating and conforming acquired operationsequity investments with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with preparing for systems conversions and/or integration of operations; costs related to termination of existing contractual arrangements for various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; severance (for former Hudson City employees); travel costs; and other costs of completing the transaction and commencing operations in new markets and offices.

A summary of merger-related expenses includedreadily determinable fair values at January 1, 2018. Net unrealized losses recorded as gain (loss) on bank investment securities in the consolidated statement of income forduring the three-month periodthree months ended March 31, 2016 follows:

 

 

(In thousands)

 

 

 

 

 

 

Salaries and employee benefits

 

$

5,274

 

Equipment and net occupancy

 

 

939

 

Outside data processing and software

 

 

715

 

Advertising and marketing

 

 

4,195

 

Printing, postage and supplies

 

 

937

 

Other cost of operations

 

 

11,102

 

Total

 

$

23,162

 

There2018 were no merger-related expenses during the three-month period ended March 31, 2017.

- 8 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities

$9 million. The amortized cost and estimated fair value of investment securities were as follows:

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

 

(In thousands)

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

1,907,573

 

 

 

181

 

 

 

9,504

 

 

$

1,898,250

 

 

$

1,962,160

 

 

 

 

 

 

20,682

 

 

$

1,941,478

 

Obligations of states and political subdivisions

 

 

3,051

 

 

 

77

 

 

 

4

 

 

 

3,124

 

 

 

1,986

 

 

 

16

 

 

 

2

 

 

 

2,000

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

10,525,601

 

 

 

87,830

 

 

 

109,117

 

 

 

10,504,314

 

 

 

8,407,476

 

 

 

21,318

 

 

 

206,665

 

 

 

8,222,129

 

Privately issued

 

 

42

 

 

 

 

 

 

1

 

 

 

41

 

 

 

27

 

 

 

 

 

 

 

 

 

27

 

Other debt securities

 

 

133,778

 

 

 

1,300

 

 

 

15,311

 

 

 

119,767

 

 

 

136,971

 

 

 

2,457

 

 

 

7,206

 

 

 

132,222

 

Equity securities

 

 

70,199

 

 

 

35,873

 

 

 

568

 

 

 

105,504

 

 

 

12,640,244

 

 

 

125,261

 

 

 

134,505

 

 

 

12,631,000

 

 

 

10,508,620

 

 

 

23,791

 

 

 

234,555

 

 

 

10,297,856

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

46,836

 

 

 

233

 

 

 

156

 

 

 

46,913

 

 

 

20,209

 

 

 

75

 

 

 

36

 

 

 

20,248

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

2,670,966

 

 

 

34,777

 

 

 

10,577

 

 

 

2,695,166

 

 

 

3,074,830

 

 

 

6,153

 

 

 

58,581

 

 

 

3,022,402

 

Privately issued

 

 

153,036

 

 

 

1,191

 

 

 

35,702

 

 

 

118,525

 

 

 

128,997

 

 

 

7,932

 

 

 

24,084

 

 

 

112,845

 

Other debt securities

 

 

5,281

 

 

 

 

 

 

 

 

 

5,281

 

 

 

4,720

 

 

 

 

 

 

 

 

 

4,720

 

 

 

2,876,119

 

 

 

36,201

 

 

 

46,435

 

 

 

2,865,885

 

 

 

3,228,756

 

 

 

14,160

 

 

 

82,701

 

 

 

3,160,215

 

Other securities

 

 

461,296

 

 

 

 

 

 

 

 

 

461,296

 

Total

 

$

15,977,659

 

 

 

161,462

 

 

 

180,940

 

 

$

15,958,181

 

Total debt securities

 

$

13,737,376

 

 

 

37,951

 

 

 

317,256

 

 

$

13,458,071

 

Equity and other securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Readily marketable equity — at fair value

 

 

48,358

 

 

 

14,075

 

 

 

716

 

 

 

61,717

 

Other — at cost

 

 

478,235

 

 

 

 

 

 

 

 

 

478,235

 

Total equity and other securities

 

$

526,593

 

 

 

14,075

 

 

 

716

 

 

$

539,952

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

1,912,110

 

 

 

386

 

 

 

9,952

 

 

$

1,902,544

 

Obligations of states and political subdivisions

 

 

3,570

 

 

 

77

 

 

 

6

 

 

 

3,641

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

10,980,507

 

 

 

88,343

 

 

 

113,989

 

 

 

10,954,861

 

Privately issued

 

 

45

 

 

 

 

 

 

1

 

 

 

44

 

Other debt securities

 

 

134,105

 

 

 

1,407

 

 

 

16,996

 

 

 

118,516

 

Equity securities

 

 

307,964

 

 

 

45,073

 

 

 

571

 

 

 

352,466

 

 

 

 

13,338,301

 

 

 

135,286

 

 

 

141,515

 

 

 

13,332,072

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

60,858

 

 

 

267

 

 

 

224

 

 

 

60,901

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

2,233,173

 

 

 

37,498

 

 

 

7,374

 

 

 

2,263,297

 

Privately issued

 

 

157,704

 

 

 

897

 

 

 

37,120

 

 

 

121,481

 

Other debt securities

 

 

5,543

 

 

 

 

 

 

 

 

 

5,543

 

 

 

 

2,457,278

 

 

 

38,662

 

 

 

44,718

 

 

 

2,451,222

 

Other securities

 

 

461,118

 

 

 

 

 

 

 

 

 

461,118

 

Total

 

$

16,256,697

 

 

 

173,948

 

 

 

186,233

 

 

$

16,244,412

 

- 98 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3.2. Investment securities, continued

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

1,965,665

 

 

 

 

 

 

18,178

 

 

$

1,947,487

 

Obligations of states and political subdivisions

 

 

2,555

 

 

 

36

 

 

 

2

 

 

 

2,589

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

8,755,482

 

 

 

59,497

 

 

 

98,587

 

 

 

8,716,392

 

Privately issued

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Other debt securities

 

 

136,905

 

 

 

2,402

 

 

 

10,475

 

 

 

128,832

 

Equity securities

 

 

78,161

 

 

 

23,219

 

 

 

424

 

 

 

100,956

 

 

 

 

10,938,796

 

 

 

85,154

 

 

 

127,666

 

 

 

10,896,284

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

24,562

 

 

 

109

 

 

 

49

 

 

 

24,622

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

3,187,953

 

 

 

27,236

 

 

 

13,746

 

 

 

3,201,443

 

Privately issued

 

 

135,688

 

 

 

2,574

 

 

 

27,575

 

 

 

110,687

 

Other debt securities

 

 

5,010

 

 

 

 

 

 

 

 

 

5,010

 

 

 

 

3,353,213

 

 

 

29,919

 

 

 

41,370

 

 

 

3,341,762

 

Other securities — at cost

 

 

415,028

 

 

 

 

 

 

 

 

 

415,028

 

Total

 

$

14,707,037

 

 

 

115,073

 

 

 

169,036

 

 

$

14,653,074

 

 

There were no significant gross realized gains or losses from sales of investment securities for the quarters ended March 31, 20172018 and 2016.2017.

 

At March 31, 2017,2018, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:

 

 

Amortized

Cost

 

 

Estimated

Fair Value

 

 

Amortized

Cost

 

 

Estimated

Fair Value

 

 

(In thousands)

 

 

(In thousands)

 

Debt securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

156,211

 

 

 

156,378

 

 

$

817,981

 

 

 

813,574

 

Due after one year through five years

 

 

1,756,628

 

 

 

1,747,311

 

 

 

1,151,292

 

 

 

1,134,986

 

Due after five years through ten years

 

 

56,297

 

 

 

54,094

 

 

 

82,301

 

 

 

82,049

 

Due after ten years

 

 

75,266

 

 

 

63,358

 

 

 

49,543

 

 

 

45,091

 

 

 

2,044,402

 

 

 

2,021,141

 

 

 

2,101,117

 

 

 

2,075,700

 

Mortgage-backed securities available for sale

 

 

10,525,643

 

 

 

10,504,355

 

 

 

8,407,503

 

 

 

8,222,156

 

 

$

12,570,045

 

 

 

12,525,496

 

 

$

10,508,620

 

 

 

10,297,856

 

Debt securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

21,613

 

 

 

21,711

 

 

$

11,410

 

 

 

11,432

 

Due after one year through five years

 

 

23,326

 

 

 

23,261

 

 

 

8,703

 

 

 

8,716

 

Due after five years through ten years

 

 

1,897

 

 

 

1,941

 

 

 

96

 

 

 

100

 

Due after ten years

 

 

5,281

 

 

 

5,281

 

 

 

4,720

 

 

 

4,720

 

 

 

52,117

 

 

 

52,194

 

 

 

24,929

 

 

 

24,968

 

Mortgage-backed securities held to maturity

 

 

2,824,002

 

 

 

2,813,691

 

 

 

3,203,827

 

 

 

3,135,247

 

 

$

2,876,119

 

 

 

2,865,885

 

 

$

3,228,756

 

 

 

3,160,215

 

- 109 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3.2. Investment securities, continued

 

A summary of investment securities that as of March 31, 20172018 and December 31, 20162017 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

(In thousands)

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

1,745,277

 

 

 

(9,494

)

 

 

2,044

 

 

 

(10

)

 

$

241,594

 

 

 

(2,314

)

 

 

1,699,784

 

 

 

(18,368

)

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

472

 

 

 

(4

)

 

 

1,020

 

 

 

(1

)

 

 

376

 

 

 

(1

)

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

5,549,268

 

 

 

(108,380

)

 

 

93,425

 

 

 

(737

)

 

 

3,825,869

 

 

 

(68,681

)

 

 

3,023,992

 

 

 

(137,984

)

Privately issued

 

 

 

 

 

 

 

 

25

 

 

 

(1

)

Other debt securities

 

 

19,052

 

 

 

(100

)

 

 

75,763

 

 

 

(15,211

)

 

 

4,341

 

 

 

(90

)

 

 

64,506

 

 

 

(7,116

)

Equity securities

 

 

17,869

 

 

 

(422

)

 

 

154

 

 

 

(146

)

 

 

7,331,466

 

 

 

(118,396

)

 

 

171,883

 

 

 

(16,109

)

 

 

4,072,824

 

 

 

(71,086

)

 

 

4,788,658

 

 

 

(163,469

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

13,205

 

 

 

(87

)

 

 

9,909

 

 

 

(69

)

 

 

1,891

 

 

 

(4

)

 

 

5,454

 

 

 

(32

)

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

896,556

 

 

 

(10,013

)

 

 

17,472

 

 

 

(564

)

 

 

2,280,618

 

 

 

(46,285

)

 

 

249,897

 

 

 

(12,296

)

Privately issued

 

 

7,161

 

 

 

(29

)

 

 

74,137

 

 

 

(35,673

)

 

 

 

 

 

 

 

 

53,852

 

 

 

(24,084

)

 

 

916,922

 

 

 

(10,129

)

 

 

101,518

 

 

 

(36,306

)

 

 

2,282,509

 

 

 

(46,289

)

 

 

309,203

 

 

 

(36,412

)

Total

 

$

8,248,388

 

 

 

(128,525

)

 

 

273,401

 

 

 

(52,415

)

 

$

6,355,333

 

 

 

(117,375

)

 

 

5,097,861

 

 

 

(199,881

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

$

1,710,241

 

 

 

(9,950

)

 

 

2,295

 

 

 

(2

)

 

$

278,132

 

 

 

(1,761

)

 

 

1,669,355

 

 

 

(16,417

)

Obligations of states and political subdivisions

 

 

 

 

 

 

 

 

593

 

 

 

(6

)

 

 

 

 

 

 

 

 

474

 

 

 

(2

)

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

6,730,829

 

 

 

(113,374

)

 

 

81,003

 

 

 

(615

)

 

 

2,106,142

 

 

 

(13,695

)

 

 

3,138,841

 

 

 

(84,892

)

Privately issued

 

 

 

 

 

 

 

 

27

 

 

 

(1

)

Other debt securities

 

 

100

 

 

 

(1

)

 

 

85,400

 

 

 

(16,995

)

 

 

3,067

 

 

 

(26

)

 

 

61,159

 

 

 

(10,449

)

Equity securities

 

 

17,776

 

 

 

(422

)

 

 

151

 

 

 

(149

)

Equity securities (a)

 

 

 

 

 

 

 

 

18,162

 

 

 

(424

)

 

 

8,458,946

 

 

 

(123,747

)

 

 

169,469

 

 

 

(17,768

)

 

 

2,387,341

 

 

 

(15,482

)

 

 

4,887,991

 

 

 

(112,184

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

 

17,988

 

 

 

(126

)

 

 

11,891

 

 

 

(98

)

 

 

2,954

 

 

 

(4

)

 

 

6,110

 

 

 

(45

)

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

618,832

 

 

 

(6,842

)

 

 

17,481

 

 

 

(532

)

 

 

1,331,759

 

 

 

(7,036

)

 

 

265,695

 

 

 

(6,710

)

Privately issued

 

 

17,911

 

 

 

(1,222

)

 

 

57,016

 

 

 

(35,898

)

 

 

5,061

 

 

 

(1,216

)

 

 

55,255

 

 

 

(26,359

)

 

 

654,731

 

 

 

(8,190

)

 

 

86,388

 

 

 

(36,528

)

 

 

1,339,774

 

 

 

(8,256

)

 

 

327,060

 

 

 

(33,114

)

Total

 

$

9,113,677

 

 

 

(131,937

)

 

 

255,857

 

 

 

(54,296

)

 

$

3,727,115

 

 

 

(23,738

)

 

 

5,215,051

 

 

 

(145,298

)

(a)

Beginning January 1, 2018, equity securities with readily determinable fair values are required to be measured at fair value with changes in fair value recognized in the consolidated statement of income. As a result and as of March 31, 2018, disclosing the time period for which these equity securities had been in a continuous unrealized loss position is no longer relevant.

 

- 10 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

2. Investment securities, continued

The Company owned 1,0751,442 individual investmentdebt securities with aggregate gross unrealized losses of $181$317 million at March 31, 2017.2018. Based on a review of each of the securities in the investment securities portfolio at March 31, 2017,2018, the Company concluded that it expected to recover the amortized cost basis of its investment.  As of March 31, 2017,2018, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired

- 11 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

3. Investment securities, continued

investment securities at a loss.  At March 31, 2017,2018, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $461$478 million of cost method investmentequity securities.

 

4.3. Loans and leases and the allowance for credit losses

A summary of current, past due and nonaccrual loans as of March 31, 20172018 and December 31, 20162017 follows:

 

 

Current

 

 

30-89 Days

Past Due

 

 

Accruing

Loans Past

Due 90

Days or

More (a)

 

 

Accruing

Loans

Acquired at

a Discount

Past Due

90 days

or More (b)

 

 

Purchased

Impaired (c)

 

 

Nonaccrual

 

 

Total

 

 

Current

 

 

30-89 Days

Past Due

 

 

Accruing

Loans Past

Due 90

Days or

More (a)

 

 

Accruing

Loans

Acquired at

a Discount

Past Due

90 days

or More (b)

 

 

Purchased

Impaired (c)

 

 

Nonaccrual

 

 

Total

 

 

(In thousands)

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

21,986,926

 

 

 

38,046

 

 

 

6,695

 

 

 

387

 

 

 

1,825

 

 

 

261,497

 

 

$

22,295,376

 

 

$

21,377,917

 

 

 

51,438

 

 

 

5,547

 

 

 

26

 

 

 

2

 

 

 

262,592

 

 

$

21,697,522

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

25,088,525

 

 

 

185,331

 

 

 

17,322

 

 

 

13,618

 

 

 

26,391

 

 

 

183,113

 

 

 

25,514,300

 

 

 

24,919,508

 

 

 

250,993

 

 

 

3,311

 

 

 

4,569

 

 

 

11,744

 

 

 

152,832

 

 

 

25,342,957

 

Residential builder and developer

 

 

1,714,177

 

 

 

15,185

 

 

 

 

 

 

1,972

 

 

 

12,798

 

 

 

13,573

 

 

 

1,757,705

 

 

 

1,641,644

 

 

 

1,974

 

 

 

 

 

 

 

 

 

357

 

 

 

4,519

 

 

 

1,648,494

 

Other commercial construction

 

 

5,747,834

 

 

 

23,973

 

 

 

 

 

 

 

 

 

13,879

 

 

 

13,963

 

 

 

5,799,649

 

 

 

6,680,584

 

 

 

71,115

 

 

 

 

 

 

 

 

 

1,194

 

 

 

9,162

 

 

 

6,762,055

 

Residential

 

 

17,004,912

 

 

 

431,427

 

 

 

251,308

 

 

 

11,116

 

 

 

362,283

 

 

 

237,685

 

 

 

18,298,731

 

 

 

14,942,659

 

 

 

407,773

 

 

 

221,666

 

 

 

8,416

 

 

 

263,939

 

 

 

234,309

 

 

 

16,078,762

 

Residential — limited documentation

 

 

3,086,264

 

 

 

91,177

 

 

 

 

 

 

 

 

 

135,759

 

 

 

112,560

 

 

 

3,425,760

 

 

 

2,599,705

 

 

 

82,738

 

 

 

 

 

 

 

 

 

100,764

 

 

 

98,977

 

 

 

2,882,184

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

5,398,590

 

 

 

32,939

 

 

 

 

 

 

12,238

 

 

 

 

 

 

79,962

 

 

 

5,523,729

 

 

 

5,037,213

 

 

 

32,100

 

 

 

 

 

 

8,157

 

 

 

 

 

 

73,169

 

 

 

5,150,639

 

Automobile

 

 

3,049,712

 

 

 

48,751

 

 

 

 

 

 

 

 

 

 

 

 

16,109

 

 

 

3,114,572

 

 

 

3,468,893

 

 

 

64,995

 

 

 

 

 

 

 

 

 

 

 

 

20,613

 

 

 

3,554,501

 

Other

 

 

3,519,996

 

 

 

25,876

 

 

 

4,694

 

 

 

24,401

 

 

 

 

 

 

8,213

 

 

 

3,583,180

 

 

 

4,523,469

 

 

 

28,686

 

 

 

4,801

 

 

 

28,181

 

 

 

 

 

 

8,498

 

 

 

4,593,635

 

Total

 

$

86,596,936

 

 

 

892,705

 

 

 

280,019

 

 

 

63,732

 

 

 

552,935

 

 

 

926,675

 

 

$

89,313,002

 

 

$

85,191,592

 

 

 

991,812

 

 

 

235,325

 

 

 

49,349

 

 

 

378,000

 

 

 

864,671

 

 

$

87,710,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

December 31, 2017

 

 

 

Commercial, financial, leasing, etc.

 

$

22,287,857

 

 

 

53,503

 

 

 

6,195

 

 

 

417

 

 

 

641

 

 

 

261,434

 

 

$

22,610,047

 

 

$

21,332,234

 

 

 

167,756

 

 

 

1,322

 

 

 

327

 

 

 

21

 

 

 

240,991

 

 

$

21,742,651

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

25,076,684

 

 

 

183,531

 

 

 

7,054

 

 

 

12,870

 

 

 

31,404

 

 

 

176,201

 

 

 

25,487,744

 

 

 

24,910,381

 

 

 

166,305

 

 

 

4,444

 

 

 

6,016

 

 

 

16,815

 

 

 

184,982

 

 

 

25,288,943

 

Residential builder and developer

 

 

1,884,989

 

 

 

4,667

 

 

 

5

 

 

 

1,952

 

 

 

14,006

 

 

 

16,707

 

 

 

1,922,326

 

 

 

1,618,973

 

 

 

5,159

 

 

 

 

 

 

 

 

 

1,135

 

 

 

6,451

 

 

 

1,631,718

 

Other commercial construction

 

 

5,985,118

 

 

 

77,701

 

 

 

922

 

 

 

198

 

 

 

14,274

 

 

 

18,111

 

 

 

6,096,324

 

 

 

6,407,451

 

 

 

23,467

 

 

 

 

 

 

 

 

 

4,706

 

 

 

10,088

 

 

 

6,445,712

 

Residential

 

 

17,631,377

 

 

 

485,468

 

 

 

281,298

 

 

 

11,537

 

 

 

378,549

 

 

 

229,242

 

 

 

19,017,471

 

 

 

15,376,759

 

 

 

474,372

 

 

 

233,437

 

 

 

7,582

 

 

 

282,102

 

 

 

235,834

 

 

 

16,610,086

 

Residential — limited documentation

 

 

3,239,344

 

 

 

88,366

 

 

 

 

 

 

 

 

 

139,158

 

 

 

106,573

 

 

 

3,573,441

 

 

 

2,718,019

 

 

 

83,898

 

 

 

 

 

 

 

 

 

105,236

 

 

 

96,105

 

 

 

3,003,258

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

5,502,091

 

 

 

44,565

 

 

 

 

 

 

12,678

 

 

 

 

 

 

81,815

 

 

 

5,641,149

 

 

 

5,171,345

 

 

 

38,546

 

 

 

 

 

 

9,391

 

 

 

 

 

 

74,500

 

 

 

5,293,782

 

Automobile

 

 

2,869,232

 

 

 

56,158

 

 

 

 

 

 

1

 

 

 

 

 

 

18,674

 

 

 

2,944,065

 

 

 

3,441,371

 

 

 

78,511

 

 

 

 

 

 

 

 

 

 

 

 

23,781

 

 

 

3,543,663

 

Other

 

 

3,491,629

 

 

 

31,286

 

 

 

5,185

 

 

 

21,491

 

 

 

 

 

 

11,258

 

 

 

3,560,849

 

 

 

4,349,071

 

 

 

40,929

 

 

 

5,202

 

 

 

24,102

 

 

 

 

 

 

9,866

 

 

 

4,429,170

 

Total

 

$

87,968,321

 

 

 

1,025,245

 

 

 

300,659

 

 

 

61,144

 

 

 

578,032

 

 

 

920,015

 

 

$

90,853,416

 

 

$

85,325,604

 

 

 

1,078,943

 

 

 

244,405

 

 

 

47,418

 

 

 

410,015

 

 

 

882,598

 

 

$

87,988,983

 

(a)

Excludes loans acquired at a discount.

(b)

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

(c)

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

 

- 1211 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

One-to-four family residential mortgage loans held for sale were $297$288 million and $414$356 million at March 31, 20172018 and December 31, 2016,2017, respectively.  Commercial real estate loans held for sale were $75$167 million at March 31, 20172018 and $643$22 million at December 31, 2016.2017.

The outstanding principal balance and the carrying amount of loans acquired at a discount that were recorded at fair value at the acquisition date and included in the consolidated balance sheet were as follows:

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding principal balance

 

$

2,089,909

 

 

 

2,311,699

 

 

$

1,305,611

 

 

 

1,394,188

 

Carrying amount:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

55,671

 

 

 

59,928

 

 

 

28,637

 

 

 

31,105

 

Commercial real estate

 

 

415,047

 

 

 

456,820

 

 

 

200,932

 

 

 

228,054

 

Residential real estate

 

 

765,986

 

 

 

799,802

 

 

 

587,562

 

 

 

620,827

 

Consumer

 

 

369,803

 

 

 

487,721

 

 

 

122,073

 

 

 

123,413

 

 

$

1,606,507

 

 

 

1,804,271

 

 

$

939,204

 

 

 

1,003,399

 

 

Purchased impaired loans included in the table above totaled $553$378 million at March 31, 20172018 and $578$410 million at December 31, 2016,2017, representing less than 1% of the Company’s assets as of each date.  A summary of changes in the accretable yield for loans acquired at a discount for the three-month periods ended March 31, 20172018 and 20162017 follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2017

 

 

Three Months Ended March 31, 2016

 

 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 31, 2017

 

 

Purchased

 

 

Other

 

 

Purchased

 

 

Other

 

 

Purchased

 

 

Other

 

 

Purchased

 

 

Other

 

 

Impaired

 

 

Acquired

 

 

Impaired

 

 

Acquired

 

 

Impaired

 

 

Acquired

 

 

Impaired

 

 

Acquired

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

154,233

 

 

 

201,153

 

 

$

184,618

 

 

 

296,434

 

 

$

157,918

 

 

 

133,162

 

 

$

154,233

 

 

 

201,153

 

Interest income

 

 

(10,925

)

 

 

(25,518

)

 

 

(14,062

)

 

 

(37,862

)

 

 

(9,819

)

 

 

(15,112

)

 

 

(10,925

)

 

 

(25,518

)

Reclassifications from nonaccretable balance

 

 

146

 

 

 

3,183

 

 

 

629

 

 

 

5,664

 

 

 

908

 

 

 

207

 

 

 

146

 

 

 

3,183

 

Other (a)

 

 

 

 

 

2,492

 

 

 

 

 

 

4,781

 

 

 

 

 

 

(73

)

 

 

 

 

 

2,492

 

Balance at end of period

 

$

143,454

 

 

 

181,310

 

 

$

171,185

 

 

 

269,017

 

 

$

149,007

 

 

 

118,184

 

 

$

143,454

 

 

 

181,310

 

(a)

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

Changes in the allowance for credit losses for the three months ended March 31, 2018 were as follows:

 

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

328,599

 

 

 

374,085

 

 

 

65,405

 

 

 

170,809

 

 

 

78,300

 

 

$

1,017,198

 

Provision for credit losses

 

 

7,230

 

 

 

(5,225

)

 

 

10,486

 

 

 

29,814

 

 

 

695

 

 

 

43,000

 

Net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(14,581

)

 

 

(1,366

)

 

 

(4,354

)

 

 

(36,451

)

 

 

 

 

 

(56,752

)

Recoveries

 

 

4,823

 

 

 

223

 

 

 

1,510

 

 

 

9,669

 

 

 

 

 

 

16,225

 

Net charge-offs

 

 

(9,758

)

 

 

(1,143

)

 

 

(2,844

)

 

 

(26,782

)

 

 

 

 

 

(40,527

)

Ending balance

 

$

326,071

 

 

 

367,717

 

 

 

73,047

 

 

 

173,841

 

 

 

78,995

 

 

$

1,019,671

 

- 1312 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

Changes in the allowance for credit losses for the three months ended March 31, 2017 were as follows:

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

330,833

 

 

 

362,719

 

 

 

61,127

 

 

 

156,288

 

 

 

78,030

 

 

$

988,997

 

 

$

330,833

 

 

 

362,719

 

 

 

61,127

 

 

 

156,288

 

 

 

78,030

 

 

$

988,997

 

Provision for credit losses

 

 

28,823

 

 

 

1,262

 

 

 

5,637

 

 

 

18,832

 

 

 

446

 

 

 

55,000

 

 

 

28,823

 

 

 

1,262

 

 

 

5,637

 

 

 

18,832

 

 

 

446

 

 

 

55,000

 

Net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(16,357

)

 

 

(5,445

)

 

 

(6,259

)

 

 

(34,503

)

 

 

 

 

 

(62,564

)

 

 

(16,357

)

 

 

(5,445

)

 

 

(6,259

)

 

 

(34,503

)

 

 

 

 

 

(62,564

)

Recoveries

 

 

4,461

 

 

 

1,474

 

 

 

1,507

 

 

 

12,555

 

 

 

 

 

 

19,997

 

 

 

4,461

 

 

 

1,474

 

 

 

1,507

 

 

 

12,555

 

 

 

 

 

 

19,997

 

Net charge-offs

 

 

(11,896

)

 

 

(3,971

)

 

 

(4,752

)

 

 

(21,948

)

 

 

 

 

 

(42,567

)

Net (charge-offs) recoveries

 

 

(11,896

)

 

 

(3,971

)

 

 

(4,752

)

 

 

(21,948

)

 

 

 

 

 

(42,567

)

Ending balance

 

$

347,760

 

 

 

360,010

 

 

 

62,012

 

 

 

153,172

 

 

 

78,476

 

 

$

1,001,430

 

 

$

347,760

 

 

 

360,010

 

 

 

62,012

 

 

 

153,172

 

 

 

78,476

 

 

$

1,001,430

 

 

Changes in the allowance for credit losses for the three months ended March 31, 2016 were as follows:

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Unallocated

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

300,404

 

 

 

326,831

 

 

 

72,238

 

 

 

178,320

 

 

 

78,199

 

 

$

955,992

 

Provision for credit losses

 

 

24,364

 

 

 

4,013

 

 

 

1,218

 

 

 

19,893

 

 

 

(488

)

 

 

49,000

 

Net charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

(6,149

)

 

 

(1,272

)

 

 

(6,972

)

 

 

(44,319

)

 

 

 

 

 

(58,712

)

Recoveries

 

 

5,247

 

 

 

2,413

 

 

 

1,887

 

 

 

6,925

 

 

 

 

 

 

16,472

 

Net (charge-offs) recoveries

 

 

(902

)

 

 

1,141

 

 

 

(5,085

)

 

 

(37,394

)

 

 

 

 

 

(42,240

)

Ending balance

 

$

323,866

 

 

 

331,985

 

 

 

68,371

 

 

 

160,819

 

 

 

77,711

 

 

$

962,752

 

- 14 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

Despite the allocation in the preceding table, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type.

In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensifiedtargeted credit review processes and also estimates losses inherent in other loans and leases 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. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan-by-loan analysis of larger balance commercial loans and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes a loan grading system which is applied to commercial and commercial real estate credits on an individual loan basis. Loan officers are responsible for continually assigning grades to these loans based on standards outlined in the Company’s Credit Policy. Internal loan grades are also monitored by the Company’s credit review department to ensure consistency and strict adherence to the prescribed standards. Loan grades are assigned loss component factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss component factors include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information; levels of and trends in portfolio charge-offs and recoveries; levels of and trends in portfolio delinquencies and impaired loans; changes in the risk profile of specific portfolios; trends in volume and terms of loans; effects of changes in credit concentrations; and observed trends and practices in the banking industry. As updated appraisals are obtained on individual loans or other events in the market place indicate that collateral values have significantly changed, individual loan grades are adjusted as appropriate. Changes in other factors cited may also lead to loan grade changes at any time.  Except for consumer loans and residential real estate loans that are considered smaller balance homogenous loans and acquired loans that are evaluated on an aggregated basis, the Company considers a loan to be impaired for purposes of applying GAAP when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days.  Regardless of loan type, the Company considers a loan to be impaired if it qualifies as a troubled debt restructuring. Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.

- 1513 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

The following tables provide information with respect to loans and leases that were considered impaired as of March 31, 20172018 and December 31, 20162017 and for the three-month periods ended March 31, 20172018 and 2016.2017.

 

 

March 31, 2017

 

 

December 31, 2016

 

 

March 31, 2018

 

 

December 31, 2017

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

(In thousands)

 

 

(In thousands)

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

177,001

 

 

 

196,338

 

 

 

64,056

 

 

 

168,072

 

 

 

184,432

 

 

 

48,480

 

 

$

172,385

 

 

 

203,464

 

 

 

45,501

 

 

 

177,250

 

 

 

194,257

 

 

 

45,488

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

64,746

 

 

 

80,482

 

 

 

10,541

 

 

 

71,862

 

 

 

86,666

 

 

 

11,620

 

 

 

77,118

 

 

 

88,313

 

 

 

9,981

 

 

 

67,199

 

 

 

75,084

 

 

 

9,140

 

Residential builder and developer

 

 

6,870

 

 

 

7,031

 

 

 

403

 

 

 

7,396

 

 

 

8,361

 

 

 

506

 

 

 

5,536

 

 

 

5,828

 

 

 

187

 

 

 

5,320

 

 

 

5,641

 

 

 

308

 

Other commercial construction

 

 

2,203

 

 

 

2,673

 

 

 

398

 

 

 

2,475

 

 

 

2,731

 

 

 

448

 

 

 

3,893

 

 

 

19,598

 

 

 

456

 

 

 

4,817

 

 

 

20,357

 

 

 

647

 

Residential

 

 

91,077

 

 

 

111,477

 

 

 

3,738

 

 

 

86,680

 

 

 

105,944

 

 

 

3,457

 

 

 

112,068

 

 

 

134,431

 

 

 

4,048

 

 

 

101,724

 

 

 

122,602

 

 

 

4,000

 

Residential — limited documentation

 

 

81,922

 

 

 

97,658

 

 

 

5,000

 

 

 

82,547

 

 

 

97,718

 

 

 

6,000

 

 

 

76,984

 

 

 

92,586

 

 

 

4,000

 

 

 

77,277

 

 

 

92,439

 

 

 

3,900

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

46,132

 

 

 

50,262

 

 

 

8,389

 

 

 

44,693

 

 

 

48,965

 

 

 

8,027

 

 

 

48,991

 

 

 

54,032

 

 

 

8,913

 

 

 

48,847

 

 

 

53,914

 

 

 

8,812

 

Automobile

 

 

16,087

 

 

 

16,602

 

 

 

3,508

 

 

 

16,982

 

 

 

18,272

 

 

 

3,740

 

 

 

12,797

 

 

 

15,461

 

 

 

2,694

 

 

 

13,498

 

 

 

15,737

 

 

 

2,811

 

Other

 

 

3,522

 

 

 

3,670

 

 

 

725

 

 

 

3,791

 

 

 

5,296

 

 

 

776

 

 

 

3,082

 

 

 

5,857

 

 

 

629

 

 

 

3,220

 

 

 

5,872

 

 

 

656

 

 

 

489,560

 

 

 

566,193

 

 

 

96,758

 

 

 

484,498

 

 

 

558,385

 

 

 

83,054

 

 

 

512,854

 

 

 

619,570

 

 

 

76,409

 

 

 

499,152

 

 

 

585,903

 

 

 

75,762

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

92,546

 

 

 

127,252

 

 

 

 

 

 

100,805

 

 

 

124,786

 

 

 

 

 

 

115,336

 

 

 

145,450

 

 

 

 

 

 

89,126

 

 

 

115,327

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

126,437

 

 

 

139,103

 

 

 

 

 

 

113,276

 

 

 

121,846

 

 

 

 

 

 

96,267

 

 

 

104,911

 

 

 

 

 

 

138,356

 

 

 

149,716

 

 

 

 

Residential builder and developer

 

 

11,748

 

 

 

18,863

 

 

 

 

 

 

14,368

 

 

 

21,124

 

 

 

 

 

 

3,760

 

 

 

3,832

 

 

 

 

 

 

5,057

 

 

 

5,296

 

 

 

 

Other commercial construction

 

 

12,029

 

 

 

31,072

 

 

 

 

 

 

15,933

 

 

 

35,281

 

 

 

 

 

 

5,425

 

 

 

9,142

 

 

 

 

 

 

5,456

 

 

 

9,130

 

 

 

 

Residential

 

 

14,946

 

 

 

22,209

 

 

 

 

 

 

16,823

 

 

 

24,161

 

 

 

 

 

 

13,868

 

 

 

19,105

 

 

 

 

 

 

13,574

 

 

 

18,980

 

 

 

 

Residential — limited documentation

 

 

14,466

 

 

 

22,941

 

 

 

 

 

 

15,429

 

 

 

24,590

 

 

 

 

 

 

7,751

 

 

 

12,960

 

 

 

 

 

 

9,588

 

 

 

16,138

 

 

 

 

 

 

272,172

 

 

 

361,440

 

 

 

 

 

 

276,634

 

 

 

351,788

 

 

 

 

 

 

242,407

 

 

 

295,400

 

 

 

 

 

 

261,157

 

 

 

314,587

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

269,547

 

 

 

323,590

 

 

 

64,056

 

 

 

268,877

 

 

 

309,218

 

 

 

48,480

 

 

 

287,721

 

 

 

348,914

 

 

 

45,501

 

 

 

266,376

 

 

 

309,584

 

 

 

45,488

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

191,183

 

 

 

219,585

 

 

 

10,541

 

 

 

185,138

 

 

 

208,512

 

 

 

11,620

 

 

 

173,385

 

 

 

193,224

 

 

 

9,981

 

 

 

205,555

 

 

 

224,800

 

 

 

9,140

 

Residential builder and developer

 

 

18,618

 

 

 

25,894

 

 

 

403

 

 

 

21,764

 

 

 

29,485

 

 

 

506

 

 

 

9,296

 

 

 

9,660

 

 

 

187

 

 

 

10,377

 

 

 

10,937

 

 

 

308

 

Other commercial construction

 

 

14,232

 

 

 

33,745

 

 

 

398

 

 

 

18,408

 

 

 

38,012

 

 

 

448

 

 

 

9,318

 

 

 

28,740

 

 

 

456

 

 

 

10,273

 

 

 

29,487

 

 

 

647

 

Residential

 

 

106,023

 

 

 

133,686

 

 

 

3,738

 

 

 

103,503

 

 

 

130,105

 

 

 

3,457

 

 

 

125,936

 

 

 

153,536

 

 

 

4,048

 

 

 

115,298

 

 

 

141,582

 

 

 

4,000

 

Residential — limited documentation

 

 

96,388

 

 

 

120,599

 

 

 

5,000

 

 

 

97,976

 

 

 

122,308

 

 

 

6,000

 

 

 

84,735

 

 

 

105,546

 

 

 

4,000

 

 

 

86,865

 

 

 

108,577

 

 

 

3,900

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

46,132

 

 

 

50,262

 

 

 

8,389

 

 

 

44,693

 

 

 

48,965

 

 

 

8,027

 

 

 

48,991

 

 

 

54,032

 

 

 

8,913

 

 

 

48,847

 

 

 

53,914

 

 

 

8,812

 

Automobile

 

 

16,087

 

 

 

16,602

 

 

 

3,508

 

 

 

16,982

 

 

 

18,272

 

 

 

3,740

 

 

 

12,797

 

 

 

15,461

 

 

 

2,694

 

 

 

13,498

 

 

 

15,737

 

 

 

2,811

 

Other

 

 

3,522

 

 

 

3,670

 

 

 

725

 

 

 

3,791

 

 

 

5,296

 

 

 

776

 

 

 

3,082

 

 

 

5,857

 

 

 

629

 

 

 

3,220

 

 

 

5,872

 

 

 

656

 

Total

 

$

761,732

 

 

 

927,633

 

 

 

96,758

 

 

 

761,132

 

 

 

910,173

 

 

 

83,054

 

 

$

755,261

 

 

 

914,970

 

 

 

76,409

 

 

 

760,309

 

 

 

900,490

 

 

 

75,762

 

- 1614 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

 

 

Three Months Ended March 31, 2017

 

 

Three Months Ended March 31, 2016

 

 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 31, 2017

 

 

 

 

 

 

Interest Income

Recognized

 

 

 

 

 

 

Interest Income

Recognized

 

 

 

 

 

 

Interest Income

Recognized

 

 

 

 

 

 

Interest Income

Recognized

 

 

Average

Recorded

Investment

 

 

Total

 

 

Cash

Basis

 

 

Average

Recorded

Investment

 

 

Total

 

 

Cash

Basis

 

 

Average

Recorded

Investment

 

 

Total

 

 

Cash

Basis

 

 

Average

Recorded

Investment

 

 

Total

 

 

Cash

Basis

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

271,825

 

 

 

478

 

 

 

478

 

 

 

296,584

 

 

 

611

 

 

 

611

 

 

$

272,172

 

 

 

783

 

 

 

783

 

 

 

271,825

��

 

 

478

 

 

 

478

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

182,857

 

 

 

975

 

 

 

975

 

 

 

182,454

 

 

 

1,474

 

 

 

1,474

 

 

 

181,846

 

 

 

3,147

 

 

 

3,147

 

 

 

182,857

 

 

 

975

 

 

 

975

 

Residential builder and developer

 

 

20,051

 

 

 

429

 

 

 

429

 

 

 

33,750

 

 

 

42

 

 

 

42

 

 

 

9,840

 

 

 

1,682

 

 

 

1,682

 

 

 

20,051

 

 

 

429

 

 

 

429

 

Other commercial construction

 

 

16,328

 

 

 

847

 

 

 

847

 

 

 

16,868

 

 

 

38

 

 

 

38

 

 

 

10,102

 

 

 

6

 

 

 

6

 

 

 

16,328

 

 

 

847

 

 

 

847

 

Residential

 

 

103,875

 

 

 

1,636

 

 

 

774

 

 

 

96,788

 

 

 

1,372

 

 

 

882

 

 

 

121,209

 

 

 

1,902

 

 

 

902

 

 

 

103,875

 

 

 

1,636

 

 

 

774

 

Residential — limited documentation

 

 

97,121

 

 

 

1,500

 

 

 

384

 

 

 

107,473

 

 

 

1,472

 

 

 

630

 

 

 

85,595

 

 

 

1,728

 

 

 

696

 

 

 

97,121

 

 

 

1,500

 

 

 

384

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

45,542

 

 

 

399

 

 

 

100

 

 

 

26,019

 

 

 

246

 

 

 

85

 

 

 

48,797

 

 

 

414

 

 

 

86

 

 

 

45,542

 

 

 

399

 

 

 

100

 

Automobile

 

 

16,504

 

 

 

275

 

 

 

19

 

 

 

21,962

 

 

 

339

 

 

 

36

 

 

 

13,125

 

 

 

224

 

 

 

15

 

 

 

16,504

 

 

 

275

 

 

 

19

 

Other

 

 

3,598

 

 

 

72

 

 

 

3

 

 

 

17,717

 

 

 

178

 

 

 

27

 

 

 

3,119

 

 

 

85

 

 

 

3

 

 

 

3,598

 

 

 

72

 

 

 

3

 

Total

 

$

757,701

 

 

 

6,611

 

 

 

4,009

 

 

 

799,615

 

 

 

5,772

 

 

 

3,825

 

 

$

745,805

 

 

 

9,971

 

 

 

7,320

 

 

 

757,701

 

 

 

6,611

 

 

 

4,009

 

 

In accordance with the previously described policies, the Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans.  Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan.  Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. All larger- balance criticized commercial loans and commercial real estate loans are individually reviewed by centralized credit personnel each quarter to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing.  Smaller-balance criticized loans are analyzed by business line risk management areas to ensure proper loan grade classification.  Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance.

