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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, 1998
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 First Empire 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 First Empire 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 March 1, 1999: $2,939,991,477.
Number of shares of the Common Stock, $5 par value, outstanding as of the close
of business on March 1, 1999: 7,725,294 shares.
Documents Incorporated By Reference:
(1) Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders of M&T Bank Corporation in Part III.
M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
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 49-50
B. Interest income/expense and resulting yield or rate
on average interest-earning assets (including non-
accrual loans) and interest-bearing liabilities 49-50
C. Rate/volume variances 19
II. Investment portfolio
A. Year-end balances 16
B. Maturity schedule and weighted average yield 61
C. Aggregate carrying value of securities that exceed ten
percent of stockholders' equity 75
III. Loan portfolio
A. Year-end balances 16,76
B. Maturities and sensitivities to changes in interest rates 58
C. Risk elements
Nonaccrual, past-due and renegotiated loans 56
Actual and pro forma interest on certain loans 76
Nonaccrual policy 69
Loan concentrations 32
IV. Summary of loan loss experience
A. Analysis of the allowance for loan losses 54
Factors influencing management's judgment concerning
the adequacy of the allowance and provision 31-32,69
B. Allocation of the allowance for loan losses 55
V. Deposits
A. Average balances and rates 49-50
B. Maturity schedule of domestic time deposits with
balances of $100,000 or more 57
VI. Return on equity and assets 18,25,37-38
VII. Short-term borrowings 79-80
2
M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
CROSS-REFERENCE SHEET--continued Form
10-K
Page
PART I, continued
Item 2. Properties. 20,77-78
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 46
B. Approximate number of holders at year-end 16
C. Frequency and amount of dividends declared 17,18,46
D. Restrictions on dividends 11,104-105
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. 23-61
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk. 35-37,59
Item 8. Financial Statements and Supplementary Data.
A. Report of Independent Accountants 63
B. Consolidated Balance Sheet -
December 31, 1998 and 1997 64
C. Consolidated Statement of Income -
Years ended December 31, 1998, 1997 and 1996 65
D. Consolidated Statement of Cash Flows -
Years ended December 31, 1998, 1997 and 1996 66
E. Consolidated Statement of Changes in
Stockholders' Equity - Years ended December 31,
1998, 1997 and 1996 67
3
M&T BANK CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
CROSS-REFERENCE SHEET--continued Form
10-K
Page
PART II, continued
Item 8, Financial Statements and Supplementary Data, continued
F. Notes to Financial Statements 68-108
G. Quarterly Trends 46
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 109
PART III
Item 10. Directors and Executive Officers of the
Registrant. 109
Item 11. Executive Compensation. 109
Item 12. Security Ownership of Certain Beneficial
Owners and Management. 109
Item 13. Certain Relationships and Related Transactions. 109
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. 110
Signatures 111-113
Exhibit Index 114-116
4
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, 1998, the
Company had consolidated total assets of $20.6 billion, deposits of $14.7
billion and stockholders' equity of $1.6 billion. The Company had 5,485
full-time and 982 part-time employees as of December 31, 1998.
At December 31, 1998, 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, 1998, M&T Bank represented 98% of consolidated assets of the
Company.
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 $266.3 million in cash and 1,429,998 shares of M&T common
stock in exchange for ONBANCorp shares outstanding at the time of acquisition. A
summary of assets acquired and liabilities assumed on April 1, 1998 in
connection with the ONBANCorp transaction follows (in thousands):
Assets
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 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.
Such expenses totaled $21.3 million ($14.0 million after-tax) during the year
ended December 31, 1998.
