Business Context and Reporting Period
M&T Bank Corporation filed this Form 10-K for the fiscal year ended December 31, 2019. The company is a regional bank holding company focused primarily on New York, the Mid-Atlantic and nearby markets, with retail and commercial banking, trust and wealth management, and mortgage services. It reported $119.9 billion in consolidated assets, $94.8 billion in deposits and $15.7 billion in shareholders’ equity at year-end.
Key Financial Metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Net income | $1.929 billion | $1.918 billion |
| Diluted earnings per common share | $13.75 | $12.74 |
| Net interest income, GAAP | $4.130 billion | $4.072 billion |
| Other income | $2.062 billion | $1.856 billion |
| Provision for credit losses | $176 million | $132 million |
| Net charge-offs | $144 million | $130 million |
| Net interest margin, taxable-equivalent | 3.84% | 3.83% |
| Efficiency ratio | 55.7% | 54.8% |
| Operating cash flow | $2.358 billion | $2.090 billion |
Loans and leases ended the year at $90.9 billion, up from $88.5 billion. Deposits were $94.8 billion, up from $90.2 billion. Total assets were slightly lower than 2018’s $120.1 billion. Year-end short-term borrowings fell to $62 million from $4.4 billion, while long-term borrowings decreased to $7.0 billion from $8.4 billion. Cash and cash equivalents declined $169 million during 2019; financing activities used $3.254 billion, including $1.350 billion of share repurchases and common dividends paid of $552 million.
Shareholders’ equity was $15.7 billion; the company reported a 9.73% consolidated CET1 ratio and a 9.59% Tier 1 leverage ratio. The allowance for credit losses was $1.051 billion, or 1.16% of loans and leases. The annual return on average assets was 1.61%, versus 1.64% in 2018.
Material Changes Versus Prior Period
- Annual net income rose about 1%, while diluted EPS increased about 8%, supported in part by share repurchases. Taxable-equivalent net interest income grew about 1%; the margin edged up from 3.83% to 3.84%.
- Other income increased 11%, led by mortgage banking, trust income and trading/foreign-exchange gains. Mortgage banking revenue rose to $458 million from $360 million; trust income rose to $573 million from $538 million.
- Provision for credit losses increased to $176 million from $132 million, and net charge-offs rose to $144 million from $130 million. Nonaccrual loans increased to $963 million from $894 million.
- Other expense increased 5% to $3.469 billion. Salaries and employee benefits rose to $1.901 billion from $1.752 billion.
- Fourth-quarter net income was $493 million, down from $546 million a year earlier; diluted EPS was $3.60 versus $3.76. Fourth-quarter net interest margin declined to 3.64% from 3.92%.
Outlook, Commentary, Risks and Unusual Items
The filing provides no specific earnings or revenue guidance. Management said available liquidity sources were adequate for anticipated normal-course funding needs. The 2019 capital plan contemplated approximately $1.9 billion of net capital distributions, subject to regulatory requirements; the board increased the quarterly common dividend to $1.10 per share in the fourth quarter. The Federal Reserve’s 2019 tailoring rules placed M&T in Category IV, changing certain stress-testing and liquidity requirements.
- Notable 2019 items included a $50 million expense to increase reserves for ESOP-related legal matters, $37 million of income from Bayview Lending Group, and a $48 million charge related to the sale of an investment in an asset manager.
- The company reached a settlement in principle with the Department of Labor concerning certain ESOP matters; final documentation was pending. Five related private lawsuits remained pending. For legal matters in aggregate, reasonably possible losses beyond recorded liabilities were estimated at $0–$50 million; outcomes could affect a future reporting period.
- On January 1, 2020, adoption of the expected-credit-loss standard increased the allowance by approximately $132 million. This is a subsequent accounting change, not a 2019 expense.
- Key risks include credit quality and real estate collateral values, especially given regional and commercial real estate concentrations; interest-rate and funding sensitivity; competition; cyber and operational risks; regulation; and the transition from LIBOR, which management said was being addressed through an enterprise-wide program.
Important Facts for Investors to Verify
- Whether higher credit provisions, rising nonaccrual loans and past-due balances persist, and how the new expected-credit-loss allowance performs.
- How deposit costs and the declining-rate environment affect margins, particularly after the fourth-quarter margin contraction.
- The final terms and financial impact of the ESOP settlement and the status of the private lawsuits and other contingencies.
- Execution and economics of mortgage servicing growth, including sensitivity of servicing assets to prepayments and interest rates.
- Regulatory capital, dividend and repurchase capacity, and the company’s progress transitioning LIBOR-linked products and contracts.