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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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)842-5445
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 par value New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
8.234% Capital Securities of M&T Capital Trust I
(and the Guarantee of M&T Bank Corporation with respect thereto)
(Title of class)
8.234% Junior Subordinated Debentures of
M&T Bank Corporation
(Title of class)
8.277% Capital Securities of M&T Capital Trust II
(and the Guarantee of M&T Bank Corporation with respect thereto)
(Title of class)
8.277% Junior Subordinated Debentures of
M&T Bank Corporation
(Title of class)
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 X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Common Stock, $5 par value, held by non-affiliates
of the registrant, computed by reference to the closing price as of the close of
business on February 18, 2000: $2,279,047,672.
Number of shares of the Common Stock, $5 par value, outstanding as of the close
of business on February 18, 2000: 7,687,175 shares.
Documents Incorporated By Reference:
(1) Portions of the Proxy Statement for the 2000 Annual Meeting of
Stockholders of M&T Bank Corporation in Part III.
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M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
CROSS-REFERENCE SHEET Form
10-K
PART I PAGE
Item 1. Business. 5
Statistical disclosure pursuant to Guide 3
I. Distribution of assets, liabilities, and stockholders'
equity; interest rates and interest differential
A. Average balance sheets 50-51
B. Interest income/expense and resulting yield or rate
on average interest-earning assets (including non-
accrual loans) and interest-bearing liabilities 50-51
C. Rate/volume variances 19
II. Investment portfolio
A. Year-end balances 16
B. Maturity schedule and weighted average yield 62
C. Aggregate carrying value of securities that exceed ten
percent of stockholders' equity 77
III. Loan portfolio
A. Year-end balances 16,79
B. Maturities and sensitivities to changes in interest rates 59
C. Risk elements
Nonaccrual, past-due and renegotiated loans 57
Actual and pro forma interest on certain loans 79
Nonaccrual policy 70
Loan concentrations 34
IV. Summary of loan loss experience
A. Analysis of the allowance for loan losses 55
Factors influencing management's judgment concerning
the adequacy of the allowance and provision 32-34,71
B. Allocation of the allowance for loan losses 56
V. Deposits
A. Average balances and rates 50-51
B. Maturity schedule of domestic time deposits with
balances of $100,000 or more 58
VI. Return on equity and assets 18,25-26,39
VII. Short-term borrowings 83-84
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M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
CROSS-REFERENCE SHEET--CONTINUED Form
10-K
PAGE
PART I, continued
Item 2. Properties. 20,81
Item 3. Legal Proceedings. 20
Item 4. Submission of Matters to a Vote of Security Holders. 20
Executive Officers of the Registrant. 20-22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. 23
A. Principal market 23
Market prices 47
B. Approximate number of holders at year-end 16
C. Frequency and amount of dividends declared 17-18,46-47
D. Restrictions on dividends 11,112
Item 6. Selected Financial Data.
A. Selected consolidated year-end balances 16
B. Consolidated earnings, etc. 17-18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 23-62
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk. 36-39,60,63
Item 8. Financial Statements and Supplementary Data.
A. Report of Independent Accountants 64
B. Consolidated Balance Sheet -
December 31, 1999 and 1998 65
C. Consolidated Statement of Income -
Years ended December 31, 1999, 1998 and 1997 66
D. Consolidated Statement of Cash Flows -
Years ended December 31, 1999, 1998 and 1997 67
E. Consolidated Statement of Changes in
Stockholders' Equity - Years ended December 31,
1999, 1998 and 1997 68
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M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
CROSS-REFERENCE SHEET--CONTINUED Form
10-K
PAGE
PART II, continued
Item 8. Financial Statements and Supplementary Data, continued
F. Notes to Financial Statements 69-115
G. Quarterly Trends 47
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 116
PART III
Item 10. Directors and Executive Officers of the
Registrant. 116
Item 11. Executive Compensation. 116
Item 12. Security Ownership of Certain Beneficial
Owners and Management. 116
Item 13. Certain Relationships and Related Transactions. 116
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. 117
Signatures 118-120
Exhibit Index 121-124
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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 bank holding company under the Bank Holding Company Act
of 1956, as amended ("BHCA") and under Article III-A of the New York Banking Law
("Banking Law"). The principal executive offices of the Registrant are located
at One M&T Plaza, Buffalo, New York 14203. The Registrant was incorporated in
November 1969. The Registrant and its direct and indirect subsidiaries are
collectively referred to herein as the "Company". As of December 31, 1999 the
Company had consolidated total assets of $22.4 billion, deposits of $15.4
billion and stockholders' equity of $1.8 billion. The Company had 5,604
full-time and 965 part-time employees as of December 31, 1999.
At December 31, 1999, the Registrant had two wholly owned bank subsidiaries:
Manufacturers and Traders Trust Company ("M&T Bank") and M&T Bank, National
Association ("M&T Bank, N.A."). The banks collectively offer a wide range of
commercial banking, trust and investment services to their customers. At
December 31, 1999, M&T Bank represented 96% of consolidated assets of the
Company.
On June 1, 1999, M&T completed the acquisition of FNB Rochester Corp. ("FNB"), a
bank holding company headquartered in Rochester, New York. Immediately after the
acquisition, FNB's banking subsidiary, First National Bank of Rochester, which
had 17 banking offices in western and central New York State, was merged with
and into M&T Bank. The acquisition was accounted for using the purchase method
of accounting and, accordingly, the operations of FNB have been included in the
financial results of the Company since the acquisition date. FNB's stockholders
received $76 million in cash and 122,516 shares of M&T common stock in exchange
for FNB shares outstanding at the time of acquisition. Assets acquired totaled
approximately $676 million and included loans and leases of $393 million and
investment securities of $148 million. Liabilities assumed on June 1 were
approximately $541 million and included $511 million of deposits.
On September 24, 1999, M&T Bank completed the acquisition of 29 upstate New York
branch offices from The Chase Manhattan Bank ("Chase"). The branch offices had
approximately $634 million of deposits and approximately $44 million of retail
installment and commercial loans at the closing. In addition, on September 30,
1999 M&T Bank received investment management and custody accounts having assets
of approximately $286 million. Chase also agreed to transfer up to approximately
$195 million of other trust and fiduciary account assets to M&T Bank following
the receipt of required court approvals. Subject to the receipt of court
approval, it is expected that this portion of the transaction will be completed
during the first quarter of 2000.
In connection with the transactions described in the two preceding paragraphs,
the Company recorded approximately $153 million of goodwill and core deposit
intangible. Nonrecurring expenses related to systems conversions and other costs
of integrating and conforming the acquired operations with and into the
operations of M&T Bank totaled $4.7 million ($3.0 million after-tax) during the
year ended December 31, 1999.
The Company from time to time considers acquiring banks, thrift institutions,
branch offices or other businesses within markets currently served or in other
nearby markets. 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.
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SUBSIDIARIES
Olympia Financial Corp. ("Olympia"), a wholly owned subsidiary of M&T, is a
Delaware corporation that holds the stock of M&T Bank and is registered as a
bank holding company under the Bank Holding Company Act. Its registered office
is located at 1209 Orange Street, Wilmington, Delaware 19801.
M&T Bank is a banking corporation which 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. Olympia acquired all of the issued and outstanding shares of the
capital stock of M&T Bank in connection with M&T's April 1, 1998 acquisition of
ONBANCorp, Inc. ("ONBANCorp"). The stock of Olympia and 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, 1999, M&T Bank had 261 banking offices located
throughout New York State, 19 offices in northeastern Pennsylvania, plus a
branch in Nassau, The Bahamas. As of December 31, 1999, M&T Bank had
consolidated total assets of $21.6 billion, deposits of $14.7 billion and
stockholder's equity of $2.1 billion. The deposit liabilities of M&T Bank are
insured by the FDIC through either its Bank Insurance Fund ("BIF") or its
Savings Association Insurance Fund ("SAIF"). Of M&T Bank's $14.7 billion in
assessable deposits at December 31, 1999, 85% were assessed as BIF-insured and
the remainder as SAIF-insured deposits. 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 and northeastern Pennsylvania, and on small and medium-size businesses
based in those areas. In addition, the Company conducts lending activities in
other states through various subsidiaries. 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. Other
financial services are also provided through operating subsidiaries.
M&T Bank, 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 M&T Bank, N.A. are insured by the FDIC through the BIF.
The main office of M&T Bank, N.A. is located at 48 Main Street, Oakfield, New
York 14125. M&T Bank, N.A. offers selected deposit and loan products on a
nationwide basis, primarily through direct mail and telephone marketing
techniques. M&T Bank, N.A. is also a licensed insurance agency, and offers
insurance products primarily through the banking offices of M&T Bank. As of
December 31, 1999, M&T Bank, N.A. had total assets of $852 million, deposits of
$693 million and stockholder's equity of $50 million.
M&T Credit Corporation ("M&T Credit"), a wholly owned subsidiary of M&T Bank,
was incorporated as a New York business corporation in April 1994. M&T Credit is
a credit and leasing company offering consumer loans and commercial loans and
leases. Its headquarters are located at M&T Center, One Fountain Plaza, Buffalo,
New York 14203, with offices in Massachusetts and Pennsylvania. As of December
31, 1999, M&T Credit had assets of $699 million and stockholder's equity of $25
million. M&T Credit recorded $42 million of revenue during 1999.
M&T Financial Corporation ("M&T Financial"), a New York business corporation, is
a wholly owned subsidiary of M&T Bank which specializes in capital-equipment
leasing. M&T Financial was formed in October 1985, had assets of $79 million and
stockholder's equity of $19 million as of December 31, 1999, and recorded
approximately $4 million of revenue in 1999. The headquarters
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of M&T Financial are located at One M&T Plaza, Buffalo, New York 14203.
M&T Investment Company, Inc. ("M&T Investment Company"), a wholly owned
subsidiary of M&T Bank, was incorporated as a New Jersey business corporation in
December 1999. Operated as a New Jersey Investment Company, M&T Investment
Company owns all of the outstanding common stock and 87.5% of the preferred
stock of M&T Real Estate, Inc. As of December 31, 1999, M&T Investment Company
had assets of approximately $6.1 billion and stockholder's equity of
approximately $6.0 billion. Excluding dividends from M&T Real Estate, Inc., M&T
Investment Company recorded $534 thousand of revenue in 1999. The headquarters
of M&T Investment Company are located at One Maynard Drive, Park Ridge, New
Jersey 07656.
M&T Mortgage Corporation ("M&T Mortgage"), the wholly owned mortgage banking
subsidiary of M&T Bank, was incorporated as a New York business corporation in
November 1991. M&T Mortgage's principal activities are comprised of the
origination of residential mortgage loans and providing residential mortgage
loan servicing to M&T Bank, M&T Bank, N.A. and others. M&T Mortgage operates
throughout New York State, and also maintains branch offices in Arizona,
Colorado, Idaho, Massachusetts, Ohio, Oregon, Pennsylvania, Utah and Washington.
M&T Mortgage had assets of $519 million and stockholder's equity of $144 million
as of December 31, 1999, and recorded approximately $122 million of revenue
during 1999. Residential mortgage loans serviced by M&T Mortgage for
non-affiliates totaled $7.2 billion at December 31, 1999. The headquarters of
M&T Mortgage are located at M&T Center, One Fountain Plaza, Buffalo, New York
14203.
M&T Mortgage Reinsurance Company, Inc. ("M&T Reinsurance"), a wholly owned
subsidiary of M&T Bank, was incorporated as a Vermont business corporation in
July 1999. M&T Reinsurance enters into reinsurance contracts with insurance
companies who insure mortgage lenders against the risk of a mortgage borrower's
payment default. M&T Reinsurance receives a share of the premium for those
policies in exchange for accepting a portion of the insurer's risk of borrower
default. M&T Reinsurance had assets of approximately $720 thousand and
stockholder's equity of approximately $673 thousand as of December 31, 1999, and
recorded approximately $178 thousand of revenue during 1999. M&T Reinsurance's
principal and registered office is at 148 College Street, Burlington, Vermont
05401.
M&T Real Estate, Inc.("M&T Real Estate"), a subsidiary of M&T Investment
Company, was incorporated as a New York business corporation in August 1995. All
of the outstanding common stock and 87.5% of the preferred stock of M&T Real
Estate is owned by M&T Investment Company. The remaining 12.5% of M&T Real
Estate's preferred stock is owned by officers or former officers of the Company.
M&T Real Estate engages in commercial real estate lending and provides loan
servicing to M&T Bank and others. As of December 31, 1999, M&T Real Estate had
assets of $5.8 billion and stockholders' equity of $5.7 billion. M&T Real Estate
recorded $441 million of revenue in 1999. Commercial mortgage loans serviced for
non-affiliates totaled $21 million at December 31, 1999. The headquarters of M&T
Real Estate are located at M&T Center, One Fountain Plaza, Buffalo, New York
14203.
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, as an investment advisor under the Investment Advisors Act of
1940, as amended, and is licensed as an insurance agent. It provides securities
brokerage, investment advisory, and insurance services. As of December 31, 1999,
M&T Securities had assets of $13 million and stockholder's equity of $6 million.
M&T Securities recorded $30 million of revenue during 1999. The headquarters of
M&T Securities are located at One M&T Plaza, Buffalo, New York 14203.
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Highland Lease Corporation ("Highland Lease"), a wholly owned subsidiary of M&T
Bank, was incorporated as a New York business corporation in October 1994.
Highland Lease is a consumer leasing company with headquarters at One M&T Plaza,
Buffalo, New York 14203. As of December 31, 1999, Highland Lease had assets of
$395 million and stockholder's equity of $37 million. Highland Lease recorded
$25 million of revenue during 1999.
In December 1999, the names of First Empire Capital Trust I, First Empire
Capital Trust II, and OnBank Capital Trust I were changed to M&T Capital Trust
I, M&T Capital Trust II, and M&T Capital Trust III, respectively. During 1997,
the Company formed two Delaware business trusts and ONBANCorp formed one
Delaware business trust to issue preferred capital securities ("Capital
Securities"). M&T Capital Trust I ("Trust I") issued $150 million of 8.234%
Capital Securities on January 17, 1997, and M&T Capital Trust II ("Trust II")
issued $100 million of 8.277% Capital Securities on May 30, 1997. On February 4,
1997, M&T Capital Trust III ("Trust III" and, together with Trust I and Trust
II, the "Trusts") issued $60 million of 9.25% preferred capital securities. The
common securities ("Common Securities") of Trust I and Trust II are wholly owned
by M&T and the common securities of Trust III are wholly owned by Olympia. The
Common Securities of each Trust are the only class of each Trust's securities
possessing general voting powers. The Capital Securities represent preferred
undivided interests in the assets of the corresponding Trust and are classified
in the Company's consolidated balance sheet as long-term borrowings, with
accumulated distributions on such securities included in interest expense. Under
the Federal Reserve Board's current risk-based capital guidelines, the Capital
Securities are includable in M&T's Tier 1 capital. The proceeds from the
issuances of the Capital Securities and the Common Securities were used by the
Trusts to purchase junior subordinated deferrable interest debentures issued by
M&T in the case of Trust I and Trust II and Olympia in the case of Trust III.
The junior subordinated debentures represent the sole assets of each Trust and
payments under the junior subordinated debentures are the sole source of cash
flow for each Trust. As of December 31, 1999, Trust I had assets of $160 million
and stockholders' equity of $155 million, and during 1999 Trust I recorded $13
million of revenue. Trust II had assets of $104 million and stockholders' equity
of $103 million at December 31, 1999, and during 1999 Trust II recorded $9
million of revenue. Trust III had assets of $73 million and stockholders' equity
of $62 million at December 31, 1999, and during 1999 Trust III recorded $5
million of revenue.
The Registrant and its banking subsidiaries have a number of other
special-purpose or inactive subsidiaries. These other subsidiaries represented,
individually and collectively, an insignificant portion of the Company's
consolidated assets, net income and stockholders' equity at December 31, 1999.
SEGMENT INFORMATION, PRINCIPAL PRODUCTS/SERVICES
AND FOREIGN OPERATIONS
Information about the Registrant's business segments is included in note 19 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 Company's international activities are discussed in note 15 of
Notes to Financial Statements filed herewith in Part II, Item 8, "Financial
Statements and Supplementary Data".
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 Commercial Banking,
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Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking
and Retail Banking.
The only activities that, as a class, contributed 10% or more of the sum of
consolidated interest income and other income in each of the last three years
were lending and investment securities transactions. 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
The banking industry is subject to extensive state and federal regulation and
continues to undergo significant change. The following discussion summarizes
certain aspects of the banking laws and regulations that affect the Company.
Proposals to change the laws and regulations governing the banking industry are
frequently raised in Congress, in state legislatures, and before the various
bank regulatory agencies. The likelihood and timing of any changes and the
impact such changes might have on the Company are impossible to determine with
any certainty. A change in applicable laws or regulations, or a change in the
way such laws or regulations are interpreted by regulatory agencies or courts,
may have a material impact on the business, operations and earnings of the
Company. To the extent that the following information describes statutory or
regulatory provisions, it is qualified entirely by reference to the particular
statutory or regulatory provision.
FINANCIAL SERVICES MODERNIZATION
The Gramm-Leach-Bliley Act ("Gramm-Leach") was signed into law on November 12,
1999 and enables combinations among banks, securities firms and insurance
companies beginning March 11, 2000 by repealing depression-era laws which
restricted such affiliations. Under Gramm-Leach, bank holding companies are
permitted to offer their customers virtually any type of financial service that
is financial in nature or incidental thereto, including banking, securities
underwriting, insurance (both underwriting and agency), and merchant banking.
In order to engage in these new financial activities, a bank holding company
must qualify and register with the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") as a "financial holding company" by
demonstrating that each of its bank subsidiaries is "well capitalized," "well
managed," and has at least a "satisfactory" rating under the Community
Reinvestment Act of 1977 ("CRA").
These new financial activities authorized by Gramm-Leach may also be engaged
in by a "financial subsidiary" of a national or state bank, except for
insurance or annuity underwriting, insurance company portfolio investments,
real estate investment and development, and merchant banking, which must be
conducted in a financial holding company. In order for the new financial
activities to be engaged in by a financial subsidiary of a national or state
bank, Gramm-Leach requires each of the parent bank (and its sister-bank
affiliates) to be well capitalized and well managed; the aggregate
consolidated assets of all of that bank's financial subsidiaries may not
exceed the lesser of 45% of its consolidated total assets or $50 billion; the
bank must have at least a satisfactory CRA rating; and, if that bank is one
of the 100 largest national banks, it must meet certain financial rating or
other comparable requirements.
Gramm-Leach establishes a system of functional regulation, under which the
federal banking agencies will regulate the banking activities of financial
holding companies and banks' financial subsidiaries, the U.S. Securities and
Exchange Commission will regulate their securities activities and state
insurance regulators will regulate their insurance activities. Gramm-Leach also
provides new protections against the transfer and use by financial institutions
of consumers' nonpublic, personal information.
The foregoing discussion is qualified in its entirety by reference to the
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statutory provisions of Gramm-Leach and the implementing regulations which
are adopted by various government agencies pursuant to Gramm-Leach.
BANK HOLDING COMPANY REGULATION
As a registered bank holding company, the Registrant and its nonbank
subsidiaries are subject to supervision and regulation under the BHCA by the
Federal Reserve Board and the New York State Banking Superintendent ("Banking
Superintendent"). The Federal Reserve Board requires regular reports from the
Registrant and is authorized by the BHCA to make regular examinations of the
Registrant and its subsidiaries.
Although it meets the qualifications for electing to become a financial holding
company, the Registrant has elected to retain its pre-Gramm-Leach status for the
present time under the BHCA. The Registrant may not acquire direct or indirect
ownership or control of more than 5% of the voting shares of any company,
including a bank, without the prior approval of the Federal Reserve Board,
except as specifically authorized under the BHCA. The Registrant is also subject
to regulation under the Banking Law with respect to certain acquisitions of
domestic banks. Under the BHCA, the Registrant, subject to the approval of the
Federal Reserve Board, may acquire shares of non-banking corporations the
activities of which are deemed by the Federal Reserve Board to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The Federal Reserve Board has enforcement powers over bank holding companies and
their non-banking subsidiaries, among other things, to interdict activities that
represent unsafe or unsound practices or constitute violations of law, rule,
regulation, administrative orders or written agreements with a federal bank
regulator. These powers may be exercised through the issuance of
cease-and-desist orders, civil money penalties or other actions.
Under the Federal Reserve Board's statement of policy with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit all available resources to support such institutions in circumstances
where it might not do so absent such policy. Although this "source of strength"
policy has been challenged in litigation, the Federal Reserve Board continues to
take the position that it has authority to enforce it. For a discussion of
circumstances under which a bank holding company may be required to guarantee
the capital levels or performance of its subsidiary banks, SEE CAPITAL ADEQUACY,
below. The Federal Reserve also has the authority to terminate any activity of a
bank holding company that constitutes a serious risk to the financial soundness
or stability of any subsidiary depository institution or to terminate its
control of any bank or nonbank subsidiaries.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as
amended (the "Interstate Banking Act") generally permits bank holding companies
to acquire banks in any state, and preempts all state laws restricting the
ownership by a bank holding company of banks in more than one state. The
Interstate Banking Act also permits a bank to merge with an out-of-state bank
and convert any offices into branches of the resulting bank if both states have
not opted out of interstate branching; permits a bank to acquire branches from
an out-of-state bank if the law of the state where the branches are located
permits the interstate branch acquisition; and permits banks to establish and
operate DE NOVO interstate branches whenever the host state opts-in to DE NOVO
branching. Bank holding companies and banks seeking to engage in transactions
authorized by the Interstate Banking Act must be adequately capitalized and
managed.
The Banking Law authorizes interstate branching by merger or acquisition on a
reciprocal basis, and permits the acquisition of a single branch without
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restriction, but does not provide for DE NOVO interstate branching.
Bank holding companies and their subsidiary banks are also subject to the
provisions of the CRA. Under the terms of the CRA, the Federal Reserve Board (or
other appropriate bank regulatory agency) is required, in connection with its
examination of a bank, to assess such bank's record in meeting the credit
needs of the communities served by that bank, including low- and moderate-
income neighborhoods. Furthermore, such assessment is also required of any bank
that has applied, among other things, to merge or consolidate with or acquire
the assets or assume the liabilities of a federally-regulated financial
institution, or to open or relocate a branch office. In the case of a bank
holding company applying for approval to acquire a bank or bank holding company,
the Federal Reserve Board will assess the record of each subsidiary bank of the
applicant bank holding company in considering the application. The Banking Law
contains provisions similar to the CRA which are applicable to New
York-chartered banks.
SUPERVISION AND REGULATION OF BANK SUBSIDIARIES
The Registrant's banking subsidiaries are subject to supervision and regulation,
and are examined regularly, by various bank regulatory agencies: M&T Bank by the
Federal Reserve Board and the Banking Superintendent; and M&T Bank, N.A. by the
Comptroller of the Currency (the "OCC"). The Registrant and its direct
non-banking subsidiaries are affiliates, within the meaning of the Federal
Reserve Act, of the Registrant's subsidiary banks and their subsidiaries. As a
result, the Registrant's subsidiary banks and their subsidiaries are subject to
restrictions on loans or extensions of credit to, purchases of assets from,
investments in, and transactions with the Registrant and its direct non-banking
subsidiaries and on certain other transactions with them or involving their
securities. Gramm-Leach places similar restrictions on the Registrant's
subsidiary banks making loans or extending credit to, purchasing assets from,
investing in, or entering into transactions with, their financial subsidiaries,
although the Registrant's subsidiary banks have not yet commenced any activities
through financial subsidiaries.
Under the "cross-guarantee" provisions of the FDI Act, insured depository
institutions under common control are required to reimburse the FDIC for any
loss suffered by either the BIF or SAIF of the FDIC as a result of the default
of a commonly controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository institution in
danger of default. Thus, any insured depository institution subsidiary of M&T
could incur liability to the FDIC in the event of a default of another insured
depository institution owned or controlled by M&T. The FDIC's claim under the
cross-guarantee provisions is superior to claims of stockholders of the insured
depository institution or its holding company and to most claims arising out of
obligations or liabilities owed to affiliates of the institution, but is
subordinate to claims of 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-guarantee
provisions if it determines that a waiver is in the best interest of the BIF or
SAIF or both.
DIVIDENDS FROM BANK SUBSIDIARIES
M&T Bank and M&T Bank, N.A. are subject, under one or more of the banking laws,
to restrictions on the amount and frequency (no more often than quarterly) of
dividend declarations. Future dividend payments to the Registrant 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 20 of Notes to Financial Statements filed
herewith in Part II, Item 8, "Financial Statements and Supplementary Data," and
to other statutory powers of bank regulatory agencies.
-11-
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 below.
CAPITAL ADEQUACY
The Federal Reserve Board, the FDIC and the OCC have adopted risk-based capital
adequacy guidelines for bank holding companies and banks under their
supervision. Under these guidelines, the so-called "Tier 1 capital" and "Total
capital" as a percentage of risk-weighted assets and certain off-balance sheet
instruments must be at least 4% and 8%, respectively.
The Federal Reserve Board, the FDIC and the OCC have also imposed a leverage
standard to supplement their risk-based ratios. This leverage standard focuses
on a banking institution's ratio of Tier 1 capital to average total assets,
adjusted for goodwill and certain other items. Under these guidelines, banking
institutions that meet certain criteria, including excellent asset quality, high
liquidity, low interest rate exposure and good earnings, and that have received
the highest regulatory rating must maintain a ratio of Tier 1 capital to total
adjusted average assets of at least 3%. Institutions not meeting these criteria,
as well as institutions with supervisory, financial or operational weaknesses,
along with those experiencing or anticipating significant growth are expected to
maintain a Tier 1 capital to total adjusted average assets ratio equal to at
least 4% to 5%.
As reflected in the following table, the risk-based capital ratios and leverage
ratios of the Registrant, M&T Bank and M&T Bank, N.A. as of December 31, 1999
exceeded the required capital ratios for classification as "well capitalized,"
the highest classification under the regulatory capital guidelines.
Capital Components and Ratios at December 31, 1999
(dollars in millions)
Registrant M&T Bank,
(Consolidated) M&T Bank N.A.
-------------- -------- ---------
Capital Components
Tier 1 capital $ 1,490 $ 1,436 $ 50
Total capital 1,846 1,787 55
Risk-weighted assets
and off-balance sheet
instruments $ 18,008 $ 17,534 $ 468
Risk-based Capital Ratio
Tier 1 capital 8.27% 8.19% 10.74%
Total capital 10.25% 10.19% 11.76%
Leverage Ratio 6.92% 6.92% 6.18%
The federal banking agencies, including the Federal Reserve Board and the OCC,
maintain risk-based capital standards in order to ensure that those standards
take adequate account of interest rate risk, concentration of credit risk and
the risk of nontraditional activities, as well as reflect the actual performance
and expected risk of loss on certain multifamily housing loans. Bank regulators
periodically propose amendments to the risk-based capital guidelines and related
regulatory framework. While the Company's management studies such proposals, the
timing of adoption, ultimate form and effect of any such proposed amendments on
the Company's capital requirements and operations cannot be predicted.
-12-
The federal banking agencies are required to take "prompt corrective action"
in respect of depository institutions and their bank holding companies that
do not meet minimum capital requirements. FDICIA established five capital
tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized". A
depository institution's capital tier, or that of its bank holding company,
depends upon where its capital levels are in relation to various relevant
capital measures, including a risk-based capital measure and a leverage ratio
capital measure, and certain other factors.
Under the implementing regulations adopted by the federal banking agencies, a
bank holding company or bank is considered "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv)
is not subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" bank holding
company or bank is defined as one that has (i) a total risk-based capital ratio
of 8% or greater, (ii) a Tier 1 risk-based capital ratio of 4% or greater and
(iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a bank
with a composite CAMELS rating of 1). A bank holding company or bank is
considered (A) "undercapitalized" if it has (i) a total risk-based capital ratio
of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii)
a leverage ratio of less than 4% (or 3% in the case of a bank with a composite
CAMELS rating of 1); (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, or (ii) a Tier 1 risk-based
capital ratio of less than 3% or (iii) a leverage ratio of less than 3% and
(C)"critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. The Federal Reserve Board may reclassify
a "well capitalized" bank holding company or bank as "adequately capitalized" or
subject an "adequately capitalized" or "undercapitalized" institution to the
supervisory actions applicable to the next lower capital category if it
determines that the bank holding company or bank is in an unsafe or unsound
condition or deems the bank holding company or bank to be engaged in an unsafe
or unsound practice and not to have corrected the deficiency. M&T, Olympia, M&T
Bank and M&T Bank, N.A. currently meet the definition of "well capitalized"
institutions.
"Undercapitalized" depository institutions, among other things, are subject to
growth limitations, are prohibited, with certain exceptions, from making capital
distributions, are limited in their ability to obtain funding from a Federal
Reserve Bank and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan and provide appropriate assurances of performance. If a
depository institution fails to submit an acceptable plan, including if the
holding company refuses or is unable to make the guarantee described in the
previous sentence, it is treated as if it is "significantly undercapitalized".
Failure to submit or implement an acceptable capital plan also is grounds for
the appointment of a conservator or a receiver. "Significantly undercapitalized"
depository institutions may be subject to a number of additional 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. Moreover, the parent holding
company of a significantly undercapitalized depository institution may be
ordered to divest itself of the institution or of nonbank subsidiaries of the
holding company. "Critically undercapitalized" institutions, among other things,
are prohibited from making any payments of principal and interest on
subordinated debt, and are subject to the appointment of a receiver or
conservator.
-13-
Each federal banking agency prescribes standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, a minimum ratio of market value to book value for publicly traded
shares and other standards as they deem appropriate. The Federal Reserve
Board and OCC have adopted such standards.
Depository institutions that are not "well capitalized" or "adequately
capitalized" and have not received a waiver from the FDIC are prohibited from
accepting or renewing brokered deposits. As of December 31, 1999, M&T Bank and
M&T Bank, N.A. had approximately $998 million and $4 million in brokered
deposits, respectively.
Although M&T has issued shares of common stock in connection with acquisitions
or at other times, the Company has generally maintained capital ratios in excess
of minimum regulatory guidelines largely through internal capital generation
(i.e. net income less dividends paid). Historically, M&T's dividend payout ratio
and dividend yield, when compared with other bank holding companies, has been
relatively low, thereby allowing for capital retention to support growth or to
facilitate purchases of M&T's common stock to be held as treasury stock.
Management's policy of reinvestment of earnings and repurchase of shares of
common stock is intended to enhance M&T's earnings per share prospects and
thereby reward stockholders over time with capital gains in the form of
increased stock price rather than high dividend income.
FDIC DEPOSIT INSURANCE ASSESSMENTS
As institutions with deposits insured by the BIF and the SAIF, M&T Bank and M&T
Bank, N.A. are subject to FDIC deposit insurance assessments. Under current law
the regular insurance assessments to be paid by BIF-insured and SAIF-insured
institutions are specified in schedules issued by the FDIC that specify, at
semiannual intervals, target reserve ratios designed to maintain the reserve
ratios of each of those insurance funds at 1.25% of their estimated insured
deposits. The FDIC is also authorized to impose one or more special assessments.
The FDIC has implemented a risk-based deposit premium assessment system under
which each depository institution is placed in one of nine assessment categories
based on the institution's capital classification under the prompt corrective
action provisions described above, and whether such institution is considered by
its supervisory agency to be financially sound or to have supervisory concerns.
The adjusted assessment rates for both BIF-insured and SAIF-insured institutions
under the current system range from .00% to .27% depending upon the assessment
category into which the insured institution is placed. Neither of the Company's
banking subsidiaries paid regular insurance assessments to the FDIC in 1999.
However, the FDIC retains the ability to increase regular BIF and SAIF
assessments and to levy special additional assessments.
In addition to deposit insurance fund assessments, beginning in 1997 the FDIC
assessed BIF-assessable and SAIF-assessable deposits to fund the repayment of
debt obligations of the Financing Corporation ("FICO"). FICO is a government
agency-sponsored entity that was formed to borrow the money necessary to carry
out the closing and ultimate disposition of failed thrift institutions by the
Resolution Trust Corporation. The current annualized rates established by the
FDIC for both BIF-assessable and SAIF-assessable deposits are 2.12 basis points
(hundredths of one percent).
Any significant increases in assessment rates or additional special assessments
by the FDIC could have an adverse impact on the results of operations and
capital of M&T Bank or M&T Bank, N.A.
-14-
GOVERNMENTAL POLICIES
The earnings of the Company are significantly affected by the monetary and
fiscal policies of governmental authorities, including the Federal Reserve
Board. Among the instruments of monetary policy used by the Federal Reserve
Board to implement these objectives 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 Board
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 Board 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.
COMPETITION
The Company competes in offering commercial and personal financial services with
other banking institutions and with firms in a number of other industries, such
as thrift institutions, credit unions, personal loan companies, sales finance
companies, leasing companies, securities firms and insurance companies.
Furthermore, diversified financial services companies are able to offer a
combination of these services to their customers on a nationwide basis. The
Company's operations are significantly impacted by state and federal regulations
applicable to the banking industry. Moreover, the provisions of Gramm-Leach may
increase competition among diversified financial services providers, and the
Interstate Banking Act and the Banking Law may further ease entry into New York
State by out-of-state banking institutions. As a result, the number of financial
services providers and banking institutions with which the Company competes may
grow in the future.
OTHER LEGISLATIVE INITIATIVES
Proposals may be introduced in the United States Congress and in the New York
State Legislature and before various bank regulatory authorities which would
alter the powers of, and restrictions on, different types of banking
organizations and which would restructure part or all of the existing regulatory
framework for banks, bank holding companies and other providers of financial
services. Moreover, other bills may be introduced in Congress which would
further regulate, deregulate or restructure the financial services industry. It
is not possible to predict whether these or any other proposals will be enacted
into law or, even if enacted, the effect which they may have on the Company's
business and earnings.
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.
