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MTB M & T Bank

Filed: 22 Feb 21, 5:02pm
0000036270 mtb:BusinessBankingMember us-gaap:FiduciaryAndTrustMember us-gaap:AccountingStandardsUpdate201409Member 2020-01-01 2020-12-31

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

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

For the fiscal year ended December 31, 2020

or

 

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

Commission file number 1-9861

 

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

New York

16-0968385

(State of incorporation)

(I.R.S. Employer Identification No.)

 

 

One M&T Plaza, Buffalo, New York

14203

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

716-635-4000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, $.50 par value

New York Stock Exchange

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

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, and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

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

Aggregate market value of the Common Stock, $0.50 par value, held by non-affiliates of the registrant, computed by reference to the closing price as of the close of business on June 30, 2020: $12,939,363,542.

Number of shares of the Common Stock, $0.50 par value, outstanding as of the close of business on February 19, 2021: 128,636,592 shares.

Documents Incorporated By Reference:

(1) Portions of the Proxy Statement for the 2021 Annual Meeting of Shareholders of M&T Bank Corporation in Parts II and III.

 

 

 

 


 

M&T BANK CORPORATION

Form 10-K for the year ended December 31, 2020

CROSS-REFERENCE SHEET

 

 

 

Form 10-K

Page

PART I

Item 1.

Business

 

4

Statistical disclosure pursuant to Guide 3

 

 

 

I.

Distribution of assets, liabilities, and shareholders’ equity; interest rates and interest differential

 

 

 

 

A.

Average balance sheets

 

65

 

 

B.

Interest income/expense and resulting yield or rate on average interest-earning assets (including non-accrual loans) and interest‑bearing liabilities

 

65

 

 

C.

Rate/volume variances

 

26

 

II.

Investment portfolio

 

 

 

 

A.

Year-end balances

 

24,132

 

 

B.

Maturity schedule and weighted average yield

 

98

 

 

C.

Aggregate carrying value of securities that exceed ten percent of shareholders’ equity

 

133

 

III.

Loan portfolio

 

 

 

 

A.

Year-end balances

 

24,135

 

 

B.

Maturities and sensitivities to changes in interest rates

 

96

 

 

C.

Risk elements

 

 

 

 

 

Nonaccrual, past due and renegotiated loans

 

80,136-141

 

 

 

Actual and pro forma interest on certain loans

 

137,144-145

 

 

 

Nonaccrual policy

 

126-128

 

 

 

Loan concentrations

 

89

 

IV.

Summary of loan loss experience

 

 

 

 

A.

Analysis of the allowance for loan losses

 

79,143-149

 

 

 

Factors influencing management’s judgment concerning the adequacy of the allowance and provision

 

77-89,128,143-149

 

 

B.

Allocation of the allowance for loan losses

89,143-145

 

V.

Deposits

 

 

 

 

A.

Average balances and rates

 

65

 

 

B.

Maturity schedule of domestic time deposits with balances of $100,000 or more

 

99

 

VI.

Return on equity and assets

 

26,58,102-103,105

 

VII.

Short-term borrowings

 

155

Item 1A.

Risk Factors

 

27-48

Item 1B.

Unresolved Staff Comments

 

49

Item 2.

Properties

 

49

Item 3.

Legal Proceedings

 

50

Item 4.

Mine Safety Disclosures

 

50

 

Executive Officers of the Registrant

 

50-52

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

53-55

 

A.

Principal market

 

53

 

B.

Approximate number of holders at year-end

 

24

 

C.

Frequency and amount of dividends declared

 

25-26,113,124

2


 

 

Form 10-K

Page

 

D.

Restrictions on dividends

 

11-12

 

E.

Securities authorized for issuance under equity
compensation plans

 

53-55

 

F.

Performance graph

 

54

 

G.

Repurchases of common stock

 

55

Item 6.

Selected Financial Data

 

55

 

A.

Selected consolidated year-end balances

 

24

 

B.

Consolidated earnings, etc.

 

25

Item 7.

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

 

55-114

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

115

Item 8.

Financial Statements and Supplementary Data

 

115

 

A.

Report on Internal Control Over Financial Reporting

 

116

 

B.

Report of Independent Registered Public Accounting Firm

 

117-119

 

C.

Consolidated Balance Sheet — December 31, 2020 and 2019

 

120

 

D.

Consolidated Statement of Income — Years ended December 31, 2020, 2019 and 2018

 

121

 

E.

Consolidated Statement of Comprehensive Income — Years
ended December 31, 2020, 2019 and 2018

 

122

 

F.

Consolidated Statement of Cash Flows — Years ended December 31, 2020, 2019 and 2018

 

123

 

G.

Consolidated Statement of Changes in Shareholders’ Equity — Years ended December 31, 2020, 2019 and 2018

 

124

 

H.

Notes to Financial Statements

 

125-205

 

I.

Quarterly Trends

 

113

Item 9.

Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

 

206

Item 9A.

Controls and Procedures

 

206

 

A.

Conclusions of principal executive officer and principal financial officer regarding disclosure controls and procedures

 

206

 

B.

Management’s annual report on internal control over financial reporting

 

206

 

C.

Attestation report of the registered public accounting firm

 

206

 

D.

Changes in internal control over financial reporting

 

206

Item 9B.

Other Information

 

206

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

 

206

Item 11.

Executive Compensation

 

207

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

207

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

207

Item 14.

Principal Accountant Fees and Services

 

207

PART IV

Item 15.

Exhibits and Financial Statement Schedules

 

207-210

Item 16.

Form 10-K Summary

 

210

SIGNATURES

 

211-213

 

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PART I

Item 1.

Business.

M&T Bank Corporation (“Registrant” or “M&T”) is a New York business corporation which is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”) and as a bank holding company (“BHC”) under Article III-A of the New York Banking Law (“Banking Law”). The principal executive offices of M&T are located at One M&T Plaza, Buffalo, New York 14203. M&T was incorporated in November 1969. M&T and its direct and indirect subsidiaries are collectively referred to herein as the “Company.” As of December 31, 2020 the Company had consolidated total assets of $142.6 billion, deposits of $119.8 billion and shareholders’ equity of $16.2 billion. The Company had 16,718 full-time and 655 part-time employees as of December 31, 2020.

At December 31, 2020, M&T had two wholly owned bank subsidiaries: Manufacturers and Traders Trust Company (“M&T Bank”) and Wilmington Trust, National Association (“Wilmington Trust, N.A.”). The banks collectively offer a wide range of retail and commercial banking, trust and wealth management, and investment services to their customers. At December 31, 2020, M&T Bank represented 99% of consolidated assets of the Company.

The Company from time to time considers acquiring banks, thrift institutions, branch offices of banks or thrift institutions, or other businesses within markets currently served by the Company or in other locations that would complement the Company’s business or its geographic reach. The Company has pursued acquisition opportunities in the past, continues to review different opportunities, including the possibility of major acquisitions, and intends to continue this practice.

Subsidiaries

M&T Bank is a banking corporation that is incorporated under the laws of the State of New York. M&T Bank is a member of the Federal Reserve System and the Federal Home Loan Bank System, and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits. M&T acquired all of the issued and outstanding shares of the capital stock of M&T Bank in December 1969. The stock of M&T Bank represents a major asset of M&T. M&T Bank operates under a charter granted by the State of New York in 1892, and the continuity of its banking business is traced to the organization of the Manufacturers and Traders Bank in 1856. The principal executive offices of M&T Bank are located at One M&T Plaza, Buffalo, New York 14203. As of December 31, 2020, M&T Bank had 716 domestic banking offices located in New York State, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia, and the District of Columbia, a full-service commercial banking office in Ontario, Canada, and an office in George Town, Cayman Islands. As of December 31, 2020, M&T Bank had consolidated total assets of $142.2 billion, deposits of $121.1 billion and shareholder’s equity of $15.9 billion. The deposit liabilities of M&T Bank are insured by the FDIC through its Deposit Insurance Fund (“DIF”). As a commercial bank, M&T Bank offers a broad range of financial services to a diverse base of consumers, businesses, professional clients, governmental entities and financial institutions located in its markets. Lending is largely focused on consumers residing in New York State, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia, and Washington, D.C., and on small and medium-size businesses based in those areas, although loans are originated through offices in other states and in Ontario, Canada. In addition, the Company conducts lending activities in various states through other subsidiaries. Trust and other fiduciary services are offered by M&T Bank and through its wholly owned subsidiary, Wilmington Trust Company. M&T Bank and certain of its subsidiaries also offer commercial mortgage loans secured by income producing properties or properties used by borrowers in a trade or business. Additional financial services are provided through other operating subsidiaries of the Company.

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Wilmington Trust, N.A., a national banking association and a member of the Federal Reserve System and the FDIC, commenced operations on October 2, 1995. The deposit liabilities of Wilmington Trust, N.A. are insured by the FDIC through the DIF. The main office of Wilmington Trust, N.A. is located at 1100 North Market Street, Wilmington, Delaware 19890. Wilmington Trust, N.A. offers various trust and wealth management services. As of December 31, 2020, Wilmington Trust, N.A. had total assets of $6.2 billion, deposits of $5.5 billion and shareholder’s equity of $630 million.

Wilmington Trust Company, a wholly owned subsidiary of M&T Bank, was incorporated as a Delaware bank and trust company in March 1901 and amended its charter in July 2011 to become a nondepository trust company. Wilmington Trust Company provides a variety of Delaware based trust, fiduciary and custodial services to its clients. As of December 31, 2020, Wilmington Trust Company had total assets of $1.3 billion and shareholder’s equity of $654 million. Revenues of Wilmington Trust Company were $126 million in 2020. The headquarters of Wilmington Trust Company are located at 1100 North Market Street, Wilmington, Delaware 19890.

M&T Insurance Agency, Inc. (“M&T Insurance Agency”), a wholly owned insurance agency subsidiary of M&T Bank, was incorporated as a New York corporation in March 1955. M&T Insurance Agency provides insurance agency services principally to the commercial market. As of December 31, 2020, M&T Insurance Agency had assets of $43 million and shareholder’s equity of $23 million. M&T Insurance Agency recorded revenues of $37 million during 2020. The headquarters of M&T Insurance Agency are located at 285 Delaware Avenue, Buffalo, New York 14202.

M&T Realty Capital Corporation (“M&T Realty Capital”), a wholly owned subsidiary of M&T Bank, was incorporated as a Maryland corporation in October 1973. M&T Realty Capital engages in multifamily commercial real estate lending and provides loan servicing to purchasers of the loans it originates. As of December 31, 2020, M&T Realty Capital serviced or sub-serviced $22.2 billion of commercial mortgage loans for non-affiliates and had assets of $725 million and shareholder’s equity of $174 million. M&T Realty Capital recorded revenues of $160 million in 2020. The headquarters of M&T Realty Capital are located at One Light Street, Baltimore, Maryland 21202.

M&T Securities, Inc. (“M&T Securities”) is a wholly owned subsidiary of M&T Bank that was incorporated as a New York business corporation in November 1985. M&T Securities is registered as a broker/dealer under the Securities Exchange Act of 1934, as amended, and as an investment advisor under the Investment Advisors Act of 1940, as amended (the “Investment Advisors Act”). M&T Securities is licensed as a life insurance agent in each state where M&T Bank operates branch offices and in a number of other states. It provides securities brokerage, investment advisory and insurance services. As of December 31, 2020, M&T Securities had assets of $63 million and shareholder’s equity of $41 million. M&T Securities recorded $89 million of revenue during 2020. The headquarters of M&T Securities are located at 285 Delaware Avenue, Buffalo, New York 14202.

Wilmington Trust Investment Advisors, Inc. (“WT Investment Advisors”), a wholly owned subsidiary of M&T Bank, was incorporated as a Maryland corporation on June 30, 1995. WT Investment Advisors, a registered investment advisor under the Investment Advisors Act, serves as an investment advisor to the Wilmington Funds, a family of proprietary mutual funds, and institutional clients. As of December 31, 2020, WT Investment Advisors had assets of $52 million and shareholder’s equity of $46 million. WT Investment Advisors recorded revenues of $39 million in 2020. The headquarters of WT Investment Advisors are located at 1100 North Market Street, Wilmington, Delaware 19890.

Wilmington Funds Management Corporation (“Wilmington Funds Management”) is a wholly owned subsidiary of M&T that was incorporated in September 1981 as a Delaware corporation. Wilmington Funds Management is registered as an investment advisor under the Investment Advisors Act and serves as an investment advisor to the Wilmington Funds. Wilmington Funds Management had

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assets and shareholder’s equity of $22 million as of December 31, 2020. Wilmington Funds Management recorded revenues of $22 million in 2020. The headquarters of Wilmington Funds Management are located at 1100 North Market Street, Wilmington, Delaware 19890.

Wilmington Trust Investment Management, LLC (“WTIM”) is a wholly owned subsidiary of M&T and was incorporated in December 2001 as a Georgia limited liability company. WTIM is a registered investment advisor under the Investment Advisors Act and provides investment management services to clients, including certain private funds. As of December 31, 2020, WTIM has assets of $12 million and shareholder’s equity of $10 million. WTIM recorded revenues of $4 million in 2020. WTIM’s headquarters is located at Terminus 27th Floor, 3280 Peachtree Road N.E., Atlanta, Georgia 30305.

The Registrant and its banking subsidiaries have a number of other special-purpose or inactive subsidiaries. These other subsidiaries did not represent, individually and collectively, a significant portion of the Company’s consolidated assets, net income and shareholders’ equity at December 31, 2020.

Segment Information, Principal Products/Services and Foreign Operations

Information about the Registrant’s business segments is included in note 22 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data” and is further discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Registrant’s reportable segments have been determined based upon its 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 Company’s international activities are discussed in note 17 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.”

The only activity that, as a class, contributed 10% or more of the sum of consolidated interest income and other income in any of the last three years was interest on loans. The amount of income from such sources during those years is set forth on the Company’s Consolidated Statement of Income filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.”

Supervision and Regulation of the Company

M&T and its subsidiaries are subject to the comprehensive regulatory framework applicable to bank and financial holding companies and their subsidiaries. Regulation of financial institutions such as M&T and its subsidiaries is intended primarily for the protection of depositors, the FDIC’s DIF 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.

Proposals to change the applicable regulatory framework may be introduced in the United States Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. A change in statutes, regulations or regulatory policies applicable to M&T or any of its subsidiaries could have a material effect on the business, financial condition or results of operations of the Company.

6


Described hereafter are material elements of the significant federal and state laws and regulations applicable to M&T and its subsidiaries. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described and do not include all pending or proposed changes in current laws or regulations.

Overview

M&T is registered with the Board of Governors of the Federal Reserve System (“Federal Reserve”) as a financial holding company and BHC under the BHCA. As such, M&T and its subsidiaries are subject to the supervision, examination, reporting, capital and other requirements of the BHCA and the regulations of the Federal Reserve. In addition, M&T’s banking subsidiaries are subject to regulation, supervision and examination by, as applicable, the New York State Department of Financial Services (“NYSDFS”), the Office of the Comptroller of the Currency (“OCC”), the FDIC and the Federal Reserve and their consumer financial products and services are regulated by the Consumer Financial Protection Bureau (“CFPB”). Further, financial services entities such as M&T’s investment advisor subsidiaries and M&T’s broker-dealer are subject to regulation by the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), and the Securities Investor Protection Corporation (“SIPC”), among others. Other non-bank affiliates and activities, particularly insurance brokerage and agency activities, are subject to other federal and state laws and regulations as well as licensing and regulation by state insurance and bank regulatory agencies. Although the scope of regulation and form of supervision may vary from state to state, insurance laws generally grant broad discretion to regulatory authorities in adopting regulations and supervising regulated activities. This supervision generally includes the licensing of insurance brokers and agents and the regulation of the handling of customer funds held in a fiduciary capacity as well as regulations requiring, among other things, maintenance of capital, record keeping, and reporting.

M&T Bank is a New York chartered bank and a member of the Federal Reserve. As a result, it is subject to extensive regulation, examination and oversight by the NYSDFS and the Federal Reserve Bank of New York. New York laws and regulations govern many aspects of M&T Bank’s operations, including branching, dividends, subsidiary activities, fiduciary activities, lending, and deposit taking. M&T Bank is also subject to Federal Reserve regulations and guidance, including with respect to capital levels. Its deposits are insured by the FDIC to $250,000 per depositor, which also exercises regulatory oversight over certain aspects of M&T Bank’s operations. Certain subsidiaries of M&T Bank are subject to regulation by other federal and state regulators as well. For example, M&T Securities is regulated by the SEC, FINRA, SIPC, and state securities regulators, and WT Investment Advisors is also subject to SEC regulation.

Wilmington Trust, N.A. is a national bank with operations that include fiduciary and related activities with limited lending and deposit business. It is subject to extensive regulation, examination and oversight by the OCC which governs many aspects of its operations, including fiduciary activities, capital levels, office locations, dividends and subsidiary activities. Its deposits are insured by the FDIC to $250,000 per depositor, which also exercises regulatory oversight over certain aspects of the operations of Wilmington Trust, N.A.

Permissible Activities under the BHC Act 

In general, the BHCA limits the business of a BHC to banking, managing or controlling banks, and other activities that the Federal Reserve has determined to be so closely related to banking as to be a proper incident thereto. In addition, bank holding companies are obligated by a Federal Reserve policy to serve as a managerial and financial source of strength to their subsidiary depository institutions, including committing resources to support such subsidiaries. This support may be required at times when M&T may not be inclined or able to provide it. In addition, any capital loans

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by a BHC to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a BHC’s bankruptcy, any commitment by the BHC to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Bank holding companies that qualify and elect to be financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve, by regulation or order, in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve). Activities that are financial in nature include securities underwriting and dealing, insurance underwriting and merchant banking.

M&T elected to become a financial holding company on March 1, 2011. To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be “well capitalized” and “well managed.” The failure to meet such requirements could result in material restrictions on the activities of M&T and may also adversely affect M&T’s ability to enter into certain transactions, including acquisitions, or obtain necessary approvals in connection therewith, as well as loss of financial holding company status. Additionally, if all of the Company’s depository institution subsidiaries have not received at least a “satisfactory” rating on its most recent examination under the Community Reinvestment Act of 1977 (the “CRA”), it would not be able to commence any new financial activities or acquire a company that engages in such activities, although it would still be allowed to engage in activities closely related to banking and make investments in the ordinary course of conducting banking activities. For recent revisions to the CRA, see the section captioned “Community Reinvestment Act” included herein.

Enhanced Prudential Standards

Under Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), U.S. bank holding companies with total consolidated assets of $100 billion or more, including M&T, are currently subject to enhanced prudential standards. The enhanced prudential standards include risk-based capital and leverage requirements, liquidity standards, risk management and risk committee requirements, stress test requirements and a debt-to-equity limit for companies that the Financial Stability Oversight Council has determined would pose a grave threat to systemic financial stability were they to fail such limits.

In October 2019, the Federal Reserve and the other Federal bank regulators adopted rules that tailor the application of the enhanced prudential standards to bank holding companies and of capital and liquidity requirements to bank holding companies and depository institutions (the “Tailoring Rules”). The Tailoring Rules assign each U.S. bank holding company with $100 billion or more in total consolidated assets, as well as its bank subsidiaries, to one of four categories based on its size and five other risk-based indicators: (1) cross-jurisdictional activity, (2) weighted short-term wholesale funding, (3) nonbank assets, (4) off-balance sheet exposure, and (5) status as a U.S. global systemically important bank holding company (“G-SIB”). Under the Tailoring Rules, M&T (and, pursuant to the Tailoring Rules, its depository institution subsidiaries) is subject to Category IV standards, which apply to banking organizations with at least $100 billion in total consolidated assets that do not meet any of the thresholds specified for Categories I through III.

Under the Tailoring Rules, Category IV firms, among other things, (1) are not subject to any Liquidity Coverage Ratio (“LCR”) or Net Stable Funding Ratio (“NSFR”) (or, in certain cases, subject to reduced requirements), (2) remain eligible to opt-out of the requirement to recognize most elements of Accumulated Other Comprehensive Income (“AOCI”) in regulatory capital, (3) are no

8


longer subject to company-run stress testing requirements, (4) are subject to supervisory stress testing on a biennial basis rather than an annual basis, (5) are subject to requirements to develop and maintain a capital plan on an annual basis and (6) are subject to certain liquidity risk management and risk committee requirements. Category IV firms continue not to be subject to (1) advanced approaches capital requirements, (2) the supplementary leverage ratio and (3) the countercyclical capital buffer. Other elements of the Tailoring Rules are discussed in further detail throughout this section.