On December 9, 1998, M&T entered into a definitive agreement with FNB Rochester
Corp. ("FNB"), a bank holding company headquartered in Rochester,
5
New York, providing for a merger between the two companies. FNB, with total
assets of $588 million as of December 31, 1998, is the parent company of the
First National Bank of Rochester, which has 19 offices in western and central
New York State. Under the terms of the merger agreement, stockholders of FNB
may elect to receive .06766 of a share of M&T common stock (and cash in lieu
of any fractional share) or $33.00 in cash for each outstanding share of FNB
common stock. Subject to certain adjustments set forth in the merger
agreements, 50% of the 3,625,806 shares of FNB common stock outstanding on
December 9, 1998 will be exchanged for shares of M&T common stock and the
remaining shares will be converted for cash. The elections of FNB's
stockholders will be subject to allocation and proration if either portion of
the merger consideration is oversubscribed. The merger, which will be
accounted for as a purchase, has been approved by the boards of directors of
each company, and is subject to certain conditions, including regulatory
approvals and approval of FNB's stockholders. It is anticipated that the
merger will take place during the second quarter of 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.
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. The stock of M&T Bank represents a major asset of M&T. M&T Bank
operates under a charter granted by the State of New York in 1892, and the
continuity of its banking business is traced to the organization of the
Manufacturers and Traders Bank in 1856. The principal executive offices of M&T
Bank are located at One M&T Plaza, Buffalo, New York 14203. As of December 31,
1998, M&T Bank had 228 banking offices located throughout New York State, 19
offices in northeastern Pennsylvania, plus a branch in Nassau, The Bahamas. As
of December 31, 1998, M&T Bank had consolidated total assets of $20.1 billion,
deposits of $14.3 billion and stockholder's equity of $1.8 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 $14.3 billion in assessable deposits at December 31, 1998, 84% 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
6
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, 1998, M&T Bank, N.A. had total assets of $629 million, deposits of
$421 million and stockholder's equity of $49 million.
M&T Capital Corporation ("M&T Capital"), a wholly owned subsidiary of M&T Bank,
was incorporated as a New York business corporation in January 1968. M&T Capital
is a federally-licensed small business investment company operating under the
provisions of the Small Business Investment Act of 1958, as amended. During
1998, the Corporation's strategy was to continue the liquidation of its
investments, while managing the remainder of its existing investment portfolio.
Upon liquidation of its only significant remaining portfolio investment, it is
the Company's current intention to surrender its license to the Small Business
Administration. M&T Capital had assets and stockholder's equity of approximately
$2 million as of December 31, 1998, and recorded approximately $65 thousand of
revenues in 1998. The headquarters of M&T Capital are located at One M&T Plaza,
Buffalo, New York 14203.
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 consumer credit company with headquarters at One M&T Plaza, Buffalo, New York
14203, and offices in Pennsylvania. As of December 31, 1998, M&T Credit had
assets of $482 million and stockholder's equity of $25 million. M&T Credit
recorded $30 million of revenues during 1998.
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 $101 million
and stockholder's equity of $18 million as of December 31, 1998, and recorded
approximately $2 million of revenues in 1998. The headquarters of M&T Financial
are located at One M&T Plaza, Buffalo, New York 14203.
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 $711 million and stockholder's equity of $122 million
as of December 31, 1998, and recorded approximately $113 million of revenues
during 1998. Residential mortgage loans serviced by M&T Mortgage for
non-affiliates totaled $7.3 billion at December 31, 1998. The headquarters of
M&T Mortgage are located at M&T Center, One Fountain Plaza, Buffalo, New York
14203.
M&T Real Estate, Inc.("M&T Real Estate") is a subsidiary of M&T Bank which was
incorporated as a New York business corporation in August 1995. M&T Bank owns
all of the outstanding common stock and 87.5% of the preferred stock of M&T Real
Estate. 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 servicing activities. As of December 31,
1998, M&T Real Estate had assets of $4.9 billion and stockholder's equity of
$4.8 billion. M&T Real Estate recorded $393 million of revenues in 1998. 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
7
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, 1998, M&T Securities had assets of $9 million and stockholder's
equity of $4 million. M&T Securities recorded $22 million of revenues during
1998. The headquarters of M&T Securities are located at One M&T Plaza, Buffalo,
New York 14203.
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 14240. As of December 31, 1998, Highland Lease had assets of
$419 million and stockholder's equity of $37 million. Highland Lease recorded
$23 million of revenues during 1998.