-15-
- -------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
Item 1, Table 1
SELECTED CONSOLIDATED YEAR-END BALANCES
In thousands 1999 1998 1997
- ------------------------------------------------------------ --------------- --------------- ---------------
Money-market assets
Interest-bearing deposits at banks $ 1,092 674 668
Federal funds sold and resell agreements 643,555 229,066 53,087
Trading account 641,114 173,122 57,291
- ------------------------------------------------------------ --------------- --------------- ---------------
Total money-market assets 1,285,761 402,862 111,046
Investment securities
U.S. Treasury and federal agencies 737,586 1,321,000 1,081,247
Obligations of states and political subdivisions 79,189 73,789 38,018
Other 1,083,747 1,390,775 605,953
- ------------------------------------------------------------ --------------- --------------- ---------------
Total investment securities 1,900,522 2,785,564 1,725,218
Loans and leases
Commercial, financial, leasing, etc. 3,697,058 3,211,427 2,406,640
Real estate - construction 525,241 489,112 254,434
Real estate - mortgage 10,152,905 9,289,521 6,765,408
Consumer 3,197,657 3,015,641 2,339,051
- ------------------------------------------------------------ --------------- --------------- ---------------
Total loans and leases 17,572,861 16,005,701 11,765,533
Unearned discount (166,090) (214,171) (268,965)
Allowance for credit losses (316,165) (306,347) (274,656)
- ------------------------------------------------------------ --------------- --------------- ---------------
Loans and leases, net 17,090,606 15,485,183 11,221,912
Goodwill and core deposit intangible 648,040 546,036 17,288
Real estate and other assets owned 10,000 11,129 8,413
Total assets 22,409,115 20,583,891 14,002,935
- ------------------------------------------------------------ --------------- --------------- ---------------
Noninterest-bearing deposits 2,260,432 2,066,814 1,458,241
NOW accounts 583,471 509,307 346,795
Savings deposits 5,198,681 4,830,678 3,344,697
Time deposits 7,088,345 7,027,083 5,762,497
Deposits at foreign office 242,691 303,270 250,928
- ------------------------------------------------------------ --------------- --------------- ---------------
Total deposits 15,373,620 14,737,152 11,163,158
Short-term borrowings 2,554,159 2,229,976 1,050,918
Long-term borrowings 1,775,133 1,567,543 427,819
Total liabilities 20,612,069 18,981,525 12,972,669
- ------------------------------------------------------------ --------------- --------------- ---------------
Stockholders' equity 1,797,046 1,602,366 1,030,266
- ------------------------------------------------------------ --------------- --------------- ---------------
In thousands 1996 1995
- ------------------------------------------------------------ ------------ ------------
Money-market assets
Interest-bearing deposits at banks 47,325 125,500
Federal funds sold and resell agreements 125,326 1,000
Trading account 37,317 9,709
- ------------------------------------------------------------ ------------- ------------
Total money-market assets 209,968 136,209
Investment securities
U.S. Treasury and federal agencies 1,023,038 1,087,005
Obligations of states and political subdivisions 41,445 35,250
Other 507,215 647,040
- ------------------------------------------------------------ ------------- ------------
Total investment securities 1,571,698 1,769,295
Loans and leases
Commercial, financial, leasing, etc. 2,206,282 2,013,937
Real estate - construction 90,563 77,604
Real estate - mortgage 6,199,931 5,648,590
Consumer 2,623,445 2,133,592
- ------------------------------------------------------------ ------------- ------------
Total loans and leases 11,120,221 9,873,723
Unearned discount (398,098) (317,874)
Allowance for credit losses (270,466) (262,344)
- ------------------------------------------------------------ ------------- ------------
Loans and leases, net 10,451,657 9,293,505
Goodwill and core deposit intangible 18,923 28,234
Real estate and other assets owned 8,523 7,295
Total assets 12,943,915 11,955,902
- ------------------------------------------------------------ ------------- ------------
Noninterest-bearing deposits 1,352,929 1,184,359
NOW accounts 334,787 768,559
Savings deposits 3,280,788 2,765,301
Time deposits 5,352,749 4,596,053
Deposits at foreign office 193,236 155,303
- ------------------------------------------------------------ ------------- ------------
Total deposits 10,514,489 9,469,575
Short-term borrowings 1,127,900 1,270,022
Long-term borrowings 178,002 192,791
Total liabilities 12,038,256 11,109,649
- ------------------------------------------------------------ ------------- ------------
Stockholders' equity 905,659 846,253
- ------------------------------------------------------------ ------------- ------------
STOCKHOLDERS, EMPLOYEES AND OFFICES
Number at year-end 1999 1998 1997 1996 1995
- -------------------------------------- ------------- ------------ ------------ ----------- -----------
Stockholders 4,991 5,207 3,449 3,654 3,787
Employees 6,569 6,467 5,083 5,180 4,889
Offices 310 283 210 202 181
- -------------------------------------- ------------- ------------ ------------ ----------- -----------
-16-
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
Item 1, Table 2
CONSOLIDATED EARNINGS
IN THOUSANDS 1999 1998 1997
- ------------------------------------------------- -------------- -------------- -------------
INTEREST INCOME
Loans and leases, including fees $ 1,323,262 1,198,639 954,974
Money-market assets
Deposits at banks 87 400 2,475
Federal funds sold and resell agreements 24,491 8,293 2,989
Trading account 3,153 4,403 1,781
Investment securities
Fully taxable 118,741 139,731 99,640
Exempt from federal taxes 8,897 7,984 5,640
- ---------------------------------------------------- ----------- -------------- -------------
Total interest income 1,478,631 1,359,450 1,067,499
- ---------------------------------------------------- ----------- -------------- -------------
INTEREST EXPENSE
NOW accounts 4,683 4,851 3,455
Savings deposits 121,888 115,345 90,907
Time deposits 367,889 388,185 327,611
Deposits at foreign office 12,016 14,973 12,160
Short-term borrowings 104,911 105,582 44,341
Long-term borrowings 107,847 58,567 29,619
- ---------------------------------------------------- ----------- -------------- -------------
Total interest expense 719,234 687,503 508,093
- ---------------------------------------------------- ----------- -------------- -------------
NET INTEREST INCOME 759,397 671,947 559,406
Provision for credit losses 44,500 43,200 46,000
- ---------------------------------------------------- ----------- -------------- -------------
Net interest income after provision
for credit losses 714,897 628,747 513,406
- ---------------------------------------------------- ----------- -------------- -------------
OTHER INCOME
Mortgage banking revenues 71,819 65,646 51,547
Service charges on deposit accounts 73,612 57,357 43,377
Trust income 40,751 38,211 30,688
Merchant discount and other credit card fees 7,515 12,436 19,395
Trading account and foreign exchange gains 315 3,963 3,690
Gain (loss) on sales of bank investment securities 1,575 1,761 (280)
Gain on sales of venture capital investments 80 - 2,677
Other revenues from operations 86,708 83,565 39,435
- ---------------------------------------------------- ----------- -------------- -------------
Total other income 282,375 262,939 190,529
- ---------------------------------------------------- ----------- -------------- -------------
OTHER EXPENSE
Salaries and employee benefits 284,822 259,487 220,017
Equipment and net occupancy 73,131 66,553 53,299
Printing, postage and supplies 17,510 17,603 13,747
Amortization of goodwill and core deposit intangible 49,715 34,487 7,291
Deposit insurance 2,798 2,710 1,935
Other costs of operations 150,982 185,283 125,487
- ---------------------------------------------------- ----------- -------------- -------------
Total other expense 578,958 566,123 421,776
- ---------------------------------------------------- ----------- -------------- -------------
Income before income taxes 418,314 325,563 282,159
Income taxes 152,688 117,589 105,918
- ---------------------------------------------------- ----------- -------------- -------------
NET INCOME $ 265,626 207,974 176,241
- ---------------------------------------------------- ----------- -------------- -------------
DIVIDENDS DECLARED
Common $ 35,128 28,977 21,207
Preferred - - -
- ---------------------------------------------------- ----------- -------------- -------------
IN THOUSANDS 1996 1995
- ------------------------------------------------- -------------- ---------------
INTEREST INCOME
Loans and leases, including fees 883,500 796,501
Money-market assets
Deposits at banks 2,413 8,181
Federal funds sold and resell agreements 2,985 3,007
Trading account 980 1,234
Investment securities
Fully taxable 107,415 118,791
Exempt from federal taxes 2,637 2,760
- ---------------------------------------------------- -------------- ---------------
Total interest income 999,930 930,474
- ---------------------------------------------------- -------------- ---------------
INTEREST EXPENSE
NOW accounts 9,430 11,902
Savings deposits 84,822 87,612
Time deposits 286,088 239,882
Deposits at foreign office 12,399 6,952
Short-term borrowings 59,442 84,225
Long-term borrowings 14,227 11,157
- ---------------------------------------------------- -------------- ---------------
Total interest expense 466,408 441,730
- ---------------------------------------------------- -------------- ---------------
NET INTEREST INCOME 533,522 488,744
Provision for credit losses 43,325 40,350
- ---------------------------------------------------- -------------- ---------------
Net interest income after provision
for credit losses 490,197 448,394
- ---------------------------------------------------- -------------- ---------------
OTHER INCOME
Mortgage banking revenues 44,484 37,142
Service charges on deposit accounts 40,659 38,290
Trust income 27,672 25,477
Merchant discount and other credit card fees 18,266 10,675
Trading account and foreign exchange gains 2,421 2,783
Gain (loss) on sales of bank investment securities (37) 4,479
Gain on sales of venture capital investments 3,175 2,619
Other revenues from operations 31,110 25,753
- ---------------------------------------------------- -------------- ---------------
Total other income 167,750 147,218
- ---------------------------------------------------- -------------- ---------------
OTHER EXPENSE
Salaries and employee benefits 208,342 188,222
Equipment and net occupancy 51,346 50,526
Printing, postage and supplies 15,167 14,442
Amortization of goodwill and core deposit intangible 6,292 6,293
Deposit insurance 9,337 14,675
Other costs of operations 118,494 100,281
- ---------------------------------------------------- -------------- ---------------
Total other expense 408,978 374,439
- ---------------------------------------------------- -------------- ---------------
Income before income taxes 248,969 221,173
Income taxes 97,866 90,137
- ---------------------------------------------------- -------------- ---------------
NET INCOME 151,103 131,036
- ---------------------------------------------------- -------------- ---------------
DIVIDENDS DECLARED
Common 18,617 16,224
Preferred 900 3,600
- ---------------------------------------------------- -------------- ---------------
-17-
- --------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------
Item 1, Table 3
COMMON SHAREHOLDER DATA
1999 1998 1997 1996 1995
- ---------------------------------------------------- ----- ----- ----- ----- -----
Per Share
Net income
Basic $ 34.05 27.30 26.60 22.54 19.61
Diluted 32.83 26.16 25.26 21.08 17.98
Cash dividends declared 4.50 3.80 3.20 2.80 2.50
Stockholders' equity at year-end 232.41 207.94 155.86 135.45 125.33
Tangible stockholders' equity at year-end 151.40 139.89 153.24 132.62 120.94
Dividend payout ratio 13.22 % 13.93 % 12.03 % 12.39 % 12.73 %
- ---------------------------------------------------- ------- ------ ------ ------ ------
-18-
- -------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------------
Item 1, Table 4
CHANGES IN INTEREST INCOME AND EXPENSE*
1999 compared with 1998
----------------------------------------
Resulting from
Total changes in:
---------------------------
Increase (decrease) in thousands change Volume Rate
- ----------------------------------------------------------------- ------------ ------------- ------------
Interest income
Loans and leases, including fees $ 124,849 173,474 (48,625)
Money-market assets
Deposits at banks (313) (305) (8)
Federal funds sold and agreements to resell securities 16,198 16,499 (301)
Trading account (1,303) (1,250) (53)
Investment securities
U.S. Treasury and federal agencies (34,922) (30,636) (4,286)
Obligations of states and political subdivisions 94 101 (7)
Other 15,102 17,203 (2,101)
- ----------------------------------------------------------------- ----------
Total interest income $ 119,705
- ----------------------------------------------------------------- ----------
Interest expense
Interest-bearing deposits
NOW accounts $ (168) 810 (978)
Savings deposits 6,543 17,854 (11,311)
Time deposits (20,296) 2,885 (23,181)
Deposits at foreign office (2,957) (1,667) (1,290)
Short-term borrowings (671) 7,074 (7,745)
Long-term borrowings 49,280 57,149 (7,869)
- ----------------------------------------------------------------- ----------
Total interest expense $ 31,731
- ----------------------------------------------------------------- ----------
1998 compared with 1997
--------------------------------------------
Resulting from
Total changes in:
----------------------------
Increase (decrease) in thousands change Volume Rate
- ----------------------------------------------------------------- -------------- -------------- ------------
Interest income
Loans and leases, including fees 243,937 279,155 (35,218)
Money-market assets
Deposits at banks (2,075) (1,414) (661)
Federal funds sold and agreements to resell securities 5,304 5,298 6
Trading account 2,587 2,723 (136)
Investment securities
U.S. Treasury and federal agencies 17,062 19,964 (2,902)
Obligations of states and political subdivisions 1,734 1,878 (144)
Other 24,748 23,816 932
- ----------------------------------------------------------------- --------------
Total interest income 293,297
- ----------------------------------------------------------------- --------------
Interest expense
Interest-bearing deposits
NOW accounts 1,396 1,008 388
Savings deposits 24,438 26,516 (2,078)
Time deposits 60,574 66,505 (5,931)
Deposits at foreign office 2,813 3,023 (210)
Short-term borrowings 61,241 60,997 244
Long-term borrowings 28,948 32,764 (3,816)
- ----------------------------------------------------------------- --------------
Total interest expense 179,410
- ----------------------------------------------------------------- --------------
* 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.
-19-
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 276,000 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 84% of the building and the remainder is leased to non-affiliated
tenants. At December 31, 1999, the cost of this property (including improvements
subsequent to the initial construction), net of accumulated depreciation, was
$8.9 million.
In September 1992, M&T Bank acquired an additional facility in Buffalo, New York
with approximately 365,000 rentable square feet of space at a cost of
approximately $12 million. Approximately 77% of this facility, known as M&T
Center, is occupied by M&T Bank and its subsidiaries, with the remainder leased
to non-affiliated tenants. At December 31, 1999, the cost of this building
(including improvements subsequent to acquisition), net of accumulated
depreciation, was $15.1 million.
M&T Bank also owns and occupies two 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 223,000 square feet and
their combined cost (including improvements subsequent to acquisition), net of
accumulated depreciation, was $13.1 million at December 31, 1999.
As a result of the April 1, 1998 ONBANCorp merger, M&T Bank acquired a facility
in Syracuse, New York with approximately 136,000 rentable square feet of space.
Approximately 48% of this facility is occupied by M&T Bank, with the remainder
leased to non-affiliated tenants. At December 31, 1999, the cost of this
building, net of accumulated depreciation, was $7.9 million.
The cost, net of accumulated depreciation and amortization, of the Company's
premises and equipment is detailed in note 6 of Notes to Financial Statements
filed herewith in Part II, Item 8, "Financial Statements and Supplementary
Data". Of the 281 domestic banking offices of the Registrant's subsidiary banks,
98 are owned in fee and 183 are leased.
Item 3. LEGAL PROCEEDINGS.
M&T and its subsidiaries are subject in the normal course of business to various
pending and threatened legal proceedings in which claims for monetary damages
are asserted. Management, after consultation with legal counsel, does not
anticipate that the aggregate ultimate liability, if any, arising out of
litigation pending against M&T or its subsidiaries will be material to M&T's
consolidated financial position, but at the present time is not in a position to
determine whether such litigation will have a material adverse effect on M&T's
consolidated results of operations in any future reporting period.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not
applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Registrant's executive officers is presented below as
of February 25, 2000. The year the officer was first appointed to the indicated
position with the Registrant or its subsidiaries is shown parenthetically. In
the case of each corporation noted below, officers' terms run until the first
meeting of the board of directors after such corporation's annual meeting, and
until their successors are elected and qualified.
-20-
Robert J. Bennett, age 58, is chairman of the board and a director (1998)
of the Registrant. He is a vice chairman of the board and a director
(1998) of M&T Bank and serves as chairman of the Directors Advisory
Council of M&T Bank's Syracuse Division. Mr. Bennett is also a
director (1998) of M&T Bank, N.A. He served as chairman of the board,
president, chief executive officer and a director of ONBANCorp from
May 1989 until its merger with M&T on April 1, 1998.
Robert G. Wilmers, age 65, is president (1988), chief executive officer
(1983) and a director (1982) of the Registrant. Prior to the
acquisition of ONBANCorp, Mr. Wilmers held the additional position of
chairman of the board of the Registrant from April 1994 through March
1998. He is chairman of the board, chief executive officer (1983) and
a director (1982) of M&T Bank, and served as president of M&T Bank
from March 1984 to June 1996. Mr. Wilmers is chairman of the board
and a director of M&T Bank, N.A.(1995). He is a director of M&T
Financial (1983).
Emerson L. Brumback, age 48, is an executive vice president (1997) of
the Registrant and M&T Bank, and is in charge of the Company's Retail
Banking Division. Mr. Brumback is chairman of the board (1999) and a
director (1997) of Highland Lease and executive vice president (1998)
and a director of M&T Bank, N.A.(1997). He is chairman of the board
(1999) and a director (1997) of M&T Credit and a director of M&T
Mortgage (1997), M&T Reinsurance (1999) and M&T Securities (1997).
Mr. Brumback was executive vice president, national retail
distribution, at BancOne Corporation prior to joining the Company.
Atwood Collins, III, age 53, is an executive vice president of the
Registrant (1997) and M&T Bank (1996) and is chairman of the
Directors Advisory Council (1998) of M&T Bank's New York City
Division. Previously, Mr. Collins served as president and chief
executive officer of the New York City Division of M&T Bank (1997),
and as president, chief executive officer and a director (1995) of
The East New York Saving Bank, which had been a wholly owned
subsidiary of the Registrant prior to its merger with and into M&T
Bank on May 24, 1997. He is a director of M&T Real Estate (1995). Mr.
Collins has responsibility for managing the Company's middle market,
commercial real estate and business banking activities in
Westchester, Putnam and Rockland counties of New York State and
Connecticut, business banking in New York City and Investment
banking, Institutional and Correspondent banking activities. He also
manages the Company's Facilities Management and Services group.
Mark J. Czarnecki, age 44, is an executive vice president of the
Registrant (1999) and M&T Bank (1997) and is in charge of the M&T
Investment Group, which is comprised of M&T Securities, the Insurance
Services Division of M&T Bank, N.A. and the Trust and Investment
Services Division of M&T Bank. Mr. Czarnecki is a director of M&T
Securities (1999) and an executive vice president of M&T Bank, N.A.
(1997). Mr. Czarnecki has held a number of management positions with
M&T Bank since 1977, most recently as senior vice president of the
private client services group of the Trust and Investment Services
Division (1994), and prior thereto as an administrative vice
president and regional manager for the Retail Banking Division.
-21-
Brian E. Hickey, age 47, is an executive vice president of the
Registrant (1997) and M&T Bank (1996) and is president and a member
of the Directors Advisory Council (1994) of the Rochester Division of
M&T Bank. Mr. Hickey is a director of M&T Financial (1996). In
addition to managing all of M&T Bank's business segments in the
Rochester market, Mr. Hickey has responsibility for managing the
Company's Western New York Commercial Banking Division.
James L. Hoffman, age 60, is an executive vice president of the
Registrant (1997) and M&T Bank (1996) and is president (1992) of the
Hudson Valley Division of M&T Bank. Mr. Hoffman is a director of M&T
Investment Company (1999). Mr. Hoffman served as chairman of the
board, president, chief executive officer and a director (1983) of
The First National Bank of Highland, which had been a wholly owned
subsidiary of the Registrant prior to its merger with and into M&T
Bank on February 29, 1992.
Adam C. Kugler, age 42, is an executive vice president and treasurer
(1997) of the Registrant and M&T Bank, and is in charge of the
Company's Treasury Division. Mr. Kugler is chairman of the board and
a director of M&T Investment Company (1999), a director of M&T
Financial (1997), M&T Securities (1997) and is an executive vice
president, Treasurer and a director of M&T Bank, N.A. (1997). Mr
Kugler was previously a senior vice president in the Treasury
Division of M&T Bank.
Ray E. Logan, age 62, is an executive vice president of M&T Bank (1999)
and is in charge of the Company's Human Resources Division. Mr. Logan
served as senior vice president of M&T Bank from 1986 to 1999.
John L. Pett, age 51, is an executive vice president (1997) and chief
credit officer (1995) of the Registrant and is an executive vice
president and chief credit officer of M&T Bank (1996). Mr. Pett is a
director of Highland Lease (1997) and M&T Credit (1997). He is an
executive vice president (1998) and a director (1996) of M&T Bank,
N.A. Mr. Pett served as senior vice president of the Registrant from
1991 to 1997.
Michael P. Pinto, age 44, is an executive vice president and chief
financial officer of the Registrant (1997) and M&T Bank (1996), and
is in charge of the Company's Finance Division and its Technology and
Banking Operations Division. Mr. Pinto is chairman of the board,
president and a director of Olympia Financial Corp. (1997), and a
director of M&T Financial (1996), M&T Mortgage (1996), M&T Real
Estate (1996) and M&T Investment Company (1999). He is an executive
vice president and chief financial officer (1996) and a director
(1998) of M&T Bank, N.A. Mr. Pinto served as senior vice president
and controller of the Registrant from 1993 to 1997.
Robert E. Sadler, Jr., age 54, is an executive vice president (1990) and
a director (1999) of the Registrant, president and a director of M&T
Bank (1996), and is in charge of the Company's Commercial Banking
Division. Mr. Sadler is president, chief executive officer and a
director of M&T Bank, N.A.(1995); chairman of the board (1989) and a
director of M&T Financial (1985); chairman of the board and a
director of M&T Mortgage (1991); chairman of the board and a director
of M&T Securities (1994); and chairman of the board, president and a
director of M&T Real Estate (1995).
-22-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS. The Registrant'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 market prices of the Registrant's common stock,
approximate number of common stockholders at year-end, frequency
and amounts of dividends on common stock and restrictions on the
payment of dividends.
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 $22.4 billion at December 31, 1999. M&T and
its consolidated subsidiaries are hereinafter referred to collectively as "the
Company." M&T's wholly owned banking subsidiaries are Manufacturers and Traders
Trust Company ("M&T Bank") and M&T Bank, National Association ("M&T Bank,
N.A.").
M&T Bank, with total assets of $21.6 billion at December 31, 1999, is a
New York-chartered commercial bank with 261 banking offices throughout New York
State, 19 banking offices in northeastern Pennsylvania and an office in Nassau,
The Bahamas. 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 its markets. Lending
is largely focused on consumers residing in New York State and northeastern
Pennsylvania, and on small and medium size businesses based in those areas.
Certain lending activities are also conducted in other states through various
subsidiaries. M&T Bank's subsidiaries include Highland Lease Corporation, a
consumer leasing company; M&T Credit Corporation, a consumer lending and
commercial leasing and lending company; M&T Financial Corporation, a commercial
leasing company; M&T Mortgage Corporation, a residential mortgage banking
company; M&T Real Estate, Inc., a commercial mortgage lender; and M&T
Securities, Inc., a broker/dealer.
M&T Bank, N.A., with total assets of $852 million at December 31, 1999,
is a national bank with an office in Oakfield, New York. M&T Bank, N.A. offers
selected deposit, loan and insurance products on a nationwide basis, primarily
through telephone and direct mail marketing techniques. Insurance products are
also offered by M&T Bank, N.A. through banking offices of M&T Bank.
On September 24, 1999, M&T Bank completed the acquisition of 29 upstate
New York branches from The Chase Manhattan Bank ("Chase"). The branches had
approximately $634 million of deposits and approximately $44 million of retail
installment and commercial loans at the closing. In addition, on September 30,
1999 M&T Bank received from Chase investment management and custody accounts
having assets of approximately $286 million. Chase also agreed to transfer up to
approximately $195 million of other trust and fiduciary account assets to M&T
Bank following the receipt of required court approvals. It is expected that this
portion of the transaction will be completed in the first quarter of 2000.
-23-
On June 1, 1999, M&T completed the acquisition of FNB Rochester Corp.
("FNB"), a bank holding company headquartered in Rochester, New York.
Immediately after the acquisition, FNB's banking subsidiary, First National Bank
of Rochester, which had 17 banking offices in western and central New York
State, was merged with and into M&T Bank. The acquisition was accounted for
using the purchase method of accounting, and, accordingly, the operations of FNB
have been included in the financial results of the Company since the acquisition
date. FNB's stockholders received $76 million in cash and 122,516 shares of M&T
common stock in exchange for FNB shares outstanding at the time of acquisition.
Assets acquired totaled approximately $676 million and included loans and leases
of $393 million and investment securities of $148 million. Liabilities assumed
on June 1 were approximately $541 million and included $511 million of deposits.
In connection with the transactions described in the two preceding
paragraphs the Company recorded approximately $153 million of goodwill and core
deposit intangible. Nonrecurring expenses related to systems conversions and
other costs of integrating and conforming the acquired operations with and into
M&T Bank totaled $4.7 million ($3.0 million after-tax) during the year ended
December 31, 1999 and consisted largely of expenses for professional services
and other temporary help fees associated with the conversion of systems and/or
integration of operations; initial marketing and promotion expenses designed to
introduce M&T Bank to Chase and FNB customers; and printing, supplies and other
costs. Since the systems conversions and integration of operations are complete,
the Company does not expect to incur a material amount of additional integration
costs. In accordance with generally accepted accounting principles, included in
the determination of goodwill were charges totaling $4.1 million, net of
applicable income taxes, for severance of former Chase and FNB employees; legal
and other professional fees; and termination of contracts for data processing
and other services. As of December 31, 1999, the remaining unpaid portion of
merger-related expenses and charges included in the determination of goodwill
were $130 thousand and $960 thousand, respectively. The resolution of any
preacquisition contingencies is not expected to have a material impact on the
allocation of the purchase price or the amount of goodwill recorded as part of
the acquisitions.
On April 1, 1998, M&T completed the acquisition of ONBANCorp, Inc.
("ONBANCorp"), a bank holding company headquartered in Syracuse, New York.
Immediately after the acquisition, ONBANCorp's two banking subsidiaries, OnBank
& Trust Co. in Syracuse, which operated 59 offices in upstate New York, and
Franklin First Savings Bank in Wilkes-Barre, Pennsylvania, which operated 19
offices in northeastern Pennsylvania, were merged with and into M&T Bank. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the operations acquired from ONBANCorp have been included in the
financial results of the Company since the acquisition date. ONBANCorp's
stockholders received $266 million in cash and 1,429,998 shares of M&T common
stock in exchange for ONBANCorp shares outstanding at the time of acquisition.
The accompanying table provides a summary of assets acquired
-24-
and liabilities assumed on April 1, 1998 in connection with the ONBANCorp
transaction:
Assets
(in thousands)
Investment securities $1,576,604
Loans and leases, net of unearned discount 2,970,306
Allowance for possible credit losses (27,905)
---------
Loans and leases, net 2,942,401
Goodwill and core deposit intangible 562,533
Other assets 411,727
---------
Total assets $5,493,265
==========
Liabilities
Deposits $3,767,729
Short-term borrowings 541,689
Long-term borrowings 268,617
Other liabilities 41,680
---------
Total liabilities $4,619,715
==========
In connection with the ONBANCorp acquisition, the Company recorded
approximately $563 million of goodwill and core deposit intangible, and incurred
nonrecurring expenses related to systems conversions and other costs of
integrating and conforming the acquired operations with and into the operations
of M&T Bank of approximately $21.3 million ($14.0 million after-tax) during the
year ended December 31, 1998. Included in the determination of goodwill were
charges totaling $16.8 million, net of applicable income taxes, for severance of
former ONBANCorp employees; investment banking, legal and other professional
fees; and termination of ONBANCorp contracts for data processing and other
services. As of December 31, 1998, the remaining unpaid portion of
merger-related expenses and charges included in the determination of goodwill
were $2.1 million and $1.1 million, respectively. Substantially all of these
balances were paid during 1999.
In December 1999, M&T Bank entered into a definitive agreement to
acquire Matthews, Bartlett & Dedecker, Inc. ("MBD"), an insurance agency located
in Buffalo, New York. MBD provides insurance services principally to the
commercial market and will operate as a subsidiary of M&T Bank. It is expected
that the acquisition will be completed in the first quarter of 2000 and that it
will not have a material impact on the Company's financial position or results
of operations.
OVERVIEW
M&T reported net income in 1999 of $265.6 million or $32.83 of diluted earnings
per common share, increases of 28% and 25%, respectively, from $208.0 million or
$26.16 per diluted share in 1998. Basic earnings per common share rose to $34.05
in 1999, an increase of 25% from $27.30 in 1998. Net income totaled $176.2
million in 1997, while diluted and basic earnings per share were $25.26 and
$26.60, respectively. The after-tax impact of nonrecurring expenses associated
with the merger and acquisition activity previously described was $3.0 million
($4.7 million pre-tax) or $.37 of diluted earnings per share and $.38 of basic
earnings per share in 1999, compared with $14.0 million ($21.3 million pre-tax)
or $1.76 of diluted earnings per share and $1.84 of basic earnings per share in
1998. The impact on 1999's net income resulting from the FNB and Chase branch
acquisitions was not material.
Net income represented a return on average assets in 1999 of 1.26%,
-25-
compared with 1.14% in 1998 and 1.32% in 1997. The return on average common
stockholders' equity was 15.30% in 1999, 13.86% in 1998 and 18.49% in 1997.
Excluding the impact of merger-related expenses, the rates of return on average
assets and average common equity in 1999 were 1.28% and 15.47%, respectively,
compared with 1.21% and 14.79%, respectively, in 1998.
Growth in average loans and leases was the most significant factor
contributing to a 13% increase in taxable-equivalent net interest income to $767
million in 1999 from $679 million in 1998. Average loans and leases rose to
$16.4 billion in 1999, an increase of 15% from $14.3 billion in 1998. Similarly,
average earning assets totaled $19.1 billion in 1999, up 13% from $16.9 billion
in 1998. A 30% increase in average loans outstanding in 1998, including the
impact of the $3.0 billion of loans obtained on April 1, 1998 in the ONBANCorp
acquisition, was the most significant factor for the rise in that year's net
interest income from $565 million in 1997. Average loans and average earning
assets in 1997 were $11.0 billion and $12.8 billion, respectively. Improvement
in 1998's net interest income resulting from asset growth was partially offset
by a reduction of the Company's net interest margin, or taxable-equivalent net
interest income expressed as a percentage of average earning assets. Net
interest margin in 1999 was 4.02%, compared with 4.01% in 1998 and 4.42% in
1997.
The provision for credit losses in 1999 was $44.5 million, compared
with $43.2 million in 1998 and $46.0 million in 1997. Net charge-offs totaled
$40.3 million in 1999, compared with $39.4 million in 1998 and $41.8 million in
1997. Net charge-offs as a percentage of average loans outstanding declined to
.25% in 1999, from .28% in 1998 and .38% in 1997.
In January 1998, M&T contributed appreciated investment securities with
a fair value of $24.6 million to an affiliated, tax-exempt private charitable
foundation. As a result of the contribution, in 1998 the Company recognized
charitable contributions expense of $24.6 million and recognized tax-exempt
other income of $15.3 million. The contribution provided an income tax benefit
of approximately $10.0 million and, accordingly, resulted in an after-tax
increase in 1998's net income of $700 thousand, or $.09 per diluted share.
Excluding the effect of this contribution, noninterest income of $282 million in
1999 increased 14% from $248 million in 1998 and was 48% above the $191 million
earned in 1997. Growth in mortgage banking revenues, fees earned from deposit
services, and a full year of revenues associated with operations obtained in the
ONBANCorp acquisition were factors contributing to the increase from 1998 to
1999. Revenues related to operations and/or market areas associated with the
ONBANCorp acquisition, along with higher revenues from mortgage banking, trust
activities and bank owned life insurance contributed to the increase from 1997
to 1998. Approximately 40% of the increase from 1997 to 1998 was attributable to
revenues related to operations and/or market areas associated with the ONBANCorp
acquisition.
Noninterest expenses associated with operations, which exclude
amortization of goodwill and core deposit intangible and certain nonrecurring
expenses, were $525 million in 1999, an increase of 8% from $486 million in
1998. The excluded items consist of nonrecurring merger-related expenses of $4.7
million and $21.3 million in 1999 and 1998, respectively, amortization of
goodwill and core deposit intangible of $49.7 million in 1999 and $34.5 million
in 1998, and $24.6 million of expense related to the previously mentioned
contribution to the affiliated charitable foundation in 1998. Higher expenses
related to salaries, employee benefits and occupancy contributed to the higher
expense level in 1999 compared with 1998. After excluding $7.3 million of
amortization of goodwill and core deposit intangible, noninterest expenses
associated with operations in 1997 totaled $414 million. Operating expenses
related to the acquired operations of ONBANCorp significantly contributed to the
increase from 1997 to 1998.
-26-
The efficiency ratio, or noninterest expense divided by the sum of
taxable-equivalent net interest income and noninterest income, measures how much
of a company's revenue is consumed by operating expenses. Reflecting the smooth
integration of the 1998 and 1999 acquisitions, M&T's efficiency ratio,
calculated using the adjusted income and expense totals noted above and
excluding gains from sales of bank investment securities from noninterest
income, improved significantly to 50.06% in 1999 from 52.51% in 1998 and 54.82%
in 1997.
CASH OPERATING RESULTS
As a result of the acquisitions of ONBANCorp, FNB and the Chase branches and, to
a significantly lesser extent, acquisitions of other entities in prior years,
the Company had recorded as assets goodwill and core deposit intangible totaling
$648 million and $546 million at December 31, 1999 and 1998, respectively. Since
the amortization of goodwill and core deposit intangible does not result in a
cash expense, M&T believes that supplemental reporting of its operating results
on a "cash" (or "tangible") basis (which excludes the after-tax effect of
amortization of goodwill and core deposit intangible and the related asset
balances) represents a relevant measure of financial performance. The
supplemental cash basis data presented herein do not exclude the effect of other
non-cash operating expenses such as depreciation, provision for credit losses,
or deferred income taxes associated with the results of operations. Unless noted
otherwise, cash basis data does, however, exclude the after-tax impact of
nonrecurring merger-related expenses associated with the acquisitions of
ONBANCorp, FNB and the Chase branches.
Cash net income rose 23% to $311.0 million in 1999 from $251.9 million
in 1998. Diluted and basic cash earnings per share in 1999 were each up 21% to
$38.44 and $39.87, respectively, from $31.69 and $33.06 in 1998. In 1997, cash
net income was $182.4 million while diluted and basic cash earnings per share
were $26.14 and $27.53, respectively. The impact of the FNB and Chase branch
acquisitions on 1999 cash net income was not material.
Cash return on average tangible assets was 1.52% in 1999, compared with
1.41% in 1998 and 1.37% in 1997. Cash return on average tangible common equity
was 26.71% in 1999, compared with 23.08% and 19.56% in 1998 and 1997,
respectively. Including the effect of merger-related expenses, the cash return
on average tangible assets for 1999 and 1998 was 1.50% and 1.33%, respectively,
and the cash return on average tangible common equity was 26.45% and 21.80%,
respectively.