- 17 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

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

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

Real Estate

 

 

Commercial,

 

 

 

 

 

 

Residential

 

 

Other

 

 

Commercial,

 

 

 

 

 

 

Residential

 

 

Other

 

 

Financial,

 

 

 

 

 

 

Builder and

 

 

Commercial

 

 

Financial,

 

 

 

 

 

 

Builder and

 

 

Commercial

 

 

Leasing, etc.

 

 

Commercial

 

 

Developer

 

 

Construction

 

 

Leasing, etc.

 

 

Commercial

 

 

Developer

 

 

Construction

 

 

(In thousands)

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

21,036,982

 

 

 

24,589,201

 

 

 

1,660,537

 

 

 

5,609,985

 

 

$

20,484,737

 

 

 

24,525,402

 

 

 

1,505,502

 

 

 

6,654,458

 

Criticized accrual

 

 

996,897

 

 

 

741,986

 

 

 

83,595

 

 

 

175,701

 

 

 

950,193

 

 

 

664,723

 

 

 

138,473

 

 

 

98,435

 

Criticized nonaccrual

 

 

261,497

 

 

 

183,113

 

 

 

13,573

 

 

 

13,963

 

 

 

262,592

 

 

 

152,832

 

 

 

4,519

 

 

 

9,162

 

Total

 

$

22,295,376

 

 

 

25,514,300

 

 

 

1,757,705

 

 

 

5,799,649

 

 

$

21,697,522

 

 

 

25,342,957

 

 

 

1,648,494

 

 

 

6,762,055

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

21,398,581

 

 

 

24,570,269

 

 

 

1,789,071

 

 

 

5,912,351

 

 

$

20,490,486

 

 

 

24,380,184

 

 

 

1,485,148

 

 

 

6,270,812

 

Criticized accrual

 

 

950,032

 

 

 

741,274

 

 

 

116,548

 

 

 

165,862

 

 

 

1,011,174

 

 

 

723,777

 

 

 

140,119

 

 

 

164,812

 

Criticized nonaccrual

 

 

261,434

 

 

 

176,201

 

 

 

16,707

 

 

 

18,111

 

 

 

240,991

 

 

 

184,982

 

 

 

6,451

 

 

 

10,088

 

Total

 

$

22,610,047

 

 

 

25,487,744

 

 

 

1,922,326

 

 

 

6,096,324

 

 

$

21,742,651

 

 

 

25,288,943

 

 

 

1,631,718

 

 

 

6,445,712

 

 

In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance and recent loss experience and trends, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. Loss

- 15 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

rates on such loans are determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by the Company’s credit department. In arriving at such forecasts, the Company considers the current estimated fair value of its collateral based on geographical adjustments for home price depreciation/appreciation and overall borrower repayment performance. With regard to collateral values, the realizability of such values by the Company contemplates repayment of any first lien position prior to recovering amounts on a second lien position. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis giving consideration to estimated collateral values. The carrying value of residential real estate loans and home equity loans and lines of credit for which a partial charge-off has been recognized totaled $43$33 million and $30$25 million, respectively, at March 31, 20172018 and $44$34 million and $32$25 million, respectively, at December 31, 2016.2017. Residential real estate loans and home equity loans and lines of credit that were more than 150 days past due but did not require a partial charge-off because the net realizable value of the collateral exceeded the outstanding customer balance were $18$19 million and $39$29 million, respectively, at March 31, 20172018 and $16$20 million and $39$32 million, respectively, at December 31, 2016.2017.

The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition.  The determination of the allocated portion of the allowance for credit losses is very subjective.  Given that inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance.  The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance.  Therefore, the level of the unallocated portion of the allowance is primarily reflective of the inherent imprecision in the various calculations used in determining the allocated portion of the allowance for credit losses.  Other factors that could also lead to changes in the unallocated portion include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.

- 1816 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

The allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Total

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Total

 

 

(In thousands)

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

64,056

 

 

 

11,342

 

 

 

8,738

 

 

 

12,622

 

 

$

96,758

 

 

$

45,501

 

 

 

10,624

 

 

 

8,048

 

 

 

12,236

 

 

$

76,409

 

Collectively evaluated for impairment

 

 

283,704

 

 

 

346,795

 

 

 

49,902

 

 

 

140,550

 

 

 

820,951

 

 

 

280,570

 

 

 

357,093

 

 

 

51,093

 

 

 

161,605

 

 

 

850,361

 

Purchased impaired

 

 

 

 

 

1,873

 

 

 

3,372

 

 

 

 

 

 

5,245

 

 

 

 

 

 

 

 

 

13,906

 

 

 

 

 

 

13,906

 

Allocated

 

$

347,760

 

 

 

360,010

 

 

 

62,012

 

 

 

153,172

 

 

 

922,954

 

 

$

326,071

 

 

 

367,717

 

 

 

73,047

 

 

 

173,841

 

 

 

940,676

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78,995

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,001,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,019,671

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

48,480

 

 

 

12,500

 

 

 

9,457

 

 

 

12,543

 

 

$

82,980

 

 

$

45,488

 

 

 

10,095

 

 

 

7,900

 

 

 

12,279

 

 

$

75,762

 

Collectively evaluated for impairment

 

 

282,353

 

 

 

348,301

 

 

 

47,993

 

 

 

143,745

 

 

 

822,392

 

 

 

283,111

 

 

 

363,990

 

 

 

47,645

 

 

 

158,530

 

 

 

853,276

 

Purchased impaired

 

 

 

 

 

1,918

 

 

 

3,677

 

 

 

 

 

 

5,595

 

 

 

 

 

 

 

 

 

9,860

 

 

 

 

 

 

9,860

 

Allocated

 

$

330,833

 

 

 

362,719

 

 

 

61,127

 

 

 

156,288

 

 

 

910,967

 

 

$

328,599

 

 

 

374,085

 

 

 

65,405

 

 

 

170,809

 

 

 

938,898

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78,300

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

988,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,017,198

 

 

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology was as follows:

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

Commercial,

Financial,

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Total

 

 

Leasing, etc.

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

Total

 

 

(In thousands)

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

269,547

 

 

 

224,033

 

 

 

202,411

 

 

 

65,741

 

 

$

761,732

 

 

$

287,721

 

 

 

191,999

 

 

 

210,671

 

 

 

64,870

 

 

$

755,261

 

Collectively evaluated for impairment

 

 

22,024,004

 

 

 

32,794,553

 

 

 

21,024,038

 

 

 

12,155,740

 

 

 

87,998,335

 

 

 

21,409,799

 

 

 

33,548,212

 

 

 

18,385,572

 

 

 

13,233,905

 

 

 

86,577,488

 

Purchased impaired

 

 

1,825

 

 

 

53,068

 

 

 

498,042

 

 

 

 

 

 

552,935

 

 

 

2

 

 

 

13,295

 

 

 

364,703

 

 

 

 

 

 

378,000

 

Total

 

$

22,295,376

 

 

 

33,071,654

 

 

 

21,724,491

 

 

 

12,221,481

 

 

$

89,313,002

 

 

$

21,697,522

 

 

 

33,753,506

 

 

 

18,960,946

 

 

 

13,298,775

 

 

$

87,710,749

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

268,877

 

 

 

224,630

 

 

 

201,479

 

 

 

65,466

 

 

$

760,452

 

 

$

266,376

 

 

 

226,205

 

 

 

202,163

 

 

 

65,565

 

 

$

760,309

 

Collectively evaluated for impairment

 

 

22,340,529

 

 

 

33,222,080

 

 

 

21,871,726

 

 

 

12,080,597

 

 

 

89,514,932

 

 

 

21,476,254

 

 

 

33,117,512

 

 

 

19,023,843

 

 

 

13,201,050

 

 

 

86,818,659

 

Purchased impaired

 

 

641

 

 

 

59,684

 

 

 

517,707

 

 

 

 

 

 

578,032

 

 

 

21

 

 

 

22,656

 

 

 

387,338

 

 

 

 

 

 

410,015

 

Total

 

$

22,610,047

 

 

 

33,506,394

 

 

 

22,590,912

 

 

 

12,146,063

 

 

$

90,853,416

 

 

$

21,742,651

 

 

 

33,366,373

 

 

 

19,613,344

 

 

 

13,266,615

 

 

$

87,988,983

 

 

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

- 1917 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

The table that follows summarizes the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended March 31, 20172018 and 2016:2017:

 

 

 

 

 

 

 

 

 

 

Post-modification (a)

 

 

 

 

 

 

 

 

 

 

Post-modification (a)

 

 

Number

 

 

Pre-

modification recorded investment

 

 

Principal Deferral

 

 

Interest Rate Reduction

 

 

Other

 

 

Combination of Concession Types

 

 

Total

 

Three Months Ended March 31, 2018

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

56

 

 

$

47,994

 

 

$

35,673

 

 

$

624

 

 

$

 

 

$

13,047

 

 

$

49,344

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

20

 

 

 

6,780

 

 

 

5,824

 

 

 

 

 

 

 

 

 

927

 

 

 

6,751

 

Other commercial construction

 

1

 

 

 

752

 

 

 

746

 

 

 

 

 

 

 

 

 

 

 

 

746

 

Residential

 

47

 

 

 

12,636

 

 

 

6,945

 

 

 

 

 

 

 

 

 

6,902

 

 

 

13,847

 

Residential — limited documentation

 

2

 

 

 

295

 

 

 

267

 

 

 

 

 

 

 

 

 

118

 

 

 

385

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

14

 

 

 

1,348

 

 

 

4

 

 

 

 

 

 

 

 

 

1,348

 

 

 

1,352

 

Automobile

 

8

 

 

 

148

 

 

 

148

 

 

 

 

 

 

 

 

 

 

 

 

148

 

Other

 

2

 

 

 

49

 

 

 

49

 

 

 

 

 

 

 

 

 

 

 

 

49

 

Total

 

 

150

 

 

$

70,002

 

 

$

49,656

 

 

$

624

 

 

$

 

 

$

22,342

 

 

$

72,622

 

 

Number

 

 

Pre-

modification recorded investment

 

 

Principal Deferral

 

 

Other

 

 

Combination of Concession Types

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2017

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

50

 

 

$

11,921

 

 

$

4,389

 

 

$

806

 

 

$

2,728

 

 

$

7,923

 

 

 

50

 

 

$

11,921

 

 

$

4,389

 

 

$

 

 

$

806

 

 

$

2,728

 

 

$

7,923

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

20

 

 

 

6,702

 

 

 

2,991

 

 

 

 

 

 

3,606

 

 

 

6,597

 

 

 

20

 

 

 

6,702

 

 

 

2,991

 

 

 

 

 

 

 

 

 

3,606

 

 

 

6,597

 

Residential builder and developer

 

3

 

 

 

12,291

 

 

 

 

 

 

 

 

 

10,879

 

 

 

10,879

 

 

 

3

 

 

 

12,291

 

 

 

 

 

 

 

 

 

 

 

 

10,879

 

 

 

10,879

 

Other commercial construction

 

1

 

 

 

102

 

 

 

102

 

 

 

 

 

 

 

 

 

102

 

 

 

1

 

 

 

102

 

 

 

102

 

 

 

 

 

 

 

 

 

 

 

 

102

 

Residential

 

41

 

 

 

9,380

 

 

 

5,593

 

 

 

 

 

 

4,355

 

 

 

9,948

 

 

 

41

 

 

 

9,380

 

 

 

5,593

 

 

 

 

 

 

 

 

 

4,355

 

 

 

9,948

 

Residential — limited documentation

 

6

 

 

 

1,378

 

 

 

-

 

 

 

 

 

 

1,525

 

 

 

1,525

 

 

 

6

 

 

 

1,378

 

 

 

 

 

 

 

 

 

 

 

 

1,525

 

 

 

1,525

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

25

 

 

 

2,502

 

 

 

163

 

 

 

491

 

 

 

1,848

 

 

 

2,502

 

 

 

25

 

 

 

2,502

 

 

 

163

 

 

 

 

 

 

491

 

 

 

1,848

 

 

 

2,502

 

Automobile

 

20

 

 

 

390

 

 

 

383

 

 

 

 

 

 

7

 

 

 

390

 

 

 

20

 

 

 

390

 

 

 

383

 

 

 

 

 

 

 

 

 

7

 

 

 

390

 

Other

 

2

 

 

 

26

 

 

 

26

 

 

 

 

 

 

 

 

 

26

 

 

 

2

 

 

 

26

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

26

 

Total

 

 

168

 

 

$

44,692

 

 

$

13,647

 

 

$

1,297

 

 

$

24,948

 

 

$

39,892

 

 

 

168

 

 

$

44,692

 

 

$

13,647

 

 

$

 

 

$

1,297

 

 

$

24,948

 

 

$

39,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

 

31

 

 

$

17,728

 

 

$

12,721

 

 

$

 

 

$

5,952

 

 

$

18,673

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

21

 

 

 

7,416

 

 

 

3,448

 

 

 

 

 

 

3,924

 

 

 

7,372

 

Residential

 

 

27

 

 

 

4,302

 

 

 

2,191

 

 

 

 

 

 

2,369

 

 

 

4,560

 

Residential — limited documentation

 

 

6

 

 

 

1,437

 

 

 

138

 

 

 

 

 

 

1,379

 

 

 

1,517

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines and loans

 

 

26

 

 

 

2,831

 

 

 

335

 

 

 

 

 

 

2,496

 

 

 

2,831

 

Automobile

 

 

72

 

 

 

644

 

 

 

521

 

 

 

38

 

 

 

85

 

 

 

644

 

Other

 

 

36

 

 

 

546

 

 

 

374

 

 

 

25

 

 

 

147

 

 

 

546

 

Total

 

 

219

 

 

$

34,904

 

 

$

19,728

 

 

$

63

 

 

$

16,352

 

 

$

36,143

 

(a)

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

- 2018 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

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

Troubled debt restructurings are considered to be impaired loans and for purposes of establishing the allowance for credit losses are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.  Impairment of troubled debt restructurings that have subsequently defaulted may also be measured based on the loan’s observable market price or the fair value of collateral if the loan is collateral-dependent.  Charge-offs may also be recognized on troubled debt restructurings that have subsequently defaulted.  Loans that were modified as troubled debt restructurings during the twelve months ended March 31, 20172018 and 20162017 and for which there was a subsequent payment default during the three-month periods ended March  31, 20172018 and 2016,2017, respectively, were not material.

The amount of foreclosed residential real estate property held by the Company totaled $112was $100 million and $129$108 million at March 31, 20172018 and December 31, 2016,2017, respectively.  There were $538$458 million and $506$497 million at March 31, 20172018 and December 31, 2016,2017, respectively, in loans secured by residential real estate that were in the process of foreclosure. Of all loans in the process of foreclosure at March 31, 2017,2018, approximately 53%41% were classified as purchased impaired and 20%21% were government guaranteed.

 

 

5.4. Borrowings

During January 2018, M&T Bank, the principal subsidiary of M&T, issued $1.0 billion of senior notes that mature in January 2021 pursuant to a Bank Note Program, of which $650 million have a 2.625% fixed interest rate and $350 million have a variable rate paid quarterly at rates that are indexed to the three-month London Interbank Offered Rate (“LIBOR”).  

M&T had $517$520 million of fixed and variable rate junior subordinated deferrable interest debentures ("Junior Subordinated Debentures") outstanding at March 31, 20172018 that are held by various trusts that were issued in connection with the issuance by those trusts of preferred capital securities ("Capital Securities") and common securities ("Common Securities").  The proceeds from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures.  The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust's securities possessing general voting powers.  The Capital Securities represent preferred undivided interests in the assets of the corresponding trust. Under the Federal Reserve Board’s risk-based capital guidelines, the securities are includable in M&T’s Tier 2 regulatory capital.

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

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

- 19 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

4. Borrowings, continued

at any time after an optional redemption prior to contractual maturity contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part, subject to possible regulatory approval.

- 21 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

5. Borrowings, continued

Also included in long-term borrowings are agreements to repurchase securities of $431$419 million and $1.1 billion$422 million at March 31, 20172018 and December 31, 2016,2017, respectively.  The agreements reflect various repurchase dates through 2020, however, the contractual maturities of the underlying investment securities extend beyond such repurchase dates.  The agreements are subject to legally enforceable master netting arrangements, however, the Company has not offset any amounts related to these agreements in its consolidated financial statements.  The Company posted collateral consisting primarily of government guaranteed mortgage-backed securities of $452$436 million and $1.1 billion$442 million at March 31, 20172018 and December 31, 2016,2017, respectively.

 

 

6.5. Shareholders' equity

M&T is authorized to issue 1,000,000 shares of preferred stock with a $1.00 par value per share.  Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference, but have no general voting rights.

Issued and outstanding preferred stock of M&T as of March 31, 20172018 and December 31, 20162017 is presented below:

 

 

Shares

Issued and

Outstanding

 

 

Carrying Value

 

 

Shares

Issued and

Outstanding

 

 

Carrying Value

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Series A (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate Cumulative Perpetual Preferred Stock, $1,000

liquidation preference per share

 

 

230,000

 

 

$

230,000

 

 

 

230,000

 

 

$

230,000

 

Series C (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate Cumulative Perpetual Preferred Stock, $1,000

liquidation preference per share

 

 

151,500

 

 

$

151,500

 

 

 

151,500

 

 

$

151,500

 

Series E (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-to-Floating Rate Non-cumulative Perpetual Preferred Stock,

$1,000 liquidation preference per share

 

 

350,000

 

 

$

350,000

 

 

 

350,000

 

 

$

350,000

 

Series F (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-to-Floating Rate Non-cumulative Perpetual Preferred Stock,

$10,000 liquidation preference per share

 

 

50,000

 

 

$

500,000

 

 

 

50,000

 

 

$

500,000

 

 

(a)

Dividends, if declared, are paid at 6.375%.  Warrants to purchase M&T common stock at $73.84$73.75 per share issued in connection with the Series A preferred stock expire inon December 23, 2018 and totaled 544,279220,034 at March 31, 2017.2018.

(b)

Dividends, if declared, are paid semi-annually at a rate of 6.45% through February 14, 2024 and thereafter will be paid quarterly at a rate of the three-month LIBOR plus 361 basis points (hundredths of one percent).points.  The shares are redeemable in whole or in part on or after February 15, 2024.  Notwithstanding M&T’s option to redeem the shares, if an event occurs such that the shares no longer qualify as Tier 1 capital, M&T may redeem all of the shares within 90 days following that occurrence.

(c)

Dividends, if declared, are paid semi-annually at a rate of 5.125% through October 31, 2026 and thereafter will be paid quarterly at a rate of the three-month LIBOR plus 352 basis points.  The shares are redeemable in whole or in part on or after November 1, 2026.  Notwithstanding M&T’s option to redeem the shares, if an event occurs such that the shares no longer qualify as Tier 1 capital, M&T may redeem all of the shares within 90 days following that occurrence.

In addition to the Series A warrants mentioned in (a) above, a warrant to purchase 95,41095,525 shares of M&T common stock at $518.81$518.18 per share was outstanding at March 31, 2017.2018.  The obligation under that warrant was assumed by M&T in an acquisition and expires inon December 12, 2018.

- 2220 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

7.6. Pension plans and other postretirement benefits

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

 

 

Pension

Benefits

 

 

Other

Postretirement

Benefits

 

 

Pension

Benefits

 

 

Other

Postretirement

Benefits

 

 

Three Months Ended March 31

 

 

Three Months Ended March 31

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

4,908

 

 

 

6,382

 

 

 

383

 

 

458

 

 

$

5,103

 

 

 

4,908

 

 

 

226

 

 

383

 

Interest cost on projected benefit obligation

 

 

19,691

 

 

 

20,883

 

 

 

1,080

 

 

 

1,205

 

 

 

18,805

 

 

 

19,691

 

 

 

557

 

 

 

1,080

 

Expected return on plan assets

 

 

(27,200

)

 

 

(27,814

)

 

 

 

 

 

 

 

 

(30,875

)

 

 

(27,200

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

125

 

 

 

(825

)

 

 

(350

)

 

 

(350

)

 

 

125

 

 

 

125

 

 

 

(1,175

)

 

 

(350

)

Amortization of net actuarial loss

 

 

6,800

 

 

 

8,300

 

 

 

(25

)

 

 

 

 

 

11,100

 

 

 

6,800

 

 

 

(200

)

 

 

(25

)

Net periodic benefit cost

 

$

4,324

 

 

 

6,926

 

 

 

1,088

 

 

 

1,313

 

 

$

4,258

 

 

 

4,324

 

 

 

(592

)

 

 

1,088

 

 

 

ExpenseService cost is reflected in salaries and employee benefits expense. The other components of net periodic benefit cost are reflected in other costs of operations. Expenses incurred in connection with the Company's defined contribution pension and retirement savings plans totaled $19,419,000$21,274,000 and $17,690,000$19,419,000 for the three months ended March 31, 2018 and 2017, respectively, and 2016, respectively.are included in salaries and employee benefits expense.

 

 

8.7. Earnings per common share

The computations of basic earnings per common share follow:

 

 

Three Months Ended March 31

 

 

Three Months Ended March 31

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

(In thousands, except per share)

 

 

(In thousands, except per share)

 

Income available to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

348,927

 

 

 

298,528

 

 

$

352,610

 

 

 

348,927

 

Less: Preferred stock dividends (a)

 

 

(18,237

)

 

 

(20,318

)

 

 

(18,130

)

 

 

(18,237

)

Net income available to common equity

 

 

330,690

 

 

 

278,210

 

 

 

334,480

 

 

 

330,690

 

Less: Income attributable to unvested stock-based

compensation awards

 

 

(2,128

)

 

 

(2,466

)

 

 

(1,732

)

 

 

(2,128

)

Net income available to common shareholders

 

$

328,562

 

 

 

275,744

 

 

$

332,748

 

 

 

328,562

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding (including common stock

issuable) and unvested stock-based compensation awards

 

 

155,463

 

 

 

160,220

 

 

 

149,470

 

 

 

155,463

 

Less: Unvested stock-based compensation awards

 

 

(1,036

)

 

 

(1,486

)

 

 

(782

)

 

 

(1,036

)

Weighted-average shares outstanding

 

 

154,427

 

 

 

158,734

 

 

 

148,688

 

 

 

154,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

2.13

 

 

 

1.74

 

 

$

2.24

 

 

 

2.13

 

 

 (a)Including impact of not as yet declared cumulative dividends.

- 2321 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

8.7. Earnings per common share, continued

The computations of diluted earnings per common share follow:

 

 

Three Months Ended March 31

 

 

Three Months Ended March 31

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

(In thousands, except per share)

 

 

(In thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common equity

 

$

330,690

 

 

 

278,210

 

 

$

334,480

 

 

 

330,690

 

Less: Income attributable to unvested stock-based

compensation awards

 

 

(2,123

)

 

 

(2,462

)

 

 

(1,731

)

 

 

(2,123

)

Net income available to common shareholders

 

$

328,567

 

 

 

275,748

 

 

$

332,749

 

 

 

328,567

 

Adjusted weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common and unvested stock-based compensation awards

 

 

155,463

 

 

 

160,220

 

 

 

149,470

 

 

 

155,463

 

Less: Unvested stock-based compensation awards

 

 

(1,036

)

 

 

(1,486

)

 

 

(782

)

 

 

(1,036

)

Plus: Incremental shares from assumed conversion of

stock-based compensation awards and warrants to

purchase common stock

 

 

522

 

 

 

447

 

 

 

217

 

 

 

522

 

Adjusted weighted-average shares outstanding

 

 

154,949

 

 

 

159,181

 

 

 

148,905

 

 

 

154,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

2.12

 

 

 

1.73

 

 

$

2.23

 

 

 

2.12

 

 

GAAP defines unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities that shall be included in the computation of earnings per common share pursuant to the two-class method.  The Company has issued stock-based compensation awards in the form of restricted stock and restricted stock units which, in accordance with GAAP, are considered participating securities.

Stock-based compensation awards and warrants to purchase common stock of M&T representing 391,764237,584 and 2,840,575391,764 common shares during the three-month periods ended March 31, 20172018 and 2016,2017, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.

 

- 2422 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

9.8. Comprehensive income

The following tables display the components of other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income (loss) to net income:

 

 

 

 

 

 

Investment

 

 

Defined Benefit

 

 

 

 

 

 

Total

Amount

 

 

 

Income

 

 

 

 

 

 

 

 

 

 

Securities (a)

 

 

Plans

 

 

Other

 

 

Before Tax

 

 

 

Tax

 

 

Net

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2018

 

 

 

 

 

$

(59,957

)

 

 

(413,168

)

 

 

(20,165

)

 

$

(493,290

)

 

 

 

129,476

 

 

$

(363,814

)

Cumulative effect of change in accounting principle — equity

securities

 

 

 

 

 

 

(22,795

)

 

 

 

 

 

 

 

 

(22,795

)

 

 

 

5,942

 

 

 

(16,853

)

Other comprehensive income before reclassifications:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses), net

 

 

 

 

 

 

(145,457

)

 

 

 

 

 

 

 

 

(145,457

)

 

 

 

44,176

 

 

 

(101,281

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

1,632

 

 

 

1,632

 

 

 

 

(342

)

 

 

1,290

 

Unrealized losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

(14,719

)

 

 

(14,719

)

 

 

 

3,870

 

 

 

(10,849

)

Total other comprehensive income (loss) before

reclassifications

 

 

 

 

 

 

(145,457

)

 

 

 

 

 

(13,087

)

 

 

(158,544

)

 

 

 

47,704

 

 

 

(110,840

)

Amounts reclassified from accumulated other

comprehensive income that (increase) decrease

net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on

held-to-maturity (“HTM”) securities

 

 

 

 

 

 

810

 

 

 

 

 

 

 

 

 

810

 

(c)

 

 

(213

)

 

 

597

 

Accretion of net gain on terminated cash flow

hedges

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

 

 

(28

)

(d)

 

 

7

 

 

 

(21

)

Net yield adjustment from cash flow

hedges currently in effect

 

 

 

 

 

 

 

 

 

 

 

 

580

 

 

 

580

 

(d)

 

 

(152

)

 

 

428

 

Amortization of prior service credit

 

 

 

 

 

 

 

 

 

(1,050

)

 

 

 

 

 

(1,050

)

(e)

 

 

276

 

 

 

(774

)

Amortization of actuarial losses

 

 

 

 

 

 

 

 

 

10,900

 

 

 

 

 

 

10,900

 

(e)

 

 

(2,866

)

 

 

8,034

 

Total other comprehensive income (loss)

 

 

 

 

 

 

(144,647

)

 

 

9,850

 

 

 

(12,535

)

 

 

(147,332

)

 

 

 

44,756

 

 

 

(102,576

)

Balance — March 31, 2018

 

 

 

 

 

$

(227,399

)

 

 

(403,318

)

 

 

(32,700

)

 

$

(663,417

)

 

 

 

180,174

 

 

$

(483,243

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities

 

 

Defined

Benefit

 

 

 

 

 

 

Total

Amount

 

 

 

Income

 

 

 

 

 

 

Investment Securities

 

 

Defined

Benefit

 

 

 

 

 

 

Total

Amount

 

 

 

Income

 

 

 

 

 

 

With OTTI (a)

 

 

All Other

 

 

Plans

 

 

Other

 

 

Before Tax

 

 

 

Tax

 

 

Net

 

 

With OTTI (b)

 

 

All Other

 

 

Plans

 

 

Other

 

 

Before Tax

 

 

 

Tax

 

 

Net

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2017

 

$

46,725

 

 

 

(73,785

)

 

 

(449,917

)

 

 

(8,268

)

 

$

(485,245

)

 

 

 

190,609

 

 

$

(294,636

)

 

$

46,725

 

 

 

(73,785

)

 

 

(449,917

)

 

 

(8,268

)

 

$

(485,245

)

 

 

 

190,609

 

 

$

(294,636

)

Other comprehensive income before reclassifications:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses), net

 

 

(8,628

)

 

 

5,613

 

 

 

 

 

 

 

 

 

(3,015

)

 

 

 

1,182

 

 

 

(1,833

)

 

 

(8,628

)

 

 

5,613

 

 

 

 

 

 

 

 

 

(3,015

)

 

 

 

1,182

 

 

 

(1,833

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

732

 

 

 

732

 

 

 

 

(256

)

 

 

476

 

 

 

 

 

 

 

 

 

 

 

 

732

 

 

 

732

 

 

 

 

(256

)

 

 

476

 

Total other comprehensive income (loss) before

reclassifications

 

 

(8,628

)

 

 

5,613

 

 

 

 

 

 

732

 

 

 

(2,283

)

 

 

 

926

 

 

 

(1,357

)

 

 

(8,628

)

 

 

5,613

 

 

 

 

 

 

732

 

 

 

(2,283

)

 

 

 

926

 

 

 

(1,357

)

Amounts reclassified from accumulated other

comprehensive income that (increase) decrease

net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on

held-to-maturity (“HTM”) securities

 

 

 

 

 

787

 

 

 

 

 

 

 

 

 

787

 

(b)

 

 

(310

)

 

 

477

 

Amortization of unrealized holding losses on

HTM securities

 

 

 

 

 

787

 

 

 

 

 

 

 

 

 

787

 

(c)

 

 

(310

)

 

 

477

 

Accretion of net gain on terminated cash flow

hedges

 

 

 

 

 

 

 

 

 

 

 

(39

)

 

 

(39

)

(d)

 

 

16

 

 

 

(23

)

 

 

 

 

 

 

 

 

 

 

 

(39

)

 

 

(39

)

(d)

 

 

16

 

 

 

(23

)

Amortization of prior service credit

 

 

 

 

 

 

 

 

(225

)

 

 

 

 

 

(225

)

(e)

 

 

88

 

 

 

(137

)

 

 

 

 

 

 

 

 

(225

)

 

 

 

 

 

(225

)

(e)

 

 

88

 

 

 

(137

)

Amortization of actuarial losses

 

 

 

 

 

 

 

 

6,775

 

 

 

 

 

 

6,775

 

(e)

 

 

(2,666

)

 

 

4,109

 

 

 

 

 

 

 

 

 

6,775

 

 

 

 

 

 

6,775

 

(e)

 

 

(2,666

)

 

 

4,109

 

Total reclassifications

 

 

 

 

 

787

 

 

 

6,550

 

 

 

(39

)

 

 

7,298

 

 

 

 

(2,872

)

 

 

4,426

 

Total gain (loss) during the period

 

 

(8,628

)

 

 

6,400

 

 

 

6,550

 

 

 

693

 

 

 

5,015

 

 

 

 

(1,946

)

 

 

3,069

 

Total other comprehensive income (loss)

 

 

(8,628

)

 

 

6,400

 

 

 

6,550

 

 

 

693

 

 

 

5,015

 

 

 

 

(1,946

)

 

 

3,069

 

Balance — March 31, 2017

 

$

38,097

 

 

 

(67,385

)

 

 

(443,367

)

 

 

(7,575

)

 

 

(480,230

)

 

 

 

188,663

 

 

$

(291,567

)

 

$

38,097

 

 

 

(67,385

)

 

 

(443,367

)

 

 

(7,575

)

 

$

(480,230

)

 

 

 

188,663

 

 

$

(291,567

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2016

 

$

16,359

 

 

 

62,849

 

 

 

(489,660

)

 

 

(4,093

)

 

$

(414,545

)

 

 

 

162,918

 

 

$

(251,627

)

Other comprehensive income before reclassifications:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses), net

 

 

(370

)

 

 

159,660

 

 

 

 

 

 

 

 

 

159,290

 

 

 

 

(62,680

)

 

 

96,610

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(83

)

 

 

(83

)

 

 

 

30

 

 

 

(53

)

Total other comprehensive income (loss) before

reclassifications

 

 

(370

)

 

 

159,660

 

 

 

 

 

 

(83

)

 

 

159,207

 

 

 

 

(62,650

)

 

 

96,557

 

Amounts reclassified from accumulated other

comprehensive income that (increase) decrease

net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized holding losses on

HTM securities

 

 

 

 

 

968

 

 

 

 

 

 

 

 

 

968

 

(b)

 

 

(381

)

 

 

587

 

Gains realized in net income

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

(c)

 

 

1

 

 

 

(3

)

Accretion of net gain on terminated cash flow

hedges

 

 

 

 

 

 

 

 

 

 

 

(39

)

 

 

(39

)

(d)

 

 

15

 

 

 

(24

)

Amortization of prior service credit

 

 

 

 

 

 

 

 

(1,175

)

 

 

 

 

 

(1,175

)

(e)

 

 

462

 

 

 

(713

)

Amortization of actuarial losses

 

 

 

 

 

 

 

 

8,300

 

 

 

 

 

 

8,300

 

(e)

 

 

(3,266

)

 

 

5,034

 

Total reclassifications

 

 

 

 

 

964

 

 

 

7,125

 

 

 

(39

)

 

 

8,050

 

 

 

 

(3,169

)

 

 

4,881

 

Total gain (loss) during the period

 

 

(370

)

 

 

160,624

 

 

 

7,125

 

 

 

(122

)

 

 

167,257

 

 

 

 

(65,819

)

 

 

101,438

 

Balance — March 31, 2016

 

$

15,989

 

 

 

223,473

 

 

 

(482,535

)

 

 

(4,215

)

 

$

(247,288

)

 

 

 

97,099

 

 

$

(150,189

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Other-than-temporaryBeginning January 1, 2018, equity securities with readily determinable fair values are required to be measured at fair value with changes in fair value recognized in the income statement. All investment securities with an other-than-temporary impairment charge are within scope of the adopted accounting guidance and no longer require separate presentation.

(b)

Included in interest incomeOther-than-temporary impairment

(c)

Included in gain on bank investment securitiesinterest income

(d)

Included in interest expense

(e)

Included in salaries and employee benefits expenseother costs of operations

 

- 2523 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

9.8. Comprehensive income, continued

 

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

 

 

 

Investment Securities

 

 

Defined

Benefit

 

 

 

 

 

 

 

 

 

 

 

With OTTI

 

 

All Other

 

 

Plans

 

 

Other

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2016

 

$

28,338

 

 

 

(44,657

)

 

 

(272,874

)

 

 

(5,443

)

 

$

(294,636

)

Net gain (loss) during period

 

 

(5,232

)

 

 

3,876

 

 

 

3,972

 

 

 

453

 

 

 

3,069

 

Balance — March 31, 2017

 

$

23,106

 

 

 

(40,781

)

 

 

(268,902

)

 

 

(4,990

)

 

$

(291,567

)

 

 

Investment

 

 

Defined

Benefit

 

 

 

 

 

 

 

 

 

 

 

Securities

 

 

Plans

 

 

Other

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — December 31, 2017

 

$

(44,150

)

 

 

(304,546

)

 

 

(15,118

)

 

$

(363,814

)

Cumulative effect of change in accounting principle — equity securities

 

 

(16,853

)

 

 

 

 

 

 

 

 

(16,853

)

Net gain (loss) during period

 

 

(100,684

)

 

 

7,260

 

 

 

(9,152

)

 

 

(102,576

)

Balance — March 31, 2018

 

$

(161,687

)

 

 

(297,286

)

 

 

(24,270

)

 

$

(483,243

)

 

10.

9. Derivative financial instruments

As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities.  The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges.  Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk inherent in these contracts was not significant as of March 31, 2017.2018.

TheExclusive of the impact of hedge ineffectiveness (which was not material), the net effect of interest rate swap agreements was to increase net interest income by $4$1 million and $10$4 million for the three-month periods ended March 31, 2018 and 2017, and 2016, respectively.

- 24 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

9. Derivative financial instruments, continued

Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:

 

 

 

Notional

 

 

Average

 

 

Weighted-

Average Rate

 

 

Estimated Fair

 

 

 

Amount

 

 

Maturity

 

 

Fixed

 

 

Variable

 

 

Value Gain

 

 

 

(In thousands)

 

 

(In years)

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (a)

 

$

900,000

 

 

 

.8

 

 

 

3.75

%

 

 

2.24

%

 

$

7,773

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (a)

 

$

900,000

 

 

 

1.1

 

 

 

3.75

%

 

 

2.08

%

 

$

11,892

 

 

 

Notional

 

 

Average

 

 

Weighted-

Average Rate

 

 

Estimated Fair

 

 

 

Amount

 

 

Maturity

 

 

Fixed

 

 

Variable

 

 

Value Gain (a)

 

 

 

(In thousands)

 

 

(In years)

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (b)

 

$

4,700,000

 

 

 

3.0

 

 

 

2.41

%

 

 

2.48

%

 

$

316

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Interest payments on variable rate

         commercial real estate loans (b)(c)

 

 

4,850,000

 

 

 

1.7

 

 

 

1.52

%

 

 

1.66

%

 

 

60

 

     Total

 

$

9,550,000

 

 

 

2.5

 

 

 

 

 

 

 

 

 

 

$

376

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (b)

 

$

4,550,000

 

 

 

2.9

 

 

 

2.27

%

 

 

2.09

%

 

$

573

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Interest payments on variable rate

         commercial real estate loans (b)(c)

 

 

4,850,000

 

 

 

2.0

 

 

 

1.52

%

 

 

1.36

%

 

 

66

 

     Total

 

$

9,400,000

 

 

 

2.5

 

 

 

 

 

 

 

 

 

 

$

639

 

(a)

Certain clearinghouse exchanges consider payments by counterparties for variation margin on derivative instruments to be settlements of those positions. The impact of such treatment at March 31, 2018 and December 31, 2017 was a reduction of the estimated fair value losses on interest rate swap agreements designated as fair value hedges of $83.2 million and $41.1 million, respectively, and on interest rate swap agreements designated as cash flow hedges of $30.4 million and $16.3 million, respectively.

(b)

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

(c)

Includes notional amount and terms of $2.0 billion of forward-starting interest rate swap agreements that will become effective upon maturity in 2019 of $2.0 billion of agreements currently in effect.

The Company utilizes commitments to sell residential and commercial real estate loans to hedge the exposure to changes in the fair value of real estate loans held for sale.  Such commitments have generally been designated as fair value hedges. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in fair value of certain commitments to originate real estate loans for sale.

Derivative financial instruments used for trading account purposes included interest rate contracts, foreign exchange and other option contracts, foreign exchange forward and spot contracts, and financial futures. Interest rate contracts entered into for trading account purposes had notional values of $22.3$39.5 billion and $21.6$29.9 billion at March 31, 20172018 and December 31, 2016,2017, respectively.  The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes aggregated $496$538 million and $471$530 million at March 31, 20172018 and December 31, 2016,2017, respectively.