During 1997, the Company formed two Delaware business trusts and ONBANCorp
formed one Delaware business trust to issue preferred capital securities
("Capital Securities"). First Empire Capital Trust I ("Trust I") issued $150
million of 8.234% Capital Securities on January 17, 1997, and First Empire
Capital Trust II ("Trust II") issued $100 million of 8.277% Capital
Securities on May 30, 1997. On February 4, 1997, OnBank Capital Trust I
("OnBank Trust I" and, together with Trust I and Trust II, the "Trusts")
issued $60 million of 9.25% preferred capital securities. As a result of the
ONBANCorp acquisition, the Company assumed responsibility for the ONBANCorp
Capital Securities. The common securities ("Common Securities") of Trust I
and Trust II are wholly owned by M&T and the common securities of OnBank
Trust I 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 OnBank Trust I. 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, 1998, Trust I had assets of $160 million and
stockholders' equity of $155 million, and during 1998 Trust I recorded $13
million of revenues. Trust II had assets of $104 million and stockholders'
equity of $103 million at December 31, 1998, and during 1998 Trust II
recorded $9 million of revenues. OnBank Trust I had assets of $73 million and
stockholders' equity of $62 million at December 31, 1998, and during 1998
OnBank Trust I recorded $4 million of revenues.
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, 1998.
8
SEGMENT INFORMATION, PRINCIPAL PRODUCTS/SERVICES
AND FOREIGN OPERATIONS
Information about the Registrant's business segments is included in note 21 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 16 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, 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
The banking industry is subject to extensive state and federal regulation and
continues to undergo significant change. In 1991, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") was enacted. FDICIA substantially amended
the Federal Deposit Insurance Act ("FDI Act") and certain other statutes. Since
FDICIA's enactment, the federal bank regulatory agencies have adopted
regulations to implement its statutory provisions.
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.
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
Board of Governors of the Federal Reserve System ("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.
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
9
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 19 branches of Franklin First Savings Bank, a wholly owned
subsidiary of ONBANCorp, were merged into M&T Bank on April 1, 1998 as a part of
M&T's acquisition of ONBANCorp under the interstate banking authority of the
Interstate Banking Act.
The Banking Law authorizes interstate branching by merger or acquisition on a
reciprocal basis, and permits the acquisition of a single branch without
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 Community Reinvestment Act of 1977 ("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.
10
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.
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 22 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.
Under FDICIA, 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
11
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, 1998
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, 1998
(dollars in millions)
Registrant M&T Bank,
(Consolidated) M&T Bank N.A.
-------------- -------- --------
Capital Components
Tier 1 capital $ 1,372 $ 1,293 $ 46
Total capital 1,725 1,640 51
Risk-weighted assets
and off-balance sheet
instruments $16,335 $16,032 $317
Risk-based Capital Ratio
Tier 1 capital 8.40% 8.07% 14.54%
Total capital 10.56% 10.24% 16.25%
Leverage Ratio 7.02% 6.80% 7.81%
FDICIA required the federal banking agencies, including the Federal Reserve
Board and the OCC, to revise their 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. During 1998 the Federal Reserve and OCC amended their
risk-based capital guidelines to permit the inclusion of up to 45% of unrealized
gains on certain equity securities in Tier 2 capital, and raised the Tier 1
capital limitation for mortgage servicing assets from 50 to 100 percent of Tier
1 capital.
FDICIA requires the federal banking agencies 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
12
(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.
FDICIA directs, among other things, that each federal banking agency prescribe
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.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company, including new reporting requirements, regulatory
13
standards for real estate lending, "truth in savings" provisions, limitations on
the amount of capitalized mortgage servicing rights and purchased credit card
relationships includable in Tier 1 capital, and the requirement that a
depository institution give prior notice to customers and regulatory authorities
before closing any branch. FDICIA also contains a prohibition on the acceptance
or renewal of brokered deposits by depository institutions that are not "well
capitalized" or are "adequately capitalized" and have not received a waiver from
the FDIC.
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 .31% 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 1998.
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 FDIC is required to set FICO assessments for
BIF-assessable deposits at one-fifth the amount for SAIF-assessable deposits.