NET INTEREST INCOME/LENDING AND FUNDING ACTIVITIES
Taxable-equivalent net interest income rose 13% to $767 million in 1999 from
$679 million in 1998, largely the result of growth in average earning assets,
which increased $2.2 billion or 13% to $19.1 billion in 1999 from $16.9 billion
in 1998. Taxable-equivalent net interest income and average earning assets in
1997 were $565 million and $12.8 billion, respectively. The growth in average
earning assets in 1999 and 1998 was largely attributable to higher average loans
and leases outstanding. Average loans and leases totaled $16.4 billion in 1999,
up 15% from $14.3 billion in 1998 and 50% higher than $11.0 billion in 1997. The
impact of the $393 million of loans obtained in the FNB transaction in June 1999
and the full-year impact of loans acquired in the April 1998 ONBANCorp
transaction contributed to the higher average loan balances in 1999 compared
with 1998. The primary reason for the higher loan balances in 1998 as compared
to 1997 was the $3.0 billion of loans obtained in the ONBANCorp acquisition,
including approximately $450 million of commercial loans, $380 million of
commercial real estate loans, $1.2 billion
-27-
of residential mortgage loans and $930 million of consumer loans. Partially
offsetting these increases in average loans and leases in 1998 was the impact of
the July 1998 sale of M&T's retail credit card business, including approximately
$186 million of outstanding credit card balances as of the sale date. Average
credit card balances, including cards issued to small businesses, were $10
million in 1999, compared with $136 million in 1998 and $268 million in 1997.
The accompanying table 4 summarizes average loans and leases outstanding in 1999
and percentage changes in the major components of the portfolio over the past
two years.
Loans secured by real estate, including home equity loans and
outstanding home equity lines of credit which the Company classifies as consumer
loans, represented approximately 66% of the loan and lease portfolio during 1999
and 1998, up from 64% in 1997. At December 31, 1999, the Company held
approximately $6.5 billion of commercial real estate loans, $4.1 billion of
consumer real estate mortgage loans secured by one-to-four family residential
properties and $885 million of outstanding home equity loans and lines of
credit, compared with $5.5 billion, $4.3 billion and $739 million, respectively,
at December 31, 1998.
Commercial real estate loans originated by the Company are
predominately secured by properties in the New York City metropolitan area,
including areas in neighboring states generally considered to be within
commuting distance of New York City, and Western New York, which includes
Buffalo, Niagara Falls, Rochester and surrounding areas. Commercial real estate
loans are also originated in the Syracuse, Albany, Hudson Valley and Southern
Tier regions of New York State, as well as in northeastern Pennsylvania.
Historically, commercial real estate loans originated by the Company are
fixed-rate instruments with monthly payments and a balloon payment of the
remaining unpaid principal at maturity, in many cases five years after
origination. For borrowers in good standing, the terms of such loans may be
extended by the customer for an additional five years at the then-current market
rate of interest. In response to customer needs, in recent years the Company has
also originated fixed-rate commercial real estate loans with maturities of
greater than five years. In general, these loans have original maturity terms of
approximately ten years. The Company also originates adjustable-rate commercial
real estate loans. As of December 31, 1999, approximately 27% of the commercial
real estate loan portfolio consisted of adjustable-rate loans. The accompanying
table 6 presents commercial real estate loans by geographic area, type of
collateral and size of the loans outstanding at December 31, 1999. Of the $3.2
billion of commercial real estate loans in the New York City metropolitan area,
approximately 50% were secured by multi-family residential properties, 20% by
retail space and 12% by office space. The Company's experience has been that
office space and retail properties tend to demonstrate more volatile
fluctuations in value through economic cycles and changing economic conditions
than do multi-family residential properties. Approximately 54% of the aggregate
dollar amount of New York City area loans were for $5 million or less, while
loans of more than $10 million made up approximately 28% of the total.
Commercial real estate loans secured by properties elsewhere in New York State
tend to have a greater diversity of collateral types and include a significant
amount of lending to customers who use the mortgaged property in their trade or
business. Approximately 77% of the aggregate dollar amount of these New York
State loans were for $5 million or less.
Commercial real estate loans secured by properties located outside of
New York State and outside of areas of neighboring states considered to be part
of the New York City metropolitan area comprised 10% of total commercial real
estate loans as of December 31, 1999.
Of the $395 million of commercial construction loans presented in the
accompanying table 6, $226 million represent loans for which the Company has
-28-
also committed to provide permanent financing. At December 31, 1999, commercial
construction loans represented 2% of total loans and leases.
Real estate loans secured by one-to-four family residential properties
totaled $4.1 billion at December 31, 1999, including approximately 67% secured
by properties located in New York State. At December 31, 1999, $239 million of
residential real estate loans were held for sale by M&T Mortgage Corporation,
the Company's mortgage banking subsidiary.
Consumer loans and leases represented approximately 18% of the average
loan portfolio during 1999, compared with 19% and 21% in 1998 and 1997,
respectively. Automobile loans and leases and home equity loans and lines of
credit represent the largest components of the consumer loan portfolio.
Approximately 96% of home equity loans and lines of credit outstanding at
December 31, 1999 were secured by properties in New York State. At December 31,
1999, 40% of the automobile loan and lease portfolio was to customers residing
in New York State, while the remainder was largely to customers in Pennsylvania.
Automobile loans and leases are generally originated through dealers, however,
all applications submitted by dealers are subject to the Company's normal
underwriting and loan approval procedures. Automobile loans and leases
represented approximately 9% of the Company's average loan portfolio during
1999, while no other consumer loan product represented more than 5%. The average
outstanding balance of automobile leases outstanding was approximately $375
million in 1999, $315 million in 1998 and $147 million in 1997. Due to poorer
than expected results, during 1998 and 1997 the Company terminated all of its
co-branded credit card programs and sold its retail credit card business on July
31, 1998, including outstanding balances of approximately $186 million.
The Company's portfolio of investment securities averaged $2.1 billion
in 1999, $2.4 billion in 1998 and $1.7 billion in 1997. The investment
securities portfolio is largely comprised of residential mortgage-backed
securities and collateralized mortgage obligations, commercial real estate
mortgage-backed securities, and shorter-term U.S. Treasury notes. The Company
has also invested in debt securities issued by municipalities and debt and
preferred equity securities issued by government-sponsored agencies and certain
financial institutions. When purchasing investment securities, the Company
considers its overall interest-rate risk profile as well as the adequacy of
expected returns relative to prepayment and other risks assumed. The Company
occasionally sells investment securities as a result of changes in interest
rates and spreads, actual or anticipated prepayments, or credit risk associated
with a particular security. The size of the investment securities portfolio is
influenced by such factors as demand for loans, which generally yield more than
investment securities, ongoing repayments, the level of deposits, and management
of balance sheet size and resulting capital ratios.
Money-market assets, which are comprised of interest-earning deposits
at banks, interest-earning trading account assets, Federal funds sold and
agreements to resell securities, averaged $517 million in 1999, compared with
$230 million in 1998 and $123 million in 1997.
Core deposits represent the most significant source of funding to the
Company and consist of noninterest-bearing deposits, interest-bearing
transaction accounts, savings deposits and nonbrokered domestic time deposits
under $100,000. Core deposits generally carry lower interest rates than
wholesale funds of comparable maturities. The Company's branch network is its
principal source of core deposits. Certificates of deposit under $100,000
generated on a nationwide basis by M&T Bank, N.A. are also included in core
deposits. Average core deposits were $11.9 billion in 1999, up from $10.7
billion in 1998 and $8.3 billion in 1997. The increases in average core deposits
in 1999 and 1998 reflect the 1999 Chase branch and FNB
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acquisitions and the 1998 ONBANCorp acquisition. Core deposits obtained in the
Chase branch acquisition as of September 24, 1999 and in the FNB acquisition as
of June 1, 1999 were $618 million and $419 million, respectively. Core deposits
obtained in the acquisition of ONBANCorp totaled approximately $2.8 billion on
April 1, 1998. Average core deposits of M&T Bank, N.A. were $429 million in
1999, $401 million in 1998 and $432 million in 1997. Funding provided by core
deposits totaled 62% of average earning assets in 1999, compared with 63% in
1998 and 65% in 1997. The accompanying table 7 summarizes average core deposits
in 1999 and percentage changes in the components over the past two years.
Supplementing core deposits, the Company obtains funding through
domestic time deposits of $100,000 or more, deposits originated through the
Company's offshore branch office, and brokered certificates of deposit. Domestic
time deposits over $100,000, excluding brokered certificates of deposit,
averaged $1.6 billion in 1999, compared with $1.3 billion in 1998 and $1.0
billion in 1997. Offshore branch deposits, comprised primarily of accounts with
balances of $100,000 or more, averaged $254 million in 1999, compared with $288
million and $230 million in 1998 and 1997, respectively. Brokered deposits
averaged $1.1 billion in 1999, compared with $1.4 billion in 1998 and 1997, and
totaled $1.0 billion at December 31, 1999. Brokered deposits have been used as
an alternative to short-term borrowings to lengthen the average maturity of
interest-bearing liabilities. The weighted-average remaining term to maturity of
brokered deposits at December 31, 1999 was 1.3 years. However, certain of the
deposits have provisions that allow early redemption. In connection with the
Company's management of interest rate risk, interest rate swaps have been
entered into under which the Company receives a fixed rate of interest and pays
a variable rate and that have notional amounts and terms similar to the amounts
and terms of many of the brokered deposits. Additional amounts of brokered
deposits may be solicited in the future depending on market conditions and the
cost of funds available from alternative sources at the time.
The Company also uses borrowings from banks, securities dealers, the
Federal Home Loan Bank of New York and the Federal Home Loan Bank of Pittsburgh
(together, the "FHLB"), and others as sources of funding. Short-term borrowings
averaged $2.1 billion in 1999, $1.9 billion in 1998 and $812 million in 1997.
The average balance of long-term borrowings was $1.7 billion in 1999, compared
with $835 million in 1998 and $373 million in 1997. Included in average
long-term borrowings were amounts borrowed from the FHLB of $1.2 billion in
1999, $343 million in 1998 and $2 million in 1997, as well as $175 million of
subordinated capital notes issued in prior years by M&T Bank. Average long-term
borrowings also include trust preferred securities with a carrying value of $319
million that were issued by special-purpose entities in 1997. Further
information regarding the trust preferred securities, as well as information
regarding contractual maturities of long-term borrowings, is provided in note 8
of Notes to Financial Statements.
Net interest income is impacted by changes in the composition of the
Company's earning assets and interest-bearing liabilities, as described herein,
as well as changes in interest rates and spreads. Net interest spread, or the
difference between the yield on earning assets and the rate paid on
interest-bearing liabilities, was 3.48% in 1999, compared with 3.44% in 1998.
The yield on earning assets decreased 29 basis points (hundredths of one
percent) to 7.79% in 1999 from 8.08% in 1998. Similarly, the rate paid on
interest-bearing liabilities decreased 33 basis points to 4.31% in 1999 from
4.64% in 1998. The declines in yields on earning assets and rates paid on
interest-bearing liabilities were due to generally lower interest rates in 1999
when compared with 1998. However, actions taken by the Federal Reserve during
the third and fourth quarters of 1999 have resulted in an increase in interest
rates. In 1997, the net interest spread was 3.73%, the yield on earning assets
was 8.39% and the rate paid on interest-bearing
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liabilities was 4.66%. Lower yielding residential real estate loans, consumer
loans and investment securities acquired in the ONBANCorp transaction; the July
1998 sale of the Company's retail credit card business; and competitive pressure
on interest rates charged for newly originated loans, particularly commercial
loans and commercial real estate loans, contributed to the decline in yield in
1998 as compared with 1997.
Net interest-free funds consist largely of noninterest-bearing demand
deposits and stockholders' equity, partially offset by goodwill and core deposit
intangible, bank owned life insurance and other non-earning assets. Net
interest-free funds contributed .54% to net interest margin in 1999, compared
with .57% in 1998 and .69% in 1997. Average net interest-free funds totaled $2.4
billion in 1999, $2.1 billion in 1998 and $1.9 billion in 1997. The decline in
the contribution to net interest margin of net interest-free funds in 1999 and
1998 from 1997 was due, in part, to the goodwill and core deposit intangible
assets recorded in conjunction with the FNB, Chase branch and ONBANCorp
acquisitions (which averaged $587 million in 1999 and $413 million in 1998) and
the cash surrender value of bank owned life insurance (which averaged $379
million in 1999, compared with $314 million in 1998 and $41 million in 1997).
Increases in the cash surrender value of bank owned life insurance are not
included in interest income, but rather are recorded in "other revenues from
operations." These two noninterest-earning assets mitigated much of the benefit
derived from increases in stockholders' equity and/or noninterest-bearing
deposits resulting from the FNB, Chase branch and ONBANCorp transactions.
Future changes in market interest rates or spreads, as well as changes
in the composition of the Company's portfolios of earning assets and
interest-bearing liabilities that result in reductions in spreads could
adversely impact the Company's net interest margin and net interest income.
Management assesses the potential impact of future changes in interest rates and
spreads by projecting net interest income under a number of different interest
rate scenarios. As part of the management of interest rate risk, the Company
utilizes interest rate swap agreements to modify the repricing characteristics
of certain portions of the loan and deposit portfolios. Revenue and expense
arising from these agreements are reflected in either the yields earned on
assets or, as appropriate, the rates paid on interest-bearing liabilities.
Excluding forward-starting swaps, the notional amount of interest rate swaps
entered into for interest rate risk management purposes as of December 31, 1999
was approximately $1.7 billion. In general, under the terms of these swaps, the
Company receives payments based on the outstanding notional amount of the swaps
at fixed rates of interest and makes payments at variable rates. However, under
terms of $99 million of swaps, the Company pays a fixed rate of interest and
receives a variable rate. To help manage exposure resulting from changing
interest rates in future years, as of December 31, 1999, the Company had also
entered into forward-starting swaps with an aggregate notional amount of $373
million in which the Company will pay a fixed rate of interest and receive a
variable rate. Such forward-starting swaps had no effect on the Company's net
interest income through December 31, 1999. The average notional amounts of
interest rate swaps entered into for interest rate risk management purposes, the
related effect on net interest income and margin, and the weighted-average rate
paid or received on those swaps are presented in the accompanying table 8.
The Company estimates that as of December 31, 1999 it would have
received approximately $25 million if all interest rate swap agreements entered
into for interest rate risk management purposes had been terminated, compared
with $23 million and $16 million at December 31, 1998 and 1997, respectively.
The estimated fair value of the interest rate swap portfolio results from the
effects of changing interest rates and should be considered in the context of
the entire balance sheet and the Company's overall interest rate risk profile.
With the exception of swaps having a notional amount of
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$50 million that were entered into for the purpose of modifying the repricing
characteristics of fixed-rate, available for sale investment securities, changes
in the estimated fair value of interest rate swaps entered into for interest
rate risk management purposes are not recorded in the consolidated financial
statements. Additional information about interest rate swaps is included in note
16 of Notes to Financial Statements.
PROVISION FOR CREDIT LOSSES
The purpose of the provision for credit losses is to adjust the Company's
allowance for credit losses to a level that is adequate to absorb losses
inherent in the loan and lease portfolio. The provision for credit losses was
$44.5 million in 1999, compared with $43.2 million in 1998 and $46.0 million in
1997. Net loan charge-offs in 1999 were $40.3 million, compared with $39.4
million in 1998 and $41.8 million in 1997. Net loan charge-offs as a percentage
of average loans outstanding were .25% in 1999, .28% in 1998 and .38% in 1997.
Nonperforming loans totaled $103.2 million or .59% of loans and leases
outstanding at December 31, 1999, compared with $117.0 million or .74% a year
earlier and $80.7 million or .70% at December 31, 1997. The allowance for credit
losses was $316.2 million or 1.82% of net loans and leases at the end of 1999,
compared with $306.3 million or 1.94% at December 31, 1998 and $274.7 million or
2.39% at December 31, 1997. The ratio of the allowance to nonperforming loans at
year-end 1999, 1998 and 1997 was 306%, 262% and 341%, respectively.
The decline in the allowance as a percentage of total loans at December
31, 1999 and 1998 as compared with December 31, 1997 and prior years reflects
management's evaluation of the loan and lease portfolio as of each date, the
relatively favorable economic environment for many commercial borrowers in the
two recent years, the July 1998 sale of the retail credit card business, and
other factors. Management regularly assesses the adequacy of the allowance by
performing an ongoing evaluation of the loan and lease portfolio, including 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 and the value of any
collateral. Significant loans are individually analyzed, while other smaller
balance loans are evaluated by loan category. Given the concentration of
commercial real estate loans in the Company's loan portfolio, particularly the
large concentration of loans secured by properties in New York State, in
general, and in the New York City metropolitan area, in particular, coupled with
the amount of commercial and industrial loans to businesses in areas of New York
State outside of the New York City metropolitan area and significant growth in
recent years in loans to individual consumers, management cautiously evaluated
the impact of interest rates and overall economic conditions on the ability of
borrowers to meet repayment obligations when assessing the adequacy of the
Company's allowance for credit losses as of December 31, 1999. Based upon the
results of such review, management believes that the allowance for credit losses
at December 31, 1999 was adequate to absorb credit losses inherent in the
portfolio as of that date.
The accompanying table 10 presents a comparative allocation of the
allowance for credit losses for each of the past five year-ends. Amounts were
allocated to specific loan categories based upon management's classification of
loans under the Company's internal loan grading system and assessment of
near-term charge-offs and losses existing in specific larger balance loans that
are reviewed in detail by the Company's internal loan review department and
pools of other loans that are not individually analyzed. The unallocated portion
of the allowance is intended to provide for probable losses that are not
otherwise identifiable resulting from (i) comparatively poorer economic
conditions and an unfavorable business climate
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in market regions served by the Company, in particular areas of New York State
outside of the New York City metropolitan area that have not experienced the
same degree of economic growth evident in much of the rest of the country in
recent years, (ii) portfolio concentrations regarding loan type, collateral type
and geographic location, in particular the large concentration of commercial
real estate loans secured by properties in the New York City metropolitan area
and other areas of New York State, (iii) the effect of expansion into new
markets, including market areas of New York State and Pennsylvania entered
through the acquisition of ONBANCorp, and/or new loan product types, including
expansion of automobile loan and leasing activities in recent years, and, (iv)
the possible use of imprecise estimates in determining the allocated portion of
the allowance. The economy in New York State, in general, and the Upstate New
York region (comprised of areas outside of metropolitan New York City), in
particular, continues to lag behind the rest of the country. Marginal job
growth, coupled with a declining population base, has left the Upstate New York
region susceptible to potential credit problems, particularly related to
commercial customers. Given the Company's high concentration of commercial loans
and commercial real estate loans in New York State, including the Upstate New
York region, and considering the other factors already discussed, the level of
the unallocated portion of the allowance for credit losses is deemed prudent and
reasonable. Nevertheless, the allowance is general in nature and is available to
absorb losses from any loan or lease category. Accordingly, the amounts
presented in the table are not necessarily indicative of future losses within
the individual loan categories.
Several factors influence the Company's credit loss experience,
including overall economic conditions affecting businesses and consumers, in
general, and, due to the size of the Company's commercial real estate loan
portfolio, real estate valuations, in particular. Commercial real estate
valuations include many assumptions and, as a result, can be highly subjective.
Commercial real estate values can be significantly affected over relatively
short periods of time by changes in business climate and economic conditions,
and, in many cases, the results of operations of businesses and other occupants
of the real property. Nonperforming commercial real estate loans totaled $13.4
million, $19.3 million and $17.4 million at December 31, 1999, 1998 and 1997,
respectively. During 1999, the Company realized net recoveries of charged-off
commercial real estate loans of $2.2 million. During 1998 and 1997, net
charge-offs of commercial real estate loans were $3.6 million and $.9 million,
respectively.
Net charge-offs of consumer loans and leases were $21.7 million in
1999, or .72% of average consumer loans outstanding during the year, compared
with $31.5 million or 1.13% in 1998 and $35.8 million or 1.55% in 1997.
Charge-offs of credit card balances and indirect automobile loans and leases
represented the most significant types of consumer loans charged off during the
past three years. Net credit card and indirect automobile loan charge-offs
during 1999 were $.6 million and $8.3 million, respectively, compared with $14.4
million and $10.5 million, respectively, in 1998 and $19.0 million and $11.2
million, respectively, in 1997. As previously noted, the Company sold its retail
credit card business in July 1998. Nonperforming consumer loans and leases
totaled $27.3 million or .88% of outstanding consumer loans at December 31,
1999, compared with $28.3 million or .98% at December 31, 1998 and $21.9 million
or .99% at December 31, 1997.
Net charge-offs of commercial loans and leases in 1999 totaled $17.0
million, compared with $2.7 million in 1998 and $1.9 million in 1997. The
increase in charge-offs in 1999 compared with prior years was largely the result
of two commercial loans with partial charge-offs aggregating $15.0 million.
Nonperforming commercial loans and leases totaled $22.5 million, $20.6 million
and $10.2 million at December 31, 1999, 1998 and 1997, respectively.
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Net charge-offs of residential real estate loans were $3.9 million in
1999, compared with $1.6 million and $3.1 million in 1998 and 1997,
respectively. Residential real estate loans classified as nonperforming at
December 31, 1999, 1998 and 1997 totaled $40.0 million, $48.9 million and $31.2
million, respectively.
Commercial real estate loans secured by multi-family properties in the
New York City metropolitan area represented 9% of loans outstanding at December
31, 1999. The Company had no concentrations of credit extended to any specific
industry that exceeded 10% of total loans at December 31, 1999. Furthermore, the
Company had no exposure to less developed countries, and only $22 million of
outstanding foreign loans at December 31, 1999.
Assets acquired in settlement of defaulted loans totaled $10.0 million
at December 31, 1999, compared with $11.1 million a year earlier and $8.4
million at the end of 1997.
OTHER INCOME
Other income rose 14% to $282 million in 1999 from $248 million in 1998, after
excluding $15.3 million of tax-exempt income in 1998 resulting from the
previously noted transfer of appreciated investment securities to an affiliated,
tax-exempt charitable foundation. Growth in mortgage banking revenues, fees
earned from deposit services, and a full year of revenues associated with
operations obtained in the ONBANCorp acquisition contributed to the improvement.
Other income was $191 million in 1997. Revenues related to operations and/or
market areas associated with the ONBANCorp acquisition, along with higher
revenues from mortgage banking, trust activities and bank owned life insurance
contributed to the increase from 1997 to 1998. Approximately 40% of the increase
from 1997 to 1998 was attributable to revenues related to operations and/or
market areas associated with the former ONBANCorp.
Mortgage banking revenues, which consist of residential mortgage loan
servicing fees, gains from sales of residential mortgage loans and loan
servicing rights, and other residential mortgage loan-related fees, increased to
$71.8 million in 1999 from $65.6 million in 1998 and $51.5 million in 1997.
Revenues from servicing residential mortgage loans for others were $26.8 million
in 1999, compared with $29.3 million in 1998 and $25.7 million in 1997. Gains
from sales of residential mortgage loans and loan servicing rights totaled $39.7
million in 1999, $32.4 million in 1998 and $23.1 million in 1997. The Company
maintains residential mortgage loan origination offices in New York State, as
well as in Arizona, Colorado, Idaho, Massachusetts, Ohio, Oregon, Pennsylvania,
Utah and Washington. Residential mortgage loans originated for sale to other
investors totaled $2.5 billion in 1999, compared with $2.8 billion and $1.6
billion in 1998 and 1997, respectively. Residential mortgage loans serviced for
others were $7.2 billion, $7.3 billion and $7.5 billion at December 31, 1999,
1998 and 1997, respectively. Capitalized servicing assets were $61 million at
December 31, 1999 and 1997, compared with $62 million at December 31, 1998.
Reflecting a third quarter 1999 increase in fees, combined with the
impact of the FNB, Chase branch and ONBANCorp acquisitions, service charges on
deposit accounts rose 28% to $73.6 million in 1999 from $57.4 million in 1998,
and 70% from $43.4 million in 1997. Fees for services provided to customers in
the areas formerly served by ONBANCorp contributed approximately three-fourths
of the increase from 1997 to 1998. Trust income increased 7% to $40.8 million in
1999 from $38.2 million in 1998 and 33% from $30.7 million in 1997. The
increases in both 1999 and 1998 were largely due to higher revenues for
investment management services. Merchant discount and other credit card fees in
1999 totaled $7.5 million, compared with $12.4
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million in 1998 and $19.4 million in 1997. As noted earlier, during 1997 and
1998 the Company terminated all of its co-branded credit card programs, and sold
its retail credit card business on July 31, 1998. Total credit card fees
included in merchant discount and credit card fees in 1999 were approximately $2
million, compared with approximately $9 million and $16 million in 1998 and
1997, respectively. Through the date of sale, the results of operations of the
retail credit card business in 1998, including internal allocations of the
provision for credit losses, interest expense and other expenses, were
essentially break-even. On the same basis, the Company's retail credit card
business incurred losses of approximately $10 million in 1997. Trading account
and foreign exchange activity resulted in gains of $315 thousand in 1999, down
from $4.0 million in 1998 and $3.7 million in 1997. The decline in 1999 was
largely the result of an approximate $3 million loss incurred as a result of a
counterparty defaulting on the settlement of outstanding foreign exchange
contracts. During 1999, the Company sold bank investment securities resulting in
gains of $1.6 million. Similar gains on sales of bank investment securities in
1998 were $1.8 million, compared with losses of $280 thousand in 1997.
Other revenues from operations increased to $86.8 million in 1999,
compared with $68.3 million in 1998 (excluding the effect of the contribution of
securities to the affiliated foundation) and $42.1 million in 1997. Such amounts
include $22.5 million, $17.6 million and $2.3 million in 1999, 1998 and 1997,
respectively, of tax-exempt income earned from bank owned life insurance. Also
included in other revenues from operations were revenues from the sales of
mutual funds and annuities of $24.5 million, $18.0 million and $15.3 million in
1999, 1998 and 1997, respectively. A $7.0 million increase in revenues from
letter of credit and other credit-related fees also contributed to the rise in
other revenues from operations in 1999 from 1998. Other items that contributed
to the increase in 1998 as compared with 1997 include a $3.2 million gain from
the sale of the Company's retail credit card business and higher revenues for
automated teller machine service fees.
OTHER EXPENSE
Excluding amortization of goodwill and core deposit intangible of $49.7 million
in 1999, $34.5 million in 1998 and $7.3 million in 1997; nonrecurring
merger-related expenses of $4.7 million and $21.3 million in 1999 and 1998,
respectively; and $24.6 million of expense recognized in 1998 related to the
previously discussed transfer of securities to an affiliated charitable
foundation, other expense totaled $525 million in 1999, 8% higher than $486
million in 1998 and 27% higher than $414 million in 1997. Expenses related to
acquired operations significantly contributed to the higher expense levels in
1999 and 1998. However, since the operating systems and support operations
related to ONBANCorp, FNB and the former Chase branches have been combined with
those of the Company, the Company's operating expenses cannot be precisely
divided between or attributed directly to the acquired operations or to the
Company as it existed prior to each transaction.
Salaries and employee benefits expense was $285 million in 1999, 10%
higher than the $259 million in 1998 and 29% higher than the $220 million in
1997. Salaries and benefits related to acquired operations, merit salary
increases, higher expenses for incentive compensation arrangements and higher
medical benefit costs were factors for the increase in 1999 from 1998. Salaries
and employee benefits related to the operations acquired from ONBANCorp largely
contributed to the increased expense level in 1998 over 1997. Merit salary
increases and expenses associated with incentive compensation plans also
contributed to the 1998 increase. Partially offsetting the impact of these
higher expenses were decreases in expense associated with stock appreciation
rights of $4.4 million in 1999 as compared with 1998 and $6.3 million in 1998 as
compared with 1997. The number of
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full-time equivalent employees was 6,171 at December 31, 1999, compared with
6,044 at December 31, 1998 and 4,781 at December 31, 1997.
Excluding one time merger-related expenses, the already discussed
charitable contributions expense in 1998, and amortization of goodwill and core
deposit intangible, nonpersonnel expense totaled $240 million in 1999, 5% higher
than $228 million in 1998. Higher equipment and net occupancy expenses, largely
attributable to the impact of the operations acquired in 1998 and 1999, were
significant factors contributing to the rise. Nonpersonnel expense was $194
million in 1997, after excluding amortization of goodwill and core deposit
intangible. The increase in expenses from 1997 to 1998 was largely the result of
expenses related to the acquired operations of ONBANCorp plus an increase in the
amortization of capitalized servicing rights. Amortization of capitalized
servicing rights totaled $19.8 million in 1999, $19.7 million in 1998 and $14.4
million in 1997. Partially offsetting the expense increases from 1997 to 1998
was an $8.1 million decline in co-branded credit card rebate and other operating
expenses based on card usage.
INCOME TAXES
The provision for income taxes was $153 million in 1999, up from $118 million in
1998 and $106 million in 1997. The effective tax rates were 36.5% in 1999, 36.1%
in 1998 and 37.5% in 1997. A reconciliation of income tax expense to the amount
computed by applying the statutory federal income tax rate to pre-tax income is
provided in note 11 of Notes to Financial Statements.
INTERNATIONAL ACTIVITIES
The Company's net investment in international assets was $27 million and $33
million at December 31, 1999 and 1998, respectively. Total offshore deposits
were $243 million at December 31, 1999 and $303 million at December 31, 1998.
LIQUIDITY, MARKET RISK, AND INTEREST RATE SENSITIVITY
As a financial intermediary, the Company is exposed to various risks including
liquidity and market risk. Liquidity refers to the Company's ability to ensure
that sufficient cash flow and liquid assets are available to satisfy demands for
loans and deposit withdrawals, to fund operating expenses, and to be used for
other corporate purposes. Liquidity risk arises whenever the maturities of
financial instruments included in assets and liabilities differ.
Core deposits have historically been the most significant funding
source for the Company. Core deposits are generated from a large base of
consumer, corporate and institutional customers, which over the past several
years has become more geographically diverse as a result of acquisitions and
expansion of the Company's businesses. Nevertheless, in recent years the Company
has faced increased competition in offering services and products from a large
array of financial market participants, including banks, thrifts, mutual funds,
securities dealers and others. As a result, and consistent with banking industry
experience in general, the Company has experienced a reduction in the percentage
of earning assets funded by core deposits. Core deposits financed 63% of the
Company's earning assets at December 31, 1999, compared with 62% and 64% at
December 31, 1998 and 1997, respectively.
The Company supplements funding provided through core deposits with
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various short-term and long-term wholesale borrowings, including Federal funds
purchased and securities sold under agreements to repurchase, brokered
certificates of deposit, and borrowings from the FHLB and others. M&T Bank had a
credit facility with the FHLB aggregating $2.3 billion at December 31, 1999.
Outstanding borrowings totaled $1.8 billion at December 31, 1999 and $1.5
billion at December 31, 1998. Such borrowings are secured by loans and
investment securities. M&T Bank and M&T Bank, N.A. had available lines of credit
with the Federal Reserve Bank of New York totaling approximately $4 billion. The
amounts of these lines are dependent upon the balance of loans and securities
pledged as collateral. There were no borrowings outstanding under these lines at
either December 31, 1999 or 1998. Although informal and sometimes reciprocal,
sources of funding are available to the Company through various arrangements for
unsecured short-term borrowings from a wide group of banks and other financial
institutions. In addition to deposits and borrowings, other sources of liquidity
include maturities of money-market assets and investment securities, repayments
of loans and investment securities, and cash generated from operations, such as
fees collected for services.
M&T's primary source of funds to pay for operating expenses,
stockholder dividends and treasury stock repurchases has historically been the
receipt of dividends from its banking subsidiaries, which are subject to various
regulatory limitations. These historic sources of cash flow were augmented in
1997 by the proceeds from issuance of $250 million of trust preferred
securities, which provided a substantial portion of M&T's funding needs during
1998 and 1997. Additional information regarding the trust preferred securities
is included in note 8 of Notes to Financial Statements. M&T also maintains a $30
million line of credit with an unaffiliated commercial bank, of which borrowings
outstanding at December 31, 1999 totaled $29 million. A similar $25 million line
of credit that expired during 1999 was entirely available for borrowing at
December 31, 1998.
Management closely monitors the Company's liquidity position for
compliance with internal policies and believes that available sources of
liquidity are adequate to meet funding needs anticipated in the normal course of
business. Furthermore, management does not anticipate engaging in any
activities, either currently or in the long-term, which would cause a
significant strain on liquidity at either M&T or its subsidiary banks.
Market risk is the risk of loss from adverse changes in market prices
and/or interest rates of the Company's financial instruments. The primary market
risk the Company is exposed to is interest rate risk. The core banking
activities of lending and deposit-taking expose the Company to interest rate
risk, which occurs when assets and liabilities reprice at different times as
interest rates change. As a result, net interest income earned by the Company is
subject to the effects of changing interest rates. The Company measures interest
rate risk by calculating the variability of net interest income in future years
under various interest rate scenarios using projected balances for earning
assets, interest-bearing liabilities and off-balance sheet financial
instruments. Management's philosophy toward interest rate risk management is to
limit the variability of net interest income. The balances of both on- and
off-balance sheet financial instruments used in the projections are based on
expected growth from forecasted business opportunities, anticipated prepayments
of mortgage-related assets and expected maturities of investment securities,
loans and deposits. Management supplements the modeling technique described
above with analyses of market values of the Company's financial instruments. The
Company has entered into interest rate swap agreements to help manage exposure
to interest rate risk. At December 31, 1999, the aggregate notional amount of
interest rate swaps entered into for interest rate risk management purposes was
approximately $2.0 billion, including approximately $373 million of forward
starting swaps. Information about interest rate swaps entered into for interest
rate risk
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management purposes is included herein under "Net Interest Income/Lending and
Funding Activities" and in note 16 of Notes to Financial Statements.
The Company's Asset-Liability Committee, which includes members of
senior management, monitors interest rate sensitivity with the aid of a computer
model that considers the impact of ongoing lending and deposit gathering
activities, as well as statistically derived interrelationships in the magnitude
and timing of the repricing of financial instruments, including the effect of
changing interest rates on expected prepayments and maturities. When deemed
prudent, management has taken action, and intends to do so in the future, to
mitigate exposure to interest rate risk through the use of on- or off-balance
sheet financial instruments. Possible actions include, but are not limited to,
changes in the pricing of loan and deposit products, modifying the composition
of earning assets and interest-bearing liabilities, and entering into or
modifying existing interest rate swap agreements.
The accompanying table 14 as of December 31, 1999 and 1998 displays the
estimated impact on net interest income from non-trading financial instruments
resulting from changes in interest rates during the first modeling year.