- 2625 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

10.9. Derivative financial instruments, continued

Information about the fair values of derivative instruments in the Company’s consolidated balance sheet and consolidated statement of income follows:

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Fair Value

 

 

Fair Value

 

 

Fair Value

 

 

Fair Value

 

 

March 31, 2017

 

 

December 31, 2016

 

 

March 31, 2017

 

 

December 31, 2016

 

 

March 31, 2018

 

 

December 31, 2017

 

 

March 31, 2018

 

 

December 31, 2017

 

 

(In thousands)

 

 

(In thousands)

 

Derivatives designated and qualifying as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements (a)

 

$

7,773

 

 

 

11,892

 

 

$

 

 

 

 

 

$

376

 

 

$

639

 

 

$

 

 

$

 

Commitments to sell real estate loans (a)

 

 

825

 

 

 

33,189

 

 

 

2,321

 

 

 

1,347

 

 

 

1,335

 

 

 

734

 

 

 

1,470

 

 

 

283

 

 

 

8,598

 

 

 

45,081

 

 

 

2,321

 

 

 

1,347

 

 

 

1,711

 

 

 

1,373

 

 

 

1,470

 

 

 

283

 

Derivatives not designated and qualifying as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-related commitments to originate real estate loans for sale (a)

 

 

16,847

 

 

 

8,060

 

 

 

645

 

 

 

735

 

 

 

10,562

 

 

 

8,797

 

 

 

1,802

 

 

 

494

 

Commitments to sell real estate loans (a)

 

 

4,126

 

 

 

5,210

 

 

 

1,582

 

 

 

399

 

 

 

5,361

 

 

 

2,526

 

 

 

2,341

 

 

 

1,019

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (b)

 

 

109,996

 

 

 

228,810

 

 

 

134,919

 

 

 

167,737

 

 

 

71,930

 

 

 

74,164

 

 

 

231,254

 

 

 

132,104

 

Foreign exchange and other option and futures contracts (b)

 

 

4,632

 

 

 

7,908

 

 

 

3,776

 

 

 

6,639

 

 

 

6,634

 

 

 

5,657

 

 

 

5,580

 

 

 

5,286

 

 

 

135,601

 

 

 

249,988

 

 

 

140,922

 

 

 

175,510

 

 

 

94,487

 

 

 

91,144

 

 

 

240,977

 

 

 

138,903

 

Total derivatives

 

$

144,199

 

 

 

295,069

 

 

$

143,243

 

 

 

176,857

 

 

$

96,198

 

 

$

92,517

 

 

$

242,447

 

 

$

139,186

 

(a)

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

(b)

Asset derivatives are reported in trading account assets and liability derivatives are reported in other liabilities.  The impact of variation margin payments at March 31, 2018 and December 31, 2017 was a reduction of the estimated fair value of interest rate contracts in the trading account in an asset position of $235.6 million and $136.2 million, respectively, and in a liability position of $6.2 million and $12.2 million, respectively.

 

 

Amount of Gain (Loss) Recognized

 

 

Amount of Gain (Loss) Recognized

 

 

Three Months Ended March 31, 2017

 

 

Three Months Ended March 31, 2016

 

 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 31, 2017

 

 

Derivative

 

 

Hedged Item

 

 

Derivative

 

 

Hedged Item

 

 

Derivative

 

 

Hedged Item

 

 

Derivative

 

 

Hedged Item

 

 

(In thousands)

 

 

(In thousands)

 

Derivatives in fair value hedging relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate long-term borrowings (a)

 

$

(4,119

)

 

 

4,012

 

 

$

(2,633

)

 

 

1,870

 

 

$

(42,390

)

 

 

42,370

 

 

$

(4,119

)

 

 

4,012

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (b)

 

$

1,950

 

 

 

 

 

 

$

974

 

 

 

 

 

 

$

(1,605

)

 

 

 

 

 

$

1,950

 

 

 

 

 

Foreign exchange and other option and futures contracts (b)

 

 

1,836

 

 

 

 

 

 

 

1,212

 

 

 

 

 

 

 

2,631

 

 

 

 

 

 

 

1,836

 

 

 

 

 

Total

 

$

3,786

 

 

 

 

 

 

$

2,186

 

 

 

 

 

 

$

1,026

 

 

 

 

 

 

$

3,786

 

 

 

 

 

 

(a)

ReportedEffective January 1, 2018, reported as an adjustment to interest expense. Prior to 2018, reported as other revenues from operations.  

 

(b)

Reported as trading account and foreign exchange gains.  

- 2726 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

10.9. Derivative financial instruments, continued

 

 

Carrying Amount of the Hedged Item

 

 

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

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Location in the Consolidated Balance Sheet of

   the Hedged Items in Fair Value Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

4,612,063

 

 

$

4,504,029

 

 

$

(82,503

)

 

$

(40,133

)

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

The Company also has commitments to sell and commitments to originate residential and commercial real estate loans that are considered derivatives.  The Company designates certain of the commitments to sell real estate loans as fair value hedges of real estate loans held for sale.  The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in the fair value of certain commitments to originate real estate loans for sale.  As a result of these activities, net unrealized pre-tax gains related to hedged loans held for sale, commitments to originate loans for sale and commitments to sell loans were approximately $24$17 million and $28$16 million at March 31, 20172018 and December 31, 2016,2017, respectively.  Changes in unrealized gains and losses are included in mortgage banking revenues and, in general, are realized in subsequent periods as the related loans are sold and commitments satisfied.

The Company does not offset derivative asset and liability positions in its consolidated financial statements.  The Company’s exposure to credit risk by entering into derivative contracts is mitigated through master netting agreements and collateral posting or settlement requirements.  Master netting agreements covering interest rate and foreign exchange contracts with the same party include a right to set-off that becomes enforceable in the event of default, early termination or under other specific conditions.

The aggregate fair value of derivative financial instruments in a liability position and the net liability positions with counterparties, which are subject to enforceable master netting arrangements, was $26$4 million and $34$13 million at March 31, 20172018 and December 31, 2016, respectively.  After consideration of such netting arrangements, the net liability positions with counterparties aggregated $25 million and $30 million at March 31, 2017, and December 31, 2016, respectively.  The Company was required to post collateral relating to those positions of $23$4 million and $27$12 million at March 31, 20172018 and December 31, 2016,2017, respectively.   Certain of the Company’s derivative financial instruments contain provisions that require the Company to maintain specific credit ratings from credit rating agencies to avoid higher collateral posting requirements.  If the Company’s debt rating were to fall below specified ratings, the counterparties of the derivative financial instruments could demand immediate incremental collateralization on those instruments in a net liability position.  The aggregate fair value of all derivative financial instruments with such credit risk-related contingent features in a net liability position on March 31, 2017 was less than $1 million, for which the Company2018 was not required to post collateral in the normal course of business.significant.  If the credit risk-related contingent features had been triggered on March 31, 2017,2018, the Company would not have been required to post any additional collateral to counterparties.

The aggregate fair value of derivative financial instruments in an asset position and the net asset positions with counterparties, which are subject to enforceable master netting arrangements, was $14$38 million and $15$13 million at March 31, 20172018 and December 31, 2016, respectively.  After consideration of such netting arrangements, the net asset positions with counterparties aggregated $13 million and $11 million at March 31, 2017, and December 31, 2016, respectively.     Counterparties posted collateral relating to those positions of $12$32 million and $9$12 million at March 31, 20172018 and December 31, 2016,2017, respectively.  Trading account interest rate swap agreements entered into with customers are subject to the Company’s credit risk standards and often contain collateral provisions.

- 27 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

9. Derivative financial instruments, continued

In addition to the derivative contracts noted above, the Company clears certain derivative transactions through a clearinghouse, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and additional collateral (“variation margin”)margin payments depending on the contracts being in a net asset or liability position. The amount of initial margin collateral posted by the Company was $83$53 million and $111$52 million at March 31, 20172018 and December 31, 2016,2017, respectively. Effective January 2017, certain clearinghouse exchanges revised their rules to re-characterize required collateral postings for variation margin as legal settlements of those positions.  As a result, theThe fair value asset and liability amounts of derivative contracts at March 31, 20172018 have been reduced by contractualvariation margin payments treated as settlements of $112$122 million and $25$6 million, respectively.  Variation margin on derivative contracts not affected by the rule changes continuetreated as settlements continues to represent collateral posted or received by the Company.  For those contracts, the net fair values of derivative financial instruments cleared through clearinghouses for which variation margin is required was a net asset position of $1 million and $63 million at March 31, 2017 and December 31, 2016, respectively. Collateral posted by the clearinghouses associated with that net asset position was $1 million and $81 million at March 31, 2017 and December 31, 2016, respectively.

 

- 28 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

11.10. Variable interest entities and asset securitizations

The Company’s securitization activity has consisted of securitizing loans originated for sale into government issued or guaranteed mortgage-backed securities. The amounts of those securitizations during the three-month periods March 31, 2018 and March 31, 2017 are presented in the Company’s consolidated statement of cash flows. The Company has not recognized any losses as a result of having securitized assets.

As described in note 5,4, M&T has issued junior subordinated debentures payable to various trusts that have issued Capital Securities. M&T owns the common securities of those trust entities. The Company is not considered to be the primary beneficiary of those entities and, accordingly, the trusts are not included in the Company’s consolidated financial statements. At each of March 31, 20172018 and December 31, 2016,2017, the Company included the junior subordinated debentures as “long-term borrowings” in its consolidated balance sheet and recognized $24$23 million in other assets for its “investment” in the common securities of the trusts that will be concomitantly repaid to M&T by the respective trust from the proceeds of M&T’s repayment of the junior subordinated debentures associated with preferred capital securities described in note 5.4.

The Company has invested as a limited partner in various partnerships that collectively had total assets of approximately $1.0 billion at each of March 31, 20172018 and December 31, 2016.2017. Those partnerships generally construct or acquire properties for which the investing partners are eligible to receive certain federal income tax credits in accordance with government guidelines. Such investments may also provide tax deductible losses to the partners. The partnership investments also assist the Company in achieving its community reinvestment initiatives. As a limited partner, there is no recourse to the Company by creditors of the partnerships. However, the tax credits that result from the Company’s investments in such partnerships are generally subject to recapture should a partnership fail to comply with the respective government regulations. The Company’s maximum exposure to loss of its investments in such partnerships was $316$422 million, including $114$196 million of unfunded commitments, at March 31, 20172018 and $294$420 million, including $102$201 million of unfunded commitments, at December 31, 2016.2017.  Contingent commitments to provide additional capital contributions to these partnerships were not material at March 31, 2017.2018. The Company has not provided financial or other support to the partnerships that was not contractually required.  Management currently estimates that no material losses are probable as a result of the Company’s involvement with such entities.  The Company, in its position as limited partner, does not direct the activities that most significantly impact the economic performance of the partnerships and, therefore, in accordance with the accounting provisions for variable interest entities, the partnership entities are not included in the Company’s consolidated financial statements.  The Company’s investment cost is amortized to income taxes in the consolidated statement of income as tax credits and other tax benefits resulting from deductible losses associated with the projects are received.  The Company amortized $13 million and $11 million of its investments in qualified affordable housing projects to income tax expense during each of the three-month periods ended March 31, 20172018 and 2016, respectively,2017 and recognized $16 million and $14 million of tax credits and other tax benefits during each of those respective periods.

- 28 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

10. Variable interest entities and asset securitizations, continued

The Company serves as investment advisor for certain registered money-market funds.  The Company has no explicit arrangement to provide support to those funds, but may waive portions of its allowable management fees as a result of market conditions.

 

- 29 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

12.11. Fair value measurements

GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value.  The Company has not made any fair value elections at March 31, 2017.2018.

Pursuant to GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy exists in GAAP for fair value measurements based upon the inputs to the valuation of an asset or liability.

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

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

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

When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. The following is a description of the valuation methodologies used for the Company's assets and liabilities that are measured on a recurring basis at estimated fair value.

Trading account assets and liabilities

Trading account assets and liabilities consist primarily of interest rate swap agreementscontracts and foreign exchange contracts with customers who require such services with offsetting positions with third parties to minimize the Company's risk with respect to such transactions. The Company generally determines the fair value of its derivative trading account assets and liabilities using externally developed pricing models based on market observable inputs and, therefore, classifies such valuations as Level 2.  Mutual funds held in connection with deferred compensation and other arrangements have been classified as Level 1 valuations. Valuations of investments in municipal and other bonds can generally be obtained through reference to quoted prices in less active markets for the same or similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.

Investment securities available for sale and equity securities

The majority of the Company's available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments in mutual funds and equity securities are actively traded and, therefore, have been classified as Level 1 valuations.

 

- 3029 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12.11. Fair value measurements, continued

Real estate loans held for sale

The Company utilizes commitments to sell real estate loans to hedge the exposure to changes in fair value of real estate loans held for sale. The carrying value of hedged real estate loans held for sale includes changes in estimated fair value during the hedge period.  Typically, the Company attempts to hedge real estate loans held for sale from the date of close through the sale date.  The fair value of hedged real estate loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans with similar characteristics and, accordingly, such loans have been classified as a Level 2 valuation.

Commitments to originate real estate loans for sale and commitments to sell real estate loans

The Company enters into various commitments to originate real estate loans for sale and commitments to sell real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value on the consolidated balance sheet. The estimated fair values of such commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans to certain government-sponsored entities and other parties. The fair valuations of commitments to sell real estate loans generally result in a Level 2 classification. The estimated fair value of commitments to originate real estate loans for sale are adjusted to reflect the Company's anticipated commitment expirations. The estimated commitment expirations are considered significant unobservable inputs contributing to the Level 3 classification of commitments to originate real estate loans for sale.  Significant unobservable inputs used in the determination of estimated fair value of commitments to originate real estate loans for sale are included in the accompanying table of significant unobservable inputs to Level 3 measurements.

Interest rate swap agreements used for interest rate risk management

The Company utilizes interest rate swap agreements as part of the management of interest rate risk to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. The Company generally determines the fair value of its interest rate swap agreements using externally developed pricing models based on market observable inputs and, therefore, classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its interest rate swap agreement assets and has considered its own credit risk in the valuation of its interest rate swap agreement liabilities.

- 3130 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12.11. Fair value measurements, continued

The following tables present assets and liabilities at March 31, 20172018 and December 31, 20162017 measured at estimated fair value on a recurring basis:

 

 

Fair Value Measurements

 

 

Level 1 (a)

 

 

Level 2 (a)

 

 

Level 3

 

 

Fair Value Measurements

 

 

Level 1 (a)

 

 

Level 2 (a)

 

 

Level 3

 

 

(In thousands)

 

 

(In thousands)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading account assets

 

$

141,134

 

 

$

46,215

 

 

$

94,919

 

 

$

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

1,941,478

 

 

 

 

 

 

1,941,478

 

 

 

 

Obligations of states and political subdivisions

 

 

2,000

 

 

 

 

 

 

2,000

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

8,222,129

 

 

 

 

 

 

8,222,129

 

 

 

 

Privately issued

 

 

27

 

 

 

 

 

 

 

 

 

27

 

Other debt securities

 

 

132,222

 

 

 

 

 

 

132,222

 

 

 

 

 

 

10,297,856

 

 

 

 

 

 

10,297,829

 

 

 

27

 

Equity securities

 

 

61,717

 

 

 

43,496

 

 

 

18,221

 

 

 

 

Real estate loans held for sale

 

 

455,196

 

 

 

 

 

 

455,196

 

 

 

 

Other assets (b)

 

 

17,634

 

 

 

 

 

 

7,072

 

 

 

10,562

 

Total assets

 

$

10,973,537

 

 

$

89,711

 

 

$

10,873,237

 

 

$

10,589

 

Trading account liabilities

 

$

236,834

 

 

$

 

 

$

236,834

 

 

$

-

 

Other liabilities (b)

 

 

5,613

 

 

 

 

 

 

3,811

 

 

 

1,802

 

Total liabilities

 

$

242,447

 

 

$

 

 

$

240,645

 

 

$

1,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading account assets

 

$

174,854

 

 

 

46,137

 

 

 

128,717

 

 

 

 

 

$

132,909

 

 

$

47,873

 

 

$

85,036

 

 

$

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

1,898,250

 

 

 

 

 

 

1,898,250

 

 

 

 

 

 

1,947,487

 

 

 

 

 

 

1,947,487

 

 

 

 

Obligations of states and political subdivisions

 

 

3,124

 

 

 

 

 

 

3,124

 

 

 

 

 

 

2,589

 

 

 

 

 

 

2,589

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

10,504,314

 

 

 

 

 

 

10,504,314

 

 

 

 

 

 

8,716,392

 

 

 

 

 

 

8,716,392

 

 

 

 

Privately issued

 

 

41

 

 

 

 

 

 

 

 

 

41

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Other debt securities

 

 

119,767

 

 

 

 

 

 

119,767

 

 

 

 

 

 

128,832

 

 

 

 

 

 

128,832

 

 

 

 

Equity securities

 

 

105,504

 

 

 

63,698

 

 

 

41,806

 

 

 

 

 

 

100,956

 

 

 

73,232

 

 

 

27,724

 

 

 

 

 

 

12,631,000

 

 

 

63,698

 

 

 

12,567,261

 

 

 

41

 

 

 

10,896,284

 

 

 

73,232

 

 

 

10,823,024

 

 

 

28

 

Real estate loans held for sale

 

 

372,023

 

 

 

 

 

 

372,023

 

 

 

 

 

 

378,047

 

 

 

 

 

 

378,047

 

 

 

 

Other assets (b)

 

 

29,571

 

 

 

 

 

 

12,724

 

 

 

16,847

 

 

 

12,696

 

 

 

 

 

 

3,899

 

 

 

8,797

 

Total assets

 

$

13,207,448

 

 

 

109,835

 

 

 

13,080,725

 

 

 

16,888

 

 

$

11,419,936

 

 

$

121,105

 

 

$

11,290,006

 

 

$

8,825

 

Trading account liabilities

 

$

138,695

 

 

 

 

 

 

138,695

 

 

 

 

 

$

137,390

 

 

$

 

 

$

137,390

 

 

$

 

Other liabilities (b)

 

 

4,548

 

 

 

 

 

 

3,903

 

 

 

645

 

 

 

1,796

 

 

 

 

 

 

1,302

 

 

 

494

 

Total liabilities

 

$

143,243

 

 

 

 

 

 

142,598

 

 

 

645

 

 

$

139,186

 

 

$

 

 

$

138,692

 

 

$

494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading account assets

 

$

323,867

 

 

 

46,135

 

 

 

277,732

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

1,902,544

 

 

 

 

 

 

1,902,544

 

 

 

 

Obligations of states and political subdivisions

 

 

3,641

 

 

 

 

 

 

3,641

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government issued or guaranteed

 

 

10,954,861

 

 

 

 

 

 

10,954,861

 

 

 

 

Privately issued

 

 

44

 

 

 

 

 

 

 

 

 

44

 

Other debt securities

 

 

118,516

 

 

 

 

 

 

118,516

 

 

 

 

Equity securities

 

 

352,466

 

 

 

301,711

 

 

 

50,755

 

 

 

 

 

 

13,332,072

 

 

 

301,711

 

 

 

13,030,317

 

 

 

44

 

Real estate loans held for sale

 

 

1,056,180

 

 

 

 

 

 

1,056,180

 

 

 

 

Other assets (b)

 

 

58,351

 

 

 

 

 

 

50,291

 

 

 

8,060

 

Total assets

 

$

14,770,470

 

 

 

347,846

 

 

 

14,414,520

 

 

 

8,104

 

Trading account liabilities

 

$

174,376

 

 

 

 

 

 

174,376

 

 

 

 

Other liabilities (b)

 

 

2,481

 

 

 

 

 

 

1,746

 

 

 

735

 

Total liabilities

 

$

176,857

 

 

 

 

 

 

176,122

 

 

 

735

 

 

(a)

There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 20172018 and the year ended December 31, 2016.2017.                                        

(b)

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

- 3231 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12.11. Fair value measurements, continued

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended March 31, 2018 were as follows:

 

 

Investment Securities

Available for Sale

 

 

 

 

 

 

 

 

Privately Issued

Mortgage-Backed

Securities

 

 

Other Assets

and Other

Liabilities

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2018

 

$

28

 

 

 

8,303

 

 

Total gains (losses) realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

 

 

 

8,130

 

(b)

Settlements

 

 

(1

)

 

 

 

 

Transfers in and/or out of Level 3 (a)

 

 

 

 

 

(7,673

)

(c)

Balance — March 31, 2018

 

$

27

 

 

 

8,760

 

 

Changes in unrealized gains included in earnings

   related to assets still held at March 31, 2018

 

$

 

 

 

8,778

 

(b)

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended March 31, 2017 were as follows:

 

 

 

Investment Securities

Available for Sale

 

 

 

 

 

 

 

 

Privately Issued

Mortgage-Backed

Securities

 

 

Other Assets

and Other

Liabilities

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2017

 

$

44

 

 

 

7,325

 

 

Total gains (losses) realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

 

 

 

23,940

 

(b)

Included in other comprehensive income

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

Settlements

 

 

(3

)

 

 

 

 

Transfers in and/or out of Level 3 (a)

 

 

 

 

 

(15,063

)

(d)

Balance — March 31, 2017

 

$

41

 

 

 

16,202

 

 

Changes in unrealized gains included in earnings

   related to assets still held at March 31, 2017

 

$

 

 

 

15,094

 

(b)

The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended March 31, 2016 were as follows:

 

Investment Securities Available for Sale

 

 

 

 

 

 

 

 

Investment Securities

Available for Sale

 

 

 

 

 

 

 

Privately Issued

Mortgage-Backed

Securities

 

 

Collateralized

Debt Obligations

 

 

 

Other Assets

and Other

Liabilities

 

 

 

Privately Issued

Mortgage-Backed

Securities

 

 

Other Assets

and Other

Liabilities

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2016

 

$

74

 

 

 

47,393

 

 

 

 

9,879

 

 

Balance — January 1, 2017

 

$

44

 

 

 

7,325

 

 

Total gains (losses) realized/unrealized:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

 

 

 

 

 

 

 

23,898

 

(b)

 

 

 

 

 

23,940

 

(b)

Included in other comprehensive income

 

 

 

 

 

(2,148

)

(c)

 

 

 

 

Settlements

 

 

(9

)

 

 

(205

)

 

 

 

 

 

 

 

(3

)

 

 

 

 

Transfers in and/or out of Level 3 (a)

 

 

 

 

 

 

 

 

 

(16,892

)

(d)

 

 

 

 

 

(15,063

)

(c)

Balance — March 31, 2016

 

$

65

 

 

 

45,040

 

 

 

 

16,885

 

 

Changes in unrealized gains included in earnings

related to assets still held at March 31, 2016

 

$

 

 

 

 

 

 

 

14,539

 

(b)

Balance — March 31, 2017

 

$

41

 

 

 

16,202

 

 

Changes in unrealized gains included in earnings

related to assets still held at March 31, 2017

 

$

 

 

 

15,094

 

(b)

(a)

The Company’s policy for transfers between fair value levels is to recognize the transfer as of the actual date of the event or change in circumstances that caused the transfer.

(b)

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

(c)

Reported as net unrealized losses on investment securities in the consolidated statement of comprehensive income.  The Company sold its collateralized debt obligations during the third and fourth quarters of 2016.

(d)

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

 

- 3332 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12.11. Fair value measurements, continued

The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements.  The more significant of those assets follow.

Loans

Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2, unless significant adjustments have been made to the valuation that are not readily observable by market participants. Non-real estate collateral supporting commercial loans generally consists of business assets such as receivables, inventory and equipment.  Fair value estimations are typically determined by discounting recorded values of those assets to reflect estimated net realizable value considering specific borrower facts and circumstances and the experience of credit personnel in their dealings with similar borrower collateral liquidations.  Such discounts were generally in the range of 15% to 90% at March 31, 2017.2018.  As these discounts are not readily observable and are considered significant, the valuations have been classified as Level 3.  Automobile collateral is typically valued by reference to independent pricing sources based on recent sales transactions of similar vehicles, and the related nonrecurring fair value measurement adjustments have been classified as Level 2.  Collateral values for other consumer installment loans are generally estimated based on historical recovery rates for similar types of loans.  As these recovery rates are not readily observable by market participants, such valuation adjustments have been classified as Level 3. Loans subject to nonrecurring fair value measurement were $210$178 million at March 31, 20172018 ($8897 million and $122$81 million of which were classified as Level 2 and Level 3, respectively), $293$210 million at December 31, 20162017 ($153145 million and $140$65 million of which were classified as Level 2 and Level 3, respectively) and $226$210 million at March 31, 20162017 ($12788 million and $99$122 million of which were classified as Level 2 and Level 3, respectively).  Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on March 31, 20172018 and 20162017 were decreases of $42$27 million and $27$42 million for the three-month periods ended March 31, 20172018 and March 31, 2016,2017, respectively.

Assets taken in foreclosure of defaulted loans

Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and are generally measured at the lower of cost or fair value less costs to sell.  The fair value of the real property is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2.  Assets taken in foreclosure of defaulted loans subject to nonrecurring fair value measurement were $32$19 million and $62$32 million at March 31, 20172018 and 2016,2017, respectively.  Changes in fair value recognized for those foreclosed assets held by the Company were not material during the three-month periods ended March 31, 20172018 and 2016.2017.

 

 

- 3433 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12.11. Fair value measurements, continued

 

Significant unobservable inputs to Level 3 measurements

The following tables present quantitative information about significant unobservable inputs used in the fair value measurements for certain Level 3 assets and liabilities at March 31, 20172018 and December 31, 2016:2017:

 

 

Fair Value

 

 

Valuation

Technique

 

Unobservable

Inputs/Assumptions

 

 

Range

(Weighted-

Average)

 

 

Fair Value

 

 

Valuation

Technique

 

Unobservable

Inputs/Assumptions

 

 

Range

(Weighted-

Average)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring fair value measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Privately issued mortgage-backed

securities

 

$

41

 

 

Two independent pricing quotes

 

 

 

 

 

 

 

$

27

 

 

Two independent pricing quotes

 

 

 

 

 

 

Net other assets (liabilities) (a)

 

 

16,202

 

 

Discounted cash flow

 

Commitment expirations

 

 

0%-80% (24%)

 

 

 

8,760

 

 

Discounted cash flow

 

Commitment expirations

 

 

0%-76% (19%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring fair value measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Privately issued mortgage-backed

securities

 

$

44

 

 

Two independent pricing quotes

 

 

 

 

 

 

 

$

28

 

 

Two independent pricing quotes

 

 

 

 

 

 

Net other assets (liabilities) (a)

 

 

7,325

 

 

Discounted cash flow

 

Commitment expirations

 

 

0%-77% (30%)

 

 

 

8,303

 

 

Discounted cash flow

 

Commitment expirations

 

 

0%-78% (22%)

 

 

(a)

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

Sensitivity of fair value measurements to changes in unobservable inputs

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

- 3534 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12.11. Fair value measurements, continued

Disclosures of fair value of financial instruments

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

 

 

March 31, 2017

 

 

March 31, 2018

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

(In thousands)

 

 

(In thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,286,962

 

 

 

1,286,962

 

 

 

1,213,120

 

 

 

73,842

 

 

 

 

 

$

1,292,664

 

 

 

1,292,664

 

 

 

1,206,172

 

 

 

86,492

 

 

 

 

Interest-bearing deposits at banks

 

 

6,945,149

 

 

 

6,945,149

 

 

 

 

 

 

6,945,149

 

 

 

 

 

 

6,135,434

 

 

 

6,135,434

 

 

 

 

 

 

6,135,434

 

 

 

 

Trading account

 

 

174,854

 

 

 

174,854

 

 

 

46,137

 

 

 

128,717

 

 

 

 

Trading account assets

 

 

141,134

 

 

 

141,134

 

 

 

46,215

 

 

 

94,919

 

 

 

 

Investment securities

 

 

15,968,415

 

 

 

15,958,181

 

 

 

63,698

 

 

 

15,775,917

 

 

 

118,566

 

 

 

14,066,564

 

 

 

13,998,023

 

 

 

43,496

 

 

 

13,841,655

 

 

 

112,872

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases

 

 

22,295,376

 

 

 

21,882,456

 

 

 

 

 

 

 

 

 

21,882,456

 

 

 

21,697,522

 

 

 

21,294,038

 

 

 

 

 

 

 

 

 

21,294,038

 

Commercial real estate loans

 

 

33,071,654

 

 

 

32,607,794

 

 

 

 

 

 

74,563

 

 

 

32,533,231

 

 

 

33,753,506

 

 

 

33,123,306

 

 

 

 

 

 

166,773

 

 

 

32,956,533

 

Residential real estate loans

 

 

21,724,491

 

 

 

21,776,908

 

 

 

 

 

 

4,686,339

 

 

 

17,090,569

 

 

 

18,960,946

 

 

 

18,812,289

 

 

 

 

 

 

4,226,284

 

 

 

14,586,005

 

Consumer loans

 

 

12,221,481

 

 

 

12,083,513

 

 

 

 

 

 

 

 

 

12,083,513

 

 

 

13,298,775

 

 

 

13,112,874

 

 

 

 

 

 

 

 

 

13,112,874

 

Allowance for credit losses

 

 

(1,001,430

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,019,671

)

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, net

 

 

88,311,572

 

 

 

88,350,671

 

 

 

 

 

 

4,760,902

 

 

 

83,589,769

 

 

 

86,691,078

 

 

 

86,342,507

 

 

 

 

 

 

4,393,057

 

 

 

81,949,450

 

Accrued interest receivable

 

 

318,152

 

 

 

318,152

 

 

 

 

 

 

318,152

 

 

 

 

 

 

332,151

 

 

 

332,151

 

 

 

 

 

 

332,151

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

(34,279,591

)

 

 

(34,279,591

)

 

 

 

 

 

(34,279,591

)

 

 

 

 

$

(31,817,516

)

 

 

(31,817,516

)

 

 

 

 

 

(31,817,516

)

 

 

 

Savings and interest-checking deposits

 

 

(53,542,149

)

 

 

(53,542,149

)

 

 

 

 

 

(53,542,149

)

 

 

 

 

 

(52,724,608

)

 

 

(52,724,608

)

 

 

 

 

 

(52,724,608

)

 

 

 

Time deposits

 

 

(9,028,018

)

 

 

(9,106,654

)

 

 

 

 

 

(9,106,654

)

 

 

 

 

 

(6,126,442

)

 

 

(6,177,695

)

 

 

 

 

 

(6,177,695

)

 

 

 

Deposits at Cayman Islands office

 

 

(192,763

)

 

 

(192,763

)

 

 

 

 

 

(192,763

)

 

 

 

 

 

(278,064

)

 

 

(278,064

)

 

 

 

 

 

(278,064

)

 

 

 

Short-term borrowings

 

 

(185,102

)

 

 

(185,102

)

 

 

 

 

 

(185,102

)

 

 

 

 

 

(1,626,129

)

 

 

(1,626,129

)

 

 

 

 

 

(1,626,129

)

 

 

 

Long-term borrowings

 

 

(8,087,619

)

 

 

(8,104,055

)

 

 

 

 

 

(8,104,055

)

 

 

 

 

 

(8,591,051

)

 

 

(8,598,328

)

 

 

 

 

 

(8,598,328

)

 

 

 

Accrued interest payable

 

 

(60,737

)

 

 

(60,737

)

 

 

 

 

 

(60,737

)

 

 

 

 

 

(65,819

)

 

 

(65,819

)

 

 

 

 

 

(65,819

)

 

 

 

Trading account

 

 

(138,695

)

 

 

(138,695

)

 

 

 

 

 

(138,695

)

 

 

 

Trading account liabilities

 

 

(236,834

)

 

 

(236,834

)

 

 

 

 

 

(236,834

)

 

 

 

Other financial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to originate real estate loans for sale

 

$

16,202

 

 

 

16,202

 

 

 

 

 

 

 

 

 

16,202

 

 

$

8,760

 

 

 

8,760

 

 

 

 

 

 

 

 

 

8,760

 

Commitments to sell real estate loans

 

 

1,048

 

 

 

1,048

 

 

 

 

 

 

1,048

 

 

 

 

 

 

2,885

 

 

 

2,885

 

 

 

 

 

 

2,885

 

 

 

 

Other credit-related commitments

 

 

(129,968

)

 

 

(129,968

)

 

 

 

 

 

 

 

 

(129,968

)

 

 

(122,805

)

 

 

(122,805

)

 

 

 

 

 

 

 

 

(122,805

)

Interest rate swap agreements used for interest

rate risk management

 

 

7,773

 

 

 

7,773

 

 

 

 

 

 

7,773

 

 

 

 

 

 

376

 

 

 

376

 

 

 

 

 

 

376

 

 

 

��

- 3635 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

12.11. Fair value measurements, continued

 

 

December 31, 2016

 

 

December 31, 2017

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,320,549

 

 

 

1,320,549

 

 

 

1,249,654

 

 

 

70,895

 

 

 

 

$

1,420,888

 

 

 

1,420,888

 

 

 

1,352,035

 

 

 

68,853

 

 

 

Interest-bearing deposits at banks

 

 

5,000,638

 

 

 

5,000,638

 

 

 

 

 

 

5,000,638

 

 

 

 

 

5,078,903

 

 

 

5,078,903

 

 

 

 

 

 

5,078,903

 

 

 

Trading account

 

 

323,867

 

 

 

323,867

 

 

 

46,135

 

 

 

277,732

 

 

 

Trading account assets

 

 

132,909

 

 

 

132,909

 

 

 

47,873

 

 

 

85,036

 

 

 

Investment securities

 

 

16,250,468

 

 

 

16,244,412

 

 

 

301,711

 

 

 

15,821,176

 

 

 

121,525

 

 

 

14,664,525

 

 

 

14,653,074

 

 

 

73,232

 

 

 

14,469,127

 

 

 

110,715

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases

 

 

22,610,047

 

 

 

22,239,428

 

 

 

 

 

 

 

22,239,428

 

 

 

21,742,651

 

 

 

21,321,282

 

 

 

 

 

 

 

21,321,282

 

Commercial real estate loans

 

 

33,506,394

 

 

 

33,129,428

 

 

 

 

 

642,590

 

 

 

32,486,838

 

 

 

33,366,373

 

 

 

32,950,724

 

 

 

 

 

22,130

 

 

 

32,928,594

 

Residential real estate loans

 

 

22,590,912

 

 

 

22,638,167

 

 

 

 

 

4,912,488

 

 

 

17,725,679

 

 

 

19,613,344

 

 

 

19,596,826

 

 

 

 

 

4,440,645

 

 

 

15,156,181

 

Consumer loans

 

 

12,146,063

 

 

 

12,061,590

 

 

 

 

 

 

 

 

12,061,590

 

 

 

13,266,615

 

 

 

13,161,517

 

 

 

 

 

 

 

 

13,161,517

 

Allowance for credit losses

 

 

(988,997

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,017,198

)

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, net

 

 

89,864,419

 

 

 

90,068,613

 

 

 

 

 

5,555,078

 

 

 

84,513,535

 

 

 

86,971,785

 

 

 

87,030,349

 

 

 

 

 

4,462,775

 

 

 

82,567,574

 

Accrued interest receivable

 

 

308,805

 

 

 

308,805

 

 

 

 

 

308,805

 

 

 

 

 

327,170

 

 

 

327,170

 

 

 

 

 

327,170

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

(32,813,896

)

 

 

(32,813,896

)

 

 

 

 

(32,813,896

)

 

 

 

$

(33,975,180

)

 

 

(33,975,180

)

 

 

 

 

(33,975,180

)

 

 

Savings and interest-checking deposits

 

 

(52,346,207

)

 

 

(52,346,207

)

 

 

 

 

(52,346,207

)

 

 

 

 

(51,698,008

)

 

 

(51,698,008

)

 

 

 

 

(51,698,008

)

 

 

Time deposits

 

 

(10,131,846

)

 

 

(10,222,585

)

 

 

 

 

(10,222,585

)

 

 

 

 

(6,580,962

)

 

 

(6,635,048

)

 

 

 

 

(6,635,048

)

 

 

Deposits at Cayman Islands office

 

 

(201,927

)

 

 

(201,927

)

 

 

 

 

(201,927

)

 

 

 

 

(177,996

)

 

 

(177,996

)

 

 

 

 

(177,996

)

 

 

Short-term borrowings

 

 

(163,442

)

 

 

(163,442

)

 

 

 

 

(163,442

)

 

 

 

 

(175,099

)

 

 

(175,099

)

 

 

 

 

(175,099

)

 

 

Long-term borrowings

 

 

(9,493,835

)

 

 

(9,473,844

)

 

 

 

 

(9,473,844

)

 

 

 

 

(8,141,430

)

 

 

(8,193,783

)

 

 

 

 

(8,193,783

)

 

 

Accrued interest payable

 

 

(75,172

)

 

 

(75,172

)

 

 

 

 

(75,172

)

 

 

 

 

(75,641

)

 

 

(75,641

)

 

 

 

 

(75,641

)

 

 

Trading account

 

 

(174,376

)

 

 

(174,376

)

 

 

 

 

(174,376

)

 

 

Trading account liabilities

 

 

(137,390

)

 

 

(137,390

)

 

 

 

 

(137,390

)

 

 

Other financial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to originate real estate loans for sale

 

$

7,325

 

 

 

7,325

 

 

 

 

 

 

 

 

7,325

 

 

$

8,303

 

 

 

8,303

 

 

 

 

 

 

 

 

8,303

 

Commitments to sell real estate loans

 

 

36,653

 

 

 

36,653

 

 

 

 

 

36,653

 

 

 

 

 

1,958

 

 

 

1,958

 

 

 

 

 

1,958

 

 

 

Other credit-related commitments

 

 

(136,295

)

 

 

(136,295

)

 

 

 

 

 

 

 

(136,295

)

 

 

(125,281

)

 

 

(125,281

)

 

 

 

 

 

 

 

(125,281

)

Interest rate swap agreements used for interest rate risk

management

 

 

11,892

 

 

 

11,892

 

 

 

 

 

11,892

 

 

 

 

 

639

 

 

 

639

 

 

 

 

 

639

 

 

 

 

With the exception of marketable securities, certain off-balance sheet financial instruments and mortgage loans originated for sale, the Company’s financial instruments are not readily marketable and market prices do not exist. The Company, in attempting to comply with the provisions of GAAP that require disclosures of fair value of financial instruments, has not attempted to market its financial instruments to potential buyers, if any exist. Since negotiated prices in illiquid markets depend greatly upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. The following assumptions, methods and calculations were used in determining the estimated fair value of financial instruments not measured at fair value in the consolidated balance sheet.

Cash and cash equivalents, interest-bearing deposits at banks, deposits at Cayman Islands office, short-term borrowings, accrued interest receivable and accrued interest payable

Due to the nature of cash and cash equivalents and the near maturity of interest-bearing deposits at banks, deposits at Cayman Islands office, short-term borrowings, accrued interest receivable and accrued interest payable, the Company estimated that the carrying amount of such instruments approximated estimated fair value.

- 37 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

Investment securities

Estimated fair values of investments in readily marketable securities were generally based on quoted market prices. Investment securities that were not readily marketable were assigned amounts based on estimates provided by outside parties or modeling techniques that relied upon discounted calculations of projected cash flows or, in the case of other investment securities, which include capital stock of the Federal Reserve Bank of New York and the Federal Home Loan Bank of New York, at an amount equal to the carrying amount.

Loans and leases

In general, discount rates used to calculate values for loan products were based on the Company’s pricing at the respective period end. A higher discount rate was assumed with respect to estimated cash flows associated with nonaccrual loans. Projected loan cash flows were adjusted for estimated credit losses. However, such estimates made by the Company may not be indicative of assumptions and adjustments that a purchaser of the Company’s loans and leases would seek.

Deposits

Pursuant to GAAP, the estimated fair value ascribed to noninterest-bearing deposits, savings deposits and interest-checking deposits must be established at carrying value because of the customers’ ability to withdraw funds immediately. Time deposit accounts are required to be revalued based upon prevailing market interest rates for similar maturity instruments. As a result, amounts assigned to time deposits were based on discounted cash flow calculations using prevailing market interest rates based on the Company’s pricing at the respective date for deposits with comparable remaining terms to maturity.

The Company believes that deposit accounts have a value greater than that prescribed by GAAP. The Company feels, however, that the value associated with these deposits is greatly influenced by characteristics of the buyer, such as the ability to reduce the costs of servicing the deposits and deposit attrition which often occurs following an acquisition.

Long-term borrowings

The amounts assigned to long-term borrowings were based on quoted market prices, when available, or were based on discounted cash flow calculations using prevailing market interest rates for borrowings of similar terms and credit risk.

Other commitments and contingencies

As described in note 13, in the normal course of business, various commitments and contingent liabilities are outstanding, such as loan commitments, credit guarantees and letters of credit. The Company’s pricing of such financial instruments is based largely on credit quality and relationship, probability of funding and other requirements. Loan commitments often have fixed expiration dates and contain termination and other clauses which provide for relief from funding in the event of significant deterioration in the credit quality of the customer. The rates and terms of the Company’s loan commitments, credit guarantees and letters of credit are competitive with other financial institutions operating in markets served by the Company. The Company believes that the carrying amounts, which are included in other liabilities, are reasonable estimates of the fair value of these financial instruments.