The current annualized rates established by the FDIC for BIF-assessable and
SAIF-assessable deposits are 1.22 basis points and 6.10 basis points,
respectively.
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.
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
14
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 brokers and dealers, insurance
companies and retail merchandising organizations. Furthermore, diversified
financial services companies are able to offer a combination of these services
to their customers on a nationwide basis. Compared to less extensively regulated
financial services companies, the Company's operations are significantly
impacted by state and federal regulations applicable to the banking industry.
Moreover, the provisions of 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 banking organizations with which the Registrant's
subsidiary banks compete may grow in the future.
OTHER LEGISLATIVE INITIATIVES
From time to time, various proposals are introduced in the United States
Congress and in the New York 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
financial institutions.
Moreover, a number of other bills have been 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
DOLLARS IN THOUSANDS 1998 1997 1996 1995 1994
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Money-market assets
Interest-bearing deposits at banks $ 674 668 47,325 125,500 143
Federal funds sold and resell agreements 229,066 53,087 125,326 1,000 3,080
Trading account 173,122 57,291 37,317 9,709 5,438
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total money-market assets 402,862 111,046 209,968 136,209 8,661
Investment securities
U.S. Treasury and federal agencies 1,321,000 1,081,247 1,023,038 1,087,005 999,407
Obligations of states and political subdivisions 73,789 38,018 41,445 35,250 55,787
Other 1,390,775 605,953 507,215 647,040 735,846
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total investment securities 2,785,564 1,725,218 1,571,698 1,769,295 1,791,040
Loans and leases
Commercial, financial, leasing, etc 3,270,840 2,406,640 2,206,282 2,013,937 1,680,415
Real estate - construction 489,112 254,434 90,563 77,604 53,535
Real estate - mortgage 9,289,521 6,765,408 6,199,931 5,648,590 5,046,937
Consumer 2,956,228 2,339,051 2,623,445 2,133,592 1,666,230
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total loans and leases 16,005,701 11,765,533 11,120,221 9,873,723 8,447,117
Unearned discount (214,171) (268,965) (398,098) (317,874) (229,824)
Allowance for possible credit losses (306,347) (274,656) (270,466) (262,344) (243,332)
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Loans and leases, net 15,485,183 11,221,912 10,451,657 9,293,505 7,973,961
Goodwill and core deposit intangible 546,036 17,288 18,923 28,234 23,514
Real estate and other assets owned 11,129 8,413 8,523 7,295 10,065
Total assets 20,583,891 14,002,935 12,943,915 11,955,902 10,528,644
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Noninterest-bearing deposits 2,066,814 1,458,241 1,352,929 1,184,359 1,087,102
NOW accounts 509,307 346,795 334,787 768,559 748,199
Savings deposits 4,830,678 3,344,697 3,280,788 2,765,301 3,098,438
Time deposits 7,027,083 5,762,497 5,352,749 4,596,053 3,106,723
Deposits at foreign office 303,270 250,928 193,236 155,303 202,611
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total deposits 14,737,152 11,163,158 10,514,489 9,469,575 8,243,073
Short-term borrowings 2,229,976 1,050,918 1,127,900 1,270,022 1,363,161
Long-term borrowings 1,567,543 427,819 178,002 192,791 96,187
Total liabilities 18,981,525 12,972,669 12,038,256 11,109,649 9,807,648
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Stockholders' equity 1,602,366 1,030,266 905,659 846,253 720,996
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
STOCKHOLDERS, EMPLOYEES AND OFFICES
NUMBER AT YEAR-END 1998 1997 1996 1995 1994
- ------------------ ----- ----- ----- ----- -----
Stockholders 5,207 3,449 3,654 3,787 3,981
Employees 6,467 5,083 5,180 4,889 4,505
Offices 283 210 202 181 168
----- ----- ----- ----- -----
16
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 1, Table 2
CONSOLIDATED EARNINGS
Dollars in thousands 1998 1997 1996 1995 1994
- --------------------------------------------- ---------- --------- ------- ------- -------
INTEREST INCOME
Loans and leases, including fees $1,190,983 952,436 881,002 794,181 633,077
Money-market assets
Deposits at banks 400 2,475 2,413 8,181 2,212
Federal funds sold and resell agreements 8,293 2,989 2,985 3,007 4,751