M&T will continue to evaluate the impact of any changes in law and any new regulations promulgated, including changes in regulatory costs and fees, modifications to consumer products or disclosures required by the CFPB and the requirements of the enhanced supervision provisions, among others.

Capital Requirements

M&T and its subsidiary banks are required to comply with applicable capital adequacy standards established by the federal banking agencies (the “Capital Rules”), which are based on the Basel Committee’s December 2010 final capital framework for strengthening international capital standards, referred to as “Basel III”.

Among other matters, the Capital Rules impose a capital measure called Common Equity Tier 1 Capital (“CET1”) to which most deductions/adjustments to regulatory capital measures must be made. In addition, the Capital Rules specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain specified requirements. Pursuant to the Capital Rules, the

minimum capital ratios are as follows:

 

4.5% CET1 to risk-weighted assets;

 

6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;

 

8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

 

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

 

In calculating regulatory capital ratios M&T must assign risk weights to the Company’s assets and off-balance sheet items. M&T has an ongoing process to review data elements associated with certain assets that from time to time may affect how specific assets are classified and could lead to increases or decreases of the regulatory risk weights assigned to such assets.

In March 2020, the Federal Reserve and the other federal banking regulators adopted rules to integrate the stress testing regime with ongoing supervisory capital requirements by introducing a dynamic and bespoke stress capital buffer requirement (the “Stress Capital Buffer”) for firms subject to CCAR supervisory stress tests. Under the final rule, the capital conservation buffer requirement was amended by replacing the static 2.5% risk-weighted assets component of the buffer with the Stress Capital Buffer, which will be based on a firm’s individual supervisory stress test and cannot be less than 2.5% of risk-weighted assets. As applicable to Category IV firms, M&T’s Stress Capital Buffer, which is 2.5%, remains effective for two years, commencing on October 1, 2020, unless the firm’s Stress Capital Buffer is reset in connection with a resubmission of a capital plan. Accordingly, it currently is subject to a CET1 capital requirement of 7.0% (a sum of the Stress Capital Buffer and the minimum CET 1 capital ratio). During these two years, M&T is required to maintain its Stress Capital Buffer above its minimum CET1 risk-based, Tier 1 risk-based and total risk-based capital requirements in order to avoid restrictions on capital distributions and discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” since March 2020, defined as the greater of (i) net income for

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the four preceding quarters, net of distributions and associated tax effects not reflected in net income; and (ii) the average of all net income over the preceding four quarters.      

CET1 consists of common stock instruments that meet the eligibility criteria in the Capital Rules, including common stock and related surplus, net of treasury stock, retained earnings, certain minority interests and, for certain firms, AOCI. As permitted under the Capital Rules, M&T made a one-time permanent election to neutralize certain AOCI components, with the result that those components are not recognized in M&T’s CET1. The Capital Rules also preclude certain hybrid securities, such as trust preferred securities, from inclusion in bank holding companies’ Tier 1 capital. Thus, trust preferred securities no longer included in M&T’s Tier 1 capital may nonetheless be included as a component of Tier 2 capital on a permanent basis and irrespective of whether such securities otherwise meet the revised definition of Tier 2 capital set forth in the Capital Rules. M&T’s regulatory capital ratios are presented in note 23 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.”

The Capital Rules provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, certain deferred tax assets, and significant investments in non-consolidated financial entities be deducted from CET1. The deductions and other adjustments to CET1 capital generally became fully phased-in on January 1, 2018, except that in November 2017, the federal banking regulators revised the Capital Rules to extend the then-current transitional treatment of these deductions for non-advanced approaches banking organizations (the “Transition Rule”) until revisions to the deductions became effective.

In July 2019, the federal banking regulators adopted rules intended to simplify the deductions for these items for banking organizations, such as M&T, that are not subject to the “advanced approaches” under the Capital Rules (the “Capital Simplification Rules”). The Capital Simplifications Rules and the rescission of the Transition Rule were adopted by the Company as of January 1, 2020.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company. The impact of Basel IV will depend on the manner in which it is implemented by the federal banking regulators.

Stress Testing and Capital Plan Review

As part of the enhanced prudential requirements applicable to systemically important financial institutions, the Federal Reserve conducts periodic analyses of bank holding companies with at least $100 billion in total consolidated assets to determine whether the companies have sufficient capital on a consolidated basis necessary to absorb losses in baseline and severely adverse economic and financial scenarios generated by the Federal Reserve. For Category IV firms, such as M&T, these supervisory stress tests occur on a biennial basis, including 2020. The Federal Reserve may also use additional components in the severely adverse scenario or additional or more complex scenarios designed to capture salient risks to specific business groups. A summary of results of the Federal Reserve’s analysis under the severely adverse stress scenario is publicly disclosed. Under the Tailoring Rules, Category IV firms, including M&T, are no longer subject to company-run stress

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testing requirements. However, they remain subject to required capital plan submissions and to the associated reporting requirements.

In addition, bank holding companies with total consolidated assets of $100 billion or more, such as M&T, must submit annual capital plans for approval as part of the Federal Reserve’s CCAR process. The comprehensive capital plans include a view of capital adequacy under various scenarios — including a BHC-defined baseline scenario, a baseline scenario provided by the Federal Reserve, at least one BHC-defined stress scenario, and severely adverse scenarios provided by the Federal Reserve. The CCAR process is intended to help ensure that these bank holding companies have robust, forward-looking capital planning processes that account for each company’s unique risks and that permit continued operations during times of economic and financial stress. Each of the bank holding companies participating in the CCAR process is also required to collect and report certain related data to the Federal Reserve on a quarterly basis to allow the Federal Reserve to monitor progress against the approved capital plans. Each capital plan must include a view of capital adequacy under the stress test scenarios described above. In September 2020, the Federal Reserve issued a proposal to align its CCAR process with the categories of standards set forth in the Tailoring Rules and requested comment on all its capital planning guidance. Under the proposal, for Category IV firms, the portion of the Stress Capital Buffer based on the Federal Reserve’s supervisory stress tests would be calculated every other year. During a year in which a Category IV firm does not undergo a supervisory stress test, the firm would receive an updated Stress Capital Buffer that reflects the firm’s updated planned common stock dividends. A Category IV firm would also be able to elect to participate in the supervisory stress test in a year in which the firm would not normally be subject to the supervisory stress test and consequently receive an updated Stress Capital Buffer.  In June 2020, all bank holding companies participating in CCAR 2020, including M&T, were required by the Federal Reserve to resubmit their capital plans in November 2020 in light of the ongoing economic effects of the Coronavirus Disease 2019 (“COVID-19”) pandemic. As a result of this resubmission requirement, M&T and the other bank holding companies participating in CCAR have been subject to the limitations on distributions described below since the third quarter of 2020.

The Federal Reserve also incorporates an assessment of the qualitative aspects of the firm’s capital planning process into regular, ongoing supervisory activities and through targeted, horizontal assessments of particular aspects of capital planning. M&T’s annual CCAR capital plan is currently due in April each year. The Federal Reserve publishes the results of its supervisory stress tests and quantitative CCAR review of capital plans by June 30 of each year.

Under the Stress Capital Buffer Rule adopted in March 2020, a bank holding company’s planned capital distributions must be consistent with any effective distribution limitations that would apply under the firm’s own baseline projections, including its Stress Capital Buffer. Additionally, as noted above, in March 2020, the Federal Reserve and the other federal banking regulators adopted rules to integrate the stress testing regime with supervisory capital requirements by introducing the Stress Capital Buffer for firms subject to CCAR supervisory stress tests. M&T’s ability to make capital distributions may be impacted in the event that M&T fails to maintain its Stress Capital Buffer above its minimum CET1 risk-based, Tier-1 risk-based and total risk-based capital requirements.

Distributions

M&T is a legal entity separate and distinct from its banking and other subsidiaries. Historically, the majority of M&T’s revenue has been from dividends paid to M&T by its subsidiary banks. M&T Bank and Wilmington Trust, N.A. are subject to laws and regulations imposing restrictions on the amount of dividends they may declare and pay. Future dividend payments to M&T by its subsidiary banks will be dependent on a number of factors, including the earnings and financial condition of each such bank, and are subject to the limitations referred to in note 23 of Notes to Financial

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Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data,” and to other statutory powers of bank regulatory agencies.

An insured depository institution is prohibited from making any capital distribution to its owner, including any dividend, if, after making such distribution, the depository institution fails to meet the required minimum level for any relevant capital measure, including the risk-based capital adequacy and leverage standards discussed herein. Dividend payments by M&T to its shareholders and common stock repurchases by M&T are subject to the oversight of the Federal Reserve. As described under “Stress Testing and Capital Plan Review,” dividends and common stock repurchases (net of any new stock issuances as per a capital plan) generally may only be paid or made under a capital plan as to which the Federal Reserve has not objected.

The final rule implementing the Stress Capital Buffer (See above, “Capital Requirements”) also provides that a BHC must receive prior approval for any dividend, stock repurchase, or other capital distribution other than a capital distribution on a newly issued capital instrument, if the BHC is required to resubmit its capital plan. In connection with the November 2020 resubmission described under “Stress Testing and Capital Plan Review,” the Federal Reserve required those BHCs to suspend stock repurchases during the third and fourth quarters of 2020, and not to increase common stock dividends or pay common stock dividends in excess of their average net income over the past four quarters. In the first quarter of 2021, Federal Reserve rules permit BHCs to repurchase stock and pay dividends at a combined aggregate value of the average of their net income from the previous four quarters.

Liquidity

Under the Tailoring Rules, the Company is not subject to the Federal Reserve and other federal banking regulators rules, which implement a U.S. version of the Basel Committee’s LCR requirement, which is intended to ensure that banks hold sufficient amounts of so-called “high quality liquid assets” (“HQLA”) to cover the anticipated net cash outflows during a hypothetical acute 30-day stress scenario or the Net Stable Funding Ratio, which is designed to promote more medium- and long-term funding of the assets and activities of banks over a one-year time horizon. The Federal Reserve’s enhanced prudential standards, however, require the Company, as a bank holding company with $100 billion or more in total consolidated assets to comply with enhanced liquidity and overall risk management standards, which include maintaining a level of highly liquid assets based on projected funding needs for 30 days, and increased involvement by boards of directors in liquidity and overall risk management.

Under the Tailoring Rules, M&T also remains subject to liquidity risk management requirements, that require the company to: (i) calculate collateral positions monthly, as opposed to weekly; (ii) establish a more limited set of liquidity risk limits; and (iii) monitor fewer elements of intraday liquidity risk exposures. M&T is also subject to liquidity stress testing quarterly, rather than monthly, and is required to report liquidity data on the FR 2052a on a monthly basis. M&T remains subject to the liquidity buffer requirements.

Cross Guaranty Provision

The cross guaranty provisions in the Federal Deposit Insurance Act (“FDIA”) were enacted by Congress in the Financial Institutions, Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) and require each insured depository institution owned by the same BHC to be financially responsible for the failure or resolution costs of any affiliated insured institution. Generally, the amount of the cross guaranty liability is equal to the estimated loss to the DIF for the resolution of the affiliated institution(s) in default. The FDIC’s claim under the cross guaranty provision is superior to claims of shareholders of the insured depository institution or its BHC and to most claims arising out of obligations or liabilities owed to affiliates of the institution, but is subordinate to claims of

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depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. The FDIC may decline to enforce the cross guaranty provision if it determines that a waiver is in the best interest of the DIF.

Volcker Rule

The so-called Volcker Rule limits proprietary trading and investing in and sponsoring certain hedge funds and private equity funds (defined as “covered funds” in the Volcker Rule). The Company does not engage in any significant amount of proprietary trading as defined in the Volcker Rule and implemented the required procedures for those areas in which trading does occur. In addition, the Company does not engage in any significant covered fund activities that are impacted by the Volcker Rule.  

Safety and Soundness Standards

Guidelines adopted by the federal bank regulatory agencies pursuant to the FDIA establish general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. Additionally, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Limits on Undercapitalized Depository Institutions

The FDIA establishes a system of regulatory remedies to resolve the problems of undercapitalized institutions, referred to as the prompt corrective action. The federal banking regulators have established five capital categories (“well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”) and must take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions which are undercapitalized, significantly undercapitalized or critically undercapitalized. The severity of these mandatory and discretionary supervisory actions depends upon the capital category in which the institution is placed. The FDIC has specified by regulation the relevant capital levels for each category. The FDIA’s prompt corrective action provisions only apply to depository institutions and not to bank holding companies. The Federal Reserve’s regulations applicable to bank holding companies separately define “well capitalized.” A financial holding company that is not well-capitalized and well-managed (or whose bank subsidiaries are not well capitalized and well managed) under applicable prompt corrective action standards may be restricted in certain of its activities and ultimately may lose financial holding company status. Under existing rules, a depository institution that is not an advanced approaches institution is deemed to be “well capitalized” if it has (i) a CET1 ratio of at least 6.5%, (ii) a Tier 1 capital ratio of at least 8%, (iii) a Total capital ratio of at least 10%, and (iv) a Tier 1 leverage ratio of at least 5%.

An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking regulator. Under the FDIA, in order for the capital restoration plan to be accepted by the appropriate federal banking agency, a BHC must guarantee that a subsidiary depository institution

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will comply with its capital restoration plan, subject to certain limitations. The BHC must also provide appropriate assurances of performance. An undercapitalized institution is also generally prohibited from increasing its average total assets, accepting brokered deposits or offering interest rates on any deposits significantly higher than prevailing market rates, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. Institutions that are significantly undercapitalized or undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions failing to submit or implement an acceptable capital restoration plan are subject to appointment of a receiver or conservator.

Transactions with Affiliates

There are various legal restrictions on the extent to which M&T and its non-bank subsidiaries or affiliates (M&T Insurance Agency, Inc., M&T Realty Capital Corporation, M&T Securities, Inc., Wilmington Trust, N.A., Wilmington Trust Investment Advisors, Inc.) may borrow or otherwise obtain funding from M&T Bank and Wilmington Trust, N.A. In general, Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W require that any “covered transaction” by M&T Bank and Wilmington Trust, N.A. (or any of their respective subsidiaries) with an affiliate must in certain cases be secured by designated amounts of specified collateral and must be limited as follows: (i) in the case of any single such affiliate, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries may not exceed 10% of the capital stock and surplus of such insured depository institution, and (ii) in the case of all affiliates, the aggregate amount of covered transactions of an insured depository institution and its subsidiaries may not exceed 20% of the capital stock and surplus of such insured depository institution. “Covered transactions” are defined by statute to include, among other things, a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. All covered transactions, including certain additional transactions (such as transactions with a third party in which an affiliate has a financial interest), must be conducted on terms and under circumstances including credit standards, (i) that are substantially the same, or at least as favorable to such bank or its subsidiary, as those prevailing at the time for comparable transactions with or involving other nonaffiliated companies, or in the absence of comparable transactions, or (ii) that in good faith would be offered to, or would apply to, nonaffiliated companies.

FDIC Insurance Assessments

M&T Bank and Wilmington Trust, N.A. deposits are insured by the DIF of the FDIC up to the limits set forth under applicable law. The FDIC imposes a risk-based premium assessment system that determines assessment rates for financial institutions. Deposit insurance assessments are based on average total assets minus average tangible equity. For larger institutions, such as M&T Bank, the FDIC uses a performance score and a loss-severity score that are used to calculate an initial assessment rate. In calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings and certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress. The FDIC has the ability to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the calculations. Under the current system, premiums are assessed quarterly.

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Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Acquisitions

The BHCA requires every BHC to obtain the prior approval of the Federal Reserve before: (1) it may acquire direct or indirect ownership or control of any voting shares of any bank or savings institution, if after such acquisition, the BHC will directly or indirectly own or control 5% or more of the voting shares of the institution; (2) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank or savings institution; or (3) it may merge or consolidate with any other BHC. Financial holding companies are required to obtain prior approval from the Federal Reserve before acquiring certain nonbank financial companies with assets exceeding $10 billion.

The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy and consideration of convenience and needs issues and includes the parties’ performance under the CRA and compliance with laws, especially consumer protection laws. When evaluating a transaction, the Federal Reserve must also take into account the institutions’ effectiveness in combating money laundering and consider the extent to which the transaction would result in greater or more concentrated risks to the stability of the United States banking or financial system.

Executive and Incentive Compensation

Guidelines adopted by several federal banking agencies prohibit excessive compensation as an unsafe and unsound practice and describe compensation as “excessive” when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. The Federal Reserve issued comprehensive guidance on incentive compensation policies (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act noted below. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The Incentive Compensation Guidance provides that enforcement actions may be taken against a banking organization if its incentive compensation

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arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets, such as M&T and M&T Bank. The agencies proposed rules to implement this requirement but these proposed rules have not been finalized.

In addition, the NYSDFS issued guidance emphasizing that its regulated banking institutions, including M&T Bank, must ensure that any incentive compensation arrangements tied to employee performance indicators are subject to effective risk management, oversight and control.

Resolution Planning

Pursuant to the Dodd-Frank Act, as amended by EGRRCPA, certain bank holding companies are required to report periodically to the Federal Reserve and the FDIC a resolution plan for their rapid and orderly resolution in the event of material financial distress or failure. In late 2019, in connection with the release of the Tailoring Rules, the Federal Reserve and FDIC finalized rules that, among other things, adjusted the review cycles and applicability of the agencies’ resolution planning requirements. Under these rules, Category IV firms such as M&T are no longer required to submit resolution plans.

The FDIC has separately implemented a resolution planning rule that requires insured depository institutions (“IDIs”) with $50 billion or more in total assets, such as M&T Bank, to submit to the FDIC periodic plans for resolution in the event of the institution’s failure. In April 2019, the FDIC released an advance notice of proposed rulemaking about potential changes to its resolution planning requirements for IDIs. In January 2021, the FDIC lifted its moratorium on resolution plans required for IDIs with $100 billion or more in total assets. This resumption in resolution planning requirements contemplates periodic engagement with IDIs and a minimum twelve-month advance notice prior to a required resolution plan submission.

Insolvency of an Insured Depository Institution or a Bank Holding Company

If the FDIC is appointed as conservator or receiver for an insured depository institution such as M&T Bank or Wilmington Trust, N.A., upon its insolvency or in certain other events without limitation, the FDIC has the power:

 

to transfer any of the depository institution’s assets and liabilities to a new depository institution, including a newly formed “bridge” bank without the approval of the insolvent depository institution’s creditors or equity holders;

 

to enforce the terms of the depository institution’s contracts pursuant to their terms without regard to any provisions triggered by the appointment of the FDIC in that capacity; or

 

to repudiate or disaffirm any contract or lease to which the depository institution is a party, the performance of which is determined by the FDIC to be burdensome and the disaffirmance or repudiation of which is determined by the FDIC to promote the orderly administration of the depository institution.

In addition, under federal law, the claims of holders of domestic deposit liabilities and certain claims for administrative expenses against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including claims of debt holders of the institution, in the “liquidation or other resolution” of such an institution by any receiver. As a result, whether or not the FDIC ever sought to repudiate any debt obligations of M&T

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Bank or Wilmington Trust, N.A., the debt holders would be treated differently from, and could receive, if anything, substantially less than, the depositors of the bank. The Dodd-Frank Act created a new resolution regime (known as “orderly liquidation authority”) for systemically important financial companies, including bank holding companies and their affiliates. Under the orderly liquidation authority, the FDIC may be appointed as receiver for the systemically important institution, and its failed subsidiaries, for purposes of liquidating the entity if, among other conditions, it is determined at the time of the institution’s failure that it is in default or in danger of default and the failure poses a risk to the stability of the U.S. financial system.