- 38 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Fair value measurements, continued

The Company does not believe that the estimated information presented herein is representative of the earnings power or value of the Company. The preceding analysis, which is inherently limited in depicting fair value, also does not consider any value associated with existing customer relationships nor the ability of the Company to create value through loan origination, deposit gathering or fee generating activities. Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable between financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Furthermore, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.

 

13.- 36 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Commitments and contingencies

In the normal course of business, various commitments and contingent liabilities are outstanding.  The following table presents the Company's significant commitments.  Certain of these commitments are not included in the Company's consolidated balance sheet.

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

(In thousands)

 

 

(In thousands)

 

Commitments to extend credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

$

5,535,221

 

 

 

5,499,609

 

 

$

5,518,820

 

 

 

5,482,622

 

Commercial real estate loans to be sold

 

 

298,039

 

 

 

70,100

 

 

 

288,883

 

 

 

194,763

 

Other commercial real estate

 

 

6,166,511

 

 

 

6,451,709

 

 

 

5,788,080

 

 

 

6,050,569

 

Residential real estate loans to be sold

 

 

473,837

 

 

 

478,950

 

 

 

343,400

 

 

 

347,113

 

Other residential real estate

 

 

240,430

 

 

 

232,721

 

 

 

223,589

 

 

 

201,426

 

Commercial and other

 

 

12,134,803

 

 

 

12,298,473

 

 

 

12,951,589

 

 

 

12,733,815

 

Standby letters of credit

 

 

2,937,504

 

 

 

2,987,091

 

 

 

2,477,474

 

 

 

2,497,844

 

Commercial letters of credit

 

 

46,560

 

 

 

44,723

 

 

 

56,245

 

 

 

46,739

 

Financial guarantees and indemnification contracts

 

 

3,477,006

 

 

 

3,043,580

 

 

 

3,449,447

 

 

 

3,434,381

 

Commitments to sell real estate loans

 

 

1,013,409

 

 

 

1,489,237

 

 

 

977,257

 

 

 

812,217

 

 

Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee.  Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.   Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, whereas commercial letters of credit are issued to facilitate commerce and typically result in the commitment being funded when the underlying transaction is consummated between the customer and a third party.  The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies.  Collateral may be obtained based on management's assessment of the customer's creditworthiness.

Financial guarantees and indemnification contracts are oftentimes similar to standby letters of credit and include mandatory purchase agreements issued to ensure that customer obligations are fulfilled, recourse obligations associated with sold loans, and other guarantees of customer performance or compliance with designated rules and regulations.  Included in financial guarantees and indemnification contracts are loan principal amounts sold with recourse in conjunction with the Company's involvement in the Fannie Mae Delegated Underwriting and Servicing program.  The Company's maximum credit risk for recourse associated with loans sold under this program totaled approximately $3.0 billion and $2.8$3.3 billion at each of March 31, 20172018 and December 31, 2016, respectively.

- 39 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

13. Commitments and contingencies, continued2017.

Since many loan commitments, standby letters of credit, and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.

The Company utilizes commitments to sell real estate loans to hedge exposure to changes in the fair value of real estate loans held for sale.  Such commitments are considered derivatives and along with commitments to originate real estate loans to be held for sale are generally recorded in the consolidated balance sheet at estimated fair market value.

The Company also has commitments under long-term operating leases.

The Company is contractually obligated to repurchase previously sold residential real estate loans that do not ultimately meet investor sale criteria related to underwriting procedures or loan documentation.  When required to do so, the Company may reimburse loan purchasers for losses incurred or may repurchase certain loans.  The Company reduces residential mortgage banking revenues by an estimate for losses related to its obligations to loan purchasers.  

- 37 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

12. Commitments and contingencies, continued

The amount of those charges is based on the volume of loans sold, the level of reimbursement requests received from loan purchasers and estimates of losses that may be associated with previously sold loans. At March 31, 20172018 the Company believes that its obligation to loan purchasers was not material to the Company’s consolidated financial position.

As previously disclosed, Wilmington Trust Corporation (“WTC”), a wholly-owned subsidiary of M&T, is the subject of a class action lawsuit alleging that WTC’s financial reporting and securities filings prior to its acquisition by M&T in 2011 were in violation of securities laws.  In April 2018, the parties reached an agreement in principle.  The agreement in principle is subject to certain required party approvals, the negotiation and execution of a formal settlement agreement and court approval.  The Company currently anticipates that necessary party approvals will be completed and a formal settlement agreement will be executed and filed with the court for approval during the second quarter of 2018.  A motion for preliminary approval of a proposed settlement will be decided by the court at its discretion.  As of March 31, 2018, the Company increased its reserve for litigation matters by $135 million.

M&T and its subsidiaries are subject in the normal course of business to various other pending and threatened legal proceedings and other matters in which claims for monetary damages are asserted.  On an on-going basis management, after consultation with legal counsel, assesses the Company’s liabilities and contingencies in connection with such proceedings.  For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements.  To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable.  Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $40$50 million.  Although the Company does not believe that the outcome of pending litigations will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

 

 

14.13. Segment information

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

The financial information of the Company's segments was compiled utilizing the accounting policies described in note 22 of Notes to Financial Statements in the 20162017 Annual Report.  The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP.  As a result, the financial information of the reported segments is not necessarily comparable with similar information reported by other financial institutions.  Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data.  As disclosed inDuring the 2016 Annual Report, during 2016second quarter of 2017 the Company revised its funds transfer pricing allocation related to borrowings and to the residential real estate loans obtained in the acquisition of Hudson City, retroactive to 2015.  Accordingly,certain deposit categories.  As a result, financial information for the three-month period
first quarter of 2017 has been reclassified to provide segment information on a comparable basis, as noted in the following table.

- 4038 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

14.13. Segment information, continued

ended March 31, 2016 has been reclassified to conform to the current methodology.  As a result, total revenues and net income increased in the Discretionary Portfolio segment and decreased in the “All Other” category by $14 million and $8 million, respectively, for the three months ended March 31, 2016 from that which was previously reported.

As also described in note 22 in the 2016 Annual Report, neither goodwill nor core deposit and other intangible assets (and the amortization charges associated with such assets) resulting from acquisitions of financial institutions have been allocated to the Company's reportable segments, but are included in the “All Other” category.  The Company does, however, assign such intangible assets to business units for purposes of testing for impairment.

 

 

Three Months Ended March 31,2017

 

 

 

Total Revenues as Previously Reported

 

 

Impact of Changes

 

 

Total Revenues as Reclassified

 

 

Net Income (Loss) as Previously Reported

 

 

Impact of Changes

 

 

Net Income (Loss) as Reclassified

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

Business Banking

 

$

115,981

 

 

 

4,352

 

 

 

120,333

 

 

$

22,407

 

 

 

2,581

 

 

 

24,988

 

Commercial Banking

 

 

273,845

 

 

 

63

 

 

 

273,908

 

 

 

112,750

 

 

 

37

 

 

 

112,787

 

Commercial Real Estate

 

 

195,125

 

 

 

 

 

 

195,125

 

 

 

84,547

 

 

 

 

 

 

84,547

 

Discretionary Portfolio

 

 

78,946

 

 

 

 

 

 

78,946

 

 

 

33,945

 

 

 

 

 

 

33,945

 

Residential Mortgage Banking

 

 

93,708

 

 

 

(8,307

)

 

 

85,401

 

 

 

14,844

 

 

 

(4,927

)

 

 

9,917

 

Retail Banking

 

 

361,237

 

 

 

7,281

 

 

 

368,518

 

 

 

81,873

 

 

 

4,318

 

 

 

86,191

 

All Other

 

 

242,263

 

 

 

(3,389

)

 

 

238,874

 

 

 

(1,439

)

 

 

(2,009

)

 

 

(3,448

)

Total

 

$

1,361,105

 

 

 

 

 

 

1,361,105

 

 

$

348,927

 

 

 

 

 

 

348,927

 

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

 

 

Three Months Ended March 31

 

 

Three Months Ended March 31

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

Total

Revenues(a)

 

 

Inter-

segment

Revenues

 

 

Net

Income

(Loss)

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking

 

$

115,981

 

 

 

911

 

 

 

22,407

 

 

$

113,689

 

 

 

991

 

 

 

25,448

 

 

$

127,884

 

 

 

918

 

 

 

37,718

 

 

$

120,333

 

 

 

911

 

 

 

24,988

 

Commercial Banking

 

 

273,845

 

 

 

920

 

 

 

112,750

 

 

 

253,617

 

 

 

1,056

 

 

 

101,327

 

 

 

266,396

 

 

 

850

 

 

 

125,465

 

 

 

273,908

 

 

 

920

 

 

 

112,787

 

Commercial Real Estate

 

 

195,125

 

 

 

407

 

 

 

84,547

 

 

 

177,380

 

 

 

387

 

 

 

80,529

 

 

 

202,607

 

 

 

340

 

 

 

108,303

 

 

 

195,125

 

 

 

407

 

 

 

84,547

 

Discretionary Portfolio

 

 

78,946

 

 

 

(12,927

)

 

 

33,945

 

 

 

101,036

 

 

 

(14,323

)

 

 

48,410

 

 

 

50,038

 

 

 

(10,832

)

 

 

19,739

 

 

 

78,946

 

 

 

(12,927

)

 

 

33,945

 

Residential Mortgage Banking

 

 

93,708

 

 

 

18,211

 

 

 

14,844

 

 

 

96,935

 

 

 

19,660

 

 

 

17,077

 

 

 

82,458

 

 

 

15,421

 

 

 

14,946

 

 

 

85,401

 

 

 

18,211

 

 

 

9,917

 

Retail Banking

 

 

361,237

 

 

 

3,047

 

 

 

81,873

 

 

 

339,046

 

 

 

3,014

 

 

 

63,288

 

 

 

393,476

 

 

 

2,865

 

 

 

123,380

 

 

 

368,518

 

 

 

3,047

 

 

 

86,191

 

All Other

 

 

242,263

 

 

 

(10,569

)

 

 

(1,439

)

 

 

211,194

 

 

 

(10,785

)

 

 

(37,551

)

 

 

311,354

 

 

 

(9,562

)

 

 

(76,941

)

 

 

238,874

 

 

 

(10,569

)

 

 

(3,448

)

Total

 

$

1,361,105

 

 

 

 

 

 

348,927

 

 

$

1,292,897

 

 

 

 

 

 

298,528

 

 

$

1,434,213

 

 

 

 

 

 

352,610

 

 

$

1,361,105

 

 

 

 

 

 

348,927

 

- 39 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

13. Segment information, continued

 

 

Average total assets

 

 

Average Total Assets

 

 

Three Months Ended March 31

 

 

Year Ended

December 31

 

 

Three Months Ended March 31

 

 

Year Ended

December 31

 

 

2017

 

 

2016

 

 

2016

 

 

2018

 

 

2017

 

 

2017

 

 

(In millions)

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Banking

 

$

5,596

 

 

 

5,424

 

 

 

5,456

 

 

$

5,681

 

 

 

5,596

 

 

 

5,602

 

Commercial Banking

 

 

26,723

 

 

 

24,838

 

 

 

25,592

 

 

 

26,482

 

 

 

26,723

 

 

 

26,573

 

Commercial Real Estate

 

 

22,977

 

 

 

19,839

 

 

 

21,131

 

 

 

22,811

 

 

 

22,977

 

 

 

22,741

 

Discretionary Portfolio

 

 

38,731

 

 

 

42,509

 

 

 

40,867

 

 

 

34,095

 

 

 

38,731

 

 

 

37,203

 

Residential Mortgage Banking

 

 

2,426

 

 

 

2,647

 

 

 

2,569

 

 

 

2,278

 

 

 

2,426

 

 

 

2,355

 

Retail Banking

 

 

12,204

 

 

 

11,568

 

 

 

11,840

 

 

 

13,377

 

 

 

12,204

 

 

 

12,702

 

All Other

 

 

14,321

 

 

 

16,427

 

 

 

16,885

 

 

 

12,960

 

 

 

14,321

 

 

 

13,684

 

Total

 

$

122,978

 

 

 

123,252

 

 

 

124,340

 

 

$

117,684

 

 

 

122,978

 

 

 

120,860

 

(a)

Total revenues are comprised of net interest income and other income.  Net interest income is the difference between taxable-equivalent interest earned on assets and interest paid on liabilities owed by a segment and a funding charge (credit) based on the Company's internal funds transfer and allocation methodology.  Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit for any funds provided (e.g. deposits).  The taxable-equivalent adjustment aggregated $7,999,000$4,809,000 and $6,332,000$7,999,000 for the three-month periods ended March 31, 20172018 and 2016,2017, respectively, and is eliminated in "All Other" total revenues.  Intersegment revenues are included in total revenues of the reportable segments.  The elimination of intersegment revenues is included in the determination of "All Other" total revenues.

 

 

 

- 41 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

M&T holds a 20% minority interest in Bayview Lending Group LLC ("BLG"), a privately-held commercial mortgage company. M&T recognizes income or loss from BLG using the equity method of accounting.  TheThat investment had no remaining carrying value at March 31, 2018 as a result of that investment was $364 thousand atcumulative losses recognized and cash distributions received.  Income recognized by M&T is included in other revenues from operations and totaled $23 million during the three months ended March 31, 2018, compared with a loss of $2 million during the three months ended March 31, 2017.

Bayview Financial Holdings, L.P. (together with its affiliates, "Bayview Financial"), a privately-held specialty mortgage finance company, is BLG's majority investor.  In addition to their common investment in BLG, the Company and Bayview Financial conduct other business activities with each other.  The Company has obtained loan servicing rights for mortgage loans from BLG and Bayview Financial having outstanding principal balances of $3.4$2.9 billion and $3.5$3.0 billion at March 31, 20172018 and December 31, 2016,2017, respectively.  Revenues from those servicing rights were $4 million and $5 million for each of the quarters ended March 31, 20172018 and 2016, respectively.2017.  The Company sub-services residential mortgage loans for Bayview Financial having outstanding principal balances of $40.8$55.8 billion and $30.4$56.6 billion at March 31, 20172018 and December 31, 2016,2017, respectively.  Revenues earned for sub-servicing loans for Bayview Financial were $30 million and $23 million for each of the three-month periods ended March 31, 2018 and 2017, and 2016.respectively.  In addition, the Company held $153$129 million and $158$136 million of mortgage-backed securities in its held-to-maturity portfolio at March 31, 20172018 and December 31, 2016,2017, respectively, that were securitized by Bayview Financial. In April 2017,At March 31, 2018, the Company provided aheld $90 million of Bayview Financial’s $750 million syndicated loan to Bayview Financial for $100 million at terms consistent with those offered to non-affiliated customers.

16. Recent accounting developments

Effective January 1, 2017, the Company adopted amended accounting guidance for share-based transactions.  The most significant aspect of the amended guidance that affects the Company requires that all excess tax benefits and tax deficiencies be recognized in income tax expense in the income statement and that such amounts be recognized in the period in which the tax deduction arises or in the period in which an expiration of an award occurs.  The adoption of this guidance resulted in an $18 million reduction of income tax expense for the quarter ended March 31, 2017 that under previous accounting guidance would have been recognized directly in shareholders’ equity.

Effective January 2017, the Company also adopted amended accounting guidance for the transition to the equity method of accounting.  The amended guidance eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method has been in effect during all previous periods that the investment had been held.  Instead, the amended guidance requires the investor to adopt the equity method of accounting as of the date the investment first qualifies for such accounting.  The adoption of this guidance did not have a material effect on the Company’s consolidated financial position or results of operations.

In January 2017, the Company adopted two amendments to the accounting guidance for derivatives and hedging.  The first amendment clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met.  The second amendment clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts.  An entity performing the assessment is required to assess the embedded call (put) options solely in accordance with a four-step decision sequence and no longer has to assess whether the event that triggers the ability to exercise the option is related to interest rates or credit risks.  The adoption of this guidance did not have a material effect on the Company’s consolidated financial position or results of operations.facility.  

  

- 4240 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

16. Recent accounting developments, continued15. Revenue from contracts with customers

 

In March 2017, the Financial Accounting Standards Board (“FASB”) issued amended guidance requiring the premium on callable debt securities held at a premium to be amortized to the earliest call date.  The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  

The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15,Effective January 1, 2018 with early adoption permitted.  If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

In March 2017, the FASB issued amended guidance requiring the service cost component of the net periodic pension cost and net periodic postretirement benefit cost to be reported in the same line item or items in the income statement as other compensation costs arising from services rendered by the pertinent employees during the period (except for the amount being capitalized, if appropriate).  The amendments also require disclosure of the line item(s) used in the income statement to present the components other than the service cost component if the other components are not presented in a separate line item or items in the income statement. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, using a retrospective transition method for the presentation of the service cost and other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement.  The capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit cost would be applied using a prospective transition method.  The amendments allow for a practical expedient that permits the use of the amounts disclosed in the Company’s pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.  The Company is evaluating the impact the guidance may have on its consolidated financial statements.

In January 2017, the FASB issued amended guidance eliminating Step 2 from the goodwill impairment test. Under the amendments to the guidance, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized, however, should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.  The guidance is effective for annual periods or any interim goodwill impairment tests beginning after December 15, 2019 using a prospective transition method. Early adoption is permitted. The Company does not expect the guidance will have a material impact on its consolidated financial statements, unless at some point in the future one of its reporting units were to fail step 1 of the goodwill impairment test.

In January 2017, the FASB issued amended guidance clarifying the definition of a business for purposes of evaluating whether transactions would be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a screen to determine when a set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar assets, the set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and (2) remove the evaluation of whether a market participant could replace missing elements. The guidance is effective for annual

- 43 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

16. Recent accounting developments, continued

periods and interim periods within those annual periods beginning after December 15, 2017 using a prospective  transition method. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

In November 2016, the FASB issued amended guidance for the presentation of restricted cash in the statement of cash flows.  The guidance requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  In addition, when cash, cash equivalents, and restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, the line items and amounts must be presented on the face of the statement of cash flows or disclosed in the notes to the financial statements.  Information about the nature of restrictions on an entity’s cash and cash equivalents must also be disclosed.  The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, using a retrospective transition method.  The Company is evaluating the impact the guidance may have on the presentation of its consolidated statement of cash flows.

In August 2016, the FASB issued amended guidance for how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The guidance addresses the following eight specific cash flow issues: 1) cash payments for debt extinguishment costs should be classified as cash outflows for financing activities; 2) for zero-coupon debt instruments, the portion of the cash payment attributable to the accreted interest should be classified as a cash outflow for operating activities; 3) contingent consideration payments made after a business combination should be classified based on the timing of the payment; 4) cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; 5)  cash proceeds received from the settlement of corporate-owned and bank-owned life insurance policies should be classified as cash inflows from investing activities; 6) when the equity method is applied, an accounting policy election should be made to classify distributions received using either the cumulative earnings approach or the nature of the distribution approach; 7) cash receipts from payments on a transferor’s beneficial interests obtained in a securitization of financial assets should be classified as cash inflows from investing activities; and 8) the classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined by applying specific guidance in GAAP.  The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.  The Company is evaluating the impact the guidance may have on the presentation within its consolidated statement of cash flows.

In June 2016, the FASB issued amended guidance for the measurement of credit losses on certain financial assets. The amended guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected.  The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.  The amended guidance also requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination.  The initial allowance for these assets will be added to the purchase price at acquisition rather than being reported as an expense.  Subsequent changes in the allowance will be recorded through the income statement as an expense adjustment.  In addition, the amended guidance requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The calculation of credit losses for available-for-sale securities will be similar to how it is determined under existing guidance.  The guidance is effective for annual periods and interim periods within those annual periods beginning after

- 44 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

16. Recent accounting developments, continued

December 15, 2019.  The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required.  The Company expects that the new guidance will result in an increase in its allowance for credit losses as a result of considering credit losses over the expected life of its loan portfolios. Increases in the level of the allowance for credit losses will also reflect new requirements to include the nonaccretable principal difference on purchased credit impaired loans and estimated credit losses on investment securities classified as held-to-maturity, if any.  The Company is still evaluating the extent of the increase to the allowance for credit losses and the impact to its financial statements. 

In February 2016, the FASB issued guidance related to the accounting for leases.  The core principle of the guidance is that all leases create an asset and a liability for the lessee and, therefore, lease assets and lease liabilities should be recognized in the balance sheet.  Lease assets will be recognized as a right-of-use asset and lease liabilities will be recognized as a liability to make lease payments.  While the guidance requires all leases to be recognized in the balance sheet, there continues to be a differentiation between finance leases and operating leases for purposes of income statement recognition and cash flow statement presentation.  For finance leases, interest on the lease liability and amortization of the right-of-use asset will be recognized separately in the statement of income.  Repayments of principal on those lease liabilities will be classified within financing activities and payments of interest on the lease liability will be classified within operating activities in the statement of cash flows.  For operating leases, a single lease cost is recognized in the statement of income and allocated over the lease term, generally on a straight-line basis.  All cash payments are presented within operating activities in the statement of cash flows.  The accounting applied by lessors is largely unchanged from existing GAAP, however, the guidance eliminates the accounting model for leveraged leases for leases that commence after the effective date of the guidance.  The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.  The Company occupies certain banking offices and uses certain equipment under noncancelable operating lease agreements, which currently are not reflected in its consolidated balance sheet.  Upon adoption of the guidance, the Company expects to report increased assets and increased liabilities as a result of recognizing right-of-use assets and lease liabilities on its consolidated balance sheet. The Company was committed to $467  million of minimum lease payments under noncancelable operating lease agreements at December 31, 2016.  The Company does not expect the new guidance will have a material impact to its consolidated statement of income.

In January 2016, the FASB issued amended guidance related to recognition and measurement of financial assets and liabilities. The amended guidance requires that equity investments (excluding those accounted for under the equity method of accounting or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income. An entity can elect to measure equity investments that do not have readily determinable fair values at cost less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The impairment assessment of equity investments without readily determinable fair values is simplified by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates impairment exists, an entity is required to measure the investment at fair value. The guidance eliminates the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. Further, the guidance requires public entities to use the exit price when measuring the fair value of financial instruments for disclosure purposes. The guidance also requires an entity to present separately in other comprehensive income, a change in the instrument-specific credit risk when the entity has elected to measure a liability at fair value in accordance with the fair value option. Separate presentation of financial assets and liabilities by measurement category and type of instrument on the balance sheet or accompanying notes to the financial statements is required. The guidance also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company is still evaluating the impact the guidance could

- 45 -


NOTES TO FINANCIAL STATEMENTS, CONTINUED

16. Recent accounting developments, continued

have on its consolidated financial statements. The Company does hold certain equity securities in its available-for-sale portfolio.  Upon adoption of this guidance, fair value changes in such equity securities will be recognized in the consolidated statement of income as opposed to accumulated other comprehensive income where they are recognized under current accounting guidance.

In May 2014, the FASB issuedadopted amended accounting and disclosure guidance for revenue from contracts with customers. The core principle of the accounting guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. The amended disclosure guidance requires sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amended guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The guidance should be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application (the “modified retrospective approach”).  At present, the Company expects to adopt the revenue recognition guidance in the first quarter of 2018 usingunder the modified retrospective approach.  A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, whichmortgage banking revenues, trading account and foreign exchange gains, investment securities gains, loan and letter of credit fees, operating lease income, income from bank-owned life insurance, and certain other revenues that are generally excluded from the scope of the amended guidance.  With respectAs of result of the adoption, the Company began reporting credit card interchange revenue net of $3 million of rewards in other revenue from operations in the first quarter of 2018.  For the quarter ended March 31, 2017, credit card rewards expense of $2 million was included in other costs of operations.  The adjustment to beginning retained earnings as well as the impact of any changes in timing of revenue recognition of noninterest income items within the Company has identifiedscope of the guidance was not material to the Company’s consolidated financial position at December 31, 2017 or its consolidated results of operations for the three months ended March 31, 2018.  

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

The Company generally charges customer accounts or otherwise bills customers upon completion of its services.  Typically the Company’s contracts with customers have a duration of one year or less and payment for services is performing an evaluationreceived at least annually, but oftentimes more frequently as services are provided.  At March 31, 2018, the Company had $49 million of uncollected amounts receivable related to recognized revenue from the sources in the table below.  Such amount is classified in accrued interest and other assets in the Company’s consolidated balance sheet.  In certain situations the Company is paid in advance of providing services and defers the recognition of revenue until its service obligation is satisfied.  At March 31, 2018, the Company had deferred revenue of $43 million related to the sources in the table below recorded in accrued interest and other liabilities on its consolidated balance sheet.  The following table summarizes sources of M&T’s noninterest income during the first quarter of 2018 that are subject to the amended guidance.

 

 

Business Banking

 

 

Commercial Banking

 

 

Commercial Real Estate

 

 

Discretionary Portfolio

 

 

Residential Mortgage Banking

 

 

Retail Banking

 

 

All Other

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classification in consolidated statement of

   income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

$

15,404

 

 

 

24,654

 

 

 

2,764

 

 

 

 

 

 

3

 

 

 

60,601

 

 

 

1,689

 

 

$

105,115

 

Trust income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

131,375

 

 

 

131,375

 

Brokerage services income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,392

 

 

 

13,392

 

Other revenues from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant discount and credit card fees

 

 

7,503

 

 

 

12,712

 

 

 

554

 

 

 

 

 

 

 

 

 

3,388

 

 

 

615

 

 

 

24,772

 

Other

 

 

 

 

 

1,563

 

 

 

859

 

 

 

452

 

 

 

1,043

 

 

 

9,865

 

 

 

9,108

 

 

 

22,890

 

 

 

$

22,907

 

 

 

38,929

 

 

 

4,177

 

 

 

452

 

 

 

1,046

 

 

 

73,854

 

 

 

156,179

 

 

$

297,544

 

Service charges on deposit accounts are generally deducted directly from customer account balances and include account maintenance charges as well as fees for insufficient funds, debit card usage, and other transactional services.  Account maintenance charges are generally recognized as revenue on a monthly basis, whereas transactional fees are recognized after M&T provides the respective service.

Trust income includes fees related to the Institutional Client Services (“ICS”) business and the Wealth Advisory Services (“WAS”) business.  Revenues from the ICS business are largely derived from a variety of trustee, agency,

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

15. Revenue from contracts with customers, continued

investment, cash management and administrative services, whereas revenues from the WAS business are mainly derived from asset management, fiduciary services, and family office services.  Trust fees may be billed in arrears or in advance and are recognized as revenues as M&T’s performance obligations are satisfied.  Certain fees are based on a percentage of assets invested or under management and are recognized as the service is performed and constraints regarding the uncertainty of the underlyingamount of fees are resolved.

Brokerage service income includes revenues from the sale of mutual funds and annuities and securities brokerage fees.  Such revenues are generally recognized at the time of transaction execution.  Mutual fund and other distribution fees are recognized upon initial placement of customer funds as well as in future periods as such customers continue to hold amounts in those mutual funds.  

Merchant discount and other credit card fees include interchange fees and merchant discount fees that are generally recognized as other revenues from operations when the cardholder’s transaction is approved and settled.  Beginning in 2018, credit card rewards accrued to cardholders are recognized as a reduction of interchange revenue.  Also included in other revenues from operations are insurance commissions, ATM surcharge fees, and advisory fees.  Insurance commissions are recognized at the time the insurance policy is executed with the customer.  Insurance renewal commissions are recognized upon subsequent renewal of the policy.  ATM surcharge fees are included in revenue contracts.  To date,at the time of the respective ATM transaction.  Advisory fees are generally recognized at the conclusion of the advisory engagement when the Company has satisfied its service obligation.

16. Recent accounting developments

The following table provides a description of accounting standards that were adopted by the company in 2018 as well as standards that are not yet identified any material changes in the timing of revenue recognition when considering the amendedeffective that could have an impact to M&T’s consolidated financial statements upon adoption.

Standard

Description

Required date

of adoption

Effect on consolidated financial statements

Standards Adopted in 2018

Revenue from Contracts with Customers

The core principle of the accounting guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

January 1, 2018

As described in note 15 the Company adopted the revenue recognition guidance effective January 1, 2018 and applied the modified retrospective approach for reporting purposes.  The adjustment to beginning retained earnings as well as the impact of any changes in the timing of revenue recognition of noninterest income items within the scope of this guidance did not have a material effect on the Company’s financial position or results of operations.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

16. Recent accounting guidance, however, the Company’s implementation efforts are ongoing and such assessments may change prior to the January 1, 2018 implementationdevelopments, continued

Standard

Description

Required date

of adoption

Effect on consolidated financial statements

Standards Adopted in 2018

Recognition and Measurement of Financial Assets and Financial Liabilities

The amended guidance requires equity investments (excluding those accounted for under the equity method of accounting or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income, public entities to use the exit price when measuring the fair value of financial instruments for disclosure purposes, and an entity to present separately in other comprehensive income a change in the instrument-specific credit risk when the entity has elected to measure a liability at fair value in accordance with the fair value option.

January 1, 2018

At January 1, 2018 the Company reclassified marketable equity securities from investment securities available for sale.  Upon adoption $17 million of fair value changes in those equity securities, net of tax were reclassified from accumulated other comprehensive income to retained earnings.  As presented in note 2, fair value changes in such equity securities for the three months ended March 31, 2018 were $9 million and were recognized in gain (loss) on bank investment securities in the consolidated statement of income.

Improvements to Accounting for  Hedging Activities

The amended guidance expands and clarifies hedge accounting for nonfinancial and financial risk components, aligns the recognition and presentation of the effects of the hedging instrument and hedged item in the financial statements, and simplifies the requirements for assessing effectiveness in a hedging relationship.

January 1, 2019

Early adoption permitted

The Company early adopted the amended guidance on January 1, 2018 and such adoption did not have a material impact on its consolidated financial statements.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

The amended guidance requires the service cost component of the net periodic pension cost and net periodic postretirement benefit cost to be reported in the same line item in the income statement as other compensation costs arising from services rendered by the pertinent employees during the period.  The amendments also require that the other components of net benefit costs be presented separately from the service cost component.

January 1, 2018

The Company adopted the new reporting requirements effective January 1, 2018.  The Company previously reported all of its net periodic pension and postretirement benefit costs in salaries and employee benefits within the consolidated statement of income.  Information about net periodic pension and postretirement benefit costs that were not service cost-related is included in note 6.  The impact of adopting the amended guidance was not material.  

Scope of Modification Accounting for Share-Based Payment Awards

The amended guidance addresses which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting.

January 1, 2018

The Company adopted the amended guidance on January 1, 2018.  The guidance is being applied on a prospective basis for awards modified on or after the adoption date.

Restricted Cash

The amended guidance requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  In addition, when cash, cash equivalents, and restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, the line items and amounts must be presented on the face of the statement of cash flows or disclosed in the notes to the financial statements.  Information about the nature of restrictions on an entity’s cash and cash equivalents must also be disclosed.

January 1, 2018

The guidance was adopted on January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

16. Recent accounting developments, continued

Standard

Description

Required date

of adoption

Effect on consolidated financial statements

Standards Adopted in 2018

Classification of Certain Cash Receipts and Cash Payments

This amendment provides clarifying guidance for classifying cash inflows or outflows on the statement of cash flows where current guidance is unclear or silent.

January 1, 2018

The guidance was applied for first quarter 2018 reporting and did not have a material impact on the Company’s consolidated statement of cash flows.

Clarifying the Definition of a Business

The amended guidance clarifies the definition of a business for purposes of evaluating whether transactions would be accounted for as acquisitions (or disposals) of assets or businesses.

January 1, 2018

The guidance was adopted January 1, 2018 and will be applied to future transactions. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

Standards Not Yet Adopted as of March 31, 2018

Leases

The new guidance requires lessees to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months.  While the guidance requires all leases to be recognized in the balance sheet, there continues to be a differentiation between finance leases and operating leases for purposes of income statement recognition and cash flow statement presentation.  For finance leases, interest on the lease liability and amortization of the right-of-use asset will be recognized separately in the statement of income.  Repayments of principal on those lease liabilities will be classified within financing activities and payments of interest on the lease liability will be classified within operating activities in the statement of cash flows.  For operating leases, a single lease cost is recognized in the statement of income and allocated over the lease term, generally on a straight-line basis.  All cash payments are presented within operating activities in the statement of cash flows. The accounting applied by lessors is largely unchanged from existing GAAP, however, the guidance eliminates the accounting model for leveraged leases for leases that commence after the effective date of the guidance.

January 1, 2019

Early adoption permitted

The Company occupies certain banking offices and uses certain equipment under noncancelable operating lease agreements which currently are not reflected in its consolidated balance sheet.  Upon adoption of the guidance, the Company expects to report increased assets and increased liabilities as a result of recognizing right-of-use assets and lease liabilities on its consolidated balance sheet. The Company was committed to $429 million of minimum lease payments under noncancelable operating lease agreements at December 31, 2017.  The Company does not expect the new guidance will have a material impact to its consolidated statement of income.

Premium Amortization on Purchased Callable Debt Securities

The amended guidance requires the premium on callable debt securities to be amortized to the earliest call date.  The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

January 1, 2019

Early adoption permitted

The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

16. Recent accounting developments, continued

Standard

Description

Required date

of adoption

Effect on consolidated financial statements

Standards Not Yet Adopted as of March 31, 2018

Measurement of Credit Losses on Financial Instruments

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

January 1, 2020

Early adoption permitted as of January 1, 2019

The Company is assessing the new guidance to determine what modifications to existing credit estimation processes may be required.  The Company expects that the new guidance will result in an increase in its allowance for credit losses as a result of considering credit losses over the expected life of its loan portfolios.  Increases in the level of allowances will also reflect new requirements to include the nonaccretable principal difference on purchased credit impaired loans and estimated credit losses on investment securities classified as held-to-maturity, if any.  The Company is still evaluating the extent of the increase to the allowance for credit losses and the impact to its financial statements.

Simplifying the Test for Goodwill Impairment

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

January 1, 2020

Early adoption permitted

The amendments should be applied using a prospective transition method. The Company does not expect the guidance will have a material impact on its consolidated financial statements, unless at some point in the future one of its reporting units were to fail step 1 of the goodwill impairment test.

 

 

- 4645 -


 

Item 2.

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

Overview

M&T Bank Corporation (“M&T”) recorded net income in the first quarter of 20172018 of $353 million or $2.23 of diluted earnings per common share, compared with $349 million or $2.12 of diluted earnings per common share compared with $299 million or $1.73 of diluted earnings per common share in the initialyear-earlier quarter.  During the fourth quarter of 2016.  During the final 2016 quarter,2017, net income and diluted earnings per common share were $331$322 million and $1.98,$2.01, respectively.  Basic earnings per common share were $2.13$2.24 in the recent quarter, compared with $1.74$2.13 and $1.98$2.01 in the first and fourth quarters of 2016,2017, respectively.  The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the initial 20172018 quarter was 1.15%1.22%, compared with .97%1.15% in the correspondingsimilar 2017 quarter of 2016 and 1.05%1.06% in the final 20162017 quarter.  The annualized rate of return on average common shareholders’ equity was 8.89%9.15% in the recent quarter, compared with 7.44%8.89% in the year-earlier quarter and 8.13%8.03% in the fourth quarter of 2016.2017.

As of March 31, 2018, the Company increased its reserve for litigation matters by $135 million to reflect the status of pre-existing litigation.  The increase, on an after-tax basis, reduced net income by $102 million, or $.68 of diluted earnings per common share.  Additional information about litigation matters is included in note 12 of Notes to Financial Statements and Part II, Item 1 of this Form 10-Q.  In addition, income tax expense in the first quarter of 2018 reflects the reduction of the corporate Federal income tax rate from 35% to 21% by the Tax Cuts and Jobs Act (‘the Tax Act”) that was enacted on December 22, 2017.  Finally, the Company adopted amended accounting guidance in the first quarter of 2018 to separately report equity securities at fair value on the consolidated balance sheet (which were previously reported as investment securities available for sale) with changes in fair value recognized in the consolidated statement of income rather than through other comprehensive income.  Net unrealized losses in investments in equity securities in the initial 2018 quarter totaled $9 million.

During the firstinitial quarter of 2017, M&T adopted new accounting guidance for share-based transactions.  That guidance requires that all excess tax benefits and tax deficiencies associated with share-based compensation be recognized in income tax expense in the income statement.  Previously, tax effects resulting from changes in M&T’s share price subsequent to the grant date were recorded through shareholders’ equity at the time of vesting or exercise.  The adoption of the amended accounting guidance resulted in an $18 million reduction of income tax expense in the initialfirst quarter of 2017, quarter, or $.12 of diluted earnings per common share.

The Company’s resultsshare, and a $9 million reduction of operations during the initial 2016 quarter included $23 million ($14 million after-tax effect),income tax expense, or $.09$.06 of diluted earnings per diluted common share, of merger-related expenses (as described below) associated with M&T’s acquisition of Hudson City Bancorp, Inc.  (“Hudson City”) on November 1, 2015, while during the fourth quarter of 2016, the Company made a $30 million tax-deductible cash contribution ($.12 per diluted common share) to The M&T Charitable Foundation. As described herein under the heading “Other Expense” reflected in the first quarter of each year were seasonally higher stock-based compensation and employee benefits expenses.2018.  The impact on the final 2017 quarter was insignificant.

In accordance with M&T’s revised 2016 Capital Plan, duringResults for the firstfourth quarter of 2017 M&T repurchased 3,233,196 sharesreflected several notable items.  GAAP requires that the impact of its common stock at a total costthe provisions of $532 million and increased the quarterly common stock dividend from $.70 to $.75 per share.  Repurchases of common stockTax Act be accounted for in the final 2016 quarter totaled 300,000 shares at a costperiod of $37 million, whileenactment.  Accordingly, the incremental income tax expense recorded by the Company in the initial 2016fourth quarter of 2017 related to the Tax Act was $85 million, representing $.56 of diluted earnings per common share.  The additional expense was largely attributable to the reduction in carrying value of net deferred tax assets reflecting lower future tax benefits resulting from the lower corporate tax rate.  Also during that quarter the Company realized after-tax gains from investment securities of $14 million ($21 million pre-tax) that added $.09 to diluted earnings per common share.  Finally, the Company increased its contribution to The M&T repurchased 948,545 shares for $100Charitable Foundation by $44 million in accordance with its 2015 Capital Plan.the quarter, reducing net income by $27 million, or $.18 of diluted earnings per common share.

Supplemental Reporting of Non-GAAP Results of Operations

M&T consistently provides supplemental reporting of its results on a “net operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and expenses associated with merging acquired operations into the Company, since such items are considered by management to be “nonoperating” in nature.  Those merger-related expenses generally consist of professional services and other temporary help fees associated with the actual or planned conversion of systems and/or integration of operations; costs related to branch and office consolidations; costs related to termination of existing contractual arrangements to purchase various services; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; severance; incentive compensation costs; travel costs; and printing, supplies and other costs of completing the transactions and commencing operations in new markets and offices.  As noted earlier, those expenses (herein referred to as merger-related expenses) totaled $14 million after-tax effect in the first quarter of 2016. There were no merger-related expenses during the first quarter of 2017 or the fourth quarter of 2016. 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.

- 46 -


 

Net operating income totaled $354$357 million in the recentinitial 2018 quarter, compared with $320$354 million in the first quarter of 2016.2017.  Diluted net operating earnings per common share for the first quarter of 20172018 were $2.15,$2.26, compared with

- 47 -


$1.87 $2.15 in the year-earlier quarter. Net operating income and diluted net operating earnings per common share were $336$327 million and $2.01,$2.04, respectively, in the fourth quarter of 2016.

2017. Net operating income in the initial 2017recent quarter expressed as an annualized rate of return on average tangible assets was 1.21%1.28%, compared with 1.09%1.21% and 1.10%1.12% in the first and fourth quarters of 2016,2017, respectively. Net operating income represented an annualized return on average tangible common equity of 13.05%13.51% in the recent quarter, compared with 11.62%13.05% in the similar 2016corresponding quarter of 2017 and 11.93%11.77% in the final quarter of 2016.2017 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 $922$980 million in the initialfirst quarter of 2017,2018, up 5%6% from $878$922 million in the year-earlier quarter.  That growth resulted predominantly from a widening of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, to 3.34%3.71% in the recent quarter from 3.18%3.34% in the corresponding 2016 period.initial 2017 quarter.  The improvement in taxable-equivalent net interest income was largely the result of the higher interest rate environment due to actions initiated by the Federal Reserve in mid-December 2016March, June and mid-MarchDecember 2017 and in March 2018 to raise its target Federal funds rate by .25% atin each of those dates and highermonths.  The widening of the net interest margin was partially offset by lower average earning assets of $4.8 billion, including a decline in average loan and lease balances of $2.2$2.0 billion. Taxable-equivalent net interest income in the recent quarter increased 4%was little changed from $883 million in the final quarter of 2016, predominantly due to a 262017.  A 15 basis point (hundredths of one percent) widening of the net interest margin from 3.08%3.56% in the fourth quarter of 2016.  That2017 was offset by lower average earning assets of $2.2 billion, predominantly lower interest-bearing deposits at the Federal Reserve Bank of New York.  The widening alsoof the net interest margin reflected the impact of the two most recent increases in interest rates initiated by the Federal Reserve as noted above.Reserve.