Trading account 4,403 1,781 980 1,234 361
Investment securities
Fully taxable 139,731 99,640 107,415 118,791 104,185
Exempt from federal taxes 7,984 5,640 2,637 2,760 2,760
- --------------------------------------------- ---------- --------- ------- ------- -------
Total interest income 1,351,794 1,064,961 997,432 928,154 747,346
- --------------------------------------------- ---------- --------- ------- ------- -------
INTEREST EXPENSE
NOW accounts 4,851 3,455 9,430 11,902 11,286
Savings deposits 115,345 90,907 84,822 87,612 84,804
Time deposits 388,185 327,611 286,088 239,882 97,067
Deposits at foreign office 14,973 12,160 12,399 6,952 5,894
Short-term borrowings 105,582 44,341 59,442 84,225 73,868
Long-term borrowings 58,567 29,619 14,227 11,157 6,287
- --------------------------------------------- ---------- --------- ------- ------- -------
Total interest expense 687,503 508,093 466,408 441,730 279,206
- --------------------------------------------- ---------- --------- ------- ------- -------
NET INTEREST INCOME 664,291 556,868 531,024 486,424 468,140
Provision for possible credit losses 43,200 46,000 43,325 40,350 60,536
- --------------------------------------------- ---------- --------- ------- ------- -------
Net interest income after provision
for possible credit losses 621,091 510,868 487,699 446,074 407,604
- --------------------------------------------- ---------- --------- ------- ------- -------
OTHER INCOME
Mortgage banking revenues 65,646 51,547 44,484 37,142 16,002
Service charges on deposit accounts 57,357 43,377 40,659 38,290 35,016
Trust income 38,211 30,688 27,672 25,477 22,574
Merchant discount and other credit card fees 12,436 19,395 18,266 10,675 8,705
Trading account and foreign exchange gains 3,963 3,690 2,421 2,783 738
Gain (loss) on sales of bank investment securities 1,761 (280) (37) 4,479 128
Gain on sales of venture capital investments -- 2,677 3,175 2,619 802
Other revenues from operations 91,221 41,973 33,608 28,073 39,774
- --------------------------------------------- ---------- --------- ------- ------- -------
Total other income 270,595 193,067 170,248 149,538 123,739
- --------------------------------------------- ---------- --------- ------- ------- -------
OTHER EXPENSE
Salaries and employee benefits 259,487 220,017 208,342 188,222 161,221
Equipment and net occupancy 66,553 53,299 51,346 50,526 49,132
Printing, postage and supplies 17,603 13,747 15,167 14,442 13,516
Amortization of goodwill and core deposit intangible 34,487 7,291 6,292 6,293 358
Deposit insurance 2,710 1,935 9,337 14,675 16,442
Other costs of operations 185,283 125,487 118,494 100,281 96,193
- --------------------------------------------- ---------- --------- ------- ------- -------
Total other expense 566,123 421,776 408,978 374,439 336,862
- --------------------------------------------- ---------- --------- ------- ------- -------
Income before income taxes 325,563 282,159 248,969 221,173 194,481
Income taxes 117,589 105,918 97,866 90,137 77,186
- --------------------------------------------- ---------- --------- ------- ------- -------
NET INCOME $ 207,974 176,241 151,103 131,036 117,295
- --------------------------------------------- ---------- --------- ------- ------- -------
- --------------------------------------------- ---------- --------- ------- ------- -------
DIVIDENDS DECLARED
Common $ 28,977 21,207 18,617 16,224 14,743
Preferred -- -- 900 3,600 3,600
- --------------------------------------------- ---------- --------- ------- ------- -------
- --------------------------------------------- ---------- --------- ------- ------- -------
17
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 1, Table 3
COMMON SHAREHOLDER DATA
1998 1997 1996 1995 1994
- ---------------------------------------------- ----------- ------- ------ ------ ------
Per Share
Net income
Basic $ 27.30 26.60 22.54 19.61 16.90
Diluted 26.16 25.26 21.08 17.98 15.73
Cash dividends declared 3.80 3.20 2.80 2.50 2.20
Stockholders' equity at year-end 207.94 155.86 135.45 125.33 103.02
Tangible stockholders' equity at year-end 139.89 153.24 132.62 120.94 99.46
Dividend payout ratio 13.93 % 12.03 % 12.39 % 12.73 % 12.97 %
- ---------------------------------------------- ----------- ------- ------ ------ ------
- ---------------------------------------------- ----------- ------- ------ ------ ------
18
- -------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Item 1, Table 4
CHANGES IN INTEREST INCOME AND EXPENSE*
1998 COMPARED WITH 1997 1997 COMPARED WITH 1996