If the FDIC is appointed as receiver under the orderly liquidation authority, then the powers of the receiver, and the rights and obligations of creditors and other parties who have dealt with the institution, would be determined under the Dodd-Frank Act provisions, and not under the insolvency law that would otherwise apply. The powers of the receiver under the orderly liquidation authority were based on the powers of the FDIC as receiver for depository institutions under the FDIA. However, the provisions governing the rights of creditors under the orderly liquidation authority were modified in certain respects to reduce disparities with the treatment of creditors’ claims under the U.S. Bankruptcy Code as compared to the treatment of those claims under the new authority. Nonetheless, substantial differences in the rights of creditors exist as between these two regimes, including the right of the FDIC to disregard the strict priority of creditor claims in some circumstances, the use of an administrative claims procedure to determine creditors’ claims (as opposed to the judicial procedure utilized in bankruptcy proceedings), and the right of the FDIC to transfer claims to a “bridge” entity.

An orderly liquidation fund will fund such liquidation proceedings through borrowings from the Treasury Department and risk-based assessments made, first, on entities that received more in the resolution than they would have received in liquidation to the extent of such excess, and second, if necessary, on bank holding companies with total consolidated assets of $50 billion or more, such as M&T. If an orderly liquidation is triggered, M&T could face assessments for the orderly liquidation fund.

The FDIC has developed a strategy under the orderly liquidation authority referred to as the “single point of entry” strategy, under which the FDIC would resolve a failed financial holding company by transferring its assets (including shares of its operating subsidiaries) and, potentially, very limited liabilities to a “bridge” holding company; utilize the resources of the failed financial holding company to recapitalize the operating subsidiaries; and satisfy the claims of unsecured creditors of the failed financial holding company and other claimants in the receivership by delivering securities of one or more new financial companies that would emerge from the bridge holding company. Under this strategy, management of the failed financial holding company would be replaced and shareholders and creditors of the failed financial holding company would bear the losses resulting from the failure.

Depositor Preference

Under federal law, depositors and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution in the “liquidation or other resolution” of such an institution by any receiver. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the parent BHC, with respect to any extensions of credit they have made to such insured depository institution.

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Financial Privacy and Cyber Security

The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public and personally identifiable information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

In October 2016, the federal banking regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision. If established, the enhanced cyber risk management standards would be designed to help reduce the potential impact of a cyber-attack or other cyber-related failure on the financial system. The advance notice of proposed rulemaking addresses five categories of cyber standards: (1) cyber risk governance; (2) cyber risk management; (3) internal dependency management; (4) external dependency management; and (5) incident response, cyber resilience, and situational awareness. In May 2019, the Federal Reserve announced that it would revisit the Advance Notice of Proposed Rulemaking in the future. In December 2020, the federal banking agencies issued a Notice of Proposed Rulemaking that would require banking organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” or a “notification incident.” The Notice of Proposed Rulemaking also would require specific and immediate notifications by bank service providers that become aware of similar incidents.  

In March 2017, the NYSDFS implemented regulations requiring financial institutions regulated by the NYSDFS, including M&T Bank, to, among other things, (i) establish and maintain a cyber security program designed to ensure the confidentiality, integrity and availability of their information systems; (ii) implement and maintain a written cyber security policy setting forth policies and procedures for the protection of their information systems and nonpublic information; and (iii) designate a Chief Information Security Officer.

Many state regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations, including implementing or modifying their data breach notification and data privacy requirements. One example is the California Consumer Privacy Act, which became effective on January 1, 2020 and applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds.

Consumer Protection Laws and the Consumer Financial Protection Bureau Supervision

In connection with their respective lending and leasing activities, M&T Bank, Wilmington Trust, N.A. and certain of their subsidiaries, are each subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy. Such laws include: the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Electronic Fund Transfer Act, the Real Estate Settlement Procedures Act, the Military Lending Act, the Servicemembers Civil Relief Act, and various state law counterparts. Furthermore, the CFPB has issued integrated disclosure requirements under the Truth in Lending Act and the Real Estate

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Settlement Procedures Act that relate to the provision of disclosures to borrowers. There are also consumer protection laws governing deposit taking activities (e.g. Truth in Savings Act), as well securities and insurance laws governing certain aspects of the Company’s consolidated operations.

The CFPB has broad powers to supervise and enforce most federal consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets, including M&T Bank.

In addition, federal law permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

Community Reinvestment Act

The CRA is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. CRA examinations are conducted by the federal agencies that are responsible for supervising the relevant depository institutions: the Federal Reserve Board, the FDIC and the OCC. For purposes of the CRA, M&T is regulated by the Federal Reserve Board. A financial institution’s performance in helping to meet the credit needs of its community is evaluated in the context of information about the institution (capacity, constraints and business strategies), its community (demographic and economic data, lending, investment, and service opportunities), and its competitors and peers. Upon completion of a CRA examination, an overall CRA Rating is assigned using a four-tiered rating system. These ratings are: “Outstanding,” “Satisfactory,” “Needs to Improve” and “Substantial Noncompliance.” The CRA evaluation is used in evaluating applications for future approval of bank activities including mergers, acquisitions, charters, branch openings and deposit facilities. An unsatisfactory CRA evaluation could result in the delay or denial of acquisition or merger applications, among other activities. M&T Bank has a current rating of “Outstanding.” M&T Bank is also subject to New York State CRA examination and is assessed using a 1 to 4 scoring system. M&T Bank currently has a rating of 1, or “Outstanding” from the NYSDFS. Wilmington Trust, N.A. has been designated a special purpose trust company since March 3, 2016, and is therefore exempt from the requirements of the CRA. In May 2020, the OCC issued its final CRA rule, effective October 1, 2020 without the other federal banking agencies. In September 2020, the Federal Reserve released an Advance Notice of Proposed Rulemaking that seeks public comment on ways to modernize the Federal Reserve’s CRA regulation. The effects on the Company of any potential change to the CRA rules will depend on the final form of any Federal Reserve rulemaking and cannot be predicted at this time.  The Company will continue to evaluate the impact of any changes to the regulations implementing the CRA.

Bank Secrecy Act Regulation and Anti-Money Laundering Obligations

Federal laws and regulations impose obligations on U.S. financial institutions, including banks and broker/dealer subsidiaries, to implement and maintain appropriate policies, procedures and controls which are reasonably designed to prevent, detect and report instances of money laundering and the financing of terrorism and to verify the identity of their customers. These provisions also require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and BHC acquisitions. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution, including the denial by federal regulators of proposed merger, acquisition, restructuring or other expansionary activity.

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The Financial Crimes Enforcement Network, which drafts regulations implementing the USA PATRIOT Act and other anti-money laundering and Bank Secrecy Act legislation, has adopted rules that require financial institutions to, among other things, obtain beneficial ownership information with respect to legal entities with which such institutions conduct business, subject to certain exclusions and exemptions. Bank regulators are focusing their examinations on anti-money laundering compliance, and M&T continues to monitor and augment, where necessary, its Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”) Compliance Program.

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted in January as part of the National Defense Authorization Act for Fiscal Year 2021. The AMLA is intended to be the most comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws since the BSA was enacted. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections. M&T will modify its anti-money laundering compliance program as necessary to comply with the changes reflected in the AMLA and the regulations that will implement it.

Office of Foreign Assets Control Regulation

The United States has imposed economic sanctions that prohibit transactions with designated foreign countries, nationals and others. These are typically known as the “OFAC” rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g. property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences, including denial by federal regulators of proposed merger, acquisition, restructuring, or other expansionary activity. The OFAC rules are included as part of M&T’s BSA/AML Compliance Program, which M&T continues to monitor and augment, where necessary.

Regulation of Insurers and Insurance Brokers

The Company’s operations in the areas of insurance agency/brokerage and reinsurance of credit life insurance are subject to regulation and supervision by various state insurance regulatory authorities. Although the scope of regulation and form of supervision may vary from state to state, insurance laws generally grant broad discretion to regulatory authorities in adopting regulations and supervising regulated activities. This supervision generally includes the licensing of insurance brokers and agents and the regulation of the handling of customer funds held in a fiduciary capacity. Certain of M&T’s subsidiaries that are engaged in insurance-related activities are subject to extensive regulatory supervision and to insurance laws and regulations requiring, among other things, maintenance of capital, record keeping, reporting and examinations.

20


Federal Reserve Policies

The earnings of the Company are significantly affected by the monetary and fiscal policies of governmental authorities, including the Federal Reserve. Among the instruments of monetary policy used by the Federal Reserve are open-market operations in U.S. Government securities and federal funds, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These instruments of monetary policy are used in varying combinations to influence the overall level of bank loans, investments and deposits, and the interest rates charged on loans and paid for deposits. The Federal Reserve frequently uses these instruments of monetary policy, especially its open-market operations and the discount rate, to influence the level of interest rates and to affect the strength of the economy, the level of inflation or the price of the dollar in foreign exchange markets. The monetary policies of the Federal Reserve have had a significant effect on the operating results of banking institutions in the past and are expected to continue to do so in the future. It is not possible to predict the nature of future changes in monetary and fiscal policies or the effect which they may have on the Company’s business and earnings.

Corporate Governance

M&T’s Corporate Governance Standards and the following corporate governance documents are also available on M&T’s website at the Investor Relations link: Disclosure and Regulation FD Policy; Executive Committee Charter; Nomination, Compensation and Governance Committee Charter; Audit Committee Charter; Risk Committee Charter; Financial Reporting and Disclosure Controls and Procedures Policy; Code of Ethics for CEO and Senior Financial Officers; Code of Business Conduct and Ethics; and Employee Complaint Procedures for Accounting and Auditing Matters. Copies of such governance documents are also available, free of charge, to any person who requests them. Such requests may be directed to M&T Bank Corporation, Shareholder Relations Department, One M&T Plaza, 8th Floor, Buffalo, NY 14203-2399 (Telephone: (716) 842-5138).

Human Capital Resources

M&T recognizes employees are the difference makers that drive success. The Company’s talent strategy focuses on recruiting, developing, promoting and retaining high-performing individuals of diverse backgrounds whose strengths align with M&T’s values, purpose and leadership competencies to create and maintain a highly competitive workforce.

As of December 31, 2020, the Company employed 17,373 full-time and part-time employees.  The Company’s employee base is concentrated in the Northeast and Mid-Atlantic United States, with approximately 58% of employees residing in New York, followed by 13% in Maryland, 11% in Delaware and the remainder primarily concentrated in the other states where M&T Bank maintains a retail bank branch presence.  Approximately 4% of the Company’s employee base resides outside of its retail banking footprint.  Inclusive in the above, as of December 31, 2020, the Company employed 106 international employees based in the UK, Ireland, Canada, Germany and France.  

The Company’s employee base includes 4,028 employees that support customers in the retail branch network. Overall, the average tenure of the Company’s employees is 10 years and the average tenure of the Executive Officers that comprise M&T’s Management Committee is 23 years.  

 

21


 

Diversity, Inclusion and Belonging

M&T strives to foster an inclusive environment through which the unique talents and perspectives of each employee are understood, valued, respected and leveraged. The Company’s recruiting and engagement efforts are focused on attracting, promoting and retaining diverse, talented employees at all levels. As of December 31, 2020, the Company’s workforce consisted of approximately 60% women and 23% people of color.  

M&T supports several employee resource group charters and chapters that are voluntary, employee-driven groups organized around a particular shared interest and characteristic, such as race, ethnicity, gender, sexual orientation or differing abilities. Approximately 36% of the Company’s employees and 50% of managers are involved in these groups. The Company’s diversity efforts are led by the its Chief Diversity Officer, who is a member of the senior leadership team, and the Senior Leadership Diversity & Inclusion Council, both of which champion inclusion efforts throughout the Company. M&T's Board of Directors also receives updates on the Company's diversity, inclusion and belonging efforts. Additionally, the Company’s Rising Leadership Development Program focuses on building a successful talent pipeline by strengthening the leadership skills and connections of the Company’s high-performing, diverse employees.

 

Development and Engagement

The Company’s performance management philosophy is foundational to its employees’ success, focusing on reinforcing values, providing continuous, transparent feedback and recognizing and rewarding outstanding performance. The Company helps empower employee performance and cultivate employee development through a variety of learning offerings on topics such as technical, job-specific skills and professional development, including courses aligned with the Company’s enterprise-wide leadership competencies. Training content is made available as synchronous, asynchronous, and blended learning solutions to promote employee access. The Company also invests in creating its leaders of tomorrow through various internal programs, including but not limited to its Manager Acceleration Program, Management Development Program, Executive Associate Program and Technology Development Program.

M&T’s commitment to finding the best talent, creating a positive employee experience and fostering development results in a highly engaged employee base that drives the Company’s success. Since 2001, the Company has conducted 15 “Engagement Surveys,” with average participation rates above 90%, demonstrating a commitment to fostering candid, open and honest, two-way communication with employees to create the best, possible workplace. All survey results are reviewed with senior management and shared with individual managers, who identify and implement improvements based on employees’ feedback, as well as presented to M&T's Board of Directors. Employees also participate in action planning within individual work groups. Throughout 2020, the Company issued 15 additional surveys to continuously monitor employee welfare during the COVID-19 pandemic and prioritize any needed employee support initiatives.

 

Compensation, Health and Wellness

The Company provides what it believes are comprehensive compensation and benefits programs intended to attract, retain and incentivize its employees. In addition to salaries, these programs (which vary by country and region) include annual bonuses, stock awards, an Employee Stock Purchase Plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, parental leave, family care resources, flexible work schedules, employee assistance programs and tuition assistance, among others.

22


The Company’s wellness program provides employees and their families with resources that may be helpful in navigating life events and are designed to provide support to help improve their well-being. In addition to addressing employees’ physical needs through flexible and convenient medical plan and telemedicine options, M&T endeavors to find ways to contribute to employees’ emotional health and social well-being through various programs offered to employees.  The Company partners with several of its medical partners to offer sponsored events and courses, led by medical experts, and also works to help employees manage their financial wellness through free educational resources.

In response to the global COVID-19 pandemic, the Company implemented increased safety measures, such as introducing social distancing guidelines and providing protective equipment and increased sanitation at all work sites.  The Company also implemented work from home practices for employees capable of performing their duties remotely.  M&T will continue to monitor the COVID-19 pandemic and take appropriate measures to protect the safety and health of employees.  

 

Competition

The Company faces extensive and intensive competition in the products and services it offers. The Company competes in offering commercial and personal financial and wealth services with other banking institutions and thrifts and with firms in a number of other industries, such as credit unions, personal loan companies, sales finance companies, leasing companies, securities brokerage firms, mutual fund companies, hedge funds, wealth and investment advisory firms, insurance companies and other financial services-related entities. Furthermore, diversified financial services companies are able to offer a combination of these services to their customers on a nationwide basis.

Other Information

Through a link on the Investor Relations section of M&T’s website at www.mtb.com, copies of M&T’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are made available, free of charge, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. Copies of such reports and other information are also available at no charge to any person who requests them or at www.sec.gov. Such requests may be directed to M&T Bank Corporation, Shareholder Relations Department, One M&T Plaza, 8th Floor, Buffalo, NY 14203-2399 (Telephone: (716) 842-5138).

Statistical Disclosure Pursuant to Guide 3

See cross-reference sheet for disclosures incorporated elsewhere in this Annual Report on Form 10-K. Additional information is included in the following tables.

23


Table 1

SELECTED CONSOLIDATED YEAR-END BALANCES

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits at banks

 

$

23,663,810

 

 

$

7,190,154

 

 

$

8,105,197

 

 

$

5,078,903

 

 

$

5,000,638

 

Federal funds sold

 

 

 

 

 

3,500

 

 

 

 

 

 

 

Trading account

 

 

1,068,581

 

 

 

470,129

 

 

 

185,584

 

 

 

132,909

 

 

 

323,867

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal

   agencies

 

 

6,360,218

 

 

 

8,746,749

 

 

 

11,746,240

 

 

 

13,851,832

 

 

 

15,090,578

 

Obligations of states and political

   subdivisions

 

 

1,531

 

 

 

4,915

 

 

 

9,153

 

 

 

27,151

 

 

 

64,499

 

Other

 

 

683,948

 

 

 

745,587

 

 

 

937,420

 

 

 

785,542

 

 

 

1,095,391

 

Total investment securities

 

 

7,045,697

 

 

 

9,497,251

 

 

 

12,692,813

 

 

 

14,664,525

 

 

 

16,250,468

 

Loans and leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, leasing,

   etc.

 

 

27,801,382

 

 

 

23,987,897

 

 

 

23,136,913

 

 

 

21,900,258

 

 

 

22,770,629

 

Real estate — construction

 

 

10,068,141

 

 

 

9,010,297

 

 

 

8,823,635

 

 

 

8,125,925

 

 

 

8,066,756

 

Real estate — mortgage

 

 

44,447,376

 

 

 

42,816,450

 

 

 

42,816,858

 

 

 

44,965,038

 

 

 

48,134,198

 

Consumer

 

 

16,558,889

 

 

 

15,373,881

 

 

 

13,956,086

 

 

 

13,251,665

 

 

 

12,130,094

 

Total loans and leases

 

 

98,875,788

 

 

 

91,188,525

 

 

 

88,733,492

 

 

 

88,242,886

 

 

 

91,101,677

 

Unearned discount

 

 

(339,921

)

 

 

(265,656

)

 

 

(267,015

)

 

 

(253,903

)

 

 

(248,261

)

Loans and leases, net of

   unearned discount

 

 

98,535,867

 

 

 

90,922,869

 

 

 

88,466,477

 

 

 

87,988,983

 

 

 

90,853,416

 

Allowance for credit losses

 

 

(1,736,387

)

 

 

(1,051,071

)

 

 

(1,019,444

)

 

 

(1,017,198

)

 

 

(988,997

)

Loans and leases, net

 

 

96,799,480

 

 

 

89,871,798

 

 

 

87,447,033

 

 

 

86,971,785

 

 

 

89,864,419

 

Goodwill

 

 

4,593,112

 

 

 

4,593,112

 

 

 

4,593,112

 

 

 

4,593,112

 

 

 

4,593,112

 

Core deposit and other intangible

   assets

 

 

14,165

 

 

 

29,034

 

 

 

47,067

 

 

 

71,589

 

 

 

97,655

 

Real estate and other assets owned

 

 

34,668

 

 

 

85,646

 

 

 

78,375

 

 

 

111,910

 

 

 

139,206

 

Total assets

 

 

142,601,105

 

 

 

119,872,757

 

 

 

120,097,403

 

 

 

118,593,487

 

 

 

123,449,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

47,572,884

 

 

 

32,396,407

 

 

 

32,256,668

 

 

 

33,975,180

 

 

 

32,813,896

 

Savings and interest-checking deposits

 

 

67,680,840

 

 

 

54,932,162

 

 

 

50,963,744

 

 

 

51,698,008

 

 

 

52,346,207

 

Time deposits

 

 

3,899,910

 

 

 

5,757,456

 

 

 

6,124,254

 

 

 

6,580,962

 

 

 

10,131,846

 

Deposits at Cayman Islands office

 

 

652,104

 

 

 

1,684,044

 

 

 

811,906

 

 

 

177,996

 

 

 

201,927

 

Total deposits

 

 

119,805,738

 

 

 

94,770,069

 

 

 

90,156,572

 

 

 

92,432,146

 

 

 

95,493,876

 

Short-term borrowings

 

 

59,482

 

 

 

62,363

 

 

 

4,398,378

 

 

 

175,099

 

 

 

163,442

 

Long-term borrowings

 

 

4,382,193

 

 

 

6,986,186

 

 

 

8,444,914

 

 

 

8,141,430

 

 

 

9,493,835

 

Total liabilities

 

 

126,413,822

 

 

 

104,156,108

 

 

 

104,637,212

 

 

 

102,342,668

 

 

 

106,962,584

 

Shareholders’ equity

 

 

16,187,283

 

 

 

15,716,649

 

 

 

15,460,191

 

 

 

16,250,819

 

 

 

16,486,622

 

Table 2

SHAREHOLDERS, EMPLOYEES AND OFFICES

 

Number at Year-End

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders

 

 

16,797

 

 

 

17,333

 

 

 

18,099

 

 

 

18,864

 

 

 

19,802

 

Employees

 

 

17,373

 

 

 

17,773

 

 

 

17,267

 

 

 

16,794

 

 

 

16,973

 

Offices

 

 

751

 

 

 

771

 

 

 

794

 

 

 

833

 

 

 

855

 

 

24


 

Table 3

CONSOLIDATED EARNINGS

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, including fees

 

$

3,975,053

 

 

$

4,442,182

 

 

$

4,164,561

 

 

$

3,742,867

 

 