Average loans and leases aggregated $89.8were $87.8 billion in the recent quarter, 3% higher2% lower than $87.6 billion in the initial quarter of 2016.  Commercial loans and leases averaged $22.3$89.8 billion in the first quarter of 2017, up $1.6 billion or 8% from $20.72017.  Commercial loans and leases averaged $21.5 billion in the firstinitial 2018 quarter, of 2016.down $743 million or 3% from $22.3 billion in the year-earlier quarter.  Average commercial real estate loans were $33.2totaled $33.7 billion in the recent quarter, an increase of $3.7 billion,up $477 million, or 13%1%, from $29.4$33.2 billion in the year-earlier quarter.similar quarter of 2017.  Reflecting ongoing repayments of loans obtained in the 2015 acquisition of Hudson City Bancorp, Inc. (“Hudson City”), average residential real estate loans declined $3.7$2.9 billion or 14%13% to $22.2$19.3 billion in the first quarter of 20172018 from $25.9$22.2 billion in the year-earliercorresponding 2017 quarter.  Included in that portfolio were loans held for sale, which averaged $366$300 million in the recent quarter and $323$366 million in the similar 2016year-earlier quarter.  Consumer loans averaged $12.2$13.3 billion in the recently completed quarter, an increase of $571 million$1.1 billion or 5%9% from $11.6$12.2 billion in the first quarter of 2016,2017, predominantly due to growth in average automobile and recreational vehicle loans, partially offset by lower outstanding balances of home equity lines of credit.loans.

Average loan and lease balances in the initialfirst quarter of 20172018 decreased $180$71 million from $90.0 billion in the fourth quarter of 2016.  Average commercial loan and lease balances rose $354 million, or 2%, in the recent quarter from $21.9 billion in the fourth quarter of 2016.2017.  Commercial real estate loan average balances in the initial 20172018 quarter increased $353$514 million, or 1%2%, from $32.8$33.1 billion in the final three monthsquarter of 2016.2017 while average commercial loan and lease balances were little changed.  Reflected in average commercial real estate loan balances were loans held for sale, which averaged $169$120 million and $524$259 million in the first quarter of 20172018 and the fourth quarter of 2016,2017, respectively.  Average residential real estate loans in the first three months of 20172018 declined $917$700 million, or 4%, from $23.1$20.0 billion in the final 2016 quarter,three months of 2017, reflecting the continued pay down of loans obtained in the acquisition of Hudson City.  Average consumer loans increased $30$130 million in the recent quarter from $12.1$13.2 billion in 2016’s2017’s final quarter.  The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.

- 4847 -


 

AVERAGE LOANS AND LEASES

(net of unearned discount)

 

 

 

 

 

 

Percent Increase

 

 

 

 

 

 

 

Percent Increase

 

 

 

 

 

 

 

(Decrease) from

 

 

 

 

 

 

 

(Decrease) from

 

 

 

1st Qtr.

 

 

1st Qtr.

 

 

4th Qtr.

 

 

 

1st Qtr.

 

 

1st Qtr.

 

 

4th Qtr.

 

 

 

2017

 

 

2016

 

 

2016

 

 

 

2018

 

 

2017

 

 

2017

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, etc.

 

$

22,290

 

 

 

8

 

%

 

2

 

%

 

$

21,547

 

 

 

(3

)

%

 

 

%

Real estate – commercial

 

 

33,175

 

 

 

13

 

 

 

1

 

 

 

 

33,652

 

 

 

1

 

 

 

2

 

 

Real estate – consumer

 

 

22,179

 

 

 

(14

)

 

 

(4

)

 

 

 

19,274

 

 

 

(13

)

 

 

(4

)

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automobile

 

 

3,019

 

 

 

17

 

 

 

3

 

 

 

 

3,570

 

 

 

18

 

 

 

2

 

 

Home equity lines and loans

 

 

5,577

 

 

 

(6

)

 

 

(2

)

 

 

 

5,222

 

 

 

(6

)

 

 

(2

)

 

Other

 

 

3,557

 

 

 

15

 

 

 

1

 

 

 

 

4,501

 

 

 

27

 

 

 

4

 

 

Total consumer

 

 

12,153

 

 

 

5

 

 

 

 

 

 

 

13,293

 

 

 

9

 

 

 

1

 

 

Total

 

$

89,797

 

 

 

3

 

%

 

 

%

 

$

87,766

 

 

 

(2

)

%

 

 

%

 

The investment securities portfolio averaged $16.0$14.5 billion in 2017’s2018’s first quarter, $651 million$1.5 billion or 4% above $15.310% lower than $16.0 billion in the year-earlier quarter. Investment securities averaged $15.4$14.8 billion in the final quarter of 2016.2017.  There were no significant purchases of investment securities in the initial 2018 quarter.  The Company sold a portion of its holdings of Fannie Mae and Freddie Mac preferred stock during the fourth quarter of 2017 for a gain of $18 million.  The preferred stock that was sold had a cost basis (after previous write-downs) of $3 million.

As noted earlier, effective January 1, 2018 amended accounting guidance was adopted that requires that fair value changes in equity securities with readily determinable fair values be recognized in the consolidated statement of income as opposed to accumulated other comprehensive income where they had been recognized under previous accounting guidance.  During the first quarter of 2017,2018, net unrealized losses on such equity securities aggregated $9 million, predominantly related to the Company purchased $536 million of Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities.  Similar purchasesCompany’s remaining holdings of Fannie Mae and Ginnie Mae mortgage-backed securities in the initial quarter of 2016 totaled $305 million.  During the fourth quarter of 2016, the Company purchased $1.2 billion of U.S. Treasury notes and $1.2 billion of Fannie Mae and Ginnie Mae mortgage-backed securities.  Freddie Mac preferred stock.

The investment securities portfolio is largely comprised of residential mortgage-backed securities debt securities issued by municipalities, trust preferred securities issued by certain financial institutions, and shorter-term U.S. Treasury and federal agency notes.  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 manages its investment securities portfolio, in part, to satisfy the requirements of the Liquidity Coverage Ratio (“LCR”) that became effective in January 2016.requirements established by regulators.  The LCR is intended to ensure that banks hold a sufficient amount of “high quality liquid assets” to cover the anticipated net cash outflows during a hypothetical acute 30-day stress scenario. For additional information concerning the LCR rules, refer to Part I, Item 1 of M&T’s Form 10-K for the year ended December 31, 20162017 under the heading “Liquidity.”

 

In managing its investment securities portfolio,addition to the sales noted earlier, the Company may occasionally sellssell 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 such factors as demand for loans, which generally yield more than investment securities, ongoing repayments, the levels of deposits, and management of liquidity (including the LCR) and balance sheet size and resulting capital ratios.

The Company regularly reviews its investment securities for declines in value below amortized cost that might be characterized as “other than temporary.” There were no other-than-temporary impairment charges recognized in either of the first quarters of 20172018 and 20162017 or in the final 20162017 quarter. Additional information about the investment securities portfolio is included in notes 32 and 1211 of Notes to Financial Statements.

 

Other earning assets include interest-bearing deposits at the Federal Reserve Bank of New York and other banks, trading account assets and federal funds sold.  Those other earning assets in the aggregate averaged $6.2$5.0 billion in the recently completed quarter, compared with $8.3$6.2 billion and $8.9$6.8 billion in the first and final quarters of 2016,2017, respectively.  Interest-bearing deposits at banks averaged $4.9 billion, $6.2 billion $8.2 billion and $8.8$6.7 billion during the

- 48 -


three-month periods ended March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  The amounts of investment securities and other earning assets held by the Company are influenced by such factors as demand for

- 49 -


loans, which generally yield more than investment securities and other earning assets, ongoing repayments, the levels of deposits, and management of liquidity (including the LCR) and balance sheet size and resulting capital ratios.  The amounts of interest-bearing deposits at banks at the respective dates were predominantly comprised of deposits held at the Federal Reserve Bank of New York.  The levels of those deposits often fluctuate due to changes in deposits of business and trust-related customers or short-term borrowings to manage the Company’s liquidity.

As a result of the changes described herein, average earning assets were $112.0$107.2 billion in the first quarter of 2017,2018, compared with $111.2$112.0 billion in the year-earlier quarter and $114.3$109.4 billion in the fourth quarter of 2016.2017.  

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 $88.9 billion in the first quarter of 2018, compared with $94.0 billion in the most recent quarter, compared with $89.7 billion in the year-earliersimilar 2017 quarter and $94.4$91.3 billion in the final quarter of 2016.  As compared with the fourth quarter of 2016, higher2017.  The decline in average core deposits in the first quarter of 2018 from the year-earlier quarter reflected a $2.9 billion, or 34%, decline in average balances of noninterest-bearingtime deposits in 2017’s first quarter, largely due to increased trust customer deposits, were offset by declines in average time deposits,of $250,000 or less, predominantly related to maturities of relatively high-rate deposits obtained in the acquisition of Hudson City.  The increase in average core deposits in the first quarter of 2017 from the year-earlier quarter reflected higherCity, and lower noninterest-bearing deposits, largely associated with trust customers.  As compared with the fourth quarter of 2017, the lower average core deposits in the recent quarter reflected declines in commercial savings deposits, including escrow deposits, time deposits and noninterest-bearing deposits.  The following table provides an analysis of quarterly changes in the components of average core deposits.  

AVERAGE CORE DEPOSITS

 

 

 

 

 

 

Percent Increase

 

 

 

 

 

 

 

Percent Increase

 

 

 

 

 

 

 

(Decrease) from

 

 

 

 

 

 

 

(Decrease) from

 

 

 

1st Qtr.

 

 

1st Qtr.

 

 

4th Qtr.

 

 

 

1st Qtr.

 

 

1st Qtr.

 

 

4th Qtr.

 

 

 

2017

 

 

2016

 

 

2016

 

 

 

2018

 

 

2017

 

 

2017

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

$

52,124

 

 

 

6

 

%

 

(2

)

%

 

$

51,239

 

 

 

(2

)

%

 

(2

)

%

Time deposits

 

 

8,567

 

 

 

(27

)

 

 

(12

)

 

 

 

5,656

 

 

 

(34

)

 

 

(9

)

 

Noninterest-bearing deposits

 

 

33,287

 

 

 

15

 

 

 

5

 

 

 

 

32,047

 

 

 

(4

)

 

 

(3

)

 

Total

 

$

93,978

 

 

 

5

 

%

 

 

%

 

$

88,942

 

 

 

(5

)

%

 

(3

)

%

 

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 $605 million in the initial quarter of 2018, compared with $935 million in the corresponding 2017 quarter and $645 million in the fourth quarter of 2017.  The declines in such deposits since the first quarter of 2017 compared with $1.2 billionwere predominantly the result of maturities of time deposits obtained in each of the first and fourth quarters of 2016.Hudson City acquisition.  Cayman Islands office deposits averaged $248 million, $192 million $187 million and $206$215 million for the three-month periods ended March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  Brokered time deposits averaged $59 million in each of the quarters ended March 31, 2017,2018, March 31, 20162017 and December 31, 2016.2017. The Company also had brokered savings and interest-bearing transaction accounts, which in the aggregate averaged $1.1$1.3 billion duringin each of the quarters ended March 31, 20172018 and December 31, 2016, compared with $1.22017 and $1.1 billion duringin the first quarter of 2016. The levels of brokered deposit accounts reflect the demand for such deposits, largely resulting from the desire of brokerage firms to earn reasonable yields while ensuring that customer deposits are fully insured.  The level of Cayman Islands office deposits is also reflective of customer demand.initial 2017 quarter.  Additional amounts of Cayman Islands office deposits or brokered deposits may be added in the future depending on market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time.

The Company also uses borrowings from banks, securities dealers, various Federal Home Loan Banks, the Federal Reserve Bank of New York and others as sources of funding.  Short-term borrowings represent borrowing

- 49 -


arrangements that at the time they were entered into had a contractual maturity of less than one year.year or less.  Average short-term borrowings totaled $184$280 million in the first quarter of 2017,2018, compared with $2.1 billion$184 million in the year-earlier quarter and $200$178 million in the final quarter of 2016.  The decrease in such borrowings since the first quarter of 2016 was predominantly due to the maturities of short-term borrowings from the Federal Home Loan Bank of New York

- 50 -


assumed in the Hudson City acquisition.2017.  Included in short-term borrowings were unsecured federal funds borrowings, which generally mature on the next business day, that averaged $129$141 million and $137$129 million in the first quarters of 20172018 and 2016,2017, respectively, and $144$121 million in the final quarter of 2016.2017.

Long-term borrowings averaged $8.4$8.6 billion in the initial 20172018 quarter, compared with $10.5$8.4 billion in the year-earlier quarter and $9.9$8.5 billion in the fourth quarter of 2016.2017.  M&T Bank, M&T’s principal bankbanking subsidiary, has a Bank Note Program whereby M&T Bank may offer unsecured senior and subordinated notes, however, only unsecured senior notes have been issued under that program.notes.   Average balances of outstanding senior unsecured notes outstandingissued under that program were $5.5 billion, $4.5 billion $5.4 billion, and $5.2$5.0 billion during the three-month periods ended March 31, 2017, March 31, 2016 and December 31, 2016, respectively. The proceeds of the issuances of borrowings under the Bank Note Program were predominantly utilized to purchase high-quality liquid assets that meet the requirements of the LCR.  Outstanding balances of the senior unsecured notes totaled $4.4 billion at2018, March 31, 2017 and $5.2 billion at December 31, 2016.2017, respectively.  During January 2018, M&T Bank issued $650 million of fixed rate and $350 million of variable rate senior notes that mature in 2021.  Also included in average long-term borrowings were amounts borrowed from the Federal Home Loan Banks of New York, Atlanta and Pittsburgh of $577 million in the recent quarter, compared with $1.2 billion in each ofand $579 million during the initialfirst and fourth quarters of 2017, and 2016 and the final quarter of 2016.respectively. Subordinated capital notes included in long-term borrowings averaged $1.6 billion, $1.5 billion in each ofand $1.9 billion for the three-month periods ended March 31, 2017,2018, March 31, 2016,2017 and December 31, 2016.2017, respectively.  Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings were $517$520 million in the most recent quarter, compared with $514$517 million in the first quarter of 20162017 and $516$519 million in the fourth quarter of 2016.2017. Additional information regarding junior subordinated debentures is provided in note 54 of Notes to Financial Statements.  Also included in long-term borrowings were agreements to repurchase securities, which averaged $683$420 million in the first quarter of 2017, $1.9 billion2018, $683 million in the firstyear-earlier quarter and $423 million in the final quarter of 2016 and $1.5 billion in the fourth quarter of 2016.  The lower average balances of repurchase agreements in the recent quarter as compared with the first and fourth quarters of 2016 reflect maturities in the first quarter of 2017 and fourth quarter of 2016.2017.  The repurchase agreements held at March 31, 20172018 totaled $431$419 million and have various repurchase dates through 2020, however, the contractual maturities of the underlying securities extend beyond such repurchase dates.  The Company has utilized interest rate swap agreements to modify the repricing characteristics of certain components of long-term debt.  As of March 31, 2017,2018, interest rate swap agreements were used to hedge approximately $900 million$4.7 billion of outstanding fixed rate long-term borrowings.  Further information on interest rate swap agreements is provided in note 109 of Notes to Financial Statements.

ChangesNet 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, can impact net interest income.spreads.  Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 3.15%3.47% in the first quarter of 2017,2018, compared with 3.01%3.15% in the year-earlier quarter.  The yield on earning assets during the recent quarter was 3.67%4.11%, up 1344 basis points from 3.54%3.67% in the initial 20162017 quarter, while the rate paid on interest-bearing liabilities decreased oneincreased 12 basis pointpoints to .52%.64% in the recent quarter from .53%.52% in the year-earlier period.  In the final quarter of 2016,2017, the net interest spread was 2.88%3.34%, the yield on earning assets was 3.45%3.93% and the rate paid on interest-bearing liabilities was .57%.59%.  The widening of the net interest spread in the recent quarter as compared with the first and final quarters of 20162017 was largely due to the effect of increases in short-term interest rates initiated by the Federal Reserve in mid-December 2016March, June and mid-MarchDecember 2017 and in March 2018 that contributed to higher yields on loans and leases.  Also contributing to the improved net interest spread in the initial 2017 quarter were lower average balances of long-term borrowings and of relatively low-yielding deposits held at the Federal Reserve Bank of New York.

- 5150 -


 

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 $40.4$39.3 billion in the first quarter of 2017,2018, compared with $35.1$40.4 billion and $39.0$40.2 billion in the first and fourth quarters of 2016,2017, respectively.  The increasesdecreases in average net interest-free funds in the two most recent quartersquarter as compared with the first quarterand last quarters of 20162017 reflect higherlower average balances of noninterest-bearing deposits.  Those deposits averaged $32.0 billion, $33.3 billion $28.9 billion and $31.7$32.9 billion in the quarters ended March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  The growth in average noninterest-bearing deposits since the first quarter of 2016 largely reflects higher deposits of trust customers.  Shareholders’ equity averaged $16.1 billion for the three-month period ended March 31, 2018, compared with $16.3 billion in each of the three-month periods ended March 31, 2017 and March 31, 2016, compared with $16.7 billion in the three-month period ended December 31, 2016.2017.  Goodwill and core deposit and other intangible assets averaged $4.7 billion and thein each of those three quarters. The cash surrender value of bank owned life insurance averaged $1.8 billion in each of the three-month periods ended March 31, 2018 and December 31, 2017, compared with $1.7 billion during eachthe first quarter of the quarters ended March 31, 2017, March 31, 2016 and December 31, 2016.2017.  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 .19% in the recent quarter, compared with .17%.24% in the first quarter of 20162018, compared with .19% and .20%.22% in the first and fourth quarterquarters of 2016.2017, respectively.

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 3.34%3.71% in the recent quarter, compared with 3.18%3.34% in the initial quarter of 20162017 and 3.08%3.56% in the final quarter of 2016.2017 quarter. 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 $7.6 billion (excluding $2.0 billion of forward-starting swap agreements) at March 31, 2018, compared with $900 million at each of March 31, 2017 and $7.4 billion at December 31, 2016, compared with $1.42017 (excluding $2.0 billion at March 31, 2016.of forward-starting swap agreements). 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.  ThoseThe increases in notional amounts from March 31, 2017 reflect additions of $2.9 billion of interest rate swap agreements weredesignated as cash flow hedges of variable rate commercial real estate loans and $3.8 billion of interest rate swap agreements designated as fair value hedges of certain fixed rate long-term borrowings. The $500 million decline in notional amount from March 31, 2016 reflects the expiration of a hedge transaction in December 2016 upon conversion of $500 million of fixed rate long-term borrowings to a floating rate.  There were no interest rate swap agreements designated as cash flow hedges at those respective dates.March 31, 2017.

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 coincident with the Company’s adoption of amended hedge accounting guidance on January 1, 2018 is recorded as an adjustment to the interest income or interest expense of the respective hedged item.  Prior to 2018, hedge ineffectiveness was recorded in “other revenues from operations” in the Company’s consolidated statement of income.  In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings.  The ineffective portion of the derivative’s gain or loss on cash flow hedges is accounted for similar to that associated with fair value hedges.  The amounts of hedge ineffectiveness recognized during each of the quarters ended March 31, 2017,2018, March 31, 20162017 and December 31, 20162017 were not material to the Company’s consolidated results of operations.  The estimated aggregateInformation regarding the fair value of interest rate swap agreements designated as fair value hedges represented gainsand hedge ineffectiveness is presented in note 9 of approximately $8 million at March 31, 2017, $41 million at March 31, 2016 and $12 million at December 31, 2016.  The fair values of such interest rate swap agreements were substantially offset by changes in the fair values of the hedged items.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 Company’s credit exposure as of March 31, 2017 with respect to the estimated fair value of interest rate swap agreements used for managing interest rate risk has been substantially mitigated through master netting arrangements with trading account interest rate contracts with the same counterparty, periodic settlements and counterparty postings of $11 million of collateral with the Company.

- 5251 -


 

The weighted-average rates to be received and paid under interest rate swap agreements currently in effect were 3.75%2.17% and 2.24%2.07%, respectively, at March 31, 2017.2018.  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 109 of Notes to Financial Statements.

INTEREST RATE SWAP AGREEMENTS

 

 

Three Months Ended March 31

 

 

 

Three Months Ended March 31

 

 

.

 

2017

 

 

2016

 

 

 

2018

 

 

2017

 

 

 

Amount

 

 

Rate(a)

 

 

Amount

 

 

Rate(a)

 

 

 

Amount

 

 

Rate(a)

 

 

Amount

 

 

Rate(a)

 

 

 

(Dollars in thousands)

 

 

 

(Dollars in thousands)

 

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 

 

 

 

%

$

 

 

 

 

%

 

$

(580

)

 

 

 

%

$

 

 

 

 

%

Interest expense

 

 

(3,648

)

 

 

(.02

)

 

 

(10,333

)

 

 

(.05

)

 

 

 

(1,529

)

 

 

(.01

)

 

 

(3,648

)

 

 

(.02

)

 

Net interest income/margin

 

$

3,648

 

 

 

.01

 

%

$

10,333

 

 

 

.04

 

%

 

$

949

 

 

 

.01

 

%

$

3,648

 

 

 

.01

 

%

Average notional amount

 

$

900,000

 

 

 

 

 

 

$

1,400,000

 

 

 

 

 

 

 

$

7,631,667

 

 

 

 

 

 

$

900,000

 

 

 

 

 

 

Rate received (b)

 

 

 

 

 

 

3.75

 

%

 

 

 

 

 

4.42

 

%

 

 

 

 

 

 

2.04

 

%

 

 

 

 

 

3.75

 

%

Rate paid (b)

 

 

 

 

 

 

2.13

 

%

 

 

 

 

 

1.45

 

%

 

 

 

 

 

 

1.99

 

%

 

 

 

 

 

2.13

 

%

 

(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.

In addition to interest rate swap agreements, the Company has entered into interest rate floor agreements that are accounted for in the trading account rather than as hedging instruments but, nevertheless, provide the Company with protection against the possibility of future declines in interest rates on earning assets.  At March 31, 2018 and December 31, 2017, outstanding notional amounts of such agreements totaled $15.6 billion and $6.3 billion, respectively.

As a financial intermediary, the Company is exposed to various risks, including liquidity and market risk.  Liquidity refers to the Company’s ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future obligations, including demands for loans and deposit withdrawals, funding operating costs, and other corporate purposes.  Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ.  M&T’s bank subsidiaries have access to additional funding sources through borrowings from the FHLB of New York, lines of credit with the Federal Reserve Bank of New York, the previously noted Bank Note Program, and other available borrowing facilities.  The Company has, from time to time, issued subordinated capital notes and junior subordinated debentures associated with trust preferred securities to provide liquidity and enhance regulatory capital ratios. Such notes generally qualify under the Federal Reserve Board’s risk-based capital guidelines for inclusion in the Company’s regulatory capital.  However, pursuant to the Dodd-Frank Act, the Company’s junior subordinated debentures associated with trust preferred securities have been phased-out of the definition of Tier 1 capital. Beginning January 1, 2016 those instrumentscapital but, similar to other subordinated capital notes, are considered Tier 2 capital and are only includable in total regulatory capital.

The Company has informal and sometimes reciprocal sources of funding available through various arrangements for unsecured short-term borrowings from a wide group of banks and other financial institutions.  Short-term federal funds borrowings were $177 million, $128 million $157 million and $112$125 million at March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  In general, those borrowings were unsecured and matured on the next business day.  Also included in short-term borrowings at March 31, 2018 were overnight borrowings from the Federal Home Loan Bank of New York totaling $1.4 billion.  Such borrowings were entered into by the Company to manage its liquidity position.  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 $278 million at March 31, 2018, $193 million at March 31, 2017 $167 million at March 31, 2016 and $202$178 million at December 31, 2016.2017.  The Company has also benefited from the placement of brokered deposits.  The Company had brokered savings and interest-bearinginterest-

- 52 -


bearing checking deposit accounts which aggregated approximately $1.2$1.3 billion at each of March 31, 20172018 and December 31, 2016,2017, compared with $1.1$1.2 billion at March 31, 2016.2017.  Brokered time deposits were not a significant source of funding as of those dates.

- 53 -


The Company’s ability to obtain funding from these other 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 short-term 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 by M&T Bank.  M&T Bank oftentimes acts as remarketing agent for the VRDBs and, at its discretion, may from time-to-time own some of the VRDBs while such instruments are remarketed.  When this occurs, the VRDBs are classified as trading account assets in the Company’s consolidated balance sheet.  Nevertheless, M&T Bank is not contractually obligated to purchase the VRDBs.  The value of VRDBs in the Company’s trading account aggregated $1 millionwas not material at March 31, 2017, $37 million at2018, March 31, 2016 and $30 million at2017 or December 31, 2016.2017.  The total amountamounts of VRDBs outstanding backed by M&T Bank letters of credit was $1.3were $1.0 billion at each of March 31, 20172018 and December 31, 2016, compared with $1.72017 and $1.3 billion at March 31, 2016.2017.  M&T Bank also serves as remarketing agent for most of those bonds.

The Company enters into contractual obligations in the normal course of business that require future cash payments.  Such obligations include, among others, payments related to deposits, borrowings, leases and other contractual commitments.  Off-balance sheet commitments to customers may impact liquidity, including commitments to extend credit, standby letters of credit, commercial letters of credit, financial guarantees and indemnification contracts, and commitments to sell real estate loans.  Because many of these commitments or contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows.  Further discussion of these commitments is provided in note 1312 of Notes to Financial Statements.

M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases has historically been the receipt of dividends from its bank subsidiaries, which are subject to various regulatory limitations.  Dividends from any bank subsidiary to M&T are limited by the amount of earnings of the subsidiary in the current year and the two preceding years.  For purposes of that test, at March 31, 20172018 approximately $648$499 million was available for payment of dividends to M&T from bank subsidiaries. Information regarding the long-term debt obligations of M&T is included in note 54 of Notes to Financial Statements.

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 funding needs anticipated in the normal course of business.  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. Banking regulators have enacted the LCR rules requiring a banking company to maintain a minimum amount of liquid assets to withstand a standardized supervisory liquidity stress scenario. The Company has taken steps to maintain appropriate liquidity and is in compliance with the LCRrequirements of those rules.

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

- 53 -


calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for earning assets, interest-bearing liabilities and derivatives used to hedge interest rate risk.  Management’s philosophy toward interest rate risk management is to limit the variability of net interest income.  The

- 54 -


balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans and investment securities, and expected maturities of investment securities, loans and deposits.  Management uses a “value of equity” model to supplement the modeling technique described above.  Those supplemental analyses are based on discounted cash flows associated with on- and off-balance sheet financial instruments.  Such analyses are modeled to reflect changes in interest rates and provide management with a long-term interest rate risk metric.  The Company has entered into interest rate swap agreements to help manage exposure to interest rate risk.  At March 31, 2018, the aggregate notional amount of interest rate swap agreements entered into for risk management purposes that were currently in effect was $7.6 billion.  In addition, the Company has entered into $2.0 billion of forward-starting interest rate swap agreements that will become effective as a like amount of currently effective swap agreements mature.

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, projections ofmarket-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 are compared to a base interest rate scenario that is reflective of current interest rates.scenarios.  The model considers the impact of ongoing lending and deposit-gathering activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities.  When deemed prudent, management has taken actions to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments and intends to do so in the future.  Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

The accompanying table as of March 31, 20172018 and December 31, 20162017 displays the estimated impact on net interest income from non-trading financial instruments 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

 

 

Calculated Increase (Decrease)

in Projected Net Interest Income

 

Changes in interest rates

 

March 31, 2017

 

 

December 31, 2016

 

 

March 31, 2018

 

 

December 31, 2017

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

+200 basis points

 

$

204,102

 

 

 

227,283

 

 

$

67,061

 

 

 

81,570

 

+100 basis points

 

 

139,298

 

 

 

147,400

 

 

 

55,208

 

 

 

64,434

 

-50 basis points

 

 

(93,725

)

 

 

(98,945

)

-100 basis points

 

 

(122,456

)

 

 

(94,014

)

 

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 of 100 and 200 basis point increases and a 50 basis point decrease, 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.  In 2016, the Company suspended the -100 basis point scenario due to the persistent low level of interest rates.  This scenario will be reinstated if and when interest rates rise sufficiently to make the analysis more meaningful.  

- 54 -


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. Given recent increases in short-term interest rates,

- 55 -


management believes that exposure to potential volatility of net interest income has recently increased. As a result, in 2017 management is addingadded interest rate swap agreements designated as hedging instruments to mitigate the Company’s exposure to such potential volatility.  As previously noted, the Company has also entered into interest rate floor agreements that are included in the trading account.  Such floor agreements provide the Company with protection against the possibility of future declines in interest rates on its earning assets.  In light of the uncertainties and assumptions associated with the process, the amounts presented in the table are not considered significant to the Company’s past or projected net interest income.

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 32 and 1211 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 in 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 the offsetting trading account positions associated with interest rate contracts and foreign currency and other option and futures contracts are presented in note 109 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 $39.5 billion at March 31, 2018, $22.3 billion at March 31, 2017 $18.9 billion at March 31, 2016 and $21.6$29.9 billion at December 31, 2016.2017.  The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes were $538 million at March 31, 2018, compared with $496 million at March 31, 2017 compared with $2.8 billion at March 31, 2016 and $471$530 million at December 31, 2016.2017.  Although the notional amounts of these contracts are not recorded in the consolidated balance sheet, the unsettled fair values of all financial instruments used for trading account activities are recorded in the consolidated balance sheet.  The fair values of all trading account assets and liabilities recognized on the balance sheet aggregated $175were $141 million and $139$237 million, respectively, at March 31, 2018 and $133 million and $137 million, respectively, at December 31, 2017.  Effective January 2017, certain clearinghouse exchanges revised their rules to re-characterize required collateral postings for changes in fair value of exchange-traded derivatives as legal settlements of those positions. As a result, theThe fair value asset and liability amounts at March 31, 20172018 have been reduced by contractual settlements of $112$236 million and $25$6 million, respectively. The fair values of trading account assets and liabilities were $468 million and $296 million, respectively, at March 31, 2016, and $324 million and $174 million, respectively, at December 31, 2016.  Included in trading account assets were assets related to deferred compensation plans aggregating $21 million at March 31, 2018, $22 million at each of March 31, 2017 March 31, 2016 and $23 million at December 31, 2016.2017.  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, 20172018 were $25$26 million of liabilities related to deferred compensation plans, compared with $26$25 million at each of March 31, 2017 and $27 million at December 31, 2016.2017.  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 $25 million at March 31, 2018, compared with $24 million at each of March 31, 2017 and December 31, 2016, compared with $48 million at March 31, 2016.2017.

- 55 -


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 109 of Notes to Financial Statements.

- 56 -


Provision for Credit Losses

The Company maintains an allowance for credit losses that in management’s judgment appropriately reflects losses inherent in the loan and lease portfolio.  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 initialfirst quarter of 20172018 was $55$43 million, compared with $49$55 million in the year-earlier quarter and $62$31 million in the fourth quarter of 2016.2017.  Net charge-offs of loans were $43$41 million in the recent quarter, compared with $42$43 million and $49$27 million in the first and fourth quarters of 2016,2017, respectively.  Net charge-offs as an annualized percentage of average loans and leases were .19% in each of the first quarters of 20172018 and 2016,2017, compared with .22%.12% in the final 20162017 quarter.  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 Quarter 2017

 

 

First Quarter 2016

 

 

Fourth Quarter 2016

 

 

First Quarter 2018

 

 

First Quarter 2017

 

 

Fourth Quarter 2017

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

11,896

 

 

 

902

 

 

 

17,190

 

 

$

9,758

 

 

 

11,896

 

 

 

4,744

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

3,971

 

 

 

(1,141

)

 

 

886

 

 

 

1,143

 

 

 

3,971

 

 

 

(4,404

)

Residential

 

 

4,752

 

 

 

5,085

 

 

 

4,978

 

 

 

2,844

 

 

 

4,752

 

 

 

1,717

 

Consumer

 

 

21,948

 

 

 

37,394

 

 

 

26,070

 

 

 

26,782

 

 

 

21,948

 

 

 

25,071

 

 

$

42,567

 

 

 

42,240

 

 

 

49,124

 

 

$

40,527

 

 

 

42,567

 

 

 

27,128

 

  

Net charge-offs of commercial loans and leases in the first quarter of 2017 included a $6 million charge-off associated with a producer of powdered cellulose and fiber filler products used for food and industrial applications, and in the final 2016 quarter included a $12 million charge-off associated with a multi-regional manufacturer of refractory brick and other castable products.  Included in net charge-offs of consumer loans and leases were net charge-offs during the quarters ended March 31, 2017, March 31, 2016 and December 31, 2016, respectively, of: automobile loans of $10 million in the initial 2018 quarter and $9 million $11 millionin each of the first and $8 million;fourth quarters of 2017; recreational vehicle loans of $5 million $12 millionin each of the first quarters of 2018 and $5 million;2017 and the fourth quarter of 2017; and home equity loans and lines of credit secured by one-to-four family residential properties of $3 million, $5 million and $4 million. Beginning in the first quarter of 2016, the Company accelerated the charge off of consumer loans associated with customers who were either deceased or had filed for bankruptcy that, in accordance with GAAP, had previously been considered when determining level of the allowance for credit losses and were charged-off following the Company’s normal charge-off procedures to the extent the loans subsequently became delinquent.  Charge-offs of such loans totaled $7$2 million in the recent quarter $14and $3 million in each of the first quarterand fourth quarters of 2016 and $6 million in the final quarter of 2016 and included $5 million, $11 million and $4 million, respectively, of loan balances with a current payment status at the time of charge-off.  2017.

- 5756 -


 

Loans acquired in connection with acquisition transactions subsequent to 2008 were recorded at fair value with no carry-over of any previously recorded allowance for credit losses.  Determining the fair value of the acquired loans required estimating cash flows expected to be collected on the loans and discounting those cash flows at then-current interest rates.  For acquired loans where fair value was less than outstanding principal as of the acquisition date and the resulting discount was due, at least in part, to credit deterioration, the excess of expected cash flows over the carrying value of the loans is recognized as interest income over the lives of loans.  The difference between contractually required payments and the cash flows expected to be collected is referred to as the nonaccretable balance and is not recorded on the consolidated balance sheet.  The nonaccretable balance reflects estimated future credit losses and other contractually required payments that the Company does not expect to collect.  The Company regularly evaluates the reasonableness of its cash flow projections associated with such loans, including its estimates of lifetime principal losses. Any decreases to the expected cash flows require the Company to evaluate the need for an additional allowance for credit losses and could lead to charge-offs of loan balances.  Any significant increases in expected cash flows result in additional interest income to be recognized over the then-remaining lives of the loans.  The carrying amount of loans acquired at a discount subsequent to 2008 and accounted for based on expected cash flows was $939 million, $1.6 billion $2.3 billion and $1.8$1.0 billion at March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  The decrease in such loans since March 31, 2016 was largely attributable to payments received.  The nonaccretable balance related to remaining principal losses associated with loans acquired at a discount as of March 31, 20172018 and December 31, 20162017 is presented in the accompanying table.

NONACCRETABLE BALANCE - PRINCIPAL

 

 

Remaining balance

 

 

Remaining balance

 

 

March 31, 2017

 

 

December 31, 2016

 

 

March 31, 2018

 

 

December 31, 2017

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing, etc.

 

$

5,886

 

 

 

4,794

 

 

$

3,747

 

 

 

3,586

 

Commercial real estate

 

 

39,096

 

 

 

39,867

 

 

 

28,238

 

 

 

28,783

 

Residential real estate

 

 

47,691

 

 

 

59,657

 

 

 

32,957

 

 

 

33,880

 

Consumer

 

 

11,170

 

 

 

11,275

 

 

 

7,228

 

 

 

7,482

 

Total

 

$

103,843

 

 

 

115,593

 

 

$

72,170

 

 

 

73,731

 

 

For acquired loans where the fair value exceeded the outstanding principal balance, the resulting premium is recognized as a reduction of interest income over the lives of the loans. Immediately following the acquisition date and thereafter, an allowance for credit losses is recorded for incurred losses inherent in the portfolio, consistent with the accounting for originated loans and leases. The carrying amount of Hudson City loans acquired in 2015 at a premium was $13.5$11.0 billion and $14.2$11.5 billion at March 31, 20172018 and December 31, 2016,2017, respectively. GAAP does not allow the credit loss component of the net premium associated with those loans to be bifurcated and accounted for as a nonaccreting balance as is the case with purchased impaired loans and other loans acquired at a discount.  Rather, subsequent to the acquisition date, incurred losses associated with those loans are evaluated using methods consistent with those applied to originated loans and such losses are considered by management in evaluating the Company’s allowance for credit losses.

 

Nonaccrual loans aggregated $927$865 million or 1.04%.99% of total loans and leases outstanding at March 31, 2017,2018, compared with $877$927 million or 1.00%1.04% a year earlier and $920$883 million or 1.01%1.00% at December 31, 2016.2017. The higherlower levels of nonaccrual loans at the two most recent quarter-ends as compared with March 31, 20162017 reflect the expected migrationeffect of previously performing residential real estate loans obtained in the acquisition of Hudson City that became past due over 90 days after March 31, 2016.  Nonaccrual Hudson City-related residential real estate loans totaled $207 million at March 31, 2017, $79 million at March 31, 2016borrower repayment performance and $190 million at December 31, 2016.  charge-offs.

- 5857 -


 

Accruing loans past due 90 days or more (excluding loans acquired at a discount) were $280$235 million, or .31%.27% of total loans and leases at March 31, 2017,2018, compared with $336$280 million or .38%.31% at March 31, 20162017 and $301$244 million or .33%.28% at December 31, 2016.2017.  Those amounts included loans guaranteed by government-related entities of $224 million, $253 million $279 million and $283$235 million at March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, 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 $194 million at March 31, 2018, $197 million at March 31, 2017 $226 million at March 31, 2016 and $224$207 million at December 31, 2016.2017.  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.  

Purchased impaired loans are loans obtained in acquisition transactions subsequent to 2008 that as of the acquisition date were specifically identified as displaying signs of credit deterioration and for which the Company did not expect to collect all contractually required principal and interest payments.  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 continues to accrue interest income on such loans based on the estimated expected cash flows associated with the loans.  The carrying amount of such loans was $553$378 million at March 31, 2017,2018, or .6%.4% of total loans. Of that amount, $488$357 million was related to the Hudson City acquisition. Purchased impaired loans totaled $716$553 million and $578 million at March 31, 2016 and December 31, 2016, respectively.

Accruing loans acquired at a discount past due 90 days or more are loans that could not be specifically identified as impaired as of the acquisition date, but were recorded at estimated fair value as of such date. Such loans totaled $64$410 million at March 31, 2017 compared with $62 million at March 31, 2016 and $61 million at December 31, 2016.2017, respectively.

The Company modified the terms of select loans in an effort to assist borrowers.  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. In accordance with GAAP, 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 43 of Notes to Financial Statements.

Residential real estate loans modified under specified loss mitigation programs prescribed by government guarantors 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 $191 million, $174 million $155 million and $171$189 million at March 31, 2017, March 31, 2016 and December 31, 2016, respectively.

Commercial loans and leases classified as nonaccrual totaled $261 million at each of2018, March 31, 2017 and December 31, 2016, compared with $2802017, respectively.

Nonaccrual commercial loans and leases totaled $263 million, $261 million and $241 million at March 31, 2016.2018, March 31, 2017 and December 31, 2017, respectively. Commercial real estate loans in nonaccrual status aggregated $167 million, $211 million and $202 million at each ofMarch 31, 2018, March 31, 2017 and December 31, 2016, compared with $224 million at March 31, 2016.2017, respectively.  Nonaccrual commercial real estate loans included construction-related loans of $14 million, $28 million $53 million and $35$17 million at March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  Those nonaccrual construction loans included loans to residential builders and developers of $5 million, $14 million $32 million and $17$6 million at March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively. Information about the location of nonaccrual and charged-off loans to residential real estate builders and developers as of and for the three-month period ended March 31, 2017 is presented in the accompanying table.

