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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
or
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☐ |
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)
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New York |
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16-0968385 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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One M & T Plaza Buffalo, New York |
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14203 |
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(Address of principal executive offices) |
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(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):
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Large accelerated filer |
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☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
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☐ |
(Do not check if a smaller reporting company) |
Smaller reporting company |
☐ |
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Emerging growth company |
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☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Number of shares of the registrant's Common Stock, $0.50 par value, outstanding as of the close of business on October 31, 2017: 150,515,367 shares.
FORM 10-Q
For the Quarterly Period Ended September 30, 2017
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Table of Contents of Information Required in Report |
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Page |
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Item 1. |
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CONSOLIDATED BALANCE SHEET - September 30, 2017 and December 31, 2016 |
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3 |
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CONSOLIDATED STATEMENT OF INCOME - Three and nine months ended September 30, 2017 and 2016 |
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4 |
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5 |
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CONSOLIDATED STATEMENT OF CASH FLOWS - Nine months ended September 30, 2017 and 2016 |
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6 |
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7 |
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8 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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53 |
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Item 3. |
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90 |
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Item 4. |
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90 |
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Item 1. |
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90 |
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Item 1A. |
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92 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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92 |
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Item 3. |
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92 |
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Item 4. |
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92 |
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Item 5. |
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92 |
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Item 6. |
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93 |
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93 |
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- 2 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
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September 30, |
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December 31, |
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Dollars in thousands, except per share |
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2017 |
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2016 |
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||||
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Assets |
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Cash and due from banks |
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$ |
1,368,252 |
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1,320,549 |
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Interest-bearing deposits at banks |
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6,306,484 |
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5,000,638 |
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Trading account |
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170,516 |
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323,867 |
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Investment securities (includes pledged securities that can be sold or repledged of $488,200 at September 30, 2017; $1,203,473 at December 31, 2016) |
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Available for sale (cost: $11,369,815 at September 30, 2017; $13,338,301 at December 31, 2016) |
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11,416,824 |
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13,332,072 |
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Held to maturity (fair value: $3,247,954 at September 30, 2017; $2,451,222 at December 31, 2016) |
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3,242,124 |
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2,457,278 |
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Other (fair value: $414,978 at September 30, 2017; $461,118 at December 31, 2016) |
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414,978 |
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461,118 |
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Total investment securities |
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15,073,926 |
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16,250,468 |
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Loans and leases |
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88,171,225 |
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91,101,677 |
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Unearned discount |
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(246,091 |
) |
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(248,261 |
) |
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Loans and leases, net of unearned discount |
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87,925,134 |
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90,853,416 |
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Allowance for credit losses |
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(1,013,326 |
) |
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(988,997 |
) |
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Loans and leases, net |
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86,911,808 |
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89,864,419 |
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Premises and equipment |
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656,713 |
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675,263 |
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Goodwill |
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4,593,112 |
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4,593,112 |
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Core deposit and other intangible assets |
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78,614 |
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97,655 |
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Accrued interest and other assets |
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5,242,379 |
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5,323,235 |
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Total assets |
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$ |
120,401,804 |
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123,449,206 |
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Liabilities |
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Noninterest-bearing deposits |
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$ |
33,111,246 |
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32,813,896 |
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Savings and interest-checking deposits |
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52,936,615 |
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52,346,207 |
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Time deposits |
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7,233,518 |
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10,131,846 |
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Deposits at Cayman Islands office |
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232,014 |
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201,927 |
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Total deposits |
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93,513,393 |
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95,493,876 |
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Federal funds purchased and agreements to repurchase securities |
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200,768 |
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163,442 |
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Accrued interest and other liabilities |
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1,791,946 |
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1,811,431 |
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Long-term borrowings |
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8,577,645 |
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9,493,835 |
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Total liabilities |
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104,083,752 |
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106,962,584 |
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Shareholders' equity |
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Preferred stock, $1.00 par, 1,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: shares 731,500 at September 30, 2017 and December 31, 2016; Liquidation preference of $10,000 per share: 50,000 shares at September 30, 2017 and December 31, 2016 |
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1,231,500 |
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1,231,500 |
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Common stock, $.50 par, 250,000,000 shares authorized, 159,819,892 shares issued at September 30, 2017; 159,945,678 shares issued at December 31, 2016 |
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79,910 |
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79,973 |
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Common stock issuable, 27,019 shares at September 30, 2017; 32,403 shares at December 31, 2016 |
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1,827 |
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2,145 |
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Additional paid-in capital |
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6,598,048 |
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6,676,948 |
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Retained earnings |
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9,909,415 |
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9,222,488 |
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Accumulated other comprehensive income (loss), net |
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(247,915 |
) |
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(294,636 |
) |
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Treasury stock — common, at cost — 8,555,636 shares at September 30, 2017; 3,764,742 shares at December 31, 2016 |
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(1,254,733 |
) |
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(431,796 |
) |
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Total shareholders’ equity |
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16,318,052 |
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16,486,622 |
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Total liabilities and shareholders’ equity |
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$ |
120,401,804 |
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123,449,206 |
|
- 3 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
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Three Months Ended September 30 |
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Nine Months Ended September 30 |
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In thousands, except per share |
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2017 |
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2016 |
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2017 |
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2016 |
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Interest income |
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Loans and leases, including fees |
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$ |
953,662 |
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|
871,345 |
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$ |
2,776,340 |
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2,602,208 |
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Investment securities |
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Fully taxable |
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|
87,937 |
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84,893 |
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276,057 |
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274,092 |
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Exempt from federal taxes |
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|
345 |
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623 |
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1,154 |
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|
2,081 |
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Deposits at banks |
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|
14,970 |
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12,354 |
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|
39,345 |
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|
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33,684 |
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Other |
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|
296 |
|
|
|
300 |
|
|
|
760 |
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|
905 |
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Total interest income |
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|
1,057,210 |
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|
|
969,515 |
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3,093,656 |
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2,912,970 |
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Interest expense |
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Savings and interest-checking deposits |
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|
37,714 |
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24,067 |
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|
93,891 |
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60,906 |
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Time deposits |
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|
13,992 |
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27,886 |
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|
49,293 |
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|
79,075 |
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Deposits at Cayman Islands office |
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|
310 |
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|
204 |
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|
856 |
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|
578 |
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Short-term borrowings |
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|
554 |
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|
169 |
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1,148 |
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3,474 |
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Long-term borrowings |
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47,506 |
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58,849 |
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138,874 |
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174,814 |
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Total interest expense |
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100,076 |
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|
111,175 |
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|
284,062 |
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|
318,847 |
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Net interest income |
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|
957,134 |
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|
858,340 |
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2,809,594 |
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|
2,594,123 |
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Provision for credit losses |
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30,000 |
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47,000 |
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137,000 |
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128,000 |
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Net interest income after provision for credit losses |
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|
927,134 |
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|
811,340 |
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2,672,594 |
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2,466,123 |
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Other income |
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Mortgage banking revenues |
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|
96,737 |
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103,747 |
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267,592 |
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275,193 |
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Service charges on deposit accounts |
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|
109,356 |
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|
107,935 |
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|
319,589 |
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|
314,212 |
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Trust income |
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|
124,900 |
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|
118,654 |
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|
371,712 |
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|
350,181 |
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Brokerage services income |
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|
14,676 |
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|
15,914 |
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|
48,677 |
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|
48,190 |
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Trading account and foreign exchange gains |
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|
7,058 |
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|
12,754 |
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|
24,833 |
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|
33,434 |
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Gain (loss) on bank investment securities |
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|
— |
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28,480 |
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(17 |
) |
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28,748 |
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Other revenues from operations |
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|
106,702 |
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|
103,866 |
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|
334,704 |
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310,579 |
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Total other income |
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459,429 |
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|
491,350 |
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1,367,090 |
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|
1,360,537 |
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Other expense |
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Salaries and employee benefits |
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|
399,089 |
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|
399,786 |
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|
|
1,247,851 |
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1,230,246 |
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Equipment and net occupancy |
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|
75,558 |
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|
75,263 |
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|
|
223,721 |
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|
225,165 |
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Outside data processing and software |
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|
45,761 |
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|
42,878 |
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|
134,637 |
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|
128,402 |
|
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|
|
FDIC assessments |
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|
23,969 |
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|
|
28,459 |
|
|
|
78,149 |
|
|
|
76,054 |
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Advertising and marketing |
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|
17,403 |
|
|
|
21,996 |
|
|
|
49,837 |
|
|
|
66,063 |
|
|
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Printing, postage and supplies |
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|
8,732 |
|
|
|
8,972 |
|
|
|
27,397 |
|
|
|
30,865 |
|
|
|
|
Amortization of core deposit and other intangible assets |
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|
7,808 |
|
|
|
9,787 |
|
|
|
24,341 |
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|
|
33,524 |
|
|
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|
Other costs of operations |
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|
227,705 |
|
|
|
165,251 |
|
|
|
558,579 |
|
|
|
488,063 |
|
|
|
|
Total other expense |
|
|
806,025 |
|
|
|
752,392 |
|
|
|
2,344,512 |
|
|
|
2,278,382 |
|
|
|
|
Income before taxes |
|
|
580,538 |
|
|
|
550,298 |
|
|
|
1,695,172 |
|
|
|
1,548,278 |
|
|
|
|
Income taxes |
|
|
224,615 |
|
|
|
200,314 |
|
|
|
609,269 |
|
|
|
563,735 |
|
|
|
|
Net income |
|
$ |
355,923 |
|
|
|
349,984 |
|
|
$ |
1,085,903 |
|
|
|
984,543 |
|
|
|
|
Net income available to common shareholders |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
$ |
335,801 |
|
|
|
326,992 |
|
|
$ |
1,025,011 |
|
|
|
915,670 |
|
|
|
|
Diluted |
|
|
335,804 |
|
|
|
326,998 |
|
|
|
1,025,023 |
|
|
|
915,686 |
|
|
|
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.22 |
|
|
|
2.10 |
|
|
$ |
6.71 |
|
|
|
5.82 |
|
|
|
|
Diluted |
|
|
2.21 |
|
|
|
2.10 |
|
|
|
6.69 |
|
|
|
5.80 |
|
|
|
|
Cash dividends per common share |
|
$ |
.75 |
|
|
|
.70 |
|
|
$ |
2.25 |
|
|
|
2.10 |
|
|
|
|
Average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
151,347 |
|
|
|
155,493 |
|
|
|
152,866 |
|
|
|
157,336 |
|
|
|
|
Diluted |
|
|
151,691 |
|
|
|
156,026 |
|
|
|
153,293 |
|
|
|
157,843 |
|
- 4 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
|
|
|
Three Months Ended September 30 |
|
|
Nine Months Ended September 30 |
|
||||||||||
|
In thousands |
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
355,923 |
|
|
|
349,984 |
|
|
$ |
1,085,903 |
|
|
|
984,543 |
|
|
Other comprehensive income, net of tax and reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on investment securities |
|
|
18,258 |
|
|
|
(17,133 |
) |
|
|
33,834 |
|
|
|
127,331 |
|
|
Cash flow hedges adjustments |
|
|
(1,120 |
) |
|
|
(23 |
) |
|
|
(2,098 |
) |
|
|
(70 |
) |
|
Foreign currency translation adjustment |
|
|
863 |
|
|
|
(229 |
) |
|
|
2,489 |
|
|
|
(1,847 |
) |
|
Defined benefit plans liability adjustments |
|
|
4,165 |
|
|
|
3,847 |
|
|
|
12,496 |
|
|
|
11,654 |
|
|
Total other comprehensive income (loss) |
|
|
22,166 |
|
|
|
(13,538 |
) |
|
|
46,721 |
|
|
|
137,068 |
|
|
Total comprehensive income |
|
$ |
378,089 |
|
|
|
336,446 |
|
|
$ |
1,132,624 |
|
|
|
1,121,611 |
|
- 5 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
|
|
|
|
|
Nine Months Ended September 30 |
|
|||||
|
In thousands |
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
Net income |
|
$ |
1,085,903 |
|
|
|
984,543 |
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
137,000 |
|
|
|
128,000 |
|
|
|
|
Depreciation and amortization of premises and equipment |
|
|
84,631 |
|
|
|
79,911 |
|
|
|
|
Amortization of capitalized servicing rights |
|
|
41,475 |
|
|
|
37,979 |
|
|
|
|
Amortization of core deposit and other intangible assets |
|
|
24,341 |
|
|
|
33,524 |
|
|
|
|
Provision for deferred income taxes |
|
|
9,926 |
|
|
|
109,274 |
|
|
|
|
Asset write-downs |
|
|
10,878 |
|
|
|
14,276 |
|
|
|
|
Net gain on sales of assets |
|
|
(27,967 |
) |
|
|
(46,732 |
) |
|
|
|
Net change in accrued interest receivable, payable |
|
|
(23,059 |
) |
|
|
(13,833 |
) |
|
|
|
Net change in other accrued income and expense |
|
|
110,138 |
|
|
|
113,809 |
|
|
|
|
Net change in loans originated for sale |
|
|
523,895 |
|
|
|
(285,824 |
) |
|
|
|
Net change in trading account assets and liabilities |
|
|
88,705 |
|
|
|
(82,837 |
) |
|
|
|
Net cash provided by operating activities |
|
|
2,065,866 |
|
|
|
1,072,090 |
|
|
Cash flows from investing activities |
|
Proceeds from sales of investment securities |
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
512,143 |
|
|
|
61,947 |
|
|
|
|
Other |
|
|
178,244 |
|
|
|
94,516 |
|
|
|
|
Proceeds from maturities of investment securities |
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
1,650,258 |
|
|
|
1,690,665 |
|
|
|
|
Held to maturity |
|
|
390,278 |
|
|
|
459,399 |
|
|
|
|
Purchases of investment securities |
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
(248,705 |
) |
|
|
(1,150,523 |
) |
|
|
|
Held to maturity |
|
|
(1,175,608 |
) |
|
|
(15,806 |
) |
|
|
|
Other |
|
|
(132,104 |
) |
|
|
(1,514 |
) |
|
|
|
Net decrease (increase) in loans and leases |
|
|
2,259,049 |
|
|
|
(2,021,004 |
) |
|
|
|
Net increase in interest-bearing deposits at banks |
|
|
(1,305,846 |
) |
|
|
(3,183,286 |
) |
|
|
|
Capital expenditures, net |
|
|
(62,515 |
) |
|
|
(65,277 |
) |
|
|
|
Net decrease in loan servicing advances |
|
|
47,786 |
|
|
|
121,226 |
|
|
|
|
Other, net |
|
|
66,357 |
|
|
|
11,459 |
|
|
|
|
Net cash provided (used) by investing activities |
|
|
2,179,337 |
|
|
|
(3,998,198 |
) |
|
Cash flows from financing activities |
|
Net increase (decrease) in deposits |
|
|
(1,976,237 |
) |
|
|
6,195,511 |
|
|
|
|
Net increase (decrease) in short-term borrowings |
|
|
37,326 |
|
|
|
(1,886,701 |
) |
|
|
|
Proceeds from long-term borrowings |
|
|
2,145,950 |
|
|
|
— |
|
|
|
|
Payments on long-term borrowings |
|
|
(3,029,320 |
) |
|
|
(427,035 |
) |
|
|
|
Purchases of treasury stock |
|
|
(981,691 |
) |
|
|
(604,000 |
) |
|
|
|
Dividends paid — common |
|
|
(345,166 |
) |
|
|
(333,042 |
) |
|
|
|
Dividends paid — preferred |
|
|
(53,842 |
) |
|
|
(58,003 |
) |
|
|
|
Other, net |
|
|
5,480 |
|
|
|
3,540 |
|
|
|
|
Net cash provided (used) by financing activities |
|
|
(4,197,500 |
) |
|
|
2,890,270 |
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
47,703 |
|
|
|
(35,838 |
) |
|
|
|
Cash and cash equivalents at beginning of period |
|
|
1,320,549 |
|
|
|
1,368,040 |
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,368,252 |
|
|
|
1,332,202 |
|
|
Supplemental disclosure of cash flow information |
|
Interest received during the period |
|
$ |
3,088,042 |
|
|
|
2,923,278 |
|
|
|
|
Interest paid during the period |
|
|
310,640 |
|
|
|
387,695 |
|
|
|
|
Income taxes paid during the period |
|
|
462,163 |
|
|
|
138,375 |
|
|
Supplemental schedule of noncash investing and financing activities |
|
Real estate acquired in settlement of loans |
|
$ |
88,551 |
|
|
|
100,106 |
|
|
|
|
Securitization of residential mortgage loans allocated to |
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investment securities |
|
|
22,527 |
|
|
|
18,685 |
|
|
|
|
Capitalized servicing rights |
|
|
262 |
|
|
|
193 |
|
- 6 -
M&T BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|||
|
|
|
Preferred |
|
|
Common |
|
|
Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Income |
|
|
Treasury |
|
|
|
|
|
|||||||
|
Dollars in thousands, except per share |
|
Stock |
|
|
Stock |
|
|
Issuable |
|
|
Capital |
|
|
Earnings |
|
|
(Loss), Net |
|
|
Stock |
|
|
Total |
|
||||||||
|
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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
984,543 |
|
|
|
137,068 |
|
|
|
— |
|
|
|
1,121,611 |
|
|
Preferred stock cash dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(60,953 |
) |
|
|
— |
|
|
|
— |
|
|
|
(60,953 |
) |
|
Exercise of 5,320 Series A stock warrants into 1,983 shares of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(223 |
) |
|
|
— |
|
|
|
— |
|
|
|
223 |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(604,000 |
) |
|
|
(604,000 |
) |
|
Stock-based compensation plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense, net |
|
|
— |
|
|
|
171 |
|
|
|
— |
|
|
|
7,315 |
|
|
|
— |
|
|
|
— |
|
|
|
10,890 |
|
|
|
18,376 |
|
|
Exercises of stock options, net |
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
|
(183 |
) |
|
|
— |
|
|
|
— |
|
|
|
11,576 |
|
|
|
11,411 |
|
|
Stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
275 |
|
|
|
— |
|
|
|
— |
|
|
|
10,319 |
|
|
|
10,594 |
|
|
Directors’ stock plan |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
526 |
|
|
|
— |
|
|
|
— |
|
|
|
1,047 |
|
|
|
1,575 |
|
|
Deferred compensation plans, net, including dividend equivalents |
|
|
— |
|
|
|
2 |
|
|
|
(140 |
) |
|
|
232 |
|
|
|
(70 |
) |
|
|
— |
|
|
|
4 |
|
|
|
28 |
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,102 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,102 |
|
|
Common stock cash dividends — $2.10 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(332,057 |
) |
|
|
— |
|
|
|
— |
|
|
|
(332,057 |
) |
|
Balance — September 30, 2016 |
|
$ |
1,231,500 |
|
|
|
79,975 |
|
|
|
2,224 |
|
|
|
6,689,812 |
|
|
|
9,021,965 |
|
|
|
(114,559 |
) |
|
|
(569,941 |
) |
|
|
16,340,976 |
|
|
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 |
|
|
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,085,903 |
|
|
|
46,721 |
|
|
|
— |
|
|
|
1,132,624 |
|
|
Preferred stock cash dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(54,604 |
) |
|
|
— |
|
|
|
— |
|
|
|
(54,604 |
) |
|
Exercise of 304,436 Series A stock warrants into 165,498 shares of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,992 |
) |
|
|
— |
|
|
|
— |
|
|
|
22,992 |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(981,691 |
) |
|
|
(981,691 |
) |
|
Stock-based compensation plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense, net |
|
|
— |
|
|
|
(63 |
) |
|
|
— |
|
|
|
(51,606 |
) |
|
|
— |
|
|
|
— |
|
|
|
57,685 |
|
|
|
6,016 |
|
|
Exercises of stock options, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,722 |
) |
|
|
— |
|
|
|
— |
|
|
|
68,014 |
|
|
|
61,292 |
|
|
Stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,563 |
|
|
|
— |
|
|
|
— |
|
|
|
8,268 |
|
|
|
10,831 |
|
|
Directors’ stock plan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
225 |
|
|
|
— |
|
|
|
— |
|
|
|
1,201 |
|
|
|
1,426 |
|
|
Deferred compensation plans, net, including dividend equivalents |
|
|
— |
|
|
|
— |
|
|
|
(318 |
) |
|
|
(368 |
) |
|
|
(65 |
) |
|
|
— |
|
|
|
594 |
|
|
|
(157 |
) |
|
Common stock cash dividends — $2.25 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(344,307 |
) |
|
|
— |
|
|
|
— |
|
|
|
(344,307 |
) |
|
Balance — September 30, 2017 |
|
$ |
1,231,500 |
|
|
|
79,910 |
|
|
|
1,827 |
|
|
|
6,598,048 |
|
|
|
9,909,415 |
|
|
|
(247,915 |
) |
|
|
(1,254,733 |
) |
|
|
16,318,052 |
|
- 7 -
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, 2016 (“2016 Annual Report”), except that effective January 2017 the Company adopted amended accounting guidance that is discussed in note 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 three months ended March 31, 2017 of $18 million, or $.12 of diluted earnings per common share. The impact on income tax expense and diluted earnings per common share in the second and third quarters of 2017 was not significant. In the opinion of management, all adjustments necessary for a fair statement have been made and were all of a normal recurring nature.
2. Acquisitions
In connection with the acquisition of Hudson City Bancorp, Inc. (“Hudson City”) on November 1, 2015 the Company incurred merger-related expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with 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 the Company 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 included in the consolidated statement of income follows:
|
|
|
Nine Months Ended September 30, 2016 |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
5,334 |
|
|
Equipment and net occupancy |
|
|
1,278 |
|
|
Outside data processing and software |
|
|
1,067 |
|
|
Advertising and marketing |
|
|
10,522 |
|
|
Printing, postage and supplies |
|
|
1,482 |
|
|
Other costs of operations |
|
|
16,072 |
|
|
Total |
|
$ |
35,755 |
|
There were no merger-related expenses during the three-month or nine-month periods ended September 30, 2017 or during the three-month period ended September 30, 2016.
- 8 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The amortized cost and estimated fair value of investment securities were as follows:
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
$ |
2,017,901 |
|
|
|
25 |
|
|
|
10,809 |
|
|
$ |
2,007,117 |
|
|
Obligations of states and political subdivisions |
|
|
2,621 |
|
|
|
59 |
|
|
|
2 |
|
|
|
2,678 |
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed |
|
|
9,155,485 |
|
|
|
92,915 |
|
|
|
63,917 |
|
|
|
9,184,483 |
|
|
Privately issued |
|
|
30 |
|
|
|
— |
|
|
|
— |
|
|
|
30 |
|
|
Other debt securities |
|
|
136,769 |
|
|
|
2,739 |
|
|
|
10,978 |
|
|
|
128,530 |
|
|
Equity securities |
|
|
57,009 |
|
|
|
37,427 |
|
|
|
450 |
|
|
|
93,986 |
|
|
|
|
|
11,369,815 |
|
|
|
133,165 |
|
|
|
86,156 |
|
|
|
11,416,824 |
|
|
Investment securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions |
|
|
32,445 |
|
|
|
190 |
|
|
|
81 |
|
|
|
32,554 |
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed |
|
|
3,063,164 |
|
|
|
41,849 |
|
|
|
7,147 |
|
|
|
3,097,866 |
|
|
Privately issued |
|
|
141,430 |
|
|
|
1,753 |
|
|
|
30,734 |
|
|
|
112,449 |
|
|
Other debt securities |
|
|
5,085 |
|
|
|
— |
|
|
|
— |
|
|
|
5,085 |
|
|
|
|
|
3,242,124 |
|
|
|
43,792 |
|
|
|
37,962 |
|
|
|
3,247,954 |
|
|
Other securities |
|
|
414,978 |
|
|
|
— |
|
|
|
— |
|
|
|
414,978 |
|
|
Total |
|
$ |
15,026,917 |
|
|
|
176,957 |
|
|
|
124,118 |
|
|
$ |
15,079,756 |
|
|
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 |
|
- 9 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
There were no significant gross realized gains or losses from sales of investment securities for the three-month and nine-month periods ended September 30, 2017. During the three months ended September 30, 2016, the Company sold substantially all of its collateralized debt obligations held in the available-for-sale investment securities portfolio for a gain of $28 million. There were no other significant gross realized gains or losses from the sale of investment securities for the three-month and nine-month periods ended September 30, 2016.
At September 30, 2017, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
||
|
|
|
(In thousands) |
|
|||||
|
Debt securities available for sale: |
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
393,453 |
|
|
|
392,506 |
|
|
Due after one year through five years |
|
|
1,632,143 |
|
|
|
1,622,447 |
|
|
Due after five years through ten years |
|
|
72,508 |
|
|
|
72,854 |
|
|
Due after ten years |
|
|
59,187 |
|
|
|
50,518 |
|
|
|
|
|
2,157,291 |
|
|
|
2,138,325 |
|
|
Mortgage-backed securities available for sale |
|
|
9,155,515 |
|
|
|
9,184,513 |
|
|
|
|
$ |
11,312,806 |
|
|
|
11,322,838 |
|
|
Debt securities held to maturity: |
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
18,640 |
|
|
|
18,738 |
|
|
Due after one year through five years |
|
|
13,612 |
|
|
|
13,619 |
|
|
Due after five years through ten years |
|
|
193 |
|
|
|
197 |
|
|
Due after ten years |
|
|
5,085 |
|
|
|
5,085 |
|
|
|
|
|
37,530 |
|
|
|
37,639 |
|
|
Mortgage-backed securities held to maturity |
|
|
3,204,594 |
|
|
|
3,210,315 |
|
|
|
|
$ |
3,242,124 |
|
|
|
3,247,954 |
|
- 10 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
A summary of investment securities that as of September 30, 2017 and December 31, 2016 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:
|
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
||||||||||
|
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
$ |
1,576,717 |
|
|
|
(8,002 |
) |
|
|
373,852 |
|
|
|
(2,807 |
) |
|
Obligations of states and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
474 |
|
|
|
(2 |
) |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed |
|
|
2,854,982 |
|
|
|
(32,123 |
) |
|
|
1,298,054 |
|
|
|
(31,794 |
) |
|
Other debt securities |
|
|
1,500 |
|
|
|
(3 |
) |
|
|
60,518 |
|
|
|
(10,975 |
) |
|
Equity securities |
|
|
18,185 |
|
|
|
(303 |
) |
|
|
153 |
|
|
|
(147 |
) |
|
|
|
|
4,451,384 |
|
|
|
(40,431 |
) |
|
|
1,733,051 |
|
|
|
(45,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions |
|
|
4,932 |
|
|
|
(31 |
) |
|
|
7,093 |
|
|
|
(50 |
) |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed |
|
|
638,863 |
|
|
|
(2,832 |
) |
|
|
157,923 |
|
|
|
(4,315 |
) |
|
Privately issued |
|
|
— |
|
|
|
— |
|
|
|
53,631 |
|
|
|
(30,734 |
) |
|
|
|
|
643,795 |
|
|
|
(2,863 |
) |
|
|
218,647 |
|
|
|
(35,099 |
) |
|
Total |
|
$ |
5,095,179 |
|
|
|
(43,294 |
) |
|
|
1,951,698 |
|
|
|
(80,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
$ |
1,710,241 |
|
|
|
(9,950 |
) |
|
|
2,295 |
|
|
|
(2 |
) |
|
Obligations of states and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
593 |
|
|
|
(6 |
) |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed |
|
|
6,730,829 |
|
|
|
(113,374 |
) |
|
|
81,003 |
|
|
|
(615 |
) |
|
Privately issued |
|
|
— |
|
|
|
— |
|
|
|
27 |
|
|
|
(1 |
) |
|
Other debt securities |
|
|
100 |
|
|
|
(1 |
) |
|
|
85,400 |
|
|
|
(16,995 |
) |
|
Equity securities |
|
|
17,776 |
|
|
|
(422 |
) |
|
|
151 |
|
|
|
(149 |
) |
|
|
|
|
8,458,946 |
|
|
|
(123,747 |
) |
|
|
169,469 |
|
|
|
(17,768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions |
|
|
17,988 |
|
|
|
(126 |
) |
|
|
11,891 |
|
|
|
(98 |
) |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed |
|
|
618,832 |
|
|
|
(6,842 |
) |
|
|
17,481 |
|
|
|
(532 |
) |
|
Privately issued |
|
|
17,911 |
|
|
|
(1,222 |
) |
|
|
57,016 |
|
|
|
(35,898 |
) |
|
|
|
|
654,731 |
|
|
|
(8,190 |
) |
|
|
86,388 |
|
|
|
(36,528 |
) |
|
Total |
|
$ |
9,113,677 |
|
|
|
(131,937 |
) |
|
|
255,857 |
|
|
|
(54,296 |
) |
The Company owned 939 individual investment securities with aggregate gross unrealized losses of $124 million at September 30, 2017. Based on a review of each of the securities in the investment securities portfolio at September 30, 2017, the Company concluded that it expected to recover the amortized cost basis of its investment. As of September 30, 2017, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities at a loss. At September 30, 2017, the Company has not identified
- 11 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Investment securities, continued
events or changes in circumstances which may have a significant adverse effect on the carrying value of the $415 million of cost method investment securities.