Many assumptions were utilized by the Company to calculate the impact
that changes in interest rates may have on the Company's net interest income.
The more significant assumptions relate to the rate of prepayments of
mortgage-related assets, cash flows from derivative and other financial
instruments held for non-trading purposes, loan and deposit volumes and pricing,
and deposit maturities. The Company also assumed gradual changes in rates of 100
and 200 basis points up and down during a twelve-month period. As these
assumptions are inherently uncertain, the Company cannot precisely predict the
impact of changes in interest rates on net interest income. Actual results may
differ significantly from those presented due to timing, magnitude, and
frequency of interest rate changes and changes in market conditions, as well as
any actions, such as those previously described, which management may take to
counter these changes.
In accordance with industry practice, cumulative totals of net assets
(liabilities) repricing on a contractual basis within the specified time frames,
as adjusted for the impact of interest rate swap agreements entered into for
interest rate risk management purposes, are presented in the accompanying table
15. Management believes this measure does not appropriately depict interest rate
risk since changes in interest rates do not necessarily affect all categories of
earning assets and interest-bearing liabilities equally nor, as assumed in the
table, on the contractual maturity or repricing date. Furthermore, this static
presentation of interest rate risk fails to consider the effect of ongoing
lending and deposit gathering activities, projected changes in balance sheet
composition or any subsequent interest rate risk management activities the
Company is likely to implement.
The Company engages in trading activities to meet the financial needs
of customers and to profit from perceived market opportunities. Trading
activities are conducted utilizing financial instruments that include forward
and futures contracts related to foreign currencies and mortgage-backed
securities, U.S. Treasury and other government securities, mortgage-backed
securities and interest rate contracts, such as swaps. The Company generally
mitigates the foreign currency and interest rate risk associated with trading
activities by entering into offsetting trading positions. The amounts of gross
and net trading positions as well as the type of trading activities conducted by
the Company are subject to a well-defined series of potential loss exposure
limits established by the Asset-Liability Committee.
The notional amounts of interest rate and foreign currency and other
option and futures contracts totaled $799 million and $573 million,
-38-
respectively, at December 31, 1999 and $436 million and $2.0 billion,
respectively, at December 31, 1998. The notional amounts of these trading
contracts are not recorded in the consolidated balance sheet. However, the fair
values of all financial instruments used for trading activities are recorded in
the consolidated balance sheet. The fair values of all trading account assets
and liabilities were $641 million and $633 million, respectively, at December
31, 1999 and $173 million and $51 million, respectively, at December 31, 1998.
Included in trading account assets at December 31, 1999 were mortgage-backed
securities which M&T held as collateral securing certain agreements to resell
securities. The obligations to return such collateral were recorded as
noninterest-bearing trading account liabilities and were included in accrued
interest and other liabilities in the Company's consolidated balance sheet. The
fair value of such collateral (and the related obligation to return collateral)
was $600 million at December 31, 1999. There was no similar collateral held at
December 31, 1998.
Given the Company's policies, limits and positions, management believes
that the potential loss exposure to the Company resulting from market risk
associated with trading activities was not material as of December 31, 1999 and
1998. Additional information related to trading derivative contracts is included
in note 16 of Notes to Financial Statements.
CAPITAL
Stockholders' equity at December 31, 1999 was $1.8 billion or 8.02% of total
assets, compared with $1.6 billion or 7.78% at December 31, 1998 and $1.0
billion or 7.36% at December 31, 1997. On a per share basis, stockholders'
equity increased 12% to $232.41 at December 31, 1999 from $207.94 at December
31, 1998 and was up 49% from $155.86 at December 31, 1997. Excluding goodwill
and core deposit intangible, net of applicable tax effect, tangible equity per
share was $151.40 at December 31, 1999, compared with $139.89 at December 31,
1998 and $153.24 at December 31, 1997. The ratio of average total stockholders'
equity to average total assets was 8.24%, 8.20% and 7.16% in 1999, 1998 and
1997, respectively.
M&T issued shares of common stock in 1999 and 1998 to complete the
acquisitions of FNB and ONBANCorp. On June 1, 1999, 122,516 shares of common
stock were issued to former holders of FNB common stock resulting in an addition
to stockholders' equity of $58.7 million. On April 1, 1998, M&T issued 1,429,998
shares of common stock to former holders of ONBANCorp common stock and assumed
employee stock options to purchase 61,772 shares of M&T common stock, resulting
in additions to stockholders' equity of $587.8 million and $19.4 million,
respectively.
Stockholders' equity at December 31, 1999 reflected a loss of $26.0
million, or $3.37 per share, for the net after-tax impact of unrealized losses
on investment securities classified as available for sale, compared with
unrealized gains of $2.9 million, or $.37 per common share, at December 31, 1998
and $12.0 million, or $1.82 per common share, at December 31, 1997. Such
unrealized gains or losses are generally due to changes in interest rates and
represent the difference, net of applicable income tax effect, between the
estimated fair value and amortized cost of investment securities classified as
available for sale. The market valuation of investment securities should be
considered in the context of the entire balance sheet of the Company. With the
exception of investment securities classified as available for sale, trading
account assets and liabilities, and residential mortgage loans held for sale,
the carrying values of financial instruments in the balance sheet are generally
not adjusted for appreciation or depreciation in market value resulting from
changes in interest rates.
-39-
Cash dividends on M&T's common stock of $35.1 million were paid in
1999, compared with $29.0 million and $21.2 million in 1998 and 1997,
respectively. In the third quarter of 1999 M&T's quarterly common stock dividend
rate was increased to $1.25 per share from $1.00 per share. In total, dividends
per common share increased to $4.50 in 1999 from $3.80 in 1998 and $3.20 in
1997.
The rate of internal capital generation, or net income (excluding the
after-tax effect of gains or losses from sales of bank investment securities)
less dividends paid expressed as a percentage of average total stockholders'
equity, was 13.22% in 1999, 11.86% in 1998 and 16.28% in 1997.
During 1999, 1998 and 1997, M&T repurchased an aggregate of 854,438
shares of its common stock at an aggregate cost of $379.4 million: 167,833
shares in 1999, 479,532 shares in 1998 and 207,073 shares in 1997, at a cost of
$79.8 million, $231.8 million and $67.8 million, respectively. In November 1999,
M&T announced its intent to repurchase and hold as treasury stock up to 190,465
shares of common stock for reissuance upon the possible future exercise of
outstanding stock options. As of December 31, 1999, M&T had repurchased 31,910
shares of common stock pursuant to such plan at an average cost of $465.28 per
share.
Federal regulators generally require banking institutions to maintain
"core capital" and "total capital" ratios of at least 4% and 8%, respectively,
of risk-adjusted total assets. In addition to the risk-based measures, Federal
bank regulators have also implemented a minimum "leverage" ratio guideline of 3%
of the quarterly average of total assets. Core capital includes the $319 million
carrying value of trust preferred securities. As of December 31, 1999, total
capital further included $130 million of subordinated notes issued by M&T Bank
in prior years. The capital ratios of the Company and its banking subsidiaries,
M&T Bank and M&T Bank, N.A., as of December 31, 1999 and 1998 are presented in
note 20 of Notes to Financial Statements.
YEAR 2000
The "Year 2000" problem relates to the ability of computer systems, including
those in non-information technology equipment and systems ("Computer Systems"),
to distinguish date data between the twentieth and twenty-first centuries. Over
the past several years the Company devoted resources to identify, remediate as
appropriate, and test its own Computer Systems and to monitor and test as
appropriate Computer Systems of entities doing business with or providing
services to the Company. As a result of such efforts, the Company is not aware
of any significant adverse impact resulting from the failure of Computer Systems
on which it relies to accurately process date data before or after January 1,
2000. Nevertheless, in 2000 the Company will continue to monitor its Computer
Systems and the performance of commercial and other loan customers, funds
providers, and capital market/asset management counterparties for indications of
Year 2000-related problems.
Through December 31, 1999, the Company spent approximately $8.6 million
(including approximately $3.2 million during 1999, $3.8 million in 1998 and $1.2
million in 1997) in addressing its potential Year 2000 problems. Management
believes that the Company is continuing to devote appropriate financial and
human resources to monitor its Computer Systems and the ongoing performance of
customers and others, however, it is anticipated that additional costs related
to such activities will not be significant. A majority of the Company's Year
2000-related costs were internal costs and constituted resources that would
otherwise have been reallocated within the Company. Such reallocation did not
have a material adverse impact on the
-40-
Company's financial condition or results of operations.
The preceding discussion of Year 2000 initiatives contains
forward-looking statements as to Year 2000 issues. See also the discussion of
Future Factors under the caption "Forward-Looking Statements," which are
incorporated by reference into the preceding discussion.
FOURTH QUARTER RESULTS
M&T reported net income in the fourth quarter of 1999 of $66.1 million or $8.20
of diluted earnings per common share, increases of 14% and 15%, respectively,
from $57.8 million or $7.14 per diluted share in the final quarter of 1998.
Basic earnings per share were up 14% to $8.48 in the recent quarter from $7.44
in the year-earlier quarter. Net income for the fourth quarter of 1999 expressed
as an annualized rate of return on average assets was 1.18% compared with 1.14%
in the comparable 1998 quarter. The annualized rate of return on average common
stockholders' equity in the recent quarter was 14.58%, compared with 14.20% in
1998's fourth quarter. Cash net income in the fourth quarter of 1999 rose to
$78.4 million, up 17% from $67.3 million earned in the year-earlier quarter.
Diluted cash earnings per share increased 17% to $9.73 in 1999's final quarter
from $8.31 in the comparable 1998 period. Cash return on average tangible assets
was an annualized 1.45% in the recent quarter, compared with 1.36% in the
corresponding 1998 quarter. Cash return on average tangible common equity rose
to an annualized 26.67% in the fourth quarter of 1999 from 24.57% in the
year-earlier quarter. Excluding nonrecurring expenses and amortization of
acquired intangibles, the impact of the Chase branch acquisition in the fourth
quarter of 1999 on net income was negligible.
Taxable-equivalent net interest income rose to $199 million in the
fourth quarter of 1999, an increase of $22 million or 12% from $177 million in
the comparable 1998 quarter. An 11% increase in average loans and leases
outstanding and a widening of the net interest margin were significant factors
contributing to the improvement in net interest income. Average loans and leases
for the fourth quarter of 1999 totaled $17.1 billion, up from $15.4 billion
during the year-earlier quarter. Earning assets averaged $19.8 billion in the
final quarter of 1999, an 8% increase from $18.4 billion in the corresponding
1998 quarter. Net interest margin was 3.99% in the fourth quarter of 1999, up
from 3.82% in 1998's final quarter. The yield on earning assets was 7.85% in the
recent quarter, up 8 basis points from 7.77% in the year-earlier period when
competitive pressure on interest rates charged for loans originated in 1998 had
the impact of lowering loan yields. The rate paid on interest-bearing
liabilities was 4.43% in 1999's final quarter, compared with 4.50% in the
year-earlier period. The resulting net interest spread was 3.42% in the recent
quarter, compared with 3.27% in the fourth quarter of 1998. During the third and
fourth quarters of 1999, the Federal Reserve took actions to increase the
general level of interest rates. Although not necessarily indicative of a trend
or of future results, the net interest spread in 1999's fourth quarter was below
that achieved in any other quarter of 1999.
The provision for credit losses was $14.0 million in the fourth quarter
of 1999, up from $7.5 million in the corresponding 1998 quarter. Net charge-offs
totaled $12.8 million in 1999's fourth quarter, compared with $10.7 million in
the year-earlier period. The increase in net charge-offs from the fourth quarter
of 1998 was largely due to a $5.0 million partial charge-off of a commercial
loan in the recent quarter. Net charge-offs as an annualized percentage of
average loans and leases were .30% in the final 1999 quarter, compared with .28%
in the corresponding 1998 quarter. Largely due to the impact of the third
quarter increase in fees charged for certain deposit services and higher
revenues from letter of credit and other credit-related
-41-
fees, other income increased 8% to $70.4 million in the fourth quarter of 1999
from $65.0 million in the fourth quarter of 1998. Reflecting the impact of
expenses related to the FNB and Chase branch transactions, primarily expenses
for salaries and benefits, equipment and net occupancy, and amortization of
goodwill and core deposit intangible, other expense increased 7% to $149.0
million in 1999's final quarter from $138.8 million in the corresponding 1998
period.
SEGMENT INFORMATION
In accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information," the Company'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 Commercial Banking, Commercial Real Estate,
Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.
The financial information of the Company's segments was compiled
utilizing the accounting policies described in note 19 of Notes to Financial
Statements. The management accounting policies and processes utilized in
compiling segment financial information are highly subjective and, unlike
financial accounting, are not based on authoritative guidance similar to
generally accepted accounting principles. As a result, reported segments and the
financial results of such segments are not necessarily comparable with similar
information reported by other financial institutions. Furthermore, changes in
management structure or allocation methodologies and procedures may result in
changes in reported segment financial data. Financial information about the
Company's segments is presented in note 19 of Notes to Financial Statements.
The Commercial Banking segment provides a wide range of credit products
and banking services for middle-market and large commercial customers, largely
within the markets the Company serves. Among the services provided by this
segment are commercial lending and leasing, deposit products, and cash
management services. The Commercial Banking segment's earnings rose 15% to $77.6
million in 1999 from $67.4 million in 1998. The higher net income in 1999 when
compared with 1998 resulted largely from increases of $17.8 million in net
interest income, resulting from a 17% increase in average loans outstanding, and
of $6.1 million in letter of credit and other credit-related fee income. Growth
in most markets served by the Company, as well as the full year impact of loans
acquired from ONBANCorp, contributed to the higher loan balances. Reflecting
higher net charge-offs, including charge-offs of $11.2 million related to one
commercial customer, the segment's provision for credit losses increased to
$11.3 million in 1999 from $3.0 million in 1998. Net income in 1997 was $54.3
million. Higher net interest income of $26.8 million, the result of commercial
loans obtained from ONBANCorp and loan growth in most of the markets already
served by the Company, was the leading factor contributing to the increase in
net income from 1997 to 1998.
The Commercial Real Estate segment provides credit and deposit services
to its customers. Loans are largely secured by properties in the New York City
metropolitan area and in Western New York, however, loans are also originated in
the other regions in New York State and northeastern Pennsylvania. Commercial
real estate loans may be secured by apartment/multifamily buildings, office
space, retail space, industrial space or other types of collateral. The
Commercial Real Estate segment earned $64.2 million in 1999, an increase of 12%
from $57.3 million earned a year
-42-
earlier. Higher net interest income of $12.8 million, the result of a 15%
increase in average loan balances outstanding, was the major factor for the
increase in net income. Higher loan balances were due to loan growth in
substantially all markets served by the Company and the full-year impact of
commercial real estate loans acquired from ONBANCorp. The Commercial Real Estate
segment earned $53.0 million in 1997. The impact of commercial real estate loans
added to the Company's portfolio in the ONBANCorp transaction contributed to the
growth in this segment's net income from 1997 to 1998.
The Discretionary Portfolio segment includes securities, residential
mortgage loans and other assets; short-term and long-term borrowed funds;
brokered certificates of deposit and interest rate swaps related thereto; and
offshore branch deposits. This segment also provides services to commercial
customers and consumers that include foreign exchange, securities trading and
municipal bond underwriting and sales. The Discretionary Portfolio segment
contributed net income of $38.2 million in 1999, compared with $31.7 million in
1998 and $18.5 million in 1997. A $4.9 million increase in tax-exempt income
earned from bank owned life insurance and higher net interest income from
holdings of residential mortgage loans contributed to the increase in 1999.
Partially offsetting these increases was the previously mentioned $3 million
settlement loss on foreign exchange contracts. The improvement from 1997 to 1998
was attributable to a $15.3 million rise in tax-exempt income earned from bank
owned life insurance. The April 1, 1998 ONBANCorp acquisition added
approximately $.9 billion of residential mortgage loans and $.8 billion of
investment securities to the average balance of the Company's discretionary
portfolio that also contributed to 1998's improvement.
The Residential Mortgage Banking segment originates and services
residential mortgage loans for consumers and sells substantially all of those
loans in the secondary market to investors or to banking subsidiaries of M&T.
The Company maintains mortgage loan origination offices in New York State, as
well as Arizona, Colorado, Idaho, Massachusetts, Ohio, Oregon, Pennsylvania,
Utah and Washington. The Company also periodically purchases the rights to
service residential mortgage loans. Residential mortgage loans held for sale are
included in this segment. Net income of this segment was $20.8 million in 1999,
compared with $19.5 million in 1998 and $11.0 million in 1997. A $6.2 million
decrease in noninterest expenses associated with origination and servicing
activities, partially offset by a $4.1 million decline in revenue, led to the
improved net income in this segment during 1999 as compared with 1998. The lower
expense level included a $1.7 million decrease in the valuation allowance for
capitalized servicing assets during 1999, compared with a $1.0 million addition
to such allowance in 1998. The decline in revenue was the result of a lower
volume of loans originated for sale during 1999 as compared with 1998, including
loans originated for transfer to M&T's bank subsidiaries. The increase in net
income from 1997 to 1998 was largely the result of an 81% increase in
residential mortgage loans originated and a 14% increase in loans serviced,
including loans transferred to and serviced for M&T's bank subsidiaries. A
favorable interest rate environment was the primary factor leading to the
increased origination volume in 1998.
The Retail Banking segment offers a variety of consumer and small
business services through several delivery channels which include traditional
and "in-store" banking offices, automated teller machines, telephone banking and
personal computer banking. The Company has banking offices throughout New York
State and in northeastern Pennsylvania. The Retail Banking segment also offers
certain deposit and loan products on a nationwide basis through M&T Bank, N.A.
Credit services offered by this segment include consumer installment loans,
student loans, automobile loans and leases (both directly and indirectly through
dealers), home equity loans and lines of credit, and loans and leases to small
businesses. The financial results of Retail Banking also include the $3.2
million gain that resulted from the sale of the
-43-
retail credit card business in July 1998 and the results of providing retail
credit card services to customers. The segment also offers to its customers
deposit products, including demand, savings and time accounts; investment
products, including mutual funds and annuities; and other services. The Retail
Banking segment reported net income of $111.5 million in 1999, up 11% from
$100.1 million in 1998. The impact of the acquisitions of FNB on June 1, 1999
and ONBANCorp on April 1, 1998 and increased service charges on deposit
accounts, reflecting third quarter 1999 rate increases, were the leading factors
contributing to the increase. In 1997, Retail Banking had net income of $65.7
million. The increase from 1997 to 1998 was largely the result of the April 1,
1998 acquisition of ONBANCorp and a $16.3 million decrease in the provision for
credit losses. The decrease in the provision was largely due to the July 1998
sale of the Company's retail credit card business and the 1997 and 1998
termination of all of the Company's co-branded credit card programs.
RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available for sale security, or a foreign
currency denominated forecasted transaction.
Pursuant to SFAS No. 133, the accounting for changes in the fair value
of a derivative will depend on the intended use of the derivative and the
resulting designation. An entity that elects to apply hedge accounting will be
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
SFAS No. 133 was to be effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June 1999, the FASB amended SFAS No.
133, deferring the effective date by one year. Initial application of SFAS No.
133 must be as of the beginning of an entity's fiscal quarter; on that date,
hedging relationships must be designated anew and documented pursuant to the
provisions of the statement. Early application of all of the provisions of SFAS
No. 133 is encouraged, but is permitted only as of the beginning of any fiscal
quarter that begins after issuance of the statement. SFAS No. 133 may not be
applied retroactively to financial statements of prior periods.
The manner of adoption expected to be utilized by the Company has yet
to be determined and, as a result, the estimated impact that adopting the
provisions of SFAS No. 133 will have on the Company's financial statements has
not been quantified. The Company anticipates that adoption of SFAS No. 133 could
increase the volatility of reported earnings and stockholders' equity and could
result in the modification of certain data processing systems and hedging
practices.
-44-
FORWARD-LOOKING STATEMENTS
This Financial Review and other sections of this Annual Report contain
forward-looking statements that are based on current expectations, estimates and
projections about the Company's business, management's beliefs and assumptions
made by management. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions ("Future Factors")
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Future Factors include changes in interest rates, spreads on earning
assets and interest-bearing liabilities, and interest rate sensitivity; credit
losses; sources of liquidity; legislation affecting the financial services
industry as a whole, and the Company individually; regulatory supervision and
oversight, including required capital levels; increasing price and
product/service competition by competitors, including new entrants; rapid
technological developments and changes; the ability to continue to introduce
competitive new products and services on a timely, cost-effective basis; the mix
of products/services; containing costs and expenses; governmental and public
policy changes, including environmental regulations; protection and validity of
intellectual property rights; reliance on large customers; technological,
implementation and cost/financial risks in large, multi-year contracts;
technological, implementation and financial risks associated with Year 2000
issues; the outcome of pending and future litigation and governmental
proceedings; continued availability of financing; and financial resources in the
amounts, at the times and on the terms required to support the Company's future
businesses. These are representative of the Future Factors that could affect the
outcome of the forward-looking statements. In addition, such statements could be
affected by general industry and market conditions and growth rates, general
economic conditions, including interest rate and currency exchange rate
fluctuations, and other Future Factors.
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- -------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Table 1
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
1999 1998 Change
- -------------------------------------------------------------------------------
FOR THE YEAR
PERFORMANCE
Net income (thousands) $265,626 207,974 + 28%
Return on
Average assets 1.26% 1.14%
Average common equity 15.30% 13.86%
Net interest margin 4.02% 4.01%
Net charge-offs/average loans .25% .28%
Efficiency ratio* 54.80% 56.24%
- -------------------------------------------------------------------------------
PER COMMON SHARE DATE
Basic earnings $ 34.05 27.30 + 25%
Diluted earnings 32.83 26.16 + 25%
Cash dividends 4.50 3.80 + 18%
- -------------------------------------------------------------------------------
CASH (TANGIBLE) OPERATING RESULTS**
Net income (thousands)*** $311,001 251,922 + 23%
Diluted earnings per common share*** 38.44 31.69 + 21%
Return on
Average tangible assets 1.52% 1.41%
Average tangible common equity 26.71% 23.08%
Efficiency ratio* 50.06% 52.51%
- -------------------------------------------------------------------------------
AT DECEMBER 31
- -------------------------------------------------------------------------------
BALANCE SHEET DATA (MILLIONS)
Loans and leases,
net of unearned discount $ 17,407 15,792 + 10%
Total assets 22,409 20,584 + 9%
Deposits 15,374 14,737 + 4%
Stockholders' equity 1,797 1,602 + 12%
- -------------------------------------------------------------------------------
LOAN QUALITY
Allowance for credit losses/net loans 1.82% 1.94%
Nonperforming assets ratio .65% .81%
- -------------------------------------------------------------------------------
CAPITAL
Tier 1 risk-based capital ratio 8.27% 8.40%
Total risk-based capital ratio 10.25% 10.56%
Leverage ratio 6.92% 7.02%
Common equity/total assets 8.02% 7.78%
Common equity (book value) per share $ 232.41 207.94 + 12%
Tangible common equity per share 151.40 139.89 + 8%
Market price per share:
Closing 414.25 518.94 - 20%
High 582.50 582.00
Low 406.00 400.00
- -------------------------------------------------------------------------------
*Excludes impact of nonrecurring merger-related expenses, net securities
transactions and contribution of appreciated investment securities to
affiliated, tax-exempt charitable foundation in 1998.
**Excludes amortization and balances related to goodwill and core deposit
intangible and nonrecurring merger-related expenses which, except in the
calculation of the efficiency ratio, are net of applicable income tax effects.
***Cash net income excludes the after tax impact of nonrecurring
merger-related expenses of $3.0 million of $.37 per diluted share in 1999 and
$14.0 million or $1.76 per diluted share in 1998.
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- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 2
QUARTERLY TRENDS
1999
Quarters
- -------------------------------------------------------------------------------------------------------------------
Fourth Third Second First
- -------------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
Interest income (taxable-equivalent basis) $391,792 375,021 361,158 358,370
Interest expense 192,766 179,961 171,269 175,238
- -------------------------------------------------------------------------------------------------------------------
Net interest income 199,026 195,060 189,889 183,132
Less: provision for credit losses 14,000 13,500 8,500 8,500
Other income 70,354 72,499 66,806 72,716
Less: other expense 149,047 144,898 145,547 139,466
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 106,333 109,161 102,648 107,882
Applicable income taxes 38,132 39,633 35,772 39,151
Taxable-equivalent adjustment 2,083 1,964 1,838 1,825
- -------------------------------------------------------------------------------------------------------------------
Net income $ 66,118 67,564 65,038 66,906
- -------------------------------------------------------------------------------------------------------------------
Per common share data
Basic earnings $8.48 8.57 8.35 8.65
Diluted earnings 8.20 8.29 8.00 8.34
Cash dividends $1.25 1.25 1.00 1.00
Average common shares outstanding
Basic 7,795 7,880 7,793 7,731
Diluted 8,058 8,147 8,132 8,023
- -------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS, ANNUALIZED
Return on
Average assets 1.18% 1.27% 1.27% 1.34%
Average common stockholders' equity 14.58% 14.97% 15.23% 16.56%
Net interest margin on average earning 3.99% 4.03% 4.09% 3.98%
assets (taxable-equivalent basis)
Nonperforming assets to total assets,
at end of quarter .51% .58% .56% .62%
Efficiency ratio * 55.33% 53.62% 55.72% 54.56%
- -------------------------------------------------------------------------------------------------------------------
CASH (TANGIBLE) OPERATING RESULTS **
Net income (in thousands) $78,443 79,714 76,511 76,333
Diluted net income per common share 9.73 9.78 9.41 9.51
Annualized return on
Average tangible assets 1.45% 1.54% 1.53% 1.57%
Average tangible common stockholders' equity 26.67% 26.43% 26.13% 27.66%
Efficiency ratio * 49.71% 48.91% 51.36% 50.31%
- -------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
DOLLARS IN MILLIONS, EXCEPT PER SHARE
Average balances
Total assets $22,147 21,183 20,579 20,298
Earning assets 19,806 19,184 18,636 18,664
Investment securities 1,974 2,048 2,064 2,497
Loans and leases, net of unearned discount 17,147 16,678 16,056 15,761
Deposits 15,472 14,821 14,578 14,497
Stockholders' equity 1,800 1,791 1,713 1,638
- -------------------------------------------------------------------------------------------------------------------
At end of quarter
Total assets $22,409 21,759 21,205 20,285
Earning assets 19,964 19,467 19,050 18,382
Investment securities 1,901 1,953 2,078 2,088
Loans and leases, net of unearned discount 17,407 16,984 16,513 15,813
Deposits 15,374 15,417 14,909 14,476
Stockholders' equity 1,797 1,817 1,773 1,667
Equity per common share 232.41 230.51 224.81 215.34
Tangible equity per common share 151.40 149.37 149.14 148.95
- -------------------------------------------------------------------------------------------------------------------
MARKET PRICE PER COMMON SHARE
High $512 575 582 1/2 518 3/4
Low 406 412 1/2 462 1/2 464
Closing 414 1/4 459 550 479
- -------------------------------------------------------------------------------------------------------------------
1998 Quarters
- -----------------------------------------------------------------------------------------------------------------------
Fourth Third Second First
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
Interest income (taxable-equivalent basis) 360,571 361,921 364,838 279,306
Interest expense 183,424 184,850 184,644 134,585
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 177,147 177,071 180,194 144,721
Less: provision for credit losses 7,500 10,500 13,200 12,000
Other income 64,985 63,986 65,075 68,893
Less: other expense 138,756 138,490 155,004 133,873
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 95,876 92,067 77,065 67,741
Applicable income taxes 36,064 33,693 30,587 17,245
Taxable-equivalent adjustment 1,969 1,897 1,779 1,541
- -----------------------------------------------------------------------------------------------------------------------
Net income 57,843 56,477 44,699 48,955
- -----------------------------------------------------------------------------------------------------------------------
Per common share data
Basic earnings 7.44 7.09 5.55 7.34
Diluted earnings 7.14 6.81 5.32 7.01
Cash dividends 1.00 1.00 1.00 .80
Average common shares outstanding
Basic 7,778 7,966 8,051 6,666
Diluted 8,105 8,288 8,409 6,981
- -----------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS, ANNUALIZED
Return on
Average assets 1.14% 1.15% .92% 1.41%
Average common stockholders' equity 14.20% 13.48% 10.77% 18.86%
Net interest margin on average earning 3.82% 3.93% 4.02% 4.39%
assets (taxable-equivalent basis)
Nonperforming assets to total assets,
at end of quarter .62% .67% .69% .53%
Efficiency ratio* 57.56% 56.30% 56.45% 54.29%
- -----------------------------------------------------------------------------------------------------------------------
CASH (TANGIBLE) OPERATING RESULTS**
Net income (in thousands) 67,326 67,703 65,445 51,448
Diluted net income per common share 8.31 8.17 7.78 7.37
Annualized return on
Average tangible assets 1.36% 1.42% 1.38% 1.49%
Average tangible common stockholders' equity 24.57% 23.90% 23.50% 20.13%
Efficiency ratio* 53.03% 51.78% 52.01% 53.37%
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
DOLLARS IN MILLIONS, EXCEPT PER SHARE
Average balances
Total assets 20,101 19,455 19,547 14,055
Earning assets 18,401 17,881 17,992 13,357
Investment securities 2,617 2,533 2,858 1,614
Loans and leases, net of unearned discount 15,389 15,124 14,978 11,602
Deposits 14,617 14,552 14,726 10,988
Stockholders' equity 1,616 1,662 1,664 1,053
- -----------------------------------------------------------------------------------------------------------------------
At end of quarter
Total assets 20,584 19,478 20,138 14,570
Earning assets 18,926 17,905 18,419 13,778
Investment securities 2,786 2,446 2,707 1,530
Loans and leases, net of unearned discount 15,792 15,163 15,245 12,033
Deposits 14,737 14,394 14,813 11,085
Stockholders' equity 1,602 1,649 1,659 1,069
Equity per common share 207.94 209.03 207.18 160.06
Tangible equity per common share 139.89 141.43 139.37 157.75
- -----------------------------------------------------------------------------------------------------------------------
MARKET PRICE PER COMMON SHARE
High 539 1/2 582 554 504
Low 400 410 480 429
Closing 518 15/16 461 554 499 7/8
- -----------------------------------------------------------------------------------------------------------------------
* Excludes impact of nonrecurring merger-related expenses, net securities
transactions and contribution of appreciated investment securities to
affiliated, tax-exempt charitable foundation during the quarter ended
March 31, 1998.
** Excludes amortization and balances related to goodwill and core deposit
intangible and nonrecurring merger-related expenses which, except in the
calculation of the efficiency ratio, are net of applicable income tax
effects.
-47-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 3
EARNINGS SUMMARY
DOLLARS IN MILLIONS
Increase (decrease)* Compound
1998 to 1999 1997 to 1998 growth rate
- -------------- ------------- 5 years
Amount % Amount % 1999 1998 1997 1996 1995 1994 to 1999
- -------- ---- ------- ---- -------------------------------- --------- -------- -------- -------- -------- ------------
$ 119.7 9 $ 293.3 27 Interest income** $ 1,486.3 1,366.6 1,073.3 1,004.4 935.1 15 %
31.7 5 179.4 35 Interest expense 719.2 687.5 508.1 466.4 441.7 21
- -------- ---- ------- ---- -------------------------------- --------- -------- -------- -------- -------- ------------
88.0 13 113.9 20 Net interest income** 767.1 679.1 565.2 538.0 493.4 10
Less: provision for
1.3 3 (2.8) (6) credit losses 44.5 43.2 46.0 43.3 40.4 (6)
Gain (loss) on sales of bank
(.2) - 2.1 - investment securities 1.6 1.8 (.3) - 4.5 -
19.6 8 70.4 37 Other income 280.8 261.2 190.8 167.8 142.8 18
Less:
25.3 10 39.5 18 Salaries and employee benefits 284.8 259.5 220.0 208.3 188.2 12
(12.5) (4) 104.8 52 Other expense 294.1 306.6 201.8 200.7 186.3 11
- -------- ---- ------- ---- -------------------------------- --------- -------- -------- -------- -------- ------------
93.3 28 44.9 16 Income before income taxes 426.1 332.8 287.9 253.5 225.8 16
Less:
.6 8 1.4 24 Taxable-equivalent adjustment** 7.8 7.2 5.8 4.5 4.7 14
35.1 30 11.7 11 Income taxes 152.7 117.6 105.9 97.9 90.1 15
- -------- ---- ------- ---- -------------------------------- --------- -------- -------- -------- -------- ------------
57.6 28 $ 31.8 18 Net income $ 265.6 208.0 176.2 151.1 131.0 18 %
- -------- ---- ------- ---- -------------------------------- --------- -------- -------- -------- -------- ------------
* CHANGES WERE CALCULATED FROM UNROUNDED AMOUNTS.
** 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 OF GOVERNMENT-SPONSORED AGENCIES, IS BASED ON A
COMPOSITE INCOME TAX RATE OF APPROXIMATELY 41% FOR 1999, 1998 AND 1997,
AND 42% FOR 1996 AND 1995.