- 59 -


 

RESIDENTIAL BUILDER AND DEVELOPER LOANS, NET OF UNEARNED DISCOUNT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

 

March 31, 2017

 

 

 

March 31, 2017

 

 

 

 

 

 

 

 

Nonaccrual

 

 

 

Net Charge-offs (Recoveries)

 

 

 

 

Outstanding

Balances(b)

 

 

Balances

 

 

Percent of

Outstanding

Balances

 

 

 

Balances

 

 

Annualized

Percent of

Average

Outstanding

Balances

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

509,409

 

 

$

899

 

 

 

.18

 

%

 

$

(42

)

 

 

(.03

)

%

Pennsylvania

 

 

160,333

 

 

 

10,843

 

 

 

6.76

 

 

 

 

(14

)

 

 

(.04

)

 

Mid-Atlantic(a)

 

 

498,604

 

 

 

2,304

 

 

 

.46

 

 

 

 

(120

)

 

 

(.10

)

 

Other

 

 

603,505

 

 

 

1,188

 

 

 

.20

 

 

 

 

 

 

 

 

 

Total

 

$

1,771,851

 

 

$

15,234

 

 

 

.86

 

%

 

$

(176

)

 

 

(.04

)

%

(a)

Includes Delaware, Maryland, New Jersey, Virginia, West Virginia and the District of Columbia.

(b)

Includes approximately $14 million of loans not secured by real estate, of which approximately $2 million are in nonaccrual status.

Nonaccrual residential real estate loans totaled $333 million at March 31, 2018, compared with $350 million at March 31, 2017 compared with $263 million at March 31, 2016 and $336$332 million at December 31, 2016.  The increase2017.  Reflected in residential real estate loans classified as nonaccrual at the two most recent quarter-ends as compared with March 31, 2016 reflects the expected migration ofwere previously performing loans obtained in the acquisition of Hudson City that became more than 90 days delinquent.  Such nonaccrual residential real estate loans aggregated $223 million at March 31, 2018, $207 million at March 31, 2017 $79 million at March 31, 2016 and $190$215 million at December 31, 2016.2017. Those loans could not be identified as purchased impaired loans at the acquisition date because the borrowers were making loan payments at the time and the loans were not recorded at a discount. Included in residential real estate loans classified as nonaccrual were limited

- 58 -


documentation first mortgage loans of $113$99 million $76at March 31, 2018 (including $70 million and $107obtained in the acquisition of Hudson City), $113 million at March 31, 2017 March 31, 2016 and $96 million at December 31, 2016, respectively.2017.  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. Such loans in the Company’s portfolio prior to the Hudson City transaction were originated by the Company before 2008. Hudson City discontinued its limited documentation loan program in January 2014.  Residential real estate loans past due 90 days or more and accruing interest (excluding loans acquired at a discount) aggregated $222 million at March 31, 2018, compared with $251 million at March 31, 2017 compared with $279 million at March 31, 2016 and $281$233 million at December 31, 2016.2017.  A substantial portion of such amounts related to guaranteed loans repurchased from government-related entities. Information about the location of nonaccrual and charged-off residential real estate loans as of and for the quarter ended March 31, 20172018 is presented in the accompanying table.

Nonaccrual consumer loans were $102 million at March 31, 2018, compared with $104 million at March 31, 2017 compared with $110 million at March 31, 2016 and $112$108 million at December 31, 2016.2017.  Included in nonaccrual consumer loans at March 31, 2017,2018, March 31, 20162017 and December 31, 20162017 were: automobile loans of $21 million, $16 million, $15 million, and $19$24 million, respectively; recreational vehicle loans of $5 million, $10$5 million and $7$6 million, respectively; and outstanding balances of home equity loans and lines of credit of $73 million, $80 million $79 million and $82$75 million, respectively.  Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended March 31, 20172018 is presented in the accompanying table.

Information about past due and nonaccrual loans as of March 31, 20172018 and December 31, 20162017 is also included in note 43 of Notes to Financial Statements.

- 6059 -


 

SELECTED RESIDENTIAL REAL ESTATE-RELATED LOAN DATA

 

 

March 31, 2017

 

 

Quarter Ended

March 31, 2017

 

 

March 31, 2018

 

 

Quarter Ended

March 31, 2018

 

 

 

 

 

 

Nonaccrual

 

 

Net Charge-offs (Recoveries)

 

 

 

 

 

 

Nonaccrual

 

 

Net Charge-offs (Recoveries)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized

Percent of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized

Percent of

 

 

 

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Average

 

 

Outstanding

 

 

 

 

 

 

Outstanding

 

 

 

 

 

 

Outstanding

 

 

Outstanding

 

 

 

 

 

 

Outstanding

 

 

 

 

 

 

Outstanding

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

Balances

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

6,032,744

 

 

$

72,668

 

 

 

1.20

%

 

$

1,647

 

 

 

.11

%

 

$

5,431,218

 

 

$

75,285

 

 

 

1.39

%

 

$

701

 

 

 

.05

%

Pennsylvania

 

 

1,553,283

 

 

 

17,762

 

 

 

1.14

 

 

 

(43

)

 

 

(.01

)

 

 

1,345,809

 

 

 

15,435

 

 

 

1.15

 

 

 

162

 

 

 

.05

 

Maryland

 

 

1,206,961

 

 

 

17,118

 

 

 

1.42

 

 

 

49

 

 

 

.02

 

 

 

1,102,398

 

 

 

14,808

 

 

 

1.34

 

 

 

215

 

 

 

.08

 

New Jersey

 

 

4,907,675

 

 

 

48,178

 

 

 

.98

 

 

 

608

 

 

 

.05

 

 

 

4,118,156

 

 

 

57,552

 

 

 

1.40

 

 

 

1,368

 

 

 

.13

 

Other Mid-Atlantic (a)

 

 

1,043,272

 

 

 

12,034

 

 

 

1.15

 

 

 

(42

)

 

 

(.02

)

 

 

992,460

 

 

 

11,232

 

 

 

1.13

 

 

 

(129

)

 

 

(.05

)

Other

 

 

3,534,328

 

 

 

69,062

 

 

 

1.95

 

 

 

1,316

 

 

 

.15

 

 

 

3,063,724

 

 

 

59,582

 

 

 

1.94

 

 

 

1,031

 

 

 

.13

 

Total

 

$

18,278,263

 

 

$

236,822

 

 

 

1.30

%

 

$

3,535

 

 

 

.08

%

 

$

16,053,765

 

 

$

233,894

 

 

 

1.46

%

 

$

3,348

 

 

 

.08

%

Residential construction loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

4,327

 

 

$

 

 

 

%

 

$

 

 

 

%

 

$

6,635

 

 

$

 

 

 

%

 

$

 

 

 

%

Pennsylvania

 

 

1,937

 

 

 

371

 

 

 

19.16

 

 

 

5

 

 

 

.99

 

 

 

3,445

 

 

 

343

 

 

 

9.96

 

 

 

 

 

 

 

Maryland

 

 

1,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,396

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

1,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,964

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Mid-Atlantic (a)

 

 

4,115

 

 

 

120

 

 

 

2.90

 

 

 

 

 

 

 

 

 

4,478

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

6,440

 

 

 

372

 

 

 

5.78

 

 

 

(2

)

 

 

(.11

)

 

 

6,079

 

 

 

72

 

 

 

1.18

 

 

 

(2

)

 

 

(.14

)

Total

 

$

20,468

 

 

$

863

 

 

 

4.22

%

 

$

3

 

 

 

.06

%

 

$

24,997

 

 

$

415

 

 

 

1.66

%

 

$

(2

)

 

 

(.03

%)

Limited documentation first mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

1,458,812

 

 

$

41,119

 

 

 

2.82

%

 

$

780

 

 

 

.21

%

 

$

1,252,813

 

 

$

37,988

 

 

 

3.03

%

 

$

(431

)

 

 

(.14

%)

Pennsylvania

 

 

73,449

 

 

 

7,987

 

 

 

10.87

 

 

 

(1

)

 

 

(.01

)

 

 

60,035

 

 

 

5,134

 

 

 

8.55

 

 

 

147

 

 

 

.97

 

Maryland

 

 

41,949

 

 

 

3,441

 

 

 

8.20

 

 

 

36

 

 

 

.34

 

 

 

36,010

 

 

 

2,945

 

 

 

8.18

 

 

 

2

 

 

 

.02

 

New Jersey

 

 

1,327,869

 

 

 

29,777

 

 

 

2.24

 

 

 

(15

)

 

 

(.01

)

 

 

1,104,562

 

 

 

26,201

 

 

 

2.37

 

 

 

178

 

 

 

.06

 

Other Mid-Atlantic (a)

 

 

35,894

 

 

 

3,187

 

 

 

8.88

 

 

 

57

 

 

 

.62

 

 

 

28,333

 

 

 

1,815

 

 

 

6.41

 

 

 

(94

)

 

 

(1.34

)

Other

 

 

487,787

 

 

 

27,049

 

 

 

5.55

 

 

 

357

 

 

 

.29

 

 

 

400,431

 

 

 

24,894

 

 

 

6.22

 

 

 

(304

)

 

 

(.30

)

Total

 

$

3,425,760

 

 

$

112,560

 

 

 

3.29

%

 

$

1,214

 

 

 

.14

%

 

$

2,882,184

 

 

$

98,977

 

 

 

3.43

%

 

$

(502

)

 

 

(.07

%)

First lien home equity loans and lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

1,267,271

 

 

$

15,125

 

 

 

1.19

%

 

$

1,316

 

 

 

.42

%

 

$

1,230,871

 

 

$

14,010

 

 

 

1.14

%

 

$

509

 

 

 

.17

%

Pennsylvania

 

 

811,212

 

 

 

8,824

 

 

 

1.09

 

 

 

202

 

 

 

.10

 

 

 

765,007

 

 

 

7,833

 

 

 

1.02

 

 

 

497

 

 

 

.26

 

Maryland

 

 

667,613

 

 

 

6,632

 

 

 

.99

 

 

 

560

 

 

 

.34

 

 

 

631,833

 

 

 

7,508

 

 

 

1.19

 

 

 

262

 

 

 

.17

 

New Jersey

 

 

44,534

 

 

 

564

 

 

 

1.27

 

 

 

(1

)

 

 

(.01

)

 

 

63,945

 

 

 

256

 

 

 

.40

 

 

 

(2

)

 

 

(.01

)

Other Mid-Atlantic (a)

 

 

204,081

 

 

 

1,723

 

 

 

.84

 

 

 

12

 

 

 

.02

 

 

 

202,161

 

 

 

2,501

 

 

 

1.24

 

 

 

(5

)

 

 

(.01

)

Other

 

 

21,287

 

 

 

1,262

 

 

 

5.93

 

 

 

 

 

 

 

 

 

24,631

 

 

 

891

 

 

 

3.62

 

 

 

9

 

 

 

.14

 

Total

 

$

3,015,998

 

 

$

34,130

 

 

 

1.13

%

 

$

2,089

 

 

 

.28

%

 

$

2,918,448

 

 

$

32,999

 

 

 

1.13

%

 

$

1,270

 

 

 

.18

%

Junior lien home equity loans and lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

891,927

 

 

$

23,339

 

 

 

2.62

%

 

$

352

 

 

 

.16

%

 

$

815,117

 

 

$

18,909

 

 

 

2.32

%

 

$

334

 

 

 

.16

%

Pennsylvania

 

 

355,507

 

 

 

6,190

 

 

 

1.74

 

 

 

145

 

 

 

.16

 

 

 

309,711

 

 

 

3,894

 

 

 

1.26

 

 

 

(9

)

 

 

(.01

)

Maryland

 

 

774,931

 

 

 

8,955

 

 

 

1.16

 

 

 

19

 

 

 

.01

 

 

 

674,292

 

 

 

11,139

 

 

 

1.65

 

 

 

700

 

 

 

.41

 

New Jersey

 

 

128,078

 

 

 

1,352

 

 

 

1.06

 

 

 

21

 

 

 

.07

 

 

 

99,792

 

 

 

1,511

 

 

 

1.51

 

 

 

11

 

 

 

.04

 

Other Mid-Atlantic (a)

 

 

307,238

 

 

 

3,420

 

 

 

1.11

 

 

 

16

 

 

 

.02

 

 

 

281,550

 

 

 

2,808

 

 

 

1.00

 

 

 

143

 

 

 

.20

 

Other

 

 

41,883

 

 

 

2,060

 

 

 

4.92

 

 

 

(20

)

 

 

(.20

)

 

 

44,604

 

 

 

1,482

 

 

 

3.32

 

 

 

(54

)

 

 

(.50

)

Total

 

$

2,499,564

 

 

$

45,316

 

 

 

1.81

%

 

$

533

 

 

 

.09

%

 

$

2,225,066

 

 

$

39,743

 

 

 

1.79

%

 

$

1,125

 

 

 

.20

%

Limited documentation junior lien:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York

 

$

821

 

 

$

 

 

 

%

 

$

(1

)

 

 

(.45

%)

 

$

699

 

 

$

 

 

 

%

 

$

3

 

 

 

1.43

%

Pennsylvania

 

 

331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

289

 

 

 

17

 

 

 

5.88

 

 

 

5

 

 

 

7.11

 

Maryland

 

 

1,382

 

 

 

91

 

 

 

6.60

 

 

 

 

 

 

 

 

 

1,311

 

 

 

61

 

 

 

4.65

 

 

 

1

 

 

 

.15

 

New Jersey

 

 

384

 

 

 

 

 

 

 

 

 

(36

)

 

 

(37.71

)

 

 

383

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Mid-Atlantic (a)

 

 

648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

598

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

4,601

 

 

 

425

 

 

 

9.23

 

 

 

(12

)

 

 

(1.06

)

 

 

3,845

 

 

 

349

 

 

 

9.08

 

 

 

4

 

 

 

.47

 

Total

 

$

8,167

 

 

$

516

 

 

 

6.32

%

 

$

(49

)

 

 

(2.41

%)

 

$

7,125

 

 

$

427

 

 

 

5.99

%

 

$

13

 

 

 

.73

%

 

(a)

Includes Delaware, Virginia, West Virginia and the District of Columbia.

 

Real estate and other foreclosed assets totaled $102 million at March 31, 2018, compared with $119 million at March 31, 2017 compared with $188 million at March 31, 2016 and $139$112 million at December 31, 2016. The decline in2017.  Net gains or losses associated with real estate and other foreclosed assets since

- 6160 -


 

March 31, 2016 was attributable to lower levels of residential real estate properties associated with the Hudson City acquisition.  Gains or losses resulting from sales of real estate and other foreclosed assets were not material induring the three-month periods ended March 31, 2017,2018, March 31, 20162017 or December 31, 2016.2017.  At March 31, 2017,2018, the Company’s holding of residential real estate-related properties comprised approximately 94%98% 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, RENOGIATED AND IMPAIRED LOAN DATA

 

 

2017

 

 

2016 Quarters

 

 

2018

 

 

2017 Quarters

 

 

First Quarter

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

First Quarter

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$

926,675

 

 

 

920,015

 

 

 

837,362

 

 

 

848,855

 

 

 

876,691

 

 

$

864,671

 

 

 

882,598

 

 

 

869,362

 

 

 

872,374

 

 

 

926,675

 

Real estate and other foreclosed assets

 

 

119,155

 

 

 

139,206

 

 

 

159,881

 

 

 

172,473

 

 

 

188,004

 

 

 

101,514

 

 

 

111,910

 

 

 

110,515

 

 

 

104,424

 

 

 

119,155

 

Total nonperforming assets

 

$

1,045,830

 

 

 

1,059,221

 

 

 

997,243

 

 

 

1,021,328

 

 

 

1,064,695

 

 

$

966,185

 

 

 

994,508

 

 

 

979,877

 

 

 

976,798

 

 

 

1,045,830

 

Accruing loans past due 90 days or more(a)

 

$

280,019

 

 

 

300,659

 

 

 

317,282

 

 

 

298,449

 

 

 

336,170

 

 

$

235,325

 

 

 

244,405

 

 

 

261,288

 

 

 

265,461

 

 

 

280,019

 

Government guaranteed loans included in totals above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$

39,610

 

 

 

40,610

 

 

 

47,130

 

 

 

52,486

 

 

 

49,688

 

 

$

36,618

 

 

 

35,677

 

 

 

34,687

 

 

 

39,296

 

 

 

39,610

 

Accruing loans past due 90 days or more

 

 

252,552

 

 

 

282,659

 

 

 

282,077

 

 

 

269,962

 

 

 

279,340

 

 

 

223,611

 

 

 

235,489

 

 

 

252,072

 

 

 

235,227

 

 

 

252,552

 

Renegotiated loans

 

$

191,343

 

 

 

190,374

 

 

 

217,559

 

 

 

211,159

 

 

 

200,771

 

 

$

226,829

 

 

 

221,513

 

 

 

226,672

 

 

 

221,892

 

 

 

191,343

 

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

 

$

63,732

 

 

 

61,144

 

 

 

65,182

 

 

 

68,591

 

 

 

61,767

 

 

$

49,349

 

 

 

47,418

 

 

 

56,225

 

 

 

57,498

 

 

 

63,732

 

Purchased impaired loans(c):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding customer balance

 

$

890,431

 

 

 

927,446

 

 

 

981,105

 

 

 

1,040,678

 

 

 

1,124,776

 

 

$

643,124

 

 

 

688,091

 

 

 

779,340

 

 

 

838,476

 

 

 

890,431

 

Carrying amount

 

 

552,935

 

 

 

578,032

 

 

 

616,991

 

 

 

662,059

 

 

 

715,874

 

 

 

378,000

 

 

 

410,015

 

 

 

466,943

 

 

 

512,393

 

 

 

552,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans to total loans and leases, net of unearned discount

 

 

1.04

%

 

 

1.01

%

 

 

.93

%

 

 

.96

%

 

 

1.00

%

 

 

.99

%

 

 

1.00

%

 

 

.99

%

 

 

.98

%

 

 

1.04

%

Nonperforming assets to total net loans and leases and real estate

and other foreclosed assets

 

 

1.17

%

 

 

1.16

%

 

 

1.11

%

 

 

1.15

%

 

 

1.21

%

 

 

1.10

%

 

 

1.13

%

 

 

1.11

%

 

 

1.10

%

 

 

1.17

%

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

leases, net of unearned discount

 

 

.31

%

 

 

.33

%

 

 

.35

%

 

 

.34

%

 

 

.38

%

 

 

.27

%

 

 

.28

%

 

 

.30

%

 

 

.30

%

 

 

.31

%

 

(a)     Excludes loans acquired at a discount.  Predominantly residential real estate loans.

(b)

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

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

Management determined the allowance for credit losses by performing ongoing evaluations of the loan and lease portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the economic environment in which borrowers operate, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or indemnifications.  Management evaluated the impact of changes in interest rates and overall economic conditions on the ability of borrowers to meet repayment obligations when quantifying the Company’s exposure to credit losses and the allowance for such losses as of each reporting date.  Factors also considered by management when performing its assessment, in addition to general economic conditions and the other factors described above, included, but were not limited to: (i) the impact of residential real estate values on the Company’s portfolio of loans to residential real estate builders and developers and other loans secured by commercial and residential real estate; (ii) the concentrations of commercial real estate loans in the Company’s loan portfolio; (iii) the amount of commercial and industrial loans to businesses in areas of New York State outside of the New York City metropolitan area and in central Pennsylvania that have historically experienced less economic growth and vitality than the vast majority of other regions of the country; (iv) the expected repayment performance associated with the Company’s first and second lien loans secured by residential real estate, including loans obtained in the acquisition of Hudson City that

- 62 -


were not classified as purchased impaired;estate; and (v) the size of the Company’s portfolio of loans to individual consumers, which historically have experienced higher net charge-offs as

- 61 -


a percentage of loans outstanding than other loan types.  The level of the allowance is adjusted based on the results of management’s analysis.

Management cautiously and conservatively evaluated the allowance for credit losses as of March 31, 20172018 in light of:  (i) residential real estate values and the level of delinquencies of loans secured by residential real estate; (ii) economic conditions in the markets served by the Company; (iii) slower growth in private sector employment in upstate New York and central Pennsylvania than in other regions served by the Company and nationally; (iv) the significant subjectivity involved in commercial real estate valuations; and (v) the amount of loan growth experienced by the Company.  While there has been general improvement in economic conditions, concerns continue to exist about the strength and sustainability of such improvements; the volatile nature of global commodity and export markets, including the impact international economic conditions could have on the U.S. economy; Federal Reserve positioning of monetary policy; and continued stagnant population growth in the upstate New York and central Pennsylvania regions (approximately 55%53% of the Company’s loans and leases are to customers in New York State and Pennsylvania).

TheAs described in note 3 of Notes to Financial Statements, the Company utilizes a loan grading system which is applied to alldifferentiate risk amongst its commercial loans and commercial real estate loans.  Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loansLoans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more.  Criticized commercial loans and commercial real estate loans were $2.5 billion at March 31, 2017, compared withtotaled $2.3 billion at March 31, 2016 and $2.42018, compared with $2.5 billion at each of March 31 and December 31, 2016.  Approximately 99% of loan balances added to the criticized category during the recent quarter were less than 90 days past due and 91% had a current payment status.2017.  Given payment performance, amount of supporting collateral, and, in certain instances, the existence of loan guarantees, the Company still expects to collect the full outstanding principal balance on most of those loans.

Loan officers in different geographic locations with the support of the Company’s credit department personnel are responsible to continuously review and reassign loan grades to pass and criticized loans based on their detailed knowledge of individual borrowers and their judgment of the impact on such borrowers resulting from changing conditions in their respective regions. 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 reviewed.contemplated. To the extent that these loans are collateral-dependent, they are evaluated based on the fair value of the loan’s collateral as estimated at or near the financial statement date. As the quality of a loan deteriorates to the point of classifying the loan as “criticized,” the process of obtaining updated collateral valuation information is usually initiated, unless it is not considered warranted given factors such as the relative size of the loan, the characteristics of the collateral or the age of the last valuation. In those cases where current appraisals may not yet be available, prior appraisals are utilized with adjustments, as deemed necessary, for estimates of subsequent declines in value as determined by line of business and/or loan workout personnel in the respective geographic regions. Those adjustments are reviewed and assessed for reasonableness by the Company’s credit department. Accordingly, for real estate collateral securing larger commercial loans and commercial real estate loans, estimated collateral values are based on current appraisals and estimates of value. For non-real estate loans, collateral is assigned a discounted estimated liquidation value and, depending on the nature of the collateral, is verified through field exams or other procedures. In assessing collateral,

- 63 -


real estate and non-real estate values are reduced by an estimate of selling costs.

- 62 -


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, 2017,2018, approximately 55%57% of the Company’s home equity portfolio consisted of first lien loans and lines of credit.  Of the remaining junior lien loans in the portfolio, approximately 70%69% (or approximately 32%30% 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, 2018 and 2017, the balance of junior lien loans and lines that were in nonaccrual status solely as a result of first lien loan performance was $13 million, compared with $23 million at March 31, 2016 and $12$10 million at December 31, 2016.2017.  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, 2017,2018, approximately 83%82% 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 five years, and approximately 21%22% 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.

In determining the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensifiedtargeted credit review processes and also estimates losses inherent in other loans and leases. In quantifying incurred losses, the Company considers the factors and uses the techniques described herein and in note 43 of Notes to Financial Statements. For purposes of determining the level of the allowance for credit losses, the Company segments its loan and lease portfolio by loan type. The amount of specific loss components in the Company’s loan and lease portfolios is determined through a loan-by-loan analysis of commercial loans and commercial real estate loans in nonaccrual status. Measurement of the specific loss components is typically based on expected future cash flows, collateral values or other factors that may impact the borrower’s ability to pay. Losses associated with residential real estate loans and consumer loans are generally determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by the Company’s credit department. These forecasts give consideration to overall borrower repayment performance and current geographic region changes in collateral values using third party published historical price indices or automated valuation methodologies. With regard to collateral values, the realizability of such values by the Company contemplates repayment of any first lien position prior to recovering amounts on a junior lien position. Approximately 45%43% of the Company’s home equity portfolio consists of junior lien loans and lines of credit. Except for consumer loans and

- 6463 -


 

residential real estate loans that are considered smaller balance homogeneous loans and are evaluated collectively and loans obtained at a discount in acquisition transactions, the Company considers a loan to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more and has been placed in nonaccrual status. Those impaired loans are evaluated for specific loss components.  Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows. Loans less than 90 days delinquent are deemed to have a minimal delay in payment and are generally not considered to be impaired. Loans acquired in connection with acquisition transactions subsequent to 2008 were recorded at fair value with no carry-over of any previously recorded allowance for credit losses. Determining the fair value of the acquired loans required estimating cash flows expected to be collected on the loans and discounting those cash flows at then-current interest rates. For loans acquired at a discount, the impact of estimated future credit losses represents the predominant difference between contractually required payments and the cash flows expected to be collected. Subsequent decreases to those expected cash flows require the Company to evaluate the need for an additional allowance for credit losses and could lead to charge-offs of acquired loan balances. Additional information regarding the Company’s process for determining the allowance for credit losses is included in note 43 of Notes to Financial Statements.

Management believes that the allowance for credit losses at March 31, 20172018 appropriately reflected credit losses inherent in the portfolio as of that date.  The allowance for credit losses was $1.0$1.02 billion, or 1.12%1.16% of total loans and leases at each of March 31, 2018 and December 31, 2017, compared with $963 million$1.00 billion or 1.10%1.12%, at March 31, 2016 and $989 million or 1.09% at December 31, 2016.2017.  The ratio of the allowance to total loans and leases at each respective date reflects the impact of loans obtained in acquisition transactions subsequent to 2008 that have been recorded at estimated fair value. As noted earlier, GAAP prohibits any carry-over of an allowance for credit losses for acquired loans recorded at fair value.  However, for loans acquired at a premium, GAAP provides that an allowance for credit losses be recognized for incurred losses inherent in the portfolio.  The level of the allowance reflects management’s evaluation of the loan and lease portfolio using the methodology and considering the factors as described herein.  Should the various credit factors considered by management in establishing the allowance for credit losses change and should management’s assessment of losses inherent in the loan portfolio also change, the level of the allowance as a percentage of loans could increase or decrease in future periods.  The ratio of the allowance for credit losses to nonaccrual loans was 118% at March 31, 2018, compared with 108% at March 31, 2017 compared with 110% at March 31, 2016 and 107%115% at December 31, 2016.2017.  Given the Company’s general position as a secured lender and its practice of charging offcharging-off loan balances when collection is deemed doubtful, that ratio and changes in that ratio are generally not an indicative measure of the adequacy of the Company’s allowance for credit losses, nor does management rely upon that ratio in assessing the adequacy of the Company’s allowance for credit losses. The level of the allowance reflects management’s evaluation of the loan and lease portfolio as of each respective date.

Other Income

Other income totaled $447 million in the initial quarter of 2017, compared with $421$459 million in the first quarter of 2016 and $4652018, compared with $447 million in the fourthcorresponding quarter of 2016.2017 and $484 million in the final 2017 quarter.  The rise in other income during the recent quarterquarter’s improvement as compared with the year-earlierinitial 2017 quarter resulted largely fromreflects higher trust income and credit-related fees.$23 million of income from Bayview Lending Group LLC (“BLG”), partially offset by unrealized losses on investments in equity securities that, beginning in 2018, are reflected in the consolidated statement of income.  As compared with the fourth quarter of 2016,2017, the recent quarterquarter’s income from BLG was more than offset by a decline in other income reflected lower mortgage banking revenues.revenues and gains realized from the sale of investment securities in 2017.

Mortgage banking revenues were $87 million in the first quarter of 2018, compared with $85 million in the recentfirst quarter compared with $82 million in the year-earlier quarterof 2017 and $99$96 million in the final 20162017 quarter.  Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities.  The Company’s involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multi-family loan programs of Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development.

Residential mortgage banking revenues, consisting of realized gains from sales of residential real estate loans and loan servicing rights, unrealized gains and losses on residential real estate loans held for sale and related

- 6564 -


 

commitments, residential real estate loan servicing fees, and other residential real estate loan-related fees and income, were $62 million in each of the first quarter of 2018 and the final 2017 quarter, compared with $58 million in the first quarter of 2017, compared with $60 million in the year-earlier quarter and $63 million in the fourth quarter of 2016.2017.  The lowerhigher residential mortgage banking revenues in the recent quarter as compared with the finalfirst quarter of 20162017 were largely the result of decreasedincreased mortgage servicing income, partially offset by lower gains from origination activities, due to lower volumeson sales of loans originated for sale and narrower margins on those originations.residential mortgage loans.

New commitments to originate residential real estate loans to be sold were approximately $727$625 million in 2017’s firstthe initial quarter of 2018, compared with $659$727 million in the year-earlier quarter and $760$696 million in the final quarter of 2016.2017. Realized gains from sales of residential real estate loans and loan servicing rights and recognized net unrealized gains or losses attributable to residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans totaled to gains of $12 million in the first quarter of 2018, $14 million in each of the first quartersquarter of 2017 and 2016, compared with gains of $17$13 million in the fourth quarter of 2016.2017.

Loans held for sale that were secured by residential real estate aggregated $297$288 million and $269at March 31, 2018, $297 million at March 31, 2017 and 2016, respectively, and $414$356 million at December 31, 2016.2017.  Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates totaled $522 million and $343 million, respectively, at March 31, 2018, compared with $641 million and $474 million, respectively, at March 31, 2017 compared with $646and $595 million and $521 million, respectively, at March 31, 2016, and $777 million and $479$347 million, respectively, at December 31, 2016.2017.  Net recognized unrealized gains on residential real estate loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $13$8 million and $17$13 million at March 31, 20172018 and March 31, 2016,2017, respectively, and $15$10 million at December 31, 2016.2017.  Changes in such net unrealized gains are recorded in mortgage banking revenues and resulted in net decreases in revenues of $2 million in each of the first quarters of 2018 and $82017 and $5 million in the two most recent quarters, compared with a net increase in revenues of $1 million in the firstfinal quarter of 2016.

2017.

Revenues from servicing residential real estate loans for others were $44$50 million in the first quarter of 2017,2018, compared with $45$44 million and $46$49 million during the quarters ended March 31, 20162017 and December 31, 2016,2017, respectively.  Residential real estate loans serviced for others totaled $78.3 billion at March 31, 2018, $63.7 billion at March 31, 2017 $60.0 billion at March 31, 2016, and $53.2$79.2 billion at December 31, 2016.2017.  Reflected in residential real estate loans serviced for others were loans sub-serviced for others of $55.8 billion, $40.8 billion $36.3 billion and $30.4$56.6 billion at March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  Revenues earned for sub-servicing loans totaled $30 million for the quarter ended March 31, 2018, $23 million in each offor the quartersquarter ended March 31, 2017, and March 31, 2016, compared with $25$29 million in the finalfourth quarter of 2016.2017. During March 2017, the Company acquired additional sub-servicing of residential real estate loans havingas follows:  in March, approximately $12.4 billion of outstanding principal balances were added; in June, outstanding principal balances of approximately $12.4 billion. The additional sub-servicing portfolio did not have a significant impact on residential mortgage banking revenues in the first quarter$11.2 billion were added; and during September, approximately $12.0 billion of 2017.outstanding principal balances were added. The contractual servicing rights associated with loans sub-serviced by the Company were predominantly held by affiliates of Bayview Lending Group LLC (“BLG”).BLG. Information about the Company’s relationship with BLG and its affiliates is included in note 1514 of Notes to Financial Statements.

Capitalized servicing rights consist largely of servicing associated with loans sold by the Company.  Capitalized residential mortgage loan servicing assets aggregated $116 million at March 31, 2018, $118 million at each of March 31, 2017 and March 31, 2016 and $117$115 million at December 31, 2016.2017.

Commercial mortgage banking revenues aggregated $25 million in the recent quarter, compared with $27 million in the first three months of 2017, compared with $22 million in the similar 2016year-earlier period and $36$34 million in the fourth quarter of 2016.2017.  Included in such amounts were revenues from loan origination and sales activities of $15$12 million in the first quarter of 2017, $122018, $15 million in the year-earliercorresponding quarter of 2017 and $24$19 million in the final quarter of 2016.2017 quarter. Commercial real estate loans originated for sale to other investors were approximately $308$518 million in the recent quarter, compared with $355$308 million and $1.3 billion$816 million in the first and fourth quarters of 2016,2017, respectively. Loan servicing revenues totaled $13 million in the most recent quarter, compared with $12 million in the two most recent quarters, compared with $10initial quarter of 2017 and $14 million in the firstfourth quarter of 2016.2017.  Capitalized commercial mortgage servicing assets were $106$112 million and $84$106 million at March 31, 20172018 and March 31, 2016,2017, respectively, and $104$114 million at December 31, 2016.2017.  Commercial real estate loans serviced for other investors totaled $15.1$16.3 billion at March 31, 2017, $10.92018, $15.1 billion a year earlier and $11.8$16.2 billion at December 31, 2016 and included $3.0 billion, $2.6 billion and2017

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$2.8and included $3.3 billion, $3.0 billion and $3.3 billion, respectively, of loan balances for which investors had recourse to the Company if such balances are ultimately uncollectible.  In January 2017, the Company purchased commercial mortgage servicing rights and other assets which increased commercial real estate loans serviced for others by approximately $2.7 billion.  The purchase price and assets acquired were not material to the Company’s consolidated financial position.  Revenues associated with the acquired servicing rights and other assets were not significant in the first quarter of 2017.  Commitments to sell commercial real estate loans and commitments to originate commercial real estate loans for sale were $455 million and $289 million, respectively, at March 31, 2018, $373 million and $298 million, respectively, at March 31, 2017 $312and $217 million and $184 million, respectively, at March 31, 2016 and $713 million and $70$195 million, respectively, at December 31, 2016.2017.  Commercial real estate loans held for sale at March 31, 2017,2018, March 31, 20162017 and December 31, 20162017 were $167 million, $75 million $128and $22 million, and $643 million, respectively. The higher balance at December 31, 2016 reflected loans originated late in 2016 that were not delivered to investors until 2017.

Service charges on deposit accounts were $104$105 million in the recent quarter, compared with $102$104 million in the year-earlier quarter and $105$108 million in the fourth quarter of 2016.2017.  Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, aggregated $13 million in each of the first quarter of 2018 and fourth quarter of 2017, compared with $17 million in the first quarter of 2017, compared with $16 million in the first quarter of 2016 and $15 million in the fourth quarter of 2016.2017.  Trading account and foreign exchange activity resulted in gains of $10$5 million during the most recent quarter, compared with gains of $7$10 million in each of the first and fourth quarters of 2017. The recent quarter decline as compared with the earlier quarters was due largely to valuation changes on interest rate floor agreements that are not accounted for as hedging instruments but, nevertheless, provide the Company with protection against the possibility of 2016 and $8 millionfuture declines in the final quarter of 2016.interest rates on its earnings assets.  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 109 of Notes to Financial Statements and herein under the heading “Taxable-equivalent Net Interest Income.”

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 $120$131 million in the recent quarter, compared with $111$120 million in the year-earlier quarter and $122$130 million in the fourth quarter of 2016.2017.  Revenues associated with the ICS business were approximately $67 million during each of the first quarter of 2018 and the fourth quarter of 2017 and $60 million $52 million and $61 million duringin the quarters ended March 31, 2017, March 31, 2016 and December 31, 2016, respectively.first quarter of 2017. The higher revenues in the two most recent quarters as compared with the first quarter of 20162017 reflect increased fees earned from money-market funds, and stronger sales activities.activities and higher retirement services income from growth in collective funds balances. Revenues attributable to WAS totaled approximately $61 million, $54 million $51 million and $53$58 million for the three-month periods ended March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively. The higher revenues in the two most recent quarters as compared with the initial 2017 quarter reflect stronger sales activities and favorable equity market performance.  Total trust assets, which include assets under management and assets under administration, aggregatedtotaled $243.4 billion at March 31, 2018, compared with $219.0 billion at March 31, 2017 compared with $200.0 billion at March 31, 2016 and $210.6$241.5 billion at December 31, 2016.2017.  Trust assets under management were $82.9 billion, $73.6 billion $66.2 billion and $70.7$82.5 billion at March 31, 2017,2018, March 31, 20162017 and December 31, 2016,2017, respectively.  Trust assets under management include the Company’s proprietary mutual funds assets of $10.6 billion, $10.7 billion and $11.2 billion at March 31, 2018, March 31, 2017 and December 31, 2017, respectively.  Additional trust income from investment management activities was $6$4 million in the recent quarter, compared with $8$6 million in each of the first quarter of 2017 and $5 million in the fourth quartersquarter of 2016.2017.  That income largely relates to fees earned from retail customer investment accounts and from an affiliated investment manager.  Assets managed by that affiliated manager were $6.7 billion at each of March 31, 2018 and December 31, 2017 and $6.9 billion at March 31, 2017, $6.7 billion at March 31, 2016 and $7.3 billion at December 31, 2016.2017.  The Company’s trust income from that affiliate was not material during any of the quarters then-ended.

The Company’s proprietary mutual funds had assetsCompany recognized net losses on investment securities of $10.7 billion, $11.4 billion and $10.9 billion at March 31, 2017, March 31, 2016 and December 31, 2016, respectively.

Other revenues from operations were $111$9 million in the first quarter of 2017,2018, compared with $102gains of $21 million in the year-earlierfinal 2017 quarter.  There were no gains or losses on investment securities in the initial quarter of 2017.  The losses in the recent quarter represented unrealized losses on investments in equity securities, largely Fannie Mae and $116Freddie Mac preferred stock.  The gains realized in the fourth quarter of 2017 resulted from the sale of a portion of the Company’s holdings of preferred stock of Fannie Mae and Freddie Mac.

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Other revenues from operations were $126 million in the first quarter of 2018, compared with $111 million in the similar quarter of 2017 and $106 million in the fourth quarter of 2016.  As2017.  The most significant contributor to the recent quarter’s increase as compared with the initial 2016first and fourth quarters of 2017 was $23 million of income received from BLG.  Information about the Company’s relationship with BLG and its affiliates is included in note 14 of Notes to Financial Statements.  Partially offsetting that improvement as compared with the first quarter the recent quarter’s revenues reflect higherof 2017 were lower letter of credit and other credit-related fees, including loan syndication fees. Included in other revenues from operations were the following significant components.  Letter of credit and other credit-related fees aggregated $34$29 million in each of the two most recent quarter,quarters, compared with $28$34 million in the initial quarter

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of 2016 and $31 million in the final quarter of 2016.2017.  Tax-exempt income from bank owned life insurance, which includes increases in the cash surrender value of life insurance policies and benefits received, totaled $11 million in the first quarter of 2018, compared with $15 million in the first quarter of 2017 compared with $16 million in the first quarter of 2016 and $13 million in the final 20162017 quarter.  Revenues from merchant discount and credit card fees were $27$28 million in the recent quarter, compared with $26$27 million and $30$32 million in the first and fourth quarters of 2016,2017, respectively.  Insurance-related sales commissions and other revenues totaled $12 million in each of the first quarters of 2017 and 2016, compared with $11 million in the fourth quarter of 2016.  M&T’s share of the operating losses of Bayview Lending Group LLC (“BLG”)  recognized using the equity method of accounting was $2 million in each of the two most recent quarters, compared with $4$13 million in the first quarter of 2016.  Information about2018, compared with $12 million and $10 million in the Company’s relationship with BLGfirst and its affiliates is included in note 15fourth quarters of Notes to Financial Statements.2017, respectively.

Other Expense

Other expense aggregated $788$933 million in the first quarter of 2017,2018, compared with $776$788 million in the year-earliercorresponding 2017 quarter and $769$796 million in the fourth quarter of 2016.2017. Included in those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $8$7 million in 2017’s initialeach of the first quarter of 2018 and the fourth 2017 quarter, compared with $12$8 million in the first quarter of 2016 and $9 million in the final 2016 quarter, and merger-related expenses of $23 million in the first quarter of 2016. There were no merger-related expenses during the first quarter of 2017 or the fourth quarter of 2016.2017. Exclusive of those nonoperating expenses, noninterest operating expenses were $927 million in the initial quarter of 2018, compared with $779 million in the firstsimilar 2017 quarter of 2017, compared with $741and $789 million in the corresponding 2016 quarter and $760 million in the fourthfinal quarter of 2016.2017.  The most significant factors forfactor associated with the increased level of operating expenses in the recent quarter as compared with the year-earlier quarter were higher salaries and employee benefits expenses.the fourth quarter of 2017 was a $135 million increase in the reserve for litigation matters. The recent quarter’s rise in noninterest operating expenses as compared with the fourth quarter of 20162017 also reflected seasonally higher stock-based compensation and employee benefits expenses offset, in part, by the effect of a $30$44 million contribution to The M&T Charitable Foundation made in the final 20162017 quarter. Table 2 provides a reconciliation of other expense to noninterest operating expense.