------------------------------- -------------------------------
RESULTING FROM RESULTING FROM
TOTAL CHANGES IN: TOTAL CHANGES IN:
INCREASE (DECREASE) IN THOUSANDS CHANGE VOLUME RATE CHANGE VOLUME RATE
- -------------------------------- --------- --------- --------- --------- --------- ---------
Interest income
Loans and leases, including fees $ 238,819 278,543 (39,724) $ 71,264 74,326 (3,062)
Money-market assets
Deposits at banks (2,075) (1,414) (661) 62 200 (138)
Federal funds sold and agreements
to resell securities 5,304 5,298 6 4 19 (15)
Trading account 2,587 2,723 (136) 837 700 137
Investment securities
U.S. Treasury and federal agencies 17,062 19,964 (2,902) (3,055) (4,941) 1,886
Obligations of states and political
subdivisions 1,734 1,878 (144) 154 137 17
Other 24,748 23,816 932 (384) (1,980) 1,596
--------- ---------
Total interest income $ 288,179 $ 68,882
--------- ---------
--------- ---------
Interest expense
Interest-bearing deposits
NOW accounts $ 1,396 1,008 388 $ (5,975) (5,416) (559)
Savings deposits 24,438 26,516 (2,078) 6,085 12,622 (6,537)
Time deposits 60,574 66,505 (5,931) 41,523 38,400 3,123
Deposits at foreign office 2,813 3,023 (210) (239) (474) 235
Short-term borrowings 61,241 60,997 244 (15,101) (16,846) 1,745
Long-term borrowings 28,948 32,764 (3,816) 15,392 14,534 858
--------- --------- --------- --------- --------- ---------
Total interest expense $ 179,410 $ 41,685
--------- ---------
--------- ---------
- -----------------
* 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 at a cost of approximately $17 million. 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, 1998, the cost of
this property, net of accumulated depreciation, was $9.6 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, 1998, the cost of this building,
including improvements made subsequent to acquisition and net of accumulated
depreciation, was $15.3 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, net of accumulated depreciation, was $13.6 million.
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 49% of this facility is occupied by M&T Bank, with the remainder
leased to non-affiliated tenants. At December 31, 1998, 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 248 domestic banking offices of the Registrant's subsidiary banks,
84 are owned in fee and 164 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 March 1, 1999. Shown parenthetically is the year since which the officer has
held the indicated position with the Registrant or its subsidiaries. In the case
of each such corporation, 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 57, 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-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 64, 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 a director of M&T
Financial (1983). He is chairman of the board and a director of M&T
Bank, N.A.(1995).
Emerson L. Brumback, age 47, 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 president and a director of
Highland Lease (1997) and executive vice president (1998) and a
director of M&T Bank, N.A.(1997). He is a director of M&T Credit
(1997), M&T Mortgage (1997) 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 52, 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 43, 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, Inc., the
Insurance Services Division of M&T Bank, N.A. and the Trust and
Investment Services Division of M&T Bank. Mr. Czarnecki is president
of M&T Securities, Inc. (1996) 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 46, 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 59, 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 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 41, 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 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 61, 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 50, 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
chairman of the board and 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 43, 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 Capital (1996), M&T Financial (1996), M&T Mortgage
(1996) and M&T Real Estate (1996). 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 53, 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 chairman of the board (1987) and a director
of M&T Capital (1983); 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); president, chief executive officer and a director
of M&T Bank, N.A.(1995); and chairman of the board, president and a
director of M&T Real Estate (1995).