$

3,485,050

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully taxable

 

 

176,469

 

 

 

288,532

 

 

 

323,912

 

 

 

361,157

 

 

 

361,494

 

Exempt from federal taxes

 

 

183

 

 

 

321

 

 

 

665

 

 

 

1,431

 

 

 

2,606

 

Deposits at banks

 

 

32,956

 

 

 

141,397

 

 

 

108,182

 

 

 

61,326

 

 

 

45,516

 

Other

 

 

8,051

 

 

 

7,161

 

 

 

1,391

 

 

 

1,014

 

 

 

1,205

 

Total interest income

 

 

4,192,712

 

 

 

4,879,593

 

 

 

4,598,711

 

 

 

4,167,795

��

 

 

3,895,871

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

 

146,701

 

 

 

368,003

 

 

 

215,411

 

 

 

133,177

 

 

 

87,704

 

Time deposits

 

 

66,280

 

 

 

95,426

 

 

 

51,423

 

 

 

61,505

 

 

 

102,841

 

Deposits at Cayman Islands office

 

 

4,054

 

 

 

21,917

 

 

 

5,633

 

 

 

1,186

 

 

 

797

 

Short-term borrowings

 

 

28

 

 

 

24,741

 

 

 

5,386

 

 

 

1,511

 

 

 

3,625

 

Long-term borrowings

 

 

109,332

 

 

 

239,242

 

 

 

248,556

 

 

 

189,372

 

 

 

231,017

 

Total interest expense

 

 

326,395

 

 

 

749,329

 

 

 

526,409

 

 

 

386,751

 

 

 

425,984

 

Net interest income

 

 

3,866,317

 

 

 

4,130,264

 

 

 

4,072,302

 

 

 

3,781,044

 

 

 

3,469,887

 

Provision for credit losses

 

 

800,000

 

 

 

176,000

 

 

 

132,000

 

 

 

168,000

 

 

 

190,000

 

Net interest income after provision for credit losses

 

 

3,066,317

 

 

 

3,954,264

 

 

 

3,940,302

 

 

 

3,613,044

 

 

 

3,279,887

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage banking revenues

 

 

566,641

 

 

 

457,770

 

 

 

360,442

 

 

 

363,827

 

 

 

373,697

 

Service charges on deposit accounts

 

 

370,788

 

 

 

432,978

 

 

 

429,337

 

 

 

427,372

 

 

 

419,102

 

Trust income

 

 

601,884

 

 

 

572,608

 

 

 

537,585

 

 

 

501,381

 

 

 

472,184

 

Brokerage services income

 

 

47,428

 

 

 

48,922

 

 

 

51,069

 

 

 

61,445

 

 

 

63,423

 

Trading account and foreign exchange gains

 

 

40,536

 

 

 

62,044

 

 

 

32,547

 

 

 

35,301

 

 

 

41,126

 

Gain (loss) on bank investment securities

 

 

(9,421

)

 

 

18,037

 

 

 

(6,301

)

 

 

21,279

 

 

 

30,314

 

Other revenues from operations

 

 

470,588

 

 

 

469,320

 

 

 

451,321

 

 

 

440,538

 

 

 

426,150

 

Total other income

 

 

2,088,444

 

 

 

2,061,679

 

 

 

1,856,000

 

 

 

1,851,143

 

 

 

1,825,996

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,950,692

 

 

 

1,900,797

 

 

 

1,752,264

 

 

 

1,648,794

 

 

 

1,618,074

 

Equipment and net occupancy

 

 

322,037

 

 

 

324,079

 

 

 

298,828

 

 

 

295,084

 

 

 

295,141

 

Outside data processing and software

 

 

258,480

 

 

 

229,731

 

 

 

199,025

 

 

 

184,670

 

 

 

172,389

 

FDIC assessments

 

 

53,803

 

 

 

41,535

 

 

 

68,256

 

 

 

101,871

 

 

 

105,045

 

Advertising and marketing

 

 

61,904

 

 

 

93,472

 

 

 

85,710

 

 

 

69,203

 

 

 

87,137

 

Printing, postage and supplies

 

 

39,869

 

 

 

39,893

 

 

 

35,658

 

 

 

35,960

 

 

 

39,546

 

Amortization of core deposit and other intangible

   assets

 

 

14,869

 

 

 

19,490

 

 

 

24,522

 

 

 

31,366

 

 

 

42,613

 

Other costs of operations

 

 

683,586

 

 

 

819,685

 

 

 

823,529

 

 

 

773,377

 

 

 

687,540

 

Total other expense

 

 

3,385,240

 

 

 

3,468,682

 

 

 

3,288,062

 

 

 

3,140,325

 

 

 

3,047,485

 

Income before income taxes

 

 

1,769,521

 

 

 

2,547,261

 

 

 

2,508,240

 

 

 

2,323,862

 

 

 

2,058,398

 

Income taxes

 

 

416,369

 

 

 

618,112

 

 

 

590,160

 

 

 

915,556

 

 

 

743,284

 

Net income

 

$

1,353,152

 

 

$

1,929,119

 

 

$

1,918,080

 

 

$

1,408,306

 

 

$

1,315,114

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

$

569,076

 

 

$

552,216

 

 

$

510,458

 

 

$

457,200

 

 

$

441,765

 

Preferred

 

 

68,228

 

 

 

72,482

 

 

 

72,521

 

 

 

72,734

 

 

 

81,270

 

 

25


 

Table 4

COMMON SHAREHOLDER DATA

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

9.94

 

 

$

13.76

 

 

$

12.75

 

 

$

8.72

 

 

$

7.80

 

Diluted

 

 

9.94

 

 

 

13.75

 

 

 

12.74

 

 

 

8.70

 

 

 

7.78

 

Cash dividends declared

 

 

4.40

 

 

 

4.10

 

 

 

3.55

 

 

 

3.00

 

 

 

2.80

 

Common shareholders’ equity at year-end

 

 

116.39

 

 

 

110.78

 

 

 

102.69

 

 

 

100.03

 

 

 

97.64

 

Tangible common shareholders’ equity at

   year-end

 

 

80.52

 

 

 

75.44

 

 

 

69.28

 

 

 

69.08

 

 

 

67.85

 

Dividend payout ratio

 

 

44.32

%

 

 

29.70

%

 

 

27.66

%

 

 

34.24

%

 

 

35.81

%

 

Table 5

CHANGES IN INTEREST INCOME AND EXPENSE(a)

 

 

 

2020 Compared with 2019

 

 

2019 Compared with 2018

 

 

 

 

 

 

 

Resulting from

Changes in:

 

 

 

 

 

 

Resulting from

Changes in:

 

 

 

Total

Change

 

 

Volume

 

 

Rate

 

 

Total

Change

 

 

Volume

 

 

Rate

 

 

 

(Increase (decrease) in thousands)

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, including fees

 

$

(472,523

)

 

 

336,371

 

 

 

(808,894

)

 

$

278,610

 

 

 

101,577

 

 

 

177,033

 

Deposits at banks

 

 

(108,441

)

 

 

85,334

 

 

 

(193,775

)

 

 

33,215

 

 

 

24,193

 

 

 

9,022

 

Federal funds sold and agreements to resell

   securities

 

 

1,478

 

 

 

9,526

 

 

 

(8,048

)

 

 

5,484

 

 

 

5,487

 

 

 

(3

)

Trading account

 

 

(731

)

 

 

(358

)

 

 

(373

)

 

 

363

 

 

 

259

 

 

 

104

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies

 

 

(97,088

)

 

 

(74,239

)

 

 

(22,849

)

 

 

(38,192

)

 

 

(51,898

)

 

 

13,706

 

Obligations of states and political

   subdivisions

 

 

(173

)

 

 

(189

)

 

 

16

 

 

 

(449

)

 

 

(433

)

 

 

(16

)

Other

 

 

(14,979

)

 

 

(2,536

)

 

 

(12,443

)

 

 

2,818

 

 

 

855

 

 

 

1,963

 

Total interest income

 

$

(692,457

)

 

 

 

 

 

 

 

 

 

$

281,849

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings and interest-checking deposits

 

$

(221,304

)

 

 

51,927

 

 

 

(273,231

)

 

$

152,593

 

 

 

10,760

 

 

 

141,833

 

Time deposits

 

 

(29,146

)

 

 

(19,098

)

 

 

(10,048

)

 

 

44,003

 

 

 

2,525

 

 

 

41,478

 

Deposits at Cayman Islands office

 

 

(17,863

)

 

 

(3,417

)

 

 

(14,446

)

 

 

16,284

 

 

 

15,529

 

 

 

755

 

Short-term borrowings

 

 

(24,713

)

 

 

(12,130

)

 

 

(12,583

)

 

 

19,355

 

 

 

16,135

 

 

 

3,220

 

Long-term borrowings

 

 

(129,909

)

 

 

(49,983

)

 

 

(79,926

)

 

 

(9,314

)

 

 

(34,168

)

 

 

24,854

 

Total interest expense

 

$

(422,935

)

 

 

 

 

 

 

 

 

 

$

222,921

 

 

 

 

 

 

 

 

 

(a)

Interest income data are on a taxable-equivalent basis. The apportionment of changes resulting from the combined effect of both volume and rate was based on the separately determined volume and rate changes.

 

 

26


 

Item 1A.

Risk Factors.

 

Risk Factors Summary

Risks Relating to COVID-19 Pandemic

 

The Company’s business, financial condition, capital and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.

Market Risk

 

Weakness in the economy has adversely affected the Company in the past and may adversely affect the Company in the future.

 

The Company’s business and financial performance is impacted significantly by market interest rates and movements in those rates over which the Company has no control.

 

The forecasted discontinuation of LIBOR and the emergence of one or more alternative benchmark indices to replace LIBOR could adversely impact the Company’s business and results of operations.

 

The Company’s business and performance is vulnerable to the impact of volatility in debt and equity markets.

 

The Company’s regional concentrations expose it to adverse economic conditions in its primary retail banking office footprint.

Risks Relating to Compliance and the Regulatory Environment

 

The Company is subject to extensive government regulation and supervision.

 

The Company may be subject to more stringent capital and liquidity requirements.

 

M&T’s ability to return capital to shareholders and to pay dividends on common stock may be adversely affected by market and other factors outside of its control and will depend, in part, on a review of its capital plan by the Federal Reserve.

 

If an orderly liquidation of a systemically important BHC or non-bank financial company were triggered, M&T could face assessments for the Orderly Liquidation Fund (“OLF”).

Credit Risk

 

Deteriorating credit quality could adversely impact the Company.

 

If the Company is unable to maintain or grow its deposits, it may be subject to paying higher funding costs.

 

The Company may be adversely affected by the soundness of other financial institutions.

Liquidity Risk

 

The Company must maintain adequate sources of funding and liquidity.

 

M&T relies on dividends from its subsidiaries for its liquidity.

Strategic Risk

 

The financial services industry is highly competitive and creates competitive pressures that could adversely affect the Company’s revenue and profitability.

 

Difficulties in combining the operations of acquired entities with the Company’s own operations may prevent M&T from achieving the expected benefits from its acquisitions.

 

M&T could suffer if the Company fails to attract and retain skilled personnel.

Operational Risk

 

The Company is subject to operational risk which could adversely affect the Company’s business and reputation and create material legal and financial exposure.

 

The Company’s information systems may experience interruptions or breaches in security.

 

The Company could incur higher costs, experience lower revenue, and suffer reputational damage in the event of the theft, loss or misuse of information, including due to a cyber security attack.

27


 

The Company is subject to laws and regulations relating to the privacy of the information of clients, employees or others, and any failure to comply with these laws and regulations could expose the Company to liability and/or reputational damage.

 

M&T relies on other companies to provide key components of the Company’s business infrastructure.

 

The Company is or may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences.

Business Risk

 

Changes in accounting standards could impact the Company’s financial condition and results of operations.

 

The Company’s reported financial condition and results of operations depend on management’s selection of accounting methods and require management to make estimates about matters that are uncertain.

 

The Company’s models used for business planning purposes could perform poorly or provide inadequate information.

 

The Company is exposed to reputational risk.

 

The Company’s framework for managing risks may not be effective.

 

Severe weather, natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact the Company’s business

 

Risk Factors

M&T and its subsidiaries face a number of potential risks and uncertainties that are difficult to predict. As a financial institution certain risk elements are inherent in the ordinary course of the Company’s business activities and adverse experience with those risks could have a material impact on the Company’s business, financial condition and results of operations, as well as on the values of the Company’s financial instruments and M&T’s common stock. The Company has developed a risk management process to identify, understand, mitigate and balance its exposure to significant risks. The following risk factors set forth some of the risks that could materially and adversely impact the Company, although there may be additional risks that are not presently material or known that may adversely affect the Company.

Risks Relating to COVID-19 Pandemic

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

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

The pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the Company’s business, financial condition, capital and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect the Company’s business, financial condition, capital and results of operations will depend on future developments, including the scope and duration of the pandemic, the effectiveness and distribution of vaccines and other public health measures, the continued effectiveness of M&T’s business continuity plans, the direct and indirect impact of the pandemic on the Company’s employees, customers, clients, counterparties, vendors, service providers and other market participants, and actions taken by

28


governmental authorities and other third parties in response to the pandemic, all of which are highly uncertain and cannot be reasonably predicted.

The COVID-19 pandemic contributed to:

 

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

 

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

 

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

 

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

 

Declines in collateral values;

 

Increased demands on capital and liquidity, leading M&T to cease repurchases of its common stock in 2020;

 

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

 

Heightened cybersecurity, information security and operational risks to the Company, including as a result of remote work arrangements for employees and increased digital and mobile banking activities by customers;

 

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

 

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

 

The pandemic is likely to continue to contribute to these risks and impacts and could affect geographic areas in which the Company operates differently as further noted herein under “Market Risk” and “Credit Risk.” As a result, the Company’s credit, operational and other risks are generally expected to remain elevated until the pandemic subsides. In addition, the Company’s business operations continue to be at risk of adverse disruption if significant portions of the Company’s workforce are unable to work effectively, including because of illness, quarantines, government actions, failures in systems or technology that disrupt remote work arrangements or other effects of the pandemic, or if the Company is unable to keep branches or offices open, including because of risk of infection.

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

29


Company’s participation may lead to litigation and governmental, regulatory and third party scrutiny, negative publicity and damage to its reputation.

The length of the pandemic and the efficacy of the measures being put in place to address it are unknown. It is unknown when there will be a return to normal business activity and a subsiding of the economic stress associated with the pandemic. Prolonged continuation of the pandemic could worsen these risks and impacts. Until the pandemic subsides, the Company expects the potential for reduced revenues in many of its fee-related businesses and increased customer and client defaults, including defaults in unsecured loans. Even after the pandemic subsides, the U.S. economy may experience a prolonged economic slowdown or recession, and M&T anticipates the Company’s businesses would be materially and adversely affected by a prolonged economic slowdown or recession. To the extent the pandemic adversely affects the Company’s business, financial condition, liquidity, capital or results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section and M&T’s other filings with the Securities and Exchange Commission.

Market Risk

Weakness in the economy has adversely affected the Company in the past and may adversely affect the Company in the future.

Poor business and economic conditions in general or specifically in markets served by the Company could have adverse effects on the Company’s business including:

 

A decrease in the demand for loans and other products and services offered by the Company.

 

A decrease in net interest income derived from the Company’s lending and deposit gathering activities.

 

A decrease in the value of the Company’s investment securities, loans held for sale or other assets secured by residential or commercial real estate.

 

Other-than-temporary impairment of investment securities in the Company’s investment securities portfolio or other investments.

 

A decrease in fees from the Company’s brokerage, trust, and investment management businesses associated with declines or lack of growth in stock market prices.

 

Potential higher FDIC assessments due to the DIF falling below minimum required levels.

 

An impairment of certain intangible assets, such as goodwill.

 

An increase in the number of customers and counterparties who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to the Company. An increase in the number of delinquencies, bankruptcies or defaults could result in higher levels of nonperforming assets, net charge-offs, provision for credit losses and valuation adjustments on loans held for sale.

The Company’s business and financial performance is impacted significantly by market interest rates and movements in those rates. The monetary, tax and other policies of governmental agencies, including the Federal Reserve, have a significant impact on interest rates and overall financial market performance over which the Company has no control and which the Company may not be able to anticipate adequately.

As a result of the high percentage of the Company’s assets and liabilities that are in the form of interest-bearing or interest-related instruments, changes in interest rates, including in the shape of the

30


yield curve or in spreads between different market interest rates, can have a material effect on the Company’s business and profitability and the value of the Company’s assets and liabilities.

For example, changes in interest rates or interest rate spreads may:

 

Affect the difference between the interest that the Company earns on assets and the interest that the Company pays on liabilities, which impacts the Company’s overall net interest income and profitability.

 

Adversely affect the ability of borrowers to meet obligations under variable or adjustable rate loans and other debt instruments, which, in turn, affects the Company’s loss rates on those assets.

 

Decrease the demand for interest rate-based products and services, including loans and deposits.

 

Affect the Company’s ability to hedge various forms of market and interest rate risk and may decrease the profitability or protection or increase the risk or cost associated with such hedges.

 

Affect mortgage prepayment speeds and could result in the impairment of capitalized mortgage servicing assets, reduce the value of loans held for sale and increase the volatility of mortgage banking revenues, potentially adversely affecting the Company’s results of operations.

The monetary, tax and other policies of the government and its agencies, including the Federal Reserve, have a significant impact on interest rates and overall financial market performance. These governmental policies can thus affect the activities and results of operations of banking organizations such as the Company. An important function of the Federal Reserve is to regulate the national supply of bank credit and certain interest rates. The actions of the Federal Reserve influence the rates of interest that the Company charges on loans and that the Company pays on borrowings and interest-bearing deposits and can also affect the value of the Company’s on-balance sheet and off-balance sheet financial instruments. Also, due to the impact on rates for short-term funding, the Federal Reserve’s policies influence, to a significant extent, the Company’s cost of such funding.

In addition, the Company is routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should tax laws change or the tax authorities determine that management’s assumptions were inappropriate, the result and adjustments required could have a material effect on the Company’s results of operations. M&T cannot predict the nature or timing of future changes in monetary, tax and other policies or the effect that they may have on the Company’s business activities, financial condition and results of operations.

The forecasted discontinuation of LIBOR and uncertainty related to the emergence of one or more alternative benchmark indices to replace LIBOR could adversely impact the Company’s business and results of operations.

The Company’s floating-rate funding, certain hedging transactions and a significant portion of the  Company’s products, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”), or to an alternative index, currency, basket or other financial metric.

In July 2017, the Chief Executive of the Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that the FCA intends to stop persuading or compelling its panel banks to submit rates for the calculation of LIBOR after 2021. This announcement created market uncertainty as to

31


whether and to what extent panel banks will continue to provide submissions for the calculation of LIBOR after 2021 and as to the continued existence of LIBOR after 2021. In this context, it has been impossible to predict whether and for how long LIBOR will continue to be viewed as an acceptable market benchmark, what new or existing benchmark rate or rates may become accepted alternatives to LIBOR, or what the effect of any changes in industry views or alternatives may be on the functioning of LIBOR or the markets for LIBOR-linked financial instruments.

Following the FCA announcement in 2017, regulators and various financial industry groups sponsored or formed committees (e.g., the Federal Reserve-sponsored Alternative Reference Rates Committee (“AARC”)) to, among other things, facilitate the identification of an alternative benchmark index to replace LIBOR, and publish recommended practices for transitioning the market away from LIBOR, including (i) the utilization of recommended fallback language for LIBOR-linked financial instruments, and (ii) development of alternative pricing methodologies for recommended alternative benchmarks such as the Secured Overnight Financing Rate (“SOFR”).

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-based repurchase transactions.  The fact that SOFR is a secured rate and considered a “risk free” rate, while LIBOR is an unsecured rate that factors in credit risk, means that SOFR may perform differently than LIBOR, and those differences may be material, particularly in times of economic stress, negatively impacting the Company’s profitability.  

Over the past few years, the AARC’s recommendations and proposals have evolved, and the Company has continued to monitor both ARRC and general market developments.  While the ARRC has maintained its recommendation that SOFR is the preferred replacement for LIBOR, some industry participants are questioning whether a “risk free” SOFR rate is an ideal replacement for LIBOR in the commercial lending market and suggesting that a credit-sensitive component or alternative be considered and developed. Whether this or other alternatives develop and gain any traction in the market are unknown and unpredictable, and this adds further uncertainty to the LIBOR transition process, both with respect to amending existing LIBOR contracts and pricing new contracts based on SOFR or an alternative reference rate going forward.