4. Loans and leases and the allowance for credit losses
A summary of current, past due and nonaccrual loans as of September 30, 2017 and December 31, 2016 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 |
|
|||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
$ |
21,486,942 |
|
|
|
48,159 |
|
|
|
3,710 |
|
|
|
369 |
|
|
|
75 |
|
|
|
203,996 |
|
|
$ |
21,743,251 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
24,724,768 |
|
|
|
273,539 |
|
|
|
1,710 |
|
|
|
7,523 |
|
|
|
20,509 |
|
|
|
200,193 |
|
|
|
25,228,242 |
|
|
Residential builder and developer |
|
|
1,604,095 |
|
|
|
26,182 |
|
|
|
— |
|
|
|
4,413 |
|
|
|
10,717 |
|
|
|
2,416 |
|
|
|
1,647,823 |
|
|
Other commercial construction |
|
|
5,952,636 |
|
|
|
51,132 |
|
|
|
1,220 |
|
|
|
— |
|
|
|
13,972 |
|
|
|
19,263 |
|
|
|
6,038,223 |
|
|
Residential |
|
|
15,868,656 |
|
|
|
458,066 |
|
|
|
249,983 |
|
|
|
10,025 |
|
|
|
307,529 |
|
|
|
236,363 |
|
|
|
17,130,622 |
|
|
Residential — limited documentation |
|
|
2,829,667 |
|
|
|
88,814 |
|
|
|
— |
|
|
|
— |
|
|
|
114,141 |
|
|
|
101,918 |
|
|
|
3,134,540 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
5,275,572 |
|
|
|
34,878 |
|
|
|
772 |
|
|
|
9,856 |
|
|
|
— |
|
|
|
75,584 |
|
|
|
5,396,662 |
|
|
Automobile |
|
|
3,327,148 |
|
|
|
67,280 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
21,267 |
|
|
|
3,415,696 |
|
|
Other |
|
|
4,120,712 |
|
|
|
33,070 |
|
|
|
3,893 |
|
|
|
24,038 |
|
|
|
— |
|
|
|
8,362 |
|
|
|
4,190,075 |
|
|
Total |
|
$ |
85,190,196 |
|
|
|
1,081,120 |
|
|
|
261,288 |
|
|
|
56,225 |
|
|
|
466,943 |
|
|
|
869,362 |
|
|
$ |
87,925,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|||||||||||||||||||||||||
|
Commercial, financial, leasing, etc. |
|
$ |
22,287,857 |
|
|
|
53,503 |
|
|
|
6,195 |
|
|
|
417 |
|
|
|
641 |
|
|
|
261,434 |
|
|
$ |
22,610,047 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
25,076,684 |
|
|
|
183,531 |
|
|
|
7,054 |
|
|
|
12,870 |
|
|
|
31,404 |
|
|
|
176,201 |
|
|
|
25,487,744 |
|
|
Residential builder and developer |
|
|
1,884,989 |
|
|
|
4,667 |
|
|
|
5 |
|
|
|
1,952 |
|
|
|
14,006 |
|
|
|
16,707 |
|
|
|
1,922,326 |
|
|
Other commercial construction |
|
|
5,985,118 |
|
|
|
77,701 |
|
|
|
922 |
|
|
|
198 |
|
|
|
14,274 |
|
|
|
18,111 |
|
|
|
6,096,324 |
|
|
Residential |
|
|
17,631,377 |
|
|
|
485,468 |
|
|
|
281,298 |
|
|
|
11,537 |
|
|
|
378,549 |
|
|
|
229,242 |
|
|
|
19,017,471 |
|
|
Residential — limited documentation |
|
|
3,239,344 |
|
|
|
88,366 |
|
|
|
— |
|
|
|
— |
|
|
|
139,158 |
|
|
|
106,573 |
|
|
|
3,573,441 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
5,502,091 |
|
|
|
44,565 |
|
|
|
— |
|
|
|
12,678 |
|
|
|
— |
|
|
|
81,815 |
|
|
|
5,641,149 |
|
|
Automobile |
|
|
2,869,232 |
|
|
|
56,158 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
18,674 |
|
|
|
2,944,065 |
|
|
Other |
|
|
3,491,629 |
|
|
|
31,286 |
|
|
|
5,185 |
|
|
|
21,491 |
|
|
|
— |
|
|
|
11,258 |
|
|
|
3,560,849 |
|
|
Total |
|
$ |
87,968,321 |
|
|
|
1,025,245 |
|
|
|
300,659 |
|
|
|
61,144 |
|
|
|
578,032 |
|
|
|
920,015 |
|
|
$ |
90,853,416 |
|
|
(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. |
- 12 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
One-to-four family residential mortgage loans held for sale were $347 million and $414 million at September 30, 2017 and December 31, 2016, respectively. Commercial real estate loans held for sale were $224 million at September 30, 2017 and $643 million at December 31, 2016.
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:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(In thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Outstanding principal balance |
|
$ |
1,584,126 |
|
|
|
2,311,699 |
|
|
Carrying amount: |
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
|
42,878 |
|
|
|
59,928 |
|
|
Commercial real estate |
|
|
308,426 |
|
|
|
456,820 |
|
|
Residential real estate |
|
|
665,278 |
|
|
|
799,802 |
|
|
Consumer |
|
|
127,919 |
|
|
|
487,721 |
|
|
|
|
$ |
1,144,501 |
|
|
|
1,804,271 |
|
Purchased impaired loans included in the table above totaled $467 million at September 30, 2017 and $578 million at December 31, 2016, 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 months and nine months ended September 30, 2017 and 2016 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
|
|||||||||||||
|
|
|
2017 |
|
|
2016 |
|
||||||||||
|
|
|
Purchased |
|
|
Other |
|
|
Purchased |
|
|
Other |
|
||||
|
|
|
Impaired |
|
|
Acquired |
|
|
Impaired |
|
|
Acquired |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
133,532 |
|
|
|
163,099 |
|
|
$ |
162,023 |
|
|
|
245,195 |
|
|
Interest income |
|
|
(10,815 |
) |
|
|
(20,064 |
) |
|
|
(12,784 |
) |
|
|
(26,540 |
) |
|
Reclassifications from nonaccretable balance |
|
|
30,799 |
|
|
|
6,041 |
|
|
|
2,256 |
|
|
|
12,050 |
|
|
Other (a) |
|
|
— |
|
|
|
1,545 |
|
|
|
— |
|
|
|
(818 |
) |
|
Balance at end of period |
|
$ |
153,516 |
|
|
|
150,621 |
|
|
$ |
151,495 |
|
|
|
229,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
|
|||||||||||||
|
|
|
2017 |
|
|
2016 |
|
||||||||||
|
|
|
Purchased |
|
|
Other |
|
|
Purchased |
|
|
Other |
|
||||
|
|
|
Impaired |
|
|
Acquired |
|
|
Impaired |
|
|
Acquired |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
154,233 |
|
|
|
201,153 |
|
|
$ |
184,618 |
|
|
|
296,434 |
|
|
Interest income |
|
|
(32,546 |
) |
|
|
(66,505 |
) |
|
|
(40,906 |
) |
|
|
(97,300 |
) |
|
Reclassifications from nonaccretable balance |
|
|
31,829 |
|
|
|
11,076 |
|
|
|
7,783 |
|
|
|
20,647 |
|
|
Other (a) |
|
|
— |
|
|
|
4,897 |
|
|
|
— |
|
|
|
10,106 |
|
|
Balance at end of period |
|
$ |
153,516 |
|
|
|
150,621 |
|
|
$ |
151,495 |
|
|
|
229,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Other changes in expected cash flows including changes in interest rates and prepayment assumptions. |
- 13 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
Changes in the allowance for credit losses for the three months ended September 30, 2017 were as follows:
|
|
|
Commercial, Financial, |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Leasing, etc. |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Unallocated |
|
|
Total |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
339,314 |
|
|
|
366,229 |
|
|
|
66,006 |
|
|
|
158,559 |
|
|
|
78,117 |
|
|
$ |
1,008,225 |
|
|
Provision for credit losses |
|
|
2,451 |
|
|
|
(7,699 |
) |
|
|
1,267 |
|
|
|
33,886 |
|
|
|
95 |
|
|
|
30,000 |
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(9,714 |
) |
|
|
(258 |
) |
|
|
(4,206 |
) |
|
|
(32,874 |
) |
|
|
— |
|
|
|
(47,052 |
) |
|
Recoveries |
|
|
4,423 |
|
|
|
5,895 |
|
|
|
2,028 |
|
|
|
9,807 |
|
|
|
— |
|
|
|
22,153 |
|
|
Net (charge-offs) recoveries |
|
|
(5,291 |
) |
|
|
5,637 |
|
|
|
(2,178 |
) |
|
|
(23,067 |
) |
|
|
— |
|
|
|
(24,899 |
) |
|
Ending balance |
|
$ |
336,474 |
|
|
|
364,167 |
|
|
|
65,095 |
|
|
|
169,378 |
|
|
|
78,212 |
|
|
$ |
1,013,326 |
|
Changes in the allowance for credit losses for the three months ended September 30, 2016 were as follows:
|
|
|
Commercial, Financial, |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Leasing, etc. |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Unallocated |
|
|
Total |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
316,079 |
|
|
|
349,674 |
|
|
|
69,660 |
|
|
|
157,361 |
|
|
|
77,722 |
|
|
$ |
970,496 |
|
|
Provision for credit losses |
|
|
26,222 |
|
|
|
9,963 |
|
|
|
(6,232 |
) |
|
|
16,539 |
|
|
|
508 |
|
|
|
47,000 |
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(21,075 |
) |
|
|
(1,564 |
) |
|
|
(6,754 |
) |
|
|
(29,882 |
) |
|
|
— |
|
|
|
(59,275 |
) |
|
Recoveries |
|
|
6,958 |
|
|
|
1,704 |
|
|
|
1,919 |
|
|
|
7,319 |
|
|
|
— |
|
|
|
17,900 |
|
|
Net (charge-offs) recoveries |
|
|
(14,117 |
) |
|
|
140 |
|
|
|
(4,835 |
) |
|
|
(22,563 |
) |
|
|
— |
|
|
|
(41,375 |
) |
|
Ending balance |
|
$ |
328,184 |
|
|
|
359,777 |
|
|
|
58,593 |
|
|
|
151,337 |
|
|
|
78,230 |
|
|
$ |
976,121 |
|
Changes in the allowance for credit losses for the nine months ended September 30, 2017 were as follows:
|
|
|
Commercial, Financial, |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Leasing, etc. |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Unallocated |
|
|
Total |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
330,833 |
|
|
|
362,719 |
|
|
|
61,127 |
|
|
|
156,288 |
|
|
|
78,030 |
|
|
$ |
988,997 |
|
|
Provision for credit losses |
|
|
44,642 |
|
|
|
1,201 |
|
|
|
14,067 |
|
|
|
76,908 |
|
|
|
182 |
|
|
|
137,000 |
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(51,318 |
) |
|
|
(7,556 |
) |
|
|
(16,364 |
) |
|
|
(96,060 |
) |
|
|
— |
|
|
|
(171,298 |
) |
|
Recoveries |
|
|
12,317 |
|
|
|
7,803 |
|
|
|
6,265 |
|
|
|
32,242 |
|
|
|
— |
|
|
|
58,627 |
|
|
Net (charge-offs) recoveries |
|
|
(39,001 |
) |
|
|
247 |
|
|
|
(10,099 |
) |
|
|
(63,818 |
) |
|
|
— |
|
|
|
(112,671 |
) |
|
Ending balance |
|
$ |
336,474 |
|
|
|
364,167 |
|
|
|
65,095 |
|
|
|
169,378 |
|
|
|
78,212 |
|
|
$ |
1,013,326 |
|
- 14 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
Changes in the allowance for credit losses for the nine months ended September 30, 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 |
|
|
39,667 |
|
|
|
29,799 |
|
|
|
(610 |
) |
|
|
59,113 |
|
|
|
31 |
|
|
|
128,000 |
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(34,711 |
) |
|
|
(3,569 |
) |
|
|
(18,816 |
) |
|
|
(107,761 |
) |
|
|
— |
|
|
|
(164,857 |
) |
|
Recoveries |
|
|
22,824 |
|
|
|
6,716 |
|
|
|
5,781 |
|
|
|
21,665 |
|
|
|
— |
|
|
|
56,986 |
|
|
Net (charge-offs) recoveries |
|
|
(11,887 |
) |
|
|
3,147 |
|
|
|
(13,035 |
) |
|
|
(86,096 |
) |
|
|
— |
|
|
|
(107,871 |
) |
|
Ending balance |
|
$ |
328,184 |
|
|
|
359,777 |
|
|
|
58,593 |
|
|
|
151,337 |
|
|
|
78,230 |
|
|
$ |
976,121 |
|
Despite the allocation in the preceding tables, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type.
In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified 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.
- 15 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. 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 September 30, 2017 and December 31, 2016 and for the three-month and nine-month periods ended September 30, 2017 and 2016.
|
|
|
September 30, 2017 |
|
|
December 31, 2016 |
|
||||||||||||||||||
|
|
|
Recorded Investment |
|
|
Unpaid Principal Balance |
|
|
Related Allowance |
|
|
Recorded Investment |
|
|
Unpaid Principal Balance |
|
|
Related Allowance |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
$ |
148,747 |
|
|
|
179,120 |
|
|
|
49,447 |
|
|
|
168,072 |
|
|
|
184,432 |
|
|
|
48,480 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
73,144 |
|
|
|
81,244 |
|
|
|
10,200 |
|
|
|
71,862 |
|
|
|
86,666 |
|
|
|
11,620 |
|
|
Residential builder and developer |
|
|
6,537 |
|
|
|
6,842 |
|
|
|
288 |
|
|
|
7,396 |
|
|
|
8,361 |
|
|
|
506 |
|
|
Other commercial construction |
|
|
1,626 |
|
|
|
1,785 |
|
|
|
292 |
|
|
|
2,475 |
|
|
|
2,731 |
|
|
|
448 |
|
|
Residential |
|
|
97,483 |
|
|
|
118,030 |
|
|
|
3,475 |
|
|
|
86,680 |
|
|
|
105,944 |
|
|
|
3,457 |
|
|
Residential — limited documentation |
|
|
79,030 |
|
|
|
94,194 |
|
|
|
4,600 |
|
|
|
82,547 |
|
|
|
97,718 |
|
|
|
6,000 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
48,231 |
|
|
|
52,975 |
|
|
|
8,711 |
|
|
|
44,693 |
|
|
|
48,965 |
|
|
|
8,027 |
|
|
Automobile |
|
|
14,225 |
|
|
|
16,743 |
|
|
|
3,011 |
|
|
|
16,982 |
|
|
|
18,272 |
|
|
|
3,740 |
|
|
Other |
|
|
3,176 |
|
|
|
5,633 |
|
|
|
650 |
|
|
|
3,791 |
|
|
|
5,296 |
|
|
|
776 |
|
|
|
|
|
472,199 |
|
|
|
556,566 |
|
|
|
80,674 |
|
|
|
484,498 |
|
|
|
558,385 |
|
|
|
83,054 |
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
|
80,952 |
|
|
|
97,073 |
|
|
|
— |
|
|
|
100,805 |
|
|
|
124,786 |
|
|
|
— |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
148,733 |
|
|
|
158,815 |
|
|
|
— |
|
|
|
113,276 |
|
|
|
121,846 |
|
|
|
— |
|
|
Residential builder and developer |
|
|
1,174 |
|
|
|
1,174 |
|
|
|
— |
|
|
|
14,368 |
|
|
|
21,124 |
|
|
|
— |
|
|
Other commercial construction |
|
|
17,850 |
|
|
|
37,237 |
|
|
|
— |
|
|
|
15,933 |
|
|
|
35,281 |
|
|
|
— |
|
|
Residential |
|
|
17,312 |
|
|
|
23,291 |
|
|
|
— |
|
|
|
16,823 |
|
|
|
24,161 |
|
|
|
— |
|
|
Residential — limited documentation |
|
|
11,091 |
|
|
|
18,480 |
|
|
|
— |
|
|
|
15,429 |
|
|
|
24,590 |
|
|
|
— |
|
|
|
|
|
277,112 |
|
|
|
336,070 |
|
|
|
— |
|
|
|
276,634 |
|
|
|
351,788 |
|
|
|
— |
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
|
229,699 |
|
|
|
276,193 |
|
|
|
49,447 |
|
|
|
268,877 |
|
|
|
309,218 |
|
|
|
48,480 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
221,877 |
|
|
|
240,059 |
|
|
|
10,200 |
|
|
|
185,138 |
|
|
|
208,512 |
|
|
|
11,620 |
|
|
Residential builder and developer |
|
|
7,711 |
|
|
|
8,016 |
|
|
|
288 |
|
|
|
21,764 |
|
|
|
29,485 |
|
|
|
506 |
|
|
Other commercial construction |
|
|
19,476 |
|
|
|
39,022 |
|
|
|
292 |
|
|
|
18,408 |
|
|
|
38,012 |
|
|
|
448 |
|
|
Residential |
|
|
114,795 |
|
|
|
141,321 |
|
|
|
3,475 |
|
|
|
103,503 |
|
|
|
130,105 |
|
|
|
3,457 |
|
|
Residential — limited documentation |
|
|
90,121 |
|
|
|
112,674 |
|
|
|
4,600 |
|
|
|
97,976 |
|
|
|
122,308 |
|
|
|
6,000 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
48,231 |
|
|
|
52,975 |
|
|
|
8,711 |
|
|
|
44,693 |
|
|
|
48,965 |
|
|
|
8,027 |
|
|
Automobile |
|
|
14,225 |
|
|
|
16,743 |
|
|
|
3,011 |
|
|
|
16,982 |
|
|
|
18,272 |
|
|
|
3,740 |
|
|
Other |
|
|
3,176 |
|
|
|
5,633 |
|
|
|
650 |
|
|
|
3,791 |
|
|
|
5,296 |
|
|
|
776 |
|
|
Total |
|
$ |
749,311 |
|
|
|
892,636 |
|
|
|
80,674 |
|
|
|
761,132 |
|
|
|
910,173 |
|
|
|
83,054 |
|
- 16 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
|
|
|
Three Months Ended September 30, 2017 |
|
|
Three Months Ended September 30, 2016 |
|
||||||||||||||||||
|
|
|
|
|
|
|
Interest Income Recognized |
|
|
|
|
|
|
Interest Income Recognized |
|
||||||||||
|
|
|
Average Recorded Investment |
|
|
Total |
|
|
Cash Basis |
|
|
Average Recorded Investment |
|
|
Total |
|
|
Cash Basis |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
$ |
224,526 |
|
|
|
391 |
|
|
|
391 |
|
|
|
262,796 |
|
|
|
744 |
|
|
|
744 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
233,572 |
|
|
|
1,425 |
|
|
|
1,425 |
|
|
|
175,256 |
|
|
|
1,806 |
|
|
|
1,806 |
|
|
Residential builder and developer |
|
|
8,550 |
|
|
|
895 |
|
|
|
895 |
|
|
|
26,996 |
|
|
|
405 |
|
|
|
405 |
|
|
Other commercial construction |
|
|
16,578 |
|
|
|
25 |
|
|
|
25 |
|
|
|
21,500 |
|
|
|
190 |
|
|
|
190 |
|
|
Residential |
|
|
113,892 |
|
|
|
1,903 |
|
|
|
905 |
|
|
|
96,961 |
|
|
|
1,572 |
|
|
|
570 |
|
|
Residential — limited documentation |
|
|
91,974 |
|
|
|
1,624 |
|
|
|
569 |
|
|
|
101,877 |
|
|
|
1,501 |
|
|
|
378 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
47,831 |
|
|
|
419 |
|
|
|
99 |
|
|
|
41,740 |
|
|
|
368 |
|
|
|
112 |
|
|
Automobile |
|
|
14,588 |
|
|
|
251 |
|
|
|
22 |
|
|
|
18,571 |
|
|
|
303 |
|
|
|
19 |
|
|
Other |
|
|
3,269 |
|
|
|
80 |
|
|
|
2 |
|
|
|
4,077 |
|
|
|
72 |
|
|
|
11 |
|
|
Total |
|
$ |
754,780 |
|
|
|
7,013 |
|
|
|
4,333 |
|
|
|
749,774 |
|
|
|
6,961 |
|
|
|
4,235 |
|
|
|
|
Nine Months Ended September 30, 2017 |
|
|
Nine Months Ended September 30, 2016 |
|
||||||||||||||||||
|
|
|
|
|
|
|
Interest Income Recognized |
|
|
|
|
|
|
Interest Income Recognized |
|
||||||||||
|
|
|
Average Recorded Investment |
|
|
Total |
|
|
Cash Basis |
|
|
Average Recorded Investment |
|
|
Total |
|
|
Cash Basis |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
$ |
242,410 |
|
|
|
1,674 |
|
|
|
1,674 |
|
|
|
283,783 |
|
|
|
7,055 |
|
|
|
7,055 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
205,814 |
|
|
|
3,213 |
|
|
|
3,213 |
|
|
|
177,579 |
|
|
|
3,891 |
|
|
|
3,891 |
|
|
Residential builder and developer |
|
|
14,551 |
|
|
|
1,791 |
|
|
|
1,791 |
|
|
|
30,832 |
|
|
|
488 |
|
|
|
488 |
|
|
Other commercial construction |
|
|
15,474 |
|
|
|
958 |
|
|
|
958 |
|
|
|
19,774 |
|
|
|
563 |
|
|
|
563 |
|
|
Residential |
|
|
108,741 |
|
|
|
5,004 |
|
|
|
2,285 |
|
|
|
97,229 |
|
|
|
4,778 |
|
|
|
2,591 |
|
|
Residential — limited documentation |
|
|
94,680 |
|
|
|
4,573 |
|
|
|
1,292 |
|
|
|
104,382 |
|
|
|
4,580 |
|
|
|
1,648 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
46,829 |
|
|
|
1,240 |
|
|
|
290 |
|
|
|
33,998 |
|
|
|
937 |
|
|
|
295 |
|
|
Automobile |
|
|
15,483 |
|
|
|
788 |
|
|
|
62 |
|
|
|
20,358 |
|
|
|
964 |
|
|
|
83 |
|
|
Other |
|
|
3,430 |
|
|
|
227 |
|
|
|
8 |
|
|
|
10,987 |
|
|
|
371 |
|
|
|
74 |
|
|
Total |
|
$ |
747,412 |
|
|
|
19,468 |
|
|
|
11,573 |
|
|
|
778,922 |
|
|
|
23,627 |
|
|
|
16,688 |
|
- 17 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
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.
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 |
|
|||||||||
|
|
|
Commercial, |
|
|
|
|
|
|
Residential |
|
|
Other |
|
|||
|
|
|
Financial, |
|
|
|
|
|
|
Builder and |
|
|
Commercial |
|
|||
|
|
|
Leasing, etc. |
|
|
Commercial |
|
|
Developer |
|
|
Construction |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
20,561,077 |
|
|
|
24,309,923 |
|
|
|
1,580,763 |
|
|
|
5,830,122 |
|
|
Criticized accrual |
|
|
978,178 |
|
|
|
718,126 |
|
|
|
64,644 |
|
|
|
188,838 |
|
|
Criticized nonaccrual |
|
|
203,996 |
|
|
|
200,193 |
|
|
|
2,416 |
|
|
|
19,263 |
|
|
Total |
|
$ |
21,743,251 |
|
|
|
25,228,242 |
|
|
|
1,647,823 |
|
|
|
6,038,223 |
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
21,398,581 |
|
|
|
24,570,269 |
|
|
|
1,789,071 |
|
|
|
5,912,351 |
|
|
Criticized accrual |
|
|
950,032 |
|
|
|
741,274 |
|
|
|
116,548 |
|
|
|
165,862 |
|
|
Criticized nonaccrual |
|
|
261,434 |
|
|
|
176,201 |
|
|
|
16,707 |
|
|
|
18,111 |
|
|
Total |
|
$ |
22,610,047 |
|
|
|
25,487,744 |
|
|
|
1,922,326 |
|
|
|
6,096,324 |
|
- 18 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
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 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 collectability 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 $39 million and $27 million, respectively, at September 30, 2017 and $44 million and $32 million, respectively, at December 31, 2016. 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 $19 million and $33 million, respectively, at September 30, 2017 and $16 million and $39 million, respectively, at December 31, 2016.
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.
- 19 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. 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 |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Leasing, etc. |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Total |
|
|||||
|
|
|
(In thousands) |
|
|||||||||||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
49,447 |
|
|
|
10,780 |
|
|
|
8,075 |
|
|
|
12,372 |
|
|
$ |
80,674 |
|
|
Collectively evaluated for impairment |
|
|
287,027 |
|
|
|
353,387 |
|
|
|
47,674 |
|
|
|
157,006 |
|
|
|
845,094 |
|
|
Purchased impaired |
|
|
— |
|
|
|
— |
|
|
|
9,346 |
|
|
|
— |
|
|
|
9,346 |
|
|
Allocated |
|
$ |
336,474 |
|
|
|
364,167 |
|
|
|
65,095 |
|
|
|
169,378 |
|
|
|
935,114 |
|
|
Unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,212 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,013,326 |
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
48,480 |
|
|
|
12,500 |
|
|
|
9,457 |
|
|
|
12,543 |
|
|
$ |
82,980 |
|
|
Collectively evaluated for impairment |
|
|
282,353 |
|
|
|
348,301 |
|
|
|
47,993 |
|
|
|
143,745 |
|
|
|
822,392 |
|
|
Purchased impaired |
|
|
— |
|
|
|
1,918 |
|
|
|
3,677 |
|
|
|
— |
|
|
|
5,595 |
|
|
Allocated |
|
$ |
330,833 |
|
|
|
362,719 |
|
|
|
61,127 |
|
|
|
156,288 |
|
|
|
910,967 |
|
|
Unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,030 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
988,997 |
|
The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology was as follows:
|
|
|
Commercial, Financial, |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Leasing, etc. |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Total |
|
|||||
|
|
|
(In thousands) |
|
|||||||||||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
229,699 |
|
|
|
249,064 |
|
|
|
204,916 |
|
|
|
65,632 |
|
|
$ |
749,311 |
|
|
Collectively evaluated for impairment |
|
|
21,513,477 |
|
|
|
32,620,026 |
|
|
|
19,638,576 |
|
|
|
12,936,801 |
|
|
|
86,708,880 |
|
|
Purchased impaired |
|
|
75 |
|
|
|
45,198 |
|
|
|
421,670 |
|
|
|
— |
|
|
|
466,943 |
|
|
Total |
|
$ |
21,743,251 |
|
|
|
32,914,288 |
|
|
|
20,265,162 |
|
|
|
13,002,433 |
|
|
$ |
87,925,134 |
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
268,877 |
|
|
|
224,630 |
|
|
|
201,479 |
|
|
|
65,466 |
|
|
$ |
760,452 |
|
|
Collectively evaluated for impairment |
|
|
22,340,529 |
|
|
|
33,222,080 |
|
|
|
21,871,726 |
|
|
|
12,080,597 |
|
|
|
89,514,932 |
|
|
Purchased impaired |
|
|
641 |
|
|
|
59,684 |
|
|
|
517,707 |
|
|
|
— |
|
|
|
578,032 |
|
|
Total |
|
$ |
22,610,047 |
|
|
|
33,506,394 |
|
|
|
22,590,912 |
|
|
|
12,146,063 |
|
|
$ |
90,853,416 |
|
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.
- 20 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
The tables that follow summarize the Company’s loan modification activities that were considered troubled debt restructurings for the three-month and nine-month periods ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Post-modification (a) |
|
|||||||||||||
|
|
|
Number |
|
|
Pre- modification recorded investment |
|
|
Principal Deferral |
|
|
Other |
|
|
Combination of Concession Types |
|
|
Total |
|
||||||
|
Three Months Ended September 30, 2017 |
|
(Dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
|
49 |
|
|
$ |
15,812 |
|
|
$ |
5,888 |
|
|
$ |
97 |
|
|
$ |
9,251 |
|
|
$ |
15,236 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
17 |
|
|
|
5,861 |
|
|
|
1,420 |
|
|
|
868 |
|
|
|
3,450 |
|
|
|
5,738 |
|
|
Residential |
|
|
34 |
|
|
|
5,123 |
|
|
|
3,033 |
|
|
|
— |
|
|
|
2,716 |
|
|
|
5,749 |
|
|
Residential — limited documentation |
|
|
4 |
|
|
|
515 |
|
|
|
383 |
|
|
|
— |
|
|
|
167 |
|
|
|
550 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
25 |
|
|
|
2,154 |
|
|
|
461 |
|
|
|
— |
|
|
|
1,776 |
|
|
|
2,237 |
|
|
Automobile |
|
|
17 |
|
|
|
342 |
|
|
|
326 |
|
|
|
— |
|
|
|
16 |
|
|
|
342 |
|
|
Other |
|
|
1 |
|
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
Total |
|
|
147 |
|
|
$ |
29,812 |
|
|
$ |
11,516 |
|
|
$ |
965 |
|
|
$ |
17,376 |
|
|
$ |
29,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
|
43 |
|
|
$ |
69,486 |
|
|
$ |
40,183 |
|
|
$ |
— |
|
|
$ |
19,802 |
|
|
$ |
59,985 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
18 |
|
|
|
14,925 |
|
|
|
11,644 |
|
|
|
— |
|
|
|
2,614 |
|
|
|
14,258 |
|
|
Residential |
|
|
30 |
|
|
|
5,638 |
|
|
|
4,714 |
|
|
|
— |
|
|
|
1,214 |
|
|
|
5,928 |
|
|
Residential — limited documentation |
|
|
6 |
|
|
|
827 |
|
|
|
470 |
|
|
|
— |
|
|
|
493 |
|
|
|
963 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
26 |
|
|
|
2,552 |
|
|
|
251 |
|
|
|
— |
|
|
|
2,301 |
|
|
|
2,552 |
|
|
Automobile |
|
|
10 |
|
|
|
186 |
|
|
|
186 |
|
|
|
— |
|
|
|
— |
|
|
|
186 |
|
|
Other |
|
|
1 |
|
|
|
26 |
|
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
26 |
|
|
Total |
|
|
134 |
|
|
$ |
93,640 |
|
|
$ |
57,474 |
|
|
$ |
— |
|
|
$ |
26,424 |
|
|
$ |
83,898 |
|
- 21 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the all owance for credit losses, continued
|
|
|
|
|
|
|
|
|
|
|
Post-modification (a) |
|
|||||||||||||
|
|
|
Number |
|
|
Pre- modification recorded investment |
|
|
Principal Deferral |
|
|
Other |
|
|
Combination of Concession Types |
|
|
Total |
|
||||||
|
Nine Months Ended September 30, 2017 |
|
(Dollars in thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
|
162 |
|
|
$ |
93,346 |
|
|
$ |
18,449 |
|
|
$ |
6,459 |
|
|
$ |
47,211 |
|
|
$ |
72,119 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
67 |
|
|
|
38,608 |
|
|
|
16,193 |
|
|
|
868 |
|
|
|
21,332 |
|
|
|
38,393 |
|
|
Residential builder and developer |
|
|
3 |
|
|
|
12,291 |
|
|
|
— |
|
|
|
— |
|
|
|
10,879 |
|
|
|
10,879 |
|
|
Other commercial construction |
|
|
2 |
|
|
|
168 |
|
|
|
168 |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
|
Residential |
|
|
105 |
|
|
|
22,459 |
|
|
|
11,608 |
|
|
|
— |
|
|
|
12,557 |
|
|
|
24,165 |
|
|
Residential — limited documentation |
|
|
17 |
|
|
|
3,724 |
|
|
|
618 |
|
|
|
— |
|
|
|
3,352 |
|
|
|
3,970 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
85 |
|
|
|
7,885 |
|
|
|
1,040 |
|
|
|
491 |
|
|
|
6,442 |
|
|
|
7,973 |
|
|
Automobile |
|
|
59 |
|
|
|
1,160 |
|
|
|
1,089 |
|
|
|
— |
|
|
|
71 |
|
|
|
1,160 |
|
|
Other |
|
|
6 |
|
|
|
85 |
|
|
|
85 |
|
|
|
— |
|
|
|
— |
|
|
|
85 |
|
|
Total |
|
|
506 |
|
|
$ |
179,726 |
|
|
$ |
49,250 |
|
|
$ |
7,818 |
|
|
$ |
101,844 |
|
|
$ |
158,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
|
112 |
|
|
$ |
148,204 |
|
|
$ |
98,561 |
|
|
$ |
— |
|
|
$ |
39,971 |
|
|
$ |
138,532 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
55 |
|
|
|
36,984 |
|
|
|
17,802 |
|
|
|
4,576 |
|
|
|
13,546 |
|
|
|
35,924 |
|
|
Residential builder and developer |
|
|
3 |
|
|
|
23,905 |
|
|
|
22,958 |
|
|
|
— |
|
|
|
— |
|
|
|
22,958 |
|
|
Other commercial construction |
|
|
2 |
|
|
|
374 |
|
|
|
250 |
|
|
|
— |
|
|
|
124 |
|
|
|
374 |
|
|
Residential |
|
|
73 |
|
|
|
11,946 |
|
|
|
7,945 |
|
|
|
— |
|
|
|
4,705 |
|
|
|
12,650 |
|
|
Residential — limited documentation |
|
|
14 |
|
|
|
2,415 |
|
|
|
803 |
|
|
|
— |
|
|
|
1,872 |
|
|
|
2,675 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines and loans |
|
|
84 |
|
|
|
9,189 |
|
|
|
655 |
|
|
|
— |
|
|
|
8,534 |
|
|
|
9,189 |
|
|
Automobile |
|
|
148 |
|
|
|
1,005 |
|
|
|
865 |
|
|
|
55 |
|
|
|
85 |
|
|
|
1,005 |
|
|
Other |
|
|
78 |
|
|
|
1,192 |
|
|
|
951 |
|
|
|
45 |
|
|
|
196 |
|
|
|
1,192 |
|
|
Total |
|
|
569 |
|
|
$ |
235,214 |
|
|
$ |
150,790 |
|
|
$ |
4,676 |
|
|
$ |
69,033 |
|
|
$ |
224,499 |
|
|
(a) |
Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages. The present value of interest rate concessions, discounted at the effective rate of the original loan, was not material. |
Troubled debt restructurings are 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 September 30, 2017 and 2016 and for which there was a subsequent payment default during the nine-month periods ended September 30, 2017 and 2016, respectively, were not material.
