Loans and leases

12 Months Ended

Dec. 31, 2019

3. Loans and leases

Total loans and leases outstanding were comprised of the following:

	December 31
	2019			2018
	(In thousands)
Loans
Commercial, financial, etc.	$	22,575,700		$	21,730,012
Real estate:
Residential		16,098,125			17,150,658
Commercial		26,718,325			25,666,200
Construction		9,010,297			8,823,635
Consumer		15,373,881			13,956,086
Total loans		89,776,328			87,326,591
Leases
Commercial		1,412,197			1,406,901
Total loans and leases		91,188,525			88,733,492
Less: unearned discount		(265,656	)		(267,015	)
Total loans and leases, net of unearned discount	$	90,922,869		$	88,466,477

One-to-four family residential mortgage loans held for sale were $414 million at December 31, 2019 and $205 million at December 31, 2018. Commercial real estate loans held for sale were $28 million at December 31, 2019 and $347 million at December 31, 2018.

As of December 31, 2019, approximately $3.9 billion of commercial real estate loan balances serviced for others had been sold with recourse in conjunction with the Company’s participation in the Fannie Mae Delegated Underwriting and Servicing (“DUS”) program. At December 31, 2019, the Company estimated that the recourse obligations described above were not material to the Company’s consolidated financial position. There have been no material losses incurred as a result of those credit recourse arrangements.

In addition to recourse obligations, as described in note 21, the Company is contractually obligated to repurchase previously sold residential real estate loans that do not ultimately meet investor sale criteria related to underwriting procedures or loan documentation. When required to do so, the Company may reimburse loan purchasers for losses incurred or may repurchase certain loans. Charges incurred for such obligation were not material in 2019, 2018 or 2017.

A summary of current, past due and nonaccrual loans as of December 31, 2019 and 2018 follows:

	Current		30-89 Days Past Due		Accruing Loans Past Due 90 Days or More (a)		Accruing Loans Acquired at a Discount Past Due 90 days or More (b)		Purchased Impaired (c)		Nonaccrual		Total
	(In thousands)
December 31, 2019
Commercial, financial, leasing, etc.	$	23,290,797		184,011		16,776		27		—		346,557	$	23,838,168
Real estate:
Commercial		26,311,414		165,579		6,740		—		15,601		158,474		26,657,808
Residential builder and developer		1,521,315		21,195		—		—		753		3,982		1,547,245
Other commercial construction		7,204,148		95,346		3,360		—		1,237		32,770		7,336,861
Residential		12,760,040		451,274		486,515		5,788		143,145		235,663		14,082,425
Residential — limited documentation		1,858,037		65,215		181		—		66,809		83,427		2,073,669
Consumer:
Home equity lines and loans		4,386,511		30,229		—		1,662		—		63,215		4,481,617
Recreational finance		5,484,997		36,827		—		99		—		14,219		5,536,142
Automobile		3,787,221		78,478		—		—		—		21,293		3,886,992
Other		1,395,240		45,978		5,156		32,056		—		3,512		1,481,942
Total	$	87,999,720		1,174,132		518,728		39,632		227,545		963,112	$	90,922,869

December 31, 2018
Commercial, financial, leasing, etc.	$	22,701,020		39,798		2,567		168		—		234,423	$	22,977,976
Real estate:
Commercial		25,250,983		134,474		11,457		10		9,769		203,672		25,610,365
Residential builder and developer		1,665,178		20,333		—		—		—		4,798		1,690,309
Other commercial construction		6,982,077		43,615		14,344		—		641		22,205		7,062,882
Residential		13,591,790		404,808		189,682		6,650		203,044		233,352		14,629,326
Residential — limited documentation		2,278,040		72,544		—		—		89,851		84,685		2,525,120
Consumer:
Home equity lines and loans		4,758,513		25,416		—		5,033		—		71,292		4,860,254
Recreational finance		4,085,781		29,947		—		235		—		11,199		4,127,162
Automobile		3,555,757		79,804		—		—		—		23,359		3,658,920
Other		1,271,811		15,598		4,477		27,654		—		4,623		1,324,163
Total	$	86,140,950		866,337		222,527		39,750		303,305		893,608	$	88,466,477

(a)	Excludes loans acquired at a discount.