In October 2020, The International Swaps and Derivatives Association, Inc. (ISDA), published the IBOR Fallbacks Supplement (Supplement) and IBOR Fallbacks Protocol (Protocol).  The Supplement, which becomes effective on January 25, 2021, amends existing standard definitions for interest rate derivatives to incorporate robust fallbacks to the SOFR benchmark for derivatives linked to LIBOR.  The Protocol enables market participants to incorporate these revisions into their legacy non-cleared derivatives trades with other counterparties that choose to adhere to the Protocol.  The fallbacks apply following a permanent cessation of LIBOR or following a determination by the FCA that LIBOR is no longer representative of the its underlying market. M&T and M&T Bank adhered to the Protocol on November 5, 2020, and the Company is in the process of remediating its interest rate swap hedging transactions with its end user customers, i.e., borrowers who have hedged their interest rate payment obligations.  There is a possibility that the Company’s end-user customers may not adhere to the Protocol, which would necessitate one-on-one negotiation with each such customer to amend legacy interest rate derivatives.  If the Company is not able to agree to appropriate LIBOR fallbacks with these customers, there will be uncertainty as to how to value and effect the Company’s rights and obligations under legacy derivatives contracts.  With respect to the Company’s cleared interest rate derivatives that reference LIBOR, although the Supplement and Protocol do not apply to such cleared derivatives, both the CME and LCH clearinghouses plan on adopting the same relevant SOFR benchmark fallbacks of the Supplement and Protocol on the date that the Supplement and Protocol become effective.        

The Company has outstanding issuances across various maturities of securities referencing LIBOR in which the underlying contracts do not contemplate cessation or contemplate cessation but

32


do so in a manner that may create other risks.  Some of the contracts provide for selecting replacement rates in a manner that presents significant challenges or that gives the Company or another party discretion to select a rate or provide for determination of a reference rate.  In these types of cases, there will likely be uncertainty surrounding the transition.

In November 2020, (i) public statements issued by the ICE Benchmark Administration (IBA), the administrator of LIBOR, and the FCA, announced a proposal to, among other things, extend the publication of the most commonly utilized tenors of LIBOR until June 30, 2023, and (ii) a joint-statement of the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, indicated support for the IBA proposal and encouraged banks to (a)  transition away from LIBOR as soon as practicable, (b) cease (with limited exceptions) entering into new contracts that use LIBOR as a reference rate as soon as practicable and no later than December 31, 2021, and (c) for new contracts entered into before December 31, 2021, either utilize a reference rate other than LIBOR or include robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation, noting that failure to do so would create safety and soundness risks.

The discontinuation of LIBOR or changes in market perceptions of the acceptability of LIBOR as a benchmark could result in changes to the Company’s risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, the Company’s exposure to fluctuations in interest rates) or otherwise result in losses on a product or having to pay more or receive less on securities that the Company has issued or owns. A substantial portion of the Company’s on- and off-balance sheet financial instruments (many of which have terms that extend beyond 2021, and others that extend beyond 2023) are indexed to LIBOR, including interest rate swap agreements and other contracts used for hedging and trading account purposes, loans to commercial customers and consumers (including mortgage loans and other loans), and long-term borrowings. Uncertainty as to the timing and impact of the discontinuation of LIBOR, the replacement of LIBOR with an alternative index, and the operational feasibility of amending existing contracts referencing LIBOR to reference a replacement index could result in pricing volatility, loss of market share in certain products, adverse tax or accounting impacts, and compliance, legal and operational costs and risks.

The market’s transition from LIBOR to an alternative reference rate will be complex and unpredictable, giving rise to a variety of risks, including operational risks, risks of value transfer between contract parties, the potential for customer disputes and litigation, as well as regulatory scrutiny, as the most recent regulatory announcements indicate that there will be increased regulatory focus on LIBOR transition in 2021 and beyond, which increases the Company’s risk related to regulatory compliance.

The Company established an enterprise-wide LIBOR transition program in 2019, which now includes a LIBOR Transition Office with senior management level leadership and dedicated full-time employee staffing.  An impact assessment has been completed to identify on- and off-balance sheet exposures, systems, processes, models, customers, and employees affected by the discontinuation of LIBOR. The Company continues to develop and execute plans to transition products and contracts associated with LIBOR to alternative reference rates. 

33


The Company’s business and performance is vulnerable to the impact of volatility in debt and equity markets.

As most of the Company’s assets and liabilities are financial in nature, the Company’s performance is sensitive to the performance of the financial markets. Turmoil and volatility in U.S. and global financial markets can be a major contributory factor to overall weak economic conditions, leading to some of the risks discussed herein, including the impaired ability of borrowers and other counterparties to meet obligations to the Company. Financial market volatility may:

 

Affect the value or liquidity of the Company’s on-balance sheet and off-balance sheet financial instruments.

 

Affect the value of capitalized servicing assets.

 

Affect M&T’s ability to access capital markets to raise funds. Inability to access capital markets if needed, at cost effective rates, could adversely affect the Company’s liquidity and results of operations.

 

Affect the value of the assets that the Company manages or otherwise administers or services for others. Although the Company is not directly impacted by changes in the value of such assets, decreases in the value of those assets would affect related fee income and could result in decreased demand for the Company’s services.

 

Impact the nature, profitability or risk profile of the financial transactions in which the Company engages.

Volatility in the markets for real estate and other assets commonly securing financial products has been and may continue to be a significant contributor to overall volatility in financial markets. In addition, unfavorable or uncertain economic and market conditions can be caused by the imposition of tariffs or other limitations on international trade and travel, which can result in market volatility, negatively impact client activity, and adversely affect the Company’s financial condition and results of operations.

The Company’s regional concentrations expose it to adverse economic conditions in its primary retail banking office footprint.

The Company’s core banking business is largely concentrated within the Company’s retail banking office network footprint, located principally in New York, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia and the District of Columbia. Therefore, the Company is, or in the future may be, particularly vulnerable to adverse changes in economic conditions in the Northeast and Mid-Atlantic regions. The credit quality of the Company’s borrowers may deteriorate for a number of reasons that are outside the Company’s control, including as a result of prevailing economic and market conditions and asset valuations. The trends and risks affecting borrower credit quality, particularly in the Northeast and Mid-Atlantic regions, have caused, and in the future may cause, the Company to experience impairment charges, which are drastic reductions in the recoverable value of an asset, increased purchase demands, wherein customers make withdrawals with minimum notice, higher costs (e.g., servicing, foreclosure, property maintenance), additional write-downs and losses and a potential impact to engage in lending transactions based on a reduction of customer deposits, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

34


Risks Relating to Compliance and the Regulatory Environment

The Company is subject to extensive government regulation and supervision and this regulatory environment can be and has been significantly impacted by financial regulatory reform initiatives.

The Company is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect consumers, depositors and the financial system as a whole, not stockholders. These regulations and supervisory guidance affect the Company’s sale and lending practices, capital structure, amounts of capital, investment practices, dividend policy, growth and expansionary activity, among other things. Failure to comply with laws, regulations, policies or supervisory guidance could result in civil or criminal penalties, including monetary penalties, the loss of FDIC insurance, the revocation of a banking charter, other sanctions by regulatory agencies, and/or reputational damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations. In this regard, government authorities, including the bank regulatory agencies, can pursue aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures and may also adversely affect the Company’s ability to enter into certain transactions or engage in certain activities, or obtain necessary regulatory approvals in connection therewith. In general, the amounts paid by financial institutions in settlement of proceedings or investigations have increased substantially and are likely to remain elevated. In some cases, governmental authorities have required criminal pleas or other extraordinary terms as part of such settlements, which could have significant collateral consequences for a financial institution, including loss of customers, restrictions on the ability to access the capital markets, and the inability to operate certain businesses or offer certain products for a period of time. In addition, enforcement matters could impact the Company’s supervisory and CRA ratings, which may in turn restrict or limit the Company’s activities.

Any new regulatory requirements, changes to existing requirements, or changes to interpretations of requirements could require changes to the Company’s businesses, result in increased compliance costs and affect the profitability of such businesses. Additionally, such activity could affect the behaviors of third parties with which the Company deals in the ordinary course of business, such as rating agencies, insurance companies and investors. Heightened regulatory practices, requirements or expectations could affect the Company in substantial and unpredictable ways, and, in turn, could have a material adverse effect on the Company’s business, financial condition and results of operations.

There have been significant revisions to the laws and regulations applicable to the Company that have been enacted or proposed in recent months. These and other rules to implement the changes have yet to be finalized, and the final timing, scope and impact of these changes to the regulatory framework applicable to financial institutions remain uncertain. For more information on the regulations to which the Company is subject and recent initiatives to reform financial institution regulation, see Part I, Item 1 — Business in this report.

M&T may be subject to more stringent capital and liquidity requirements.

Bank holding companies, including M&T, are subject to capital and liquidity requirements and standards imposed as a result of the Dodd-Frank Act (as amended by EGRRCPA) and the U.S. Basel III-based capital rules. For additional information, see “Capital Requirements” under Part I, Item 1 —  Business.

Regulators have and may, from time to time, implement changes to these regulatory capital adequacy and liquidity requirements. If the Company fails to meet these minimum capital adequacy and liquidity guidelines and other regulatory requirements, its business activities, including lending,

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and its ability to expand, either organically or through acquisitions, could be limited. It could also result in M&T being required to take steps to increase its regulatory capital that may be dilutive to shareholders or limit its ability to pay dividends or otherwise return capital to shareholders, or sell or refrain from acquiring assets. In addition, the liquidity-related provisions of the Federal Reserve’s liquidity-related enhanced prudential supervision requirements may reduce the Company’s ability to invest in other longer-term assets even if deemed more desirable from a balance sheet management perspective.

EGRRCPA, the Tailoring Rules and other rulemaking have in some cases reduced the capital or liquidity requirements applicable to M&T (e.g., the Company is no longer subject to any LCR requirement, and the same is true for the finalized NSFR). However, Basel IV significantly revises the Basel capital framework, and the impact on the Company will depend on the manner in which the revisions arising from Basel IV are implemented in the U.S. with respect to firms such as M&T.

M&T’s ability to return capital to shareholders and to pay dividends on common stock may be adversely affected by market and other factors outside of its control and will depend, in part, on a review of its capital plan by the Federal Reserve.

Any decision by M&T to return capital to shareholders, whether through a common stock dividend or through a common stock share repurchase program, requires the approval of M&T’s Board of Directors and depends in large part on receiving regulatory approval, including through the Federal Reserve’s CCAR process and the supervisory stress tests required under the Dodd-Frank Act whereby M&T’s financial position is tested under assumed severely adverse economic conditions. Prior to the public disclosure of a BHC’s CCAR results, the Federal Reserve will provide the BHC with the results of its supervisory stress test and will offer a one-time opportunity for the BHC to reduce planned capital distributions through the submission of a revised capital plan. The Federal Reserve may object to any capital plan in which a BHC’s regulatory capital ratios inclusive of adjustments to planned capital distributions, if any, would not meet the minimum requirements throughout a nine-quarter period under severely adverse stress conditions. If the Federal Reserve objects to M&T’s capital plan, it could impose restrictions on M&T’s ability to return capital to shareholders, including through paying dividends, entering into acquisitions or repurchasing its common stock, which in turn could negatively impact market and investor perceptions of M&T. M&T cannot be certain that the Federal Reserve will not object to future capital plans.

In addition, Federal Reserve capital planning and stress testing rules generally limit a BHC’s ability to make quarterly capital distributions – dividends and common stock share repurchases – if the amount of actual cumulative quarterly capital issuances of instruments that qualify as regulatory capital are less than the BHC had indicated in its submitted capital plan as to which it received a non-objection from the Federal Reserve. As such, M&T’s ability to declare and pay dividends on its common stock, as well as the amount of such dividends, will depend, in part, on its ability to issue stock in accordance with its capital plan or to otherwise remain in compliance with its capital plan, which may be adversely affected by market and other factors outside of M&T’s control.

In August 2020, the Federal Reserve Board provided M&T with an indicative Stress Capital Buffer of 2.5%. The indicative  Stress Capital Buffer of 2.5% is the floor under the regulatory capital rules. As a general matter, if M&T is unable to maintain capital in excess of these levels, it would be subject to limitations on its ability to make capital distributions, including paying dividends and repurchasing stock.

In addition, during 2020 the Federal Reserve implemented measures requiring all large bank holding companies to preserve capital through the suspension of share repurchase programs and capping common stock dividends at existing rates that do not exceed the average of the last four quarters’ earnings. These capital preservation actions applied to the third and fourth quarters of 2020.  

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In December 2020, the Federal Reserve extended to the first half of 2021 modified restrictions, which limit dividends and repurchases to an amount based on income over the past year. These actions may be further extended or modified by the Federal Reserve as economic conditions develop. The COVID-19 pandemic may cause the Company to further extend the suspension of its share repurchase program and limit capital distributions, including reducing or suspending its common stock dividend. In addition, if, as in June 2020, the Company is required to resubmit its capital plan, the Company generally may not make capital distributions, such as share repurchases or dividends, without the prior approval of the Federal Reserve.

If an orderly liquidation of a systemically important BHC or non-bank financial company were triggered, M&T could face assessments for the Orderly Liquidation Fund (“OLF”).

The Dodd-Frank Act created a mechanism, the OLF, for liquidation of systemically important bank holding companies and non-bank financial companies. The OLF is administered by the FDIC and is based on the FDIC’s bank resolution model. The Secretary of the U.S. Treasury may trigger a liquidation under this authority after consultation with the President of the U.S. and after receiving a recommendation from the boards of the FDIC and the Federal Reserve upon a two-thirds vote. Liquidation proceedings will be funded by the OLF, which will borrow from the U.S. Treasury and impose risk-based assessments on covered financial companies. Risk-based assessments would be first made on entities that received more in the resolution than they would have received in the liquidation to the extent of such excess, and second, if necessary, on, among others, bank holding companies with total consolidated assets of $50 billion or more, such as M&T. Any such assessments may adversely affect the Company’s business, financial condition or results of operations.

Credit Risk

Deteriorating credit quality could adversely impact the Company.

As a lender, the Company is exposed to the risk that customers will be unable to repay their loans and other obligations in accordance with the terms of the relevant agreements, and that any collateral securing the loans and obligations may be insufficient to assure full repayment. Credit losses are inherent in the business of making loans and entering into other financial arrangements.

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. Factors that can influence the Company’s credit loss experience include: (i) the impact of residential real estate values on 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, including in the New York City area; (iii) the amount of commercial and industrial loans to businesses in areas of New York State outside of the New York City area and in central Pennsylvania that have historically experienced less economic growth and vitality than many other regions of the country; (iv) the repayment performance associated with first and second lien loans secured by residential real estate; 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 loans to other types of borrowers. The Company’s credit risk and the performance of its lending portfolios may be affected by concentration in an industry, geography or asset type. Also, as described further in the risk factor above, the Company’s credit risks have been impacted by the COVID-19 pandemic and are generally expected to remain elevated until the pandemic subsides. The

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pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, customers, including businesses in the hotel and travel industry.

In response to the COVID-19 pandemic and to support its customers, the Company has offered payment deferrals and other expanded assistance to businesses and consumers, and, during 2020, committed in certain states in which it operates to suspend mortgage payments and foreclosure sales for financially impacted customers for certain periods of time. A significant number of the Company’s customers sought to suspend their mortgage payments under these programs. Suspensions of mortgage payments and foreclosures and reduced pricing under these programs may adversely affect the Company’s revenue and results of operations. In addition, if these programs are not effective in mitigating the financial consequences of COVID-19 on customers, or if customers are unable to pay their loans after these programs expire, the Company may experience higher rates of default, increased credit losses and additional increases to the allowance for credit losses in future periods.

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, governmental policy regarding housing and housing finance, and general economic conditions affecting consumers, including as impacted by the COVID-19 pandemic, as described above.

The Company maintains an allowance for credit losses which represents, in management’s judgment, the amount of losses expected in the loan and lease portfolio. The allowance is determined by management’s evaluation of the loan and lease portfolio based on such factors as the differing economic risks associated with each loan category, the current 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 believes that the allowance for credit losses as of December 31, 2020 appropriately reflects expected credit losses in the loan and lease portfolio. However, there is no assurance that the allowance is sufficient to cover all credit losses that may occur.

The Company may be adversely affected by the soundness of other financial institutions.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized or is liquidated at prices not sufficient to recover the full amount of the credit due to or derivative exposure of the Company. Any resulting losses could have a material adverse effect on the Company’s financial condition and results of operations.

Liquidity Risk

The Company must maintain adequate sources of funding and liquidity.

The Company must maintain adequate funding sources in the normal course of business to support its operations and fund outstanding liabilities, as well as meet regulatory expectations. The Company primarily relies on deposits to be a low cost and stable source of funding for the loans it makes and the operations of its business. Core customer deposits, which include noninterest-bearing deposits,

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interest-bearing transaction accounts, savings deposits and time deposits of $250,000 or less, have historically provided the Company with a sizeable source of relatively stable and low-cost funds. In addition to customer deposits, sources of liquidity include borrowings from third party banks, securities dealers, various Federal Home Loan Banks and the Federal Reserve Bank of New York.

The Company’s liquidity and ability to fund and operate the business could be materially adversely affected by a variety of conditions and factors, including financial and credit market disruptions and volatility or a lack of market or customer confidence in financial markets in general, which may result in a loss of customer deposits or outflows of cash or collateral and/or ability to access capital markets on favorable terms. Negative news about the Company or the financial services industry generally may reduce market or customer confidence in the Company, which could in turn materially adversely affect the Company’s liquidity and funding. Such reputational damage may result in the loss of customer deposits, the inability to sell or securitize loans or other assets, and downgrades in one or more of the Company’s credit ratings, and may also negatively affect the Company’s ability to access the capital markets. A downgrade in the Company’s credit ratings, which could result from general industry-wide or regulatory factors not solely related to the Company, could adversely affect the Company’s ability to borrow funds, including by raising the cost of borrowings substantially, and could cause creditors and business counterparties to raise collateral requirements or take other actions that could adversely affect M&T’s ability to raise capital. Many of the above conditions and factors may be caused by events over which M&T has little or no control. There can be no assurance that significant disruption and volatility in the financial markets will not occur in the future.

Regulatory changes relating to liquidity and risk management may also negatively impact the Company’s results of operations and competitive position. Various regulations have been adopted to impose more stringent liquidity requirements for large financial institutions, including the Company. These regulations address, among other matters, liquidity stress testing and minimum liquidity requirements. The application of certain of these regulations to banking organizations, such as the Company, have been modified, including in connection with the implementation of the tailoring rules in the EGRRCPA.  While marginal relief from certain capital and liquidity standards has been afforded to the Company (such as relief from LCR compliance), overall capital and liquidity management practices and expectations will remain unchanged for the foreseeable future. Moreover, the Company does not anticipate significant changes to its overall liquidity and capital levels or composition as a result of the final rules.

If the Company is unable to continue to fund assets through customer bank deposits or access funding sources on favorable terms or if the Company suffers an increase in borrowing costs or otherwise fails to manage liquidity effectively, the Company’s liquidity, operating margins, financial condition and results of operations may be materially adversely affected. The Company may also need to raise additional capital and liquidity through the issuance of stock, which could dilute the ownership of existing stockholders, or reduce or even eliminate common stock dividends or share repurchases to preserve capital and liquidity.

 

If the Company is unable to maintain or grow its deposits, it may be subject to paying higher funding costs.

The total amount that the Company pays for funding costs is dependent, in part, on the Company’s ability to maintain or grow its deposits. If the Company is unable to sufficiently maintain or grow its deposits to meet liquidity objectives, it may be subject to paying higher funding costs. The Company competes with banks and other financial services companies for deposits. If competitors raise the rates they pay on deposits, the Company’s funding costs may increase, either because the Company raises rates to avoid losing deposits or because the Company loses deposits and must rely on more

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expensive sources of funding. Customers may also move noninterest-bearing deposits to interest bearing accounts, increasing the cost of those deposits. Checking and savings account balances and other forms of customer deposits may decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff. The Company’s bank customers could withdraw their money and put it in alternative investments, causing the Company to lose a lower cost source of funding. Higher funding costs could reduce the Company’s net interest margin and net interest income.