- 22 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Loans and leases and the allowance for credit losses, continued
The amount of foreclosed residential real estate property held by the Company totaled $106 million and $129 million at September 30, 2017 and December 31, 2016, respectively. There were $545 million and $506 million at September 30, 2017 and December 31, 2016, respectively, in loans secured by residential real estate that were in the process of foreclosure. Of all loans in the process of foreclosure at September 30, 2017, approximately 48% were classified as purchased impaired and 20% were government guaranteed.
5. Borrowings
During May 2017, M&T Bank, the principal bank subsidiary of M&T, issued $900 million of senior notes that mature in May 2022 pursuant to a Bank Note Program, of which $650 million have a 2.50% fixed interest rate and $250 million have a variable rate paid quarterly at rates that are indexed to the three-month London Interbank Offered Rate (“LIBOR”). During June 2017, M&T Bank redeemed $750 million of 1.40% fixed rate senior notes. The notes had a maturity date of July 25, 2017 and were redeemable on or after the 30 th day prior to the maturity date. During August 2017, M&T Bank issued $750 million of three-year 2.05% fixed rate senior notes due August 2020 and $500 million of ten-year 3.40% fixed rate subordinated notes due August 2027.
M&T had $519 million of fixed and variable rate junior subordinated deferrable interest debentures ("Junior Subordinated Debentures") outstanding at September 30, 2017 that are held by various trusts that were issued in connection with the issuance by those trusts of preferred capital securities ("Capital Securities") and common securities ("Common Securities"). The proceeds from the issuances of the Capital Securities and the Common Securities were used by the trusts to purchase the Junior Subordinated Debentures. The Common Securities of each of those trusts are wholly owned by M&T and are the only class of each trust's securities possessing general voting powers. The Capital Securities represent preferred undivided interests in the assets of the corresponding trust. Under the Federal Reserve Board’s risk-based capital guidelines, the securities are includable in M&T’s Tier 2 regulatory capital.
Holders of the Capital Securities receive preferential cumulative cash distributions unless M&T exercises its right to extend the payment of interest on the Junior Subordinated Debentures as allowed by the terms of each such debenture, in which case payment of distributions on the respective Capital Securities will be deferred for comparable periods. During an extended interest period, M&T may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock. In general, the agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable and unconditional guarantee by M&T of the payment of distributions on, the redemption of, and any liquidation distribution with respect to the Capital Securities. The obligations under such guarantee and the Capital Securities are subordinate and junior in right of payment to all senior indebtedness of M&T.
The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity or are distributed in liquidation to the trusts. The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates (ranging from 2027 to 2033) of the Junior Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events set forth in the indentures relating to the Capital Securities, and in whole or in part at any time after an optional redemption prior to contractual maturity contemporaneously with the optional redemption of the related Junior Subordinated Debentures in whole or in part, subject to possible regulatory approval.
- 23 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Also included in long-term borrowings are agreements to repurchase securities of $425 million and $1.1 billion at September 30, 2017 and December 31, 2016, 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 $445 million and $1.1 billion at September 30, 2017 and December 31, 2016, respectively .
6. 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 September 30, 2017 and December 31, 2016 is presented below:
|
|
|
Shares Issued and Outstanding |
|
|
Carrying Value |
|
||
|
|
|
(Dollars in thousands) |
|
|||||
|
Series A (a) |
|
|
|
|
|
|
|
|
|
Fixed Rate Cumulative Perpetual Preferred Stock, $1,000 liquidation preference per share |
|
|
230,000 |
|
|
$ |
230,000 |
|
|
Series C (a) |
|
|
|
|
|
|
|
|
|
Fixed Rate Cumulative Perpetual Preferred Stock, $1,000 liquidation preference per share |
|
|
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 |
|
|
Series F (c) |
|
|
|
|
|
|
|
|
|
Fixed-to-Floating Rate Non-cumulative Perpetual Preferred Stock, $10,000 liquidation preference per share |
|
|
50,000 |
|
|
$ |
500,000 |
|
|
(a) |
Dividends, if declared, are paid at 6.375%. Warrants to purchase M&T common stock at $73.79 per share issued in connection with the Series A preferred stock expire in 2018 and totaled 327,358 at September 30, 2017. |
|
(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). 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 95,472 shares of M&T common stock at $518.47 per share was outstanding at September 30, 2017. The obligation under that warrant was assumed by M&T in an acquisition and expires in 2018.
- 24 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. Pension plans and other postretirement benefits
The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. Net periodic defined benefit cost for defined benefit plans consisted of the following:
|
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
||||||||||
|
|
|
Three Months Ended September 30 |
|
|||||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
5,048 |
|
|
|
6,259 |
|
|
|
293 |
|
|
399 |
|
|
|
Interest cost on projected benefit obligation |
|
|
19,818 |
|
|
|
20,853 |
|
|
|
929 |
|
|
|
1,242 |
|
|
Expected return on plan assets |
|
|
(27,131 |
) |
|
|
(27,118 |
) |
|
|
— |
|
|
|
— |
|
|
Amortization of prior service cost (credit) |
|
|
139 |
|
|
|
(807 |
) |
|
|
(340 |
) |
|
|
(339 |
) |
|
Amortization of net actuarial loss (gain) |
|
|
7,316 |
|
|
|
7,536 |
|
|
|
(247 |
) |
|
|
15 |
|
|
Net periodic benefit cost |
|
$ |
5,190 |
|
|
|
6,723 |
|
|
|
635 |
|
|
|
1,317 |
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
||||||||||
|
|
|
Nine Months Ended September 30 |
|
|||||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
15,145 |
|
|
|
18,778 |
|
|
|
878 |
|
|
|
1,197 |
|
|
Interest cost on projected benefit obligation |
|
|
59,452 |
|
|
|
62,558 |
|
|
|
2,787 |
|
|
|
3,728 |
|
|
Expected return on plan assets |
|
|
(81,393 |
) |
|
|
(81,355 |
) |
|
|
— |
|
|
|
— |
|
|
Amortization of prior service cost (credit) |
|
|
418 |
|
|
|
(2,421 |
) |
|
|
(1,019 |
) |
|
|
(1,019 |
) |
|
Amortization of net actuarial loss (gain) |
|
|
21,947 |
|
|
|
22,609 |
|
|
|
(741 |
) |
|
|
45 |
|
|
Net periodic benefit cost |
|
$ |
15,569 |
|
|
|
20,169 |
|
|
|
1,905 |
|
|
|
3,951 |
|
Expense incurred in connection with the Company's defined contribution pension and retirement savings plans totaled $16,085,000 and $14,783,000 for the three months ended September 30, 2017 and 2016, respectively, and $53,127,000 and $47,747,000 for the nine months ended September 30, 2017 and 2016, respectively.
- 25 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The computations of basic earnings per common share follow:
|
|
|
Three Months Ended September 30 |
|
|
Nine Months Ended September 30 |
|
||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
|
|
(In thousands, except per share) |
|
|||||||||||||
|
Income available to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
355,923 |
|
|
|
349,984 |
|
|
|
1,085,903 |
|
|
|
984,543 |
|
|
Less: Preferred stock dividends (a) |
|
|
(18,130 |
) |
|
|
(20,318 |
) |
|
|
(54,604 |
) |
|
|
(60,953 |
) |
|
Net income available to common equity |
|
|
337,793 |
|
|
|
329,666 |
|
|
|
1,031,299 |
|
|
|
923,590 |
|
|
Less: Income attributable to unvested stock-based compensation awards |
|
|
(1,992 |
) |
|
|
(2,674 |
) |
|
|
(6,288 |
) |
|
|
(7,920 |
) |
|
Net income available to common shareholders |
|
$ |
335,801 |
|
|
|
326,992 |
|
|
|
1,025,011 |
|
|
|
915,670 |
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding (including common stock issuable) and unvested stock-based compensation awards |
|
|
152,245 |
|
|
|
156,767 |
|
|
|
153,814 |
|
|
|
158,710 |
|
|
Less: Unvested stock-based compensation awards |
|
|
(898 |
) |
|
|
(1,274 |
) |
|
|
(948 |
) |
|
|
(1,374 |
) |
|
Weighted-average shares outstanding |
|
|
151,347 |
|
|
|
155,493 |
|
|
|
152,866 |
|
|
|
157,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
2.22 |
|
|
|
2.10 |
|
|
|
6.71 |
|
|
|
5.82 |
|
(a) Including impact of not as yet declared cumulative dividends.
The computations of diluted earnings per common share follow:
|
|
|
Three Months Ended September 30 |
|
|
Nine Months Ended September 30 |
|
||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
|
|
(In thousands, except per share) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common equity |
|
$ |
337,793 |
|
|
|
329,666 |
|
|
|
1,031,299 |
|
|
|
923,590 |
|
|
Less: Income attributable to unvested stock-based compensation awards |
|
|
(1,989 |
) |
|
|
(2,668 |
) |
|
|
(6,276 |
) |
|
|
(7,904 |
) |
|
Net income available to common shareholders |
|
$ |
335,804 |
|
|
|
326,998 |
|
|
|
1,025,023 |
|
|
|
915,686 |
|
|
Adjusted weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and unvested stock-based compensation awards |
|
|
152,245 |
|
|
|
156,767 |
|
|
|
153,814 |
|
|
|
158,710 |
|
|
Less: Unvested stock-based compensation awards |
|
|
(898 |
) |
|
|
(1,274 |
) |
|
|
(948 |
) |
|
|
(1,374 |
) |
|
Plus: Incremental shares from assumed conversion of stock-based compensation awards and warrants to purchase common stock |
|
|
344 |
|
|
|
533 |
|
|
|
427 |
|
|
|
507 |
|
|
Adjusted weighted-average shares outstanding |
|
|
151,691 |
|
|
|
156,026 |
|
|
|
153,293 |
|
|
|
157,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
2.21 |
|
|
|
2.10 |
|
|
|
6.69 |
|
|
|
5.80 |
|
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 408,657 and 2,015,870 common shares during the three-month periods ended September 30, 2017 and 2016, respectively, and 404,487 and 2,513,288 common shares during the nine-month periods ended September 30, 2017 and 2016, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been antidilutive.
- 26 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The following tables display the components of other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income (loss) to net income:
|
|
|
Investment Securities |
|
|
Defined Benefit |
|
|
|
|
|
|
Total Amount |
|
|
|
Income |
|
|
|
|
|
||||||||
|
|
|
With OTTI (a) |
|
|
All Other |
|
|
Plans |
|
|
Other |
|
|
Before Tax |
|
|
|
Tax |
|
|
Net |
|
|||||||
|
|
|
(In thousands) |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — January 1, 2017 |
|
$ |
46,725 |
|
|
|
(73,785 |
) |
|
|
(449,917 |
) |
|
|
(8,268 |
) |
|
$ |
(485,245 |
) |
|
|
|
190,609 |
|
|
$ |
(294,636 |
) |
|
Other comprehensive income before reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses), net |
|
|
(7,365 |
) |
|
|
60,586 |
|
|
|
— |
|
|
|
— |
|
|
|
53,221 |
|
|
|
|
(20,934 |
) |
|
|
32,287 |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,829 |
|
|
|
3,829 |
|
|
|
|
(1,340 |
) |
|
|
2,489 |
|
|
Unrealized losses on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,076 |
) |
|
|
(1,076 |
) |
|
|
|
424 |
|
|
|
(652 |
) |
|
Total other comprehensive income (loss) before reclassifications |
|
|
(7,365 |
) |
|
|
60,586 |
|
|
|
— |
|
|
|
2,753 |
|
|
|
55,974 |
|
|
|
|
(21,850 |
) |
|
|
34,124 |
|
|
Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized holding losses on held-to-maturity (“HTM”) securities |
|
|
— |
|
|
|
2,535 |
|
|
|
— |
|
|
|
— |
|
|
|
2,535 |
|
(b) |
|
|
(998 |
) |
|
|
1,537 |
|
|
(Gains) losses realized in net income |
|
|
(50 |
) |
|
|
67 |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
(c) |
|
|
(7 |
) |
|
|
10 |
|
|
Accretion of net gain on terminated cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(109 |
) |
|
|
(109 |
) |
(d) |
|
|
43 |
|
|
|
(66 |
) |
|
Net yield adjustment from cash flow hedges currently in effect |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,275 |
) |
|
|
(2,275 |
) |
(b) |
|
|
895 |
|
|
|
(1,380 |
) |
|
Amortization of prior service credit |
|
|
— |
|
|
|
— |
|
|
|
(601 |
) |
|
|
— |
|
|
|
(601 |
) |
(e) |
|
|
236 |
|
|
|
(365 |
) |
|
Amortization of actuarial losses |
|
|
— |
|
|
|
— |
|
|
|
21,206 |
|
|
|
— |
|
|
|
21,206 |
|
(e) |
|
|
(8,345 |
) |
|
|
12,861 |
|
|
Total reclassifications |
|
|
(50 |
) |
|
|
2,602 |
|
|
|
20,605 |
|
|
|
(2,384 |
) |
|
|
20,773 |
|
|
|
|
(8,176 |
) |
|
|
12,597 |
|
|
Total gain (loss) during the period |
|
|
(7,415 |
) |
|
|
63,188 |
|
|
|
20,605 |
|
|
|
369 |
|
|
|
76,747 |
|
|
|
|
(30,026 |
) |
|
|
46,721 |
|
|
Balance — September 30, 2017 |
|
$ |
39,310 |
|
|
|
(10,597 |
) |
|
|
(429,312 |
) |
|
|
(7,899 |
) |
|
$ |
(408,498 |
) |
|
|
|
160,583 |
|
|
$ |
(247,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, net |
|
|
1,228 |
|
|
|
234,438 |
|
|
|
— |
|
|
|
— |
|
|
|
235,666 |
|
|
|
|
(92,714 |
) |
|
|
142,952 |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,836 |
) |
|
|
(2,836 |
) |
|
|
|
989 |
|
|
|
(1,847 |
) |
|
Total other comprehensive income (loss) before reclassifications |
|
|
1,228 |
|
|
|
234,438 |
|
|
|
— |
|
|
|
(2,836 |
) |
|
|
232,830 |
|
|
|
|
(91,725 |
) |
|
|
141,105 |
|
|
Amounts reclassified from accumulated other comprehensive income that (increase) decrease net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized holding losses on HTM securities |
|
|
— |
|
|
|
2,998 |
|
|
|
— |
|
|
|
— |
|
|
|
2,998 |
|
(b) |
|
|
(1,180 |
) |
|
|
1,818 |
|
|
Gains realized in net income |
|
|
— |
|
|
|
(28,748 |
) |
|
|
— |
|
|
|
— |
|
|
|
(28,748 |
) |
(c) |
|
|
11,309 |
|
|
|
(17,439 |
) |
|
Accretion of net gain on terminated cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(116 |
) |
|
|
(116 |
) |
(d) |
|
|
46 |
|
|
|
(70 |
) |
|
Amortization of prior service credit |
|
|
— |
|
|
|
— |
|
|
|
(3,440 |
) |
|
|
— |
|
|
|
(3,440 |
) |
(e) |
|
|
1,354 |
|
|
|
(2,086 |
) |
|
Amortization of actuarial losses |
|
|
— |
|
|
|
— |
|
|
|
22,654 |
|
|
|
— |
|
|
|
22,654 |
|
(e) |
|
|
(8,914 |
) |
|
|
13,740 |
|
|
Total reclassifications |
|
|
— |
|
|
|
(25,750 |
) |
|
|
19,214 |
|
|
|
(116 |
) |
|
|
(6,652 |
) |
|
|
|
2,615 |
|
|
|
(4,037 |
) |
|
Total gain (loss) during the period |
|
|
1,228 |
|
|
|
208,688 |
|
|
|
19,214 |
|
|
|
(2,952 |
) |
|
|
226,178 |
|
|
|
|
(89,110 |
) |
|
|
137,068 |
|
|
Balance — September 30, 2016 |
|
$ |
17,587 |
|
|
|
271,537 |
|
|
|
(470,446 |
) |
|
|
(7,045 |
) |
|
$ |
(188,367 |
) |
|
|
|
73,808 |
|
|
$ |
(114,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Other-than-temporary impairment |
|
(b) |
Included in interest income |
|
(c) |
Included in gain (loss) on bank investment securities |
|
(d) |
Included in interest expense |
|
(e) |
Included in salaries and employee benefits expense |
- 27 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. 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 |
|
|
(4,496 |
) |
|
|
38,330 |
|
|
|
12,496 |
|
|
|
391 |
|
|
|
46,721 |
|
|
Balance — September 30, 2017 |
|
$ |
23,842 |
|
|
|
(6,327 |
) |
|
|
(260,378 |
) |
|
|
(5,052 |
) |
|
$ |
(247,915 |
) |
10. Derivative financial instruments
As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk inherent in these contracts was not significant as of September 30, 2017.
The net effect of interest rate swap agreements was to increase net interest income by $7 million and $9 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $18 million and $30 million for the nine-month periods ended September 30, 2017 and 2016, respectively.
Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted- Average Rate |
|
|
|
|
|
|||||
|
|
|
Notional Amount |
|
|
Average Maturity |
|
|
Fixed |
|
|
Variable |
|
|
Estimated Fair Value Gain (a) |
|
|||||
|
|
|
(In thousands) |
|
|
(In years) |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate long-term borrowings (b) |
|
$ |
4,950,000 |
|
|
|
2.9 |
|
|
|
2.63 |
% |
|
|
2.04 |
% |
|
$ |
697 |
|
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate commercial real estate loans (b) |
|
|
2,000,000 |
|
|
|
1.6 |
|
|
|
1.46 |
% |
|
|
1.24 |
% |
|
|
— |
|
|
Total |
|
$ |
6,950,000 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
$ |
697 |
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate long-term borrowings (b) |
|
$ |
900,000 |
|
|
|
1.1 |
|
|
|
3.75 |
% |
|
|
2.08 |
% |
|
$ |
11,892 |
|
|
(a) |
Effective January 2017 certain clearinghouse exchanges revised their rules such that certain required payments by counterparties for variation margin on derivative instruments that had been treated as collateral are now treated as settlements of those positions. The impact of such rule changes at September 30, 2017 was a reduction of the estimated fair value losses on interest rate swaps designated as fair value hedges of $12.2 million and on interest rate swaps designated as cash flow hedges of $3.4 million. |
|
(b) |
Under the terms of these agreements, the Company receives settlement amounts at a fixed rate and pays at a variable rate. |
- 28 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Derivative financial instruments, continued
The Company utilizes commitments to sell residential and commercial real estate loans to hedge the exposure to changes in the fair value of real estate loans held for sale. Such commitments have generally been designated as fair value hedges. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in fair value of certain commitments to originate real estate loans for sale.
Derivative financial instruments used for trading account purposes included interest rate contracts, foreign exchange and other option contracts, foreign exchange forward and spot contracts, and financial futures. Interest rate contracts entered into for trading account purposes had notional values of $15.5 billion and $21.6 billion at September 30, 2017 and December 31, 2016, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes aggregated $545 million and $471 million at September 30, 2017 and December 31, 2016, respectively.
Information about the fair values of derivative instruments in the Company’s consolidated balance sheet and consolidated statement of income follows:
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||||||
|
|
|
Fair Value |
|
|
Fair Value |
|
||||||||||
|
|
|
September 30, 2017 |
|
|
December 31, 2016 |
|
|
September 30, 2017 |
|
|
December 31, 2016 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Derivatives designated and qualifying as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements (a) |
|
$ |
2,048 |
|
|
$ |
11,892 |
|
|
$ |
1,351 |
|
|
$ |
— |
|
|
Commitments to sell real estate loans (a) |
|
|
1,667 |
|
|
|
33,189 |
|
|
|
1,551 |
|
|
|
1,347 |
|
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements (a) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
3,715 |
|
|
|
45,081 |
|
|
|
2,902 |
|
|
|
1,347 |
|
|
Derivatives not designated and qualifying as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related commitments to originate real estate loans for sale (a) |
|
|
13,962 |
|
|
|
8,060 |
|
|
|
240 |
|
|
|
735 |
|
|
Commitments to sell real estate loans (a) |
|
|
3,153 |
|
|
|
5,210 |
|
|
|
936 |
|
|
|
399 |
|
|
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (b) |
|
|
104,178 |
|
|
|
228,810 |
|
|
|
103,825 |
|
|
|
167,737 |
|
|
Foreign exchange and other option and futures contracts (b) |
|
|
6,823 |
|
|
|
7,908 |
|
|
|
5,905 |
|
|
|
6,639 |
|
|
|
|
|
128,116 |
|
|
|
249,988 |
|
|
|
110,906 |
|
|
|
175,510 |
|
|
Total derivatives |
|
$ |
131,831 |
|
|
$ |
295,069 |
|
|
$ |
113,808 |
|
|
$ |
176,857 |
|
|
(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 the variation margin rule change at September 30, 2017 was a reduction of the estimated fair value of interest rate swaps in an asset position of $89.3 million and of those in a liability position of $29.2 million. |
- 29 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Derivative financial instruments, continued
|
|
|
Amount of Gain (Loss) Recognized |
|
|||||||||||||
|
|
|
Three Months Ended September 30, 2017 |
|
|
Three Months Ended September 30, 2016 |
|
||||||||||
|
|
|
Derivative |
|
|
Hedged Item |
|
|
Derivative |
|
|
Hedged Item |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Derivatives in fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate long-term borrowings (a) |
|
$ |
(13,509 |
) |
|
|
14,026 |
|
|
$ |
(12,588 |
) |
|
|
12,587 |
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (b) |
|
$ |
(418 |
) |
|
|
|
|
|
$ |
4,822 |
|
|
|
|
|
|
Foreign exchange and other option and futures contracts (b) |
|
|
1,362 |
|
|
|
|
|
|
|
1,746 |
|
|
|
|
|
|
Total |
|
$ |
944 |
|
|
|
|
|
|
$ |
6,568 |
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized |
|
|||||||||||||
|
|
|
Nine Months Ended September 30, 2017 |
|
|
Nine Months Ended September 30, 2016 |
|
||||||||||
|
|
|
Derivative |
|
|
Hedged Item |
|
|
Derivative |
|
|
Hedged Item |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Derivatives in fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate long-term borrowings (a) |
|
$ |
(23,423 |
) |
|
|
23,049 |
|
|
$ |
(22,832 |
) |
|
|
21,603 |
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts (b) |
|
$ |
2,363 |
|
|
|
|
|
|
$ |
11,578 |
|
|
|
|
|
|
Foreign exchange and other option and futures contracts (b) |
|
|
4,766 |
|
|
|
|
|
|
|
5,415 |
|
|
|
|
|
|
Total |
|
$ |
7,129 |
|
|
|
|
|
|
$ |
16,993 |
|
|
|
|
|
|
|
(a) |
Reported as other revenues from operations. |
|
|
(b) |
Reported as trading account and foreign exchange gains. |
The amount of gain (loss) recognized in the consolidated statement of income associated with derivatives designated as cash flow hedges was not material for the three and nine months ended September 30, 2017.
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 $27 million and $28 million at September 30, 2017 and December 31, 2016, 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.
- 30 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Derivative financial instruments, continued
The aggregate fair value of derivative financial instruments in a liability position which are subject to enforceable master netting arrangements was $17 million and $34 million at September 30, 2017 and December 31, 2016, respectively. After consideration of such netting arrangements for purposes of posting collateral, the net liability positions with counterparties aggregated $17 million and $30 million at September 30, 2017 and December 31, 2016, respectively. The Company was required to post collateral relating to those positions of $18 million and $27 million at September 30, 2017 and December 31, 2016, respectively. Certain of the Company’s derivative financial instruments contain provisions that require the Company to maintain specific credit ratings from credit rating agencies to avoid higher collateral posting requirements. If the Company’s debt rating were to fall below specified ratings, the counterparties of the derivative financial instruments could demand immediate incremental collateralization on those instruments in a net liability position. The aggregate fair value of all derivative financial instruments with such credit risk-related contingent features in a net liability position on September 30, 2017 was less than $1 million, for which the Company was not required to post collateral in the normal course of business. If the credit risk-related contingent features had been triggered on September 30, 2017, the Company would not have been required to post any collateral to counterparties.
The aggregate fair value of derivative financial instruments in an asset position, which are subject to enforceable master netting arrangements, was $7 million and $15 million at September 30, 2017 and December 31, 2016, respectively. After consideration of such netting arrangements for purposes of posting collateral, the net asset positions with counterparties aggregated $7 million and $11 million at September 30, 2017 and December 31, 2016, respectively. Counterparties posted collateral relating to those positions of $5 million and $9 million at September 30, 2017 and December 31, 2016, 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.
In addition to the derivative contracts noted above, the Company clears certain derivative transactions through a clearinghouse, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position. The amount of initial margin collateral posted by the Company was $49 million and $111 million at September 30, 2017 and December 31, 2016, respectively. The fair value asset and liability amounts of derivative contracts at September 30, 2017 have been reduced by variation margin payments treated as settlements of $89 million and $45 million, respectively. Variation margin on derivative contracts not treated 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 September 30, 2017 and December 31, 2016, respectively. Collateral posted by the clearinghouses associated with that net asset position was $1 million and $81 million at September 30, 2017 and December 31, 2016, respectively .
11. Variable interest entities and asset securitizations
As described in note 5, 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 September 30, 2017 and December 31, 2016, the Company included the junior subordinated debentures as “long-term borrowings” in its consolidated balance sheet and recognized $24 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.
- 31 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. Variable interest entities and asset securitizations, continued
The Company has invested as a limited partner in various partnerships that collectively had total assets of approximately $1.0 billion at September 30, 2017 and December 31, 2016. 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 $329 million, including $118 million of unfunded commitments, at September 30, 2017 and $294 million, including $102 million of unfunded commitments, at December 31, 2016. Contingent commitments to provide additional capital contributions to these partnerships were not material at September 30, 2017. 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 $11 million and $35 million of its investments in qualified affordable housing projects to income tax expense during the three-month and nine-month periods ended September 30, 2017, respectively, and recognized $16 million and $47 million of tax credits and other tax benefits during those respective periods. Similarly, for the three-month and nine-month periods ended September 30, 2016, the Company amortized $13 million and $34 million, respectively, of its investments in qualified affordable housing projects to income tax expense and recognized $18 million and $46 million of tax credits and other tax benefits during those respective periods.
The Company serves as investment advisor for certain registered money-market funds. The Company has no explicit arrangement to provide support to those funds, but may waive portions of its allowable management fees as a result of market conditions .
12. Fair value measurements
GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has not made any fair value elections at September 30, 2017.
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
- 32 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
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 agreements 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
The majority of the Company's available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments in mutual funds and equity securities are actively traded and, therefore, have been classified as Level 1 valuations.
Real estate loans held for sale
The Company utilizes commitments to sell real estate loans to hedge the exposure to changes in fair value of real estate loans held for sale. The carrying value of hedged real estate loans held for sale includes changes in estimated fair value during the hedge period. Typically, the Company attempts to hedge real estate loans held for sale from the date of close through the sale date. The fair value of hedged real estate loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans with similar characteristics and, accordingly, such loans have been classified as a Level 2 valuation.
Commitments to originate real estate loans for sale and commitments to sell real estate loans
The Company enters into various commitments to originate real estate loans for sale and commitments to sell real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value on the consolidated balance sheet. The estimated fair values of such commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans to certain government-sponsored entities and other parties. The fair valuations of commitments to sell real estate loans generally result in a Level 2 classification. The estimated fair value of commitments to originate real estate loans for sale are adjusted to reflect the Company's anticipated commitment expirations. The estimated commitment expirations are considered significant unobservable inputs contributing to the Level 3 classification of commitments to originate real estate loans for sale. Significant unobservable inputs used in the determination of estimated fair value of commitments to originate real estate loans for sale are included in the accompanying table of significant unobservable inputs to Level 3 measurements.
Interest rate swap agreements used for interest rate risk management
The Company utilizes interest rate swap agreements as part of the management of interest rate risk to modify the repricing characteristics of certain portions of its portfolios of earning assets and interest-bearing liabilities. The Company generally determines the fair value of its interest rate swap agreements using externally developed pricing
- 33 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
models based on market observable inputs and, therefore, classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its interest rate swap agreement assets and has considered its own credit risk in the valuation of its interest rate swap agreement liabilities.