 

Salaries and employee benefits expense aggregated $450$463 million in 2017’s2018’s first quarter, compared with $432$450 million in the year-earlier quarter and $393$403 million in the fourth quarter of 2016. Merger-related salaries and employee benefits expenses were $5 million in the first quarter of 2016.2017. The increasedhigher salaries and employee benefits expense in the recent quarter as compared with the first quarter of 20162017 largely reflects the impact of annual merit increases for employees and higher incentive-based compensation. The higher level of expenses in the recent quarter as compared with the final quarter of 20162017 was attributable to 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 2018 and 2017 and 2016 included $20$23 million and $16$20 million, respectively, that would have been recognized over the normal vesting period if not for the accelerated expense 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 $33$35 million and $29$33 million in the three-month periods ended March 31, 20172018 and March 31, 2016,2017, respectively, and $9 million in the three-month period ended December 31, 2016.2017. The number of full-time equivalent employees was 16,531 at March 31, 2018, compared with 16,409 and 16,456 at March 31, 2017 compared with 16,718 and 16,593 at March 31, 2016 and December 31, 2016,2017, respectively.

Excluding the nonoperating expense items described earlier from each quarter, nonpersonnel operating expenses were $330$463 million and $314$330 million in the quarters ended March 31, 20172018 and March 31, 2016,2017, respectively, and $367$386 million in the final quarter of 2016.2017.  The increase inhigher nonpersonnel operating expenses in the recent quarter as compared with the year-earlier quarter reflected increasedthe $135 million increase in the reserve for

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litigation matters, partially offset by lower Federal Deposit Insurance Corporation (“FDIC”) assessments and higher outside data processing and software costs. Higher nonpersonnel operating

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expenses inassessments. As compared with the fourth quarter of 2016 as compared with2017, the recent quarter were predominately duequarter’s increase to the $30reserve for litigation matters was offset, in part, by the impact of the $44 million cash contribution made in the final 20162017 quarter to The M&T Charitable Foundation.

The efficiency ratio measures the relationship of noninterest operating expenses to revenues.  The Company’s efficiency ratio was 56.9%64.0% during the recent quarter, compared with 57.0%56.9% and 56.4%54.7% in the first and fourth quarters of 2016,2017, respectively. The calculation of the efficiency ratio is presented in Table 2.

Income Taxes

The provision for income taxes was $105 million in the recent quarter, compared with $169 million in the year-earlier quarter and $306 million in the final quarter of 2017.  The effective tax rates were 23.0%, 32.7% and 48.7% for eachthe quarters ended March 31, 2018, March 31, 2017 and December 31, 2017, respectively. The enactment of the first quartersTax Act that was signed into law on December 22, 2017 impacted the effective tax rates in the two most recent quarters. The Tax Act reduced the corporate Federal income tax rate from 35% to 21% effective January 1, 2018 and made other changes to U.S. corporate income tax laws. GAAP requires that the impact of 2017 and 2016 was $169 million, compared with $180 millionthe provisions of the Tax Act be accounted for in the period of enactment. Accordingly, the incremental income tax expense recorded by the Company in the fourth quarter of 2016. As noted earlier, M&T adopted new accounting guidance for share-based transactions during2017 related to the first quarterTax Act was $85 million. That additional expense was largely attributable to the reduction in carrying value of 2017. That guidancenet deferred tax assets reflecting lower future tax benefits resulting from the lower corporate tax rate.  GAAP also requires that all excess tax benefits and tax deficiencies associated with share-based compensation be recognized as a discreet component of income tax expense in the income statement. Previously, tax effects resulting from changes to M&T’s share price subsequent toAs a result, the grant date were recorded through shareholders’ equity at the time of vesting or exercise. The adoption of the amended accounting guidance resulted in an $18 million reductionCompany recognized reductions of income tax expense of $9 million and $18 million in the initial quarters of 2018 and 2017, quarter.respectively.  The effective tax rates were 32.7%, 36.2% and 35.2% for the quarters ended March 31, 2017, March 31, 2016 and December 31, 2016, respectively. Excluding the impact of the adoption of the amended accounting guidance, the effective tax rate would have been 36.2%that requirement in the firstfourth quarter of 2017. 2017 was not significant.

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 but infrequently occurring items.

The Company’s effective tax rate in future periods will also be affected by the results of operations allocated to the various tax jurisdictions within which the Company operates, any change in income tax laws or regulations within those jurisdictions, and interpretations of income tax regulations that differ from the Company’s interpretations by any of various tax authorities that may examine tax returns filed by M&T or any of its subsidiaries.

Capital

Shareholders’ equity was $16.2$15.7 billion at March 31, 2017,2018, representing 13.16%13.24% of total assets, compared with $16.4$16.2 billion or 13.12%13.16% a year earlier and $16.5$16.3 billion or 13.35%13.70% at December 31, 2016.2017.

Included in shareholders’ equity was preferred stock with financial statement carrying values of $1.2 billion at each of March 31, 2017,2018, March 31, 20162017 and December 31, 2016. Further information concerning M&T’s preferred stock can be found in note 6 of Notes to Financial Statements.  

2017.  Reflecting the impact of repurchases of M&T’s common stock, common shareholders’ equity was $14.5 billion, or $98.60 per share, at March 31, 2018, compared with $15.0 billion, or $97.40 per share, at March 31, 2017, compared with $15.1 billion, or $95.00 per share, a year earlier and $15.3$15.0 billion, or $97.64$100.03 per share, at December 31, 2016.2017.  Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $67.16$66.99 at the end of the recent quarter, compared with $65.65$67.16 at March 31, 20162017 and $67.85$69.08 at December 31, 2016.2017.  The Company’s ratio of tangible common equity to tangible assets was 8.71%8.63% at each of March 31, 2017 and March 31, 2016,2018, compared with 8.92%8.71% a year earlier and 9.10% at December 31, 2016.2017.  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, unrealized losses on held-to-maturity securities for which an other-than-temporary impairment charge has been recognized, gains or

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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 losses on investment securities reflected in shareholders’ equity, net of applicable tax effect, were $162 million, or $1.10 per common share, at March 31, 2018, compared with net unrealized losses of $18 million, or $.11 per common share, at March 31, 2017 compared with net unrealized gains of $145and $44 million, or $.91

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per common share, at March 31, 2016 and net unrealized losses of $16 million, or $.10$.29 per common share, at December 31, 2016.2017.  Changes in unrealized gains and losses on investment securities are predominantly reflective of the impact of changes in interest rates on the values of such securities.  Information about unrealized gains and losses as of March, 31, 20172018 and December 31, 20162017 is included in note 32 of Notes to Financial Statements.

Reflected in net unrealized lossesthe carrying amount of available-for-sale investment securities at March 31, 20172018 were pre-tax effect unrealized gains of $125 million on available-for-sale investment securities with an amortized cost of $5.0 billion and pre-tax effect unrealized losses of $135$24 million on securities with an amortized cost of $7.6 billion.  The$1.4 billion and pre-tax effect unrealized losses reflect $15of $235 million of losses on trust preferred securities issued by financial institutions havingwith an amortized cost of $110 million and an estimated fair value of $95 million (generally considered Level 2 valuations).$9.1 billion.  Further information concerning the Company’s valuations of available-for-sale investment securities is provided in note 1211 of Notes to Financial Statements.

Each reporting period the Company reviews its investment securities for other-than-temporary impairment.  For debt securities, the Company analyzes the creditworthiness of the issuer or reviews the credit performance of the underlying collateral supporting the bond. For debt securities backed by pools of loans, such as privately issued mortgage-backed securities, the Company estimates the cash flows of the underlying loan collateral using forward-looking assumptions for default rates, loss severities and prepayment speeds. Estimated collateral cash flows are then utilized to estimate bond-specific cash flows to determine the ultimate collectibility of the bond. If the present value of the cash flows indicates that the Company should not expect to recover the entire amortized cost basis of a bond or if the Company intends to sell the bond or it more likely than not will be required to sell the bond before recovery of its amortized cost basis, an other-than-temporary impairment loss is recognized. If an other-than-temporary impairment loss is deemed to have occurred, the investment security’s cost basis is adjusted, as appropriate for the circumstances.

As of March, 31, 2017,2018, based on a review of each of the securities in the investment securities portfolio, the Company concluded that the declines in the values of any securities containing an unrealized loss were temporary and that any other-than-temporary impairment charges were not appropriate.  As of March 31, 2017,2018, the Company did not intend to sell nor is it anticipated that it would be required to sell any of its impaired securities, that is, where fair value is less than the 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 cost basis of those securities to become other-than-temporarily impaired. However, because the unrealized losses on available-for-sale investment securities have generally already been reflected in the financial statement values for investment securities and shareholders’ equity, any recognition of an other-than-temporary decline in value of those investment securities would not have a material effect on the Company’s consolidated financial condition. Any other-than-temporary impairment charge related to held-to-maturity securities would result in reductions in the financial statement values for investment securities and shareholders’ equity. Additional information concerning fair value measurements and the Company’s approach to the classification of such measurements is included in note 1211 of the Notes to Financial Statements.

The Company assessed impairment losses on privately issued mortgage-backed securities in the held-to-maturity portfolio by performing internal modeling to estimate bond-specific cash flows considering recent performance of the mortgage loan collateral and utilizing assumptions about future defaults and loss severity. These bond-specific cash flows also reflect the placement of the bond in the overall securitization structure and the remaining subordination levels.  In total, at March 31, 20172018 and December 31, 2016,2017, the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of $153$129 million and $158$136 million, respectively, and a fair value of $119$113 million and $121$111 million, respectively.  At March 31, 2017, 85%2018, 84% of the mortgage-backed securities were in the most senior tranche of the securitization structure with 24%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

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enhancement of 16%17% at March 31, 2017,2018, 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 28%33% and 71%67% 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 of March 31, 2017,2018, those privately issued mortgage-backed securities were not other-than-temporarily impaired.  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 $269$297 million, or $1.75 per common

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share, at March 31, 2017, $293 million, or $1.84$2.03 per common share, at March 31, 2016 and $2732018, $269 million, or $1.75 per common share, at March 31, 2017 and $305 million, or $2.03 per common share, at December 31, 2016.2017.

 

Consistent with its revised 2016 Capital Plan filed withOn February 5, 2018, M&T received notice of non-objection from the Federal Reserve M&T repurchased 3,233,196to repurchase an additional $745 million of shares of its common sharesstock by June 30, 2018.  This amount is in addition to the previously announced $900 million of common stock authorized for $532repurchase.  The additional repurchases of up to $745 million duringare being made under the terms of a stock repurchase program approved by M&T’s Board of Directors on February 21, 2018.  During the first quarter of 2017.2018, M&T mayrepurchased 3,783,282 shares of its common stock at a total cost of $721 million.  Repurchases of common stock in the final 2017 quarter totaled 1,343,356 shares at a cost of $224 million, while in the first quarter of 2017 M&T repurchased 3,233,196 shares for $532 million.  As of March 31, 2018, M&T has remaining authorization to repurchase up to $231$475 million of its common shares during the second quarter of 2017.  During the fourth quarter of 2016, M&T repurchased 300,000 shares of its common stock for $37 million.  Pursuant to the 2015 Capital Plan, M&T repurchased 948,545 shares of its common stock for $100 million in the initial 2016 quarter.  2018.

 

Also in accordance with the revised 2016 Capital Plan, during the first quarter of 2017 M&T’s Board of Directors authorized an increase in the quarterly common stock dividend to $.75 per common share from the previous rate of $.70 per common share.  As a result, cashCash dividends declared on M&T’s common stock totaled $116$112 million in the initial quarter of 2017,2018, compared with $112$116 million and $110$113 million in the three-month periods ended March 31, 20162017 and December 31, 2016,2017, respectively. Cash dividends declared on preferred stock aggregated $18 million in each of the first quarter of 2018, the first quarter of 2017 compared with $20 million in eachand the fourth quarter of the first and fourth quarters of 2016.  The decline in preferred stock dividends in the recent quarter from the 2016 periods resulted from the lower dividend rate for the $500 million of Series F preferred stock issued in October 2016 as compared with the like amount of Series D preferred stock that had been redeemed in December 2016.2017.

 

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

 

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

 

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

 

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

 

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

 

In addition, capital regulations provide for the phase-in of a “capital conservation buffer” composed entirely of CET1 on top of these minimum risk-weighted asset ratios. When fully phased-in on January 1, 2019 the capital conservation buffer will be 2.5%. For 2017,2018, the phase-in transition portion of that buffer is 1.25%1.875%.

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The regulatory capital ratios of the Company and its bank subsidiaries, M&T Bank and Wilmington Trust, N.A., as of March 31, 20172018 are presented in the accompanying table.

REGULATORY CAPITAL RATIOS

March 31, 20172018

 

 

M&T

 

M&T

 

 

Wilmington

 

M&T

 

M&T

 

 

Wilmington

 

(Consolidated)

 

Bank

 

 

Trust, N.A.

 

(Consolidated)

 

Bank

 

 

Trust, N.A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1

 

10.67%

 

 

10.29%

 

 

43.27%

 

10.59%

 

 

10.84%

 

 

68.88%

Tier 1 capital

 

11.91%

 

 

10.29%

 

 

43.27%

 

11.86%

 

 

10.84%

 

 

68.88%

Total capital

 

14.11%

 

 

12.01%

 

 

43.66%

 

14.35%

 

 

12.94%

 

 

69.41%

Tier 1 leverage

 

9.98%

 

 

8.63%

 

 

9.61%

 

10.15%

 

 

9.29%

 

 

12.95%

 

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, the

- 71 -


Deposit Insurance Fund of the FDIC and the banking and financial system as a whole, and generally is not intended for the protection of shareholders, investors or creditors other than insureddepositors. Changes in laws, regulations and regulatory policies applicable to the Company’s operations can increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive environment in which the Company operates, all of which could have a material effect on the business, financial condition or results of operations of the Company and in M&T’s ability to pay dividends. For additional information concerning this comprehensive regulatory framework, refer to Part I, Item 1 of M&T’s Form 10-K for the year ended December 31, 2016.

On June 17, 2013, M&T and M&T Bank entered into a written agreement with the Federal Reserve Bank of New York. Under the terms of the agreement, M&T and M&T Bank were required to submit to the Federal Reserve Bank of New York a revised compliance risk management program designed to ensure compliance with the Bank Secrecy Act and anti-money-laundering laws and regulations (“BSA/AML”) and to take certain other steps to enhance their compliance practices. M&T and M&T Bank have since made substantial progress in implementing a BSA/AML program with significantly expanded scale and scope.  M&T and M&T Bank are continuing to work towards the resolution of all outstanding issues in the written agreement.2017.

Segment Information

As required by GAAP, theThe 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 1413 of Notes to Financial Statements.  As disclosed in M&T’s Form 10-K for the year ended December 31, 2016, in2017, during the fourthsecond quarter of 2016,2017 the Company revised its funds transfer pricing allocation related to borrowingscertain deposit categories.  As a result of the changes and as described in note 13 of Notes to the residential real estate loans obtained in the acquisition of Hudson City, retroactive to 2015.  Accordingly,Financial Statements, financial information for the Discretionary Portfolio segment and the “All Other” category for the three-month period ended March 31, 2016first quarter of 2017 has been reclassified to conformprovide segment information on a comparable basis. Additionally, each reportable segment benefited from a lower corporate Federal income tax rate in the recent quarter due to the current allocation methodology.enactment of the Tax Act, as compared with the first and fourth quarters of 2017.

TheNet income of the Business Banking segment contributed net income of $22was $38 million during the quarter ended March 31, 2017,2018, compared with $25 million in the year-earlier quarter and $24$31 million in the fourth quarter of 2016.2017.  As compared with the year-earlierinitial 2017 quarter, the improvement reflected an $8 million increase in net interest income, a recent quarter rise$3 million decline in the provision for credit losses, of $5 million was partially offset by a $2 million increase in net interest income.  The modest decline in net income in the initial 2017 quarter as compared with the immediately preceding quarter was largely due to a $2 million decreaselower net charge-offs, and the lower income tax rate in net interest income.

Net income of the Commercial Banking segment was $113 million in the recent quarter, compared with $101 million in the first quarter of 2016 and $102 million in the final 2016 quarter.2018. The recent quarter’s 11% improvement as compared with the first quarter of 2016 reflected an increase inhigher net interest income of $8 million, largely resulting fromreflected a 16 basis point widening of the net interest margin on deposits higher letter of credit and other credit-related fees of $6 million, predominantly due to loan syndication fees, a decline26 basis points. The increase in the provision for credit losses of $5 million and increased gains from the sale of previously leased equipment of $3 million.  Those favorable factors were offset, in part, by higher costs for FDIC assessments of $3 million.  The higher net income in the firstrecent quarter as compared with the final quarter of 2017 as compared with 2016’s fourth quarter was largelypredominantly due to a decrease in the provision for credit losses of $16 million and increased letter of credit and other credit-related fees of $5 million, largely due to loan syndication fees.  Those favorable factors were offset, in part, by a $4 million decline in gains from the sale of previously leased equipment.  lower income tax rate.

The Commercial Real EstateBanking segment recordedcontributed net income of $85$125 million in the recent quarter, compared with $113 million in the first quarter of 2017 compared with $81and $109 million in the year-earlier period and $96 millionfinal 2017 quarter.  The 11% improvement in the fourthfirst quarter of 2016.  The recent quarter’s improvement in net income2018 as compared with the firstcorresponding quarter of 2016 reflected2017 was primarily the result of the reduction in the income tax rate.  Partially offsetting that factor were a $13$6 million increase in the provision for credit losses, mainly due to higher net charge-offs, a $6 million decline in letter of credit and credit-related fees and higher allocated operating expenses associated with data processing, risk management and other support services provided to the Commercial Banking segment. As compared with 2017’s fourth quarter, the higher recent quarter net income was primarily due to the lower income tax rate offset, in part, by a $6 million decline in net interest income and a $6

- 71 -


million rise in the provision for credit losses, due to higher mortgage banking revenues of $5 million.net charge-offs. The higherlower net interest income was largely attributable to an increasereflected two less days in average outstanding loan balances of $3.1 billion offset, in part, bythe recent quarter and a narrowing of the net interest margin on loans of 148 basis points.  Those favorable factors were

Net income of the Commercial Real Estate segment was $108 million in the first quarter of 2018, compared with $85 million in the year-earlier period and $95 million in the fourth quarter of 2017.  The results in the recent quarter as compared with the initial 2017 quarter reflected a $7 million increase in net interest income, decreases of $3 million in each of the provision for credit losses, due to lower net charge-offs, and FDIC assessments, and the lower income tax rate.  The higher net interest income was largely attributable to a widening of the net interest margin on deposits and loans of 49 basis points and 6 basis points, respectively.  The increase in net income in the recent quarter as compared with the final quarter of 2017 resulted primarily from the lower income tax rate, partially offset by a $4$6 million rise in the provision for credit losses, increased FDIC assessments of $4 million and higher personnel-related expenses of $2 million.  

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The decline inprimarily due to net incomerecoveries in the initial 2017 quarter, as compared with the final 2016 quarter was largely due to: decreased mortgage banking revenues of $9$5 million, reflecting lower origination volumes;volumes, and a $5 million rise in the provision for credit losses; a $3$4 million decline in net interest income, reflecting two less days in the recent quarter; and lower credit-related fees of $2 million.quarter.

Net income earned by the Discretionary Portfolio segment totaled $34$20 million during the three-month period ended March 31, 2017,2018, compared with $48$34 million in the year-earlier period and $29$40 million in the fourth quarter of 2016.  The2017. As compared with the first quarter of 2017, the recent quarter’s decline in net income as compared with the first quarter of 2016 was predominantlyprimarily due to a $21$16 million decrease in net interest income a $3and $9 million increaseof unrealized losses on equity securities that, beginning in 2018, are reflected in the provision for credit losses and a $2 million declineincome statement, offset, in bank owned life insurance revenues.part, by the impact of the lower income tax rate in 2018. The decline in net interest income reflected lower average loan balances of $3.8$2.9 billion and a narrowing of the net interest margin on loansinvestment securities of 12 basis points, each predominantly due to pay downs of loans obtained in the acquisition of Hudson City, partially offset by a 9 basis point widening of the net interest margin on investment securities.  The recent quarter’s favorable performance as compared with the immediately preceding quarter reflected an increase in net interest income and declines in residential real estate-related servicing costs and the provision for credit losses.

Net income from the Residential Mortgage Banking segment was $15 million in the recent quarter, compared with $17 million in the first quarter of 2016 and $20 million in 2016’s fourth quarter.points.  The decline in net income in the recent quarter as compared with the year-earlier periodimmediately preceding quarter reflected $18 million of realized gains from the sale of Fannie Mae and Freddie Mac preferred stock in 2017’s final quarter and the $9 million of unrealized losses on equity securities in the recent quarter offset, in part, by the impact of the lower servicing revenues.  Asincome tax rate in 2018.

The Residential Mortgage Banking segment contributed net income of $15 million in the recent quarter, compared with $10 million in the finalyear-earlier quarter of 2016, the decreasedand $8 million in 2017’s fourth quarter. The higher net income in the recent quarter reflectedas compared with the initial 2017 quarter was due to higher servicing revenues (including intersegment revenues) and lower servicing-related costs which were partially offset by lower revenues associated with mortgage origination and sales activities (including intersegment revenues). As compared with the final quarter of $4 million,2017, higher net income in the recent quarter was primarily the result of reduced professional services costs and a $3 million decline in net interest income, due largelyother expenses related to lower average deposit balances of $776 million.servicing residential real estate loans.

Net income earned byof the Retail Banking segment totaled $82$123 million in the first quarter of 2017,2018, compared with $63$86 million in the year-earliersimilar quarter of 2017 and $70$95 million in the final 20162017 quarter. The 29%43% improvement in net income in the recent quarter as compared with the year-earlier period reflected a $16 million decrease in the provision for credit losses due, in part, to higher levels of partial charge-offs recognized in the first quarter of 2016 associated with loans for which the Company identified that the customer was either bankrupt or deceased, and a $21$25 million increase in net interest income.income and the impact of the lower income tax rate in 2018. The improvement inhigher net interest income reflected a widening of the net interest margin on deposits of 2839 basis points, partially offset in part, by a $2.4$3.7 billion decrease in average outstanding deposit balances. Those favorable factors were partially offset by higher allocated operating expenses associated with data processing, risk management and other support services provided to this segment.  The recent quarter’s improved net incomecontribution as compared with the fourth quarter of 20162017 was largely due to: a $6 million decrease in advertising and marketing expenses of $7 million;expenses; a $5$6 million rise in net interest income, reflecting a widening of the net interest margin on deposits of 1115 basis points which was partially offset by the impact of two less days in the 2017recent quarter; a $3$4 million declinedecrease in credit card fees and merchant expenses; and the provision for credit losses; and reduced allocated operating expenses associated with data processing, risk management and other support services.lower income tax rate in 2018.  Those favorable factors were offset, in part, by a $3$4 million decrease in service charges on deposit accounts.accounts and a $3 million decrease in merchant discount and credit card fees.

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, M&T’s share of the operating losses ofresults and distributions associated with 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

- 72 -


various components of the “All Other” category resulted in net losses totaling $1$77 million for the quarter ended March 31, 2017, $382018, $3 million in the year-earlier quarter and $10$55 million in the fourth quarter of 2016.2017. The reduced net loss in the first quarter of 20172018 as compared with the year-earlier quarter largely reflected:  merger-related expensesreflected an increase to the reserve for litigation matters of $135 million to reflect the status of pre-existing litigation and higher professional and other outside services of $19 million, reflecting legal, consulting and advisory expenses. Partially offsetting those items were the following favorable recent quarter factors: $23 million in the first quarter of 2016 (there were no similar merger-related expenses in the recently completed quarter); tax benefitsincome from BLG; lower provision for credit losses of $18 million recognized in the first quarter of 2017 resulting from the adoption of new accounting guidance requiring that excess tax benefits associated with share-based compensation be recognized in income tax expense in the income

- 73 -


statement, and$15 million; higher trust income of $9 million.  Those favorable factors were offset, in part, by higher personnel-related expenses, including incentive-based compensation$11 million, largely the result of increased revenues from the WAS and ICS businesses; and the favorable impact of annual merit increases for employees.from the Company’s allocation methodologies. As compared with the immediately preceding quarter, the improved performancehigher net loss in the recent quarter reflected the $18increased reserve for litigation matters of $135 million tax benefit recognizedand higher personnel-related expenses of $55 million, reflecting annual merit increases and seasonally higher incentive and stock-based compensation and employee benefits. Those unfavorable factors were offset, in the first quarter of 2017 associated with share-based compensation,part, by the impact of the $30a $44 million contribution to The M&T Charitable Foundation in the final 20162017 quarter, the $23 million of income from BLG in the first quarter of 2018, and the favorable impact from the Company’s allocation methodologies.  Those favorable factors were largely offset by higher personnel-related costs, reflecting seasonally higher stock-based compensation and employee benefits expenses.

Recent Accounting Developments

A discussion of recent accounting developments is included in note 16 of Notes to Financial Statements.

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report contain forward-looking statements that are based on current expectations, estimates and projections about the Company’s business, management’s beliefs and assumptions made by management. 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 of 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; 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 FASB or regulatory agencies; 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

- 73 -


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.

- 74 -


 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 1

QUARTERLY TRENDS

 

 

2017

 

 

2016 Quarters

 

 

 

2018

 

 

2017 Quarters

 

 

 

First Quarter

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

 

First Quarter

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

Earnings and dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands, except per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (taxable-equivalent basis)

 

$

1,014,032

 

 

 

990,284

 

 

 

976,240

 

 

 

977,143

 

 

 

979,166

 

 

 

$

1,086,959

 

 

 

1,083,146

 

 

 

1,066,038

 

 

 

1,039,149

 

 

 

1,014,032

 

 

Interest expense

 

 

91,773

 

 

 

107,137

 

 

 

111,175

 

 

 

106,802

 

 

 

100,870

 

 

 

 

106,633

 

 

 

102,689

 

 

 

100,076

 

 

 

92,213

 

 

 

91,773

 

 

Net interest income

 

 

922,259

 

 

 

883,147

 

 

 

865,065

 

 

 

870,341

 

 

 

878,296

 

 

 

 

980,326

 

 

 

980,457

 

 

 

965,962

 

 

 

946,936

 

 

 

922,259

 

 

Less: provision for credit losses

 

 

55,000

 

 

 

62,000

 

 

 

47,000

 

 

 

32,000

 

 

 

49,000

 

 

 

 

43,000

 

 

 

31,000

 

 

 

30,000

 

 

 

52,000

 

 

 

55,000

 

 

Other income

 

 

446,845

 

 

 

465,459

 

 

 

491,350

 

 

 

448,254

 

 

 

420,933

 

 

 

 

458,696

 

 

 

484,053

 

 

 

459,429

 

 

 

460,816

 

 

 

446,845

 

 

Less: other expense

 

 

787,852

 

 

 

769,103

 

 

 

752,392

 

 

 

749,895

 

 

 

776,095

 

 

 

 

933,344

 

 

 

795,813

 

 

 

806,025

 

 

 

750,635

 

 

 

787,852

 

 

Income before income taxes

 

 

526,252

 

 

 

517,503

 

 

 

557,023

 

 

 

536,700

 

 

 

474,134

 

 

 

 

462,678

 

 

 

637,697

 

 

 

589,366

 

 

 

605,117

 

 

 

526,252

 

 

Applicable income taxes

 

 

169,326

 

 

 

179,549

 

 

 

200,314

 

 

 

194,147

 

 

 

169,274

 

 

 

 

105,259

 

 

 

306,287

 

 

 

224,615

 

 

 

215,328

 

 

 

169,326

 

 

Taxable-equivalent adjustment

 

 

7,999

 

 

 

7,383

 

 

 

6,725

 

 

 

6,522

 

 

 

6,332

 

 

 

 

4,809

 

 

 

9,007

 

 

 

8,828

 

 

 

8,736

 

 

 

7,999

 

 

Net income

 

$

348,927

 

 

 

330,571

 

 

 

349,984

 

 

 

336,031

 

 

 

298,528

 

 

 

$

352,610

 

 

 

322,403

 

 

 

355,923

 

 

 

381,053

 

 

 

348,927

 

 

Net income available to common shareholders-diluted

 

$

328,567

 

 

 

307,797

 

 

 

326,998

 

 

 

312,974

 

 

 

275,748

 

 

 

$

332,749

 

 

 

302,486

 

 

 

335,804

 

 

 

360,662

 

 

 

328,567

 

 

Per common share data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

2.13

 

 

 

1.98

 

 

 

2.10

 

 

 

1.98

 

 

 

1.74

 

 

 

$

2.24

 

 

 

2.01

 

 

 

2.22

 

 

 

2.36

 

 

 

2.13

 

 

Diluted earnings

 

 

2.12

 

 

 

1.98

 

 

 

2.10

 

 

 

1.98

 

 

 

1.73

 

 

 

 

2.23

 

 

 

2.01

 

 

 

2.21

 

 

 

2.35

 

 

 

2.12

 

 

Cash dividends

 

$

.75

 

 

 

.70

 

 

 

.70

 

 

 

.70

 

 

 

.70

 

 

 

$

.75

 

 

 

.75

 

 

 

.75

 

 

 

.75

 

 

 

.75

 

 

Average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

154,427

 

 

 

155,123

 

 

 

155,493

 

 

 

157,802

 

 

 

158,734

 

 

 

 

148,688

 

 

 

150,063

 

 

 

151,347

 

 

 

152,857

 

 

 

154,427

 

 

Diluted

 

 

154,949

 

 

 

155,700

 

 

 

156,026

 

 

 

158,341

 

 

 

159,181

 

 

 

 

148,905

 

 

 

150,348

 

 

 

151,691

 

 

 

153,276

 

 

 

154,949

 

 

Performance ratios, annualized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

 

1.15

 

%

 

1.05

 

%

 

1.12

 

%

 

1.09

 

%

 

.97

 

%

 

 

1.22

 

%

 

1.06

 

%

 

1.18

 

%

 

1.27

 

%

 

1.15

 

%

Average common shareholders’ equity

 

 

8.89

 

%

 

8.13

 

%

 

8.68

 

%

 

8.38

 

%

 

7.44

 

%

 

 

9.15

 

%

 

8.03

 

%

 

8.89

 

%

 

9.67

 

%

 

8.89

 

%

Net interest margin on average earning assets (taxable-equivalent

basis)

 

 

3.34

 

%

 

3.08

 

%

 

3.05

 

%

 

3.13

 

%

 

3.18

 

%

Net interest margin on average earning assets (taxable-

equivalent basis)

 

 

3.71

 

%

 

3.56

 

%

 

3.53

 

%

 

3.45

 

%

 

3.34

 

%

Nonaccrual loans to total loans and leases, net of

unearned discount

 

 

1.04

 

%

 

1.01

 

%

 

.93

 

%

 

.96

 

%

 

1.00

 

%

 

 

.99

 

%

 

1.00

 

%

 

.99

 

%

 

.98

 

%

 

1.04

 

%

Net operating (tangible) results (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income (in thousands)

 

$

354,035

 

 

 

336,095

 

 

 

355,929

 

 

 

350,604

 

 

 

320,064

 

 

 

$

357,498

 

 

 

326,664

 

 

 

360,658

 

 

 

385,974

 

 

 

354,035

 

 

Diluted net operating income per common share

 

 

2.15

 

 

 

2.01

 

 

 

2.13

 

 

 

2.07

 

 

 

1.87

 

 

 

$

2.26

 

 

 

2.04

 

 

 

2.24

 

 

 

2.38

 

 

 

2.15

 

 

Annualized return on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average tangible assets

 

 

1.21

 

%

 

1.10

 

%

 

1.18

 

%

 

1.18

 

%

 

1.09

 

%

 

 

1.28

 

%

 

1.12

 

%

 

1.25

 

%

 

1.33

 

%

 

1.21

 

%

Average tangible common shareholders’ equity

 

 

13.05

 

%

 

11.93

 

%

 

12.77

 

%

 

12.68

 

%

 

11.62

 

%

 

 

13.51

 

%

 

11.77

 

%

 

13.03

 

%

 

14.18

 

%

 

13.05

 

%

Efficiency ratio (b)

 

 

56.93

 

%

 

56.42

 

%

 

55.92

 

%

 

55.06

 

%

 

57.00

 

%

 

 

63.98

 

%

 

54.65

 

%

 

56.00

 

%

 

52.74

 

%

 

56.93

 

%

Balance sheet data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In millions, except per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (c)

 

$

122,978

 

 

 

125,734

 

 

 

124,725

 

 

 

123,706

 

 

 

123,252

 

 

 

$

117,684

 

 

 

120,226

 

 

 

119,515

 

 

 

120,765

 

 

 

122,978

 

 

Total tangible assets (c)

 

 

118,326

 

 

 

121,079

 

 

 

120,064

 

 

 

119,039

 

 

 

118,577

 

 

 

 

113,041

 

 

 

115,584

 

 

 

114,872

 

 

 

116,117

 

 

 

118,326

 

 

Earning assets

 

 

112,008

 

 

 

114,254

 

 

 

112,864

 

 

 

111,872

 

 

 

111,211

 

 

 

 

107,231

 

 

 

109,412

 

 

 

108,642

 

 

 

109,987

 

 

 

112,008

 

 

Investment securities

 

 

15,999

 

 

 

15,417

 

 

 

14,361

 

 

 

14,914

 

 

 

15,348

 

 

 

 

14,467

 

 

 

14,808

 

 

 

15,443

 

 

 

15,913

 

 

 

15,999

 

 

Loans and leases, net of unearned discount

 

 

89,797

 

 

 

89,977

 

 

 

88,732

 

 

 

88,155

 

 

 

87,584

 

 

 

 

87,766

 

 

 

87,837

 

 

 

88,386

 

 

 

89,268

 

 

 

89,797

 

 

Deposits

 

 

96,300

 

 

 

96,914

 

 

 

95,852

 

 

 

94,033

 

 

 

92,391

 

 

 

 

91,119

 

 

 

93,469

 

 

 

93,134

 

 

 

94,201

 

 

 

96,300

 

 

Common shareholders’ equity (c)

 

 

15,091

 

 

 

15,181

 

 

 

15,115

 

 

 

15,145

 

 

 

15,047

 

 

 

 

14,827

 

 

 

15,039

 

 

 

15,069

 

 

 

15,053

 

 

 

15,091

 

 

Tangible common shareholders’ equity (c)

 

 

10,439

 

 

 

10,526

 

 

 

10,454

 

 

 

10,478

 

 

 

10,372

 

 

 

 

10,184

 

 

 

10,397

 

 

 

10,426

 

 

 

10,405

 

 

 

10,439

 

 

At end of quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets (c)

 

$

123,223

 

 

 

123,449

 

 

 

126,841

 

 

 

123,821

 

 

 

124,626

 

 

 

$

118,623

 

 

 

118,593

 

 

 

120,402

 

 

 

120,897

 

 

 

123,223

 

 

Total tangible assets (c)

 

 

118,573

 

 

 

118,797

 

 

 

122,183

 

 

 

119,157

 

 

 

119,955

 

 

 

 

113,982

 

 

 

113,947

 

 

 

115,761

 

 

 

116,251

 

 

 

118,573

 

 

Earning assets

 

 

112,287

 

 

 

112,192

 

 

 

115,293

 

 

 

112,057

 

 

 

113,005

 

 

 

 

107,976

 

 

 

107,786

 

 

 

109,365

 

 

 

109,976

 

 

 

112,287

 

 

Investment securities

 

 

15,968

 

 

 

16,250

 

 

 

14,734

 

 

 

14,963

 

 

 

15,467

 

 

 

 

14,067

 

 

 

14,665

 

 

 

15,074

 

 

 

15,816

 

 

 

15,968

 

 

Loans and leases, net of unearned discount

 

 

89,313

 

 

 

90,853

 

 

 

89,646

 

 

 

88,522

 

 

 

87,872

 

 

 

 

87,711

 

 

 

87,989

 

 

 

87,925

 

 

 

89,081

 

 

 

89,313

 

 

Deposits

 

 

97,043

 

 

 

95,494

 

 

 

98,137

 

 

 

94,650

 

 

 

94,215

 

 

 

 

90,947

 

 

 

92,432

 

 

 

93,513

 

 

 

93,541

 

 

 

97,043

 

 

Common shareholders’ equity, net of undeclared cumulative

preferred dividends (c)

 

 

14,978

 

 

 

15,252

 

 

 

15,106

 

 

 

15,237

 

 

 

15,120

 

 

 

 

14,475

 

 

 

15,016

 

 

 

15,083

 

 

 

15,049

 

 

 

14,978

 

 

Tangible common shareholders’ equity (c)

 

 

10,328

 

 

 

10,600

 

 

 

10,448

 

 

 

10,573

 

 

 

10,449

 

 

 

 

9,834

 

 

 

10,370

 

 

 

10,442

 

 

 

10,403

 

 

 

10,328

 

 

Equity per common share

 

 

97.40

 

 

 

97.64

 

 

 

97.47

 

 

 

96.49

 

 

 

95.00

 

 

 

$

98.60

 

 

 

100.03

 

 

 

99.70

 

 

 

98.66

 

 

 

97.40

 

 

Tangible equity per common share

 

 

67.16

 

 

 

67.85

 

 

 

67.42

 

 

 

66.95

 

 

 

65.65

 

 

 

$

66.99

 

 

 

69.08

 

 

 

69.02

 

 

 

68.20

 

 

 

67.16

 

 

Market price per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

$

173.72

 

 

 

158.35

 

 

 

120.40

 

 

 

121.11

 

 

 

119.24

 

 

 

$

197.37

 

 

 

176.62

 

 

 

166.85

 

 

 

164.03

 

 

 

173.72

 

 

Low

 

 

149.51

 

 

 

112.25

 

 

 

111.13

 

 

 

107.01

 

 

 

100.08

 

 

 

 

170.00

 

 

 

155.77

 

 

 

141.12

 

 

 

147.55

 

 

 

149.51

 

 

Closing

 

 

154.73

 

 

 

156.43

 

 

 

116.10

 

 

 

118.23

 

 

 

111.00

 

 

 

 

184.36

 

 

 

170.99

 

 

 

161.04

 

 

 

161.95

 

 

 

154.73

 

 

(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.