M&T relies on dividends from its subsidiaries for its liquidity.

M&T is a separate and distinct legal entity from its subsidiaries. M&T typically receives substantially all of its revenue from subsidiary dividends. These dividends are M&T’s principal source of funds to pay dividends on common and preferred stock, pay interest and principal on its debt, and fund purchases of its common stock. Various federal and/or state laws and regulations, as well as regulatory expectations, limit the amount of dividends that M&T’s banking subsidiaries and certain non-bank subsidiaries may pay. Regulatory scrutiny of capital levels at bank holding companies and insured depository institution subsidiaries has increased in recent years and has resulted in increased regulatory focus on all aspects of capital planning, including dividends and other distributions to shareholders of banks, such as parent bank holding companies. See Item 1 —  Business, Distributions” for a discussion of regulatory and other restrictions on dividend declarations. Also, M&T’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of that subsidiary’s creditors. Limitations on M&T’s ability to receive dividends from its subsidiaries could have a material adverse effect on its liquidity and ability to pay dividends on its stock or interest and principal on its debt, and ability to fund purchases of its common stock.

Strategic Risk

 

The financial services industry is highly competitive and creates competitive pressures that could adversely affect the Company’s revenue and profitability.

The financial services industry in which the Company operates is highly competitive. The Company competes not only with commercial and other banks and thrifts, but also with insurance companies, mutual funds, hedge funds, securities brokerage firms and other companies offering financial services in the U.S., globally and over the Internet. Some of the Company’s non-bank competitors are not subject to the same extensive regulations the Company is, and may have greater flexibility in competing for business. In particular, the activity and prominence of so-called marketplace lenders and other technological financial services companies has grown significantly in recent years and is expected to continue growing. The Company competes on the basis of several factors, including capital, access to capital, revenue generation, products, services, transaction execution, innovation, reputation and price. Over time, certain sectors of the financial services industry have become more concentrated, as institutions involved in a broad range of financial services have been acquired by or merged into other firms. These developments could result in the Company’s competitors gaining greater capital and other resources, such as a broader range of products and services and geographic diversity. The Company may experience pricing pressures as a result of these factors and as some of its competitors seek to increase market share by reducing prices or paying higher rates of interest on deposits.

Finally, technological change is influencing how individuals and firms conduct their financial affairs and is changing the delivery channels for financial services. Financial technology providers,

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who invest substantial resources in developing and designing new technology (in particular digital and mobile technology), are beginning to offer more traditional banking products (either directly or through bank partnerships) and may in the future be able to provide additional services by obtaining a bank-like charter, such as the OCC’s fintech charter. As a result, the Company may have to contend with a broader range of competitors including many that are not located within the geographic footprint of its banking office network. Further, along with other participants in the financial services industry, the Company frequently attempts to introduce new technology-driven products and services that are aimed at allowing the Company to better serve customers and to reduce costs. The Company may not be able to effectively implement new technology-driven products and services that allow it to remain competitive or be successful in marketing these products and services to its customers.

Difficulties in combining the operations of acquired entities with the Company’s own operations may prevent M&T from achieving the expected benefits from its acquisitions.

M&T has expanded its business through past acquisitions and may do so in the future. Inherent uncertainties exist when integrating the operations of an acquired entity. Acquiring other entities involves potential risks that could have a material adverse impact on the Company’s business, financial condition and results of operations, including:

 

Inability to fully achieve the Company’s strategic objectives and planned operating efficiencies in an acquisition.

 

Issues arising during transition and integration.

 

Disruption of the Company’s business and diversion of management’s time and attention.

 

Exposure to unknown or contingent liabilities of acquired institutions.

 

Loss of key employees and customers of acquired institutions.

 

Dilution in the ownership percentage of holders of M&T common stock.

 

Payment of a premium over book and market values that may dilute the Company’s tangible book value and earnings per common share in the short and long-term.

 

Inability to realize the expected benefits of the acquisition due to lower financial results pertaining to the acquired entity (for example, the Company could experience higher credit losses, incur higher operating expenses or realize less revenue than originally anticipated related to an acquired entity).

 

Changes in banking or tax laws or regulations that could impair or eliminate the expected benefits of merger and acquisition activities.

 

M&T could suffer if it fails to attract and retain skilled personnel.

M&T’s success depends, in large part, on its ability to attract and retain key individuals and to have a diverse workforce. Competition for qualified and diverse candidates in the activities in which the Company engages and markets that the Company serves is significant, and the Company may not be able to hire candidates and retain them. Growth in the Company’s business, including through acquisitions, may increase its need for additional qualified personnel. The Company is increasingly competing for personnel with financial technology providers and other less regulated entities who may not have the same limitations on compensation as the Company does. If the Company is not able to hire or retain highly skilled and qualified individuals, it may be unable to execute its business strategies and may suffer adverse consequences to its business, financial condition and results of operations.

The Company’s compensation practices are subject to review and oversight by the Federal Reserve, the OCC, the FDIC and other regulators. The federal banking agencies have issued joint guidance on executive compensation designed to help ensure that a banking organization’s incentive

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compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. In addition, the Dodd-Frank Act required those agencies, along with the SEC, to adopt rules to require reporting of incentive compensation and to prohibit certain compensation arrangements. If as a result of complying with such rules the Company is unable to attract and retain qualified employees, or do so at rates necessary to maintain its competitive position, or if the compensation costs required to attract and retain employees become more significant, the Company’s performance, including its competitive position, could be materially adversely affected.

Operational Risk

 

The Company is subject to operational risk which could adversely affect the Company’s business and reputation and create material legal and financial exposure.

Like all businesses, the Company is subject to operational risk, which represents the risk of loss resulting from human error or misconduct, inadequate or failed internal processes and systems, and external events, including the risk of loss resulting from fraud by employees or persons outside the company, and breaches in data security. Operational risk also encompasses reputational risk and compliance and legal risk, which is the risk of loss from violations of, or noncompliance with, laws, rules, regulations, prescribed practices or ethical standards, as well as the risk of noncompliance with contractual and other obligations. The Company is also exposed to operational risk through outsourcing arrangements, and the effect that changes in circumstances or capabilities of its outsourcing vendors can have on the Company’s ability to continue to perform operational functions necessary to its business. Although the Company seeks to mitigate operational risk through a system of internal controls that are reviewed and updated, no system of controls, however well designed and maintained, is infallible. Control weaknesses or failures or other operational risks could result in charges, increased operational costs, harm to the Company’s reputation or foregone business opportunities.  

As described further in the risk factor above, the Company’s operational risks have been impacted by the COVID-19 pandemic and are generally expected to remain elevated until the pandemic subsides.

The Company’s information systems may experience interruptions or breaches in security, including due to events beyond the Company’s control.

The Company relies heavily on communications and information systems, including those of third-party service providers, to conduct its business. Any failure, interruption or breach in security of these systems could result in disruptions to its accounting, deposit, loan and other systems, and adversely affect the Company’s customer relationships. Disruption of operating systems caused by events beyond the Company’s control  may include computer viruses, electrical or telecommunications outages, quality of vulnerability patches, cyber security attacks (including Distributed Denial of Service attacks, which occur when legitimate users are unable to access information systems, devices, or other network resources due to the actions of a malicious cyber threat actor), damage to property or physical assets, or events arising from political protests or terrorist acts. While the Company has policies and procedures designed to prevent or limit the effect of these possible events, there can be no assurance that any such failure, disruption, interruption or security breach will not occur or, if any does occur, that it can be sufficiently or timely remediated.

Information security risks for large financial institutions such as M&T have increased significantly in recent years in part because of the proliferation of new technologies, such as digital and mobile banking to conduct financial transactions, and the increased sophistication and activities

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of organized crime, hackers, terrorists, nation-states, activists and other external parties. There have been increasing efforts on the part of third parties, including through cyber security attacks, to breach data security at financial institutions or with respect to financial transactions. There have been numerous instances involving financial services and consumer-based companies reporting unauthorized access to and disclosure of client or customer information or the destruction or theft of corporate data, including by executive impersonation and third party vendors, or the freezing of operating systems and databases making them inaccessible or unusable. There have also been several highly publicized cases where hackers have requested “ransom” payments in exchange for not disclosing customer information or for restoring access to, or the usage of, operating systems and databases. Ransomware is a form of malicious software, known as “malware,” designed to block access to, and often encrypt, computer systems or data. Once the victim’s computer system or data is locked down and encrypted, rendering it essentially useless, the malicious cyber actor then extorts the victim by demanding a ransom payment in exchange for providing a method to decrypt it. The attacker may also copy the victim’s data in the course of the attack and threaten to sell or publish the data if the ransom is not paid. Ransomware attacks can result in a loss of business functionality and of sensitive data.

As cyber security threats continue to evolve, the Company may be required to expend significant additional resources to continue to modify or enhance its layers of defense or to investigate and remediate any information security vulnerabilities. The techniques used by cyber security criminals change frequently, may not be recognized until launched and can be initiated by a variety of actors, including terrorist organizations and hostile foreign governments. These techniques may include attempts to fraudulently induce employees, customers or others to disclose sensitive information in order to gain access to data or systems. These risks may increase as the use of mobile payment and other Internet-based applications expands.

Further, third parties with which the Company does business, as well as vendors and other third parties with which the Company’s customers do business, can also be sources of information security risk to the Company, particularly where activities of customers are beyond the Company’s security and control systems, such as through the use of the Internet, personal computers, tablets, smart phones and other mobile services. Security breaches affecting the Company’s customers, or systems breakdowns or failures, security breaches or employee misconduct affecting such other third parties, may require the Company to take steps to protect the integrity of its own systems or to safeguard confidential information of the Company or its customers, thereby increasing the Company’s operational costs and adversely affecting its business. Additionally, successful cyber security attacks at other large financial institutions, whether or not the Company is impacted, could lead to a general loss of customer confidence in financial institutions that could negatively affect M&T, including harming the market perception of the effectiveness of the Company’s security measures or the financial system in general which could result in reduced use of the Company’s financial products. Though the Company has insurance against some cyber security risks and attacks, it may not be sufficient to offset the impact of a material loss event.

The Company continues to expand its use of cloud service providers, which providers could experience system breakdowns or failures, outages, downtime, cyber security-attacks, negative changes to financial condition, bankruptcy, or other adverse conditions, which could have a material adverse effect on the Company’s business and reputation. Thus, increasing the amount of infrastructure that the Company outsources to the cloud or to other third parties may increase M&T’s risk exposure.

 

The Company could incur higher costs, experience lower revenue, and suffer reputational damage in the event of the theft, loss or misuse of information, including due to a cyber security attack.

Like other financial services firms, the systems, networks and devices of the Company, its customers, employees, service providers or other third parties with whom the Company interacts continue to be

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the subject of attempted unauthorized access, denial-of-service attacks, computer viruses, hacking, malware, ransomware, phishing or other forms of social engineering, and cyber security attacks designed to obtain confidential information, destroy data, disrupt or degrade service, eliminate access or cause other damage. These threats may arise from human error, fraud on the part of employees, insiders or third parties or may result from accidental technology failure. Further, cyber security and information security risks for financial institutions have generally increased because of, among other things, the growth of new technologies, the use of the internet and telecommunications technologies (including computers, smartphones, and other mobile devices outside the Company’s systems) by customers to conduct financial transactions, and the increased sophistication and activities of organized crime, fraudsters, hackers, terrorists, activists, instrumentalities of foreign governments and other external parties.

Although the Company believes that a robust suite of authentication and layered security controls, data encryption and tokenization, threat intelligence, anti-malware defenses and vulnerability management tools exits, the failure of any of these controls could result in a failure to detect, mitigate or remediate these risks in a timely manner. Further, as the Company expands its mobile and digital capabilities, the number of attempted cyber security attacks may increase.

A disruption or breach, including as a result of a cyber security attack, or media reports of perceived security vulnerabilities at the Company or at third-party service providers, could result in significant legal and financial exposure, regulatory intervention, remediation costs, damage to reputation or loss of confidence in the security of systems, products and services that could adversely affect the Company’s business. Like other U.S. financial services providers, M&T continues to be targeted with evolving and adaptive cyber security threats from sophisticated third parties. Although the Company is not aware of any material losses relating to cyber security incidents, there can be no assurance that unauthorized access or cyber security incidents will not become known or occur or that the Company will not suffer such losses in the future.

 

The Company is subject to laws and regulations relating to the privacy of the information of clients, employees or others, and any failure to comply with these laws and regulations could expose the Company to liability and/or reputational damage

 

The Company is also subject to laws and regulations relating to the privacy of the information of clients, employees or others, and any failure to comply with these laws and regulations could expose the Company to liability and/or reputational damage. New customer privacy initiatives will impose additional operational burdens on the Company, may limit the Company’s ability to pursue desirable business initiatives and increase the risks associated with any future use of customer data. Significant examples include the General Data Protection Regulation and the California Consumer Privacy Act. Compliance with these laws and regulations may require changes to policies, procedures and technology for information security and segregation of data, which could, among other things, make the Company more vulnerable to operational failures, and to monetary penalties, litigation or regulatory enforcement actions for breach of such laws and regulations.

As privacy-related laws and regulations are implemented, they may also limit how companies like M&T can use customer data and impose obligations on companies in their management of such data. The time and resources needed for the Company to comply with such laws and regulations, as well as its potential liability for non-compliance and reporting obligations in the case of data breaches, may significantly increase. The impacts will be greater to the extent requirements vary across jurisdictions.

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M&T relies on other companies to provide key components of the Company’s business infrastructure.

Third parties provide key components of the Company’s business infrastructure such as banking services, processing, and Internet connections and network access. Any disruption in such services provided by these third parties or any failure of these third parties to handle current or higher volumes of use could adversely affect the Company’s ability to deliver products and services to clients and otherwise to conduct business. Technological or financial difficulties of a third party service provider could adversely affect the Company’s business to the extent those difficulties result in the interruption or discontinuation of services provided by that party. The Company may not be insured against all types of losses as a result of third party failures and insurance coverage may be inadequate to cover all losses resulting from system failures or other disruptions. Failures in the Company’s business infrastructure could interrupt the operations or increase the costs of doing business.

Additionally, the Company is exposed to the risk that a service disruption at a common service provider to our third-party service providers could impede their ability to provide services to the Company. Notwithstanding any attempts to diversify its reliance on third parties, the Company may not be able to effectively mitigate operational risks relating to its vendors’ use of common service providers.

The Company is or may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences.

Many aspects of the Company’s business and operations involve substantial risk of legal liability. M&T and/or its subsidiaries have been named or threatened to be named as defendants in various lawsuits arising from its or its subsidiaries’ business activities (and in some cases from the activities of companies M&T has acquired). In addition, from time to time, M&T is, or may become, the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings and other forms of regulatory inquiry, including by bank and other regulatory agencies, the SEC and law enforcement authorities. The SEC has announced a policy of seeking admissions of liability in certain settled cases, which could adversely impact the defense of private litigation. M&T is also at risk with respect to its obligations to indemnify directors and officers of it and its subsidiaries in connection with certain legal matters as well as in situations where it has agreed to indemnify others for losses related to legal proceedings, including for litigation and governmental investigations and inquiries, such as in connection with the purchase or sale of a business or assets. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way in which the Company conducts its business, or reputational harm.

Although the Company establishes accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, the Company does not have accruals for all legal proceedings where it faces a risk of loss. In addition, due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings, amounts accrued may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company’s ultimate losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies, which could adversely affect the Company’s financial condition and results of operations.

45


Many financial institutions, including the Company, have received inquiries from the United States Congress, regulators and other government agencies regarding implementation of provisions and programs under the CARES Act, and may also face the risk of litigation concerning their participation in the PPP under that Act. The Company’s involvement in these and other programs created in response to the COVID-19 pandemic may lead to additional government and regulatory inquiries and litigation in the future, any of which could negatively impact the Company’s business, reputation, financial condition and results of operations.

Business Risk

Changes in accounting standards could impact the Company’s financial condition and results of operations.

The accounting standard setters, including the Financial Accounting Standards Board (“FASB”), the SEC and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes can be difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. For example, Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, became effective January 1, 2020, and substantially changed the accounting for credit losses on loans and other financial assets. In some cases, the Company could be required to apply a new or revised standard retroactively, which would result in the restating of the Company’s prior period financial statements. Information about recently adopted and not as yet adopted accounting standards is included in note 26 of Notes to Financial Statements included in Part II, Item 8 — Financial Statements and Supplemental Data of this Form 10-K.

The Company’s reported financial condition and results of operations depend on management’s selection of accounting methods and require management to make estimates about matters that are uncertain.

Accounting policies and processes are fundamental to the Company’s reported financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported amounts of assets or liabilities and financial results. Several of M&T’s accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Pursuant to generally accepted accounting principles, management is required to make certain assumptions and estimates in preparing the Company’s financial statements. If assumptions or estimates underlying the Company’s financial statements are incorrect, the Company may experience material losses.

Management has identified certain accounting policies as being critical because they require management’s judgment to ascertain the valuations of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset, valuing an asset or liability, or recognizing or reducing a liability. M&T has established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the uncertainty surrounding judgments and the estimates pertaining to these matters, M&T could be required to adjust accounting policies or restate prior period financial statements if those judgments and estimates prove to be

46


incorrect. For additional information, see Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Critical Accounting Estimates” and Note 1, “Significant Accounting Policies,” of Notes to Financial Statements in Part II, Item 8.

The Company’s models used for business planning purposes could perform poorly or provide inadequate information.

The Company uses quantitative models to assist in measuring risks and estimating or predicting certain financial values, among other uses. The Company uses models throughout many of its business lines, relying on them, along with its judgement, for many decision making processes.  Examples of areas where the Company uses models include determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting or estimating losses, assessing capital adequacy, and calculating economic and regulatory capital levels. The Company also uses models to estimate the value of financial instruments and balance sheet items.  Models generally evaluate the performance of various factors under anticipated future conditions, relying on historical data to help build the model and in part on assumptions as to the future, often with respect to macro-economic conditions, in order to generate the output. The models used may not accurately account for all variables and may fail to predict outcomes accurately and/or may overstate or understate certain effects. Poorly designed, implemented, or managed models or misused models, including in the choice of relevant historical data or future-looking assumptions,  present the risk that the Company’s business decisions that consider information based on such models will be adversely affected due to inadequate or inaccurate information, which may damage the Company’s reputation and adversely affect its reported financial condition and results of operations. Even if the underlying assumptions used in the Company’s models are adequate, the models may be deficient due to errors in computer code, use of bad data during development or input into the model during model use, or the use of a model for a purpose outside the scope of the model’s design.  As a result, the Company’s models may not fully capture or express the risks the Company faces, may suggest that the Company has sufficient capital when it may not, or may lead the Company to misjudge the business and economic environment in which it operates.  If the models fail to produce reliable results on an ongoing basis, the Company may not make appropriate risk management, capital planning, or other business or financial decisions. Furthermore, strategies that the Company employs to manage and govern the risks associated with its use of models may not be effective or fully reliable, and as a result, the Company may realize losses or other lapses. Finally, information the Company provides to the public or to its regulators based on poorly designed, implemented, or managed models or misused models could be inaccurate or misleading. Some of the decisions that the Company’s regulators make, including those related to capital distributions to M&T’s stockholders, could be affected adversely due to their perception that the quality of the models used to generate the relevant information is insufficient.

The Company is exposed to reputational risk.

A negative public opinion of the Company and its business can result from any number of activities, including the Company’s lending practices, corporate governance and regulatory compliance, acquisitions and actions taken by regulators or by community organizations in response to these activities. Significant harm to the Company’s reputation could also arise as a result of regulatory or governmental actions, litigation, employee misconduct or the activities of customers, other participants in the financial services industry or the Company’s contractual counterparties, such as service providers and vendors. A service disruption of the Company’s technology platforms or an impact to the Company’s branches could have a negative impact on a customer’s access to banking

47


services, and harm the Company’s reputation with customers. In particular, a cyber security event impacting the Company’s or its customers’ data could have a negative impact on the Company’s reputation and customer confidence in the Company and its cyber security. Damage to the Company’s reputation could also adversely affect its credit ratings and access to the capital markets.