The following tables present assets and liabilities at September 30, 2017 and December 31, 2016 measured at estimated fair value on a recurring basis:
|
|
|
Fair Value Measurements |
|
|
Level 1 (a) |
|
|
Level 2 (a) |
|
|
Level 3 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account assets |
|
$ |
170,516 |
|
|
|
47,927 |
|
|
|
122,589 |
|
|
|
— |
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
|
2,007,117 |
|
|
|
— |
|
|
|
2,007,117 |
|
|
|
— |
|
|
Obligations of states and political subdivisions |
|
|
2,678 |
|
|
|
— |
|
|
|
2,678 |
|
|
|
— |
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government issued or guaranteed |
|
|
9,184,483 |
|
|
|
— |
|
|
|
9,184,483 |
|
|
|
— |
|
|
Privately issued |
|
|
30 |
|
|
|
— |
|
|
|
— |
|
|
|
30 |
|
|
Other debt securities |
|
|
128,530 |
|
|
|
— |
|
|
|
128,530 |
|
|
|
— |
|
|
Equity securities |
|
|
93,986 |
|
|
|
50,917 |
|
|
|
43,069 |
|
|
|
— |
|
|
|
|
|
11,416,824 |
|
|
|
50,917 |
|
|
|
11,365,877 |
|
|
|
30 |
|
|
Real estate loans held for sale |
|
|
571,199 |
|
|
|
— |
|
|
|
571,199 |
|
|
|
— |
|
|
Other assets (b) |
|
|
20,830 |
|
|
|
— |
|
|
|
6,868 |
|
|
|
13,962 |
|
|
Total assets |
|
$ |
12,179,369 |
|
|
|
98,844 |
|
|
|
12,066,533 |
|
|
|
13,992 |
|
|
Trading account liabilities |
|
$ |
109,730 |
|
|
|
— |
|
|
|
109,730 |
|
|
|
— |
|
|
Other liabilities (b) |
|
|
4,078 |
|
|
|
— |
|
|
|
3,838 |
|
|
|
240 |
|
|
Total liabilities |
|
$ |
113,808 |
|
|
|
— |
|
|
|
113,568 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months ended September 30, 2017 and the year ended December 31, 2016. |
|
(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). |
- 34 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended September 30, 2017 were as follows:
|
|
|
Investment Securities Available for Sale |
|
|
|
|
|
|
|
|
|
|
Privately Issued Mortgage-Backed Securities |
|
|
Other Assets and Other Liabilities |
|
|
||
|
|
|
(In thousands) |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
Balance — June 30, 2017 |
|
$ |
35 |
|
|
|
12,425 |
|
|
|
Total gains (losses) realized/unrealized: |
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
— |
|
|
|
22,313 |
|
(b) |
|
Settlements |
|
|
(5 |
) |
|
|
— |
|
|
|
Transfers in and/or out of Level 3 (a) |
|
|
— |
|
|
|
(21,016 |
) |
(d) |
|
Balance — September 30, 2017 |
|
$ |
30 |
|
|
|
13,722 |
|
|
|
Changes in unrealized gains included in earnings related to assets still held at September 30, 2017 |
|
$ |
— |
|
|
|
12,659 |
|
(b) |
The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the three months ended September 30, 2016 were as follows:
|
|
|
Investment Securities Available for Sale |
|
|
|
|
|
|
|
|||||
|
|
|
Privately Issued Mortgage-Backed Securities |
|
|
Collateralized Debt Obligations |
|
|
|
Other Assets and Other Liabilities |
|
|
|||
|
|
|
(In thousands) |
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — June 30, 2016 |
|
$ |
57 |
|
|
|
43,305 |
|
|
|
|
21,383 |
|
|
|
Total gains (losses) realized/unrealized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
— |
|
|
|
28,475 |
|
|
|
|
45,534 |
|
(b) |
|
Included in other comprehensive income |
|
|
— |
|
|
|
(15,050 |
) |
(c) |
|
|
— |
|
|
|
Sales |
|
|
— |
|
|
|
(56,730 |
) |
|
|
|
— |
|
|
|
Settlements |
|
|
(6 |
) |
|
|
— |
|
|
|
|
— |
|
|
|
Transfers in and/or out of Level 3 (a) |
|
|
— |
|
|
|
— |
|
|
|
|
(37,117 |
) |
(d) |
|
Balance — September 30, 2016 |
|
$ |
51 |
|
|
|
— |
|
|
|
|
29,800 |
|
|
|
Changes in unrealized gains included in earnings related to assets still held at September 30, 2016 |
|
$ |
— |
|
|
|
— |
|
|
|
|
27,663 |
|
(b) |
- 35 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the nine months ended September 30, 2017 were as follows:
|
|
|
Investment Securities Available for S ale |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
— |
|
|
|
65,824 |
|
(b) |
|
Settlements |
|
|
(14 |
) |
|
|
— |
|
|
|
Transfers in and/or out of Level 3 (a) |
|
|
— |
|
|
|
(59,427 |
) |
(d) |
|
Balance — September 30, 2017 |
|
$ |
30 |
|
|
$ |
13,722 |
|
|
|
Changes in unrealized gains included in earnings related to assets still held at September 30, 2017 |
|
$ |
— |
|
|
$ |
13,684 |
|
(b) |
The changes in Level 3 assets and liabilities measured at estimated fair value on a recurring basis during the nine months ended September 30, 2016 were as follows:
|
|
|
Investment Securities Available for Sale |
|
|
|
|
|
|
|
|||||
|
|
|
Privately Issued Mortgage-Backed Securities |
|
|
Collateralized Debt Obligations |
|
|
|
Other Assets and Other Liabilities |
|
|
|||
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — January 1, 2016 |
|
$ |
74 |
|
|
|
47,393 |
|
|
|
|
9,879 |
|
|
|
Total gains (losses) realized/unrealized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
— |
|
|
|
28,475 |
|
|
|
|
104,862 |
|
(b) |
|
Included in other comprehensive income |
|
|
— |
|
|
|
(18,268 |
) |
(c) |
|
|
— |
|
|
|
Sales |
|
|
— |
|
|
|
(56,730 |
) |
|
|
|
— |
|
|
|
Settlements |
|
|
(23 |
) |
|
|
(870 |
) |
|
|
|
— |
|
|
|
Transfers in and/or out of Level 3 (a) |
|
|
— |
|
|
|
— |
|
|
|
|
(84,941 |
) |
(d) |
|
Balance — September 30, 2016 |
|
$ |
51 |
|
|
|
— |
|
|
|
|
29,800 |
|
|
|
Changes in unrealized gains included in earnings related to assets still held at September 30, 2016 |
|
$ |
— |
|
|
|
— |
|
|
|
|
29,288 |
|
(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. |
- 36 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. 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 September 30, 2017. 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 $184 million at September 30, 2017 ($105 million and $79 million of which were classified as Level 2 and Level 3, respectively), $293 million at December 31, 2016 ($153 million and $140 million of which were classified as Level 2 and Level 3, respectively) and $249 million at September 30, 2016 ($144 million and $105 million of which were classified as Level 2 and Level 3, respectively). Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on September 30, 2017 were decreases of $16 million and $55 million for the three-month and nine-month periods ended September 30, 2017, respectively. Changes in fair value recognized for partial charge-offs of loans and loan impairment reserves on loans held by the Company on September 30, 2016 were decreases of $20 million and $42 million for the three-month and nine-month periods ended September 30, 2016, 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 $36 million and $53 million at September 30, 2017 and 2016, respectively. Changes in fair value recognized for those foreclosed assets held by the Company were not material during the three-month and nine-month periods ended September 30, 2017 and 2016.
- 37 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. 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 September 30, 2017 and December 31, 2016:
|
|
|
Fair Value |
|
|
Valuation Technique |
|
Unobservable Inputs/Assumptions |
|
|
Range (Weighted- Average) |
|
|||
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately issued mortgage-backed securities |
|
$ |
30 |
|
|
Two independent pricing quotes |
|
|
— |
|
|
|
— |
|
|
Net other assets (liabilities) (a) |
|
|
13,722 |
|
|
Discounted cash flow |
|
Commitment expirations |
|
|
0%-80% (28%) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately issued mortgage-backed securities |
|
$ |
44 |
|
|
Two independent pricing quotes |
|
|
— |
|
|
|
— |
|
|
Net other assets (liabilities) (a) |
|
|
7,325 |
|
|
Discounted cash flow |
|
Commitment expirations |
|
|
0%-77% (30%) |
|
||
|
(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.
- 38 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
Disclosures of fair value of financial instruments
The carrying amounts and estimated fair value for financial instrument assets (liabilities) are presented in the following table:
|
|
|
September 30, 2017 |
|
|||||||||||||||||
|
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
|
(In thousands) |
|
|||||||||||||||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,368,252 |
|
|
|
1,368,252 |
|
|
|
1,290,532 |
|
|
|
77,720 |
|
|
|
— |
|
|
Interest-bearing deposits at banks |
|
|
6,306,484 |
|
|
|
6,306,484 |
|
|
|
— |
|
|
|
6,306,484 |
|
|
|
— |
|
|
Trading account assets |
|
|
170,516 |
|
|
|
170,516 |
|
|
|
47,927 |
|
|
|
122,589 |
|
|
|
— |
|
|
Investment securities |
|
|
15,073,926 |
|
|
|
15,079,756 |
|
|
|
50,917 |
|
|
|
14,916,360 |
|
|
|
112,479 |
|
|
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases |
|
|
21,743,251 |
|
|
|
21,409,984 |
|
|
|
— |
|
|
|
— |
|
|
|
21,409,984 |
|
|
Commercial real estate loans |
|
|
32,914,288 |
|
|
|
32,507,319 |
|
|
|
— |
|
|
|
223,659 |
|
|
|
32,283,660 |
|
|
Residential real estate loans |
|
|
20,265,162 |
|
|
|
20,369,392 |
|
|
|
— |
|
|
|
4,557,929 |
|
|
|
15,811,463 |
|
|
Consumer loans |
|
|
13,002,433 |
|
|
|
12,935,924 |
|
|
|
— |
|
|
|
— |
|
|
|
12,935,924 |
|
|
Allowance for credit losses |
|
|
(1,013,326 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Loans and leases, net |
|
|
86,911,808 |
|
|
|
87,222,619 |
|
|
|
— |
|
|
|
4,781,588 |
|
|
|
82,441,031 |
|
|
Accrued interest receivable |
|
|
325,982 |
|
|
|
325,982 |
|
|
|
— |
|
|
|
325,982 |
|
|
|
— |
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
$ |
(33,111,246 |
) |
|
|
(33,111,246 |
) |
|
|
— |
|
|
|
(33,111,246 |
) |
|
|
— |
|
|
Savings and interest-checking deposits |
|
|
(52,936,615 |
) |
|
|
(52,936,615 |
) |
|
|
— |
|
|
|
(52,936,615 |
) |
|
|
— |
|
|
Time deposits |
|
|
(7,233,518 |
) |
|
|
(7,294,182 |
) |
|
|
— |
|
|
|
(7,294,182 |
) |
|
|
— |
|
|
Deposits at Cayman Islands office |
|
|
(232,014 |
) |
|
|
(232,014 |
) |
|
|
— |
|
|
|
(232,014 |
) |
|
|
— |
|
|
Short-term borrowings |
|
|
(200,768 |
) |
|
|
(200,768 |
) |
|
|
— |
|
|
|
(200,768 |
) |
|
|
— |
|
|
Long-term borrowings |
|
|
(8,577,645 |
) |
|
|
(8,630,195 |
) |
|
|
— |
|
|
|
(8,630,195 |
) |
|
|
— |
|
|
Accrued interest payable |
|
|
(69,290 |
) |
|
|
(69,290 |
) |
|
|
— |
|
|
|
(69,290 |
) |
|
|
— |
|
|
Trading account liabilities |
|
|
(109,730 |
) |
|
|
(109,730 |
) |
|
|
— |
|
|
|
(109,730 |
) |
|
|
— |
|
|
Other financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate real estate loans for sale |
|
$ |
13,722 |
|
|
|
13,722 |
|
|
|
— |
|
|
|
— |
|
|
|
13,722 |
|
|
Commitments to sell real estate loans |
|
|
2,333 |
|
|
|
2,333 |
|
|
|
— |
|
|
|
2,333 |
|
|
|
— |
|
|
Other credit-related commitments |
|
|
(119,938 |
) |
|
|
(119,938 |
) |
|
|
— |
|
|
|
— |
|
|
|
(119,938 |
) |
|
Interest rate swap agreements used for interest rate risk management |
|
|
697 |
|
|
|
697 |
|
|
|
— |
|
|
|
697 |
|
|
|
— |
|
- 39 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. Fair value measurements, continued
|
|
|
December 31, 2016 |
|
|||||||||||||||||
|
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|||||||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,320,549 |
|
|
|
1,320,549 |
|
|
|
1,249,654 |
|
|
|
70,895 |
|
|
— |
|
|
|
Interest-bearing deposits at banks |
|
|
5,000,638 |
|
|
|
5,000,638 |
|
|
|
— |
|
|
|
5,000,638 |
|
|
— |
|
|
|
Trading account assets |
|
|
323,867 |
|
|
|
323,867 |
|
|
|
46,135 |
|
|
|
277,732 |
|
|
— |
|
|
|
Investment securities |
|
|
16,250,468 |
|
|
|
16,244,412 |
|
|
|
301,711 |
|
|
|
15,821,176 |
|
|
|
121,525 |
|
|
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans and leases |
|
|
22,610,047 |
|
|
|
22,239,428 |
|
|
— |
|
|
— |
|
|
|
22,239,428 |
|
||
|
Commercial real estate loans |
|
|
33,506,394 |
|
|
|
33,129,428 |
|
|
— |
|
|
|
642,590 |
|
|
|
32,486,838 |
|
|
|
Residential real estate loans |
|
|
22,590,912 |
|
|
|
22,638,167 |
|
|
— |
|
|
|
4,912,488 |
|
|
|
17,725,679 |
|
|
|
Consumer loans |
|
|
12,146,063 |
|
|
|
12,061,590 |
|
|
— |
|
|
|
— |
|
|
|
12,061,590 |
|
|
|
Allowance for credit losses |
|
|
(988,997 |
) |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Loans and leases, net |
|
|
89,864,419 |
|
|
|
90,068,613 |
|
|
— |
|
|
|
5,555,078 |
|
|
|
84,513,535 |
|
|
|
Accrued interest receivable |
|
|
308,805 |
|
|
|
308,805 |
|
|
— |
|
|
|
308,805 |
|
|
— |
|
||
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
$ |
(32,813,896 |
) |
|
|
(32,813,896 |
) |
|
— |
|
|
|
(32,813,896 |
) |
|
— |
|
||
|
Savings and interest-checking deposits |
|
|
(52,346,207 |
) |
|
|
(52,346,207 |
) |
|
— |
|
|
|
(52,346,207 |
) |
|
— |
|
||
|
Time deposits |
|
|
(10,131,846 |
) |
|
|
(10,222,585 |
) |
|
— |
|
|
|
(10,222,585 |
) |
|
— |
|
||
|
Deposits at Cayman Islands office |
|
|
(201,927 |
) |
|
|
(201,927 |
) |
|
— |
|
|
|
(201,927 |
) |
|
— |
|
||
|
Short-term borrowings |
|
|
(163,442 |
) |
|
|
(163,442 |
) |
|
— |
|
|
|
(163,442 |
) |
|
— |
|
||
|
Long-term borrowings |
|
|
(9,493,835 |
) |
|
|
(9,473,844 |
) |
|
— |
|
|
|
(9,473,844 |
) |
|
— |
|
||
|
Accrued interest payable |
|
|
(75,172 |
) |
|
|
(75,172 |
) |
|
— |
|
|
|
(75,172 |
) |
|
— |
|
||
|
Trading account liabilities |
|
|
(174,376 |
) |
|
|
(174,376 |
) |
|
— |
|
|
|
(174,376 |
) |
|
— |
|
||
|
Other financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to originate real estate loans for sale |
|
$ |
7,325 |
|
|
|
7,325 |
|
|
— |
|
|
|
— |
|
|
|
7,325 |
|
|
|
Commitments to sell real estate loans |
|
|
36,653 |
|
|
|
36,653 |
|
|
— |
|
|
|
36,653 |
|
|
— |
|
||
|
Other credit-related commitments |
|
|
(136,295 |
) |
|
|
(136,295 |
) |
|
— |
|
|
|
— |
|
|
|
(136,295 |
) |
|
|
Interest rate swap agreements used for interest rate risk management |
|
|
11,892 |
|
|
|
11,892 |
|
|
— |
|
|
|
11,892 |
|
|
— |
|
||
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.
- 40 -
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.
- 41 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. F air 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. Commitments and contingencies
In the normal course of business, various commitments and contingent liabilities are outstanding. The following table presents the Company's significant commitments. Certain of these commitments are not included in the Company's consolidated balance sheet.
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Commitments to extend credit |
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
$ |
5,492,892 |
|
|
|
5,499,609 |
|
|
Commercial real estate loans to be sold |
|
|
170,786 |
|
|
|
70,100 |
|
|
Other commercial real estate |
|
|
5,749,428 |
|
|
|
6,451,709 |
|
|
Residential real estate loans to be sold |
|
|
482,650 |
|
|
|
478,950 |
|
|
Other residential real estate |
|
|
202,702 |
|
|
|
232,721 |
|
|
Commercial and other |
|
|
12,677,838 |
|
|
|
12,298,473 |
|
|
Standby letters of credit |
|
|
2,657,352 |
|
|
|
2,987,091 |
|
|
Commercial letters of credit |
|
|
42,684 |
|
|
|
44,723 |
|
|
Financial guarantees and indemnification contracts |
|
|
3,385,498 |
|
|
|
3,043,580 |
|
|
Commitments to sell real estate loans |
|
|
1,052,472 |
|
|
|
1,489,237 |
|
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 $3.2 billion and $2.8 billion at September 30, 2017 and December 31, 2016, respectively.
- 42 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. Commitments and contingencies, continued
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. The amount of those charges is based on the volume of loans sold, the level of reimbursement requests received from loan purchasers and estimates of losses that may be associated with previously sold loans. At September 30, 2017 the Company believes that its obligation to loan purchasers was not material to the Company’s consolidated financial position.
M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and 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 $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. 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 2016 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 in the 2016 Annual Report, during 2016 the Company revised its funds transfer pricing allocation related to borrowings. Additionally, during the second quarter of 2017, the Company revised its funds transfer pricing allocation related to certain deposit categories. As a result, prior period
- 43 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information, continued
financial information has been reclassified to provide segment information on a comparable basis, as noted in the following tables.
|
|
|
Three Months Ended September 30, 2016 |
|
|||||||||||||||||||||
|
|
|
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 |
|
$ |
116,513 |
|
|
|
4,388 |
|
|
|
120,901 |
|
|
$ |
21,422 |
|
|
|
2,602 |
|
|
|
24,024 |
|
|
Commercial Banking |
|
|
268,683 |
|
|
|
(155 |
) |
|
|
268,528 |
|
|
|
102,796 |
|
|
|
(92 |
) |
|
|
102,704 |
|
|
Commercial Real Estate |
|
|
205,562 |
|
|
|
— |
|
|
|
205,562 |
|
|
|
90,065 |
|
|
|
— |
|
|
|
90,065 |
|
|
Discretionary Portfolio |
|
|
114,391 |
|
|
|
(8,806 |
) |
|
|
105,585 |
|
|
|
50,773 |
|
|
|
(5,222 |
) |
|
|
45,551 |
|
|
Residential Mortgage Banking |
|
|
108,576 |
|
|
|
(11,901 |
) |
|
|
96,675 |
|
|
|
22,924 |
|
|
|
(7,059 |
) |
|
|
15,865 |
|
|
Retail Banking |
|
|
353,016 |
|
|
|
8,848 |
|
|
|
361,864 |
|
|
|
69,506 |
|
|
|
5,247 |
|
|
|
74,753 |
|
|
All Other |
|
|
182,949 |
|
|
|
7,626 |
|
|
|
190,575 |
|
|
|
(7,502 |
) |
|
|
4,524 |
|
|
|
(2,978 |
) |
|
Total |
|
$ |
1,349,690 |
|
|
|
— |
|
|
|
1,349,690 |
|
|
$ |
349,984 |
|
|
|
— |
|
|
|
349,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016 |
|
|||||||||||||||||||||
|
|
|
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 |
|
$ |
344,562 |
|
|
|
13,022 |
|
|
|
357,584 |
|
|
$ |
69,617 |
|
|
|
7,723 |
|
|
|
77,340 |
|
|
Commercial Banking |
|
|
787,781 |
|
|
|
(423 |
) |
|
|
787,358 |
|
|
|
309,515 |
|
|
|
(251 |
) |
|
|
309,264 |
|
|
Commercial Real Estate |
|
|
575,117 |
|
|
|
— |
|
|
|
575,117 |
|
|
|
254,682 |
|
|
|
— |
|
|
|
254,682 |
|
|
Discretionary Portfolio |
|
|
324,195 |
|
|
|
(28,575 |
) |
|
|
295,620 |
|
|
|
151,522 |
|
|
|
(16,947 |
) |
|
|
134,575 |
|
|
Residential Mortgage Banking |
|
|
309,393 |
|
|
|
(28,539 |
) |
|
|
280,854 |
|
|
|
59,981 |
|
|
|
(16,926 |
) |
|
|
43,055 |
|
|
Retail Banking |
|
|
1,037,727 |
|
|
|
25,196 |
|
|
|
1,062,923 |
|
|
|
204,291 |
|
|
|
14,943 |
|
|
|
219,234 |
|
|
All Other |
|
|
575,885 |
|
|
|
19,319 |
|
|
|
595,204 |
|
|
|
(65,065 |
) |
|
|
11,458 |
|
|
|
(53,607 |
) |
|
Total |
|
$ |
3,954,660 |
|
|
|
— |
|
|
|
3,954,660 |
|
|
$ |
984,543 |
|
|
|
— |
|
|
|
984,543 |
|
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.
- 44 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information, continued
Information about the Company's segments is presented in the following table:
|
|
|
Three Months Ended September 30 |
|
|||||||||||||||||||||
|
|
|
2017 |
|
|
2016 |
|
||||||||||||||||||
|
|
|
Total Revenues(a) |
|
|
Inter- segment Revenues |
|
|
Net Income (Loss) |
|
|
Total Revenues(a) |
|
|
Inter- segment Revenues |
|
|
Net Income (Loss) |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Banking |
|
$ |
130,501 |
|
|
|
919 |
|
|
|
31,408 |
|
|
$ |
120,901 |
|
|
|
1,086 |
|
|
|
24,024 |
|
|
Commercial Banking |
|
|
267,822 |
|
|
|
840 |
|
|
|
109,797 |
|
|
|
268,528 |
|
|
|
950 |
|
|
|
102,704 |
|
|
Commercial Real Estate |
|
|
212,014 |
|
|
|
401 |
|
|
|
97,295 |
|
|
|
205,562 |
|
|
|
463 |
|
|
|
90,065 |
|
|
Discretionary Portfolio |
|
|
65,808 |
|
|
|
(12,346 |
) |
|
|
31,515 |
|
|
|
105,585 |
|
|
|
(14,795 |
) |
|
|
45,551 |
|
|
Residential Mortgage Banking |
|
|
90,018 |
|
|
|
18,866 |
|
|
|
13,546 |
|
|
|
96,675 |
|
|
|
22,051 |
|
|
|
15,865 |
|
|
Retail Banking |
|
|
392,542 |
|
|
|
2,668 |
|
|
|
96,329 |
|
|
|
361,864 |
|
|
|
3,052 |
|
|
|
74,753 |
|
|
All Other |
|
|
257,858 |
|
|
|
(11,348 |
) |
|
|
(23,967 |
) |
|
|
190,575 |
|
|
|
(12,807 |
) |
|
|
(2,978 |
) |
|
Total |
|
$ |
1,416,563 |
|
|
|
— |
|
|
|
355,923 |
|
|
$ |
1,349,690 |
|
|
|
— |
|
|
|
349,984 |
|
|
|
|
Nine Months Ended September 30 |
|
|||||||||||||||||||||
|
|
|
2017 |
|
|
2016 |
|
||||||||||||||||||
|
|
|
Total Revenues(a) |
|
|
Inter- segment Revenues |
|
|
Net Income (Loss) |
|
|
Total Revenues(a) |
|
|
Inter- segment Revenues |
|
|
Net Income (Loss) |
|
||||||
|
|
|
(In thousands) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Banking |
|
$ |
375,816 |
|
|
|
2,836 |
|
|
|
85,146 |
|
|
$ |
357,584 |
|
|
|
3,274 |
|
|
|
77,340 |
|
|
Commercial Banking |
|
|
818,846 |
|
|
|
2,603 |
|
|
|
328,211 |
|
|
|
787,358 |
|
|
|
2,917 |
|
|
|
309,264 |
|
|
Commercial Real Estate |
|
|
604,437 |
|
|
|
1,165 |
|
|
|
269,113 |
|
|
|
575,117 |
|
|
|
1,299 |
|
|
|
254,682 |
|
|
Discretionary Portfolio |
|
|
216,798 |
|
|
|
(37,670 |
) |
|
|
95,200 |
|
|
|
295,620 |
|
|
|
(43,726 |
) |
|
|
134,575 |
|
|
Residential Mortgage Banking |
|
|
264,120 |
|
|
|
55,221 |
|
|
|
37,206 |
|
|
|
280,854 |
|
|
|
62,955 |
|
|
|
43,055 |
|
|
Retail Banking |
|
|
1,144,964 |
|
|
|
8,760 |
|
|
|
282,614 |
|
|
|
1,062,923 |
|
|
|
9,198 |
|
|
|
219,234 |
|
|
All Other |
|
|
751,703 |
|
|
|
(32,915 |
) |
|
|
(11,587 |
) |
|
|
595,204 |
|
|
|
(35,917 |
) |
|
|
(53,607 |
) |
|
Total |
|
$ |
4,176,684 |
|
|
|
— |
|
|
|
1,085,903 |
|
|
$ |
3,954,660 |
|
|
|
— |
|
|
|
984,543 |
|
- 45 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. Segment information, continued
|
|
|
Average Total Assets |
|
|||||||||
|
|
|
Nine Months Ended September 30 |
|
|
Year Ended December 31 |
|
||||||
|
|
|
2017 |
|
|
2016 |
|
|
2016 |
|
|||
|
|
|
(In millions) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Banking |
|
$ |
5,596 |
|
|
|
5,442 |
|
|
|
5,456 |
|
|
Commercial Banking |
|
|
26,699 |
|
|
|
25,363 |
|
|
|
25,592 |
|
|
Commercial Real Estate |
|
|
22,800 |
|
|
|
20,571 |
|
|
|
21,131 |
|
|
Discretionary Portfolio |
|
|
37,807 |
|
|
|
41,253 |
|
|
|
40,867 |
|
|
Residential Mortgage Banking |
|
|
2,335 |
|
|
|
2,578 |
|
|
|
2,569 |
|
|
Retail Banking |
|
|
12,519 |
|
|
|
11,739 |
|
|
|
11,840 |
|
|
All Other |
|
|
13,317 |
|
|
|
16,951 |
|
|
|
16,885 |
|
|
Total |
|
$ |
121,073 |
|
|
|
123,897 |
|
|
|
124,340 |
|
|
(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 $8,828,000 and $6,725,000 for the three-month periods ended September 30, 2017 and 2016, respectively, and $25,563,000 and $19,579,000 for the nine-month periods ended September 30, 2017 and 2016, 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. |
15. 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. That investment had no remaining carrying value at September 30, 2017 as a result of cumulative losses recognized and cash distributions received.
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 $3.2 billion and $3.5 billion at September 30, 2017 and December 31, 2016, respectively. Revenues from those servicing rights were $4 million and $5 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $13 million and $15 million for the nine-month periods ended September 30, 2017 and 2016, respectively. The Company sub-services residential mortgage loans for Bayview Financial having outstanding principal balances of $59.3 billion and $30.4 billion at September 30, 2017 and December 31, 2016, respectively. Revenues earned for sub-servicing loans for Bayview Financial were $26 million and $25 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $74 million and $73 million for the nine-month periods ended September 30, 2017 and 2016, respectively. In addition, the Company held $141 million and $158 million of mortgage-backed securities in its held-to-maturity portfolio at September 30, 2017 and December 31, 2016, respectively, that were securitized by Bayview Financial. In April 2017, the Company provided a loan to Bayview Financial for $100 million at terms consistent with those offered to non-affiliated customers. That loan was subsequently paid in full in June 2017. Also in June 2017, a new syndicated loan facility was entered into by Bayview Financial for $750 million, of which the Company held $88 million at September 30, 2017.
- 46 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 three-month period ended March 31, 2017, that under previous accounting guidance would have been recognized directly in shareholders’ equity. The amended accounting guidance did not have a significant impact on income tax expense in the three-month periods ended September 30 and June 30, 2017.
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.
In August 2017, the Financial Accounting Standards Board (“FASB”) issued amended guidance expanding and clarifying hedge accounting for nonfinancial and financial risk components, aligning the recognition and presentation of the effects of the hedging instrument and hedged item in the financial statements, and simplifying the requirements for assessing effectiveness in a hedging relationship. The guidance eliminates the concept of benchmark interest rates for cash flow hedges of interest rate risk and permits variability in cash flows attributable to the contractually specified interest rate to be designated as the hedged risk in a cash flows hedge of a variable-rate financial instrument. For a fair value hedge of interest rate risk, the amended guidance added the Securities Industry and Financial Markets Association Municipal Swap Rate as an eligible benchmark interest rate. The amendments also change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk by (1) for a closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, permitting an amount that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flow (“last of layer” method) to be designated as the hedged item, (2) permitting the change in fair value of the hedged item to be measured on the basis of the benchmark interest rate component of the contractual coupon cash flows rather than the full contractual coupon cash flows, (3) permitting the hedged item in a partial-term fair value hedge to be measured by assuming the hedged item has a term that reflects only the designated cash flows being hedged, and (4) for prepayable financial instruments, permitting the consideration of only how changes in the benchmark interest rate affect a decision to settle a debt instrument before its scheduled maturity in calculating the change in fair value of the hedged item attributable to interest rate risk. As it relates to aligning the recognition and
- 47 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. Recent accounting developments, continued
presentation of the effects of the hedging instrument and hedged item in the financial statements, the amended guidance requires (1) the entire change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness to be presented in the same income statement line item that is used to present the earnings effect of the hedged item in a fair value hedge and the hedged transaction in a cash flow hedge and (2) for cash flow hedges, the entire change in fair value of the hedging instrument to be included in other comprehensive income (hedge ineffectiveness no longer will be recognized in earnings for cash flow hedges) and reclassified to earnings when the hedged forecasted transaction effects earnings. From the perspective of simplifying the requirements for assessing effectiveness in a hedging relationship, the amendments permit (1) qualitative subsequent assessments of hedge effectiveness when the facts and circumstances related to the hedging relationship have not changed, (2) initial prospective quantitative assessments at any time after hedge designation up to the first quarterly effectiveness testing date, and (3) application of the long-haul method for assessing hedge effectiveness if the shortcut method was initially applied and is no longer appropriate. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018, with early adoption permitted. If adopted in an interim period, the effects of the adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow hedges existing at the date of adoption, a cumulative-effect adjustment should be applied related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments. The amended presentation and disclosure guidance is required only prospectively. The Company is evaluating when it will adopt the amended guidance and does not expect such adoption will have a material impact on its consolidated financial statements.
In May 2017, the FASB issued amended guidance relating to which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. The guidance requires an entity to account for the effects of a modification unless all the following criteria are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award was modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award was modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award was modified. The guidance is effective for annual periods; and interim periods within those annual periods beginning after December 15, 2017, and should be applied on a prospective basis to an award modified on or after the adoption date. 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 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, 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 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
- 48 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. Recent accounting developments, continued
component. 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 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 does not expect the guidance to have a material impact 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
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, which applies only to the consolidated statement of cash flows, is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, using a retrospective transition method.
- 49 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. Recent accounting developments, continued
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, which only impacts the presentation of the consolidated statement of cash flows, is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.
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
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
- 50 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. Recent accounting developments, continued
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 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. Although those securities have historically fluctuated in value, how those securities could change in value in the future is not predictable.
In May 2014, the FASB issued 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,
- 51 -
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. Recent accounting developments, continued
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”). The Company expects to adopt the revenue recognition guidance in the first quarter of 2018. A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance. With respect to noninterest income, the Company has identified revenue streams within the scope of the guidance and is in the final stages of its accounting analysis of the underlying contracts. The Company does not presently expect that changes in the timing of revenue recognition will be material to the amount of annual revenue recognized by the Company.
- 52 -
Overview
M&T Bank Corporation (“M&T”) recorded net income in the third quarter of 2017 of $356 million or $2.21 of diluted earnings per common share, compared with $350 million or $2.10 of diluted earnings per common share in the similar quarter of 2016. Net income in the second quarter of 2017 totaled $381 million or $2.35 of diluted earnings per common share. Basic earnings per common share were $2.22 in the recent quarter, compared with $2.10 and $2.36 in the third quarter of 2016 and the second quarter of 2017, respectively. For the first nine months of 2017, net income was $1.09 billion or $6.69 of diluted earnings per common share, compared with $985 million or $5.80 of diluted earnings per common share in the corresponding 2016 period. Basic earnings per common share were $6.71 for the first nine months of 2017, compared with $5.82 for the initial nine months of 2016.