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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 $20.6 billion at December 31, 1998.
Formerly known as First Empire State Corporation, M&T changed its name effective
May 29, 1998. M&T's common stock began trading on the New York Stock Exchange
under the symbol "MTB" on June 1, 1998. Prior to that date, the common stock was
traded on the American Stock Exchange under the symbol "FES." 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 $20.1 billion at December 31, 1998, is a
New York-chartered commercial bank with 223 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 M&T Mortgage Corporation, a
residential mortgage banking company; M&T Securities, Inc., a broker/dealer; M&T
Real Estate, Inc., a commercial mortgage lender; M&T Financial Corporation, a
commercial leasing company; M&T Capital Corporation, a venture capital company;
M&T Credit Corporation, a consumer credit company; and Highland Lease
Corporation, a consumer leasing company.
M&T Bank, N.A., with total assets of $629 million at December 31,
1998, is a national bank with an office in Oakfield, New York. M&T Bank, N.A.
commenced operations on October 2, 1995 and 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 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
-23-
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 $266.3 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 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 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.
Such expenses totaled $21.3 million ($14.0 million after-tax) during the year
ended December 31, 1998 and consisted largely of expenses for 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 designed to introduce M&T Bank to
ONBANCorp customers; and printing, supplies and other costs of commencing
operations in new market regions. Since the systems conversions and integration
of operations is 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,
net of applicable income taxes, of $16.8 million 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. 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 acquisition.
On December 9, 1998, M&T entered into a definitive agreement with FNB
Rochester Corp. ("FNB"), a bank holding company headquartered in Rochester, New
York, providing for a merger between the two companies. FNB, with total assets
of $588 million as of December 31, 1998, is the parent company of First National
Bank of Rochester, which has 19 offices in western and central New York State.
Under the terms of the merger agreement, stockholders of FNB may elect to
receive .06766 of a share of M&T common stock (and cash in lieu of any
fractional share) or $33.00 in cash for each outstanding share of FNB common
stock. Subject to certain adjustments set forth in the merger agreements, 50% of
the 3,625,806 shares of FNB common stock outstanding on
-24-
December 9, 1998 will be exchanged for shares of M&T common stock and the
remaining shares will be converted for cash. The elections of FNB's stockholders
will be subject to allocation and proration if either portion of the merger
consideration is oversubscribed. The merger, which will be accounted for as a
purchase, has been approved by the boards of directors of each company, and is
subject to certain conditions, including regulatory approvals and approval of
FNB's stockholders. It is anticipated that the merger will take place during the
second quarter of 1999.
On July 31, 1998, M&T completed the sale of its retail credit card
business, including outstanding balances of approximately $186 million on that
date, and recognized a pre-tax gain of approximately $3.2 million. M&T continues
to offer credit cards to its customers in the name of M&T Bank, but the
cardholder accounts are owned and serviced by the purchaser of that business.
OVERVIEW
The Company's net income was $208.0 million or $26.16 of diluted earnings per
common share in 1998, increases of 18% and 4%, respectively, from $176.2 million
or $25.26 per diluted share in 1997. Basic earnings per share rose 3% to $27.30
in 1998 from $26.60 in 1997. In 1996, net income totaled $151.1 million while
diluted and basic earnings per share were $21.08 and $22.54, respectively. The
after-tax impact of nonrecurring expenses associated with merging the operations
of ONBANCorp into the Company during 1998 was $14.0 million, representing $1.76
of diluted earnings per share and $1.84 of basic earnings per share.
Net income expressed as a rate of return on average assets in 1998 was
1.14%, compared with 1.32% in 1997 and 1.21% in 1996. The return on average
common stockholders' equity was 13.86% in 1998, 18.49% in 1997 and 17.60% in
1996. Excluding the impact of merger-related expenses, the rates of return on
average assets and average common equity in 1998 were 1.21% and 14.79%,
respectively.