-48-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 4
AVERAGE LOANS AND LEASES
(NET OF UNEARNED DISCOUNT) Percent increase
(decrease) from
--------------------------------------------------
DOLLARS IN MILLIONS 1999 1998 to 1999 1997 to 1998
- --------------------------- -------------- -------------------- --------------------
Commercial, financial, etc. $3,331 18% 25%
Real estate - commercial 5,908 18 20
Real estate - consumer 4,182 14 65
Consumer
Automobile 1,446 11 25
Home equity 805 11 12
Credit cards 10 (93) (49)
Other 733 20 73
- --------------------------- -------------- -------------------- --------------------
Total consumer 2,994 8 20
- --------------------------- -------------- -------------------- --------------------
Total $16,415 15% 30%
- --------------------------- -------------- -------------------- --------------------
-49-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 5
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
1999 1998
----------------------------------------- ----------------------
Average Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate balance Interest
- ------------------------------------------------------ --------------- ----------------------- -------- -----------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 3,331 $ 268,279 8.05% 2,831 235,628
Real estate 10,090 807,761 8.01 8,682 715,666
Consumer 2,994 249,670 8.34 2,773 249,567
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Total loans and leases, net 16,415 1,325,710 8.08 14,286 1,200,861
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Money-market assets
Interest-bearing deposits at banks 2 87 3.78 10 400
Federal funds sold and agreements
to resell securities 467 24,491 5.24 153 8,293
Trading account 48 3,221 6.71 67 4,524
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Total money-market assets 517 27,799 5.37 230 13,217
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Investment securities**
U.S. Treasury and federal agencies 920 53,108 5.77 1,448 88,030
Obligations of states and political subdivisions 74 4,660 6.28 73 4,566
Other 1,150 75,064 6.53 887 59,962
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Total investment securities 2,144 132,832 6.20 2,408 152,558
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
TOTAL EARNING ASSETS 19,076 1,486,341 7.79 16,924 1,366,636
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Allowance for credit losses (312) (302)
Cash and due from banks 464 394
Other assets 1,829 1,293
- ------------------------------------------------------ --------------- --------
Total assets $21,057 18,309
- ------------------------------------------------------ --------------- --------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 389 4,683 1.21 327 4,851
Savings deposits 5,163 121,888 2.36 4,430 115,345
Time deposits 7,074 367,889 5.20 7,022 388,185
Deposits at foreign office 254 12,016 4.73 288 14,973
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Total interest-bearing deposits 12,880 506,476 3.93 12,067 523,354
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Short-term borrowings 2,056 104,911 5.10 1,923 105,582
Long-term borrowings 1,748 107,847 6.17 835 58,567
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
TOTAL INTEREST-BEARING LIABILITIES 16,684 719,234 4.31 14,825 687,503
- ------------------------------------------------------ --------------- ----------------------- -------- -------------
Noninterest-bearing deposits 1,965 1,666
Other liabilities 672 317
- ------------------------------------------------------ --------------- --------
Total liabilities 19,321 16,808
- ------------------------------------------------------ --------------- --------
Stockholders' equity 1,736 1,501
- ------------------------------------------------------ --------------- --------
Total liabilities and stockholders' equity $21,057 18,309
- ------------------------------------------------------ --------------- --------
Net interest spread 3.48
Contribution of interest-free funds .54
- ------------------------------------------------------ ----------------------- -------------
Net interest income/margin on earning assets $ 767,107 4.02% 679,133
- ------------------------------------------------------ ----------------------- -------------
*INCLUDES NONACCRUAL LOANS.
1997
------------ -------------------------------------------------
Average Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS rate balance Interest rate
- ------------------------------------------------------ ------- ---------- ------------------ -------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. 8.32 % 2,257 190,189 8.43 %
Real estate 8.24 6,408 552,793 8.63
Consumer 9.00 2,308 213,942 9.27
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Total loans and leases, net 8.41 10,973 956,924 8.72
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Money-market assets
Interest-bearing deposits at banks 3.86 42 2,475 5.95
Federal funds sold and agreements
to resell securities 5.43 55 2,989 5.42
Trading account 6.79 26 1,937 7.27
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Total money-market assets 5.75 123 7,401 6.00
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Investment securities**
U.S. Treasury and federal agencies 6.08 1,122 70,968 6.33
Obligations of states and political subdivisions 6.29 43 2,832 6.61
Other 6.76 534 35,214 6.59
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Total investment securities 6.33 1,699 109,014 6.42
- ------------------------------------------------------ ----------- --------------- ------------- -------------
TOTAL EARNING ASSETS 8.08 12,795 1,073,339 8.39
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Allowance for credit losses (273)
Cash and due from banks 308
Other assets 479
- ------------------------------------------------------ ---------------
Total assets 13,309
- ------------------------------------------------------ ---------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts 1.48 257 3,455 1.34
Savings deposits 2.60 3,420 90,907 2.66
Time deposits 5.53 5,818 327,611 5.63
Deposits at foreign office 5.20 230 12,160 5.29
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Total interest-bearing deposits 4.34 9,725 434,133 4.46
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Short-term borrowings 5.49 812 44,341 5.46
Long-term borrowings 7.02 373 29,619 7.94
- ------------------------------------------------------ ----------- --------------- ------------- -------------
TOTAL INTEREST-BEARING LIABILITIES 4.64 10,910 508,093 4.66
- ------------------------------------------------------ ----------- --------------- ------------- -------------
Noninterest-bearing deposits 1,228
Other liabilities 218
- ------------------------------------------------------ ---------------
Total liabilities 12,356
- ------------------------------------------------------ ---------------
Stockholders' equity 953
- ------------------------------------------------------ ---------------
Total liabilities and stockholders' equity 13,309
- ------------------------------------------------------ ---------------
Net interest spread 3.44 3.73
Contribution of interest-free funds .57 .69
- ------------------------------------------------------ ----------- ------------- -------------
Net interest income/margin on earning assets 4.01 % 565,246 4.42 %
- ------------------------------------------------------ ----------- ------------- -------------
*INCLUDES NONACCRUAL LOANS.
-50-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
1996
--------------------------------------------------------
Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate
- ------------------------------------------------------ --------------- -------------------- -------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 2,031 166,170 8.18 %
Real estate 5,893 514,619 8.73
Consumer 2,190 204,831 9.35
- ------------------------------------------------------ --------------- -------------------- -------------
Total loans and leases, net 10,114 885,620 8.76
- ------------------------------------------------------ --------------- -------------------- -------------
Money-market assets
Interest-bearing deposits at banks 38 2,413 6.30
Federal funds sold and agreements
to resell securities 55 2,985 5.45
Trading account 17 1,100 6.53
- ------------------------------------------------------ --------------- -------------------- -------------
Total money-market assets 110 6,498 5.91
- ------------------------------------------------------ --------------- -------------------- -------------
Investment securities**
U.S. Treasury and federal agencies 1,200 74,023 6.17
Obligations of states and political subdivisions 41 2,678 6.57
Other 565 35,598 6.30
- ------------------------------------------------------ --------------- -------------------- -------------
Total investment securities 1,806 112,299 6.22
- ------------------------------------------------------ --------------- -------------------- -------------
TOTAL EARNING ASSETS 12,030 1,004,417 8.35
- ------------------------------------------------------ --------------- -------------------- -------------
Allowance for credit losses (269)
Cash and due from banks 334
Other assets 384
- ------------------------------------------------------ ---------------
Total assets $ 12,479
- ------------------------------------------------------ ---------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 659 9,430 1.43
Savings deposits 2,956 84,822 2.87
Time deposits 5,137 286,088 5.57
Deposits at foreign office 239 12,399 5.19
- ------------------------------------------------------ --------------- -------------------- -------------
Total interest-bearing deposits 8,991 392,739 4.37
- ------------------------------------------------------ --------------- -------------------- -------------
Short-term borrowings 1,121 59,442 5.30
Long-term borrowings 189 14,227 7.51
- ------------------------------------------------------ --------------- -------------------- -------------
TOTAL INTEREST-BEARING LIABILITIES 10,301 466,408 4.53
- ------------------------------------------------------ --------------- -------------------- -------------
Noninterest-bearing deposits 1,169
Other liabilities 146
- ------------------------------------------------------ ---------------
Total liabilities 11,616
- ------------------------------------------------------ ---------------
Stockholders' equity 863
- ------------------------------------------------------ ---------------
Total liabilities and stockholders' equity $ 12,479
- ------------------------------------------------------ ---------------
Net interest spread 3.82
Contribution of interest-free funds .65
- ------------------------------------------------------ -------------------- -------------
Net interest income/margin on earning assets 538,009 4.47 %
- ------------------------------------------------------ -------------------- -------------
1995
-------------------------------------------------------
Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate
- ------------------------------------------------------ --------------- ------------------- ------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. 1,804 155,951 8.64 %
Real estate 5,301 473,833 8.94
Consumer 1,752 169,149 9.65
- ------------------------------------------------------ --------------- ------------------- ------------
Total loans and leases, net 8,857 798,933 9.02
- ------------------------------------------------------ --------------- ------------------- ------------
Money-market assets
Interest-bearing deposits at banks 110 8,181 7.44
Federal funds sold and agreements
to resell securities 48 3,007 6.29
Trading account 20 1,339 6.82
- ------------------------------------------------------ --------------- ------------------- ------------
Total money-market assets 178 12,527 7.06
- ------------------------------------------------------ --------------- ------------------- ------------
Investment securities**
U.S. Treasury and federal agencies 1,242 74,248 5.98
Obligations of states and political subdivisions 50 3,420 6.90
Other 743 45,988 6.19
- ------------------------------------------------------ --------------- ------------------- ------------
Total investment securities 2,035 123,656 6.08
- ------------------------------------------------------ --------------- ------------------- ------------
TOTAL EARNING ASSETS 11,070 935,116 8.45
- ------------------------------------------------------ --------------- ------------------- ------------
Allowance for credit losses (254)
Cash and due from banks 326
Other assets 343
- ------------------------------------------------------ ---------------
Total assets 11,485
- ------------------------------------------------------ ---------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts 761 11,902 1.56
Savings deposits 2,922 87,612 3.00
Time deposits 4,112 239,882 5.83
Deposits at foreign office 133 6,952 5.23
- ------------------------------------------------------ --------------- ------------------- ------------
Total interest-bearing deposits 7,928 346,348 4.37
- ------------------------------------------------------ --------------- ------------------- ------------
Short-term borrowings 1,423 84,225 5.92
Long-term borrowings 146 11,157 7.64
- ------------------------------------------------------ --------------- ------------------- ------------
TOTAL INTEREST-BEARING LIABILITIES 9,497 441,730 4.65
- ------------------------------------------------------ --------------- ------------------- ------------
Noninterest-bearing deposits 1,093
Other liabilities 112
- ------------------------------------------------------ ---------------
Total liabilities 10,702
- ------------------------------------------------------ ---------------
Stockholders' equity 783
- ------------------------------------------------------ ---------------
Total liabilities and stockholders' equity 11,485
- ------------------------------------------------------ ---------------
Net interest spread 3.80
Contribution of interest-free funds .66
- ------------------------------------------------------ ------------------- ------------
Net interest income/margin on earning assets 493,386 4.46 %
- ------------------------------------------------------ ------------------- ------------
*INCLUDES NONACCRUAL LOANS.
**INCLUDES AVAILABLE FOR SALE SECURITIES AT AMORTIZED COST.
-51-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 6
COMMERCIAL REAL ESTATE LOANS
(net of unearned discount)
December 31, 1999
Percent of dollars outstanding by loan size
Out- -------------------------------------------
Dollars in millions standings $0-1 $1-5 $5-10 $10+
- ------------------------------------------------ ---------- --------- -------- ------- --------
Metropolitan New York City
Apartments/Multifamily $ 1,625.2 7 % 22 % 7 % 14 %
Office 399.4 1 3 3 5
Retail 659.9 3 10 4 3
Construction 127.0 - 1 1 1
Industrial 37.2 1 1 - -
Other 395.0 1 4 3 5
- ------------------------------------------------ --------- ----- ------ ------ -----
Total Metropolitan New York City $ 3,243.7 13 % 41 % 18 % 28 %
- ------------------------------------------------ --------- ----- ------ ------ -----
Other New York State
Apartments/Multifamily $ 309.6 4 % 6 % 2 % - %
Office 810.2 9 15 5 2
Retail 304.2 4 5 1 1
Construction 237.1 1 3 2 3
Industrial 239.6 5 4 1 -
Other 745.6 11 10 3 3
- ------------------------------------------------ --------- ----- ------ ------ -----
Total other New York State $ 2,646.3 34 % 43 % 14 % 9 %
- ------------------------------------------------ --------- ----- ------ ------ -----
Other
Apartments/Multifamily $ 203.5 4 % 17 % 5 % 7 %
Office 21.9 1 2 - -
Retail 120.0 1 6 3 9
Construction 31.4 - 2 1 2
Industrial 54.9 1 6 2 -
Other 187.5 3 13 5 10
- ------------------------------------------------ --------- ----- ------ ------ -----
Total other $ 619.2 10 % 46 % 16 % 28 %
- ------------------------------------------------ --------- ----- ------ ------ -----
Total commercial real estate loans $ 6,509.2 21 % 42 % 16 % 21 %
- ------------------------------------------------ --------- ----- ------ ------ -----
-52-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 7
AVERAGE CORE DEPOSITS
Percent increase from
Dollars in millions 1999 1998 to 1999 1997 to 1998
- ------------------------------- ------------- -------------------- ---------------------
NOW accounts $ 389 19 % 27 %
Savings deposits 5,163 17 30
Time deposits under $100,000 4,348 1 25
Noninterest-bearing deposits 1,965 18 36
- ------------------------------- ------------- -------------------- ---------------------
Total $ 11,865 11 % 29 %
- ------------------------------- ------------- -------------------- ---------------------
- ------------------------------- ------------- -------------------- ---------------------
-53-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 8
INTEREST RATE SWAPS
Year ended December 31
-----------------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------------- ----------------------------
DOLLARS IN THOUSANDS Amount Rate* Amount Rate* Amount Rate*
- --------------------------------- ----------- ---------- ------------ -------- ------------- ---------
Increase (decrease) in:
Interest income $ 12,750 .07 % $ 3,378 .02 % $ (142) --- %
Interest expense (13,350) (.08) (12,778) (.09) (14,231) (.13)
- --------------------------------- ----------- ---------- ----------- -------- ----------- ---------
Net interest income/margin $ 26,100 .14 % $ 16,156 .10 % $ 14,089 .11 %
- --------------------------------- ----------- ---------- ----------- -------- ----------- ---------
Average notional amount** $ 1,944,813 $ 2,521,426 $ 2,691,638
Rate received*** 6.69 % 6.70 % 6.68 %
Rate paid*** 5.35 % 6.06 % 6.16 %
- --------------------------------- ---------- -------- ---------
- --------------------------------- ---------- -------- ---------
* Computed as a percentage of average earning assets or interest-bearing
liabilities.
** Excludes forward-starting interest rate swaps.
*** Weighted-average rate paid or received on interest rate swaps in effect
during year.
-54-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 9
LOAN CHARGE-OFFS, PROVISION AND ALLOWANCE FOR CREDIT LOSSES
DOLLARS IN THOUSANDS 1999 1998 1997 1996 1995
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Allowance for credit losses beginning balance $ 306,347 274,656 270,466 262,344 243,332
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Charge-offs during year
Commercial, financial, agricultural, etc. 19,246 5,457 4,539 6,120 5,475
Real estate - construction - 950 - - -
Real estate - mortgage 5,241 7,210 9,910 7,389 10,750
Consumer 35,168 42,684 44,880 36,037 14,982
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Total charge-offs 59,655 56,301 59,329 49,546 31,207
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Recoveries during year
Commercial, financial, agricultural, etc. 2,244 2,783 2,609 3,671 3,967
Real estate - construction 406 - - 50 87
Real estate - mortgage 3,201 2,894 5,869 3,049 2,137
Consumer 13,486 11,210 9,041 7,573 3,678
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Total recoveries 19,337 16,887 17,519 14,343 9,869
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Net charge-offs 40,318 39,414 41,810 35,203 21,338
Provision for credit losses 44,500 43,200 46,000 43,325 40,350
Allowance for credit losses acquired during the year 5,636 27,905 - - -
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Allowance for credit losses ending balance $ 316,165 306,347 274,656 270,466 262,344
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ----------
Net charge-offs as a percent of:
Provision for credit losses 90.60 % 91.24 % 90.89 % 81.25 % 52.88 %
Average loans and leases, net of
unearned discount .25 % .28 % .38 % .35 % .24 %
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ---------
Allowance for credit losses as a
percent of loans and leases, net
of unearned discount, at year-end 1.82 % 1.94 % 2.39 % 2.52 % 2.75 %
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ---------
- ----------------------------------------------------- ----------- ------------ ------------ ---------- ---------
-55-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 10
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES TO LOAN CATEGORIES
December 31
------------------------------------------------------------
DOLLARS IN THOUSANDS 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
Commercial, financial, agricultural, etc. $ 78,019 57,744 42,816 39,556 36,793
Real estate - mortgage 92,982 91,692 70,354 73,879 75,894
Consumer 46,235 45,356 57,757 34,224 23,385
Unallocated 98,929 111,555 103,729 122,807 126,272
- -------------------------------------------------------------------------------------------------------
Total $ 316,165 306,347 274,656 270,466 262,344
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
As a percentage of gross loans
and leases outstanding
- -------------------------------------------------------------------------------------------------------
Commercial, financial, agricultural, etc. 2.11% 1.76% 1.78% 1.79% 1.83%
Real estate - mortgage 0.92 0.99 1.04 1.19 1.34
Consumer 1.45 1.53 2.47 1.30 1.10
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
-56-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 11
NONPERFORMING ASSETS
DOLLARS IN THOUSANDS
---------- ---------- ---------- ---------- ----------
December 31 1999 1998 1997 1996 1995
- ----------------------------------------- ---------- ---------- ---------- ---------- ----------
Nonaccrual loans $ 61,816 70,999 38,588 58,232 75,224
Loans past due
90 days or more 31,017 37,784 30,402 39,652 17,842
Renegotiated loans 10,353 8,262 11,660 - -
- ----------------------------------------- ---------- ---------- ---------- ---------- ----------
Total nonperforming loans 103,186 117,045 80,650 97,884 93,066
- ----------------------------------------- ---------- ---------- ---------- ---------- ----------
Real estate and other assets owned 10,000 11,129 8,413 8,523 7,295
- ----------------------------------------- ---------- ---------- ---------- ---------- ----------
Total nonperforming assets $ 113,186 128,174 89,063 106,407 100,361
- ----------------------------------------- ---------- ---------- ---------- ---------- ----------
Government guaranteed
nonperforming loans* $ 16,529 14,316 17,712 25,847 7,779
- ----------------------------------------- ---------- ---------- ---------- ---------- -----------
Nonperforming loans
to total loans and leases,
net of unearned discount .59 % .74 % .70 % .91 % .97 %
Nonperforming assets
to total net loans and leases and
real estate and other assets owned .65 % .81 % .77 % .99 % 1.05 %
- ----------------------------------------- ---------- ---------- ---------- ---------- ----------
- ----------------------------------------- ---------- ---------- ---------- ---------- ----------
* INCLUDED IN TOTAL NONPERFORMING LOANS.
-57-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 12
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT AND TIME DEPOSITS
WITH BALANCES OF $100,000 OR MORE
IN THOUSANDS December 31, 1999
- ------------------------------------------------ ----------------
Under 3 months $ 1,086,712
3 to 6 months 482,737
6 to 12 months 331,832
Over 12 months 748,633
- ------------------------------------------------ ----------------
Total $ 2,649,914
================================================ ================
-58-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 13
MATURITY DISTRIBUTION OF LOANS*
IN THOUSANDS
2001 - After
December 31, 1999 Demand 2000 2004 2004
- ---------------------------------------------- -------------- ----------------- --------------- -----------------
Commercial, financial, agricultural, etc. $ 2,280,423 440,930 569,321 252,656
Real estate - construction 95,121 328,670 93,201 7,576
- ---------------------------------------------- -------------- ----------------- --------------- -----------------
Total $ 2,375,544 769,600 662,522 260,232
- ---------------------------------------------- -------------- ----------------- --------------- -----------------
- ---------------------------------------------- -------------- ----------------- --------------- -----------------
Floating or adjustable interest rates $ 501,874 184,811
Fixed or predetermined interest rates 160,648 75,421
- ---------------------------------------------- --------------- -----------------
Total $ 662,522 260,232
- ---------------------------------------------- --------------- -----------------
- ---------------------------------------------- --------------- -----------------
*The data do not include nonaccrual loans.
-59-
--------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------
Table 14
SENSITIVITY OF NET INTEREST INCOME TO CHANGES IN INTEREST RATES
IN THOUSANDS
Calculated increase (decrease)
in projected net interest income
December 31
Changes in interest rates 1999 1998
- ------------------------------------------------------- ------------------------------------
+200 basis points $7,996 (7,668)
+100 basis points 4,476 335
- -100 basis points 4,198 5,161
- -200 basis points 2,462 4,498
- ------------------------------------------------------- ------------------------------------
- ------------------------------------------------------- ------------------------------------
-60-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 15
CONTRACTUAL REPRICING DATA
DOLLARS IN THOUSANDS BY REPRICING DATE
Three Four to One to
months twelve five After five
December 31, 1999 or less months years years Total
- -----------------------------------------------------------------------------------------------------------------------
Loans and leases, net $ 6,582,272 1,575,935 4,918,278 4,330,286 17,406,771
Money-market assets 656,369 659 - - 657,028
Investment securities 277,614 324,942 392,694 905,272 1,900,522
- -----------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 7,516,255 1,901,536 5,310,972 5,235,558 19,964,321
- -----------------------------------------------------------------------------------------------------------------------
NOW accounts 583,471 - - - 583,471
Savings deposits 5,198,681 - - - 5,198,681
Time deposits 1,900,076 2,896,537 2,225,012 66,720 7,088,345
Deposits at foreign office 242,691 - - - 242,691
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
DEPOSITS 7,924,919 2,896,537 2,225,012 66,720 13,113,188
- -----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 2,483,159 71,000 - - 2,554,159
Long-term borrowings 372 30,850 1,199,596 544,315 1,775,133
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 10,408,450 2,998,387 3,424,608 611,035 17,442,480
- -----------------------------------------------------------------------------------------------------------------------
Interest rate swaps (631,063) 580,635 427,706 (377,278) -
- -----------------------------------------------------------------------------------------------------------------------
Periodic gap $ (3,523,258) (516,216) 2,314,070 4,247,245
Cumulative gap (3,523,258) (4,039,474) (1,725,404) 2,521,841
Cumulative gap as a %
of total earning assets (17.6)% (20.2)% (8.6)% 12.6 %
-61-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 16
MATURITY AND TAXABLE-EQUIVALENT YIELD OF INVESTMENT SECURITIES
DOLLARS IN THOUSANDS
One year One to Five to Over
December 31, 1999 or less five years ten years ten years Total
- ----------------------------------------------- --------- ------------- ------------ ------------- ------------
INVESTMENT SECURITIES AVAILABLE FOR SALE*
U.S. Treasury and federal agencies
Carrying value $ 14,119 148,940 24,784 4,771 192,614
Yield 5.22 % 4.74 % 6.94 % 5.52 % 5.08 %
Mortgage-backed securities**
Government issued or guaranteed
Carrying value 40,398 112,757 86,783 305,034 544,972
Yield 6.07 % 6.23 % 6.37 % 6.00 % 6.11 %
Privately issued
Carrying value 31,235 179,734 198,813 218,234 628,016
Yield 6.05 % 6.05 % 6.04 % 6.60 % 6.24 %
Other debt securities
Carrying value - 4,253 148,662 50 152,965
Yield - 5.64 % 6.46 % 6.13 % 6.44 %
Equity securities
Carrying value - - - - 162,193
Yield - - - - 8.11 %
- ----------------------------------------------- --------- ------------ ----------- ------------ -----------
Total investment securities
available for sale
Carrying value $ 85,752 445,684 459,042 528,089 1,680,760
Yield 5.93 % 5.65 % 6.29 % 6.24 % 6.26 %
- ----------------------------------------------- --------- ------------ ----------- ------------ -----------
INVESTMENT SECURITIES HELD TO MATURITY
Obligations of states and
political subdivisions
Carrying value $ 60,036 12,987 5,111 1,055 79,189
Yield 6.30 % 6.90 % 7.14 % 9.87 % 6.50 %
Other debt securities
Carrying value - 13,427 - 1,955 15,382
Yield - 12.36 % - 7.97 % 11.80 %
- ----------------------------------------------- --------- ------------ ----------- ------------ -----------
Total investment securities
held to maturity
Carrying value $ 60,036 26,414 5,111 3,010 94,571
Yield 6.30 % 9.67 % 7.14 % 8.64 % 7.36 %
- ----------------------------------------------- --------- ------------ ----------- ------------ -----------
OTHER INVESTMENT SECURITIES - - - - 125,191
- ----------------------------------------------- --------- ------------ ----------- ------------ -----------
Total investment securities
Carrying value $ 145,788 472,098 464,153 531,099 1,900,522
Yield 6.08 % 5.87 % 6.30 % 6.25 % 5.90 %
- ----------------------------------------------- --------- ------------ ----------- ------------ -----------
- ----------------------------------------------- --------- ------------ ----------- ------------ -----------
* INVESTMENT SECURITIES AVAILABLE FOR SALE ARE PRESENTED AT ESTIMATED FAIR
VALUE. YIELDS ON SUCH SECURITIES ARE BASED ON AMORTIZED COST.
** MATURITIES ARE REFLECTED BASED UPON CONTRACTUAL PAYMENTS DUE. ACTUAL
MATURITIES ARE EXPECTED TO BE SIGNIFICANTLY SHORTER AS A RESULT OF LOAN
REPAYMENTS IN THE UNDERLYING MORTGAGE POOLS.
-62-
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Incorporated by reference to the discussion contained under the
captions "Liquidity, Market Risk, and Interest Rate Sensitivity" and
"Capital," and Table 14.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial Statements
and Supplementary Data consist of the financial statements as indexed
and presented below and table 2 "Quarterly Trends" presented in Part
II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants
Consolidated Balance Sheet -
December 31, 1999 and 1998
Consolidated Statement of Income -
Years ended December 31, 1999, 1998 and 1997
Consolidated Statement of Cash Flows -
Years ended December 31, 1999, 1998 and 1997
Consolidated Statement of Changes in Stockholders'
Equity - Years ended December 31, 1999, 1998 and 1997
Notes to Financial Statements
-63-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
M&T Bank Corporation:
We have audited the accompanying consolidated balance sheet of M&T Bank
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of M&T Bank Corporation
and subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ PRICEWATERHOUSECOOPERS LLP
Buffalo, New York
January 10, 2000
-64-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
December 31
---------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 592,755 493,792
Money-market assets
Interest-bearing deposits at banks 1,092 674
Federal funds sold and
agreements to resell securities 643,555 229,066
Trading account 641,114 173,122
------------------------------------------------------------------------------------------------
Total money-market assets 1,285,761 402,862
------------------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $1,724,713 in 1999;
$2,578,940 in 1998) 1,680,760 2,583,740
Held to maturity (market value: $92,909 in 1999;
$87,365 in 1998) 94,571 87,282
Other (market value: $125,191 in 1999;
$114,542 in 1998) 125,191 114,542
------------------------------------------------------------------------------------------------
Total investment securities 1,900,522 2,785,564
------------------------------------------------------------------------------------------------
Loans and leases 17,572,861 16,005,701
Unearned discount (166,090) (214,171)
Allowance for credit losses (316,165) (306,347)
------------------------------------------------------------------------------------------------
Loans and leases, net 17,090,606 15,485,183
------------------------------------------------------------------------------------------------
Premises and equipment 173,815 162,842
Goodwill and core deposit intangible 648,040 546,036
Accrued interest and other assets 717,616 707,612
------------------------------------------------------------------------------------------------
Total assets $ 22,409,115 20,583,891
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $ 2,260,432 2,066,814
NOW accounts 583,471 509,307
Savings deposits 5,198,681 4,830,678
Time deposits 7,088,345 7,027,083
Deposits at foreign office 242,691 303,270
------------------------------------------------------------------------------------------------
Total deposits 15,373,620 14,737,152
------------------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 1,788,858 1,746,078
Other short-term borrowings 765,301 483,898
Accrued interest and other liabilities 909,157 446,854
Long-term borrowings 1,775,133 1,567,543
------------------------------------------------------------------------------------------------
Total liabilities 20,612,069 18,981,525
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' equity Preferred stock, $1 par, 1,000,000 shares authorized,
none outstanding - -
Common stock, $5 par, 15,000,000 shares
authorized, 8,101,539 shares issued 40,508 40,508
Common stock issuable, 8,397 shares in 1999;
8,028 shares in 1998 3,937 3,752
Additional paid-in capital 458,729 480,014
Retained earnings 1,501,530 1,271,071
Accumulated other comprehensive income, net (26,047) 2,869
Treasury stock - common, at cost - 377,738 shares
in 1999; 403,769 shares in 1998 (181,611) (195,848)
------------------------------------------------------------------------------------------------
Total stockholders' equity 1,797,046 1,602,366
------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 22,409,115 20,583,891
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-65-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31
--------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Interest income Loans and leases, including fees $ 1,323,262 1,198,639 954,974
Money-market assets
Deposits at banks 87 400 2,475
Federal funds sold and agreements
to resell securities 24,491 8,293 2,989
Trading account 3,153 4,403 1,781
Investment securities
Fully taxable 118,741 139,731 99,640
Exempt from federal taxes 8,897 7,984 5,640
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 1,478,631 1,359,450 1,067,499
- -------------------------------------------------------------------------------------------------------------------------
Interest expense NOW accounts 4,683 4,851 3,455
Savings deposits 121,888 115,345 90,907
Time deposits 367,889 388,185 327,611
Deposits at foreign office 12,016 14,973 12,160
Short-term borrowings 104,911 105,582 44,341
Long-term borrowings 107,847 58,567 29,619
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 719,234 687,503 508,093
- -------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 759,397 671,947 559,406
Provision for credit losses 44,500 43,200 46,000
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 714,897 628,747 513,406
- -------------------------------------------------------------------------------------------------------------------------
Other income Mortgage banking revenues 71,819 65,646 51,547
Service charges on deposit accounts 73,612 57,357 43,377
Trust income 40,751 38,211 30,688
Merchant discount and other credit card fees 7,515 12,436 19,395
Trading account and foreign exchange gains 315 3,963 3,690
Gain (loss) on sales of bank investment securities 1,575 1,761 (280)
Other revenues from operations 86,788 83,565 42,112
- -------------------------------------------------------------------------------------------------------------------------
Total other income 282,375 262,939 190,529
- -------------------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 284,822 259,487 220,017
Equipment and net occupancy 73,131 66,553 53,299
Printing, postage and supplies 17,510 17,603 13,747
Amortization of goodwill and core
deposit intangible 49,715 34,487 7,291
Other costs of operations 153,780 187,993 127,422
- -------------------------------------------------------------------------------------------------------------------------
Total other expense 578,958 566,123 421,776
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 418,314 325,563 282,159
Income taxes 152,688 117,589 105,918
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 265,626 207,974 176,241
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
Basic $34.05 27.30 26.60
Diluted 32.83 26.16 25.26
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-66-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31
--------------------------------------
IN THOUSANDS 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from Net income $ 265,626 207,974 176,241
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 44,500 43,200 46,000
Depreciation and amortization of premises
and equipment 27,488 25,432 20,745
Amortization of capitalized servicing rights 19,773 19,650 14,366
Amortization of goodwill and core deposit intangible 49,715 34,487 7,291
Provision for deferred income taxes 1,816 (2,965) (7,331)
Asset write-downs 1,771 3,905 1,501
Net gain on sales of assets (279) (4,607) (1,002)
Net change in accrued interest receivable, payable 473 13,991 11,806
Net change in other accrued income and expense (124,772) 71,914 80,439
Net change in loans held for sale 206,448 (255,791) 4,234
Net change in trading account assets and liabilities 114,062 (120,542) 5,094
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 606,621 36,648 359,384
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from sales of investment securities
investing activities Available for sale 89,509 223,929 217,221
Other 7,224 11,906 -
Proceeds from maturities of investment securities
Available for sale 1,061,118 1,071,889 255,498
Held to maturity 55,096 91,060 89,161
Purchases of investment securities
Available for sale (165,852) (846,020) (628,168)
Held to maturity (52,793) (42,930) (54,218)
Other (15,204) (21,872) (3,936)
Net (increase) decrease in interest-bearing
deposits at banks (418) (6) 46,657
Additions to capitalized servicing rights (17,257) (16,741) (29,818)
Net increase in loans and leases (1,429,849) (1,299,195) (820,335)
Proceeds from sale of retail credit card business - 189,818 -
Capital expenditures, net (22,933) (16,785) (13,270)
Acquisitions, net of cash acquired:
Banks and bank holding companies (51,423) 20,790 -
Deposits and banking offices 529,754 - 123,043
Purchases of bank owned life insurance - (150,000) (200,000)
Other, net 19,808 (2,137) (356)
--------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 6,780 (786,294) (1,018,521)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from Net increase (decrease) in deposits (508,240) (190,445) 508,930
financing activities Net increase (decrease) in short-term borrowings 324,370 648,784 (77,931)
Proceeds from long-term borrowings 353,991 875,000 250,000
Payments on long-term borrowings (165,593) (3,136) (189)
Purchases of treasury stock (79,784) (231,779) (67,771)
Dividends paid - common (35,128) (28,977) (21,207)
Other, net 10,435 16,165 4,212
--------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (99,949) 1,085,612 596,044
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ 513,452 335,966 (63,093)
Cash and cash equivalents at beginning of year 722,858 386,892 449,985
Cash and cash equivalents at end of year $ 1,236,310 722,858 386,892
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the year $ 1,484,098 1,365,239 1,054,094
disclosure of cash Interest paid during the year 723,106 683,467 487,576
flow information Income taxes paid during the year 252,484 47,188 43,562
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental schedule Real estate acquired in settlement of loans $ 11,631 8,503 9,142
of noncash investing Acquisition of banks and bank holding companies
and financing activities Common stock issued 58,746 587,819 -
Fair value of
Assets acquired (noncash) 650,841 5,206,168 -
Liabilities assumed 540,672 4,619,715 -
Stock options - 19,424 -
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-67-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Common Additional other
Preferred Common stock paid-in Retained comprehensive
IN THOUSANDS, EXCEPT PER SHARE stock stock issuable capital earnings income, net
- ------------------------------------------------------------------------------------------------------------------------------------
1997 Balance - January 1, 1997 $ - 40,487 - 96,597 937,072 (2,485)
Comprehensive income:
Net income - - - - 176,241 -
Other comprehensive income, net of tax:
Unrealized gains on investment securities,
net of reclassification adjustment - - - - - 14,501
Purchases of treasury stock - - - - - -
Exercise of stock options - - - 6,636 - -
Common stock cash dividends -
$3.20 per share - - - - (21,207) -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 $ - 40,487 - 103,233 1,092,106 12,016
- ------------------------------------------------------------------------------------------------------------------------------------
1998 Comprehensive income:
Net income - - - - 207,974 -
Other comprehensive income, net of tax:
Unrealized losses on investment securities,
net of reclassification adjustment - - - - - (9,147)
Purchases of treasury stock - - - - - -
Acquisition of ONBANCorp:
Common stock issued - 10 - 364,427 - -
Fair value of stock options - - - 19,424 - -
Stock-based compensation plans:
Exercise of stock options - 11 - (7,114) - -
Directors' stock plan - - - 49 - -
Deferred bonus plan, net, including
dividend equivalents - - 3,752 (5) (32) -
Common stock cash dividends -
$3.80 per share - - - - (28,977) -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $ - 40,508 3,752 480,014 1,271,071 2,869
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Comprehensive income:
Net income - - - - 265,626 -
Other comprehensive income, net of tax:
Unrealized losses on investment securities,
net of reclassification adjustment - - - - - (28,916)
Purchases of treasury stock - - - - - -
Acquisition of FNB Rochester Corp.:
Common stock issued - - - (718) - -
Stock-based compensation plans:
Exercise of stock options - - - (20,558) - -
Directors' stock plan - - - 8 - -
Deferred bonus plan, net, including
dividend equivalents - - 185 (17) (39) -
Common stock cash dividends -
$4.50 per share - - - - (35,128) -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 $ - 40,508 3,937 458,729 1,501,530 (26,047)
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury
IN THOUSANDS, EXCEPT PER SHARE stock Total
- -------------------------------------------------------------- -------------------------------------
1997 Balance - January 1, 1997 (166,012) 905,659
Comprehensive income:
Net income - 176,241
Other comprehensive income, net of tax:
Unrealized gains on investment securities,
net of reclassification adjustment - 14,501
-------
190,742
Purchases of treasury stock (67,771) (67,771)
Exercise of stock options 16,207 22,843
Common stock cash dividends -
$3.20 per share - (21,207)
- -------------------------------------------------------------- -----------------------------------
Balance - December 31, 1997 (217,576) 1,030,266
- -------------------------------------------------------------- -----------------------------------
1998 Comprehensive income:
Net income - 207,974
Other comprehensive income, net of tax:
Unrealized losses on investment securities,
net of reclassification adjustment - (9,147)
--------
198,827
Purchases of treasury stock (231,779) (231,779)
Acquisition of ONBANCorp:
Common stock issued 223,382 587,819
Fair value of stock options - 19,424
Stock-based compensation plans:
Exercise of stock options 29,788 22,685
Directors' stock plan 177 226
Deferred bonus plan, net, including
dividend equivalents 160 3,875
Common stock cash dividends -
$3.80 per share - (28,977)
- -------------------------------------------------------------- -----------------------------------
Balance - December 31, 1998 (195,848) 1,602,366
- -------------------------------------------------------------- -----------------------------------
1999 Comprehensive income:
Net income - 265,626
Other comprehensive income, net of tax:
Unrealized losses on investment securities,
net of reclassification adjustment - (28,916)
-------
236,710
Purchases of treasury stock (79,784) (79,784)
Acquisition of FNB Rochester Corp.:
Common stock issued 59,464 58,746
Stock-based compensation plans:
Exercise of stock options 33,791 13,233
Directors' stock plan 300 308
Deferred bonus plan, net, including
dividend equivalents 466 595
Common stock cash dividends -
$4.50 per share - (35,128)
- -------------------------------------------------------------- -----------------------------------
Balance - December 31, 1999 (181,611) 1,797,046
- -------------------------------------------------------------- -----------------------------------
See accompanying notes to financial statements.