The annualized rate of return on average total assets for M&T and its consolidated subsidiaries (“the Company”) in the third quarter of 2017 was 1.18%, compared with 1.12% in the year-earlier quarter and 1.27% in the second quarter of 2017. The annualized rate of return on average common shareholders’ equity was 8.89% in the recently completed quarter, compared with 8.68% and 9.67% in the third quarter of 2016 and the second 2017 quarter, respectively. During the nine-month period ended September 30, 2017, the annualized rates of return on average assets and average common shareholders’ equity were 1.20% and 9.15%, respectively, compared with 1.06% and 8.17%, respectively, in the similar period of 2016.
On October 9, 2017, Wilmington Trust Corporation, a wholly owned subsidiary of M&T, reached an agreement with the U.S. Attorney’s Office for the District of Delaware related to alleged conduct that took place between 2009 and 2010 prior to the acquisition of Wilmington Trust Corporation by M&T. Under terms of the agreement, Wilmington Trust Corporation was required to pay $60 million and settled the government’s claims. The settlement amount included $16 million previously paid to the U.S. Securities and Exchange Commission in a related action. The result was a payment of $44 million that is not deductible for income tax purposes. Wilmington Trust Corporation did not admit any liability.
As of September 30, 2017, the Company increased the reserve for legal matters by $50 million. That increase, coupled with the non-deductible nature of the $44 million payment, reduced net income by $48 million, or $.31 of diluted earnings per common share, in the third quarter of 2017.
During the first 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 or $.12 of diluted earnings per common share in the initial 2017 quarter. The impact of that change in accounting on income tax expense was not significant in the second and third quarters of 2017.
During the third quarter of 2016, the Company sold substantially all of its collateralized debt obligations with an amortized cost of $28 million held in the available-for-sale investment securities portfolio, resulting in an after-tax gain of $17 million ($28 million pre-tax), or $.11 per diluted common share. Those securities, which had been obtained in previous acquisitions, were sold in response to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) commonly referred to as the “Volcker Rule.” There were no significant gains or losses on investment securities during the second or third quarters of 2017.
On June 28, 2017, M&T announced that the Federal Reserve did not object to M&T’s proposed 2017 Capital Plan. That capital plan includes the repurchase of up to $900 million of common shares during the four-quarter period starting on July 1, 2017, an increase in the quarterly common stock dividend in the second quarter of 2018 of up to $.05 per share to $.80 per share, and the issuance of subordinated capital notes in the third quarter of 2017 of $500 million. M&T may continue to pay dividends and interest on equity and debt instruments included in regulatory capital, including preferred stock, trust preferred securities and subordinated debt that were outstanding at December 31, 2016, consistent with the contractual terms of those instruments. Dividends are subject to declaration
- 53 -
by M&T’s Board of Directors. In July 2017, M&T’s Board of Directors authorized a new stock repurchase program to repurchase up to $900 million of shares of M&T’s common stock subject to all applicable regulatory limitations, including those set forth in M&T’s 2017 Capital Plan. In accordance with M&T’s 2017 Capital Plan, during the third quarter of 2017, M&T repurchased 1,382 ,746 shares of its common stock at a cost of $225 million and issued $500 million of subordinated capital notes. In accordance with M&T’s revised 2016 Capital Plan, during the second quarter of 2017, M&T repurchased 1,409,807 shares of its common stock at a total cost of $225 million and in the first quarter of 2017, M&T repurchased 3,233,196 shares of its common stock at a cost of $532 million and increased the quarterly common stock dividend from $.70 to $.75 per share. In the aggregate, M&T repurchased 6,025,749 shares of its common stock at a cost of $982 million during the first three quarters of 2017 and 5,307,595 shares for $ 604 million during the first three quarters of 2016 .
On July 25, 2017, the Federal Reserve Bank of New York terminated its written agreement with M&T and its principal bank subsidiary, M&T Bank, that had been entered into in June 2013. Under the terms of that agreement, M&T and M&T Bank implemented an enhanced compliance risk management program designed to ensure compliance with the Bank Secrecy Act and anti-money-laundering laws and regulations (“BSA/AML”) and took other steps to enhance their compliance practices.
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 the Company 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. Merger-related expenses associated with the 2015 acquisition of Hudson City Bancorp, Inc. (“Hudson City”) were $36 million ($22 million after-tax effect) in the first nine months of 2016 ($.14 per diluted common share). There were no merger-related expenses during the third quarter of 2016 or in the first nine months of 2017. Although “net operating income” as defined by M&T is not a GAAP measure, M&T’s management believes that this information helps investors understand the effect of acquisition activity in reported results.
Net operating income was $361 million in the third quarter of 2017, compared with $356 million in the year-earlier quarter. Diluted net operating earnings per common share for the recent quarter were $2.24, compared with $2.13 in the third quarter of 2016. Net operating income and diluted net operating earnings per common share were $386 million and $2.38, respectively, in the second quarter of 2017. For the first nine months of 2017, net operating income and diluted net operating earnings per common share were $1.10 billion and $6.78, respectively, compared with $1.03 billion and $6.07, respectively, in the corresponding 2016 period.
Net operating income in the recent quarter expressed as an annualized rate of return on average tangible assets was 1.25%, compared with 1.18% in the year-earlier quarter and 1.33% in the second quarter of 2017. Net operating income represented an annualized return on average tangible common equity of 13.03% in 2017’s third quarter, compared with 12.77% in the similar quarter of 2016 and 14.18% in 2017’s second quarter. For the first nine months of 2017, net operating income represented an annualized return on average tangible assets and average tangible common shareholders’ equity of 1.26% and 13.42%, respectively, compared with 1.15% and 12.36%, respectively, in the first nine months of 2016.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are provided in table 2.
- 54 -
Taxable-equivalent Net Interest Income
Taxable-equivalent net interest income was $966 million in the third quarter of 2017, 12% higher than $865 million in the year-earlier quarter. That growth resulted primarily from a widening of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, to 3.53% in the recent quarter from 3.05% in the corresponding 2016 period. The improvement in the net interest margin was largely the result of the higher interest rate environment due to actions initiated by the Federal Reserve in mid-December 2016, mid-March 2017 and mid-June 2017 to raise its target Federal funds rate by .25% at each of those dates. Taxable-equivalent net interest income in the recent quarter increased from $947 million in the second 2017 quarter, predominantly due to an 8 basis point (hundredths of one percent) widening of the net interest margin from 3.45% in the second quarter of 2017. That widening reflected the impact in the recent quarter of the June interest rate increase initiated by the Federal Reserve.
For the first three quarters of 2017, taxable-equivalent net interest income was $2.84 billion, 8% higher than $2.61 billion in the similar period of 2016. That increase was primarily due to a 32 basis point widening of the net interest margin to 3.44% in 2017 from 3.12% in 2016. Also contributing to the higher taxable-equivalent net interest income in the 2017 period was growth in average loan balances, which increased $986 million from the first nine months of 2016.
Average loans and leases totaled $88.4 billion in the recent quarter, compared with $88.7 billion in the third quarter of 2016. Commercial loans and leases averaged $21.7 billion in the third quarter of 2017, $254 million or 1% above $21.5 billion in the year-earlier quarter. Average commercial real estate loans were $33.3 billion in the recent quarter, up $2.0 billion, or 6%, from $31.3 billion in the third quarter of 2016. Reflecting ongoing repayments of loans obtained in the acquisition of Hudson City, average residential real estate loans declined $3.5 billion, or 14%, to $20.6 billion in the third quarter of 2017 from $24.1 billion in the year-earlier quarter. Included in average residential real estate loans were loans held for sale, which averaged $346 million in the recent quarter and $374 million in the corresponding 2016 quarter. Consumer loans averaged $12.8 billion in the third quarter of 2017, an increase of $844 million, or 7%, from $11.9 billion in the year-earlier quarter, predominantly due to growth in average automobile and recreational vehicle loans, partially offset by lower outstanding balances of home equity lines of credit.
Average loan and lease balances in the third quarter of 2017 declined $882 million from $89.3 billion in the second quarter of 2017. As compared with 2017’s second quarter, average commercial loan and lease balances decreased $616 million, or 3%, in the recent quarter and average residential real estate loans in the third quarter of 2017 declined $710 million, or 3%, reflecting the continued pay down of loans obtained in the acquisition of Hudson City, while commercial real estate loan average balances increased $43 million, or less than 1%, and average consumer loans increased $400 million, or 3%. The accompanying table summarizes quarterly changes in the major components of the loan and lease portfolio.
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(net of unearned discount)
|
|
|
|
|
|
|
Percent Increase |
|
|
|||||
|
|
|
|
|
|
|
(Decrease) from |
|
|
|||||
|
|
|
3rd Qtr. |
|
|
3rd Qtr. |
|
|
2nd Qtr. |
|
|
|||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
|||
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, etc. |
|
$ |
21,734 |
|
|
|
1 |
|
% |
|
(3 |
) |
% |
|
Real estate — commercial |
|
|
33,257 |
|
|
|
6 |
|
|
|
— |
|
|
|
Real estate — consumer |
|
|
20,609 |
|
|
|
(14 |
) |
|
|
(3 |
) |
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
3,328 |
|
|
|
19 |
|
|
|
5 |
|
|
|
Home equity lines and loans |
|
|
5,413 |
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
Other |
|
|
4,045 |
|
|
|
19 |
|
|
|
9 |
|
|
|
Total consumer |
|
|
12,786 |
|
|
|
7 |
|
|
|
3 |
|
|
|
Total |
|
$ |
88,386 |
|
|
|
— |
|
% |
|
(1 |
) |
% |
For the first nine months of 2017, average loans and leases totaled $89.1 billion, up $986 million, or 1%, from $88.2 billion in the corresponding period of 2016. Growth in commercial real estate loans, commercial loans and leases and consumer loans were partially offset by a decline in residential real estate loans.
The investment securities portfolio averaged $15.4 billion in the recent quarter, up $1.1 billion, or 8%, from $14.4 billion in the year-earlier quarter, but $470 million lower than the $15.9 billion averaged in the second quarter of 2017. For the first nine months of 2017 and 2016, investment securities averaged $15.8 billion and $14.9 billion, respectively. Those changes reflect the net effect of purchases, offset by maturities and pay downs of mortgage-backed securities. During the second quarter of 2017, the Company purchased $658 million of mortgage-backed securities, predominantly Ginnie Mae securities, and $214 million of U.S. Treasury notes. The Company sold $512 million of available-for-sale Fannie Mae and Freddie Mac mortgage-backed securities during 2017’s second quarter largely due to the limitations on the amount of Fannie Mae and Freddie Mac mortgage-backed securities that are permitted to be included in the highest tier of “high quality liquid assets” for the Liquidity Coverage Ratio (“LCR”) calculation. During the third quarter of 2016, the Company sold substantially all of its collateralized debt obligations that were held in the available-for-sale investment securities portfolio for a gain of approximately $28 million. Those securities were sold in large part in response to the provisions of the Volcker Rule. During the third quarter of 2017, there were no significant purchases or sales of investment securities. 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 LCR that became effective in January 2016. 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, 2016 under the heading “Liquidity.”
In addition to the sales noted above, the Company may occasionally sell investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, or as a result of restructuring its investment securities portfolio in connection with a business combination. The amounts of investment securities held by the Company are influenced by 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.
- 56 -
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 nine-month periods ended September 30, 2017 or 2016. Additional information about the investment securities portfolio is included in notes 3 and 12 of Notes to Financial Statements.
Other earning assets include interest-bearing deposits at 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 $4.8 billion in the two most recent quarters, compared with $9.8 billion in the third quarter of 2016. Interest-bearing deposits at banks averaged $4.7 billion during each of the quarters ended September 30, 2017 and June 30, 2017 and $9.7 billion in the quarter ended September 30, 2016. For the nine-month periods ended September 30, 2017 and 2016, average balances of interest-bearing deposits at banks were $5.2 billion and $8.9 billion, respectively. The amounts of investment securities and other earning assets held by the Company are influenced by such factors as demand for loans, which generally yield more than investment securities and other earning assets, ongoing repayments, the levels of deposits, and management of liquidity (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 trust-related deposits of commercial entities, purchases or maturities of investment securities, or borrowings to manage the Company’s liquidity.
As a result of the changes described herein, average earning assets totaled $108.6 billion in the most recent quarter, compared with $112.9 billion in the year-earlier quarter and $110.0 billion in the second quarter of 2017. Average earning assets aggregated $110.2 billion and $112.0 billion during the nine-month periods ended September 30, 2017 and 2016, respectively.
The most significant source of funding for the Company is core deposits. The Company considers noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and time deposits of $250,000 or less as core deposits. The Company’s branch network is its principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Average core deposits totaled $91.0 billion in the third quarter of 2017, compared with $93.2 billion in the year-earlier quarter and $92.0 billion in the second quarter of 2017. The decline in average core deposits in the third quarter of 2017 as compared with the year-earlier quarter reflected a $4.1 billion, or 37%, decrease in time deposits, predominantly related to maturities of relatively high-rate deposits obtained in the acquisition of Hudson City, partially offset by growth in noninterest-bearing deposits, in part reflecting balances associated with trust customers. As compared with 2017’s second quarter, the most significant factor for the decrease in average core deposits in the recent quarter was the continued decline of average time deposits, largely associated with deposits obtained in the Hudson City acquisition. The following table provides an analysis of quarterly changes in the components of average core deposits.
AVERAGE CORE DEPOSITS
|
|
|
|
|
|
|
Percent Increase |
|
|
|||||
|
|
|
|
|
|
|
(Decrease) from |
|
|
|||||
|
|
|
3rd Qtr. |
|
|
3rd Qtr. |
|
|
2nd Qtr. |
|
|
|||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
|||
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and interest-checking deposits |
|
$ |
52,056 |
|
|
|
1 |
|
% |
|
(1 |
) |
% |
|
Time deposits |
|
|
6,897 |
|
|
|
(37 |
) |
|
|
(10 |
) |
|
|
Noninterest-bearing deposits |
|
|
32,005 |
|
|
|
4 |
|
|
|
— |
|
|
|
Total |
|
$ |
90,958 |
|
|
|
(2 |
) |
% |
|
(1 |
) |
% |
- 57 -
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 $717 million in the recent quarter, compared with $1.3 billion in the third quarter of 2016 and $808 million in the second 2017 quarter. Cayman Islands office deposits averaged $169 million, $2 20 million and $163 million for the quarters ended September 30, 2017, September 30, 2016 and June 30, 2017, respectively. Brokered time deposits averaged $59 million in each of the quarters ended September 30, 2017, September 30, 2016 and June 30, 2017. The Company also had brokered savings and interest-bearing transaction accounts, which in the aggregate averaged $1.2 billion, $1.0 billion and $1.1 billion during the third quarter of 2017, the corresponding 2016 quarter and the second quarter of 2017, re spectively. 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 o ffice deposits is also reflective of customer demand. 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 arrangements that at the time they were entered into had a contractual maturity of less than one year. Average short-term borrowings totaled $244 million in the recent quarter, compared with $231 million in the third quarter of 2016 and $212 million in the second quarter of 2017. Included in short-term borrowings were unsecured federal funds borrowings, which generally mature on the next business day, that averaged $139 million and $160 million in the third quarters of 2017 and 2016, respectively, and $141 million in the second quarter of 2017.
Long-term borrowings averaged $8.0 billion in the recent quarter, compared with $10.3 billion in the year-earlier quarter and $8.3 billion in the second quarter of 2017. M&T Bank has a Bank Note Program whereby M&T Bank may offer unsecured senior and subordinated notes. Average balances of senior notes outstanding under that program were $4.7 billion, $5.2 billion and $4.8 billion during the three-month periods ended September 30, 2017, September 30, 2016 and June 30, 2017, respectively. During August 2017, M&T Bank issued $750 million of 2.05% fixed rate senior notes that mature in 2020. During May 2017, M&T Bank issued $650 million of fixed rate and $250 million of variable rate senior notes that mature in 2022. During June 2017, M&T Bank redeemed $750 million of 1.40% fixed rate senior notes. The notes had a maturity date of July 25, 2017 and were redeemable on or after the 30th day prior to the maturity date. Outstanding balances of the senior unsecured notes were $5.0 billion at September 30, 2017 and $5.2 billion at December 31, 2016. Also included in average long-term borrowings were amounts borrowed from the Federal Home Loan Banks of New York, Atlanta and Pittsburgh of $580 million in the recent quarter, compared with $1.2 billion and $1.0 billion in the third quarter of 2016 and the second quarter of 2017, respectively. Subordinated capital notes included in long-term borrowings averaged $1.8 billion in the recent quarter and $1.5 billion during each of the quarters ended September 30, 2016 and June 30, 2017. During August 2017, M&T Bank issued $500 million of 3.40% fixed rate subordinated capital notes that mature in 2027 in accordance with M&T’s 2017 Capital Plan. Junior subordinated debentures associated with trust preferred securities that were included in average long-term borrowings totaled $518 million in each of the two most recent quarters, compared with $516 million in the third quarter of 2016. Additional information regarding junior subordinated debentures is provided in note 5 of Notes to Financial Statements. Also included in long-term borrowings were agreements to repurchase securities, which averaged $427 million in the recently completed quarter, compared with $1.9 billion in the year-earlier quarter and $430 million in the second quarter of 2017. The lower average balances of repurchase agreements in the 2017 periods as compared with the third quarter of 2016 reflect maturities. The repurchase agreements held at September 30, 2017 totaled $425 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 September 30, 2017, interest rate swap agreements were used to hedge approximately $5.0 billion of outstanding fixed rate long-term borrowings. During the third quarter of 2017, the Company entered into $1.3 billion of interest rate swap agreements to hedge the senior notes and subordinated capital notes issued in
- 58 -
August 2017. In the second quarter of 2017, the Company entered into $2.8 billion of interest rate swap agreeme nts to hedge the aforementioned senior notes issued during that quarter and certain existing fixed rate borrowings. Further information on interest rate swap agreements is provided in note 10 of Notes to Financial Statements.
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. Net interest spread, or the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities, was 3.32% in the recent quarter, compared with 2.85% in the third quarter of 2016. The yield on earning assets during the third quarter of 2017 was 3.89%, up 45 basis points from 3.44% in the year-earlier period, while the rate paid on interest-bearing liabilities decreased two basis points to .57% in the recent quarter from .59% in the similar 2016 period. In the second quarter of 2017, the net interest spread was 3.27%, the yield on earning assets was 3.79% and the rate paid on interest-bearing liabilities was .52%. For the first nine months of 2017, the net interest spread was 3.25%, up 31 basis points from the year-earlier period. The yield on earning assets and the rate paid on interest-bearing liabilities for the nine-month period ended September 30, 2017 were 3.79% and .54%, respectively, compared with 3.50% and .56%, respectively, in the corresponding 2016 period. The widening of the net interest spread in the recent quarter as compared with the third quarter of 2016 and second quarter of 2017 and in the first nine months of 2017 as compared with the corresponding nine months of 2016 was largely due to the effect of increases in short-term interest rates initiated by the Federal Reserve in mid-December 2016, mid-March 2017 and mid-June 2017 that contributed to higher yields on loans and leases.
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 $39.2 billion in the recent quarter, compared with $37.3 billion in the third quarter of 2016 and $39.1 billion in the second quarter of 2017. The increases in average net interest-free funds in the two most recent quarters as compared with the third quarter of 2016 reflect higher average balances of noninterest-bearing deposits. Those deposits averaged $32.0 billion, $30.8 billion and $31.9 billion in the quarters ended September 30, 2017, September 30, 2016 and June 30, 2017, respectively. During the first nine months of 2017 and 2016, average net interest-free funds aggregated $39.6 billion and $36.0 billion, respectively. The growth in average noninterest-bearing deposits since the third quarter of 2016 reflects, in part, higher deposits of trust customers. Shareholders’ equity averaged $16.3 billion and goodwill and core deposit and other intangible assets averaged $4.7 billion in each of the three-month periods ended September 30, 2017, September 30, 2016 and June 30, 2017. Cash surrender value of bank owned life insurance averaged $1.8 billion in the recent quarter, compared with $1.7 billion during each of the quarters ended September 30, 2016 and June 30, 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 .21% in the third quarter of 2017, compared with .20% and .18% in the third quarter of 2016 and the second quarter of 2017, respectively. That contribution for the first nine months of 2017 and 2016 was .19% and .18%, 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 3.53% in the third quarter of 2017, compared with 3.05% in the corresponding 2016 period and 3.45% in the second quarter of 2017. During the first nine months of 2017 and 2016, the net interest margin was 3.44% and 3.12%, respectively. Future changes in market interest rates or spreads, as well as changes in the composition of the Company’s portfolios of earning assets and interest-bearing liabilities that result in reductions in spreads, could adversely impact the Company’s net interest income and net interest margin.
Management assesses the potential impact of future changes in interest rates and spreads by projecting net interest income under several interest rate scenarios. In managing interest rate risk, the Company has utilized interest rate swap agreements to modify the repricing characteristics of certain portions of its earning assets and interest-bearing liabilities. Periodic settlement amounts arising from these agreements are reflected in either the yields earned on 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 $7.0 billion at September 30, 2017,
- 59 -
compared with $1.4 billion and $900 million at September 30, 2016 and December 31, 2016, respectively. 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. The $6.1 billion increase in notional amount from December 31, 2016 reflects additions of $2.0 billion of interest rate swaps design ated as cash flow hedges of variable rate commercial real estate loans and $4.1 billion of interest rate swaps designated as fair value hedges of fixed rate long-term borrowings. There were no interest rate swap agreements designated as cash flow hedges a t September 30, 2016 or December 31, 2016.
In a fair value hedge, the fair value of the derivative (the interest rate swap agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate swap agreements and the hedged items represents hedge ineffectiveness and is recorded in “other revenues from operations” in the Company’s consolidated statement of income. In a cash flow hedge, unlike in a fair value 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 gain or loss is reported in “other revenues from operations” immediately. The amounts of hedge ineffectiveness recognized during each of the quarters ended September 30, 2017, September 30, 2016 and June 30, 2017 were not material to the Company’s consolidated results of operations. The estimated aggregate net fair value of interest rate swap agreements designated as fair value hedges represented losses (without consideration of any settlement payments) of approximately $12 million at September 30, 2017, compared with gains (without consideration of any settlement payments) of $21 million at September 30, 2016, $12 million at December 31, 2016 and $2 million at June 30, 2017. The fair values of such interest rate swap agreements were substantially offset by changes in the fair values of the hedged items. The estimated fair values of the interest rate swap agreements designated as cash flow hedges were net losses (without consideration of any settlement payments) of approximately $3.4 million at September 30, 2017 and $1.5 million at June 30, 2017. Net of applicable income taxes, the amount of such losses reflected in “accumulated other comprehensive income, net” in the Company’s consolidated balance sheet were approximately $2 million and $1 million at September 30 and June 30, 2017, respectively. 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 September 30, 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 $5 million of collateral with the Company.
The weighted-average rates to be received and paid under interest rate swap agreements currently in effect were 2.29% and 1.81% respectively, at September 30, 2017. 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 10 of Notes to Financial Statements.
- 60 -
|
|
|
Three Months Ended September 30 |
|
|
|||||||||||||
|
. |
|
2017 |
|
|
2016 |
|
|
||||||||||
|
|
|
Amount |
|
|
Rate(a) |
|
|
Amount |
|
|
Rate(a) |
|
|
||||
|
|
|
(Dollars in thousands) |
|
|
|||||||||||||
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
1,181 |
|
|
|
— |
|
% |
$ |
— |
|
|
|
— |
|
% |
|
Interest expense |
|
|
(6,059 |
) |
|
|
(.03 |
) |
|
|
(9,462 |
) |
|
|
(.05 |
) |
|
|
Net interest income/margin |
|
$ |
7,240 |
|
|
|
.03 |
|
% |
$ |
9,462 |
|
|
|
.03 |
|
% |
|
Average notional amount |
|
$ |
6,352,174 |
|
|
|
|
|
|
$ |
1,400,000 |
|
|
|
|
|
|
|
Rate received (b) |
|
|
|
|
|
|
2.26 |
|
% |
|
|
|
|
|
4.42 |
|
% |
|
Rate paid (b) |
|
|
|
|
|
|
1.76 |
|
% |
|
|
|
|
|
1.68 |
|
% |
|
|
|
Nine Months Ended September 30 |
|
|
|||||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
||||||||||
|
|
|
Amount |
|
|
Rate(a) |
|
|
Amount |
|
|
Rate(a) |
|
|
||||
|
|
|
(Dollars in thousands) |
|
|
|||||||||||||
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
2,275 |
|
|
|
— |
|
% |
$ |
— |
|
|
|
— |
|
% |
|
Interest expense |
|
|
(15,611 |
) |
|
|
(.03 |
) |
|
|
(29,593 |
) |
|
|
(.05 |
) |
|
|
Net interest income/margin |
|
$ |
17,886 |
|
|
|
.02 |
|
% |
$ |
29,593 |
|
|
|
.04 |
|
% |
|
Average notional amount |
|
$ |
3,807,326 |
|
|
|
|
|
|
$ |
1,400,000 |
|
|
|
|
|
|
|
Rate received (b) |
|
|
|
|
|
|
2.38 |
|
% |
|
|
|
|
|
4.42 |
|
% |
|
Rate paid (b) |
|
|
|
|
|
|
1.74 |
|
% |
|
|
|
|
|
1.58 |
|
% |
|
(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. |
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 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 instruments 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 $134 million, $159 million and $112 million at September 30, 2017, September 30, 2016 and December 31, 2016, respectively. In general, those borrowings were unsecured and matured on the next business day. 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 $232 million at September 30, 2017, $223 million at September 30, 2016 and $202 million at December 31, 2016. The Company has also benefited from the placement of brokered deposits. The Company had brokered savings and interest-bearing checking deposit accounts which totaled approximately $1.3 billion at September 30, 2017, $1.1 billion at September 30, 2016 and $1.2 billion at December 31, 2016. Brokered time deposits were not a significant source of funding as of those dates.
- 61 -
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 impa ct 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 o f 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. There were $2 million of VRDBs in the Company’s trading account at September 30, 2017, compared with $73 million at September 30, 2016 and $30 million at December 31, 2016. The total amount of VRDBs outstanding backed by M&T Bank letters of credit was $1.2 billion at September 30, 2017, compared with $1.6 billion and $1.3 billion at September 30, 2016 and December 31, 2016, respectively. 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 13 of Notes to Financial Statements.
M&T’s primary source of funds to pay for operating expenses, shareholder dividends and treasury stock repurchases has historically been the receipt of dividends from its bank subsidiaries, which are subject to various regulatory limitations. Dividends from any bank subsidiary to M&T are limited by the amount of earnings of the subsidiary in the current year and the two preceding years. For purposes of that test, at September 30, 2017 approximately $819 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 5 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 LCR 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 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
- 62 -
balances of financial instruments us ed 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 a nd provide management with a long-term interest rate risk metric.
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 of net interest income calculated under the varying interest rate scenarios are compared to a base interest rate scenario. The model considers the impact of ongoing lending and deposit-gathering activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken actions to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.
The accompanying table as of September 30, 2017 and December 31, 2016 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 |
|
|
|||||
|
Changes in interest rates |
|
September 30, 2017 |
|
|
December 31, 2016 |
|
|
||
|
|
|
(In thousands) |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
+200 basis points |
|
$ |
134,336 |
|
|
|
227,283 |
|
|
|
+100 basis points |
|
|
96,895 |
|
|
|
147,400 |
|
|
|
-50 basis points |
|
|
— |
|
(a) |
|
(98,945 |
) |
|
|
-100 basis points |
|
|
(180,632 |
) |
|
|
— |
|
(a) |
(a) The Company did not analyze this scenario.
The Company utilized many assumptions to calculate the impact that changes in interest rates may have on net interest income. The more significant of those assumptions included the rate of prepayments of mortgage-related assets, cash flows from derivative and other financial instruments held for non-trading purposes, loan and deposit volumes and pricing, and deposit maturities. In the scenarios presented, the Company also assumed gradual changes in interest rates during a twelve-month period as compared with the base scenario. In the declining rate scenario, the rate changes may be limited to lesser amounts such that interest rates remain positive on all points of the yield curve. In 2016, the Company suspended the -100 basis point scenario due to the persistent low level of interest rates. This scenario was reinstated as of June 30, 2017. 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
- 63 -
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 ma turity/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, management believes that the likelihood of potential volatility of interest rates has increased. As a result, as previously described, in 2017 management added interest rate swap agreements designated as hedging instruments to mitigate the Company’s exposure to such potential volatility. In light of the uncertaintie s 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 3 and 12 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 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 10 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 were $15.5 billion at September 30, 2017, $21.2 billion at September 30, 2016 and $21.6 billion at December 31, 2016. The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes were $545 million at September 30, 2017, compared with $891 million at September 30, 2016 and $471 million at December 31, 2016. 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 totaled $171 million and $110 million, respectively, at September 30, 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, the fair value asset and liability amounts at September 30, 2017 have been reduced by contractual settlements of $89 million and $29 million, respectively. The fair values of trading account assets and liabilities were $489 million and $293 million, respectively, at September 30, 2016 and $324 million and $174 million, respectively, at December 31, 2016. Included in trading account assets were assets related to deferred compensation plans totaling $23 million at each of September 30, 2017 and 2016 and $22 million at December 31, 2016. 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 were liabilities related to deferred compensation plans totaling $26 million at each of September 30, 2017, September 30, 2016 and December 31, 2016. 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 September 30, 2017, $28 million at September 30, 2016 and $24 million at December 31, 2016.
- 64 -
Given the Company’s policies, limits and positions, management believes that the potential loss exposure to th e 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 ac tivities. Additional information about the Company’s use of derivative financial instruments in its trading account activities is included in note 10 of Notes to Financial Statements.
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 was $30 million in the recent quarter, compared with $47 million in the third quarter of 2016 and $52 million in the second quarter of 2017. For the nine-month periods ended September 30, 2017 and 2016, the provision for credit losses was $137 million and $128 million, respectively. Net charge-offs of loans were $25 million in the recent quarter, compared with $41 million in the corresponding 2016 quarter and $45 million in the second quarter of 2017. Net charge-offs as an annualized percentage of average loans and leases were .11% in the recent quarter, compared with .19% in the year-earlier quarter and .20% in the second quarter of 2017. Net charge-offs for the nine-month periods ended September 30 totaled $113 million in 2017 and $108 million in 2016, representing an annualized rate of .17% and .16% of average loans and leases in those respective periods. A summary of net charge-offs by loan type is presented in the table that follows.