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

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

If nonaccrual and renegotiated loans had been accruing interest at their originally contracted terms, interest income on such loans would have amounted to $68 million in 2019, $69 million in 2018 and $64 million in 2017. The actual amounts included in interest income on such loans were $33 million in each of 2019 and 2018 and $31 million in 2017.

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

	December 31
	2019		2018
	(In thousands)

Outstanding principal balance	$	769,414	$	1,016,785
Carrying amount:
Commercial, financial, leasing, etc.		21,114		27,073
Commercial real estate		94,890		135,047
Residential real estate		341,807		473,511
Consumer		77,785		91,860
	$	535,596	$	727,491

Purchased impaired loans included in the table above totaled $228 million at December 31, 2019 and $303 million at December 31, 2018, representing less than 1% of the Company’s assets as of each date. A summary of changes in the accretable yield for loans acquired at a discount for the years ended December 31, 2019, 2018 and 2017 follows:

For the Year Ended December 31,	2019						2018						2017
	Purchased Impaired			Other Acquired			Purchased Impaired			Other Acquired			Purchased Impaired			Other Acquired
	(In thousands)

Balance at beginning of period	$	147,210		$	96,907		$	157,918		$	133,162		$	154,233		$	201,153
Interest income		(49,017	)		(36,452	)		(37,819	)		(63,856	)		(47,452	)		(82,605	)
Reclassifications from nonaccretable balance		36,718			15,534			27,111			22,849			51,137			16,437
Other (a)		—			(3,909	)		—			4,752			—			(1,823	)
Balance at end of period	$	134,911		$	72,080		$	147,210		$	96,907		$	157,918		$	133,162

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

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

The tables that follow summarize the Company’s loan modification activities that were considered troubled debt restructurings for the years ended December 31, 2019, 2018 and 2017:

					Post-modification (a)
Year Ended December 31, 2019	Number		Pre- modification Recorded Investment		Principal Deferral		Interest Rate Reduction		Other		Combination of Concession Types		Total
	(Dollars in thousands)

Commercial, financial, leasing, etc.		150	$	63,715	$	10,485	$	—	$	—	$	52,871	$	63,356
Real estate:
Commercial		51		48,315		5,193		—		—		26,152		31,345
Residential builder and developer		2		1,330		1,068		—		—		—		1,068
Other commercial construction		3		1,559		—		—		—		1,500		1,500
Residential		83		21,695		10,819		—		—		11,907		22,726
Residential — limited documentation		6		1,409		399		—		—		1,044		1,443
Consumer:
Home equity lines and loans		41		4,127		176		—		—		4,004		4,180
Recreational finance		10		265		265		—		—		—		265
Automobile		66		1,141		1,076		—		—		65		1,141
Total		412	$	143,556	$	29,481	$	—	$	—	$	97,543	$	127,024

Year Ended December 31, 2018

Commercial, financial, leasing, etc.		203	$	102,445	$	50,490	$	803	$	6,210	$	45,411	$	102,914
Real estate:
Commercial		83		30,217		16,870		175		4,686		9,000		30,731
Other commercial construction		1		752		746		—		—		—		746
Residential		134		34,798		19,962		—		—		18,110		38,072
Residential — limited documentation		9		1,887		827		—		—		1,423		2,250
Consumer:
Home equity lines and loans		47		3,952		224		—		—		3,755		3,979
Recreational finance		7		202		202		—		—		—		202
Automobile		73		1,330		1,318		—		—		12		1,330
Total		557	$	175,583	$	90,639	$	978	$	10,896	$	77,711	$	180,224

					Post-modification (a)
Year Ended December 31, 2017	Number		Pre- modification Recorded Investment		Principal Deferral		Interest Rate Reduction		Other		Combination of Concession Types		Total
	(Dollars in thousands)