-68-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES
M&T Bank Corporation ("M&T") is a bank holding company headquartered in Buffalo,
New York. Through subsidiaries, M&T provides individuals, corporations and other
businesses, and institutions with commercial and retail banking services,
including loans and deposits, trust, mortgage banking, asset management and
other financial services. Banking activities are largely focused on consumers
residing in New York State and northeastern Pennsylvania and on small and
medium-size businesses based in those areas. Certain subsidiaries also conduct
activities in other states.
The accounting and reporting policies of M&T and subsidiaries ("the
Company") conform to generally accepted accounting principles and to general
practices within the banking industry. Certain reclassifications have been made
to the 1998 and 1997 financial statements to conform with 1999 financial
statement presentation. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The more significant accounting policies are as follows:
Consolidation
The consolidated financial statements include M&T and all of its subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The financial statements of M&T included in note 21 report
investments in subsidiaries under the equity method.
Consolidated Statement of Cash Flows
For purposes of this statement, cash and due from banks, Federal funds sold and
agreements to resell securities are considered cash and cash equivalents.
Trading account
Financial instruments used for trading purposes are stated at fair value.
Realized gains and losses and unrealized changes in fair value of financial
instruments utilized in trading activities are included in trading account and
foreign exchange gains in the consolidated statement of income.
Investment securities
Investments in debt securities are classified as held to maturity and stated at
amortized cost when management has the positive intent and ability to hold such
securities to maturity. Investments in other debt securities and equity
securities having readily determinable fair values are classified as available
for sale and stated at estimated fair value. Unrealized gains or losses related
to investment securities available for sale are reflected in
-69-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investment securities, continued
accumulated other comprehensive income, net of applicable income taxes.
Other securities are stated at cost and include stock of the Federal
Reserve Bank of New York and the Federal Home Loan Bank of New York.
Amortization of premiums and accretion of discounts for investment
securities available for sale and held to maturity are included in interest
income. The cost basis of individual securities is written down to estimated
fair value through a charge to earnings when declines in value below amortized
cost are considered to be other than temporary. Realized gains and losses on the
sales of investment securities are determined using the specific identification
method.
Loans
Interest income on loans is accrued on a level yield method. Loans are placed on
nonaccrual status and previously accrued interest thereon is charged against
income when principal or interest is delinquent 90 days, unless management
determines that the loan status clearly warrants other treatment. Loan balances
are charged off when it becomes evident that such balances are not fully
collectible. Loan fees and certain direct loan origination costs are deferred
and recognized as an interest yield adjustment over the life of the loan. Net
deferred fees have been included in unearned discount as a reduction of loans
outstanding. Loans held for sale are carried at the lower of aggregate cost or
fair market value. Valuation adjustments made on these loans are included in
mortgage banking revenues.
Except for consumer and residential mortgage loans that are considered
smaller balance homogenous loans and are evaluated collectively, the Company
considers a loan to be impaired when, based on current information and events,
it is probable that the Company will be unable to collect all amounts according
to the contractual terms of the loan agreement or the loan is delinquent 90
days. Impaired loans are classified as either nonaccrual or as loans
renegotiated at below market rates. Loans less than 90 days delinquent are
deemed to have a minimum delay in payment and are generally not considered
impaired. Impairment of a loan is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's observable market price, or the fair value of collateral if the loan is
collateral dependent. Interest received on impaired loans placed on nonaccrual
status is applied to reduce the carrying value of the loan or, if principal is
considered fully collectible, recognized as interest income.
-70-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Allowance for credit losses
The allowance for credit losses represents the amount which, in management's
judgment, will be adequate to absorb credit losses inherent in the loan and
lease portfolio as of the balance sheet date. The adequacy of 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, any delinquency in payments, and the value of any
collateral.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed principally using the straight-line method over
the estimated useful lives of the assets.
Capitalized servicing rights
Servicing rights retained in a sale or securitization of financial assets are
measured at the date of transfer by allocating the previous carrying amount
between the assets transferred and the servicing rights based on their relative
fair values. Servicing assets purchased or servicing liabilities assumed are
initially measured at fair value. Capitalized servicing assets are included in
other assets and amortized in proportion to and over the period of estimated net
servicing income.
To estimate the fair value of servicing rights, the Company considers
market prices for similar assets and the present value of expected future cash
flows associated with the servicing rights calculated using assumptions that
market participants would use in estimating future servicing income and expense.
Such assumptions include estimates of the cost of servicing loans, loan default
rates, an appropriate discount rate, and prepayment speeds. For purposes of
evaluating and measuring impairment of capitalized servicing rights, the Company
stratifies such assets based on predominant risk characteristics of underlying
financial instruments that are expected to have the most impact on projected
prepayments, cost of servicing and other factors affecting future cash flows
associated with the servicing rights. Such factors may include financial asset
or loan type, note rate and term. The amount of impairment recognized is the
amount by which the carrying value of the capitalized servicing rights for a
stratum exceeds estimated fair value. Impairment is recognized through a
valuation allowance.
Goodwill and core deposit intangible
The excess of the cost of acquired entities or operations over the fair value of
identifiable assets acquired less liabilities assumed is recorded as goodwill.
Substantially all of the Company's goodwill is being amortized
-71-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Goodwill and core deposit intangible, continued
using the straight-line method over twenty years. Core deposit intangibles are
amortized using an accelerated method over estimated useful lives of seven to
ten years. The Company periodically assesses whether events or changes in
circumstances indicate that the carrying amounts of goodwill and core deposit
intangible may be impaired. Impairment is measured using estimates of future
cash flows or earnings potential of the operations acquired.
Stock-based compensation
Compensation expense is not recognized for stock option awards to employees
under the Company's stock option plan since the exercise price of options is
equal to the market price of the underlying stock at the date of grant.
Compensation expense for stock appreciation rights issued separately from stock
options is recognized based upon changes in the quoted market value of M&T's
common stock. The pro forma effects of stock-based compensation arrangements are
based on the estimated grant date fair value of stock options that are expected
to vest calculated pursuant to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Pro forma compensation expense, net of applicable income tax
effect, is recognized over the vesting period.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax effects
attributable to differences between the financial statement value of existing
assets and liabilities and their respective tax bases and carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates and
laws. Investment tax credits related to leveraged leasing property are amortized
into income tax expense over the life of the lease agreement.
Financial futures
Outstanding financial futures contracts represent future commitments and are not
included in the consolidated balance sheet. Futures contracts used in trading
activities are marked to market and the resulting gains or losses are recognized
in trading account and foreign exchange gains. On occasion the Company uses
interest rate futures contracts as part of its management of interest rate risk.
Gains and losses on futures contracts designated as hedges are amortized as an
adjustment to interest income or expense over the life of the item hedged.
Interest rate swap agreements
For interest rate swap agreements used to manage interest rate risk arising
-72-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Interest rate swap agreements, continued
from financial assets and liabilities, amounts receivable or payable are
recognized as accrued under the terms of the agreement and the net interest
differential, including any amortization of premiums paid or accretion of
discounts received, is recorded as an adjustment to interest income or expense
of the related asset or liability. To qualify for such accounting treatment, an
interest rate swap must (i) be designated as having been entered into for
interest rate risk management purposes and linked to a specific financial
instrument or pool of similar financial instruments in the Company's
consolidated balance sheet and (ii) have interest rate and repricing
characteristics that have a sufficient degree of correlation with the
corresponding characteristics of the designated on-balance sheet financial
instrument. Gains or losses resulting from early termination of interest rate
swap agreements used to manage interest rate risk are amortized over the shorter
of the remaining term or estimated life of the agreement or the on-balance sheet
financial instrument to which the swap had been linked. Agreements that do not
satisfy the requirements noted above, including those entered into for trading
purposes, are marked to market with resulting gains or losses recorded in
trading account and foreign exchange gains.
Earnings per common share
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding and common shares issuable under deferred compensation arrangements
during the period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in earnings. Proceeds assumed to have been received on
such exercise or conversion are assumed to be used to purchase shares of M&T
common stock at the average market price during the period, as required by the
"treasury stock method" of accounting.
Treasury stock
Repurchases of shares of M&T common stock are recorded at cost as a reduction of
stockholders' equity. Reissuances of shares of treasury stock are recorded at
average cost.
2. ACQUISITIONS
On September 24, 1999, Manufacturers and Traders Trust Company ("M&T Bank"),
M&T's principal banking subsidiary, acquired 29 upstate New York branches from
The Chase Manhattan Bank ("Chase") in a cash transaction. The branches had
approximately $634 million of deposits and approximately $44 million of
-73-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS, CONTINUED
retail installment and commercial loans at the closing. In addition, on
September 30, 1999 M&T Bank received from Chase investment management and
custody accounts having assets of approximately $286 million. Chase also agreed
to transfer up to approximately $195 million of other trust and fiduciary
account assets to M&T Bank following the receipt of required court approvals. It
is expected that this portion of the transaction will be completed in the first
quarter of 2000. In connection with the transaction, the Company recorded
approximately $55 million of intangible assets that are being amortized over
periods ranging from five to seven years.
On June 1, 1999, M&T consummated the merger of FNB Rochester
Corp.("FNB"), a bank holding company headquartered in Rochester, New York, with
and into Olympia Financial Corp. ("Olympia"), a wholly owned subsidiary of M&T.
Following the merger with FNB, First National Bank of Rochester, a wholly owned
subsidiary of FNB, was merged into M&T Bank. In accordance with the terms of the
merger agreements with FNB, M&T paid $76.3 million in cash and issued 122,516
shares of M&T common stock in exchange for FNB shares outstanding at the time of
the acquisition. The purchase price of the transaction was approximately $135
million based on the cash paid to FNB stockholders and the market price of M&T
common shares on December 8, 1998 before the terms of the merger were agreed to
and announced by M&T and FNB. Acquired assets, loans and deposits of FNB on June
1, 1999 totaled approximately $676 million, $393 million and $511 million,
respectively. The transaction was accounted for as a purchase and, accordingly,
operations acquired from FNB have been included in the Company's financial
results since the acquisition date. In connection with the acquisition, the
Company recorded approximately $86 million of goodwill and $12 million of core
deposit intangible. The goodwill is being amortized over twenty years using the
straight-line method and the core deposit intangible is being amortized over
eight years using an accelerated method.
On April 1, 1998, M&T consummated the merger of ONBANCorp, Inc.
("ONBANCorp") with and into Olympia. Following the merger, OnBank & Trust Co.,
Syracuse, New York, and Franklin First Savings Bank, Wilkes-Barre, Pennsylvania,
both wholly owned subsidiaries of ONBANCorp, were merged with and into M&T Bank.
After application of the election, allocation and proration procedures contained
in the merger agreement with ONBANCorp, M&T paid $266.3 million in cash and
issued 1,429,998 shares of common stock in exchange for the ONBANCorp common
shares outstanding at the time of acquisition. In addition, based on the merger
agreement and the exchange ratio provided for therein, M&T converted outstanding
and unexercised stock options granted by ONBANCorp into options to purchase
61,772 shares of M&T common stock. The purchase price of the transaction was
approximately $873 million based on the cash paid to ONBANCorp stockholders, the
market price of M&T common shares on October 28, 1997 before the terms of the
merger were agreed to and announced by M&T and ONBANCorp, and the estimated fair
value of ONBANCorp stock options converted into M&T stock options.
-74-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS, CONTINUED
Acquired assets, loans and deposits of ONBANCorp on April 1, 1998
totaled approximately $5.5 billion, $3.0 billion and $3.8 billion, respectively.
The transaction was accounted for as a purchase and, accordingly, operations
acquired from ONBANCorp have been included in the Company's financial results
since the acquisition date. In connection with the acquisition, the Company
recorded approximately $501 million of goodwill and $61 million of core deposit
intangible. The goodwill is being amortized over twenty years using the
straight-line method and the core deposit intangible is being amortized over ten
years using an accelerated method.
In connection with the transactions described above, the Company
incurred expenses related to systems conversions and other costs of integrating
and conforming the acquired operations with and into the Company of
approximately $4.7 million ($3.0 million net of applicable income taxes) during
1999 and approximately $21.3 million ($14.0 million net of applicable income
taxes) during 1998. Expenses related to systems conversions and other costs of
integration are included in the consolidated statement of income for the years
ended December 31, 1999 and 1998 as follows:
1999 1998
---- ----
(in thousands)
Salaries and employee benefits $ 188 2,141
Equipment and net occupancy 149 875
Printing, postage and supplies 685 1,079
Other costs of operations 3,654 17,250
------- ------
$ 4,676 21,345
------- ------
------- ------
The expenses noted above consisted largely of professional services and
other temporary help fees associated with the conversion of systems and/or
integration of operations; recruiting and other incentive compensation; initial
marketing and promotion expenses to introduce the Company to customers of the
acquired operations; and printing, supplies and other costs. Since the systems
conversions and integration of operations is complete, the Company does not
expect to incur additional integration costs.
Presented below is certain unaudited pro forma information as if FNB
and ONBANCorp had been acquired on January 1, 1998. These results combine the
historical results of FNB and ONBANCorp into the Company's consolidated
statement of income and, while certain adjustments were made for the estimated
impact of purchase accounting adjustments and other acquisition-related
activity, they are not necessarily indicative of what would have occurred had
the acquisitions taken place at that time. In particular, expenses related to
systems conversions and other costs of integration associated with the
acquisition of FNB are included in the 1999 periods in which such costs were
incurred and, additionally, the Company expects to achieve further operating
cost savings as a result of the mergers which are
-75-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS, CONTINUED
not reflected in the pro forma amounts presented below:
Pro forma
Year ended December 31
1999 1998
---- ----
(in thousands, except per share)
--------------------------------
Interest income $1,495,877 1,480,391
Other income 285,052 274,337
Net income 265,455 200,328
Diluted earnings per common share 32.61 23.76
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities were as
follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(in thousands)
December 31, 1999
Investment securities
available for sale:
U.S. Treasury and
federal agencies $ 202,283 - 9,669 192,614
Mortgage-backed securities
Government issued
or guaranteed 557,058 860 12,946 544,972
Privately issued 640,368 6,123 18,475 628,016
Other debt securities 155,805 606 3,446 152,965
Equity securities 169,199 464 7,470 162,193
---------- ----- ------ ---------
1,724,713 8,053 52,006 1,680,760
---------- ----- ------ ---------
Investment securities held to maturity:
Obligations of states and
political subdivisions 79,189 - 361 78,828
Other debt securities 15,382 - 1,301 14,081
---------- ----- ------ ---------
94,571 - 1,662 92,909
---------- ----- ------ ---------
Other securities 125,191 - - 125,191
---------- ----- ------ ---------
Total $1,944,475 8,053 53,668 1,898,860
---------- ----- ------ ---------
---------- ----- ------ ---------
-76-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES, CONTINUED
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(in thousands)
December 31, 1998
Investment securities
available for sale:
U.S. Treasury and
federal agencies $ 452,524 - 831 451,693
Mortgage-backed securities
Government issued
or guaranteed 867,065 8,121 5,879 869,307
Privately issued 952,298 3,445 1,620 954,123
Other debt securities 162,748 1,183 4,587 159,344
Equity securities 144,305 4,992 24 149,273
--------- ------ ------ ---------
2,578,940 17,741 12,941 2,583,740
--------- ------ ------ ---------
Investment securities held to maturity:
Obligations of states and
political subdivisions 73,789 811 - 74,600
Other debt securities 13,493 - 728 12,765
--------- ------ ------ ---------
87,282 811 728 87,365
--------- ------ ------ ---------
Other securities 114,542 - - 114,542
--------- ------ ------ ---------
Total $2,780,764 18,552 13,669 2,785,647
--------- ------ ------ ---------
--------- ------ ------ ---------
No investment in securities of a single non-U.S. Government or
government agency issuer exceeded ten percent of stockholders' equity at
December 31, 1999.
As of December 31, 1999, the latest available investment ratings of all
privately issued mortgage-backed securities were A or better.
The amortized cost and estimated fair value of collateralized mortgage
obligations included in mortgage-backed securities were as follows:
December 31
1999 1998
---- ----
(in thousands)
Amortized cost $ 792,331 1,265,588
Estimated fair value 772,819 1,265,487
--------- ---------
--------- ---------
Gross realized gains on the sale of investment securities were
$1,626,000 in 1999, $1,808,000 in 1998 and $1,179,000 in 1997. Gross realized
losses on the sale of investment securities were $51,000 in 1999, $47,000 in
1998 and $1,459,000 in 1997.
-77-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES, CONTINUED
At December 31, 1999, the amortized cost and estimated fair
value of debt securities by contractual maturity were as follows:
Estimated
Amortized fair
Cost Value
--------- ---------
(in thousands)
Debt securities available for sale:
Due in one year or less $ 14,162 14,119
Due after one year through five years 161,129 153,193
Due after five years through ten years 177,831 173,446
Due after ten years 4,966 4,821
--------- ---------
358,088 345,579
Mortgage-backed securities available
for sale 1,197,426 1,172,988
--------- ---------
$1,555,514 1,518,567
========= =========
Debt securities held to maturity:
Due in one year or less $ 60,036 59,906
Due after one year through five years 26,414 25,096
Due after five years through ten years 5,111 4,926
Due after ten years 3,010 2,981
--------- ---------
$ 94,571 92,909
========= =========
At December 31, 1999, investment securities with a carrying value of
$601,366,000, including $541,438,000 of investment securities available for
sale, were pledged to secure demand notes issued to the U.S. Treasury,
borrowings from the Federal Home Loan Bank of New York and the Federal Home Loan
Bank of Pittsburgh (together, the "Federal Home Loan Banks"), repurchase
agreements, governmental deposits and interest rate swap agreements.
-78-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. LOANS AND LEASES
Total gross loans and leases outstanding were comprised of the following:
December 31
1999 1998
--------- ---------
(in thousands)
Loans
Commercial, financial,
agricultural, etc. $ 3,564,470 3,101,016
Real estate:
Residential 4,011,436 4,163,818
Commercial 6,141,469 5,125,703
Construction 525,241 489,112
Consumer 2,797,537 2,569,726
---------- ----------
Total loans 17,040,153 15,449,375
---------- ----------
Leases
Commercial 132,588 110,411
Consumer 400,120 445,915
---------- ----------
Total leases 532,708 556,326
---------- ----------
Total loans and leases $17,572,861 16,005,701
========== ==========
One-to-four family residential mortgage loans held for sale were $238.7
million at December 31, 1999 and $445.1 million at December 31, 1998. One-
to-four family residential mortgage loans serviced for others totaled
approximately $7.2 billion and $7.3 billion at December 31, 1999 and 1998,
respectively. As of December 31, 1999, approximately $23 million of one-to-four
family residential mortgage loans serviced for others have been sold with
recourse. The total credit loss exposure resulting from residential mortgage
loans sold with recourse was considered negligible.
Included in the preceding table are nonperforming loans (loans on which
interest was not being accrued, or which were ninety days or more past due or
had been renegotiated at below-market interest rates) of $103,186,000 at
December 31, 1999 and $117,045,000 at December 31, 1998. If nonaccrual and
renegotiated loans had been accruing interest at their originally contracted
terms, interest income on these loans would have amounted to $8,998,000 in 1999
and $7,806,000 in 1998. The actual amount included in interest income during
1999 and 1998 on these loans was $1,589,000 and $2,367,000, respectively.
The recorded investment in loans considered impaired was $45,124,000
and $47,248,000 at December 31, 1999 and 1998, respectively. The recorded
investment in loans for which there was a related valuation allowance for
impairment included in the allowance for credit losses and the amount of such
impairment allowance were $24,536,000 and $6,005,000, respectively, at
December 31, 1999 and $20,470,000 and $6,758,000, respectively, at December
31, 1998. The recorded investment in loans considered impaired for which
there was no related valuation allowance for
-79-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. LOANS AND LEASES, CONTINUED
impairment was $20,588,000 and $26,778,000 at December 31, 1999 and 1998,
respectively. The average recorded investment in impaired loans during 1999,
1998 and 1997 was $43,858,000, $42,485,000 and $37,732,000, respectively.
Interest income recognized on impaired loans totaled $3,324,000, $2,351,000 and
$2,051,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
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 $124,185,000 and $22,115,000 at December 31, 1999
and 1998, respectively. During 1999, new borrowings by such persons amounted to
$104,715,000 (including borrowings of new directors or officers that were
outstanding at the time of their election) and repayments and other reductions
were $2,645,000.
At December 31, 1999, approximately $2.9 billion of commercial mortgage
loans and one-to-four family residential mortgage loans were pledged to secure
outstanding borrowings.
5. ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
Year ended December 31
1999 1998 1997
---- ---- ----
(in thousands)
Beginning balance $306,347 274,656 270,466
Provision for credit losses 44,500 43,200 46,000
Allowance obtained
through acquisitions 5,636 27,905 -
Net charge-offs
Charge-offs (59,655) (56,301) (59,329)
Recoveries 19,337 16,887 17,519
------- ------- -------
Net charge-offs (40,318) (39,414) (41,810)
------- ------- -------
Ending balance $316,165 306,347 274,656
======= ======= =======
-80-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. PREMISES AND EQUIPMENT
The detail of premises and equipment was as follows:
December 31
1999 1998
---- ----
(in thousands)
Land $ 16,649 15,467
Buildings-owned 126,670 118,132
Buildings-capital leases 1,773 1,773
Leasehold improvements 44,639 39,800
Furniture and equipment-owned 171,158 152,301
Furniture and equipment-capital leases 1,156 429
------- -------
362,045 327,902
Less: accumulated depreciation
and amortization
Owned assets 186,137 163,074
Capital leases 2,093 1,986
------- -------
188,230 165,060
------- -------
Premises and equipment, net $173,815 162,842
======= =======
Net lease expense for all operating leases totaled $24,168,000 in 1999,
$20,607,000 in 1998 and $16,983,000 in 1997. The Company occupies certain
banking offices and uses certain equipment under noncancellable operating lease
agreements expiring at various dates over the next 21 years. Minimum lease
payments under noncancellable operating leases are summarized as follows:
Year ending December 31: (in thousands)
2000 $ 15,567
2001 14,516
2002 12,009
2003 11,101
2004 10,226
Later years 54,962
--------
Total minimum lease payments $118,381
--------
--------
Payments required under capital leases are not material.
-81-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. CAPITALIZED SERVICING ASSETS
Changes in capitalized servicing assets were as follows:
Year ended December 31
1999 1998 1997
-------- ------- -------
(in thousands)
Beginning balance $ 63,995 61,877 38,890
Originations 17,240 12,276 7,819
Purchases 1,089 16,014 26,262
Amortization (19,773) (19,650) (14,366)
Sales (1,649) (6,522) -
Write-downs - - (802)
Reclassification of
excess servicing
receivables - - 4,074
-------- ------- -------
60,902 63,995 61,877
Valuation allowance (50) (1,798) (798)
-------- ------- -------
Ending balance, net $ 60,852 62,197 61,079
======== ======= =======
As a result of impairment of certain strata of capitalized servicing
assets, additions to the valuation allowance totaling $1,000,000 and $500,000
were recorded during 1998 and 1997, respectively. During 1999, the valuation
allowance was reduced by $1,748,000 since for most strata the estimated fair
value of capitalized servicing assets exceeded carrying value. During 1997, the
valuation allowance was reduced by $802,000 to reflect the write-down of the
recorded value of certain capitalized servicing assets related to loans that had
been repaid by borrowers. The estimated fair value of capitalized servicing
assets was approximately $107 million at December 31, 1999 and $80 million at
December 31, 1998. Such amounts were estimated using discounted cash flows that
reflect current prepayment and discount rate assumptions as of each year-end.
The Company adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," on January 1,
1997. Among other things, SFAS No. 125 required that for each servicing contract
in existence before January 1, 1997 previously recognized servicing rights and
excess servicing receivables that did not exceed contractually specified
servicing fees be combined. The carrying value of such excess servicing
receivables at January 1, 1997 was $4,074,000. Retroactive application of the
provisions of SFAS No. 125 to years prior to 1997 was not permitted.
-82-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS
The amounts and interest rates of short-term borrowings were as follows:
Federal funds
purchased and Other
repurchase short-term
Agreements Borrowings Total
---------- ---------- -----
(dollars in thousands)
At December 31, 1999
Amount outstanding $1,788,858 765,301 2,554,159
Weighted-average
interest rate 5.29% 5.36% 5.31%
For the year ended
December 31, 1999
Highest amount
at a month-end $1,809,403 765,301
Daily-average
amount outstanding 1,609,964 446,623 2,056,587
Weighted-average
interest rate 5.09% 5.15% 5.10%
========== ========== =========
At December 31, 1998
Amount outstanding $1,746,078 483,898 2,229,976
Weighted-average
interest rate 5.41% 5.55% 5.44%
For the year ended
December 31, 1998
Highest amount
at a month-end $2,177,388 509,457
Daily-average
amount outstanding 1,616,431 307,016 1,923,447
Weighted-average
interest rate 5.48% 5.56% 5.49%
========== ========== =========
At December 31, 1997
Amount outstanding $ 930,775 120,143 1,050,918
Weighted-average
interest rate 6.51% 5.41% 6.38%
For the year ended
December 31, 1997
Highest amount
at a month-end $ 930,775 344,363
Daily-average
amount outstanding 611,689 200,324 812,013
Weighted-average
interest rate 5.43% 5.55% 5.46%
========== ========== =========
-83-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS, CONTINUED
In general, Federal funds purchased and repurchase agreements
outstanding at December 31, 1999 mature within three days following year-end.
Other short-term borrowings included borrowings from the Federal Home Loan
Banks, the U.S. Treasury and others having original maturities of one year or
less.
At December 31, 1999, the Company had lines of credit under formal
agreements as follows:
M&T M&T
M&T Bank Bank, N.A.
--- ---- ----------
(in thousands)
Outstanding borrowings $29,000 1,836,549 -
Unused 1,000 4,092,714 367,088
======= ========= =======
M&T has a revolving credit agreement with an unaffiliated commercial
bank whereby M&T may borrow up to $30,000,000 at its discretion through November
17, 2000. At December 31, 1999, M&T Bank had borrowing facilities available with
the Federal Home Loan Banks whereby M&T Bank could borrow up to $2,273,436,000.
Additionally, M&T Bank and M&T Bank, National Association ("M&T Bank, N.A."), a
wholly owned subsidiary of M&T, had available lines of credit with the Federal
Reserve Bank of New York totaling approximately $4 billion, under which there
were no borrowings outstanding at December 31, 1999 or 1998. M&T Bank and M&T
Bank, N.A. are required to pledge loans or investment securities as collateral
for these borrowing facilities.
Long-term borrowings were as follows:
December 31
1999 1998
--------- -------
(in thousands)
Subordinated notes of
M&T Bank:
8 1/8% due 2002 $ 75,000 75,000
7% due 2005 100,000 100,000
Advances from Federal Home
Loan Banks:
- Variable rates 1,175,000 825,000
- Fixed rates 90,549 231,094
Preferred capital securities:
M&T Capital Trust I - 8.234% 150,000 150,000
M&T Capital Trust II - 8.277% 100,000 100,000
M&T Capital Trust III - 9.25% 68,803 69,128
Other 15,781 17,321
--------- ---------
$1,775,133 1,567,543
========= =========
-84-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS, CONTINUED
The subordinated notes of M&T Bank are unsecured and are subordinate to
the claims of depositors and other creditors of M&T Bank. Long-term variable
rate advances from the Federal Home Loan Banks had contractual rates that ranged
from 6.00% to 6.25% at December 31, 1999 and from 5.19% to 5.44% at December 31,
1998. The weighted-average contractual interest rates were 6.13% and 5.29% at
December 31, 1999 and 1998, respectively. Long-term fixed-rate advances from the
Federal Home Loan Banks had contractual rates of interest ranging from 4.05% to
8.45% at December 31, 1999 and 1998. The weighted-average contractual interest
rates payable were 5.93% and 6.23% at December 31, 1999 and 1998, respectively.
Advances from the Federal Home Loan Banks mature at various dates through 2006
and are secured by residential and commercial real estate loans.
In December 1999, the names of First Empire Capital Trust I, First
Empire Capital Trust II and OnBank Capital Trust I were changed to M&T Capital
Trust I, M&T Capital Trust II and M&T Capital Trust III, respectively. In
January 1997, M&T Capital Trust I ("Trust I") issued $150 million of 8.234%
preferred capital securities. In June 1997, M&T Capital Trust II ("Trust II")
issued $100 million of 8.277% preferred capital securities. In February 1997,
M&T Capital Trust III ("Trust III" and, together with Trust I and Trust II, the
"Trusts"), a business trust organized by ONBANCorp prior to its acquisition by
M&T, issued $60 million of 9.25% preferred capital securities. Including the
unamortized portion of a purchase accounting adjustment to reflect estimated
fair value at the April 1, 1998 acquisition of ONBANCorp, the preferred capital
securities of Trust III had a financial statement carrying value of
approximately $69 million at December 31, 1999 and 1998.
Other than the following payment terms (and the redemption terms
described below), the preferred capital securities issued by the Trusts
("Capital Securities") are identical in all material respects:
Distribution Distribution
Trust Rate Dates
----- ---- -----
Trust I 8.234% February 1 and August 1
Trust II 8.277% June 1 and December 1
Trust III 9.25% February 1 and August 1
The common securities of Trust I and II are wholly owned by M&T and the
common securities of Trust III are wholly owned by Olympia. The common
securities of each trust ("Common Securities") are the only class of each
trust's securities possessing general voting powers. The Capital Securities
represent preferred undivided interests in the assets of the corresponding trust
and are classified in the Company's consolidated balance sheet as long-term
borrowings with accumulated distributions on such securities included in
-85-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS, CONTINUED
interest expense. Under the Federal Reserve Board's current risk-based capital
guidelines, the Capital Securities are includable in M&T's Tier 1 capital.
The proceeds from the issuances of the Capital Securities and Common
Securities were used by the Trusts to purchase the following amounts of junior
subordinated deferrable interest debentures ("Junior Subordinated Debentures")
of M&T in the case of Trust I and Trust II and Olympia in the case of Trust III:
Capital Common Junior Subordinated
Trust Securities Securities Debentures
- ----- ---------- ---------- ----------
Trust I $150 million $4.64 million $154.64 million aggregate
liquidation amount of 8.234%
Junior Subordinated Debentures
due February 1, 2027.
Trust II $100 million $3.09 million $103.09 million aggregate
liquidation amount of 8.277%
Junior Subordinated Debentures
due June 1, 2027.
Trust III $ 60 million $1.856 million $61.856 million aggregate
liquidation amount of 9.25%
Junior Subordinated Debentures
due February 1, 2027.
The Junior Subordinated Debentures represent the sole assets of each
Trust and payments under the Junior Subordinated Debentures are the sole source
of cash flow for each Trust.
Holders of the Capital Securities receive preferential cumulative cash
distributions semi-annually on each distribution date at the stated distribution
rate unless M&T, in the case of Trust I or Trust II, or Olympia, in the case of
Trust III, exercise the right to extend the payment of interest on the Junior
Subordinated Debentures for up to ten semi-annual periods, in which case payment
of distributions on the Capital Securities will be deferred for a comparable
period. During an extended interest period, M&T and/or Olympia may not pay
dividends or distributions on, or repurchase, redeem or acquire any shares of
the respective company's capital stock. The agreements governing the Capital
Securities, in the aggregate, provide a full, irrevocable and unconditional
guarantee by M&T in the case of Trust I or Trust II, or Olympia, in the case of
Trust III, of the payment of distributions on, the redemption of, and any
liquidation distribution with respect to the Capital Securities. The obligations
under such guarantee and the Capital Securities are subordinate and junior in
right of payment to all senior indebtedness of M&T and Olympia.