NET CHARGE-OFFS (RECOVERIES)
BY LOAN/LEASE TYPE
|
|
|
2017 |
|
|||||||||||||
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Year- to-date |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
$ |
11,896 |
|
|
|
21,814 |
|
|
|
5,291 |
|
|
|
39,001 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
3,971 |
|
|
|
1,419 |
|
|
|
(5,637 |
) |
|
|
(247 |
) |
|
Residential |
|
|
4,752 |
|
|
|
3,169 |
|
|
|
2,178 |
|
|
|
10,099 |
|
|
Consumer |
|
|
21,948 |
|
|
|
18,803 |
|
|
|
23,067 |
|
|
|
63,818 |
|
|
|
|
$ |
42,567 |
|
|
|
45,205 |
|
|
|
24,899 |
|
|
|
112,671 |
|
|
|
|
2016 |
|
|||||||||||||
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Year- to-date |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
$ |
902 |
|
|
|
(3,132 |
) |
|
|
14,117 |
|
|
|
11,887 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
(1,141 |
) |
|
|
(1,866 |
) |
|
|
(140 |
) |
|
|
(3,147 |
) |
|
Residential |
|
|
5,085 |
|
|
|
3,115 |
|
|
|
4,835 |
|
|
|
13,035 |
|
|
Consumer |
|
|
37,394 |
|
|
|
26,139 |
|
|
|
22,563 |
|
|
|
86,096 |
|
|
|
|
$ |
42,240 |
|
|
|
24,256 |
|
|
|
41,375 |
|
|
|
107,871 |
|
Reflected in net charge-offs of commercial loans and leases was: an $8 million charge-off in the second quarter of 2017 associated with a provider of asset management, trading, and merger and acquisition advisory services; a $6 million charge-off in the first quarter of 2017 associated with a producer of powdered cellulose and fiber filler products used for food and industrial applications; a $12 million charge-off of loans to a commercial maintenance services provider in the third quarter of 2016 and a $7 million recovery of a previously charged-off loan in the second quarter of 2016. Included in net charge-offs of consumer loans and leases were net charge-offs during the
- 65 -
quarters ended September 30, 2017, September 30, 2016 and June 30, 2017, respectively, of: automobile loans of $9 million, $7 million and $7 million; recreational vehicle loans of $4 million, $4 million and $2 million; and home equity loans and lines of credit secured by one-to-four family residential properties of $2 million, $5 million an d $3 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 the 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. Reflected in consumer loan charge-offs in the second quarter of 201 6 was a $6 million charge-off of a personal usage loan. For the nine-month periods ended September 30, 2017 and 2016, net consumer loan charge-offs included the following: automobile loans of $25 million and $24 million, respectively; recreational vehicle loans of $11 million and $19 million, respectively; and home equity loans and lines of credit of $8 million and $14 million, respectively.
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 $1.1 billion, $2.0 billion and $1.8 billion at September 30, 2017, September 30, 2016 and December 31, 2016, respectively. The nonaccretable balance related to remaining principal losses associated with loans acquired at a discount as of September 30, 2017 and December 31, 2016 is presented in the accompanying table.
NONACCRETABLE BALANCE - PRINCIPAL
|
|
|
Remaining balance |
|
|||||
|
|
|
September 30, 2017 |
|
|
December 31, 2016 |
|
||
|
|
|
(In thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, leasing, etc. |
|
$ |
4,606 |
|
|
|
4,794 |
|
|
Commercial real estate |
|
|
31,524 |
|
|
|
39,867 |
|
|
Residential real estate |
|
|
36,128 |
|
|
|
59,657 |
|
|
Consumer |
|
|
8,484 |
|
|
|
11,275 |
|
|
Total |
|
$ |
80,742 |
|
|
|
115,593 |
|
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 at a premium was $12.1 billion and $14.2 billion at September 30, 2017 and December 31, 2016, 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.
- 66 -
Nonaccrual loans aggregated $869 million or .99% of total loans and leases outstanding at September 30, 2017, compared with $837 million or .93% a year earlier, $920 million or 1.01% at December 31, 2016 and $872 million or .98% at June 30, 2017. The higher levels of nonaccrual loans since September 30, 2016 reflect the migration of previously performing residential real estate loans obtained in the acquisition of Hudson City that became past due over 90 days after September 30, 2016. The lower level of nonaccrual loans at September 30, 2017 as compared with December 31, 2016 reflects the effect of borrower repayment performance and charge-offs.
Accruing loans past due 90 days or more (excluding loans acquired at a discount) totaled $261 million or .30% of total loans and leases at September 30, 2017, compared with $317 million or .35% at September 30, 2016, $301 million or .33% at December 31, 2016 and $265 million or .30% at June 30, 2017. Those amounts included loans guaranteed by government-related entities of $252 million, $282 million, $283 million and $235 million at September 30, 2017, September 30, 2016, December 31, 2016 and June 30, 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 $207 million at September 30, 2017, $225 million at September 30, 2016, $224 million at December 31, 2016 and $185 million at June 30, 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 $467 million at September 30, 2017, or .5% of total loans. Of that amount, $411 million was related to the Hudson City acquisition. Purchased impaired loans totaled $617 million and $578 million at September 30 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 $56 million at September 30, 2017, compared with $65 million at September 30, 2016 and $61 million at December 31, 2016.
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 4 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 $184 million, $170 million and $171 million at September 30, 2017, September 30, 2016 and December 31, 2016, respectively.
- 67 -
Nonaccrual commercial loans and leases were $204 million at September 30, 2017, $231 million at September 30, 2016, $261 million at December 31, 2016 and $201 million at June 30, 2017. Commercial real estate loans classified as nonaccrual aggregated $222 million at September 30, 2017, $198 million at September 30, 2016, $211 million at December 31, 2016 and $225 million at June 30, 2017. Nonaccrual commercial real estate loans included construction-related loans of $22 millio n, $41 million, $35 million and $23 million at September 30, 2017, September 30, 2016, December 31, 2016 and June 30, 2017, respectively. Those nonaccrual construction loans included loans to residential builders and developers of $2 million, $20 million, $17 million and $7 million at September 30, 2017, September 30, 2016, December 31, 2016 and June 30, 2017, respectively. Information about the location of nonaccrual and charged-off loans to residential real estate builders and developers as of and for th e three-month period ended September 30, 2017 is presented in the accompanying table.
RESIDENTIAL BUILDER AND DEVELOPER LOANS, NET OF UNEARNED DISCOUNT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|||||
|
|
|
September 30, 2017 |
|
|
|
September 30, 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 |
|
$ |
430,628 |
|
|
$ |
382 |
|
|
|
.09 |
|
% |
|
$ |
(33 |
) |
|
|
(.03 |
) |
% |
|
Pennsylvania |
|
|
100,932 |
|
|
|
263 |
|
|
|
.26 |
|
|
|
|
(3,608 |
) |
|
|
(13.13 |
) |
|
|
Mid-Atlantic (a) |
|
|
469,064 |
|
|
|
1,691 |
|
|
|
.36 |
|
|
|
|
(249 |
) |
|
|
(.21 |
) |
|
|
Other |
|
|
663,269 |
|
|
|
1,187 |
|
|
|
.18 |
|
|
|
|
(13 |
) |
|
|
(.01 |
) |
|
|
Total |
|
$ |
1,663,893 |
|
|
$ |
3,523 |
|
|
|
.21 |
|
% |
|
$ |
(3,903 |
) |
|
|
(.93 |
) |
% |
|
(a) |
Includes Delaware, Maryland, New Jersey, Virginia, West Virginia and the District of Columbia. |
|
(b) |
Includes approximately $16 million of loans not secured by real estate, of which approximately $1 million are in nonaccrual status. |
Residential real estate loans in nonaccrual status aggregated $338 million at September 30, 2017, compared with $303 million at September 30, 2016, $336 million at December 31, 2016 and $343 million at June 30, 2017. The increase in residential real estate loans classified as nonaccrual subsequent to September 30, 2016 reflects the migration of previously performing loans obtained in the acquisition of Hudson City that became more than 90 days delinquent. Such nonaccrual residential real estate loans totaled $211 million at each of September 30 and June 30, 2017, $149 million at September 30, 2016 and $190 million at December 31, 2016. Those loans could not be identified as purchased impaired loans at the acquisition date because the borrowers were making loan payments at that time and the loans were not recorded at a discount. Included in residential real estate loans classified as nonaccrual were limited documentation first mortgage loans of $102 million, $89 million, $107 million and $106 million at September 30, 2017, September 30, 2016, December 31, 2016 and June 30, 2017, respectively. 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 $250 million at September 30, 2017, compared with $281 million at each of September 30, 2016 and December 31, 2016 and $233 million at June 30, 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 September 30, 2017 is presented in the accompanying table.
- 68 -
SELECTED RESIDENTIAL REA L ESTATE-RELATED LOAN DATA
|
|
|
September 30, 2017 |
|
|
Quarter Ended September 30, 2017 |
|
||||||||||||||
|
|
|
|
|
|
|
Nonaccrual |
|
|
Net Charge-offs (Recoveries) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Percent of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Average |
|
||
|
|
|
Outstanding |
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
Outstanding |
|
|||
|
|
|
Balances |
|
|
Balances |
|
|
Balances |
|
|
Balances |
|
|
Balances |
|
|||||
|
|
|
(Dollars in thousands) |
|
|||||||||||||||||
|
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
$ |
5,749,347 |
|
|
$ |
77,500 |
|
|
|
1.35 |
% |
|
$ |
1,023 |
|
|
|
.07 |
% |
|
Pennsylvania |
|
|
1,449,304 |
|
|
|
15,090 |
|
|
|
1.04 |
|
|
|
50 |
|
|
|
.01 |
|
|
Maryland |
|
|
1,149,341 |
|
|
|
13,122 |
|
|
|
1.14 |
|
|
|
(412 |
) |
|
|
(.14 |
) |
|
New Jersey |
|
|
4,472,114 |
|
|
|
58,123 |
|
|
|
1.30 |
|
|
|
1,014 |
|
|
|
.09 |
|
|
Other Mid-Atlantic (a) |
|
|
1,004,391 |
|
|
|
10,438 |
|
|
|
1.04 |
|
|
|
(11 |
) |
|
|
(.01 |
) |
|
Other |
|
|
3,283,823 |
|
|
|
61,418 |
|
|
|
1.87 |
|
|
|
573 |
|
|
|
.07 |
|
|
Total |
|
$ |
17,108,320 |
|
|
$ |
235,691 |
|
|
|
1.38 |
% |
|
$ |
2,237 |
|
|
|
.05 |
% |
|
Residential construction loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
$ |
5,032 |
|
|
$ |
— |
|
|
|
— |
% |
|
$ |
— |
|
|
|
— |
% |
|
Pennsylvania |
|
|
1,936 |
|
|
|
343 |
|
|
|
17.74 |
|
|
|
(66 |
) |
|
|
(16.23 |
) |
|
Maryland |
|
|
1,376 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
New Jersey |
|
|
1,984 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other Mid-Atlantic (a) |
|
|
3,742 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
8,232 |
|
|
|
329 |
|
|
|
3.99 |
|
|
|
(17 |
) |
|
|
(.90 |
) |
|
Total |
|
$ |
22,302 |
|
|
$ |
672 |
|
|
|
3.01 |
% |
|
$ |
(83 |
) |
|
|
(1.55 |
%) |
|
Limited documentation first mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
$ |
1,351,590 |
|
|
$ |
40,086 |
|
|
|
2.97 |
% |
|
$ |
39 |
|
|
|
.01 |
% |
|
Pennsylvania |
|
|
65,542 |
|
|
|
5,333 |
|
|
|
8.14 |
|
|
|
(112 |
) |
|
|
(.66 |
) |
|
Maryland |
|
|
38,316 |
|
|
|
2,605 |
|
|
|
6.80 |
|
|
|
20 |
|
|
|
.21 |
|
|
New Jersey |
|
|
1,207,609 |
|
|
|
25,694 |
|
|
|
2.13 |
|
|
|
158 |
|
|
|
.05 |
|
|
Other Mid-Atlantic (a) |
|
|
31,445 |
|
|
|
2,210 |
|
|
|
7.03 |
|
|
|
84 |
|
|
|
1.00 |
|
|
Other |
|
|
440,038 |
|
|
|
25,990 |
|
|
|
5.91 |
|
|
|
(165 |
) |
|
|
(.14 |
) |
|
Total |
|
$ |
3,134,540 |
|
|
$ |
101,918 |
|
|
|
3.25 |
% |
|
$ |
24 |
|
|
|
— |
% |
|
First lien home equity loans and lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
$ |
1,293,963 |
|
|
$ |
15,927 |
|
|
|
1.23 |
% |
|
$ |
699 |
|
|
|
.22 |
% |
|
Pennsylvania |
|
|
809,772 |
|
|
|
8,772 |
|
|
|
1.08 |
|
|
|
92 |
|
|
|
.05 |
|
|
Maryland |
|
|
668,522 |
|
|
|
6,544 |
|
|
|
.98 |
|
|
|
468 |
|
|
|
.28 |
|
|
New Jersey |
|
|
60,068 |
|
|
|
351 |
|
|
|
.58 |
|
|
|
43 |
|
|
|
.31 |
|
|
Other Mid-Atlantic (a) |
|
|
207,006 |
|
|
|
1,701 |
|
|
|
.82 |
|
|
|
11 |
|
|
|
.02 |
|
|
Other |
|
|
28,365 |
|
|
|
915 |
|
|
|
3.22 |
|
|
|
53 |
|
|
|
.82 |
|
|
Total |
|
$ |
3,067,696 |
|
|
$ |
34,210 |
|
|
|
1.12 |
% |
|
$ |
1,366 |
|
|
|
.18 |
% |
|
Junior lien home equity loans and lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
$ |
835,542 |
|
|
$ |
20,598 |
|
|
|
2.47 |
% |
|
$ |
634 |
|
|
|
.30 |
% |
|
Pennsylvania |
|
|
326,133 |
|
|
|
3,844 |
|
|
|
1.18 |
|
|
|
(75 |
) |
|
|
(.09 |
) |
|
Maryland |
|
|
719,782 |
|
|
|
11,402 |
|
|
|
1.58 |
|
|
|
287 |
|
|
|
.16 |
|
|
New Jersey |
|
|
117,989 |
|
|
|
1,196 |
|
|
|
1.01 |
|
|
|
142 |
|
|
|
.47 |
|
|
Other Mid-Atlantic (a) |
|
|
280,435 |
|
|
|
2,089 |
|
|
|
.74 |
|
|
|
204 |
|
|
|
.28 |
|
|
Other |
|
|
41,420 |
|
|
|
1,761 |
|
|
|
4.25 |
|
|
|
(200 |
) |
|
|
(1.92 |
) |
|
Total |
|
$ |
2,321,301 |
|
|
$ |
40,890 |
|
|
|
1.76 |
% |
|
$ |
992 |
|
|
|
.17 |
% |
|
Limited documentation junior lien: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York |
|
$ |
753 |
|
|
$ |
— |
|
|
|
— |
% |
|
$ |
(1 |
) |
|
|
(.48 |
%) |
|
Pennsylvania |
|
|
324 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Maryland |
|
|
1,373 |
|
|
|
91 |
|
|
|
6.64 |
|
|
|
— |
|
|
|
— |
|
|
New Jersey |
|
|
382 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other Mid-Atlantic (a) |
|
|
643 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
4,190 |
|
|
|
393 |
|
|
|
9.38 |
|
|
|
19 |
|
|
|
1.77 |
|
|
Total |
|
$ |
7,665 |
|
|
$ |
484 |
|
|
|
6.31 |
% |
|
$ |
18 |
|
|
|
.92 |
% |
|
|
(a) |
Includes Delaware, Virginia, West Virginia and the District of Columbia. |
- 69 -
Nonaccrual consumer loans were $105 million at September 30, 2017, compared with $104 million at September 30, 2016, $112 million at December 31, 2016 and $103 million at June 30, 2017. Included in nonaccrual consumer loans at September 30, 2017, Septembe r 30, 2016, December 31, 2016 and June 30, 2017 were: automobile loans of $21 million, $14 million, $19 million and $17 million, respectively; recreational vehicle loans of $5 million, $6 million, $7 million and $5 million, respectively; and outstanding ba lances of home equity loans and lines of credit of $76 million, $80 million, $82 million and $77 million, respectively. Information about the location of nonaccrual and charged-off home equity loans and lines of credit as of and for the quarter ended Sept ember 30, 2017 is presented in the accompanying table.
Information about past due and nonaccrual loans as of September 30, 2017 and December 31, 2016 is also included in note 4 of Notes to Financial Statements.
Real estate and other foreclosed assets totaled $111 million at September 30, 2017, compared with $160 million at September 30, 2016, $139 million at December 31, 2016 and $104 million at June 30, 2017. Net gains or losses resulting from sales of real estate and other foreclosed assets were not material in the three-month periods ended September 30, 2017, September 30, 2016 or June 30, 2017. At September 30, 2017, the Company’s holding of residential real estate-related properties comprised approximately 96% of foreclosed assets.
A comparative summary of nonperforming assets and certain past due loan data and credit quality ratios is presented in the accompanying table.
NONPERFORMING ASSET AND PAST DUE, RENOGIATED AND IMPAIRED LOAN DATA
|
|
|
2017 Quarters |
|
|
2016 Quarters |
|
|
||||||||||||||
|
|
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
|||||
|
|
|
(Dollars in thousands) |
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
869,362 |
|
|
|
872,374 |
|
|
|
926,675 |
|
|
|
920,015 |
|
|
|
837,362 |
|
|
|
Real estate and other foreclosed assets |
|
|
110,515 |
|
|
|
104,424 |
|
|
|
119,155 |
|
|
|
139,206 |
|
|
|
159,881 |
|
|
|
Total nonperforming assets |
|
$ |
979,877 |
|
|
|
976,798 |
|
|
|
1,045,830 |
|
|
|
1,059,221 |
|
|
|
997,243 |
|
|
|
Accruing loans past due 90 days or more(a) |
|
$ |
261,288 |
|
|
|
265,461 |
|
|
|
280,019 |
|
|
|
300,659 |
|
|
|
317,282 |
|
|
|
Government guaranteed loans included in totals above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
34,687 |
|
|
|
39,296 |
|
|
|
39,610 |
|
|
|
40,610 |
|
|
|
47,130 |
|
|
|
Accruing loans past due 90 days or more |
|
|
252,072 |
|
|
|
235,227 |
|
|
|
252,552 |
|
|
|
282,659 |
|
|
|
282,077 |
|
|
|
Renegotiated loans |
|
$ |
226,672 |
|
|
|
221,892 |
|
|
|
191,343 |
|
|
|
190,374 |
|
|
|
217,559 |
|
|
|
Acquired accruing loans past due 90 days or more(b) |
|
$ |
56,225 |
|
|
|
57,498 |
|
|
|
63,732 |
|
|
|
61,144 |
|
|
|
65,182 |
|
|
|
Purchased impaired loans(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding customer balance |
|
$ |
779,340 |
|
|
|
838,476 |
|
|
|
890,431 |
|
|
|
927,446 |
|
|
|
981,105 |
|
|
|
Carrying amount |
|
|
466,943 |
|
|
|
512,393 |
|
|
|
552,935 |
|
|
|
578,032 |
|
|
|
616,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans to total loans and leases, net of unearned discount |
|
|
.99 |
% |
|
|
.98 |
% |
|
|
1.04 |
% |
|
|
1.01 |
% |
|
|
.93 |
% |
|
|
Nonperforming assets to total net loans and leases and real estate and other foreclosed assets |
|
|
1.11 |
% |
|
|
1.10 |
% |
|
|
1.17 |
% |
|
|
1.16 |
% |
|
|
1.11 |
% |
|
|
Accruing loans past due 90 days or more (a) to total loans and leases, net of unearned discount |
|
|
.30 |
% |
|
|
.30 |
% |
|
|
.31 |
% |
|
|
.33 |
% |
|
|
.35 |
% |
|
(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.
- 70 -
Ma nagement 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 o verall 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 performin g 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 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 Com pany’s first and second lien loans secured by residential real estate, including loans obtained in the acquisition of Hudson City that were not classified as purchased impaired; and (v) the size of the Company’s portfolio of loans to individual consumers, which historically have experienced higher net charge-offs as 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 September 30, 2017 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 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% of the Company’s loans and leases are to customers in New York State and Pennsylvania).
The Company utilizes a loan grading system which 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. Criticized commercial loans and commercial real estate loans were $2.4 billion at each of September 30, 2017 and December 31, 2016, compared with $2.5 billion at September 30, 2016 and $2.3 billion at June 30, 2017. Approximately 97% of loan balances added to the criticized category during the recent quarter were less than 90 days past due and 86% had a current payment status. 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
- 71 -
should be reporte d 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-spec ific 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 C ompany’s potential courses of action are reviewed. 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 d eteriorates 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 charact eristics 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 lo ans 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 collate ral, is verified through field exams or other procedures. In assessing collateral, real estate and non-real estate values are reduced by an estimate of selling costs. With regard to residential real estate loans, the Company’s loss identification and estim ation 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 loa ns 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 p arties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are generally charged off to estimated net collateral value shortly after the Company is notified of such filings. At September 30, 2017 , approximately 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 69% (or approximately 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 September 30, 2017, the balance of junior lien loans and lines that were in nonaccrual status solely as a result of first lien loan performance was $10 million, compared with $14 million at September 30, 2016, $12 million at December 31, 2016 and $11 million at June 30, 2017. In monitoring the credit quality of its home equity portfolio for purposes of determining the allowance f or 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 deter mining 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 p eriod of ten years followed by an amortization period of up to twenty years. At September 30, 2017, approximately 83% of all outstanding balances of home equity lines of credit related to lines that were still in the draw period, the weighted-average remai ning draw periods were approximately five years, and approximately 20% 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.
- 72 -
In determining the allowance fo r credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified 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 4 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 compon ents 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 borr ower 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 Compa ny contemplates repayment of any first lien position prior to recovering amounts on a junior lien position. Approximately 43% of the Company’s home equity portfolio consists of junior lien loans and lines of credit. Except for consumer loans and residentia l 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 spec ific 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 fa ir 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 inter est 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 4 of Notes to Financial Statements.
Management believes that the allowance for credit losses at September 30, 2017 appropriately reflected credit losses inherent in the portfolio as of that date. The allowance for credit losses was $1.01 billion, or 1.15% of total loans and leases at September 30, 2017, compared with $976 million or 1.09% at September 30, 2016, $989 million or 1.09% at December 31, 2016 and $1.01 billion or 1.13% at June 30, 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 117% at each of September 30, 2017 and 2016, compared with 107% at December 31, 2016 and 116% at June 30, 2017. Given the Company’s general position as a secured lender and its practice of charging off loan balances when collection is deemed doubtful, that ratio and changes in that ratio are generally not an indicative measure of the adequacy of the Company’s allowance
- 73 -
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 manageme nt’s evaluation of the loan and lease portfolio as of each respective date.
Other Income
Other income totaled $459 million in the third quarter of 2017, compared with $491 million in the corresponding 2016 period and $461 million in the second quarter of 2017. The higher other income in last year’s third quarter resulted predominantly from $28 million of gains on bank investment securities. As compared with the second quarter of 2017, higher mortgage banking revenues in the recent quarter were largely offset by lower credit-related fees.
Mortgage banking revenues were $97 million in the recent quarter, compared with $104 million in the third quarter of 2016 and $86 million in the second quarter of 2017. Mortgage banking revenues are comprised of both residential and commercial mortgage banking activities. The Company’s involvement in commercial mortgage banking activities includes the origination, sales and servicing of loans under the multi-family loan programs of Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development.
Residential mortgage banking revenues, consisting of realized gains from sales of residential real estate loans and loan servicing rights, unrealized gains and losses on residential real estate loans held for sale and related commitments, residential real estate loan servicing fees, and other residential real estate loan-related fees and income, were $63 million in the third quarter of 2017, compared with $67 million in the year-earlier quarter and $61 million in 2017’s second quarter. The decline in residential mortgage banking revenues in the recent quarter as compared with the corresponding 2016 quarter was the result of lower gains from origination activities, reflecting a 9% decline in origination volumes. The improvement from 2017’s second quarter was due to higher servicing fees.
New commitments to originate residential real estate loans to be sold were approximately $757 million in the recently completed quarter, compared with $836 million in the third quarter of 2016 and $773 million in the second quarter of 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 $17 million in each of the second and third quarters of 2017, compared with gains of $21 million in the third quarter of 2016.
Loans held for sale that were secured by residential real estate were $347 million at September 30, 2017, $415 million at September 30, 2016 and $414 million at December 31, 2016. Commitments to sell residential real estate loans and commitments to originate residential real estate loans for sale at pre-determined rates aggregated $658 million and $483 million, respectively, at September 30, 2017, $845 million and $636 million, respectively, at September 30, 2016, and $777 million and $479 million, respectively, at December 31, 2016. Net recognized unrealized gains on residential real estate loans held for sale, commitments to sell loans, and commitments to originate loans for sale were $15 million at each of September 30, 2017 and December 31, 2016, and $22 million at September 30, 2016. Changes in such net unrealized gains are recorded in mortgage banking revenues and resulted in net decreases in revenues of $2 million in the recent quarter, compared with net increases of $3 million in the third quarter of 2016 and $4 million in the second quarter of 2017.
Revenues from servicing residential real estate loans for others were $46 million in each of the third quarters of 2017 and 2016, compared with $44 million during the quarter ended June 30, 2017. Residential real estate loans serviced for others aggregated $81.9 billion at September 30, 2017, $55.0 billion at September 30, 2016, $53.2 billion at December 31, 2016 and $72.6 billion at June 30, 2017. Reflected in residential real estate loans serviced for others were loans sub-serviced for others of $59.3 billion at September 30, 2017, $32.1 billion at September 30, 2016, $30.4 billion at December 31, 2016 and $49.9 billion at June 30, 2017. Revenues earned for sub-servicing loans aggregated $26 million for the three-month period ended September 30, 2017, compared with $25 million for
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each of the three-month period s ended June 30, 2017 and September 30, 201 6 . During 2017, the Company acquired additional sub-servicing of residential real estate loans as follows: i n March, approximately $12.4 billion of outstanding principal balances were added; in June, outstanding principal balances of approximately $11.2 billion were added; and during September , approximately $ 12.0 billion of 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”). Information about the Company’s relationship with BLG and its affiliates is included in note 15 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 totaled $116 million at September 30, 2017, compared with $117 million at each of September 30, 2016 and December 31, 2016.
Commercial mortgage banking revenues totaled $34 million in the third quarter of 2017, compared with $37 million in the corresponding 2016 period and $25 million in the second quarter of 2017. Included in such amounts were revenues from loan origination and sales activities of $21 million in the recently completed quarter, compared with $25 million and $11 million in the third quarter of 2016 and the second quarter of 2017, respectively. Commercial real estate loans originated for sale to other investors aggregated approximately $839 million in the third quarter of 2017, compared with $721 million in the year-earlier quarter and $510 million in the second quarter of 2017. Loan servicing revenues were $13 million in the recent quarter, compared with $11 million in the third quarter of 2016 and $14 million in the second 2017 quarter. Capitalized commercial mortgage servicing assets totaled $111 million and $92 million at September 30, 2017 and 2016, respectively, and $104 million at December 31, 2016. Commercial real estate loans serviced for other investors totaled $15.7 billion, $11.3 billion, and $11.8 billion at September 30, 2017, September 30, 2016 and December 31, 2016, respectively, and included $3.2 billion, $2.7 billion and $2.8 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 associated with approximately $2.7 billion of loans. The purchase price and assets acquired were not material to the Company’s consolidated financial position. Commitments to sell commercial real estate loans and commitments to originate commercial real estate loans for sale were $394 million and $171 million, respectively, at September 30, 2017, $694 million and $403 million, respectively, at September 30, 2016 and $713 million and $70 million, respectively, at December 31, 2016. Commercial real estate loans held for sale at September 30, 2017, September 30, 2016 and December 31, 2016 were $224 million, $290 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 $109 million in the third quarter of 2017, compared with $108 million in the similar 2016 quarter and $106 million in the second quarter of 2017. Brokerage services income, which includes revenues from the sale of mutual funds and annuities and securities brokerage fees, aggregated $15 million during the recently completed quarter, compared with $16 million in the third quarter of 2016 and $17 million in the second 2017 quarter. Trading account and foreign exchange activity resulted in gains of $7 million in the third quarter of 2017, compared with gains of $13 million and $8 million in the third quarter of 2016 and the second quarter of 2017, respectively. The decline in such gains in the two most recent quarters as compared with the third quarter of 2016 reflects reduced activity related to interest rate swap transactions executed on behalf of commercial customers. 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 10 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
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management services are offered, including asset management, fiduciary services and family office services. Trust income totaled $ 125 million in the third quarter of 2017, compared with $119 million in the third quarter of 2016 and $127 million in second quarter of 2017. Revenues associated with the ICS business were approximately $ 64 million, $58 million and $63 million during the quarters ended September 30, 2017, September 30, 2016 and June 30, 2017, respectively. The higher revenues in the two most recent quarters as compared with the third quarter of 2016 reflect increased fees earned from money-market funds and stronger sales activities. Revenues attributable to WAS were approximately $ 5 6 million, $52 million and $60 million for the three- month periods ended September 30, 2017, September 30, 2016 and June 30, 2017, respectively. The increase in the recent quarter as compared with the similar 2016 period largely reflects the impact of improved equity market performance and stronger sales ac tivities. The second quarter of 2017 included $4 million of annual tax preparation fees. Total trust assets, which include assets under management and assets under administration, totaled $ 230.5 billion at September 30, 2017, compared with $208.4 billion at September 30, 2016 and $210.6 billion at December 31, 2016. Trust assets under management were $ 76.9 billion, $70.8 billion and $70.7 billion at September 30, 2017, September 30, 2016 and December 31, 2016, respectively. Trust assets under management include the Company’s proprietary mutual funds’ assets of $ 10.7 billion, $11.5 billion and $10.9 billion at September 30, 2017, September 30, 2016 and December 31, 2016, respectively. Additional trust income from investment management activities aggregat ed $ 5 million in the recent quarter, $8 million in the third quarter of 2016 and $4 million in the second quarter of 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 totaled $ 6.6 billion at September 30, 2017, $7.0 billion at September 30, 2016 and $7.3 billion at December 31, 2016. The Company’s trust income from that affiliate was not material during any of the quarters then-ended .
The Company realized gains from sales of investment securities of $28 million during the third quarter of 2016, when the Company sold substantially all of its collateralized debt obligations that had been held in the available-for-sale investment securities portfolio and that had been obtained through the acquisition of other banks. In total, securities with an amortized cost of $28 million were sold. Divestiture of the majority of those securities would have been required prior to July 21, 2017 in accordance with the provisions of the Volcker Rule. There were no significant gains or losses on investment securities in the second or third quarters of 2017.
Other revenues from operations were $107 million in the third quarter of 2017, compared with $104 million in the year-earlier quarter and $117 million in the second quarter of 2017. The higher other revenues from operations in the second quarter of 2017 reflects a greater amount of letter of credit and other credit-related fees in that quarter. Included in other revenues from operations were the following significant components. Letter of credit and other credit-related fees aggregated $25 million in the recent quarter, compared with $31 million and $35 million in the third quarter of 2016 and the second 2017 quarter, respectively. The lower revenues in the recent quarter as compared with those prior periods predominantly resulted from declines in fees for providing loan syndication services. Tax-exempt income from bank owned life insurance, which includes increases in the cash surrender value of life insurance policies and benefits received, aggregated $16 million in the most recent quarter, compared with $12 million and $14 million in the third quarter of 2016 and second quarter of 2017, respectively. Revenues from merchant discount and credit card fees were $31 million in the quarter ended September 30, 2017, compared with $28 million and $29 million during the quarters ended September 30, 2016 and June 30, 2017, respectively. Insurance-related sales commissions and other revenues were $10 million in the third quarter of 2017, compared with $11 million in each of the year-earlier quarter and the second quarter of 2017. M&T’s share of the operating losses of BLG recognized using the equity method of accounting and cash distributions received resulted in losses of $2 million in the third quarter of 2016 and income of $1 million in the second quarter of 2017. There was no income or loss attributable to M&T’s investment in BLG in the recent quarter. During the second quarter of 2017, the operating losses of BLG resulted in M&T reducing the carrying value of its investment in BLG to zero. During that quarter, M&T received a cash distribution from BLG that resulted in the recognition of income by M&T. M&T expects cash distributions from BLG in the future, but the timing and amount of those distributions cannot be estimated at this time. BLG is entitled to receive distributions from affiliates that provide asset management and
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other services that are available for distribution to BLG’s owners, including M&T. Information about the Company’s relationship with BLG and its affiliates is included in note 15 of Notes to Financial Statements.