- 75 -


 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 2

RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES

 

 

2017

 

 

2016 Quarters

 

 

2018

 

 

2017 Quarters

 

 

First Quarter

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

First Quarter

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

Income statement data (in thousands, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

348,927

 

 

 

330,571

 

 

 

349,984

 

 

 

336,031

 

 

 

298,528

 

 

$

352,610

 

 

 

322,403

 

 

 

355,923

 

 

 

381,053

 

 

 

348,927

 

Amortization of core deposit and other intangible assets (a)

 

 

5,108

 

 

 

5,524

 

 

 

5,945

 

 

 

6,936

 

 

 

7,488

 

 

 

4,888

 

 

 

4,261

 

 

 

4,735

 

 

 

4,921

 

 

 

5,108

 

Merger-related expenses (a)

 

 

 

 

 

 

 

 

 

 

 

7,637

 

 

 

14,048

 

Net operating income

 

$

354,035

 

 

 

336,095

 

 

 

355,929

 

 

 

350,604

 

 

 

320,064

 

 

$

357,498

 

 

 

326,664

 

 

 

360,658

 

 

 

385,974

 

 

 

354,035

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

2.12

 

 

 

1.98

 

 

 

2.10

 

 

 

1.98

 

 

 

1.73

 

 

$

2.23

 

 

 

2.01

 

 

 

2.21

 

 

 

2.35

 

 

 

2.12

 

Amortization of core deposit and other intangible assets (a)

 

 

.03

 

 

 

.03

 

 

 

.03

 

 

 

.04

 

 

 

.05

 

 

 

.03

 

 

 

.03

 

 

 

.03

 

 

 

.03

 

 

 

.03

 

Merger-related expenses (a)

 

 

 

 

 

 

 

 

 

 

 

.05

 

 

 

.09

 

Diluted net operating earnings per common share

 

$

2.15

 

 

$

2.01

 

 

$

2.13

 

 

$

2.07

 

 

$

1.87

 

 

$

2.26

 

 

 

2.04

 

 

 

2.24

 

 

 

2.38

 

 

 

2.15

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

$

787,852

 

 

 

769,103

 

 

 

752,392

 

 

 

749,895

 

 

 

776,095

 

 

$

933,344

 

 

 

795,813

 

 

 

806,025

 

 

 

750,635

 

 

 

787,852

 

Amortization of core deposit and other intangible assets

 

 

(8,420

)

 

 

(9,089

)

 

 

(9,787

)

 

 

(11,418

)

 

 

(12,319

)

 

 

(6,632

)

 

 

(7,025

)

 

 

(7,808

)

 

 

(8,113

)

 

 

(8,420

)

Merger-related expenses

 

 

-

 

 

 

 

 

 

 

 

 

(12,593

)

 

 

(23,162

)

Noninterest operating expense

 

$

779,432

 

 

 

760,014

 

 

 

742,605

 

 

 

725,884

 

 

 

740,614

 

 

$

926,712

 

 

 

788,788

 

 

 

798,217

 

 

 

742,522

 

 

 

779,432

 

Merger-related expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

$

 

 

 

 

 

 

 

 

 

60

 

 

 

5,274

 

Equipment and net occupancy

 

 

 

 

 

 

 

 

 

 

 

339

 

 

 

939

 

Outside data processing and software

 

 

 

 

 

 

 

 

 

 

 

352

 

 

 

715

 

Advertising and marketing

 

 

 

 

 

 

 

 

 

 

 

6,327

 

 

 

4,195

 

Printing, postage and supplies

 

 

 

 

 

 

 

 

 

 

 

545

 

 

 

937

 

Other costs of operations

 

 

 

 

 

 

 

 

 

 

 

4,970

 

 

 

11,102

 

Total

 

$

 

 

 

 

 

 

 

 

 

12,593

 

 

 

23,162

 

Efficiency ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest operating expense (numerator)

 

$

779,432

 

 

 

760,014

 

 

 

742,605

 

 

 

725,884

 

 

 

740,614

 

 

$

926,712

 

 

 

788,788

 

 

 

798,217

 

 

 

742,522

 

 

 

779,432

 

Taxable-equivalent net interest income

 

 

922,259

 

 

 

883,147

 

 

 

865,065

 

 

 

870,341

 

 

 

878,296

 

 

 

980,326

 

 

 

980,457

 

 

 

965,962

 

 

 

946,936

 

 

 

922,259

 

Other income

 

 

446,845

 

 

 

465,459

 

 

 

491,350

 

 

 

448,254

 

 

 

420,933

 

 

 

458,696

 

 

 

484,053

 

 

 

459,429

 

 

 

460,816

 

 

 

446,845

 

Less: Gain on bank investment securities

 

 

 

 

 

1,566

 

 

 

28,480

 

 

 

264

 

 

 

4

 

Less: Gain (loss) on bank investment securities

 

 

(9,431

)

 

 

21,296

 

 

 

 

 

 

(17

)

 

 

 

Denominator

 

$

1,369,104

 

 

 

1,347,040

 

 

 

1,327,935

 

 

 

1,318,331

 

 

 

1,299,225

 

 

$

1,448,453

 

 

 

1,443,214

 

 

 

1,425,391

 

 

 

1,407,769

 

 

 

1,369,104

 

Efficiency ratio

 

 

56.93

%

 

 

56.42

%

 

 

55.92

%

 

 

55.06

%

 

 

57.00

%

 

 

63.98

%

 

 

54.65

%

 

 

56.00

%

 

 

52.74

%

 

 

56.93

%

Balance sheet data (in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

$

122,978

 

 

 

125,734

 

 

 

124,725

 

 

 

123,706

 

 

 

123,252

 

 

$

117,684

 

 

 

120,226

 

 

 

119,515

 

 

 

120,765

 

 

 

122,978

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

Core deposit and other intangible assets

 

 

(98

)

 

 

(102

)

 

 

(112

)

 

 

(122

)

 

 

(134

)

 

 

(68

)

 

 

(75

)

 

 

(82

)

 

 

(90

)

 

 

(98

)

Deferred taxes

 

 

39

 

 

 

40

 

 

 

44

 

 

 

48

 

 

 

52

 

 

 

18

 

 

 

26

 

 

 

32

 

 

 

35

 

 

 

39

 

Average tangible assets

 

$

118,326

 

 

 

121,079

 

 

 

120,064

 

 

 

119,039

 

 

 

118,577

 

 

$

113,041

 

 

 

115,584

 

 

 

114,872

 

 

 

116,117

 

 

 

118,326

 

Average common equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average total equity

 

$

16,323

 

 

 

16,673

 

 

 

16,347

 

 

 

16,377

 

 

 

16,279

 

 

$

16,059

 

 

 

16,271

 

 

 

16,301

 

 

 

16,285

 

 

 

16,323

 

Preferred stock

 

 

(1,232

)

 

 

(1,492

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

Average common equity

 

 

15,091

 

 

 

15,181

 

 

 

15,115

 

 

 

15,145

 

 

 

15,047

 

 

 

14,827

 

 

 

15,039

 

 

 

15,069

 

 

 

15,053

 

 

 

15,091

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

Core deposit and other intangible assets

 

 

(98

)

 

 

(102

)

 

 

(112

)

 

 

(122

)

 

 

(134

)

 

 

(68

)

 

 

(75

)

 

 

(82

)

 

 

(90

)

 

 

(98

)

Deferred taxes

 

 

39

 

 

 

40

 

 

 

44

 

 

 

48

 

 

 

52

 

 

 

18

 

 

 

26

 

 

 

32

 

 

 

35

 

 

 

39

 

Average tangible common equity

 

$

10,439

 

 

 

10,526

 

 

 

10,454

 

 

 

10,478

 

 

 

10,372

 

 

$

10,184

 

 

 

10,397

 

 

 

10,426

 

 

 

10,405

 

 

 

10,439

 

At end of quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

123,223

 

 

 

123,449

 

 

 

126,841

 

 

 

123,821

 

 

 

124,626

 

 

 

118,623

 

 

 

118,593

 

 

 

120,402

 

 

 

120,897

 

 

 

123,223

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

Core deposit and other intangible assets

 

 

(95

)

 

 

(98

)

 

 

(107

)

 

 

(117

)

 

 

(128

)

 

 

(65

)

 

 

(72

)

 

 

(79

)

 

 

(86

)

 

 

(95

)

Deferred taxes

 

 

38

 

 

 

39

 

 

 

42

 

 

 

46

 

 

 

50

 

 

 

17

 

 

 

19

 

 

 

31

 

 

 

33

 

 

 

38

 

Total tangible assets

 

$

118,573

 

 

 

118,797

 

 

 

122,183

 

 

 

119,157

 

 

 

119,955

 

 

$

113,982

 

 

 

113,947

 

 

 

115,761

 

 

 

116,251

 

 

 

118,573

 

Total common equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

$

16,213

 

 

 

16,487

 

 

 

16,341

 

 

 

16,472

 

 

 

16,355

 

 

$

15,710

 

 

 

16,251

 

 

 

16,318

 

 

 

16,284

 

 

 

16,213

 

Preferred stock

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

 

 

(1,232

)

Undeclared dividends - cumulative preferred stock

 

 

(3

)

 

 

(3

)

 

 

(3

)

 

 

(3

)

 

 

(3

)

 

 

(3

)

 

 

(3

)

 

 

(3

)

 

 

(3

)

 

 

(3

)

Common equity, net of undeclared cumulative preferred dividends

 

 

14,978

 

 

 

15,252

 

 

 

15,106

 

 

 

15,237

 

 

 

15,120

 

 

 

14,475

 

 

 

15,016

 

 

 

15,083

 

 

 

15,049

 

 

 

14,978

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

Core deposit and other intangible assets

 

 

(95

)

 

 

(98

)

 

 

(107

)

 

 

(117

)

 

 

(128

)

 

 

(65

)

 

 

(72

)

 

 

(79

)

 

 

(86

)

 

 

(95

)

Deferred taxes

 

 

38

 

 

 

39

 

 

 

42

 

 

 

46

 

 

 

50

 

 

 

17

 

 

 

19

 

 

 

31

 

 

 

33

 

 

 

38

 

Total tangible common equity

 

$

10,328

 

 

 

10,600

 

 

 

10,448

 

 

 

10,573

 

 

 

10,449

 

 

$

9,834

 

 

 

10,370

 

 

 

10,442

 

 

 

10,403

 

 

 

10,328

 

(a)

After any related tax effect.

- 76 -


 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 3

AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES

 

 

2017 First Quarter

 

 

2016 Fourth Quarter

 

 

2016 Third Quarter

 

 

 

2018 First Quarter

 

 

2017 Fourth Quarter

 

 

2017 Third Quarter

 

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average balance in millions; interest in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, net of unearned

discount*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, etc.

 

$

22,290

 

 

$

201,126

 

 

 

3.66

 

%

 

21,936

 

 

 

191,228

 

 

 

3.47

 

%

 

21,480

 

 

 

185,552

 

 

 

3.44

 

%

 

$

21,547

 

 

$

227,296

 

 

 

4.28

 

%

 

21,562

 

 

 

220,470

 

 

 

4.06

 

%

 

21,734

 

 

 

217,953

 

 

 

3.98

 

%

Real estate - commercial

 

 

33,175

 

 

 

347,010

 

 

 

4.18

 

 

 

32,822

 

 

 

336,597

 

 

 

4.01

 

 

 

31,252

 

 

 

319,694

 

 

 

4.00

 

 

Real estate - consumer

 

 

22,179

 

 

 

217,263

 

 

 

3.92

 

 

 

23,096

 

 

 

223,758

 

 

 

3.88

 

 

 

24,058

 

 

 

235,813

 

 

 

3.92

 

 

Real estate – commercial

 

 

33,652

 

 

 

397,713

 

 

 

4.73

 

 

 

33,138

 

 

 

390,752

 

 

 

4.61

 

 

 

33,257

 

 

 

382,352

 

 

 

4.50

 

 

Real estate – consumer

 

 

19,274

 

 

 

195,701

 

 

 

4.06

 

 

 

19,974

 

 

 

201,151

 

 

 

4.03

 

 

 

20,609

 

 

 

204,008

 

 

 

3.96

 

 

Consumer

 

 

12,153

 

 

 

140,170

 

 

 

4.68

 

 

 

12,123

 

 

 

138,144

 

 

 

4.53

 

 

 

11,942

 

 

 

136,592

 

 

 

4.55

 

 

 

 

13,293

 

 

 

163,991

 

 

 

5.00

 

 

 

13,163

 

 

 

162,765

 

 

 

4.91

 

 

 

12,786

 

 

 

157,721

 

 

 

4.89

 

 

Total loans and leases, net

 

 

89,797

 

 

 

905,569

 

 

 

4.09

 

 

 

89,977

 

 

 

889,727

 

 

 

3.93

 

 

 

88,732

 

 

 

877,651

 

 

 

3.93

 

 

 

 

87,766

 

 

 

984,701

 

 

 

4.55

 

 

 

87,837

 

 

 

975,138

 

 

 

4.40

 

 

 

88,386

 

 

 

962,034

 

 

 

4.32

 

 

Interest-bearing deposits at banks

 

 

6,152

 

 

 

12,162

 

 

 

.80

 

 

 

8,790

 

 

 

11,833

 

 

 

.54

 

 

 

9,681

 

 

 

12,355

 

 

 

.51

 

 

 

 

4,941

 

 

 

18,677

 

 

 

1.53

 

 

 

6,680

 

 

 

21,981

 

 

 

1.31

 

 

 

4,740

 

 

 

14,970

 

 

 

1.25

 

 

Federal funds sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

17

 

 

 

1.85

 

 

 

 

 

 

2

 

 

 

1.78

 

 

 

 

 

 

1

 

 

 

1.58

 

 

Trading account

 

 

60

 

 

 

328

 

 

 

2.20

 

 

 

70

 

 

 

358

 

 

 

2.05

 

 

 

90

 

 

 

342

 

 

 

1.52

 

 

 

 

54

 

 

 

404

 

 

 

3.00

 

 

 

87

 

 

 

283

 

 

 

1.31

 

 

 

73

 

 

 

351

 

 

 

1.92

 

 

Investment securities**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

15,113

 

 

 

88,573

 

 

 

2.38

 

 

 

14,511

 

 

 

80,510

 

 

 

2.21

 

 

 

13,418

 

 

 

78,259

 

 

 

2.32

 

 

 

 

13,689

 

 

 

78,017

 

 

 

2.31

 

 

 

14,012

 

 

 

78,995

 

 

 

2.24

 

 

 

14,632

 

 

 

81,707

 

 

 

2.22

 

 

Obligations of states and political

subdivisions

 

 

56

 

 

 

578

 

 

 

4.17

 

 

 

71

 

 

 

778

 

 

 

4.38

 

 

 

82

 

 

 

888

 

 

 

4.32

 

 

 

 

24

 

 

 

271

 

 

 

4.67

 

 

 

30

 

 

 

378

 

 

 

5.00

 

 

 

37

 

 

 

442

 

 

 

4.69

 

 

Other

 

 

830

 

 

 

6,822

 

 

 

3.33

 

 

 

835

 

 

 

7,078

 

 

 

3.37

 

 

 

861

 

 

 

6,745

 

 

 

3.12

 

 

 

 

754

 

 

 

4,872

 

 

 

2.62

 

 

 

766

 

 

 

6,369

 

 

 

3.30

 

 

 

774

 

 

 

6,533

 

 

 

3.35

 

 

Total investment securities

 

 

15,999

 

 

 

95,973

 

 

 

2.43

 

 

 

15,417

 

 

 

88,366

 

 

 

2.28

 

 

 

14,361

 

 

 

85,892

 

 

 

2.38

 

 

 

 

14,467

 

 

 

83,160

 

 

 

2.33

 

 

 

14,808

 

 

 

85,742

 

 

 

2.30

 

 

 

15,443

 

 

 

88,682

 

 

 

2.28

 

 

Total earning assets

 

 

112,008

 

 

 

1,014,032

 

 

 

3.67

 

 

 

114,254

 

 

 

990,284

 

 

 

3.45

 

 

 

112,864

 

 

 

976,240

 

 

 

3.44

 

 

 

 

107,231

 

 

 

1,086,959

 

 

 

4.11

 

 

 

109,412

 

 

 

1,083,146

 

 

 

3.93

 

 

 

108,642

 

 

 

1,066,038

 

 

 

3.89

 

 

Allowance for credit losses

 

 

(1,003

)

 

 

 

 

 

 

 

 

 

 

(989

)

 

 

 

 

 

 

 

 

 

 

(982

)

 

 

 

 

 

 

 

 

 

 

 

(1,020

)

 

 

 

 

 

 

 

 

 

 

(1,019

)

 

 

 

 

 

 

 

 

 

 

(1,014

)

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

1,283

 

 

 

 

 

 

 

 

 

 

 

1,278

 

 

 

 

 

 

 

 

 

 

 

1,281

 

 

 

 

 

 

 

 

 

 

 

 

1,336

 

 

 

 

 

 

 

 

 

 

 

1,340

 

 

 

 

 

 

 

 

 

 

 

1,297

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

10,690

 

 

 

 

 

 

 

 

 

 

 

11,191

 

 

 

 

 

 

 

 

 

 

 

11,562

 

 

 

 

 

 

 

 

 

 

 

 

10,137

 

 

 

 

 

 

 

 

 

 

 

10,493

 

 

 

 

 

 

 

 

 

 

 

10,590

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

122,978

 

 

 

 

 

 

 

 

 

 

 

125,734

 

 

 

 

 

 

 

 

 

 

 

124,725

 

 

 

 

 

 

 

 

 

 

 

$

117,684

 

 

 

 

 

 

 

 

 

 

 

120,226

 

 

 

 

 

 

 

 

 

 

 

119,515

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking

deposits

 

$

53,260

 

 

 

25,634

 

 

 

.20

 

 

 

54,055

 

 

 

26,798

 

 

 

.20

 

 

 

52,516

 

 

 

24,067

 

 

 

.18

 

 

 

$

52,504

 

 

 

40,527

 

 

 

.31

 

 

 

53,436

 

 

 

39,286

 

 

 

.29

 

 

 

53,287

 

 

 

37,714

 

 

 

.28

 

 

Time deposits

 

 

9,561

 

 

 

18,998

 

 

 

.81

 

 

 

10,936

 

 

 

23,766

 

 

 

.86

 

 

 

12,334

 

 

 

27,886

 

 

 

.90

 

 

 

 

6,320

 

 

 

10,936

 

 

 

.70

 

 

 

6,888

 

 

 

12,212

 

 

 

.70

 

 

 

7,673

 

 

 

13,992

 

 

 

.72

 

 

Deposits at Cayman Islands office

 

 

192

 

 

 

265

 

 

 

.56

 

 

 

206

 

 

 

219

 

 

 

.42

 

 

 

220

 

 

 

204

 

 

 

.37

 

 

 

 

248

 

 

 

381

 

 

 

.62

 

 

 

215

 

 

 

330

 

 

 

.61

 

 

 

169

 

 

 

310

 

 

 

.73

 

 

Total interest-bearing deposits

 

 

63,013

 

 

 

44,897

 

 

 

.29

 

 

 

65,197

 

 

 

50,783

 

 

 

.31

 

 

 

65,070

 

 

 

52,157

 

 

 

.32

 

 

 

 

59,072

 

 

 

51,844

 

 

 

.36

 

 

 

60,539

 

 

 

51,828

 

 

 

.34

 

 

 

61,129

 

 

 

52,016

 

 

 

.34

 

 

Short-term borrowings

 

 

184

 

 

 

216

 

 

 

.48

 

 

 

200

 

 

 

151

 

 

 

.30

 

 

 

231

 

 

 

169

 

 

 

.29

 

 

 

 

280

 

 

 

883

 

 

 

1.28

 

 

 

178

 

 

 

363

 

 

 

.81

 

 

 

244

 

 

 

554

 

 

 

.90

 

 

Long-term borrowings

 

 

8,423

 

 

 

46,660

 

 

 

2.25

 

 

 

9,901

 

 

 

56,203

 

 

 

2.26

 

 

 

10,287

 

 

 

58,849

 

 

 

2.28

 

 

 

 

8,606

 

 

 

53,906

 

 

 

2.54

 

 

 

8,464

 

 

 

50,498

 

 

 

2.37

 

 

 

8,033

 

 

 

47,506

 

 

 

2.35

 

 

Total interest-bearing liabilities

 

 

71,620

 

 

 

91,773

 

 

 

.52

 

 

 

75,298

 

 

 

107,137

 

 

 

.57

 

 

 

75,588

 

 

 

111,175

 

 

 

.59

 

 

 

 

67,958

 

 

 

106,633

 

 

 

.64

 

 

 

69,181

 

 

 

102,689

 

 

 

.59

 

 

 

69,406

 

 

 

100,076

 

 

 

.57

 

 

Noninterest-bearing deposits

 

 

33,287

 

 

 

 

 

 

 

 

 

 

 

31,717

 

 

 

 

 

 

 

 

 

 

 

30,782

 

 

 

 

 

 

 

 

 

 

 

 

32,047

 

 

 

 

 

 

 

 

 

 

 

32,930

 

 

 

 

 

 

 

 

 

 

 

32,005

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

1,748

 

 

 

 

 

 

 

 

 

 

 

2,046

 

 

 

 

 

 

 

 

 

 

 

2,008

 

 

 

 

 

 

 

 

 

 

 

 

1,620

 

 

 

 

 

 

 

 

 

 

 

1,844

 

 

 

 

 

 

 

 

 

 

 

1,803

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

106,655

 

 

 

 

 

 

 

 

 

 

 

109,061

 

 

 

 

 

 

 

 

 

 

 

108,378

 

 

 

 

 

 

 

 

 

 

 

 

101,625

 

 

 

 

 

 

 

 

 

 

 

103,955

 

 

 

 

 

 

 

 

 

 

 

103,214

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

16,323

 

 

 

 

 

 

 

 

 

 

 

16,673

 

 

 

 

 

 

 

 

 

 

 

16,347

 

 

 

 

 

 

 

 

 

 

 

 

16,059

 

 

 

 

 

 

 

 

 

 

 

16,271

 

 

 

 

 

 

 

 

 

 

 

16,301

 

 

 

 

 

 

 

 

 

 

Total liabilities and

shareholders’ equity

 

$

122,978

 

 

 

 

 

 

 

 

 

 

 

125,734

 

 

 

 

 

 

 

 

 

 

 

124,725

 

 

 

 

 

 

 

 

 

 

 

$

117,684

 

 

 

 

 

 

 

 

 

 

 

120,226

 

 

 

 

 

 

 

 

 

 

 

119,515

 

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

3.15

 

 

 

 

 

 

 

 

 

 

 

2.88

 

 

 

 

 

 

 

 

 

 

 

2.85

 

 

 

 

 

 

 

 

 

 

 

 

3.47

 

 

 

 

 

 

 

 

 

 

 

3.34

 

 

 

 

 

 

 

 

 

 

 

3.32

 

 

Contribution of interest-free funds

 

 

 

 

 

 

 

 

 

 

.19

 

 

 

 

 

 

 

 

 

 

 

.20

 

 

 

 

 

 

 

 

 

 

 

.20

 

 

 

 

 

 

 

 

 

 

 

 

.24

 

 

 

 

 

 

 

 

 

 

 

.22

 

 

 

 

 

 

 

 

 

 

 

.21

 

 

Net interest income/margin on

earning assets

 

 

 

 

 

$

922,259

 

 

 

3.34

 

%

 

 

 

 

 

883,147

 

 

 

3.08

 

%

 

 

 

 

 

865,065

 

 

 

3.05

 

%

 

 

 

 

 

$

980,326

 

 

 

3.71

 

%

 

 

 

 

 

980,457

 

 

 

3.56

 

%

 

 

 

 

 

965,962

 

 

 

3.53

 

%

 

*

Includes nonaccrual loans.

**

Includes available-for-sale securities at amortized cost.

(continued)

- 77 -


 

M&T BANK CORPORATION AND SUBSIDIARIES

Table 3 (continued)

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

 

 

2016 Second Quarter

 

 

2016 First Quarter

 

 

 

2017 Second Quarter

 

 

2017 First Quarter

 

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest

 

 

Average

Rate

 

 

Average balance in millions; interest in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, net of unearned

discount*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, etc.

 

$

21,450

 

 

$

184,803

 

 

 

3.47

 

%

 

20,717

 

 

 

174,657

 

 

 

3.39

 

%

 

$

22,350

 

 

$

213,840

 

 

 

3.84

 

%

 

22,290

 

 

 

201,126

 

 

 

3.66

 

%

Real estate - commercial

 

 

30,134

 

 

 

311,490

 

 

 

4.09

 

 

 

29,426

 

 

 

309,415

 

 

 

4.16

 

 

Real estate - consumer

 

 

24,858

 

 

 

244,806

 

 

 

3.94

 

 

 

25,859

 

 

 

254,144

 

 

 

3.93

 

 

Real estate – commercial

 

 

33,214

 

 

 

361,313

 

 

 

4.30

 

 

 

33,175

 

 

 

347,010

 

 

 

4.18

 

 

Real estate – consumer

 

 

21,318

 

 

 

210,152

 

 

 

3.94

 

 

 

22,179

 

 

 

217,263

 

 

 

3.92

 

 

Consumer

 

 

11,713

 

 

 

132,437

 

 

 

4.55

 

 

 

11,582

 

 

 

130,971

 

 

 

4.55

 

 

 

 

12,386

 

 

 

147,597

 

 

 

4.78

 

 

 

12,153

 

 

 

140,170

 

 

 

4.68

 

 

Total loans and leases, net

 

 

88,155

 

 

 

873,536

 

 

 

3.99

 

 

 

87,584

 

 

 

869,187

 

 

 

3.99

 

 

 

 

89,268

 

 

 

932,902

 

 

 

4.19

 

 

 

89,797

 

 

 

905,569

 

 

 

4.09

 

 

Interest-bearing deposits at banks

 

 

8,711

 

 

 

10,993

 

 

 

.51

 

 

 

8,193

 

 

 

10,337

 

 

 

.51

 

 

 

 

4,741

 

 

 

12,213

 

 

 

1.03

 

 

 

6,152

 

 

 

12,162

 

 

 

.80

 

 

Federal funds sold

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

.77

 

 

 

 

1

 

 

 

3

 

 

 

1.44

 

 

 

 

 

 

 

 

 

 

 

Trading account

 

 

92

 

 

 

364

 

 

 

1.58

 

 

 

85

 

 

 

378

 

 

 

1.78

 

 

 

 

64

 

 

 

240

 

 

 

1.50

 

 

 

60

 

 

 

328

 

 

 

2.20

 

 

Investment securities**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

13,906

 

 

 

84,019

 

 

 

2.43

 

 

 

14,264

 

 

 

90,138

 

 

 

2.54

 

 

 

 

15,060

 

 

 

87,171

 

 

 

2.32

 

 

 

15,113

 

 

 

88,573

 

 

 

2.38

 

 

Obligations of states and political subdivisions

 

 

97

 

 

 

1,009

 

 

 

4.20

 

 

 

113

 

 

 

1,164

 

 

 

4.13

 

 

 

 

46

 

 

 

553

 

 

 

4.86

 

 

 

56

 

 

 

578

 

 

 

4.17

 

 

Other

 

 

911

 

 

 

7,222

 

 

 

3.19

 

 

 

971

 

 

 

7,961

 

 

 

3.30

 

 

 

 

807

 

 

 

6,067

 

 

 

3.02

 

 

 

830

 

 

 

6,822

 

 

 

3.33

 

 

Total investment securities

 

 

14,914

 

 

 

92,250

 

 

 

2.49

 

 

 

15,348

 

 

 

99,263

 

 

 

2.60

 

 

 

 

15,913

 

 

 

93,791

 

 

 

2.36

 

 

 

15,999

 

 

 

95,973

 

 

 

2.43

 

 

Total earning assets

 

 

111,872

 

 

 

977,143

 

 

 

3.51

 

 

 

111,211

 

 

 

979,166

 

 

 

3.54

 

 

 

 

109,987

 

 

 

1,039,149

 

 

 

3.79

 

 

 

112,008

 

 

 

1,014,032

 

 

 

3.67

 

 

Allowance for credit losses

 

 

(976

)

 

 

 

 

 

 

 

 

 

 

(955

)

 

 

 

 

 

 

 

 

 

 

 

(1,011

)

 

 

 

 

 

 

 

 

 

 

(1,003

)

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

1,243

 

 

 

 

 

 

 

 

 

 

 

1,288

 

 

 

 

 

 

 

 

 

 

 

 

1,257

 

 

 

 

 

 

 

 

 

 

 

1,283

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

11,567

 

 

 

 

 

 

 

 

 

 

 

11,708

 

 

 

 

 

 

 

 

 

 

 

 

10,532

 

 

 

 

 

 

 

 

 

 

 

10,690

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

123,706

 

 

 

 

 

 

 

 

 

 

 

123,252

 

 

 

 

 

 

 

 

 

 

 

$

120,765

 

 

 

 

 

 

 

 

 

 

 

122,978

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

$

51,847

 

 

 

20,534

 

 

 

.16

 

 

 

50,335

 

 

 

16,305

 

 

 

.13

 

 

 

$

53,611

 

 

 

30,543

 

 

 

.23

 

 

 

53,260

 

 

 

25,634

 

 

 

.20

 

 

Time deposits

 

 

12,755

 

 

 

26,867

 

 

 

.85

 

 

 

12,999

 

 

 

24,322

 

 

 

.75

 

 

 

 

8,559

 

 

 

16,303

 

 

 

.76

 

 

 

9,561

 

 

 

18,998

 

 

 

.81

 

 

Deposits at Cayman Islands office

 

 

182

 

 

 

181

 

 

 

.40

 

 

 

187

 

 

 

193

 

 

 

.42

 

 

 

 

163

 

 

 

281

 

 

 

.69

 

 

 

192

 

 

 

265

 

 

 

.56

 

 

Total interest-bearing deposits

 

 

64,784

 

 

 

47,582

 

 

 

.30

 

 

 

63,521

 

 

 

40,820

 

 

 

.26

 

 

 

 

62,333

 

 

 

47,127

 

 

 

.30

 

 

 

63,013

 

 

 

44,897

 

 

 

.29

 

 

Short-term borrowings

 

 

1,078

 

 

 

1,143

 

 

 

.43

 

 

 

2,082

 

 

 

2,162

 

 

 

.42

 

 

 

 

212

 

 

 

378

 

 

 

.71

 

 

 

184

 

 

 

216

 

 

 

.48

 

 

Long-term borrowings

 

 

10,297

 

 

 

58,077

 

 

 

2.27

 

 

 

10,528

 

 

 

57,888

 

 

 

2.21

 

 

 

 

8,292

 

 

 

44,708

 

 

 

2.16

 

 

 

8,423

 

 

 

46,660

 

 

 

2.25

 

 

Total interest-bearing liabilities

 

 

76,159

 

 

 

106,802

 

 

 

.56

 

 

 

76,131

 

 

 

100,870

 

 

 

.53

 

 

 

 

70,837

 

 

 

92,213

 

 

 

.52

 

 

 

71,620

 

��

 

91,773

 

 

 

.52

 

 

Noninterest-bearing deposits

 

 

29,249

 

 

 

 

 

 

 

 

 

 

 

28,870

 

 

 

 

 

 

 

 

 

 

 

 

31,868

 

 

 

 

 

 

 

 

 

 

 

33,287

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

1,921

 

 

 

 

 

 

 

 

 

 

 

1,972

 

 

 

 

 

 

 

 

 

 

 

 

1,775

 

 

 

 

 

 

 

 

 

 

 

1,748

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

107,329

 

 

 

 

 

 

 

 

 

 

 

106,973

 

 

 

 

 

 

 

 

 

 

 

 

104,480

 

 

 

 

 

 

 

 

 

 

 

106,655

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

16,377

 

 

 

 

 

 

 

 

 

 

 

16,279

 

 

 

 

 

 

 

 

 

 

 

 

16,285

 

 

 

 

 

 

 

 

 

 

 

16,323

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

123,706

 

 

 

 

 

 

 

 

 

 

 

123,252

 

 

 

 

 

 

 

 

 

 

 

$

120,765

 

 

 

 

 

 

 

 

 

 

 

122,978

 

 

 

 

 

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

2.95

 

 

 

 

 

 

 

 

 

 

 

3.01

 

 

 

 

 

 

 

 

 

 

 

 

3.27

 

 

 

 

 

 

 

 

 

 

 

3.15

 

 

Contribution of interest-free funds

 

 

 

 

 

 

 

 

 

 

.18

 

 

 

 

 

 

 

 

 

 

 

.17

 

 

 

 

 

 

 

 

 

 

 

 

.18

 

 

 

 

 

 

 

 

 

 

 

.19

 

 

Net interest income/margin on earning assets

 

 

 

 

 

$

870,341

 

 

 

3.13

 

%

 

 

 

 

 

878,296

 

 

 

3.18

 

%

 

 

 

 

 

$

946,936

 

 

 

3.45

 

%

 

 

 

 

 

922,259

 

 

 

3.34

 

%

 

*

Includes nonaccrual loans.

**

Includes available-for-sale securities at amortized cost.

 

 

- 78 -


 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

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

 

Item 4.

Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. Based upon their evaluation of the effectiveness of M&T’s disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)), Robert G. Wilmers,René F. Jones, Chairman of the Board and Chief Executive Officer, and Darren J. King, Executive Vice President and Chief Financial Officer, concluded that M&T’s disclosure controls and procedures were effective as of March 31, 2017.2018.

(b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy of its internal control over financial reporting and enhances its controls in response to internal control assessments and internal and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended March 31, 20172018 that have materially affected, or are reasonably likely to materially affect, M&T’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings.

M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and other matters in which claims for monetary damages are asserted. On an on-going basis management, after consultation with legal counsel, assesses the Company’s liabilities and contingencies in connection with such proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $40$50 million. Although the Company does not believe that the outcome of pending litigations will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

Wilmington Trust Corporation Investigative and Litigation Matters

M&T’s Wilmington Trust Corporation subsidiary is the subject of certain governmental investigationslitigation arising from actions undertaken by Wilmington Trust Corporation prior to M&T’s acquisition of Wilmington Trust Corporation and its subsidiaries, as set forth below.

DOJ Investigation (United States v. Wilmington Trust Corp., et al, District of Delaware, Crim.   No. 15-23-RGA): Prior to M&T’s acquisition of Wilmington Trust Corporation, the Department of Justice (“DOJ”) commenced an investigation of Wilmington Trust Corporation relating to Wilmington Trust Corporation’s financial reporting and securities filings, as well as certain commercial real estate lending relationships involving its subsidiary bank, Wilmington Trust Company, all of which relate to filings and activities occurring prior to the acquisition of Wilmington Trust Corporation by M&T. On January 6, 2016, the U.S. Attorney for the District of Delaware obtained an indictment against Wilmington Trust Corporation relating to alleged conduct that occurred prior to M&T’s acquisition of Wilmington Trust Corporation in May 2011. M&T strongly believes that this unprecedented action is unjustified and Wilmington Trust Corporation will vigorously defend itself.  On August 26, 2016, the Court granted

- 79 -


defendants joint motion for a continuance of the trial date.  Trial in this matter is now scheduled to begin on October 2, 2017.  Wilmington Trust Corporation and its counsel are currently involved in pretrial discovery, motion practice and trial preparation.

The indictment of Wilmington Trust Corporation could result in potential criminal remedies, or criminal or non-criminal resolutions or settlements, including, among other things, enforcement actions, potential statutory or regulatory restrictions on the ability to conduct certain businesses (for which waivers may or may not be available), fines, penalties, restitution, reputational damage or additional costs and expenses.

In Re Wilmington Trust Securities Litigation (U.S. District Court, District of Delaware, Case No. 10-CV-0990-SLR): Beginning on November 18, 2010, a series of parties, purporting to be class representatives, commenced a putative class action lawsuit against Wilmington Trust Corporation, alleging that Wilmington Trust Corporation’s financial reporting and securities filings were in violation of securities laws. The cases were consolidated andconsolidated. Wilmington Trust Corporation moved to dismiss. The Court issued an order denying Wilmington Trust Corporation’s motion to dismiss on March 20, 2014. Plaintiffs’ motion for class certification was granted on September 3, 2015.  Fact discovery commenced. On April 13, 2016, thewas stayed by Court issued an order staying fact discovery in the case pending completionduring extended periods of the trial in U.S. v. Wilmington Trust Corp., et al. On September 19, 2016, the plaintiffs filed a motion to modify the stay of discovery in this matter to allow for additional, limited discovery.litigation. On December 19, 2016, the Court issued an order lifting the existing stay in its entirety.  Trial is scheduled to beginFact discovery was completed on June 18, 2018.or about August 15, 2017. On December 12, 2017, the Court issued an order extending certain pre-trial deadlines, pushing all dates off until after the completion of the criminal trial involving certain individual witnesses. Expert

- 79 -


 

discovery was ordered to be completed by July 31, 2018 and summary judgment motions briefed by October 31, 2018.

In April 2018, the parties reached an agreement in principle.  The anticipated settlement amount is within the Company’s current reserve for litigation matters.  The agreement in principle is subject to certain required party approvals, the negotiation and execution of a formal settlement agreement and court approval.  The Company currently anticipates that necessary party approvals will be completed and a formal settlement agreement will be executed and filed with the court for approval during the second quarter of 2018.  A motion for preliminary approval of a proposed settlement will be decided by the Court at its discretion.

Due to their complex nature, it is difficult to estimate when litigation andor investigatory matters such as these may be resolved. As set forth in the introductory paragraph to this Item 1 — Legal Proceedings, losses from current litigation and regulatory matters which the Company is subject to that are not currently considered probable are within a range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, and are included in the range of reasonably possible losses set forth above.

 

- 80 -


 

Item 1A.

Risk Factors.

There have been no material changes in risk factors relating to M&T to those disclosed in response to Item 1A. to Part I of Form 10-K for the year ended December 31, 2016.2017.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

(a) – (b) Not applicable.

(c)

 

 

 

Issuer Purchases of Equity Securities

 

Period

 

(a)Total

Number

of Shares

(or Units)

Purchased (1)

 

 

(b)Average

Price Paid

per Share

(or Unit)

 

 

(c)Total

Number of

Shares

(or Units)

Purchased

as Part of

Publicly

Announced

Plans or

Programs

 

 

(d)Maximum

Number (or

Approximate

Dollar Value)

of Shares

(or Units)

that may yet

be Purchased

Under the

Plans or

Programs (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1 - January 31, 2017

 

 

1,025,996

 

 

$

161.47

 

 

 

900,000

 

 

$

617,531,000

 

February 1 - February 28, 2017

 

 

2,340,750

 

 

 

165.83

 

 

 

2,333,196

 

 

 

230,593,000

 

March 1 - March 31, 2017

 

 

468

 

 

 

155.56

 

 

 

 

 

 

230,593,000

 

Total

 

 

3,367,214

 

 

$

164.50

 

 

 

3,233,196

 

 

 

 

 

 

 

Issuer Purchases of Equity Securities

 

Period

 

(a)Total

Number

of Shares

(or Units)

Purchased (1)

 

 

(b)Average

Price Paid

per Share

(or Unit)

 

 

(c)Total

Number of

Shares

(or Units)

Purchased

as Part of

Publicly

Announced

Plans or

Programs

 

 

(d)Maximum

Number (or

Approximate

Dollar Value)

of Shares

(or Units)

that may yet

be Purchased

Under the

Plans or

Programs (2) (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1 - January 31, 2018

 

 

488,282

 

 

$

190.41

 

 

 

300,000

 

 

$

1,138,791,000

 

February 1 - February 28, 2018

 

 

1,831,338

 

 

 

189.35

 

 

 

1,831,282

 

 

 

792,039,000

 

March 1 - March 31, 2018

 

 

1,652,112

 

 

 

191.85

 

 

 

1,652,000

 

 

 

475,096,000

 

Total

 

 

3,971,732

 

 

$

190.52

 

 

 

3,783,282

 

 

 

 

 

 

(1)

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

(2)

On July 19, 2016,18, 2017, M&T announced a program to purchase up to $1.15 billion$900 million of its common stock through June 30, 2017.2018.

(3)

On February 21, 2018, M&T’s Board of Directors approved a program to purchase an additional $745 million of M&T common stock through June 30, 2018.

 

 

Item 3.

Defaults Upon Senior Securities.

(Not applicable.)

 

 

Item 4.

Mine Safety Disclosures.

(None.)

 

 

Item 5.

Other Information.

(None.)

 

- 81 -


 

Item 6.

Exhibits.

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

  

Exhibit

No.

 

 

 

 

 

 

   3.2

 

Amended and Restated Bylaws of M&T Bank Corporation, effective November 16, 2010, as amended on April 18, 2017. Filed herewith.17, 2018. Incorporated by reference to Exhibit 3.2 to the Form 8-K dated April 17, 2018 (File No. 1-9861).

 

 

 

  31.1

  

Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

 

  31.2

  

Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.herewith.

 

 

  32.1

  

Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

 

  32.2

  

Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

 

101.INS

  

XBRL Instance Document. Filed herewith.

 

 

101.SCH

  

XBRL Taxonomy Extension Schema. Filed herewith.

 

 

101.CAL

  

XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.

 

 

101.LAB

  

XBRL Taxonomy Extension Label Linkbase. Filed herewith.

 

 

101.PRE

  

XBRL Taxonomy Extension Presentation Linkbase. Filed herewith.

 

 

101.DEF

  

XBRL Taxonomy Definition Linkbase. Filed herewith.

 

 

SIGNATURES

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

 

 

 

M&T BANK CORPORATION

 

 

 

Date: May 5, 20174, 2018

 

By:

 

/s/ Darren J. King

 

 

 

 

Darren J. King

 

 

 

 

Executive Vice President

and Chief Financial Officer

 

 

- 82 -


EXHIBIT INDEX

Exhibit

No.

    3.2

Amended and Restated Bylaws of M&T Bank Corporation, effective November 16, 2010, as amended on April 18, 2017. Filed herewith.

  31.1

Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

  31.2

Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

  32.1

Certification of Chief Executive Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

  32.2

Certification of Chief Financial Officer under 18 U.S.C. §1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

101.INS

XBRL Instance Document. Filed herewith.

101.SCH

XBRL Taxonomy Extension Schema. Filed herewith.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase. Filed herewith.

101.LAB

XBRL Taxonomy Extension Label Linkbase. Filed herewith.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase. Filed herewith.

101.DEF

XBRL Taxonomy Definition Linkbase. Filed herewith.

 

 

- 8382 -