Additionally, whereas negative public opinion once was primarily driven by adverse news coverage in traditional media, the increased use of social media platforms facilitates the rapid dissemination of information or misinformation, which magnifies the potential harm to the Company’s reputation.

 

The Company’s framework for managing risks may not be effective.

 

The Company’s risk management framework is made up of various processes and strategies to manage its risk exposure. The framework to manage risk, including the framework’s underlying assumptions, may not be effective under all conditions and circumstances. If the risk management framework proves ineffective, the Company could suffer unexpected losses and could be materially adversely affected.

The Company has established processes and procedures intended to identify, measure, monitor, report, and analyze the types of risk to which it is subject, including liquidity risk, credit risk, market risk, interest rate risk, compliance risk, strategic risk, reputation risk, and operational risk related to its employees, systems and vendors, among others. There are inherent limitations to the Company’s risk management strategies as there may exist, or develop in the future, risks that it has not appropriately anticipated or identified. In addition, the Company relies on both qualitative and quantitative factors, including models, to monitor, measure and analyze certain risks and to estimate certain financial values, which are subject to error. The Company must also develop and maintain a culture of risk management among its employees, as well as manage risks associated with third parties, and could fail to do so effectively. If the Company’s risk management framework proves ineffective, the Company could incur litigation and negative regulatory consequences, and suffer unexpected losses that could affect its financial condition or results of operations.

Severe weather, natural disasters, pandemics, acts of war or terrorism and other external events could significantly impact the Company’s business.

Severe weather, natural disasters, pandemics, acts of war or terrorism and other adverse external events could have a significant impact on the Company’s ability to conduct business. Such events could affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses. Although the Company has established disaster recovery plans and procedures, and monitors for significant environmental effects on its properties or its investments, the occurrence of any such event could have a material adverse effect on the Company.

Discussions of the specific risks outlined above and other risks facing the Company are included within this Annual Report on Form 10-K in Part I, Item 1 “Business,” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Furthermore, in Part II, Item 7 under the heading “Forward-Looking Statements” is included a description of certain risks, uncertainties and assumptions identified by management that are difficult to predict and that could materially affect the Company’s financial condition and results of operations, as well as the value of the Company’s financial instruments in general, and M&T common stock, in particular.

48


In addition, the market price of M&T common stock may fluctuate significantly in response to a number of other factors, including changes in securities analysts’ estimates of financial performance, volatility of stock market prices and volumes, rumors or erroneous information, changes in market valuations of similar companies and changes in accounting policies or procedures as may be required by the FASB or other regulatory agencies.

Item 1B.Unresolved Staff Comments.

None.

Item 2.

Properties.

Both M&T and M&T Bank maintain their executive offices at One M&T Plaza in Buffalo, New York. This twenty-one story headquarters building, containing approximately 300,000 rentable square feet of space, is owned in fee by M&T Bank and was completed in 1967. M&T, M&T Bank and their subsidiaries occupy approximately 98% of the building and the remainder is leased to non-affiliated tenants. At December 31, 2020, the cost of this property (including improvements subsequent to the initial construction), net of accumulated depreciation, was $26.6 million.

M&T Bank owns and occupies an additional facility in Buffalo, New York (known as M&T Center) with approximately 395,000 rentable square feet of space.  At December 31, 2020, the cost of this building (including improvements subsequent to acquisition), net of accumulated depreciation, was $12.8 million.

M&T Bank also owns and occupies three separate facilities in the Buffalo area which support certain back-office and operations functions of the Company. The total square footage of these facilities approximates 290,000 square feet and their combined cost (including improvements subsequent to acquisition), net of accumulated depreciation, was $26.3 million at December 31, 2020.

M&T Bank owns a facility in Syracuse, New York with approximately 160,000 rentable square feet of space. Approximately 65% of that facility is occupied by M&T Bank. At December 31, 2020, the cost of that building (including improvements subsequent to acquisition), net of accumulated depreciation, was less than $1 million. M&T Bank has agreed to sell this facility. The closing date is expected to be the first half of 2021.

M&T Bank owns facilities in Wilmington, Delaware, with approximately 340,000 (known as Wilmington Center) and 295,000 (known as Wilmington Plaza) rentable square feet of space, respectively. M&T Bank occupies approximately 100% of Wilmington Center and 34% of Wilmington Plaza. At December 31, 2020, the cost of these buildings (including improvements subsequent to acquisition), net of accumulated depreciation, was $40.3 million and $14.4 million, respectively.

M&T Bank also owns facilities in Harrisburg, Pennsylvania and Millsboro, Delaware with approximately 220,000 and 325,000 rentable square feet of space, respectively. M&T Bank occupies approximately 46% and 100% of those facilities, respectively. At December 31, 2020, the cost of those buildings (including improvements subsequent to acquisition), net of accumulated depreciation, was $8.8 million and $14.9 million, respectively.

No other properties owned by M&T Bank have more than 100,000 square feet of space. The cost and accumulated depreciation and amortization of the Company’s premises and equipment is detailed in note 5 of Notes to Financial Statements filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data.”

Of the 716 domestic banking offices of M&T’s subsidiary banks at December 31, 2020, 281 are owned in fee and 435 are leased.

49


Item 3.

M&T and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings and other matters in which claims for monetary damages are asserted. On an on-going basis management, after consultation with legal counsel, assesses the Company’s liabilities and contingencies in connection with such proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability, was between $0 and $25 million. Although the Company does not believe that the outcome of pending legal matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

Item 4.

Mine Safety Disclosures.

Not applicable.

Executive Officers of the Registrant

Information concerning M&T’s executive officers is presented below. The year the officer was first appointed to the indicated position with M&T or its subsidiaries is shown parenthetically. In the case of each entity noted below, officers’ terms run until the first meeting of the board of directors after such entity’s annual meeting, which in the case of M&T takes place immediately following the Annual Meeting of Shareholders, and until their successors are elected and qualified.

René F. Jones, age 56, is chief executive officer, chairman of the board and a director of M&T and M&T Bank (2017).  Previously, he was an executive vice president (2006) of M&T and a vice chairman (2014) of M&T Bank with responsibility for the Company’s Wealth and Institutional Services Division, Treasury Division, and Mortgage and Consumer Lending Divisions. Previously, Mr. Jones served as chairman of the board and a director (2014) of Wilmington Trust Investment Advisors, a director (2007) of M&T Insurance Agency, chief financial officer (2005) of M&T, M&T Bank and Wilmington Trust, N.A. and had held a number of management positions within M&T Bank’s Finance Division since 1992.

Richard S. Gold, age 60, is president, chief operating officer and a director of M&T and M&T Bank (2017).  Mr. Gold oversees the Consumer Banking, Business Banking, Legal, Human Resources and Enterprise Transformation Divisions. Previously, he was an executive vice president (2006) and chief risk officer (2014) of M&T and was a vice chairman and chief risk officer (2014) of M&T Bank. Mr. Gold had been responsible for overseeing the Company’s governance and strategy for risk management, as well as relationships with key regulators and supervisory agencies.  He served as chairman, president and chief executive officer (2018) of Wilmington Trust N.A., as a senior vice president of M&T Bank from 2000 to 2006 and has held a number of management positions since he began his career with M&T Bank in 1989.  Mr. Gold is a director (2017) of Wilmington Trust, N.A and a director (2020) of Wilmington Trust Company.

Kevin J. Pearson, age 59, is a vice chairman (2020) and a director (2018) of M&T and is a vice chairman (2014) and a director (2018) of M&T Bank. He is a member of the Directors Advisory Council (2006) of the New York City/Long Island Division of M&T Bank. Mr. Pearson has oversight of the Commercial Banking, Credit, Technology and Banking Operations, and Wealth and Institutional Services Divisions. Previously, Mr. Pearson served as an executive vice president of

50


M&T and M&T Bank, and has held a number of management positions since he began his career with M&T Bank in 1989. He is chairman of the board and a director (2018) of Wilmington Trust Company, chairman of the board (2020) and a director (2014) of Wilmington Trust, N.A., and a director (2018) of Wilmington Trust Investment Advisors.

Robert J. Bojdak, age 65, is an executive vice president and chief credit officer (2004) of M&T and M&T Bank, and is responsible for the Company’s Credit Division, including the Credit Risk Management Division. From April 2002 to April 2004, Mr. Bojdak served as senior vice president and credit deputy for M&T Bank and as a director (2004) of Wilmington Trust, N.A.. He is an executive vice president (2004) of Wilmington Trust, N.A.

John L. D’Angelo, age 58, is an executive vice president and chief risk officer (2017) of M&T and M&T Bank.  Mr. D’Angelo is responsible for overseeing the Company’s governance and strategy for risk management, as well as relationships with key regulators and supervisory agencies.  Mr. D’Angelo is an executive vice president and chief risk officer (2018) and a director (2020) of Wilmington Trust, N.A. and an executive vice president and a director (2017) of Wilmington Trust Company.  He served as a senior vice president and general auditor of M&T Bank from 2005 to 2017 and has held a number of positions since he began his career with M&T Bank in 1987.      

William J. Farrell II, age 63, is an executive vice president (2011) of M&T and M&T Bank, and is responsible for managing administrative and business development functions of the Company’s Wealth and Institutional Services Division, which includes Institutional Client Services and M&T Insurance Agency. Mr. Farrell joined M&T through the Wilmington Trust Corporation acquisition. He joined Wilmington Trust Corporation in 1976, and held a number of senior management positions, most recently as executive vice president and head of the Corporate Client Services business. Mr. Farrell is president, chief executive officer and a director (2012) of Wilmington Trust Company, president and chief executive officer (2020) and a director (2013) of Wilmington Trust, N.A. and a director (2016) of Wilmington Trust Investment Advisors.

Christopher E. Kay, age 55, is an executive vice president (2018) of M&T and M&T Bank, and is responsible for all aspects of Consumer Banking, including the Mortgage, Consumer Lending and Retail businesses, and Business Banking and Marketing.  Prior to joining M&T in 2018, Mr. Kay served as chief innovation officer at Humana from 2014 to 2018 and as managing director of Citi Ventures from 2007 to 2013.  

Darren J. King, age 51, is an executive vice president (2010) and chief financial officer (2016) of M&T and executive vice president (2009) and chief financial officer (2016) of M&T Bank. Mr. King has responsibility for the overall financial management of the Company and oversees the Finance and Treasury Divisions.  Prior to his current role, Mr. King was the Retail Banking executive with responsibility for overseeing Business Banking, Consumer Deposits, Consumer Lending and M&T Bank’s Marketing and Communications team. Mr. King previously served as senior vice president of M&T Bank and has held a number of management positions within M&T Bank since 2000. Mr. King is an executive vice president (2009) and chief financial officer (2016) of Wilmington Trust, N.A. and a director of M&T Insurance Agency (2018).

Gino A. Martocci, age 55, is an executive vice president (2014) of M&T and M&T Bank, and is responsible for managing M&T Bank’s commercial banking lines of business.  Mr. Martocci is responsible for directing strategic growth and business line development activities across the Company’s footprint for commercial customers.  Previously, Mr. Martocci co-managed M&T Bank’s commercial banking lines of business. He is also responsible for M&T Realty Capital. Mr. Martocci was a senior vice president of M&T Bank from 2002 to 2013, serving in a number of management positions and was a member of the Directors Advisory Council of the New Jersey Division (2015) of M&T Bank. He is chairman of the board (2018) and a director (2009) of M&T Realty Capital, and a member of the Directors Advisory Council of the New York City/Long Island Division (2013) of M&T Bank and its Mortgage Investment Committee.

51


Doris P. Meister, age 65, is an executive vice president (2016) of M&T and M&T Bank, and is responsible for overseeing the Company’s wealth management business, including Wilmington Trust Wealth Management, M&T Securities and Wilmington Trust Investment Advisors. Ms. Meister is an executive vice president and a director (2016) of Wilmington Trust, N.A., an executive vice president and director of Wilmington Trust Company (2016) and chairman of the board, chief executive officer and a director (2017) of Wilmington Trust Investment Advisors. Prior to joining M&T in 2016, Ms. Meister served as President of U.S. Markets for BNY Mellon Wealth Management from 2009 to 2016 and prior to that was a Managing Director of the New York office of Bernstein Global Wealth Management.

Michael J. Todaro, age 59, is an executive vice president (2015) of M&T and M&T Bank, and is responsible for Enterprise Transformation, a division of the Company dedicated to improving business processes, removing impediments to progress and evaluating/integrating external opportunities. Previously, Mr. Todaro was responsible for the Mortgage, Consumer Lending and Customer Asset Management Divisions. Mr. Todaro previously served as senior vice president of M&T Bank and has held a number of management positions within M&T Bank’s Mortgage Division since 1995. He is an executive vice president (2015) of Wilmington Trust, N.A.

Michele D. Trolli, age 59, is an executive vice president (2005) and chief technology and operations officer (2018) of M&T and M&T Bank. Previously, she was chief information officer (2005) of M&T and M&T Bank. Ms. Trolli leads a wide range of the Company’s Technology and Banking Operations, which includes banking services, corporate services, digital and telephone banking, the enterprise data office, enterprise and cyber security, and enterprise technology.

D. Scott N. Warman, age 55, is an executive vice president (2009) and treasurer (2008) of M&T and M&T Bank. He is responsible for managing the Company’s Treasury Division, including asset/liability management, funding, investment and derivative portfolio management, capital markets foreign exchange trading and sales. Mr. Warman previously served as senior vice president of M&T Bank and has held a number of management positions within M&T Bank since 1995. He is an executive vice president and treasurer of Wilmington Trust, N.A. (2008) and is an executive vice president and treasurer of Wilmington Trust Company (2012).

Tracy S. Woodrow, age 47, is an executive vice president and chief human resources officer (2020) of M&T and M&T Bank.  Ms. Woodrow is responsible for managing the Company’s Human Resources Division.  She is an executive vice president (2020) of Wilmington Trust, N.A. and Wilmington Trust Company.  Ms. Woodrow previously served as the Bank Secrecy Act / Anti-Money Laundering / Office of Foreign Assets Control Officer (2013) for M&T, M&T Bank and Wilmington Trust, N.A.  

  

52


PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

M&T’s common stock is traded under the symbol MTB on the New York Stock Exchange. See cross-reference sheet for disclosures incorporated elsewhere in this Annual Report on Form 10-K for approximate number of common shareholders at year-end, frequency and amounts of dividends on common stock and restrictions on the payment of dividends.

During the fourth quarter of 2020, M&T did not issue any shares of its common stock that were not registered under the Securities Act of 1933.

Equity Compensation Plan Information

The following table provides information as of December 31, 2020 with respect to shares of common stock that may be issued under M&T’s existing equity compensation plans. M&T’s existing equity compensation plans include the M&T Bank Corporation 2019 Equity Incentive Compensation Plan, which has been previously approved by shareholders, and the M&T Bank Corporation 2008 Directors’ Stock Plan and the M&T Bank Corporation Deferred Bonus Plan, each of which did not require shareholder approval.

The table does not include information with respect to shares of common stock subject to outstanding options and rights assumed by M&T in connection with mergers and acquisitions of the companies that originally granted those options and rights. Footnote (1) to the table sets forth the total number of shares of common stock issuable upon the exercise of such assumed options and rights as of December 31, 2020, and their weighted-average exercise price.

 

 

Plan Category

 

Number of

Securities

to be Issued Upon

Exercise of

Outstanding

Options or Rights

 

 

Weighted-Average

Exercise Price of

Outstanding

Options or Rights

 

 

Number of Securities

Remaining Available

for Future Issuance

Under Equity

Compensation Plans

(Excluding Securities

Reflected in Column A)

 

 

 

(A)

 

 

(B)

 

 

(C)

 

Equity compensation plans approved

   by security holders

 

 

462,724

 

 

$

174.47

 

 

 

3,100,665

 

Equity compensation plans not approved

   by security holders

 

 

17,089

 

 

 

84.21

 

 

 

1,970

 

Total

 

 

479,813

 

 

$

171.25

 

 

 

3,102,635

 

 

(1)

As of December 31, 2020, a total of 6,508 shares of M&T common stock were issuable upon exercise of outstanding options or rights assumed by M&T in connection with merger and acquisition transactions. The weighted-average exercise price of those outstanding options or rights is $86.76 per common share.

Equity compensation plans adopted without the approval of shareholders are described below:

2008 Directors’ Stock Plan. M&T maintains a plan for non-employee members of the Board of Directors of M&T and M&T Bank, which allows such directors to receive all or a portion of their directorial compensation in shares of M&T common stock.

53


Deferred Bonus Plan. M&T maintains a deferred bonus plan which was frozen effective January 1, 2010 and did not allow any additional deferrals after that date. Prior to January 1, 2010, the plan allowed eligible officers of M&T and its subsidiaries to elect to defer all or a portion of their annual incentive compensation awards and allocate such awards to several investment options, including M&T common stock. At the time of the deferral election, participants also elected the timing of distributions from the plan. Such distributions are payable in cash, with the exception of balances allocated to M&T common stock which are distributable in the form of shares of common stock.

Performance Graph

The following graph contains a comparison of the cumulative shareholder return on M&T common stock against the cumulative total returns of the KBW Nasdaq Bank Index, compiled by Keefe, Bruyette & Woods, Inc., and the S&P 500 Index, compiled by Standard & Poor’s Corporation, for the five-year period beginning on December 31, 2015 and ending on December 31, 2020. The KBW Nasdaq Bank Index is a modified market capitalization weighted index consisting of 24 banking stocks representing leading large U.S. national money centers, regional banks and thrift institutions.

 

Comparison of Five-Year Cumulative Return*

Shareholder Value at Year End*

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

2020

 

M&T Bank Corporation

 

100

 

 

132

 

 

147

 

 

126

 

 

153

 

 

119

 

KBW Nasdaq Bank Index

 

100

 

 

129

 

 

152

 

 

125

 

 

171

 

 

153

 

S&P 500 Index

 

100

 

 

112

 

 

136

 

 

130

 

 

171

 

 

203

 

 

* Assumes a $100 investment on December 31, 2015 and reinvestment of all dividends.

In accordance with and to the extent permitted by applicable law or regulation, the information set forth above under the heading “Performance Graph” shall not be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act and shall not be deemed to be “soliciting material” or to be “filed” with the SEC under the Securities Act or the Exchange Act.

54


Issuer Purchases of Equity Securities

During the fourth quarter of 2020, M&T purchased shares of its common stock as follows:

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 1 - October 31, 2020

 

 

 

 

$

 

 

 

 

 

$

 

November 1 - November 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

December 1 - December 31, 2020

 

 

81

 

 

 

123.81

 

 

 

 

 

 

 

Total

 

 

81

 

 

$

123.81

 

 

 

 

 

 

 

 

 

(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)

The authorization by M&T’s Board of Directors on July 17, 2019 for a stock repurchase program ended as of the end of the second quarter of 2020.  On January 20, 2021, M&T’s Board of Directors authorized a new stock repurchase program to repurchase up to $800 million of common shares.

Item 6.

Selected Financial Data.

See cross-reference sheet for disclosures incorporated elsewhere in this Annual Report on Form 10-K.

Item 7.

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

Corporate Profile and Significant Developments

M&T Bank Corporation (“M&T”) is a bank holding company headquartered in Buffalo, New York with consolidated assets of $142.6 billion at December 31, 2020. The consolidated financial information presented herein reflects M&T and all of its subsidiaries, which are referred to collectively as “the Company.” M&T’s wholly owned bank subsidiaries are Manufacturers and Traders Trust Company (“M&T Bank”) and Wilmington Trust, National Association (“Wilmington Trust, N.A.”).

M&T Bank, with total assets of $142.2 billion at December 31, 2020, is a New York-chartered commercial bank with 716 domestic banking offices in New York State, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia and the District of Columbia, a full-service commercial banking office in Ontario, Canada, and an office in the Cayman Islands. M&T Bank and its subsidiaries offer a broad range of financial services to a diverse base of consumers, businesses, professional clients, governmental entities and financial institutions located in their markets. M&T Bank lends to consumers residing in the states noted above and to small and medium-size businesses based in those areas, although loans are also originated through offices in other states and in Ontario, Canada. Certain lending activities are also conducted in other states through various

55


subsidiaries. Trust and other fiduciary services are offered by M&T Bank and through its wholly owned subsidiary, Wilmington Trust Company. Other subsidiaries of M&T Bank include: M&T Realty Capital Corporation, a multifamily commercial mortgage lender; M&T Securities, Inc., which provides brokerage, investment advisory and insurance services; Wilmington Trust Investment Advisors, Inc., which serves as an investment advisor to the Wilmington Funds, a family of proprietary mutual funds, and other funds and institutional clients; and M&T Insurance Agency, Inc., an insurance agency.