Other income aggregated $1.37 billion during the first nine months of 2017, $7 million higher than $1.36 billion in the first nine months of 2016. That increase was largely attributable to higher trust income, merchant discount and credit card fees, and credit-related fees, and lower losses related to M&T’s share of the operating losses of BLG. Partially offsetting those improvements were lower mortgage banking revenues and trading account and foreign exchange gains in the 2017 period and gains on investment securities recognized during the 2016 period.
Mortgage banking revenues totaled $268 million and $275 million during the nine-month periods ended September 30, 2017 and 2016, respectively. Residential mortgage banking revenues aggregated $183 million in the first nine months of 2017, compared with $192 million during the nine-month period ended September 30, 2016. New commitments to originate residential real estate loans to be sold aggregated $2.3 billion and $2.4 billion during the first nine months of 2017 and 2016, respectively. Realized gains from sales of residential real estate loans and loan servicing rights and recognized unrealized gains and losses on residential real estate loans held for sale, commitments to originate loans for sale and commitments to sell loans aggregated to gains of $47 million and $54 million in the nine-month periods ended September 30, 2017 and 2016, respectively. Revenues from servicing residential mortgage loans for others through September 30 were $136 million in 2017 and $137 million in 2016. Included in servicing revenues were sub-servicing revenues aggregating $74 million and $73 million in the first nine months of 2017 and 2016, respectively. Commercial mortgage banking revenues were $85 million and $83 million in the nine months ended September 30, 2017 and 2016, respectively. Commercial real estate loans originated for sale to other investors totaled $1.7 billion and $1.6 billion in the nine-month periods ended September 30, 2017 and 2016, respectively.
Service charges on deposit accounts aggregated $320 million during the first nine months of 2017, compared with $314 million in the year-earlier period. Trust income totaled $372 million and $350 million during the first nine months of 2017 and 2016, respectively. The increase in trust income in 2017 as compared with 2016 was largely due to higher revenues from the ICS business, reflecting increased fees earned from money-market funds and stronger sales activities, and from the WAS business, resulting from improved equity market performance and stronger sales activities. Brokerage services income was $49 million and $48 million in the nine-month periods ended September 30, 2017 and 2016, respectively. Trading account and foreign exchange activity resulted in gains of $25 million and $33 million for the first nine months of 2017 and 2016, respectively. The decline resulted predominantly from reduced activity associated with interest rate swap agreements executed on behalf of commercial customers. Gains on investment securities were not significant in 2017 and were $29 million in the nine-month period ended September 30, 2016.
Other revenues from operations totaled $335 million in the first nine months of 2017, compared with $311 million in the similar 2016 period. Other revenues from operations include the following significant components. Letter of credit and other credit-related fees aggregated $94 million and $89 million in 2017 and 2016, respectively. The higher revenues in the 2017 period were largely attributable to fees for providing loan syndication services. Income from bank owned life insurance totaled $44 million in 2017 and $41 million in 2016. Merchant discount and credit card fees were $88 million and $81 million in the first nine months of 2017 and 2016, respectively. The higher revenues in the 2017 period were largely attributable to increased transaction volumes related to merchant activity and usage of the Company’s credit card products. Insurance-related commissions and other revenues aggregated $33 million and $32 million in 2017 and 2016, respectively. M&T’s investment in BLG resulted in losses of $1 million in 2017 and $8 million in 2016.
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Other expense aggregated $806 million in the third quarter of 2017, compared with $752 million in the year-earlier quarter and $751 million in the 2017’s second quarter. Included in those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $8 million in the two most recent quarters and $10 million in the third quarter of 2016. Exclusive of those nonoperating expenses, noninterest operating expenses were $798 million in the third quarter of 2017, compared with $743 million in each of the third quarter of 2016 and the second quarter of 2017. The most significant factors for the increased level of operating expenses in the recent quarter as compared with the earlier quarters were increased legal-related and professional services costs. As of September 30, 2017, the Company increased its reserve for legal matters by $50 million. Table 2 provides a reconciliation of other expense to noninterest operating expense.
Other expense for the first nine months of 2017 aggregated $2.34 billion, $66 million higher than $2.28 billion in the first nine months of 2016. Included in those amounts are expenses considered to be “nonoperating” in nature consisting of amortization of core deposit and other intangible assets of $24 million and $34 million in the nine-month periods ended September 30, 2017 and 2016, respectively, and merger-related expenses of $36 million in the first nine months of 2016. Exclusive of those nonoperating expenses, noninterest operating expenses for the nine months of 2017 increased 5% to $2.32 billion from $2.21 billion from the corresponding 2016 period. That $111 million increase was largely due to higher legal-related and professional service costs and increased expenses for salaries, including incentive compensation.
Salaries and employee benefits expense totaled $399 million in each of the recent quarter and the second quarter of 2017, compared with $400 million in the third quarter 2016. During the first nine months of 2017 and 2016, salaries and employee benefits expense totaled $1.25 billion and $1.23 billion, respectively. The higher level of expenses in the first nine months of 2017 as compared with the similar 2016 period was largely attributable to the impact of annual merit increases and higher incentive compensation costs. Salaries and employee benefits expense included stock-based compensation of $10 million in each of the three-month periods ended September 30, 2017, September 30, 2016 and June 30, 2017, and $52 million and $55 million during the nine-month periods ended September 30, 2017 and 2016, respectively. The number of full-time equivalent employees was 16,478 at September 30, 2017, 16,709 at September 30, 2016, 16,593 at December 31, 2016 and 16,526 at June 30, 2017, respectively.
Excluding the nonoperating expense items described earlier from each quarter, nonpersonnel operating expenses were $399 million and $343 million in the quarters ended September 30, 2017 and September 30, 2016, respectively, and $344 million in the second quarter of 2017. On that same basis, such expenses were $1.07 billion and $984 million in the nine-month periods ended September 30, 2017 and 2016, respectively. The increases in nonpersonnel operating expenses reflected in the third 2017 quarter as compared with the year-earlier quarter and the second quarter of 2017, and in the first nine months of 2017 as compared with the first nine months of 2016, were predominantly the result of higher legal-related and professional services costs, including the $50 million increase in the Company’s reserve for legal matters as of September 30, 2017.
The efficiency ratio measures the relationship of noninterest operating expenses to revenues. The Company’s efficiency ratio was 56.0% during the recent quarter, compared with 55.9% during the third quarter of 2016 and 52.7% in the second quarter of 2017. The efficiency ratios for the nine-month periods ended September 30, 2017 and 2016 were 55.2% and 56.0%, respectively. The calculation of the efficiency ratio is presented in Table 2.
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The provision for income taxes for the third quarter of 2017 was $225 million, compared with $200 million and $215 million in the year-earlier quarter and the second quarter of 2017, respectively. For the nine-month periods ended September 30, 2017 and 2016, the provision for income taxes was $609 million and $564 million, respectively. As noted earlier, M&T adopted new accounting guidance for share-based transactions during the first quarter of 2017. That guidance requires that all excess tax benefits and tax deficiencies associated with share-based compensation be recognized as a component of income tax expense in the income statement. Previously, tax effects resulting from changes to 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 initial 2017 quarter. The impact of the amended guidance on the second and third quarters of 2017 was not significant. As discussed earlier, the October 2017 settlement between Wilmington Trust Corporation and the U.S. Attorney’s Office for the District of Delaware resulted in a $44 million payment by Wilmington Trust Corporation that is not deductible for income tax purposes, resulting in a higher effective tax rate in the recent quarter. The effective tax rates were 38.7%, 36.4% and 36.1% for the quarters ended September 30, 2017, September 30, 2016 and June 30, 2017, respectively, and 35.9% and 36.4% for the nine-month periods ended September 30, 2017 and 2016, respectively. Excluding the impact on income tax expense of the Wilmington Trust Corporation matter, the effective tax rate would have been 35.8% in the third quarter of 2017. 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 $16.3 billion at each of September 30, 2017 and 2016, representing 13.55% and 12.88% of total assets, respectively, compared with $16.5 billion or 13.35% at December 31, 2016.
Included in shareholders’ equity was preferred stock with financial statement carrying values of $1.2 billion at each of September 30, 2017, September 30, 2016 and December 31, 2016. Further information concerning M&T’s preferred stock can be found in note 6 of Notes to Financial Statements.
Reflecting the impact of repurchases of M&T’s common stock, common shareholders’ equity was $15.1 billion at each of September 30, 2017 and 2016, or $99.70 per share and $97.47 per share, respectively, compared with $15.3 billion, or $97.64 at December 31, 2016. Tangible equity per common share, which excludes goodwill and core deposit and other intangible assets and applicable deferred tax balances, was $69.02 at the end of the recent quarter, compared with $67.42 a year earlier and $67.85 at December 31, 2016. The Company’s ratio of tangible common equity to tangible assets was 9.02% at September 30, 2017, compared with 8.55% a year earlier and 8.92% at December 31, 2016. 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 losses associated with interest rate swap agreements designated as cash flow hedges, foreign currency translation adjustments and adjustments to reflect the funded status of defined benefit pension and other postretirement plans. Net unrealized gains on investment securities reflected in shareholders’ equity, net of applicable tax effect, were $18 million, or $.12 per common share, at September 30, 2017 and $175 million, or $1.13 per common share, at September 30, 2016, compared with net unrealized losses of $16 million, or $.10 per common share, at December
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31, 2016. Changes in unrealized gains and losses on investment securities are predominantly reflective of the impact of changes in interest rates on the values of su ch securities.
Reflected in the carrying amount of available for sale investment securities at September 30, 2017 were pre-tax effect unrealized losses of $86 million on securities with an amortized cost of $6.3 billion and pre-tax effect unrealized gains of $133 million on securities with an amortized cost of $5.1 billion. Information about unrealized gains and losses as of September 30, 2017 and December 31, 2016 is included in note 3 of Notes to Financial Statements. Information concerning the Company’s fair valuations of investment securities is provided in note 12 of Notes to Financial Statements.
As of September 30, 2017, 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 September 30, 2017, 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 12 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 September 30, 2017 and December 31, 2016, the Company had in its held-to-maturity portfolio privately issued mortgage-backed securities with an amortized cost basis of $141 million and $158 million, respectively, and a fair value of $112 million and $121 million, respectively. At September 30, 2017, 85% of the mortgage-backed securities were in the most senior tranche of the securitization structure with 22% being independently rated as investment grade. The mortgage-backed securities are generally collateralized by residential and small-balance commercial real estate loans originated between 2004 and 2008 and had a weighted-average credit enhancement of 17% at September 30, 2017, 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 33% and 64% respectively. Given the terms of the securitization structure, 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 September 30, 2017, 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 $260 million, or $1.72 per common share, at September 30, 2017, $285 million, or $1.84 per common share, at September 30, 2016 and $273 million, or $1.75 per common share, at December 31, 2016.
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Consistent with its revised 2016 Capital Plan filed with the Federal Reserve, M& T repurchased 3,233,196 common shares for $532 million during the first quarter of 2017 and 1,409,807 common shares for $225 million in the second quarter of 2017. On June 28, 2017, M&T announced that the Federal Reserve did not object to M&T’s 2017 Capit al Plan. That plan includes the repurchase of up to $900 million of common shares during the four-quarter period beginning on July 1, 2017 and an increase in the quarterly common stock cash dividend in the second quarter of 2018 of up to $.05 per share to $.80 per share. M&T may also continue to pay dividends and interest on other equity and debt instruments included in regulatory capital, including preferred stock, trust preferred securities and subordinated debt that were outstanding at December 31, 2016 , consistent with the contractual terms of those instruments. Dividends are subject to declaration by M&T’s Board of Directors. Furthermore, on July 18, 2017, M&T’s Board of Directors authorized a new stock repurchase program to repurchase up to $900 mil lion of shares of its common stock subject to all applicable regulatory reporting limitations, including those set forth in M&T’s 2017 Capital Plan. During the recent quarter, M&T repurchased 1,382,746 common shares for $225 million in accordance with tha t program. In total, M&T repurchased 6,025,749 common shares during the first nine months of 2017 for an aggregate amount of $982 million. M&T repurchased 5,307,595 shares of common stock during the first nine months of 2016 at a total cost of $604 millio n.
Cash dividends declared on M&T’s common stock aggregated $114 million in the recent quarter, compared with $109 million and $115 million in the quarters ended September 30, 2016 and June 30, 2017, respectively. Cash dividends on common stock during the nine-month periods ended September 30, 2017 and 2016 were $344 million and $332 million, respectively.
Cash dividends declared on preferred stock totaled $18 million during each of the two most recent quarters, as compared with $20 million in the third quarter of 2016. The decline in preferred stock dividends in the two most recent quarters as compared with the third quarter of 2016 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.
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:
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• |
4.5% Common Equity Tier 1 (“CET1”) to risk-weighted assets (each as defined in the capital regulations); |
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• |
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets (each as defined in the capital regulations); |
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• |
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 |
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• |
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, the phase-in transition portion of that buffer is 1.25%.
The regulatory capital ratios of the Company and its bank subsidiaries, M&T Bank and Wilmington Trust, N.A., as of September 30, 2017 are presented in the accompanying table.
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September 30, 2017
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M&T |
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M&T |
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Wilmington |
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(Consolidated) |
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Bank |
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Trust, N.A. |
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|
|
|
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|
|
|
|
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Common equity Tier 1 |
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10.98% |
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10.69% |
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67.58% |
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Tier 1 capital |
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12.25% |
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10.69% |
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67.58% |
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Total capital |
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14.87% |
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12.99% |
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68.14% |
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Tier 1 leverage |
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10.35% |
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9.05% |
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14.55% |
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 Deposit Insurance Fund of the FDIC and the banking and financial system as a whole, and generally is not intended for the protection of shareholders, investors or creditors other than insured depositors. Changes in laws, regulations and regulatory policies applicable to the Company’s operations can increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive environment in which the Company operates, all of which could have a material effect on the business, financial condition or results of operations of the Company and in M&T’s ability to pay dividends. For additional information concerning this comprehensive regulatory framework, refer to Part I, Item 1 of M&T’s Form 10-K for the year ended December 31, 2016.
Segment Information
As required by GAAP, the Company's reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Financial information about the Company's segments is presented in note 14 of Notes to Financial Statements. As disclosed in M&T’s Form 10-K for the year ended December 31, 2016, in the fourth quarter of 2016 the Company revised its funds transfer pricing allocation related to borrowings. Additionally, during the second quarter of 2017, the Company revised its funds transfer pricing allocation related to certain deposit categories. As a result of the changes and as described in note 14 of Notes to Financial Statements, prior period financial information has been reclassified to provide segment information on a comparable basis.
The Business Banking segment contributed net income of $31 million during the quarter ended September 30, 2017, compared with $24 million in the third quarter of 2016 and $29 million in the second quarter of 2017. As compared with the third quarter of 2016, the recent quarter’s higher net income primarily reflected an $8 million increase in net interest income that resulted from a widening of the net interest margin on deposits of 16 basis points and an increase in average outstanding deposit balances of $629 million. The improvement in net income in 2017’s third quarter as compared with the immediately preceding quarter reflected a $4 million increase in net interest income. That improvement was attributable to higher average outstanding deposit balances of $254 million, a widening of the net interest margin on deposits of 3 basis points and the impact of one additional day in the current quarter. Net income earned by the Business Banking segment totaled $85 million during the first nine months of 2017, compared with $77 million in the year-earlier period. That 10% increase in net income was attributable to a $16 million rise in net interest income and higher merchant discount and credit card fees of $2 million offset, in part, by a $5 million increase in the provision for credit losses, predominantly due to higher net charge-offs. The improvement in net interest income reflected a widening of the net interest margin on deposits of 15 basis points and an increase in average outstanding deposit balances of $399 million.
Net income of the Commercial Banking segment was $110 million in the recent quarter, compared with $103 million in 2016’s third quarter and $106 million in the second quarter of 2017. The recent quarter’s 7% rise in net income as compared with the third quarter of 2016 was largely due to a $12 million decrease in the provision for credit losses and a $6 million increase in net interest income. Those favorable factors were partially offset by an $8
- 82 -
million decline in letter of credit and credit-related fees, primarily due to lower loan syndication fees. The higher net interest income resulted predominately from a widening of the net interest margin on deposits of 40 basis points and higher average outstanding balances of loans of $7 80 million, partially offset by a narrowing of the net interest margin on loans of 1 5 basis points and lower average deposit balances of $795 million . The increase in net income in the recent quarter as compared with the second quarter of 2017 was largely due to a $1 3 million decrease in t he provision for credit losses and higher net interest income of $3 million, reflecting the impact of one additional day in the current quarter, partially offset by a $9 million decrease in credit-rela ted fees , primarily due to lower loan syndication fees. Year-to-date net income for the Commercial Banking segment totaled $328 million in 2017, compared with $309 million in 2016. That improvement w as largely due to h igher net interest income of $19 million, a $7 million decline in the provision for credit losses and a $4 million increase on gains on sales of previously leased equipment . The improvement in net interest income reflected a widening of the net interest margin on deposits of 31 basis points and higher average loan balances of $1.3 billion, partially offset by a narrowing of the net interest margin on loans of 1 7 basis points.
The Commercial Real Estate segment recorded net income of $97 million in the third quarter of 2017, compared with $90 million in the year-earlier period and $87 million in the second quarter of 2017. The recent quarter’s improvement in net income as compared with the third quarter of 2016 reflects a $10 million rise in net interest income and a $3 million decrease in the provision for credit losses, partially offset by lower trading account and foreign exchange gains of $5 million, due predominately to reduced activity related to interest rate swap transactions executed on behalf of customers. The higher net interest income resulted from an increase in average outstanding loan balances of $1.1 billion and a widening of the net interest margin on deposits of 46 basis points, partially offset by a narrowing of the net interest margin on loans of 5 basis points. The recent quarter’s 11% increase in net income as compared with the immediately preceding quarter reflected higher mortgage banking revenues as previously noted, resulting from increased loan origination activities, and a $5 million increase in net interest income. The higher net interest income resulted largely from a widening of net interest margin on loans of 4 basis points and the impact of one additional day in the current quarter. Net income for the Commercial Real Estate segment totaled $269 million in the first nine months of 2017, compared with $255 million in the similar 2016 period. That improvement resulted from a rise in net interest income of $33 million and higher letter of credit and other credit-related fees of $4 million, partially offset by lower trading account and foreign exchange gains of $11 million and a $5 million increase in personnel-related expenses. The higher net interest income resulted from increased average outstanding loan balances of $2.2 billion and a widening of the net interest margin on deposits of 37 basis points offset, in part, by a narrowing of the net interest margin on loans of 13 basis points. The lower trading account and foreign exchange gains during the nine-month period ended September 30, 2017 resulted from decreased activity related to interest rate swap transactions executed on behalf of customers.
Net income earned by the Discretionary Portfolio segment totaled $32 million during the three-month period ended September 30, 2017, compared with $46 million in the year-earlier period and $30 million in the second quarter of 2017. Reflected in the results for the third quarter of 2016 were net after-tax investment securities gains of $17 million ($28 million pre-tax), while there were no significant gains or losses on investment securities in 2017. Largely in response to the provisions of the Dodd-Frank Act commonly referred to as the “Volcker Rule,” the Company sold substantially all of its collateralized debt obligations in 2016’s third quarter. In addition to those gains on investment securities, contributing to the recent quarter decline in net income as compared with the third quarter of 2016 was a $17 million decline in net interest income, due largely to lower average outstanding loan balances of $3.4 billion and a narrowing of the net interest margin on loans of 9 basis points. Partially offsetting those unfavorable factors were a $6 million decline in the provision for credit losses and lower loan and other real estate servicing costs. As compared with the second quarter of 2017, a $6 million decrease in the provision for credit losses and lower operating expenses in the recent quarter were largely offset by a $7 million decline in net interest income. The lower net interest income reflected decreased average outstanding loan balances of $758 million and a narrowing of the net interest margin on investment securities of 6 basis points. The Discretionary Portfolio segment recorded net income of $95 million and $135 million in the first nine months of 2017 and 2016, respectively. That year-over-year decline was predominantly the result of a $57 million decrease in net interest income and the noted
- 83 -
investment securities ga ins recorded in 2016 , partially offset by lower loan and other real estate -related servicing costs. The decrease in net interest income reflected lower average outstanding loan balances of $3.6 billion and a 12 basis point narrowing of the net interest mar gin on loans, each largel y due to pay downs of loans obtained in the acquisition of Hudson City, partially offset by a widening of the net interest margin on investment securities of 9 basis points.
Net income recorded by the Residential Mortgage Banking segment aggregated $14 million in each of the two most recent quarters, compared with $16 million in the third quarter of 2016. The decline in net income for the third quarter of 2017 as compared with the year-earlier period was predominantly attributable to lower revenues of $7 million associated with mortgage origination and sales activities (including intersegment revenues) and servicing income. As compared with the second quarter of 2017, increased personnel expenses and a decrease in net interest income were largely offset by higher origination and servicing income. Year-to-date net income for this segment totaled $37 million in 2017 and $43 million in 2016. Contributing to that decline were decreased revenues from mortgage origination and sales activities (including intersegment revenues) and from servicing residential real estate loans.
Net income for the Retail Banking segment totaled $96 million in the quarter ended September 30, 2017, compared with $75 million in the year-earlier period and $100 million in the second quarter of 2017. As compared with the third quarter of 2016, a $30 million rise in net interest income in the recent quarter and decreases in advertising, marketing and personnel-related costs contributed to the improvement. The higher net interest income was due to a 39 basis point widening of the net interest margin on deposits offset, in part, by lower average outstanding deposit balances of $3.9 billion. The modest decline in net income in the recent quarter as compared with the second quarter of 2017 reflected a $7 million rise in the provision for credit losses and an increase in equipment and net occupancy costs of $5 million. Partially offsetting those unfavorable factors was a $7 million increase in net interest income, resulting largely from a widening of the net interest margin on deposits of 6 basis points, the impact of one additional day in the current quarter and an increase in the average outstanding loan balances of $420 million, partially offset by lower average outstanding deposit balances of $1.4 billion. The Retail Banking segment recorded net income of $283 million and $219 million in the first nine months of 2017 and 2016, respectively. That improvement was predominantly due to a $79 million rise in net interest income, primarily reflecting a widening of the net interest margin on deposits of 34 basis points that was offset, in part, by lower average outstanding deposit balances of $3.1 billion, and a $14 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.
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 results of BLG, merger-related expenses resulting from acquisitions, and the net impact of the Company’s allocation methodologies for internal transfers for funding charges and credits associated with the earning assets and interest-bearing liabilities of the Company’s reportable segments and the provision for credit losses. The “All Other” category also includes trust income of the Company that reflects the ICS and WAS business activities. The various components of the “All Other” category resulted in net losses of $24 million for the third quarter of 2017 and $3 million in the corresponding 2016 quarter, compared with net income of $16 million in the second quarter of 2017. The higher net loss in the recent quarter as compared with the year-earlier quarter resulted largely from increased legal-related and professional services costs of $66 million (including additions to the reserve for legal matters of $50 million in 2017’s third quarter) and a $6 million increase in personnel-related expenses. Those unfavorable factors were partially offset by the favorable impact from the Company’s allocation methodologies in the recent quarter and higher trust income of $6 million. As compared with the net income earned in the second quarter of 2017, the recent quarter’s net loss predominately reflected the $50 million addition to the reserve for legal matters, partially offset by the favorable impact from the Company’s allocation methodology. The “All Other” category had net losses of $12 million and $54 million for the nine-month periods ended September 30, 2017 and 2016, respectively. The lower net
- 84 -
lo ss in the 2017 period was predominantly due to : merger-related expenses of $36 million in 2016 (there were no such expenses in 2017); higher trust income of $22 million ; tax benefit s of $19 million re cognized in 2017 associated with the adoption of new acc ounting guidance requiring that excess tax benefits associated with share-based compensation be recognized in income tax expense in the income statement ; and the favorable impact from the Company’s allocation methodology. Those favorable factors were part ially offset by higher legal-related and professional services costs and personnel-related expenses during 2017 .
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 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.