Commercial, financial, leasing, etc.		217	$	111,036	$	25,051	$	—	$	6,459	$	57,153	$	88,663
Real estate:
Commercial		83		44,924		17,039		—		868		22,975		40,882
Residential builder and developer		3		12,291		—		—		—		10,879		10,879
Other commercial construction		2		168		168		—		—		—		168
Residential		141		31,827		16,633		—		—		17,974		34,607
Residential — limited documentation		20		4,230		911		—		—		3,661		4,572
Consumer:
Home equity lines and loans		110		10,049		1,137		—		491		8,585		10,213
Recreational finance		9		160		160		—		—		—		160
Automobile		69		1,378		1,203		—		—		175		1,378
Total		654	$	216,063	$	62,302	$	—	$	7,818	$	121,402	$	191,522

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

Troubled debt restructurings are considered to be impaired loans and for purposes of establishing the allowance for credit losses are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows. Impairment of troubled debt restructurings that have subsequently defaulted may also be measured based on the loan’s observable market price or the fair value of collateral if the loan is collateral-dependent. Charge-offs may also be recognized on troubled debt restructurings that have subsequently defaulted. Loans that were modified as troubled debt restructurings during the twelve months ended December 31, 2019, 2018 and 2017 and for which there was a subsequent payment default during the respective year were not material.

Borrowings by directors and certain officers of M&T and its banking subsidiaries, and by associates of such persons, exclusive of loans aggregating less than $60,000, amounted to $28 million and $77 million at December 31, 2019 and 2018, respectively. During 2019, new borrowings by such persons amounted to $1 million (including any borrowings of new directors or officers that were outstanding at the time of their election) and repayments and other reductions (including reductions resulting from individuals ceasing to be directors or officers) were $50 million.

At December 31, 2019, approximately $11.9 billion of commercial loans and leases, $13.3 billion of commercial real estate loans, $11.5 billion of one-to-four family residential real estate loans, $2.3 billion of home equity loans and lines of credit and $7.5 billion of other consumer loans were pledged to secure outstanding borrowings from the FHLB of New York and available lines of credit as described in note 8.

The Company’s loan and lease portfolio includes commercial lease financing receivables consisting of direct financing and leveraged leases for machinery and equipment, railroad equipment, commercial trucks and trailers, and aircraft. Certain leases contain payment schedules that are tied to variable interest rate indices. In general, early termination options are provided if the lessee is not in default, returns the leased equipment and pays an early termination fee. Additionally, options to purchase the underlying asset by the lessee are generally at the fair market value of the equipment.

Effective January 1, 2019, the Company adopted new guidance related to lease accounting published by the Financial Accounting Standards Board (“FASB”). Under the new guidance, the accounting applied by lessors is largely unchanged from previous GAAP, however, the guidance eliminates the accounting model for leveraged leases that commence after the effective date of the guidance. A summary of lease financing receivables follows:

	December 31
	2019			2018
	(In thousands)
Commercial leases:
Direct financings:
Lease payments receivable	$	1,164,567		$	1,155,464
Estimated residual value of leased assets		84,540			85,169
Unearned income		(106,780	)		(110,458	)
Investment in direct financings		1,142,327			1,130,175
Leveraged leases:
Lease payments receivable		82,065			85,007
Estimated residual value of leased assets		81,025			81,261
Unearned income		(31,596	)		(33,717	)
Investment in leveraged leases		131,494			132,551
Total investment in leases	$	1,273,821		$	1,262,726
Deferred taxes payable arising from leveraged leases	$	70,245		$	74,995

Included within the estimated residual value of leased assets at December 31, 2019 and 2018 were $37 million and $39 million, respectively, in residual value associated with direct financing leases that are guaranteed by the lessees or others.

At December 31, 2019, the minimum future lease payments to be received from lease financings were as follows:

	(In thousands)
Year ending December 31:
2020	$	332,719
2021		297,875
2022		227,652
2023		161,296
2024		84,433
Later years		142,657
	$	1,246,632

The amount of foreclosed residential real estate property held by the Company was $76 million and $77 million at December 31, 2019 and 2018, respectively. There were $402 million and $391 million at December 31, 2019 and 2018, respectively, in loans secured by residential real estate that were in the process of foreclosure. Of all loans in the process of foreclosure at December 31, 2019, approximately 36% were government guaranteed.