-86-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS, CONTINUED
The Capital Securities are mandatorily redeemable in whole, but not in
part, upon repayment at the stated maturity dates of the Junior Subordinated
Debentures or the earlier redemption of the Junior Subordinated Debentures in
whole upon the occurrence of one or more events ("Events") set forth in the
indentures relating to the Capital Securities, and in whole or in part at any
time after the stated optional redemption dates (February 1, 2007 in the case of
Trust I and Trust III, and June 1, 2007 in the case of Trust II)
contemporaneously with the Company's optional redemption of the related Junior
Subordinated Debentures in whole or in part. The Junior Subordinated Debentures
are redeemable prior to their stated maturity dates at M&T's option in the case
of Trust I and Trust II and Olympia's option in the case of Trust III (i) on or
after the stated optional redemption dates, in whole at any time or in part from
time to time, or (ii) in whole, but not in part, at any time within 90 days
following the occurrence and during the continuation of one or more of the
Events, in each case subject to possible regulatory approval. The redemption
price of the Capital Securities upon early redemption will be expressed as a
percentage of the liquidation amount plus accumulated but unpaid distributions.
In the case of Trust I, such percentage adjusts annually and ranges from
104.117% at February 1, 2007 to 100.412% for the annual period ending January
31, 2017, after which the percentage is 100%, subject to a make-whole amount if
the early redemption occurs prior to February 1, 2007. In the case of Trust II,
such percentage adjusts annually and ranges from 104.139% at June 1, 2007 to
100.414% for the annual period ending May 31, 2017, after which the percentage
is 100%, subject to a make-whole amount if the early redemption occurs prior to
June 1, 2007. In the case of Trust III, such percentage adjusts annually and
ranges from 104.625% at February 1, 2007 to 100.463% for the annual period
ending January 31, 2017, after which the percentage is 100%, subject to a
make-whole amount if the early redemption occurs prior to February 1, 2007.
Long-term borrowings at December 31, 1999 mature as follows:
Year ending December 31: (in thousands)
2000 $ 31,222
2001 416,963
2002 189,275
2003 592,178
2004 1,180
Later years 544,315
----------
$1,775,133
----------
----------
-87-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCK-BASED COMPENSATION PLANS
Stock option plan
The stock option plan allows the grant of stock options and stock appreciation
rights (either in tandem with options or independently) at prices which may not
be less than the fair market value of the common stock on the date of grant.
Except as described below, awards granted under the stock option plan generally
vest over four years and are exercisable over terms not exceeding ten years and
one day from the date of grant. When exercisable, the stock appreciation rights
issued in tandem with stock options entitle grantees to receive cash, stock or a
combination equal to the amount of stock appreciation between the dates of grant
and exercise. Stock appreciation rights issued independently of stock options
contain similar terms as the stock options, although upon exercise the holder is
only entitled to receive cash instead of purchasing shares of M&T's common
stock.
In 1999, the Company granted options to substantially all employees who
had not previously received awards under the stock option plan. The options
granted under this award vest three years after the grant date and are
exercisable for a period of seven years thereafter.
-88-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCK-BASED COMPENSATION PLANS, CONTINUED
Stock option plan, continued
A summary of stock option and stock appreciation rights activity
follows:
Weighted-average
exercise price
Cash-only ------------------
Stock appreciation Cash-only
options rights Stock appreciation
outstanding outstanding options rights
----------- ----------- ------- ------------
1997
Beginning balance 769,215 54,950 $ 130.54 $ 60.34
Granted 151,077 - 297.37 -
Exercised (138,723) (8,500) 87.66 57.00
Cancelled (4,375) - 221.65 -
-------- -------- -------- --------
At year-end 777,194 46,450 170.11 60.95
1998
Granted 144,459 - 445.26 -
Acquired (note 2) 61,772 - 185.56 -
Exercised (148,467) (11,050) 105.57 59.52
Cancelled (25,045) - 250.86 -
-------- -------- -------- -------
At year-end 809,913 35,400 229.70 61.40
1999
Granted 213,140 - 497.81 -
Exercised (79,623) (16,500) 162.96 64.02
Cancelled (29,354) - 376.02 -
-------- -------- -------- --------
At year-end 914,076 18,900 $ 293.34 $ 59.11
======== ======== ======== ========
Exercisable at:
December 31, 1999 446,223 18,900 $ 170.03 $ 59.11
======== ======== ======== ========
December 31, 1998 384,494 35,400 144.97 61.40
======== ======== ======== ========
December 31, 1997 344,757 46,450 110.39 60.95
======== ======== ======== ========
At December 31, 1999 and 1998, respectively, there were 305,516 and
489,302 shares available for future grant. During 1998, the number of shares
authorized for issuance under the stock option plan was increased to 2,500,000
shares from 2,000,000.
-89-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCK-BASED COMPENSATION PLANS, CONTINUED
Stock option plan, continued
A summary of stock options at December 31, 1999 follows:
Weighted-average Weighted-
Stock --------------------- Stock average
Range of options Exercise Life options exercise
exercise price outstanding price (in years) exercisable price
- ------------------ ----------- ------ --------- ----------- -------
$ 53.00 to $121.12 77,179 $ 89.05 1.7 77,179 $ 89.05
133.88 to 198.76 223,287 141.10 4.3 223,287 141.10
211.00 to 290.00 262,450 246.35 6.4 126,886 233.32
310.00 to 554.13 351,160 470.15 8.7 18,871 417.91
------- ------ --------- ------- ------
914,076 $293.34 6.4 446,223 $170.03
======= ====== ========= ======= ======
The Company used a binomial option pricing model to estimate the grant
date present value of stock options granted in 1999, 1998 and 1997. The
weighted-average estimated value per option was $115.80 in 1999, $114.60 in 1998
and $79.26 in 1997. The values were calculated using the following
weighted-average assumptions: an option term of 6.5 years (representing the
estimated period between grant date and exercise date based on historical data
since inception of the plan), a risk-free interest rate of 4.97% in 1999, 5.53%
in 1998 and 6.37% in 1997 (representing the yield on a U.S. Treasury security
with a remaining term equal to the expected option term), expected volatility of
19% in 1999 and 14% in 1998 and 1997, and estimated dividend yields of .85% in
1999, .72% in 1998 and .97% in 1997 (representing the approximate annualized
cash dividend rate paid with respect to a share of common stock at or near the
grant date). The Company reduced the estimated value per option to reflect an
estimate of the probability of forfeiture prior to vesting. Based on historical
data since inception of the plan and projected employee turnover rates, the
weighted-average estimated forfeiture rate was 21% in 1999 and 10% in prior
years.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for the stock option plan. Accordingly, no compensation expense was
recognized in 1999, 1998 and 1997 for stock option awards since the exercise
price of stock options granted under the stock option plan was not less than the
fair market value of the common stock at date of grant. Compensation expense
(benefit) recognized for cash-only stock appreciation rights was $(2,199,000) in
1999, $2,238,000 in 1998 and $8,510,000 in 1997. Had compensation expense for
stock option awards been determined consistent
-90-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCK-BASED COMPENSATION PLANS, CONTINUED
Stock option plan, continued
with SFAS No. 123, net income and earnings per share would be reduced to the
pro forma amounts indicated below:
Year ended December 31
1999 1998 1997
------- ------- -------
(in thousands,
except per share)
Net income:
As reported $265,626 207,974 176,241
Pro forma 252,401 198,323 169,432
Basic earnings per share:
As reported $34.05 27.30 26.60
Pro forma 32.36 26.03 25.57
Diluted earnings per share:
As reported $32.83 26.16 25.26
Pro forma 31.27 25.02 24.40
The pro forma effects are presented in accordance with the requirements
of SFAS No. 123, however, such effects are not representative of the effects to
be reported in future years due to the fact that options vest over several years
and additional awards generally are made each year.
Deferred bonus plan
The Company provides a deferred bonus plan to eligible employees pursuant to
which employees may elect to defer all or a portion of their current annual
incentive compensation awards and allocate such awards to several investment
options, including M&T common stock. Participants may elect 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 effective January 1,
1998, are distributable in the form of M&T common stock. Shares of M&T common
stock distributable pursuant to the terms of the deferred bonus plan were 8,397
and 8,028 at December 31, 1999 and 1998, respectively. In connection with the
deferred bonus plan, 15,000 shares of M&T common stock were authorized for
issuance, of which 1,295 shares have been issued.
Directors' stock plan
Effective January 1, 1998, the Company initiated a compensation plan for
non-employee directors that provides for annual compensation payable to such
directors to be paid fifty percent in cash and fifty percent in shares of M&T
common stock. In connection with the directors' stock plan, 5,000 shares of M&T
common stock were authorized for issuance, of which 1,068 shares have been
issued.
-91-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company provides defined benefit pension plan and other postretirement
benefits (including health care and life insurance benefits) to qualified
retired employees.
Net periodic pension expense consisted of the following:
Year ended December 31
1999 1998 1997
---- ---- ----
(in thousands)
Service cost $ 8,202 7,021 5,014
Interest cost on projected benefit
obligation 9,225 8,135 6,786
Expected return on plan assets (14,308) (12,396) (9,723)
Amortization of prior service cost 84 (24) (24)
Amortization of initial net asset - (344) (858)
Recognized net actuarial gain - (38) (47)
Settlements and curtailments 349 218 -
------ ------ ------
Net periodic pension expense $ 3,552 2,572 1,148
====== ====== ======
Net postretirement benefits expense consisted of the following:
Year ended December 31
1999 1998 1997
---- ---- ----
(in thousands)
Service cost $ 325 288 146
Interest cost on projected benefit
obligation 1,150 1,141 996
Expected return on plan assets (180) (226) (288)
Amortization of prior service cost 14 (18) (204)
Recognized net actuarial (gain) loss 39 25 (7)
------- ------ -------
Net postretirement benefits expense $ 1,348 1,210 643
======= ====== ======
-92-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS, CONTINUED
Data relating to the funding position of the plans were as follows:
Pension Postretirement
benefits benefits
-------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
Change in benefit obligation:
Benefit obligation at
beginning of year $136,931 107,035 18,023 13,933
Service cost 8,202 7,021 325 288
Interest cost 9,225 8,135 1,150 1,141
Plan participants'contributions - - 202 119
Amendments 395 20 - 2,356
Actuarial (gain) loss (22,031) 5,864 (1,108) 1,119
Business combination 3,223 15,027 - 499
Benefits paid (9,256) (6,389) (1,830) (1,432)
Settlements and curtailments 349 218 - -
------- ------- ------ ------
Benefit obligation at
end of year $127,038 136,931 16,762 18,023
------- ------- ------ ------
Change in plan assets:
Fair value of plan assets at
beginning of year $167,469 144,894 4,276 5,147
Actual return on plan assets (1,547) 6,669 525 292
Plan participants'contributions - - 388 269
Business combination 2,430 22,441 - -
Benefits and other payments (6,480) (4,787) (1,830) (1,432)
Settlements (2,516) (1,748) - -
------- ------- ------ ------
Fair value of plan assets at
end of year $159,356 167,469 3,359 4,276
------- ------- ------ ------
Funded status $ 32,318 30,538 (13,403) (13,747)
Unrecognized net actuarial (gain)
loss (24,493) (18,318) 736 2,229
Unrecognized prior service cost (237) (259) 321 336
------- ------- ------ ------
Prepaid (accrued) benefit cost $ 7,588 11,961 (12,346) (11,182)
======= ======= ====== ======
Amounts recognized in the
consolidated balance sheet were:
Prepaid benefit cost (asset) $ 10,551 14,489 - -
Accrued benefit cost (liability) (2,963) (2,528) (12,346) (11,182)
------- ------- ------- ------
$ 7,588 11,961 (12,346) (11,182)
======= ======= ======= ======
-93-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS, CONTINUED
The Company has an unfunded supplemental pension plan for certain key
executives. The projected benefit obligation and accumulated benefit obligation
included in the preceding data related to such plan were $2,479,000 and
$2,091,000, respectively, as of December 31, 1999 and $2,356,000 and $1,863,000,
respectively, as of December 31, 1998.
The assumed rates used in the actuarial computations were:
Pension Postretirement
benefits benefits
--------------- ---------------
1999 1998 1999 1998
----- ----- ----- -----
Discount rate 7.75% 6.75% 7.75% 6.75%
Long-term rate of return on
plan assets 9.00% 9.00% 4.25% 5.00%
Rate of increase in future
compensation levels 5.01% 5.10% - -
For measurement purposes, an 8.0% annual rate of increase in the cost
of covered health care benefits was assumed for 2000. The rate was assumed to
decrease gradually to 6% over 4 years. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
+1% -1%
--- ---
(in thousands)
Increase (decrease) in:
Service and interest cost $ 54 (48)
Accumulated postretirement
benefit obligation 818 (745)
Pension plan assets included common stock of M&T with a fair value of
$11,645,000 and $14,674,000 at December 31, 1999 and 1998, respectively.
The Company has a retirement savings plan ("Savings Plan") that is a
defined contribution plan in which eligible employees of the Company may defer
up to 15% of qualified compensation via contributions to the plan. The Company
makes an employer matching contribution in an amount equal to 75% of an
employee's contribution, up to 4.5% of the employee's qualified compensation.
Employees' accounts, including employee contributions, employer matching
contributions and accumulated earnings thereon, are at all times fully vested
and nonforfeitable. The Company's contributions to the Savings Plan totaled
$6,935,000, $6,085,000 and $5,221,000 in 1999, 1998 and 1997, respectively.
-94-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES
The components of income tax expense (benefit) were as follows:
Year ended December 31
1999 1998 1997
---- ---- ----
(in thousands)
Current
Federal $139,946 105,751 96,819
State and city 10,926 14,803 16,430
------- ------- -------
Total current 150,872 120,554 113,249
------- ------- -------
Deferred
Federal 1,508 (2,309) (5,334)
State and city 308 (656) (1,997)
------- ------- -------
Total deferred 1,816 (2,965) (7,331)
------- ------- -------
Total income taxes
applicable to pre-tax income $152,688 117,589 105,918
======= ======= =======
The Company files a consolidated federal income tax return reflecting
taxable income earned by all subsidiaries. In prior years, applicable federal
tax law allowed certain financial institutions the option of deducting as bad
debt expense for tax purposes amounts in excess of actual losses. In accordance
with generally accepted accounting principles, such financial institutions were
not required to provide deferred income taxes on such excess. Recapture of the
excess tax bad debt reserve established under the previously allowed method will
result in taxable income if M&T Bank fails to maintain bank status as defined in
the Internal Revenue Code or charges are made to the reserve for other than bad
debt losses. At December 31, 1999 M&T Bank's tax bad debt reserve for which no
federal income taxes have been provided was $74,021,000. No actions are planned
that would cause this reserve to become wholly or partially taxable.
The portion of income taxes attributable to gains or losses on sales of
bank investment securities was an expense of $639,000 and $718,000 in 1999 and
1998, respectively, and a benefit of $114,000 in 1997. No alternative minimum
tax expense was recognized in 1999, 1998 or 1997.
-95-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES, CONTINUED
Total income taxes differed from the amount computed by applying the statutory
federal income tax rate to pre-tax income as follows:
Year ended December 31
1999 1998 1997
---- ---- ----
(in thousands)
Income taxes at statutory rate $146,410 113,947 98,756
Increase (decrease) in taxes:
Tax-exempt income (12,137) (15,266) (3,794)
State and city income taxes,
net of federal income
tax effect 7,302 9,196 9,381
Amortization of goodwill 11,117 8,158 1,571
Other (4) 1,554 4
------- ------- -------
$152,688 117,589 105,918
======= ======= =======
Deferred tax assets (liabilities) were comprised of the following at
December 31:
1999 1998 1997
------- ------- -------
(in thousands)
Depreciation and amortization $ 11,090 10,489 8,130
Losses on loans and other assets 127,667 120,422 105,190
Postretirement and other
supplemental employee benefits 9,276 5,316 7,163
Incentive compensation plans 14,041 20,395 12,302
Unrealized investment losses 17,906 - -
Interest on loans - - 5,165
Other 7,217 3,140 11,140
------- ------- -------
Gross deferred tax assets 187,197 159,762 149,090
------- ------- -------
Interest on loans (5,495) (5,025) -
Retirement benefits (4,077) (1,969) (3,459)
Leasing transactions (115,586) (107,187) (83,347)
Restructured interest rate
swap agreements - (181) (3,999)
Capitalized servicing rights (10,150) (6,868) (7,448)
Unrealized investment gains - (1,931) (8,202)
Other (54) (504) (45)
------- ------- -------
Gross deferred tax liabilities (135,362) (123,665) (106,500)
------- ------- -------
Net deferred tax asset $ 51,835 36,097 42,590
======= ======= =======
The Company believes that it is more likely than not that the net
deferred tax asset will be realized through taxable earnings or alternative tax
strategies.
-96-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES, CONTINUED
The income tax credits shown in the statement of income of M&T in note
21 arise principally from operating losses before dividends from subsidiaries.
12. EARNINGS PER SHARE
The computations of basic earnings per share follow:
Year ended December 31
1999 1998 1997
------- ------- -------
(in thousands, except per share)
Income available to common
stockholders
Net income $265,626 207,974 176,241
Weighted-average shares
outstanding (including common
stock issuable) 7,800 7,619 6,625
Basic earnings per share $34.05 27.30 26.60
The computations of diluted earnings per share follow:
Year ended December 31
1999 1998 1997
------- ------- -------
(in thousands, except per share)
Income available to common
stockholders $265,626 207,974 176,241
Weighted-average shares
outstanding 7,800 7,619 6,625
Plus: incremental shares from
assumed conversion of stock
options 290 331 352
------- ------- -------
Adjusted weighted-average shares
outstanding 8,090 7,950 6,977
Diluted earnings per share $32.83 26.16 25.26
-97-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. COMPREHENSIVE INCOME
The following table displays the components of other comprehensive income:
Before-tax Income
amount taxes Net
------ ----- ---
(in thousands)
For the year ended
December 31, 1999
Unrealized losses
on investment securities:
Unrealized holding
losses $(47,178) (19,198) (27,980)
Reclassification
adjustment for gains
realized in net income 1,575 639 936
-------- -------- --------
Net unrealized losses $(48,753) (19,837) (28,916)
-------- -------- --------
-------- -------- --------
For the year ended
December 31, 1998
Unrealized losses
on investment securities:
Unrealized holding
losses(a) $(13,657) (5,553) (8,104)
Reclassification
adjustment for gains
realized in net income 1,761 718 1,043
-------- -------- --------
Net unrealized losses $(15,418) (6,271) (9,147)
-------- -------- --------
-------- -------- --------
For the year ended
December 31, 1997
Unrealized gains
on investment securities:
Unrealized holding
gains $ 24,242 9,907 14,335
Reclassification
adjustment for losses
realized in net income (280) (114) (166)
-------- -------- --------
Net unrealized gains $ 24,522 10,021 14,501
-------- -------- --------
-------- -------- --------
(a) Including the effect of the contribution of appreciated investment
securities described in note 14.
-98-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. OTHER INCOME AND OTHER EXPENSE
The following items, which exceeded 1% of total interest income and other income
in the respective period, were included in either other revenues from operations
or other costs of operations in the consolidated statement of income:
Year ended December 31
1999 1998 1997
---- ---- ----
(in thousands)
Other income:
Mutual fund and annuity sales $24,480 17,974 15,336
Bank owned life insurance 22,487 17,629
Other expense:
Professional services 31,527 30,537 22,845
Non-cash charitable contribution(a) 24,585
(a) In January 1998, M&T contributed appreciated investment securities with
a fair value of $24.6 million to an affiliated, tax-exempt private
charitable foundation. As a result of this transfer, the Company
recognized tax-exempt other income of $15.3 million and incurred
charitable contributions expense of $24.6 million. These amounts are
included in the consolidated statement of income in "Other revenues
from operations" and "Other costs of operations," respectively. The
transfer provided an income tax benefit of approximately $10.0 million
and, accordingly, resulted in an after-tax increase in net income of
$.7 million.
15. INTERNATIONAL ACTIVITIES
The Company engages in certain international activities consisting largely of
collecting Eurodollar deposits, engaging in foreign currency trading and
providing credit to support the international activities of domestic companies.
Net assets identified with international activities amounted to $27,203,000 and
$32,891,000 at December 31, 1999 and 1998, respectively. Deposits at M&T Bank's
offshore branch office were $242,691,000 and $303,270,000 at December 31, 1999
and 1998, respectively.
-99-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. DERIVATIVE FINANCIAL INSTRUMENTS
As part of managing interest rate risk, the Company has entered into several
interest rate swap agreements. The swaps modify the repricing characteristics of
certain portions of the Company's portfolios of earning assets and
interest-bearing liabilities. Interest rate swap agreements are generally
entered into with counterparties that meet established credit standards and most
contain collateral provisions protecting the at-risk party. The Company
considers the credit risk inherent in these contracts to be negligible.
Information about interest rate swaps entered into for interest rate
risk management purposes summarized by type of financial instrument the swaps
were intended to modify follows:
Estimated
Notional Average Weighted-average Rate fair value-
---------------------
amount maturity fixed variable gain(loss)
---------- --------- -------- --------- -------------
(in thousands) (in years) (in thousands)
December 31, 1999
- -----------------
Fixed rate available
for sale investment
securities:
Non-amortizing(a) $ 50,000 8.1 5.26% 6.46% $ 5,646
Variable rate
loans:
Non-amortizing 660,000 .3 6.29% 6.14% 540
Fixed rate
loans:
Amortizing(a) 49,279 8.5 6.81% 6.24% 1,244
Amortizing-forward-
starting(b) 372,800 7.5 5.94% 5.64% 23,863
Fixed rate time
deposits:
Non-amortizing 847,000 1.5 6.46% 6.09% (5,014)
Fixed rate
borrowings:
Non-amortizing 50,000 3.6 5.85% 6.07% (1,770)
---------- ---- ---- -------- -------------
$2,029,079 2.6 6.27% 6.04% $ 24,509
========== ==== ==== ======== =============
-100-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED
Estimated
Notional Average Weighted-average rate fair value-
---------------------
Amount maturity fixed variable gain(loss)
------ -------- ----- -------- ----------
(in thousands) (in years) (in thousands)
DECEMBER 31, 1998
Fixed rate available
for sale investment
securities:
Non-amortizing(a) $ 50,000 9.1 5.26% 5.55% $ 445
Variable rate
loans:
Non-amortizing 1,060,000 1.0 6.10% 5.28% 10,907
Fixed rate
loans:
Amortizing(a) 32,209 8.7 7.17% 5.55% (3,875)
Amortizing-forward-
starting(b) 390,800 8.6 5.95% 5.64% (8,380)
Fixed rate time
deposits:
Non-amortizing 1,154,000 2.0 6.59% 5.21% 22,533
Fixed rate
borrowings:
Non-amortizing 125,000 2.1 5.75% 5.28% 1,360
--------- ---- ---- ---- ------
$2,812,009 2.7 6.26% 5.31% $22,990
========= ==== ==== ==== ======
Under all swap agreements, the Company receives settlement amounts at a
fixed rate and pays at a variable rate, except for:
(a) Under the terms of these swaps, the Company receives settlement amounts
at a variable rate and pays at a fixed rate.
(b) Under the terms of these forward-starting swaps the Company will
receive settlement amounts at a variable rate and pay at a fixed rate.
Forward-starting swaps entered into as of December 31, 1999 will begin
to accrue amounts receivable and payable beginning in the years indicated below:
Notional amount
---------------
(in thousands)
Year ending December 31:
2000 $186,044
2001 186,756
-------
$372,800
=========
-101-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED
The estimated fair value of interest rate swap agreements represents the
amount the Company would have expected to receive (pay) to terminate such
contracts. Since these swaps have been entered into for interest rate risk
management purposes, the estimated market appreciation or depreciation should be
considered in the context of the entire balance sheet of the Company. The
estimated fair value of interest rate swaps entered into for interest rate risk
management purposes is not recognized in the consolidated financial statements,
except for swaps that modify the repricing characteristics of investment
securities classified as available for sale. Changes in the fair value of such
swaps and investment securities are included in other comprehensive income, net
of applicable income taxes.
The notional amounts of amortizing swaps may vary over the term of a
swap agreement. The notional amount of the Company's amortizing swaps linked to
fixed rate loans declines by the amount of scheduled principal payments of the
loans. The notional amount of a non-amortizing swap does not change during the
term of an agreement. At December 31, 1999 the notional amount of interest rate
swaps outstanding mature as follows:
AMORTIZING NON-AMORTIZING
(in thousands)
Year ending December 31:
2000 $ 1,868 1,040,000
2001 8,184 213,000
2002 8,908 159,000
2003 10,693 80,000
2004 11,542 35,000
Later years 380,884 80,000
------- ---------
$422,079 1,607,000
======= =========
The net effect of interest rate swaps was to increase net interest
income by $26,100,000 in 1999, $16,156,000 in 1998 and $14,089,000 in 1997.
Excluding forward-starting swaps, the average notional amount of interest
rate swaps impacting net interest income which were entered into for interest
rate risk management purposes were $1,944,813,000 in 1999, $2,521,426,000 in
1998 and $2,691,638,000 in 1997.
During 1995 and 1994, the Company restructured several interest rate
swap agreements with notional amounts of $260 million and $500 million,
respectively, from amortizing to non-amortizing. The purpose of the
restructurings was to enhance the effectiveness of the swaps in managing the
Company's exposure to changing interest rates in future years. Losses
resulting from the early termination of the amortizing swaps and equal
amounts of purchase discount received on the restructured non-amortizing
swaps were recognized as a result of these transactions and included in the
carrying amount of loans which the swaps modified. The purchase discount is
being accreted to interest income over the remaining term of the restructured
-102-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
16. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED
swap. Deferred losses, which became fully amortized in 1999, had been amortized
over the terms of the original swaps. The amortization of deferred losses and
accretion of purchase discounts were $.3 million and $6.3 million, respectively,
in 1999, $9.2 million and $9.1 million, respectively, in 1998 and $11.3 million
and $9.6 million, respectively, in 1997. Purchase discounts related to a
restructured swap remaining at December 31, 1999 were $403,000, all of which
will accrete to interest income in 2000.
Derivative financial instruments used for trading purposes
included foreign exchange and other option contracts, foreign exchange forward
and spot contracts, interest rate swap contracts and financial futures. The
following table includes information about the estimated fair value of
derivative financial instruments used for trading purposes:
1999 1998
------ ------
December 31: (in thousands)
Gross unrealized gains $29,088 54,424
Gross unrealized losses 32,303 49,833
Year ended December 31:
Average gross unrealized gains $33,588 42,174
Average gross unrealized losses 32,622 39,083
====== ======
Net losses arising from derivative financial instruments used for
trading purposes were $1,699,000 in 1999. Net gains of $2,648,000 and
$2,072,000 were realized in 1998 and 1997, respectively.
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of the estimated "fair value" of financial instruments. "Fair value"
is generally defined as the price a willing buyer and a willing seller would
exchange for a financial instrument in other than a distressed sale situation.
Disclosures related to fair value presented herein are as of December 31, 1999
and 1998.
With the exception of marketable securities, certain off-balance
sheet financial instruments and one-to-four family residential mortgage loans
originated for sale, the Company's financial instruments are not readily
marketable and market prices do not exist. The Company, in attempting to comply
with the provisions of SFAS No. 107, has not attempted to market its financial
instruments to potential buyers, if any exist. Since negotiated prices in
illiquid markets depend greatly upon the then present motivations of the buyer
and seller, it is reasonable to assume that actual sales prices could vary
widely from any estimate of fair value made without the benefit of negotiations.
Additionally, changes in market interest rates can dramatically impact the value
of financial instruments in a short period of time.
-103-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The estimated fair values of investments in readily marketable debt
and equity securities were based on quoted market prices at the respective
year-end. In arriving at estimated fair value of other financial instruments,
the Company generally used calculations based upon discounted cash flows of
the related financial instruments. In general, discount rates used for loan
products were based on the Company's pricing at the respective year-end. A
higher discount rate was assumed with respect to estimated cash flows
associated with nonaccrual loans.
As more fully described in note 3, the carrying value and estimated
fair value of investment securities were as follows:
Carrying Estimated
Value Fair Value
-------- ----------
(in thousands)
December 31
1999 $1,900,522 1,898,860
1998 2,785,564 2,785,647
========= =========
The following table presents the carrying value and calculated
estimates of fair value of loans and commitments related to loans originated
for sale:
Carrying Calculated
Value Estimate
-------- ----------
(in thousands)
December 31, 1999
Commercial loans and leases $ 3,650,023 3,642,157
Commercial real estate loans 6,509,185 6,473,654
Residential real estate loans 4,128,831 4,051,351
Consumer loans and leases 3,118,732 3,134,102
---------- ----------
$17,406,771 17,301,264
========== ==========
December 31, 1998
Commercial loans and leases $ 3,174,778 3,181,096
Commercial real estate loans 5,458,876 5,520,305
Residential real estate loans 4,261,555 4,320,221
Consumer loans and leases 2,896,321 2,925,269
---------- ----------
$15,791,530 15,946,891
========== ==========
The allowance for credit losses represented the Company's assessment
of the overall level of credit risk inherent in the portfolio and totaled
$316,165,000 and $306,347,000 at December 31, 1999 and 1998, respectively.
As described in note 18, in the normal course of business, various
commitments and contingent liabilities are outstanding, such as loan
commitments, credit guarantees and letters of credit. The Company's pricing
-104-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
of such financial instruments is based largely on credit quality and
relationship, probability of funding and other requirements. Commitments
generally have fixed expiration dates and contain termination and other clauses
which provide for relief from funding in the event of significant deterioration
in the credit quality of the customer. The rates and terms of the Company's loan
commitments, credit guarantees and letters of credit are competitive with other
financial institutions operating in markets served by the Company. The Company
believes that the carrying amounts are reasonable estimates of the fair value of
these financial instruments. Such carrying amounts, comprised principally of
unamortized fee income, are included in other liabilities and totaled $5,434,000
and $7,630,000 at December 31, 1999 and 1998, respectively.
SFAS No. 107 requires that the estimated fair value ascribed to
noninterest-bearing deposits, savings deposits and NOW accounts be
established at carrying value because of the customers' ability to withdraw
funds immediately. Additionally, time deposit accounts are required to be
revalued based upon prevailing market interest rates for similar maturity
instruments.
The following summarizes the results of these calculations:
Carrying Calculated
Value Estimate
-------- ----------
(in thousands)
December 31, 1999
Noninterest-bearing deposits $2,260,432 2,260,432
Savings deposits and NOW accounts 5,782,152 5,782,152
Time deposits 7,088,345 7,085,462
Deposits at foreign office 242,691 242,691
========= ==========
December 31, 1998
Noninterest-bearing deposits $2,066,814 2,066,814
Savings deposits and NOW accounts 5,339,985 5,339,985
Time deposits 7,027,083 7,091,792
Deposits at foreign office 303,270 303,270
========= ==========
The Company believes that deposit accounts have a value greater than
that prescribed by SFAS No. 107. The Company feels, however, that the value
associated with these deposits is greatly influenced by characteristics of
the buyer, such as the ability to reduce the costs of servicing the deposits
and the expected deposit attrition which is customary in acquisitions.
Accordingly, estimating the fair value of deposits with any degree of
certainty is not practical.
As more fully described in note 16, the Company had entered into
interest rate swap agreements for purposes of managing the Company's exposure
to changing interest rates. The estimated fair value of interest rate swap
-105-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
agreements represents the amount the Company would have expected to receive or
pay to terminate such swaps. The following table includes information about the
estimated fair value of interest rate swaps entered into for interest rate risk
management purposes:
Gross Gross Estimated
Notional Unrealized Unrealized Fair Value -
Amount Gains Losses Gain
---------- ---------- ---------- ------------
(in thousands)
December 31
1999 $2,029,079 32,415 (7,906) 24,509
1998 2,812,009 35,640 (12,650) 22,990
========== ========== ========== ============
As described in note 16, the Company also uses certain derivative
financial instruments as part of its trading activities. Interest rate contracts
entered into for trading purposes had notional values and estimated fair value
losses of $799 million and $515,000, respectively, at December 31, 1999 and
notional values and estimated fair value gains of $436 million and $723,000,
respectively, at December 31, 1998. The Company also entered into foreign
exchange and other option and futures contracts totaling approximately $573
million and $2.0 billion at December 31, 1999 and 1998, respectively. Such
contracts were valued at losses of $2,700,000 and at gains of $3,868,000 at
December 31, 1999 and 1998, respectively. All trading account assets and
liabilities are recorded in the consolidated balance sheet at estimated fair
value. The fair values of all trading account assets and liabilities were $641
million and $633 million, respectively, at December 31, 1999 and $173 million
and $51 million, respectively, at December 31, 1998. Included in trading account
assets at December 31, 1999 were mortgage-backed securities which M&T held as
collateral securing certain agreements to resell securities. The obligations to
return such collateral were recorded as noninterest-bearing trading account
liabilities and were included in accrued interest and other liabilities in the
Company's consolidated balance sheet. The fair value of such collateral (and the
related obligation to return collateral) was $600 million at December 31, 1999.
There was no similar collateral held at December 31, 1998.
Due to the near maturity of other money-market assets and short-term
borrowings, the Company estimates that the carrying value of such instruments
approximates estimated fair value. The carrying value and estimated fair
value of long-term borrowings were $1,775,133,000 and $1,753,612,000,
respectively, at December 31, 1999 and $1,567,543,000 and $1,613,040,000,
respectively, at December 31, 1998.
The Company does not believe that the estimated fair value
information presented herein is representative of the earnings power or value
of the Company. The preceding analysis, which is inherently limited in
depicting fair value, also does not consider any value associated with
existing
-106-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
customer relationships nor the ability of the Company to create value through
loan origination, deposit gathering or fee generating activities.
Many of the fair value estimates presented herein are based upon the
use of highly subjective information and assumptions and, accordingly, the
results may not be precise. Management believes that fair value estimates may
not be comparable between financial institutions due to the wide range of
permitted valuation techniques and numerous estimates which must be made.
Furthermore, since the disclosed fair value amounts were estimated
as of the balance sheet date, the amounts actually realized or paid upon
maturity or settlement of the various financial instruments could be
significantly different.
18. COMMITMENTS AND CONTINGENCIES
In the normal course of business, various commitments and contingent liabilities
are outstanding, such as commitments to extend credit guarantees and "standby"
letters of credit (approximately $522,356,000 and $410,357,000 at December 31,
1999 and 1998, respectively) which are not reflected in the consolidated
financial statements. No material losses are expected as a result of these
transactions. Additionally, the Company had outstanding commitments to originate
loans of approximately $4.1 billion and $3.5 billion at December 31, 1999 and
1998, respectively. Since many loan commitments, credit guarantees and "standby"
letters of credit expire without being funded in whole or part, the contract
amounts are not necessarily indicative of future cash flows. Commitments to sell
one-to-four family residential mortgage loans totaled $376,874,000 at December
31, 1999 and $695,444,000 at December 31, 1998.