- 85 -
M&T BANK CORPORATION AND SUBSIDIARIES
Table 1
QUARTERLY TRENDS
|
|
|
2017 Quarters |
|
|
2016 Quarters |
|
|
||||||||||||||||||||||
|
|
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
Second |
|
|
First |
|
|
|||||||
|
Earnings and dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in thousands, except per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (taxable-equivalent basis) |
|
$ |
1,066,038 |
|
|
|
1,039,149 |
|
|
|
1,014,032 |
|
|
|
990,284 |
|
|
|
976,240 |
|
|
|
977,143 |
|
|
|
979,166 |
|
|
|
Interest expense |
|
|
100,076 |
|
|
|
92,213 |
|
|
|
91,773 |
|
|
|
107,137 |
|
|
|
111,175 |
|
|
|
106,802 |
|
|
|
100,870 |
|
|
|
Net interest income |
|
|
965,962 |
|
|
|
946,936 |
|
|
|
922,259 |
|
|
|
883,147 |
|
|
|
865,065 |
|
|
|
870,341 |
|
|
|
878,296 |
|
|
|
Less: provision for credit losses |
|
|
30,000 |
|
|
|
52,000 |
|
|
|
55,000 |
|
|
|
62,000 |
|
|
|
47,000 |
|
|
|
32,000 |
|
|
|
49,000 |
|
|
|
Other income |
|
|
459,429 |
|
|
|
460,816 |
|
|
|
446,845 |
|
|
|
465,459 |
|
|
|
491,350 |
|
|
|
448,254 |
|
|
|
420,933 |
|
|
|
Less: other expense |
|
|
806,025 |
|
|
|
750,635 |
|
|
|
787,852 |
|
|
|
769,103 |
|
|
|
752,392 |
|
|
|
749,895 |
|
|
|
776,095 |
|
|
|
Income before income taxes |
|
|
589,366 |
|
|
|
605,117 |
|
|
|
526,252 |
|
|
|
517,503 |
|
|
|
557,023 |
|
|
|
536,700 |
|
|
|
474,134 |
|
|
|
Applicable income taxes |
|
|
224,615 |
|
|
|
215,328 |
|
|
|
169,326 |
|
|
|
179,549 |
|
|
|
200,314 |
|
|
|
194,147 |
|
|
|
169,274 |
|
|
|
Taxable-equivalent adjustment |
|
|
8,828 |
|
|
|
8,736 |
|
|
|
7,999 |
|
|
|
7,383 |
|
|
|
6,725 |
|
|
|
6,522 |
|
|
|
6,332 |
|
|
|
Net income |
|
$ |
355,923 |
|
|
|
381,053 |
|
|
|
348,927 |
|
|
|
330,571 |
|
|
|
349,984 |
|
|
|
336,031 |
|
|
|
298,528 |
|
|
|
Net income available to common shareholders-diluted |
|
$ |
335,804 |
|
|
|
360,662 |
|
|
|
328,567 |
|
|
|
307,797 |
|
|
|
326,998 |
|
|
|
312,974 |
|
|
|
275,748 |
|
|
|
Per common share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings |
|
$ |
2.22 |
|
|
|
2.36 |
|
|
|
2.13 |
|
|
|
1.98 |
|
|
|
2.10 |
|
|
|
1.98 |
|
|
|
1.74 |
|
|
|
Diluted earnings |
|
|
2.21 |
|
|
|
2.35 |
|
|
|
2.12 |
|
|
|
1.98 |
|
|
|
2.10 |
|
|
|
1.98 |
|
|
|
1.73 |
|
|
|
Cash dividends |
|
$ |
.75 |
|
|
|
.75 |
|
|
|
.75 |
|
|
|
.70 |
|
|
|
.70 |
|
|
|
.70 |
|
|
|
.70 |
|
|
|
Average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
151,347 |
|
|
|
152,857 |
|
|
|
154,427 |
|
|
|
155,123 |
|
|
|
155,493 |
|
|
|
157,802 |
|
|
|
158,734 |
|
|
|
Diluted |
|
|
151,691 |
|
|
|
153,276 |
|
|
|
154,949 |
|
|
|
155,700 |
|
|
|
156,026 |
|
|
|
158,341 |
|
|
|
159,181 |
|
|
|
Performance ratios, annualized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
1.18 |
|
% |
|
1.27 |
|
% |
|
1.15 |
|
% |
|
1.05 |
|
% |
|
1.12 |
|
% |
|
1.09 |
|
% |
|
.97 |
|
% |
|
|
Average common shareholders’ equity |
|
|
8.89 |
|
% |
|
9.67 |
|
% |
|
8.89 |
|
% |
|
8.13 |
|
% |
|
8.68 |
|
% |
|
8.38 |
|
% |
|
7.44 |
|
% |
|
Net interest margin on average earning assets (taxable-equivalent basis) |
|
|
3.53 |
|
% |
|
3.45 |
|
% |
|
3.34 |
|
% |
|
3.08 |
|
% |
|
3.05 |
|
% |
|
3.13 |
|
% |
|
3.18 |
|
% |
|
Nonaccrual loans to total loans and leases, net of unearned discount |
|
|
.99 |
|
% |
|
.98 |
|
% |
|
1.04 |
|
% |
|
1.01 |
|
% |
|
.93 |
|
% |
|
.96 |
|
% |
|
1.00 |
|
% |
|
Net operating (tangible) results (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (in thousands) |
|
$ |
360,658 |
|
|
|
385,974 |
|
|
|
354,035 |
|
|
|
336,095 |
|
|
|
355,929 |
|
|
|
350,604 |
|
|
|
320,064 |
|
|
|
Diluted net operating income per common share |
|
|
2.24 |
|
|
|
2.38 |
|
|
|
2.15 |
|
|
|
2.01 |
|
|
|
2.13 |
|
|
|
2.07 |
|
|
|
1.87 |
|
|
|
Annualized return on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average tangible assets |
|
|
1.25 |
|
% |
|
1.33 |
|
% |
|
1.21 |
|
% |
|
1.10 |
|
% |
|
1.18 |
|
% |
|
1.18 |
|
% |
|
1.09 |
|
% |
|
Average tangible common shareholders’ equity |
|
|
13.03 |
|
% |
|
14.18 |
|
% |
|
13.05 |
|
% |
|
11.93 |
|
% |
|
12.77 |
|
% |
|
12.68 |
|
% |
|
11.62 |
|
% |
|
Efficiency ratio (b) |
|
|
56.00 |
|
% |
|
52.74 |
|
% |
|
56.93 |
|
% |
|
56.42 |
|
% |
|
55.92 |
|
% |
|
55.06 |
|
% |
|
57.00 |
|
% |
|
Balance sheet data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, except per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (c) |
|
$ |
119,515 |
|
|
|
120,765 |
|
|
|
122,978 |
|
|
|
125,734 |
|
|
|
124,725 |
|
|
|
123,706 |
|
|
|
123,252 |
|
|
|
Total tangible assets (c) |
|
|
114,872 |
|
|
|
116,117 |
|
|
|
118,326 |
|
|
|
121,079 |
|
|
|
120,064 |
|
|
|
119,039 |
|
|
|
118,577 |
|
|
|
Earning assets |
|
|
108,642 |
|
|
|
109,987 |
|
|
|
112,008 |
|
|
|
114,254 |
|
|
|
112,864 |
|
|
|
111,872 |
|
|
|
111,211 |
|
|
|
Investment securities |
|
|
15,443 |
|
|
|
15,913 |
|
|
|
15,999 |
|
|
|
15,417 |
|
|
|
14,361 |
|
|
|
14,914 |
|
|
|
15,348 |
|
|
|
Loans and leases, net of unearned discount |
|
|
88,386 |
|
|
|
89,268 |
|
|
|
89,797 |
|
|
|
89,977 |
|
|
|
88,732 |
|
|
|
88,155 |
|
|
|
87,584 |
|
|
|
Deposits |
|
|
93,134 |
|
|
|
94,201 |
|
|
|
96,300 |
|
|
|
96,914 |
|
|
|
95,852 |
|
|
|
94,033 |
|
|
|
92,391 |
|
|
|
Common shareholders’ equity (c) |
|
|
15,069 |
|
|
|
15,053 |
|
|
|
15,091 |
|
|
|
15,181 |
|
|
|
15,115 |
|
|
|
15,145 |
|
|
|
15,047 |
|
|
|
Tangible common shareholders’ equity (c) |
|
|
10,426 |
|
|
|
10,405 |
|
|
|
10,439 |
|
|
|
10,526 |
|
|
|
10,454 |
|
|
|
10,478 |
|
|
|
10,372 |
|
|
|
At end of quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (c) |
|
$ |
120,402 |
|
|
|
120,897 |
|
|
|
123,223 |
|
|
|
123,449 |
|
|
|
126,841 |
|
|
|
123,821 |
|
|
|
124,626 |
|
|
|
Total tangible assets (c) |
|
|
115,761 |
|
|
|
116,251 |
|
|
|
118,573 |
|
|
|
118,797 |
|
|
|
122,183 |
|
|
|
119,157 |
|
|
|
119,955 |
|
|
|
Earning assets |
|
|
109,365 |
|
|
|
109,976 |
|
|
|
112,287 |
|
|
|
112,192 |
|
|
|
115,293 |
|
|
|
112,057 |
|
|
|
113,005 |
|
|
|
Investment securities |
|
|
15,074 |
|
|
|
15,816 |
|
|
|
15,968 |
|
|
|
16,250 |
|
|
|
14,734 |
|
|
|
14,963 |
|
|
|
15,467 |
|
|
|
Loans and leases, net of unearned discount |
|
|
87,925 |
|
|
|
89,081 |
|
|
|
89,313 |
|
|
|
90,853 |
|
|
|
89,646 |
|
|
|
88,522 |
|
|
|
87,872 |
|
|
|
Deposits |
|
|
93,513 |
|
|
|
93,541 |
|
|
|
97,043 |
|
|
|
95,494 |
|
|
|
98,137 |
|
|
|
94,650 |
|
|
|
94,215 |
|
|
|
Common shareholders’ equity, net of undeclared cumulative preferred dividends (c) |
|
|
15,083 |
|
|
|
15,049 |
|
|
|
14,978 |
|
|
|
15,252 |
|
|
|
15,106 |
|
|
|
15,237 |
|
|
|
15,120 |
|
|
|
Tangible common shareholders’ equity (c) |
|
|
10,442 |
|
|
|
10,403 |
|
|
|
10,328 |
|
|
|
10,600 |
|
|
|
10,448 |
|
|
|
10,573 |
|
|
|
10,449 |
|
|
|
Equity per common share |
|
|
99.70 |
|
|
|
98.66 |
|
|
|
97.40 |
|
|
|
97.64 |
|
|
|
97.47 |
|
|
|
96.49 |
|
|
|
95.00 |
|
|
|
Tangible equity per common share |
|
|
69.02 |
|
|
|
68.20 |
|
|
|
67.16 |
|
|
|
67.85 |
|
|
|
67.42 |
|
|
|
66.95 |
|
|
|
65.65 |
|
|
|
Market price per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
166.85 |
|
|
|
164.03 |
|
|
|
173.72 |
|
|
|
158.35 |
|
|
|
120.40 |
|
|
|
121.11 |
|
|
|
119.24 |
|
|
|
Low |
|
|
141.12 |
|
|
|
147.55 |
|
|
|
149.51 |
|
|
|
112.25 |
|
|
|
111.13 |
|
|
|
107.01 |
|
|
|
100.08 |
|
|
|
Closing |
|
|
161.04 |
|
|
|
161.95 |
|
|
|
154.73 |
|
|
|
156.43 |
|
|
|
116.10 |
|
|
|
118.23 |
|
|
|
111.00 |
|
|
|
(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. |
- 86 -
M&T BANK CORPORATION AND SUBSIDIARIES
Table 2
RECONCILIATION OF QUARTERLY GAAP TO NON-GAAP MEASURES
|
|
|
2017 Quarters |
|
|
2016 Quarters |
|
||||||||||||||||||||||
|
|
|
Third |
|
|
Second |
|
|
First |
|
|
Fourth |
|
|
Third |
|
|
Second |
|
|
First |
|
|||||||
|
Income statement data (in thousands, except per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
355,923 |
|
|
|
381,053 |
|
|
|
348,927 |
|
|
|
330,571 |
|
|
|
349,984 |
|
|
|
336,031 |
|
|
|
298,528 |
|
|
Amortization of core deposit and other intangible assets (a) |
|
|
4,735 |
|
|
|
4,921 |
|
|
|
5,108 |
|
|
|
5,524 |
|
|
|
5,945 |
|
|
|
6,936 |
|
|
|
7,488 |
|
|
Merger-related expenses (a) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,637 |
|
|
|
14,048 |
|
|
Net operating income |
|
$ |
360,658 |
|
|
|
385,974 |
|
|
|
354,035 |
|
|
|
336,095 |
|
|
|
355,929 |
|
|
|
350,604 |
|
|
|
320,064 |
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
2.21 |
|
|
|
2.35 |
|
|
|
2.12 |
|
|
|
1.98 |
|
|
|
2.10 |
|
|
|
1.98 |
|
|
|
1.73 |
|
|
Amortization of core deposit and other intangible assets (a) |
|
|
.03 |
|
|
|
.03 |
|
|
|
.03 |
|
|
|
.03 |
|
|
|
.03 |
|
|
|
.04 |
|
|
|
.05 |
|
|
Merger-related expenses (a) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.05 |
|
|
|
.09 |
|
|
Diluted net operating earnings per common share |
|
$ |
2.24 |
|
|
$ |
2.38 |
|
|
$ |
2.15 |
|
|
$ |
2.01 |
|
|
$ |
2.13 |
|
|
$ |
2.07 |
|
|
$ |
1.87 |
|
|
Other expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
$ |
806,025 |
|
|
|
750,635 |
|
|
|
787,852 |
|
|
|
769,103 |
|
|
|
752,392 |
|
|
|
749,895 |
|
|
|
776,095 |
|
|
Amortization of core deposit and other intangible assets |
|
|
(7,808 |
) |
|
|
(8,113 |
) |
|
|
(8,420 |
) |
|
|
(9,089 |
) |
|
|
(9,787 |
) |
|
|
(11,418 |
) |
|
|
(12,319 |
) |
|
Merger-related expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,593 |
) |
|
|
(23,162 |
) |
|
Noninterest operating expense |
|
$ |
798,217 |
|
|
|
742,522 |
|
|
|
779,432 |
|
|
|
760,014 |
|
|
|
742,605 |
|
|
|
725,884 |
|
|
|
740,614 |
|
|
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) |
|
$ |
798,217 |
|
|
|
742,522 |
|
|
|
779,432 |
|
|
|
760,014 |
|
|
|
742,605 |
|
|
|
725,884 |
|
|
|
740,614 |
|
|
Taxable-equivalent net interest income |
|
|
965,962 |
|
|
|
946,936 |
|
|
|
922,259 |
|
|
|
883,147 |
|
|
|
865,065 |
|
|
|
870,341 |
|
|
|
878,296 |
|
|
Other income |
|
|
459,429 |
|
|
|
460,816 |
|
|
|
446,845 |
|
|
|
465,459 |
|
|
|
491,350 |
|
|
|
448,254 |
|
|
|
420,933 |
|
|
Less: Gain on bank investment securities |
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
|
|
1,566 |
|
|
|
28,480 |
|
|
|
264 |
|
|
|
4 |
|
|
Denominator |
|
$ |
1,425,391 |
|
|
|
1,407,769 |
|
|
|
1,369,104 |
|
|
|
1,347,040 |
|
|
|
1,327,935 |
|
|
|
1,318,331 |
|
|
|
1,299,225 |
|
|
Efficiency ratio |
|
|
56.00 |
% |
|
|
52.74 |
% |
|
|
56.93 |
% |
|
|
56.42 |
% |
|
|
55.92 |
% |
|
|
55.06 |
% |
|
|
57.00 |
% |
|
Balance sheet data (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
$ |
119,515 |
|
|
|
120,765 |
|
|
|
122,978 |
|
|
|
125,734 |
|
|
|
124,725 |
|
|
|
123,706 |
|
|
|
123,252 |
|
|
Goodwill |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
Core deposit and other intangible assets |
|
|
(82 |
) |
|
|
(90 |
) |
|
|
(98 |
) |
|
|
(102 |
) |
|
|
(112 |
) |
|
|
(122 |
) |
|
|
(134 |
) |
|
Deferred taxes |
|
|
32 |
|
|
|
35 |
|
|
|
39 |
|
|
|
40 |
|
|
|
44 |
|
|
|
48 |
|
|
|
52 |
|
|
Average tangible assets |
|
$ |
114,872 |
|
|
|
116,117 |
|
|
|
118,326 |
|
|
|
121,079 |
|
|
|
120,064 |
|
|
|
119,039 |
|
|
|
118,577 |
|
|
Average common equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total equity |
|
$ |
16,301 |
|
|
|
16,285 |
|
|
|
16,323 |
|
|
|
16,673 |
|
|
|
16,347 |
|
|
|
16,377 |
|
|
|
16,279 |
|
|
Preferred stock |
|
|
(1,232 |
) |
|
|
(1,232 |
) |
|
|
(1,232 |
) |
|
|
(1,492 |
) |
|
|
(1,232 |
) |
|
|
(1,232 |
) |
|
|
(1,232 |
) |
|
Average common equity |
|
|
15,069 |
|
|
|
15,053 |
|
|
|
15,091 |
|
|
|
15,181 |
|
|
|
15,115 |
|
|
|
15,145 |
|
|
|
15,047 |
|
|
Goodwill |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
Core deposit and other intangible assets |
|
|
(82 |
) |
|
|
(90 |
) |
|
|
(98 |
) |
|
|
(102 |
) |
|
|
(112 |
) |
|
|
(122 |
) |
|
|
(134 |
) |
|
Deferred taxes |
|
|
32 |
|
|
|
35 |
|
|
|
39 |
|
|
|
40 |
|
|
|
44 |
|
|
|
48 |
|
|
|
52 |
|
|
Average tangible common equity |
|
$ |
10,426 |
|
|
|
10,405 |
|
|
|
10,439 |
|
|
|
10,526 |
|
|
|
10,454 |
|
|
|
10,478 |
|
|
|
10,372 |
|
|
At end of quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
120,402 |
|
|
|
120,897 |
|
|
|
123,223 |
|
|
|
123,449 |
|
|
|
126,841 |
|
|
|
123,821 |
|
|
|
124,626 |
|
|
Goodwill |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
Core deposit and other intangible assets |
|
|
(79 |
) |
|
|
(86 |
) |
|
|
(95 |
) |
|
|
(98 |
) |
|
|
(107 |
) |
|
|
(117 |
) |
|
|
(128 |
) |
|
Deferred taxes |
|
|
31 |
|
|
|
33 |
|
|
|
38 |
|
|
|
39 |
|
|
|
42 |
|
|
|
46 |
|
|
|
50 |
|
|
Total tangible assets |
|
$ |
115,761 |
|
|
|
116,251 |
|
|
|
118,573 |
|
|
|
118,797 |
|
|
|
122,183 |
|
|
|
119,157 |
|
|
|
119,955 |
|
|
Total common equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
$ |
16,318 |
|
|
|
16,284 |
|
|
|
16,213 |
|
|
|
16,487 |
|
|
|
16,341 |
|
|
|
16,472 |
|
|
|
16,355 |
|
|
Preferred stock |
|
|
(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 |
) |
|
Common equity, net of undeclared cumulative preferred dividends |
|
|
15,083 |
|
|
|
15,049 |
|
|
|
14,978 |
|
|
|
15,252 |
|
|
|
15,106 |
|
|
|
15,237 |
|
|
|
15,120 |
|
|
Goodwill |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
|
(4,593 |
) |
|
Core deposit and other intangible assets |
|
|
(79 |
) |
|
|
(86 |
) |
|
|
(95 |
) |
|
|
(98 |
) |
|
|
(107 |
) |
|
|
(117 |
) |
|
|
(128 |
) |
|
Deferred taxes |
|
|
31 |
|
|
|
33 |
|
|
|
38 |
|
|
|
39 |
|
|
|
42 |
|
|
|
46 |
|
|
|
50 |
|
|
Total tangible common equity |
|
$ |
10,442 |
|
|
|
10,403 |
|
|
|
10,328 |
|
|
|
10,600 |
|
|
|
10,448 |
|
|
|
10,573 |
|
|
|
10,449 |
|
|
( a) |
After any related tax effect. |
- 87 -
M&T BANK CORPORATION AND SUBSIDIARIES
Table 3
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES
|
|
|
2017 Third Quarter |
|
|
2017 Second Quarter |
|
|
2017 First Quarter |
|
|
|||||||||||||||||||||||||||
|
|
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
|
|||||||||
|
Average balance in millions; interest in thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases, net of unearned discount* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, etc. |
|
$ |
21,734 |
|
|
$ |
217,953 |
|
|
|
3.98 |
|
% |
|
22,350 |
|
|
|
213,840 |
|
|
|
3.84 |
|
% |
|
22,290 |
|
|
|
201,126 |
|
|
|
3.66 |
|
% |
|
Real estate — commercial |
|
|
33,257 |
|
|
|
382,352 |
|
|
|
4.50 |
|
|
|
33,214 |
|
|
|
361,313 |
|
|
|
4.30 |
|
|
|
33,175 |
|
|
|
347,010 |
|
|
|
4.18 |
|
|
|
Real estate — consumer |
|
|
20,609 |
|
|
|
204,008 |
|
|
|
3.96 |
|
|
|
21,318 |
|
|
|
210,152 |
|
|
|
3.94 |
|
|
|
22,179 |
|
|
|
217,263 |
|
|
|
3.92 |
|
|
|
Consumer |
|
|
12,786 |
|
|
|
157,721 |
|
|
|
4.89 |
|
|
|
12,386 |
|
|
|
147,597 |
|
|
|
4.78 |
|
|
|
12,153 |
|
|
|
140,170 |
|
|
|
4.68 |
|
|
|
Total loans and leases, net |
|
|
88,386 |
|
|
|
962,034 |
|
|
|
4.32 |
|
|
|
89,268 |
|
|
|
932,902 |
|
|
|
4.19 |
|
|
|
89,797 |
|
|
|
905,569 |
|
|
|
4.09 |
|
|
|
Interest-bearing deposits at banks |
|
|
4,740 |
|
|
|
14,970 |
|
|
|
1.25 |
|
|
|
4,741 |
|
|
|
12,213 |
|
|
|
1.03 |
|
|
|
6,152 |
|
|
|
12,162 |
|
|
|
.80 |
|
|
|
Federal funds sold |
|
|
— |
|
|
|
1 |
|
|
|
1.58 |
|
|
|
1 |
|
|
|
3 |
|
|
|
1.44 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Trading account |
|
|
73 |
|
|
|
351 |
|
|
|
1.92 |
|
|
|
64 |
|
|
|
240 |
|
|
|
1.50 |
|
|
|
60 |
|
|
|
328 |
|
|
|
2.20 |
|
|
|
Investment securities** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
|
14,632 |
|
|
|
81,707 |
|
|
|
2.22 |
|
|
|
15,060 |
|
|
|
87,171 |
|
|
|
2.32 |
|
|
|
15,113 |
|
|
|
88,573 |
|
|
|
2.38 |
|
|
|
Obligations of states and political subdivisions |
|
|
37 |
|
|
|
442 |
|
|
|
4.69 |
|
|
|
46 |
|
|
|
553 |
|
|
|
4.86 |
|
|
|
56 |
|
|
|
578 |
|
|
|
4.17 |
|
|
|
Other |
|
|
774 |
|
|
|
6,533 |
|
|
|
3.35 |
|
|
|
807 |
|
|
|
6,067 |
|
|
|
3.02 |
|
|
|
830 |
|
|
|
6,822 |
|
|
|
3.33 |
|
|
|
Total investment securities |
|
|
15,443 |
|
|
|
88,682 |
|
|
|
2.28 |
|
|
|
15,913 |
|
|
|
93,791 |
|
|
|
2.36 |
|
|
|
15,999 |
|
|
|
95,973 |
|
|
|
2.43 |
|
|
|
Total earning assets |
|
|
108,642 |
|
|
|
1,066,038 |
|
|
|
3.89 |
|
|
|
109,987 |
|
|
|
1,039,149 |
|
|
|
3.79 |
|
|
|
112,008 |
|
|
|
1,014,032 |
|
|
|
3.67 |
|
|
|
Allowance for credit losses |
|
|
(1,014 |
) |
|
|
|
|
|
|
|
|
|
|
(1,011 |
) |
|
|
|
|
|
|
|
|
|
|
(1,003 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
1,297 |
|
|
|
|
|
|
|
|
|
|
|
1,257 |
|
|
|
|
|
|
|
|
|
|
|
1,283 |
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
10,590 |
|
|
|
|
|
|
|
|
|
|
|
10,532 |
|
|
|
|
|
|
|
|
|
|
|
10,690 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
119,515 |
|
|
|
|
|
|
|
|
|
|
|
120,765 |
|
|
|
|
|
|
|
|
|
|
|
122,978 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and interest-checking deposits |
|
$ |
53,287 |
|
|
|
37,714 |
|
|
|
.28 |
|
|
|
53,611 |
|
|
|
30,543 |
|
|
|
.23 |
|
|
|
53,260 |
|
|
|
25,634 |
|
|
|
.20 |
|
|
|
Time deposits |
|
|
7,673 |
|
|
|
13,992 |
|
|
|
.72 |
|
|
|
8,559 |
|
|
|
16,303 |
|
|
|
.76 |
|
|
|
9,561 |
|
|
|
18,998 |
|
|
|
.81 |
|
|
|
Deposits at Cayman Islands office |
|
|
169 |
|
|
|
310 |
|
|
|
.73 |
|
|
|
163 |
|
|
|
281 |
|
|
|
.69 |
|
|
|
192 |
|
|
|
265 |
|
|
|
.56 |
|
|
|
Total interest-bearing deposits |
|
|
61,129 |
|
|
|
52,016 |
|
|
|
.34 |
|
|
|
62,333 |
|
|
|
47,127 |
|
|
|
.30 |
|
|
|
63,013 |
|
|
|
44,897 |
|
|
|
.29 |
|
|
|
Short-term borrowings |
|
|
244 |
|
|
|
554 |
|
|
|
.90 |
|
|
|
212 |
|
|
|
378 |
|
|
|
.71 |
|
|
|
184 |
|
|
|
216 |
|
|
|
.48 |
|
|
|
Long-term borrowings |
|
|
8,033 |
|
|
|
47,506 |
|
|
|
2.35 |
|
|
|
8,292 |
|
|
|
44,708 |
|
|
|
2.16 |
|
|
|
8,423 |
|
|
|
46,660 |
|
|
|
2.25 |
|
|
|
Total interest-bearing liabilities |
|
|
69,406 |
|
|
|
100,076 |
|
|
|
.57 |
|
|
|
70,837 |
|
|
|
92,213 |
|
|
|
.52 |
|
|
|
71,620 |
|
|
|
91,773 |
|
|
|
.52 |
|
|
|
Noninterest-bearing deposits |
|
|
32,005 |
|
|
|
|
|
|
|
|
|
|
|
31,868 |
|
|
|
|
|
|
|
|
|
|
|
33,287 |
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
1,803 |
|
|
|
|
|
|
|
|
|
|
|
1,775 |
|
|
|
|
|
|
|
|
|
|
|
1,748 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
103,214 |
|
|
|
|
|
|
|
|
|
|
|
104,480 |
|
|
|
|
|
|
|
|
|
|
|
106,655 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
16,301 |
|
|
|
|
|
|
|
|
|
|
|
16,285 |
|
|
|
|
|
|
|
|
|
|
|
16,323 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
119,515 |
|
|
|
|
|
|
|
|
|
|
|
120,765 |
|
|
|
|
|
|
|
|
|
|
|
122,978 |
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.32 |
|
|
|
|
|
|
|
|
|
|
|
3.27 |
|
|
|
|
|
|
|
|
|
|
|
3.15 |
|
|
|
Contribution of interest-free funds |
|
|
|
|
|
|
|
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
.18 |
|
|
|
|
|
|
|
|
|
|
|
.19 |
|
|
|
Net interest income/margin on earning assets |
|
|
|
|
|
$ |
965,962 |
|
|
|
3.53 |
|
% |
|
|
|
|
|
946,936 |
|
|
|
3.45 |
|
% |
|
|
|
|
|
922,259 |
|
|
|
3.34 |
|
% |
|
* |
Includes nonaccrual loans. |
|
** |
Includes available-for-sale securities at amortized cost. |
(continued)
- 88 -
M&T BANK CORPORATI ON AND SUBSIDIARIES
Table 3 (continued)
AVERAGE BALANCE SHEETS AND ANNUALIZED TAXABLE-EQUIVALENT RATES (continued)
|
|
|
2016 Fourth Quarter |
|
|
2016 Third Quarter |
|
|
||||||||||||||||||
|
|
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Average Rate |
|
|
||||||
|
Average balance in millions; interest in thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases, net of unearned discount* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, etc. |
|
$ |
21,936 |
|
|
$ |
191,228 |
|
|
|
3.47 |
|
% |
|
21,480 |
|
|
|
185,552 |
|
|
|
3.44 |
|
% |
|
Real estate — commercial |
|
|
32,822 |
|
|
|
336,597 |
|
|
|
4.01 |
|
|
|
31,252 |
|
|
|
319,694 |
|
|
|
4.00 |
|
|
|
Real estate — consumer |
|
|
23,096 |
|
|
|
223,758 |
|
|
|
3.88 |
|
|
|
24,058 |
|
|
|
235,813 |
|
|
|
3.92 |
|
|
|
Consumer |
|
|
12,123 |
|
|
|
138,144 |
|
|
|
4.53 |
|
|
|
11,942 |
|
|
|
136,592 |
|
|
|
4.55 |
|
|
|
Total loans and leases, net |
|
|
89,977 |
|
|
|
889,727 |
|
|
|
3.93 |
|
|
|
88,732 |
|
|
|
877,651 |
|
|
|
3.93 |
|
|
|
Interest-bearing deposits at banks |
|
|
8,790 |
|
|
|
11,833 |
|
|
|
.54 |
|
|
|
9,681 |
|
|
|
12,355 |
|
|
|
.51 |
|
|
|
Federal funds sold |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Trading account |
|
|
70 |
|
|
|
358 |
|
|
|
2.05 |
|
|
|
90 |
|
|
|
342 |
|
|
|
1.52 |
|
|
|
Investment securities** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies |
|
|
14,511 |
|
|
|
80,510 |
|
|
|
2.21 |
|
|
|
13,418 |
|
|
|
78,259 |
|
|
|
2.32 |
|
|
|
Obligations of states and political subdivisions |
|
|
71 |
|
|
|
778 |
|
|
|
4.38 |
|
|
|
82 |
|
|
|
888 |
|
|
|
4.32 |
|
|
|
Other |
|
|
835 |
|
|
|
7,078 |
|
|
|
3.37 |
|
|
|
861 |
|
|
|
6,745 |
|
|
|
3.12 |
|
|
|
Total investment securities |
|
|
15,417 |
|
|
|
88,366 |
|
|
|
2.28 |
|
|
|
14,361 |
|
|
|
85,892 |
|
|
|
2.38 |
|
|
|
Total earning assets |
|
|
114,254 |
|
|
|
990,284 |
|
|
|
3.45 |
|
|
|
112,864 |
|
|
|
976,240 |
|
|
|
3.44 |
|
|
|
Allowance for credit losses |
|
|
(989 |
) |
|
|
|
|
|
|
|
|
|
|
(982 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
1,278 |
|
|
|
|
|
|
|
|
|
|
|
1,281 |
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
11,191 |
|
|
|
|
|
|
|
|
|
|
|
11,562 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
125,734 |
|
|
|
|
|
|
|
|
|
|
|
124,725 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and interest-checking deposits |
|
$ |
54,055 |
|
|
|
26,798 |
|
|
|
.20 |
|
|
|
52,516 |
|
|
|
24,067 |
|
|
|
.18 |
|
|
|
Time deposits |
|
|
10,936 |
|
|
|
23,766 |
|
|
|
.86 |
|
|
|
12,334 |
|
|
|
27,886 |
|
|
|
.90 |
|
|
|
Deposits at Cayman Islands office |
|
|
206 |
|
|
|
219 |
|
|
|
.42 |
|
|
|
220 |
|
|
|
204 |
|
|
|
.37 |
|
|
|
Total interest-bearing deposits |
|
|
65,197 |
|
|
|
50,783 |
|
|
|
.31 |
|
|
|
65,070 |
|
|
|
52,157 |
|
|
|
.32 |
|
|
|
Short-term borrowings |
|
|
200 |
|
|
|
151 |
|
|
|
.30 |
|
|
|
231 |
|
|
|
169 |
|
|
|
.29 |
|
|
|
Long-term borrowings |
|
|
9,901 |
|
|
|
56,203 |
|
|
|
2.26 |
|
|
|
10,287 |
|
|
|
58,849 |
|
|
|
2.28 |
|
|
|
Total interest-bearing liabilities |
|
|
75,298 |
|
|
|
107,137 |
|
|
|
.57 |
|
|
|
75,588 |
|
|
|
111,175 |
|
|
|
.59 |
|
|
|
Noninterest-bearing deposits |
|
|
31,717 |
|
|
|
|
|
|
|
|
|
|
|
30,782 |
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
2,046 |
|
|
|
|
|
|
|
|
|
|
|
2,008 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
109,061 |
|
|
|
|
|
|
|
|
|
|
|
108,378 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
16,673 |
|
|
|
|
|
|
|
|
|
|
|
16,347 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
125,734 |
|
|
|
|
|
|
|
|
|
|
|
124,725 |
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
2.88 |
|
|
|
|
|
|
|
|
|
|
|
2.85 |
|
|
|
Contribution of interest-free funds |
|
|
|
|
|
|
|
|
|
|
.20 |
|
|
|
|
|
|
|
|
|
|
|
.20 |
|
|
|
Net interest income/margin on earning assets |
|
|
|
|
|
$ |
883,147 |
|
|
|
3.08 |
|
% |
|
|
|
|
|
865,065 |
|
|
|
3.05 |
|
% |
|
* |
Includes nonaccrual loans. |
|
** |
Includes available-for-sale securities at amortized cost. |
- 89 -
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.”
(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, Chairman of the Board and Chief Executive Officer, and Darren J. King, Executive Vice President and Chief Financial Officer, concluded that M&T’s disclosure controls and procedures were effective as of September 30, 2017.
(b) Changes in internal control over financial reporting. M&T regularly assesses the adequacy of its internal control over financial reporting and enhances its controls in response to internal control assessments and internal and external audit and regulatory recommendations. No changes in internal control over financial reporting have been identified in connection with the evaluation of disclosure controls and procedures during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, M&T’s internal control over financial reporting.
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 $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
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. On October 9, 2017, Wilmington Trust Corporation reached a civil settlement with the U.S. Attorney’s Office for the District of Delaware to resolve this matter. Under the terms of the agreement, Wilmington Trust Corporation agreed to pay $60 million. The settlement amount included $16 million previously paid by Wilmington Trust Corporation to the U.S. Securities and Exchange Commission in a related action. Wilmington Trust Corporation did not admit any liability, nor was there any finding of wrongdoing. All indictments and charges against Wilmington Trust Corporation were dismissed by Court order on October 12, 2017.
- 90 -
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 and Wilmington Trust Corporation moved to dismiss. The Court issued an order denying Wilmington Trust Corporation’s motion to dismiss on March 20, 2014. Fact discovery commenced. Plaintiffs’ motion for class certification was granted on September 3, 2015. On April 13, 2016, the Court issued an order staying fact discovery in the case pending completion 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. On December 19, 2016, the Court issued an order lifting the existing stay in its entirety. The Court has removed this matter from the trial calendar, to be rescheduled at some future date.
Due to their complex nature, it is difficult to estimate when litigation or 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 m atters 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.
- 91 -
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.
(a) – (b) Not applicable.
(c)
|
|
|
Issuer Purchases of Equity Securities |
|
|||||||||||||
|
Period |
|
(a)Total Number of Shares (or Units) Purchased (1) |
|
|
(b)Average Price Paid per Share (or Unit) |
|
|
(c)Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
|
|
(d)Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs (2) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 — July 31, 2017 |
|
|
600,005 |
|
|
$ |
161.59 |
|
|
|
600,000 |
|
|
$ |
803,048,000 |
|
|
August 1 — August 31, 2017 |
|
|
778,806 |
|
|
|
163.32 |
|
|
|
778,052 |
|
|
|
675,976,000 |
|
|
September 1 — September 30, 2017 |
|
|
4,694 |
|
|
|
149.10 |
|
|
|
4,694 |
|
|
|
675,276,000 |
|
|
Total |
|
|
1,383,505 |
|
|
$ |
162.52 |
|
|
|
1,382,746 |
|
|
|
|
|
|
(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 18, 2017, M&T announced a program to purchase up to $900 million of its common stock through June 30, 2018. |
(Not applicable.)
(None.)
(None.)
- 92 -
The following exhibits are filed as a part of this report.
|
No. |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document. Filed herewith. |
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema. Filed herewith. |
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase. Filed herewith. |
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase. Filed herewith. |
|
|
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase. Filed herewith. |
|
|
|
|
|
101.DEF |
|
XBRL Taxonomy Definition Linkbase. Filed herewith. |
|
|
|
|
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
M&T BANK CORPORATION |
||
|
|
|
|
||
|
Date: November 3, 2017 |
|
By: |
|
/s/ Darren J. King |
|
|
|
|
|
Darren J. King |
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
- 93 -
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|