Wilmington Trust, N.A. is a national bank with total assets of $6.2 billion at December 31, 2020. Wilmington Trust, N.A. and its subsidiaries offer various trust and wealth management services.

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

Critical Accounting Estimates

The Company’s significant accounting policies conform with generally accepted accounting principles (“GAAP”) and are described in note 1 of Notes to Financial Statements. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company’s reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more significant areas in which management of the Company applies critical assumptions and estimates include the following:

 

Accounting for credit losses — Effective January 1, 2020 the Company adopted amended accounting guidance that impacts how the allowance for credit losses is determined.  Under the new accounting guidance, the allowance for credit losses represents a valuation account that is deducted from the amortized cost basis of certain financial assets, including loans and leases, to present the net amount expected to be collected at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period.  For certain loan pools

56


 

that share similar risk characteristics, the Company utilizes statistically developed models to estimate amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. Such models consider historical correlations of credit losses with various macroeconomic assumptions including unemployment, gross domestic product and real estate prices.  These forecasts may be adjusted for inherent limitations or biases of the models.  Subsequent to the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans.   Prior to 2020, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date.  The estimation of the allowance for credit losses prior to 2020 did not consider reasonable and supportable forecasts that could have affected the collectability of the reported amounts.  Changes in the circumstances considered when determining management’s estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the allowance for credit losses in future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses, as well as the new accounting guidance, is included herein under the heading “Provision for Credit Losses” and in note 4 of Notes to Financial Statements.

 

Valuation methodologies — Management of the Company applies various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as trading assets, most investment securities, and residential real estate loans held for sale and related commitments. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit and other intangible assets, other assets and liabilities obtained or assumed in business combinations, capitalized servicing assets, pension and other postretirement benefit obligations, estimated residual values of property associated with leases, and certain derivative and other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, costs of servicing and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition or disclosures of fair value information. In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that  require recognition of a loss in the consolidated statement of income. Examples include certain investments, capitalized servicing assets, goodwill and core deposit and other intangible assets, among others. Specific assumptions and estimates utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 2, 3, 6, 7, 12, 18, 19 and 20 of Notes to Financial Statements.

 

Commitments, contingencies and off-balance sheet arrangements — Information regarding the Company’s commitments and contingencies, including guarantees and contingent liabilities arising from litigation, and their potential effects on the Company’s results of operations is included in note 21 of Notes to Financial Statements. In addition, the Company is routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should tax laws change or the tax authorities determine that management’s assumptions were

57


 

inappropriate, the result and adjustments required could have a material effect on the Company’s results of operations.  Information regarding the Company’s income taxes is presented in note 13 of Notes to Financial Statements. The recognition or de-recognition in the Company’s consolidated financial statements of assets and liabilities held by so-called variable interest entities is subject to the interpretation and application of complex accounting pronouncements or interpretations that require management to estimate and assess the relative significance of the Company’s financial interests in those entities and the degree to which the Company can influence the most important activities of the entities. Information relating to the Company’s involvement in such entities and the accounting treatment afforded each such involvement is included in note 19 of Notes to Financial Statements.

 

Overview

Net income recorded by the Company in 2020 was $1.35 billion or $9.94 of diluted earnings per common share, representing declines of 30% and 28%, respectively, from $1.93 billion or $13.75 of diluted earnings per common share in 2019. Basic earnings per common share decreased 28% to $9.94 in 2020 from $13.76 in 2019. Net income in 2018 totaled $1.92 billion, while diluted and basic earnings per common share were $12.74 and $12.75, respectively. Expressed as a rate of return on average assets, net income in 2020 was 1.00%, compared with 1.61% in 2019 and 1.64% in 2018. The return on average common shareholders’ equity was 8.72% in 2020, 12.87% in 2019 and 12.82% in 2018.

Effective January 1, 2020, M&T adopted amended accounting guidance for the measurement of credit losses on financial instruments. That guidance requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value that is expected to be collected over the contractual term of the assets considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The new accounting guidance replaced the previous incurred loss model for determining the allowance for credit losses. The adoption of the amended guidance resulted in a $132 million increase in the allowance for credit losses as of January 1, 2020. Additional information on the new accounting guidance is provided under the heading “Provision for Credit Losses” and in note 4 of Notes to Financial Statements.

Financial results for 2020 have been adversely impacted by the COVID-19 pandemic. Large portions of the U.S. economy were substantially curtailed for extended periods of time and, as a result, many commercial and consumer customers were adversely impacted. Specifically, those adverse economic impacts, coupled with the accounting change noted previously, resulted in the Company recognizing significantly higher provisions for credit losses during 2020 as compared with previous years. For the years ended December 31, 2020, 2019 and 2018, the provision for credit losses totaled $800 million, $176 million and $132 million, respectively. The 2020 period reflects the new accounting guidance for the measurement of expected credit losses on financial instruments. Prior to 2020, the provision for credit losses reflected incurred losses only. In response to the pandemic, the Federal Reserve has taken action to lower interest rates that has negatively affected the Company’s net interest income. Taxable-equivalent net interest income totaled $3.88 billion, $4.15 billion and $4.09 billion in 2020, 2019 and 2018, respectively.

The CARES Act and applicable extensions provide relief to borrowers, including the opportunity to defer loan payments while not negatively affecting their credit standing, and also provide funding opportunities for small businesses under the Paycheck Protection Program (“PPP”) from approved Small Business Administration (“SBA”) lenders, including M&T Bank. For commercial and consumer customers, the Company has provided a host of relief options, including payment deferrals (including maturity extensions), loan covenant waivers and low interest rate loan

58


products. M&T Bank funded approximately $7.0 billion of PPP loans during 2020, of which $5.4 billion remained outstanding at December 31, 2020.

Updated economic forecasts at the end of each of the quarters of 2020 resulted in higher estimates of expected credit losses in the Company’s loan portfolio than at January 1, 2020, resulting in higher levels of the provision for credit losses in each of those quarters as compared with the comparable 2019 periods. Specifically, the level of the provision in 2020 reflects the ongoing impacts of the pandemic on economic activity in the hospitality and retail sectors, the uncertainty at December 31, 2020 as to the sufficiency and effectiveness of economic stimulus provided by the U.S. government to the economy, and concerns about ultimate collectability of real estate loans where the borrowers are requesting re-payment forbearance. The Company expects that it will continue to be impacted by the COVID-19 pandemic after December 31, 2020. Specifically, the Company expects that the following balance sheet and income statement categories could be affected:

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

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

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

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

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

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

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

• The vast majority of the Company’s non-branch employees continue to work remotely;

• Many loan customers are receiving COVID-19 related relief in various forms as noted herein.

• Commercial – balances of $1.7 billion, including $96 million of commercial loans and $790 million of commercial real estate loans for which a payment deferral has been requested;

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• Residential real estate – balances of $2.8 billion for which a payment deferral has been requested;

• Consumer – including automobile, recreational finance, home equity lines and loans, credit cards and personal loans – balances of $97 million for which a payment deferral has been requested;

• Paycheck Protection Program – At December 31, 2020 outstanding loans totaled $5.4 billion; and

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

When comparing the Company’s financial results in 2020 with 2019, there were several notable matters during 2019 that impacted that year’s results. In the first quarter of 2019, the Company recognized an expense of $50 million (reflected in “other costs of operations”) to increase its reserve for legal matters associated with a subsidiary’s role as trustee of Employee Stock Ownership Plans in its Institutional Client Services business. That expense, on an after-tax basis, reduced net income by $37 million, or $.27 of diluted earnings per common share. Also during that quarter, M&T received a $37 million distribution from Bayview Lending Group LLC (“BLG”), increasing net income by $28 million, or $.20 of diluted earnings per common share.  Similar distributions received in 2020 totaled $53 million, increasing net income by $40 million, or $.31 of diluted earnings per common share.

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

Effective January 1, 2019, the Company adopted new accounting guidance for leases.  The new guidance requires lessees to record a right-of-use asset and a lease liability for all operating leases with a term greater than twelve months.  The accounting applied by lessors is largely unchanged, however, the guidance eliminates the accounting model for leveraged leases that commenced after December 31, 2018.  The Company occupies certain banking offices and uses certain equipment under noncancelable operating lease agreements which, prior to January 1, 2019, were not reflected in its consolidated balance sheet.  As of January 1, 2019, the Company recorded right-of-use assets of $394 million and increased lease liabilities of $399 million in its consolidated balance sheet.  The adoption of the new guidance did not have a material impact on the consolidated statement of income during 2019.  For additional information on leases, see notes 3 and 5 of Notes to Financial Statements.

There were also several notable items in 2018. The Company adopted amended accounting guidance in the first quarter of 2018 to separately report equity securities at fair value on the consolidated balance sheet (which were previously reported as investment securities available for sale) with changes in fair value recognized in the consolidated statement of income rather than through other comprehensive income. Net unrealized gains on investments in equity securities in 2019 totaled $18 million, compared with net unrealized losses of $9 million in 2020 and $6 million in 2018. As of March 31, 2018, the Company increased its reserve for legal matters by $135 million in anticipation of the settlement of a civil litigation matter by WT Corp. that related to periods prior

60


to the acquisition of WT Corp. by M&T. The increase, on an after-tax basis, reduced net income by $102 million or $.71 of diluted earnings per common share in 2018. That matter received final court approval and was settled in 2018.

Reflecting the matters discussed previously, taxable-equivalent net interest income was $3.88 billion in 2020, 6% lower than $4.15 billion in 2019. That decline resulted from a 68 basis point (hundredths of one percent) narrowing of the net interest margin, or taxable-equivalent net interest income expressed as an annualized percentage of average earning assets, to 3.16% in 2020 from 3.84% in 2019, partially offset by the impact of an increase in average earning assets to $122.9 billion in 2020 from $108.2 billion in 2019. Taxable-equivalent net interest income increased 1% in 2019 from $4.09 billion in 2018. That improvement resulted predominantly from an increase in average earning assets in 2019 from $106.8 billion in 2018 and a slight expansion of the net interest margin from 3.83% in 2018.

The provision for credit losses rose significantly to $800 million in 2020 from $176 million in 2019. The provision in 2018 was $132 million.  Net charge-offs in 2020, 2019 and 2018 were $247 million, $144 million and $130 million, respectively.

Other income aggregated $2.09 billion and $2.06 billion in 2020 and 2019, respectively, compared with $1.86 billion in 2018.  Comparing 2020 with 2019, a 24% rise in mortgage banking revenues, higher trust income and increased income from BLG in 2020  were partially offset by declines in service charges on deposit accounts, trading account and foreign exchange gains and loan syndication fees.  As compared with 2018, growth in 2019 was experienced in most major sources of noninterest income, led by higher residential and commercial mortgage banking revenues and trust income.  

Other expense decreased 2% to $3.39 billion in 2020 from $3.47 billion in 2019. Other expense in 2018 totaled $3.29 billion. Included in those amounts are expenses considered by M&T to be “nonoperating” in nature, consisting of amortization of core deposit and other intangible assets of $15 million, $19 million and $25 million in 2020, 2019 and 2018, respectively. Exclusive of those nonoperating expenses, noninterest operating expenses totaled $3.37 billion in 2020, compared with $3.45 billion in 2019 and $3.26 billion in 2018. Contributing to the lower level of such expenses in 2020 as compared with 2019 were decreased costs for professional and outside services, legal-related matters, advertising and marketing, travel and entertainment, and a $48 million charge in the second quarter of 2019 associated with the sale of an equity investment in an asset manager.  Those factors were partially offset by higher costs for salaries and employee benefits, outside data processing and software, increases to the valuation allowance for capitalized residential mortgage servicing rights and $14 million of expenses related to the planned transition of the support for the Company’s retail brokerage and advisory business to the platform of LPL Financial. The higher level of noninterest operating expenses in 2019 as compared with  2018 resulted from increased costs for salaries and employee benefits, equipment and net occupancy, outside data processing and software, and professional services, and the $48 million charge associated with the sale of the equity investment in an asset manager.  Those factors were partially offset by lower costs associated with legal-related matters and contributions to The M&T Charitable Foundation, and a decline in FDIC assessments.  

The efficiency ratio measures the relationship of noninterest operating expenses to revenues. The Company’s efficiency ratio, or noninterest operating expenses (as previously defined) divided by the sum of taxable-equivalent net interest income and noninterest income (exclusive of gains and losses from bank investment securities), was 56.3% in 2020, compared with 55.7% and 54.8% in 2019 and 2018, respectively. The calculations of the efficiency ratio are presented in table 2.

The Company’s effective tax rate was 23.5% in each of 2020 and 2018 and 24.3% in 2019.

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Table 1

EARNINGS SUMMARY

Dollars in millions

 

Increase (Decrease)(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compound

Growth Rate

 

2019 to 2020

 

 

2018 to 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5 Years

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015 to 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(692.4

)

 

 

(14

)

 

$

281.8

 

 

 

6

 

 

Interest income(b)

 

$

4,210.0

 

 

$

4,902.4

 

 

$

4,620.6

 

 

$

4,202.4

 

 

$

3,922.8

 

 

 

6

%

 

 

 

(422.9

)

 

 

(56

)

 

 

222.9

 

 

 

42

 

 

Interest expense

 

 

326.4

 

 

 

749.3

 

 

 

526.4

 

 

 

386.8

 

 

 

426.0

 

 

 

 

 

 

 

(269.5

)

 

 

(6

)

 

 

58.9

 

 

 

1

 

 

Net interest income(b)

 

 

3,883.6

 

 

 

4,153.1

 

 

 

4,094.2

 

 

 

3,815.6

 

 

 

3,496.8

 

 

 

6

 

 

 

 

624.0

 

 

 

355

 

 

 

44.0

 

 

 

33

 

 

Less: provision for credit losses

 

 

800.0

 

 

 

176.0

 

 

 

132.0

 

 

 

168.0

 

 

 

190.0

 

 

 

36

 

 

 

 

(27.4

)

 

 

 

 

 

24.3

 

 

 

 

 

Gain (loss) on bank investment securities

 

 

(9.4

)

 

 

18.0

 

 

 

(6.3

)

 

 

21.3

 

 

 

30.3

 

 

 

 

 

 

 

54.2

 

 

 

3

 

 

 

181.4

 

 

 

10

 

 

Other income

 

 

2,097.9

 

 

 

2,043.7

 

 

 

1,862.3

 

 

 

1,829.9

 

 

 

1,795.7

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49.9

 

 

 

3

 

 

 

148.5

 

 

 

8

 

 

Salaries and employee benefits

 

 

1,950.7

 

 

 

1,900.8

 

 

 

1,752.3

 

 

 

1,648.8

 

 

 

1,618.1

 

 

 

5

 

 

 

 

(133.4

)

 

 

(9

)

 

 

32.1

 

 

 

2

 

 

Other expense

 

 

1,434.5

 

 

 

1,567.9

 

 

 

1,535.8

 

 

 

1,491.5

 

 

 

1,429.3

 

 

 

2

 

 

 

 

(783.2

)

 

 

(30

)

 

 

40.0

 

 

 

2

 

 

Income before income taxes

 

 

1,786.9

 

 

 

2,570.1

 

 

 

2,530.1

 

 

 

2,358.5

 

 

 

2,085.4

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5.6

)

 

 

(24

)

 

 

1.0

 

 

 

5

 

 

Taxable-equivalent adjustment(b)

 

 

17.3

 

 

 

22.9

 

 

 

21.9

 

 

 

34.6

 

 

 

27.0

 

 

 

(7

)

 

 

 

(201.7

)

 

 

(33

)

 

 

28.0

 

 

 

5

 

 

Income taxes

 

 

416.4

 

 

 

618.1

 

 

 

590.1

 

 

 

915.6

 

 

 

743.3

 

 

 

(7

)

 

 

$

(575.9

)

 

 

(30

)

 

$

11.0

 

 

 

1

 

 

Net income

 

$

1,353.2

 

 

$

1,929.1

 

 

$

1,918.1

 

 

$

1,408.3

 

 

$

1,315.1

 

 

 

5

%

 

 

 

(a)

Changes were calculated from unrounded amounts.

(b)

Interest income data are on a taxable-equivalent basis. The taxable-equivalent adjustment represents additional income taxes that would be due if all interest income were subject to income taxes. This adjustment, which is related to interest received on qualified municipal securities, industrial revenue financings and preferred equity securities, is based on a composite income tax rate of approximately 26% in 2018-2020 and 39% in prior years.

Supplemental Reporting of Non-GAAP Results of Operations

As a result of business combinations and other acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $4.6 billion at each of December 31, 2020 and 2019, consisting predominantly of goodwill. Amortization of core deposit and other intangible assets, after-tax effect, totaled $11 million, $14 million and $18 million during 2020, 2019 and 2018, respectively.

M&T consistently provides supplemental reporting of its results on a “net operating” or “tangible” basis, from which M&T excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and gains (when realized) and expenses (when incurred) associated with merging acquired operations into the Company, since such items are considered by management to be “nonoperating” in nature. There were no such merger-related gains or expenses in 2020, 2019 or 2018. 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 $1.36 billion in 2020 and $1.94 billion in each of 2019 and 2018. Diluted net operating earnings per common share were $10.02 in 2020, $13.86 in 2019 and $12.86 in 2018.

Net operating income expressed as a rate of return on average tangible assets was 1.04% in 2020, compared with 1.69% in 2019 and 1.72% in 2018. Net operating income represented a return on average tangible common equity of 12.79% in 2020, compared with 19.08% in 2019 and 19.09% in 2018.

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

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Table 2

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

 

 

 

2020

 

 

2019

 

 

2018

 

Income statement data

 

 

 

 

 

 

 

 

 

 

 

 

Dollars in thousands, except per share

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,353,152

 

 

$

1,929,149

 

 

$

1,918,080

 

Amortization of core deposit and other intangible assets(a)

 

 

10,993

 

 

 

14,359

 

 

 

18,075

 

Net operating income

 

$

1,364,145

 

 

$

1,943,508

 

 

$

1,936,155

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

9.94

 

 

$

13.75

 

 

$

12.74

 

Amortization of core deposit and other intangible assets(a)

 

 

.08

 

 

 

.11

 

 

 

.12

 

Diluted net operating earnings per common share

 

$

10.02

 

 

$

13.86

 

 

$

12.86

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

$

3,385,240

 

 

$

3,468,682

 

 

$

3,288,062

 

Amortization of core deposit and other intangible assets

 

 

(14,869

)

 

 

(19,490

)

 

 

(24,522

)

Noninterest operating expense

 

$

3,370,371

 

 

$

3,449,192

 

 

$

3,263,540

 

Efficiency ratio

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest operating expense (numerator)

 

$

3,370,371

 

 

$

3,449,192

 

 

$

3,263,540

 

Taxable-equivalent net interest income

 

$

3,883,605

 

 

$

4,153,127

 

 

$

4,094,199

 

Other income

 

 

2,088,444

 

 

 

2,061,679

 

 

 

1,856,000

 

Less: Gain (loss) on bank investment securities

 

 

(9,421

)

 

 

18,037

 

 

 

(6,301

)

Denominator

 

$

5,981,470

 

 

$

6,196,769

 

 

$

5,956,500

 

Efficiency ratio

 

 

56.3

%

 

 

55.7

%

 

 

54.8

%

Balance sheet data

 

 

 

 

 

 

 

 

 

 

 

 

In millions

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

 

 

 

 

 

 

 

 

 

 

 

Average assets

 

$

135,480

 

 

$

119,584

 

 

$

116,959

 

Goodwill

 

 

(4,593

)

 

 

(4,593

)

 

 

(4,593

)

Core deposit and other intangible assets

 

 

(21

)

 

 

(38

)

 

 

(59

)

Deferred taxes

 

 

5

 

 

 

10

 

 

 

16

 

Average tangible assets

 

$

130,871

 

 

$

114,963

 

 

$

112,323

 

Average common equity