M&T and its subsidiaries are subject in the normal course of
business to various pending and threatened legal proceedings in which claims
for monetary damages are asserted. Management, after consultation with legal
counsel, does not anticipate that the aggregate ultimate liability, if any,
arising out of litigation pending against M&T or its subsidiaries will be
material to the Company's consolidated financial position, but at the present
time is not in a position to determine whether such litigation will have a
material adverse effect on the Company's consolidated results of operations
in any future reporting period.
19. SEGMENT INFORMATION
In accordance with the provisions of SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," reportable segments have been
determined based upon the Company's internal profitability reporting system,
which is organized by strategic business units. 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
-107-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
19. SEGMENT INFORMATION, CONTINUED
segments are Commercial Banking, Commercial Real Estate, Discretionary
Portfolio, Residential Mortgage Banking and Retail Banking.
The financial information of the Company's segments has been
compiled utilizing the accounting policies described in note 1 with certain
exceptions. The more significant of these exceptions are described herein.
The Company allocates interest income or interest expense using a methodology
that charges users of funds (assets) interest expense and credits providers
of funds (liabilities) with income based on the maturity, prepayment and/or
repricing characteristics of the assets and liabilities. The net effect of
this allocation is recorded in the "All Other" category. A provision for
credit losses is allocated to segments in an amount based largely on actual
net charge-offs incurred by the segment during the period plus or minus an
amount necessary to adjust the segment's allowance for credit losses due to
changes in loan balances. In contrast, the level of the consolidated
provision for credit losses is determined using the methodologies described
in note 1 to assess the overall adequacy of the allowance for credit losses.
Indirect fixed and variable expenses incurred by certain centralized support
areas are allocated to segments based on actual usage (for example, volume
measurements) and other criteria. Certain types of administrative expenses
and bankwide expense accruals (including amortization of goodwill and core
deposit intangible) are generally not allocated to segments. Income taxes are
allocated to segments based on the Company's marginal statutory tax rate
adjusted for any tax-exempt income or non-deductible expenses. Equity is
allocated to the segments based on regulatory capital requirements and in
proportion to an assessment of the inherent risks associated with the
business of the segment (including interest, credit and operating risk).
The management accounting policies and processes utilized in
compiling segment financial information are highly subjective and, unlike
financial accounting, are not based on authoritative guidance similar to
generally accepted accounting principles. As a result, reported segment
results are not necessarily comparable with similar information reported by
other financial institutions. Furthermore, changes in management structure or
allocation methodologies and procedures may result in changes in reported
segment financial data. Information about the Company's segments is presented
in the accompanying table.
The Commercial Banking segment provides a wide range of credit
products and banking services for middle-market and large commercial
customers, largely within the markets the Company serves. Among the services
provided by this segment are commercial lending and leasing, deposit products
and cash management services. The Commercial Real Estate segment provides
credit services which are secured by various types of multifamily residential
and commercial real estate and deposit services to its customers. The
Discretionary Portfolio segment includes securities, residential mortgage
loans and other assets; short-term and long-term borrowed funds; brokered
-108-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
19. SEGMENT INFORMATION, CONTINUED
certificates of deposit and interest rate swaps related thereto; and offshore
branch deposits. This segment also provides services to commercial customers and
consumers which include foreign exchange, securities trading and municipal bond
underwriting and sales. The Residential Mortgage Banking segment originates and
services residential mortgage loans for consumers and sells substantially all of
those loans in the secondary market to investors or to banking subsidiaries of
M&T. Residential mortgage loans held for sale are included in the Residential
Mortgage Banking segment. The Retail Banking segment offers a variety of
consumer and small business services through several delivery channels which
include traditional and "in-store" banking offices, automated teller machines,
telephone banking and personal computer banking. The "All Other" category
includes other operating activities of the Company that are not directly
attributable to the reported segments as determined in accordance with SFAS No.
131, the difference between the provision for credit losses and the calculated
provision allocated to the reportable segments, goodwill and core deposit
intangible resulting from acquisitions of financial institutions, the net impact
of the Company's internal funds transfer pricing methodology, eliminations of
transactions between reportable segments, certain nonrecurring transactions, the
residual effects of unallocated support systems and general and administrative
expenses, and the impact of interest rate risk management strategies. The amount
of intersegment activity eliminated in arriving at consolidated totals was
included in the "All Other" category as follows:
Year ended December 31
1999 1998 1997
------ ------ ------
(in thousands)
Revenues $(41,829) (52,137) (31,023)
Expenses (29,353) (19,916) (14,302)
Income taxes (benefit) (5,076) (13,111) (6,804)
Net income (loss) (7,400) (19,110) (9,917)
The Company conducts substantially all of its operations in the
United States. There are no transactions with a single customer that in the
aggregate result in revenues that exceed ten percent of consolidated total
revenues.
-109-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
19. SEGMENT INFORMATION, CONTINUED
Commercial Commercial Discretionary
IN THOUSANDS, EXCEPT ASSET DATA Banking Real Estate Portfolio
- ------------------------------------------- ---------------- ---------------- ----------------
For the year ended
December 31, 1999
Net interest income (a) $ 157,818 121,675 47,530
Noninterest income 30,177 4,351 22,766
- ------------------------------------------- ---------------- ---------------- ----------------
187,995 126,026 70,296
Provision for credit losses 11,316 (143) 3,833
Amortization of goodwill
and core deposit intangible - - -
Depreciation and other
amortization 442 333 153
Other noninterest expense (b) 44,145 14,402 17,183
- ------------------------------------------- ---------------- ---------------- ----------------
Income (loss) before taxes 132,092 111,434 49,127
Income tax expense (benefit) 54,457 47,190 10,898
- ------------------------------------------- ---------------- ---------------- ----------------
Net income (loss) $ 77,635 64,244 38,229
- ------------------------------------------- ================ ================ ================
Average total assets (in millions) $ 4,277 4,118 6,827
- ------------------------------------------- ================ ================ ================
Capital expenditures (in millions) $ - - -
================ ================ ================
For the year ended
December 31, 1998
Net interest income (a) $ 140,033 108,863 40,611
Noninterest income (b) 20,215 4,624 20,726
- ------------------------------------------- ---------------- ---------------- ----------------
160,248 113,487 61,337
Provision for credit losses 2,964 1,243 2,330
Amortization of goodwill
and core deposit intangible - - -
Depreciation and other
amortization 467 352 97
Other noninterest expense (b) 42,100 12,336 17,477
- ------------------------------------------- ---------------- ---------------- ----------------
Income (loss) before taxes 114,717 99,556 41,433
Income tax expense (benefit) (b) 47,276 42,240 9,749
- ------------------------------------------- ---------------- ---------------- ----------------
Net income (loss) $ 67,441 57,316 31,684
- ------------------------------------------- ================ ================ ================
Average total assets (in millions) $ 3,653 3,527 6,025
- ------------------------------------------- ================ ================ ================
Capital expenditures (in millions) $ - - -
================ ================ ================
Residential
Mortgage Retail All
IN THOUSANDS, EXCEPT ASSET DATA Banking Banking Other Total
- ------------------------------------------- ----------------- ---------------- ------------------ --------------------
For the year ended
December 31, 1999
Net interest income (a) 26,854 375,803 29,717 759,397
Noninterest income 104,164 86,493 34,424 282,375
- ------------------------------------------- ----------------- ---------------- ------------------ --------------------
131,018 462,296 64,141 1,041,772
Provision for credit losses 22 25,480 3,992 44,500
Amortization of goodwill
and core deposit intangible 810 - 48,905 49,715
Depreciation and other
amortization 20,587 12,462 13,284 47,261
Other noninterest expense (b) 78,836 235,767 91,649 481,982
- ------------------------------------------- ----------------- ---------------- ------------------ --------------------
Income (loss) before taxes 30,763 188,587 (93,689) 418,314
Income tax expense (benefit) 9,984 77,046 (46,887) 152,688
- ------------------------------------------- ----------------- ---------------- ------------------ --------------------
Net income (loss) 20,779 111,541 (46,802) 265,626
- ------------------------------------------- ================= ================ ================== ====================
Average total assets (in millions) 635 4,244 956 21,057
- ------------------------------------------- ================= ================ ================== ====================
Capital expenditures (in millions) - 12 11 23
================= ================ ================== ====================
For the year ended
December 31, 1998
Net interest income (a) 23,797 339,510 19,133 671,947
Noninterest income (b) 111,283 79,391 26,700 262,939
- ------------------------------------------- ----------------- ---------------- ------------------ --------------------
135,080 418,901 45,833 934,886
Provision for credit losses (3) 19,557 17,109 43,200
Amortization of goodwill
and core deposit intangible 810 - 33,677 34,487
Depreciation and other
amortization 21,400 11,007 11,759 45,082
Other noninterest expense (b) 84,237 219,050 111,354 486,554
- ------------------------------------------- ----------------- ---------------- ------------------ --------------------
Income (loss) before taxes 28,636 169,287 (128,066) 325,563
Income tax expense (benefit) (b) 9,089 69,142 (59,907) 117,589
- ------------------------------------------- ----------------- ---------------- ------------------ --------------------
Net income (loss) 19,547 100,145 (68,159) 207,974
- ------------------------------------------- ================= ================ ================== ====================
Average total assets (in millions) 581 3,781 742 18,309
- ------------------------------------------- ================= ================ ================== ====================
Capital expenditures (in millions) 1 7 9 17
================= ================ ================== ====================
-110-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
19. SEGMENT INFORMATION, CONTINUED
Commercial Commercial Discretionary
IN THOUSANDS, EXCEPT ASSET DATA Banking Real Estate Portfolio
- ------------------------------------------------------------ ---------------- ---------------- ----------------
For the year ended
December 31, 1997
Net interest income (a) $ 113,193 101,413 43,898
Noninterest income 15,664 3,430 3,824
- ------------------------------------------------------------ ---------------- ---------------- ----------------
128,857 104,843 47,722
Provision for credit losses 549 116 2,939
Amortization of goodwill
and core deposit intangible - - -
Depreciation and other
amortization 410 407 107
Other noninterest expense 35,443 12,158 15,355
- ------------------------------------------------------------ ---------------- ---------------- ----------------
Income (loss) before taxes 92,455 92,162 29,321
Income tax expense (benefit) 38,194 39,204 10,856
- ------------------------------------------------------------ ---------------- ---------------- ----------------
Net income (loss) $ 54,261 52,958 18,465
- ------------------------------------------------------------ ================ ================ ================
Average total assets (in millions) $ 2,777 3,151 3,883
- ------------------------------------------------------------ ================ ================ ================
Capital expenditures (in millions) $ - - -
================ ================ ================
- ------------------------------------------------------------------------------------------------------------------------------------
Residential
Mortgage Retail All
IN THOUSANDS, EXCEPT ASSET DATA Banking Banking Other Total
- ----------------------------------------- ---------------- ---------------- ---------------- -----------------
For the year ended
December 31, 1997
Net interest income (a) 17,847 279,928 3,127 559,406
Noninterest income 76,837 64,778 25,996 190,529
- ----------------------------------------- ---------------- ---------------- ---------------- -----------------
94,684 344,706 29,123 749,935
Provision for credit losses (19) 35,866 6,549 46,000
Amortization of goodwill
and core deposit intangible 810 - 6,481 7,291
Depreciation and other
amortization 16,357 7,231 10,599 35,111
Other noninterest expense 62,069 190,002 64,347 379,374
- ----------------------------------------- ---------------- ---------------- ---------------- -----------------
Income (loss) before taxes 15,467 111,607 (58,853) 282,159
Income tax expense (benefit) 4,453 45,876 (32,665) 105,918
- ----------------------------------------- ---------------- ---------------- ---------------- -----------------
Net income (loss) 11,014 65,731 (26,188) 176,241
- ----------------------------------------- ================ ================ ================ =================
Average total assets (in millions) 360 3,066 72 13,309
- ----------------------------------------- ================ ================ ================ =================
Capital expenditures (in millions) 1 5 7 13
================ ================ ================ =================
- ----------------------------------------------------------------------------------------------------------------------------
(a) Net interest income is the difference between actual taxable-equivalent
interest earned on assets and interest paid on liabilities owned by a
segment and a funding charge (credit) based on the Company's internal funds
transfer pricing methodology. Segments are charged a cost to fund any
assets (e.g. loans) and are paid a funding credit for any funds provided
(e.g. deposits). The taxable-equivalent adjustment aggregated $7,710,000 in
1999, $7,186,000 in 1998 and $5,840,000 in 1997 and is eliminated in "All
Other" net interest income and income tax expense (benefit).
(b) Including the impact in the "All Other" category of the nonrecurring
merger-related expenses described in note 2 and, in 1998, the contribution
of appreciated investment securities described in note 14.
-111-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
20. REGULATORY MATTERS
Payment of dividends by M&T's banking subsidiaries is restricted by various
legal and regulatory limitations. Dividends from any banking subsidiary to M&T
are limited by the amount of earnings of the banking subsidiary in the current
year and the preceding two years. For purposes of this test, at December 31,
1999, approximately $485,176,000 was available for payment of dividends to M&T
from banking subsidiaries without prior regulatory approval.
Banking regulations prohibit extensions of credit by the subsidiary
banks to M&T unless appropriately secured by assets. Securities of affiliates
are not eligible as collateral for this purpose.
The banking subsidiaries are required to maintain
noninterest-earning reserves against certain deposit liabilities. During the
maintenance periods that included December 31, 1999 and 1998, cash and due
from banks included a daily average of $180,666,000 and $158,696,000,
respectively, for such purpose.
Federal regulators have adopted capital adequacy guidelines for bank
holding companies and banks. Failure to meet minimum capital requirements can
result in certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a material effect on the
Company's financial statements. Under the capital adequacy guidelines, the
so-called "Tier 1 capital" and "Total capital" as a percentage of risk-
weighted assets and certain off-balance sheet financial instruments must be
at least 4% and 8%, respectively. In addition to these risk-based measures,
regulators also require banking institutions that meet certain qualitative
criteria to maintain a minimum "leverage" ratio of "Tier 1 capital" to
average total assets, adjusted for goodwill and certain other items, of at
least 3% to be considered adequately capitalized. As of December 31, 1999,
M&T and each of its banking subsidiaries exceeded all applicable capital
adequacy requirements.
As of December 31, 1999 and 1998, the most recent notifications
from federal regulators categorized each of M&T's banking subsidiaries as well
capitalized under the regulatory framework for prompt corrective action. To be
considered well capitalized, a banking institution must maintain Tier 1
risk-based capital, total risk-based capital and leverage ratios of at least 6%,
10% and 5%, respectively. Management is unaware of any conditions or events
since the latest notifications from federal regulators that have changed the
capital adequacy category of M&T's banking subsidiaries.
-112-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
20. REGULATORY MATTERS, CONTINUED
The capital ratios and amounts of the Company and its banking
subsidiaries as of December 31, 1999 and 1998 are presented below:
M&T M&T M&T
(Consolidated) Bank Bank, N.A.
-------------- ----- ----------
(dollars in thousands)
December 31, 1999:
Tier 1 Capital
- --------------
Amount $1,489,676 1,436,204 50,334
Ratio(a) 8.27% 8.19% 10.74%
Minimum required amount(b) 720,343 701,351 18,740
Total Capital
- -------------
Amount 1,845,907 1,786,515 55,089
Ratio(a) 10.25% 10.19% 11.76%
Minimum required amount(b) 1,440,686 1,402,702 37,479
Leverage
- --------
Amount 1,489,676 1,436,204 50,334
Ratio(c) 6.92% 6.92% 6.18%
Minimum required amount(b) 645,631 622,845 24,419
December 31, 1998:
Tier 1 Capital
- --------------
Amount $1,372,333 1,292,611 46,089
Ratio(a) 8.40% 8.07% 14.54%
Minimum required amount(b) 653,408 640,897 12,680
Total Capital
- -------------
Amount 1,725,020 1,639,940 51,499
Ratio(a) 10.56% 10.24% 16.25%
Minimum required amount(b) 1,306,816 1,281,795 25,360
Leverage
- --------
Amount 1,372,333 1,292,611 46,089
Ratio(c) 7.02% 6.80% 7.81%
Minimum required amount(b) 586,468 570,226 17,704
(a) The ratio of capital to risk-weighted assets, as defined by regulation.
(b) Minimum amount of capital to be considered adequately capitalized, as
defined by regulation.
(c) The ratio of capital to average assets, as defined by regulation.
-113-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
21. PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
- --------------------------------------------------------------------------------
December 31
In thousands 1999 1998
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Cash
In subsidiary bank $ 728 4,583
Other 20 20
- -----------------------------------------------------------------------------------------------------------------------------------
Total cash 748 4,603
Due from subsidiaries
Money-market assets 1,387 4,335
Current income tax receivable 2,451 4,757
===================================================================================================================================
Total due from subsidiaries 3,838 9,092
Investments in subsidiaries
Banks and bank holding company 2,062,694 1,830,222
Other 7,734 7,734
Other assets 15,215 14,817
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,090,229 1,866,468
===================================================================================================================================
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities $ 6,450 6,369
Short-term borrowings 29,000 -
Long-term borrowings 257,733 257,733
===================================================================================================================================
Total liabilities 293,183 264,102
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 1,797,046 1,602,366
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,090,229 1,866,468
===================================================================================================================================
CONDENSED STATEMENT OF INCOME
Year ended December 31
In thousands, except per share 1999 1998 1997
INCOME
Dividends from bank and bank holding
company subsidiaries $ 76,000 121,500 192
Other income 2,618 20,222 8,558
- -----------------------------------------------------------------------------------------------------------------------------------
Total income 78,618 141,722 8,750
===================================================================================================================================
EXPENSE
Interest on short-term borrowings 103 - -
Interest on long-term borrowings 21,516 21,516 16,762
Other expense 2,635 27,168 2,710
- -----------------------------------------------------------------------------------------------------------------------------------
Total expense 24,254 48,684 19,472
===================================================================================================================================
Income (loss) before income taxes and equity in
undistributed income of subsidiaries 54,364 93,038 (10,722)
Income tax credits 8,621 17,541 4,496
Income (loss) before equity in undistributed
income of subsidiaries 62,985 110,579 (6,226)
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES
Net income of subsidiaries 278,641 218,895 182,659
Less: dividends received (76,000) (121,500) (192)
- -----------------------------------------------------------------------------------------------------------------------------------
Equity in undistributed income of subsidiaries 202,641 97,395 182,467
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 265,626 207,974 176,241
===================================================================================================================================
Net income per common share
Basic $ 34.05 27.30 26.60
Diluted 32.83 26.16 25.26
-114-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
21. PARENT COMPANY FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENT OF CASH FLOWS
Year ended December 31
In Thousands 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 265,626 207,974 176,241
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiaries (202,641) (97,395) (182,467)
Dividend-in-kind from subsidiary - - (83)
Provision for deferred income taxes (209) 793 810
Net change in accrued income and expense (467) 3,558 (327)
Transfer of noncash assets to charitable foundation - 9,272 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 62,309 124,202 (5,826)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Investment in subsidiary - (60,000) (19,734)
Other , net (34) (808) (767)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (34) (60,808) (20,501)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of junior subordinated debt
to subsidiaries - - 257,733
Net increase in short-term borrowings 29,000 - -
Purchases of treasury stock (79,784) (231,779) (67,771)
Dividends paid - common (35,128) (28,977) (21,207)
Other, net 16,834 33,029 12,334
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (69,078) (227,727) 181,089
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ (6,803) (164,333) 154,762
Cash and cash equivalents at beginning of year 8,938 173,271 18,509
Cash and cash equivalents at end of year $ 2,135 8,938 173,271
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Interest received during the year $ 459 2,496 4,743
Interest paid during the year 21,266 21,516 10,550
Income taxes received during the year 16,965 40,208 2,027
-115-
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The terms in
office of Roy M. Goodman and Russell A. King as directors of the
Registrant will end on April 18, 2000, and they will not be
nominees for reelection to the Board of Directors at the 2000
Annual Meeting of Stockholders.
The identification of the Registrant's directors is incorporated
by reference to the caption "NOMINEES FOR DIRECTOR" contained in
the Registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission on or about March 10, 2000. The
identification of the Registrant's executive officers is
presented under the caption "Executive Officers of the
Registrant" contained in Part I of this Annual Report on Form
10-K.
Disclosure of compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, by the Registrant's directors
and executive officers, and persons who are the beneficial owners
of more than 10% of the Registrant's common stock, is
incorporated by reference to the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the
Registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders which will be filed with the Securities
and Exchange Commission on or about March 10, 2000.
Item 11. EXECUTIVE COMPENSATION. Incorporated by reference to the
Registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission on or about March 10, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Registrant's definitive Proxy
Statement for its 2000 Annual Meeting of Stockholders, which will
be filed with the Securities and Exchange Commission on or about
March 10, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by
reference to the Registrant's definitive Proxy Statement for its
2000 Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission on or about March 10, 2000.
-116-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial statements and financial statement schedules filed
as part of this Annual Report on Form 10-K. See Part II, Item
8. "Financial Statements and Supplementary Data."
Financial statement schedules are not required or are
inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K.
On December 28, 1999, the Registrant filed a Current Report on
Form 8-K dated December 21, 1999, reporting on its December
21, 1999 public announcement that M&T Bank had entered into an
agreement to acquire Matthews, Bartlett, Dedecker, Inc., a
property and casualty insurance agency based in Buffalo, New
York.
On November 24, 1999, the Registrant filed a Current Report on
Form 8-K dated November 24, 1999, reporting on its
announcement on that date that its Board of Directors had
authorized the Registrant to repurchase up to 190,465 shares
of its common stock and that a previously reported repurchase
program authorized in February 1999 had been completed on
November 22, 1999.
(c) Exhibits required by Item 601 of Regulation S-K.
The exhibits listed on the Exhibit Index on pages 121 through
124 of this Annual Report on Form 10-K have been previously
filed, are filed herewith or are incorporated herein by
reference to other filings.
(d) Additional financial statement schedules.
None.
-117-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 24th day of
February, 2000.
M&T BANK CORPORATION
By: /s/ Robert G. Wilmers
-------------------------------------
Robert G. Wilmers
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
Principal Executive
Officer:
/s/ Robert G. Wilmers President and
- ------------------------------------- Chief Executive Officer February 24, 2000
Robert G. Wilmers -----------------
Principal Financial
Officer:
/s/ Michael P. Pinto Executive Vice President
- ------------------------------------- and Chief Financial Officer February 24, 2000
Michael P. Pinto -----------------
Principal Accounting
Officer:
/s/ Michael R. Spychala Senior Vice President
- ------------------------------------- and Controller February 24, 2000
Michael R. Spychala ------------------
-118-
A majority of the board of directors:
- ------------------------------------- ----------------------
William F. Allyn
/s/ Brent D. Baird February 24, 2000
- ------------------------------------- ----------------------
Brent D. Baird
/s/ John H. Benisch February 24, 2000
- ------------------------------------- ----------------------
John H. Benisch
/s/ Robert J. Bennett February 24, 2000
- ------------------------------------- ----------------------
Robert J. Bennett
/s/ C. Angela Bontempo February 24, 2000
- ------------------------------------- ----------------------
C. Angela Bontempo
- ------------------------------------- ----------------------
Robert T. Brady
/s/ Patrick J. Callan February 24, 2000
- ------------------------------------- ----------------------
Patrick J. Callan
/s/ R. Carlos Carballada February 24, 2000
- ------------------------------------- ----------------------
R. Carlos Carballada
/s/ Michael J. Falcone February 24, 2000
- ------------------------------------- ----------------------
Michael J. Falcone
- ------------------------------------- ----------------------
Richard E. Garman
/s/ James V. Glynn February 24, 2000
- ------------------------------------- ----------------------
James V. Glynn
- ------------------------------------- ----------------------
Roy M. Goodman
/s/ Patrick W.E. Hodgson February 24, 2000
- ------------------------------------- ----------------------
Patrick W.E. Hodgson
/s/ Samuel T. Hubbard, Jr. February 24, 2000
- ------------------------------------- ----------------------
Samuel T. Hubbard, Jr.
/s/ Russell A. King February 24, 2000
- ------------------------------------- ----------------------
Russell A. King
/s/ Reginald B. Newman, II February 24, 2000
- ------------------------------------- ----------------------
Reginald B. Newman, II
-119-
/s/ Peter J. O'Donnell, Jr. February 24, 2000
- ------------------------------------- ----------------------
Peter J. O'Donnell, Jr.
/s/ Jorge G. Pereira February 24, 2000
- ------------------------------------- ----------------------
Jorge G. Pereira
/s/ Robert E. Sadler, Jr. February 24, 2000
- ------------------------------------- ----------------------
Robert E. Sadler, Jr.
/s/ John L. Vensel February 24, 2000
- ------------------------------------- ----------------------
John L. Vensel
/s/ Herbert L. Washington February 24, 2000
- ------------------------------------- ----------------------
Herbert L. Washington
- ------------------------------------- ----------------------
John L. Wehle, Jr.
/s/ Christine B. Whitman February 24, 2000
- ------------------------------------- ----------------------
Christine B. Whitman
/s/ Robert G. Wilmers February 24, 2000
- ------------------------------------- ----------------------
Robert G. Wilmers
-120-
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization dated as of December 9,
1998, by and among M&T Bank Corporation, Olympia Financial
Corp. and FNB Rochester Corp. Incorporated by reference to
Exhibit No. 99.1 to the Form 8-K dated December 9, 1998 (File
No. 1-9861).
2.2 Stock Option Agreement dated as of December 9, 1998 by and
between M&T Bank Corporation and FNB Rochester Corp.
Incorporated by reference to Exhibit No. 99.2 to the Form 8-K
dated December 9, 1998 (File No. 1-9861).
2.3 Form of Voting Agreement between the directors of FNB
Rochester Corp. and M&T Bank Corporation, dated as of December
9, 1998. Incorporated by reference to Exhibit No. 99.3 to the
Form 8-K dated December 9, 1998 (File No. 1-9861).
3.1 Restated Certificate of Incorporation of M&T Bank Corporation
dated May 29, 1998. Incorporated by reference to Exhibit No.
3.1 to the Form 10-Q for the quarter ended June 30, 1998 (File
No. 1-9861).
3.2 Bylaws of M&T Bank Corporation as last amended on February 16,
1999. Incorporated by reference to Exhibit No. 3.2 to the Form
10-K for the year ended December 31, 1998 (File No. 1- 9861).
4.1 Instruments defining the rights of security holders, including
indentures. Incorporated by reference to Exhibit Nos. 3.1,
3.2, 10.1 and 10.2 hereof.
4.2 Amended and Restated Trust Agreement dated as of January 31,
1997 by and among M&T Bank Corporation, Bankers Trust Company,
Bankers Trust (Delaware), and the Administrators named
therein. Incorporated by reference to Exhibit No. 4.1 to the
Form 8-K dated January 31, 1997 (File No. 1-9861).
4.3 Amendment to Amended and Restated Trust Agreement dated as
of January 31, 1997 by and among M&T Bank Corporation, Bankers
Trust Company, Bankers Trust (Delaware), and the
Administrators named therein. Filed herewith.
4.4 Junior Subordinated Indenture dated as of January 31, 1997 by
and between M&T Bank Corporation and Bankers Trust Company.
Incorporated by reference to Exhibit No. 4.2 to the Form 8-K
dated January 31, 1997 (File No. 1-9861).
4.5 Supplemental Indenture dated December 23, 1999 by and between
M&T Bank Corporation and Bankers Trust Company. Filed
herewith.
4.6 Guarantee Agreement dated as of January 31, 1997 by and
between M&T Bank Corporation and Bankers Trust Company.
Incorporated by reference to Exhibit No. 4.3 to Form 8-K dated
January 31, 1997 (File No. 1-9861).
4.7 Amendment to Guarantee Agreement dated as of January 31,
1997 by and between M&T Bank Corporation and Bankers Trust
Company. Filed herewith.
-121-
4.8 Amended and Restated Trust Agreement dated as of June 6, 1997
by and among M&T Bank Corporation, Bankers Trust Company,
Bankers Trust (Delaware), and the Administrators named
therein. Incorporated by reference to Exhibit No. 4.1 to the
Form 8-K dated June 6, 1997 (File No. 1-9861).
4.9 Amendment to Amended and Restated Trust Agreement dated as
of June 6, 1997 by and among M&T Bank Corporation, Bankers
Trust Company, Bankers Trust (Delaware), and the
Administrators named therein. Filed herewith.
4.10 Junior Subordinated Indenture dated as of June 6, 1997 by and
between M&T Bank Corporation and Bankers Trust Company.
Incorporated by reference to Exhibit No. 4.2 to the Form 8-K
dated June 6, 1997 (File No. 1-9861).
4.11 Supplemental Indenture dated December 23, 1999 by and between
M&T Bank Corporation and Bankers Trust Company. Filed
herewith.
4.12 Guarantee Agreement dated as of June 6, 1997 by and between
M&T Bank Corporation and Bankers Trust Company. Incorporated
by reference to Exhibit No. 4.3 to Form 8-K dated June 6, 1997
(File No. 1-9861).
4.13 Amendment to Guarantee Agreement dated as of June 6, 1997
by and between M&T Bank Corporation and Bankers Trust Company.
Filed herewith.
4.14 Amended and Restated Declaration of Trust dated as of February
4, 1997 by and among Olympia Financial Corp., The Bank of New
York, The Bank of New York (Delaware), and the administrative
trustees named therein. Filed herewith.
4.15 Amendment to Amended and Restated Declaration of Trust dated
as of February 4, 1997 by and among Olympia Financial Corp.,
The Bank of New York, The Bank of New York (Delaware), and the
administrative trustees named therein. Filed herewith.
4.16 Indenture dated as of February 4, 1997 by and between
Olympia Financial Corp. and The Bank of New York.
Filed herewith.
4.17 Supplemental Indenture dated as of December 17, 1999 by and
between Olympia Financial Corp. and The Bank of New York.
Filed herewith.
4.18 Common Securities Guarantee Agreement dated as of February 4,
1997 by and between Olympia Financial Corp. and The Bank of
New York. Filed herewith.
4.19 Amendment to Common Securities Guarantee Agreement as of
December 17, 1999 by and between Olympia Financial Corp. and
The Bank of New York. Filed herewith.
4.20 Series A Capital Securities Guarantee Agreement dated as of
February 4, 1997 by and between Olympia Financial Corp. and
The Bank of New York. Filed herewith.
4.21 Amendment to Series A Capital Securities Guarantee Agreement
dated as of December 17, 1999 by and between Olympia Financial
Corp. and The Bank of New York. Filed herewith.
-122-
10.1 Credit Agreement, dated as of November 19, 1999, between M&T
Bank Corporation and CitiBank, N.A. Filed herewith.
10.2 M&T Bank Corporation 1983 Stock Option Plan as last amended on
April 20, 1999. Incorporated by reference to Exhibit 10.3 to
Form 10-Q for the quarter ended March 31, 1999 (File No. 1-
9861).
10.3 M&T Bank Corporation Annual Executive Incentive Plan.
Incorporated by reference to Exhibit No. 10.3 to the Form 10-Q
for the quarter ended June 30, 1998 (File No. 1 - 9861).
Supplemental Deferred Compensation Agreements between
Manufacturers and Traders Trust Company and:
10.4 Robert E. Sadler, Jr. dated as of March 7, 1985. Incorporated
by reference to Exhibit No. (10)(d)(A) to the Form 10-K for
the year ended December 31, 1984 (File No. 0-4561);
10.5 Brian E. Hickey dated as of July 21, 1994. Incorporated by
reference to Exhibit No. 10.8 to the Form 10-K for the year
ended December 31, 1995 (File No. 1-9861).
10.6 Supplemental Deferred Compensation Agreement, dated July 17,
1989, between The East New York Savings Bank and Atwood
Collins, III. Incorporated by reference to Exhibit No. 10.11
to the Form 10-K for the year ended December 31, 1991 (File
No. 1-9861).
10.7 M&T Bank Corporation Supplemental Pension Plan, as amended and
restated. Incorporated by reference to Exhibit No. 10.7 to the
Form 10-Q for the quarter ended June 30, 1998 (File No. 1-
9861).
10.8 M&T Bank Corporation Supplemental Retirement Savings Plan.
Incorporated by reference to Exhibit No. 10.8 to the Form 10-Q
for the quarter ended June 30, 1998 (File No. 1-9861).
10.9 M&T Bank Corporation Deferred Bonus Plan, as amended and
restated. Incorporated by reference to Exhibit No. 10.9 to the
Form 10-Q for the quarter ended June 30, 1998 (File No. 1-
9861).
10.10 M&T Bank Corporation Directors' Stock Plan, as amended and
restated. Incorporated by reference to Exhibit No. 10.11 to
Form 10-K for the year ended December 31, 1998 (File No. 1-
9861).
10.11 Restated 1987 Stock Option and Appreciation Rights Plan of
ONBANCorp, Inc. Incorporated by reference to Exhibit 10.11 to
the Form 10-Q for the quarter ended June 30, 1998 (File No. 1-
9861).
10.12 1992 ONBANCorp Directors' Stock Option Plan. Incorporated by
reference to Exhibit 10.12 of the Form 10-Q for the quarter
ended June 30, 1998 (File No. 1-9861).
10.13 Amended Franklin First Financial Corp. 1988 Stock Incentive
Plan. Incorporated by reference to Exhibit 10.13 to the Form
10-Q for the quarter ended June 30, 1998 (File No. 1-9861).
-123-
10.14 Employment Agreement, dated April 1, 1998, between M&T Bank
Corporation and Robert J. Bennett. Incorporated by reference
to Exhibit 10.14 to the Form 10-Q for the quarter ended June
30, 1998 (File No. 1-9861).
10.15 SERP Assumption Agreement, dated as of January 15, 1993,
between Robert J. Bennett and ONBANCorp, Inc. Incorporated by
reference to Exhibit 10.15 to the Form 10-Q for the quarter
ended June 30, 1998 (File No. 1-9861).
11.1 Statement re: Computation of Earnings Per Common Share.
Incorporated by reference to note 12 of Notes to Financial
Statements filed herewith in Part II, Item 8, "Financial
Statements and Supplementary Data."
21.1 Subsidiaries of the Registrant. Incorporated by reference to
the caption "Subsidiaries" contained in Part I, Item 1 hereof.
23.1 Consent of PricewaterhouseCoopers LLP re: Registration
Statement Nos. 33-32044 and 333-16077. Filed herewith.
23.2 Consent of PricewaterhouseCoopers LLP re: Registration
Statement Nos. 33-12207, 33-58500, 33-63917, 333-43171,
333-43175 and 333-63985. Filed herewith.
27.1 Article 9 Financial Data Schedule for the year ended December
31, 1999. Filed herewith.
-124-