Growth in average loans outstanding, including the impact of the $3.0
billion of loans obtained on April 1, 1998 in the ONBANCorp acquisition, was the
leading factor for a 19% increase in taxable-equivalent net interest income to
$671 million in 1998 from $563 million in 1997. Average loans totaled $14.3
billion in 1998, up 30% from $11.0 billion in 1997. Similarly, average earning
assets increased 32%, to $16.9 billion in 1998 from $12.8 billion in 1997. An 8%
increase in average loans in 1997 was also the most significant factor for the
rise in that year's net interest income from $536 million in 1996. Average loans
and average earning assets in 1996 were $10.1 billion and $12.0 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 1998 was 3.97%, compared with 4.40% in
1997 and 4.45% in 1996.
The provision for possible credit losses was $43.2 million in 1998,
compared with $46.0 million in 1997 and $43.3 million in 1996. Net charge-offs
in 1998 were $39.4 million, compared with $41.8 million in 1997 and $35.2
million in 1996. Included in net charge-offs were net consumer loan charge-offs
totaling $31.5 million in 1998, $35.8 million in 1997 and $28.5 million in 1996.
Net charge-offs of credit card balances included in the consumer loan amounts
were $14.4 million in 1998, $19.0 million in 1997, and $15.9 million in 1996. As
a percentage of average loans outstanding, net charge-offs declined to .28% in
1998, compared with .38% in 1997 and .35% in 1996.
-25-
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 incurred charitable
contributions expense of $24.6 million and recognized tax-exempt other income of
$15.3 million. The transfer provided an income tax benefit of approximately
$10.0 million and, accordingly, resulted in an after-tax increase in net income
of $0.7 million, or $.09 per diluted share. Excluding the effect of this
transfer, noninterest income totaled $255 million in 1998, 32% above the $193
million in 1997 and 50% above the $170 million in 1996. 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. Higher revenues
from mortgage banking, trust activities and a bank-owned life insurance program
also contributed to the increases from prior years. Excluding $24.6 million of
expense related to the previously mentioned transfer of securities to an
affiliated charitable foundation in 1998, noninterest expense was $542 million
in 1998, up 28% from $422 million in 1997 and 32% from $409 million in 1996. A
$27.2 million increase in amortization of goodwill and core deposit intangible,
$21.3 million of nonrecurring merger-related expenses and operating expenses
related to the acquired operations of ONBANCorp significantly contributed to the
increase in expenses from 1997 to 1998. Expenses associated with expanding
certain businesses providing loan and investment services contributed to the
increase in expenses from 1996 and 1997.
CASH OPERATING RESULTS
As a result of the acquisition of ONBANCorp on April 1, 1998 and, to a
significantly lesser extent, acquisitions of other entities in prior years, the
Company had recorded as assets at December 31, 1998 goodwill and core deposit
intangible totaling $546 million. 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) presents a relevant measure
of financial performance and better reflects the cash return on the investments
made by M&T to improve and expand its franchise. The supplemental cash basis
data presented herein do not exclude the effect of other non-cash operating
expenses such as depreciation, provision for possible credit losses, or deferred
income taxes associated with the results of operations.
Excluding nonrecurring merger-related expenses, cash net income was
$251.9 million in 1998, up 38% from $182.4 million in 1997. On the same basis,
diluted and basic earnings per share were $31.69 and $33.06, respectively, up
21% and 20%, respectively, from $26.14 and $27.53 in 1997. In 1996, cash net
income was $156.7 million while diluted and basic cash earnings per share were
$21.85 and $23.38, respectively.
Cash return on average tangible assets, excluding the impact of
nonrecurring merger-related expenses, was 1.41% in 1998, compared with 1.37% in
1997 and 1.26% in 1996. Cash return on average tangible common equity, also
before one-time expenses, was 23.08% in 1998, compared with 19.56% and 18.79% in
1997 and 1996, respectively.
NET INTEREST INCOME/LENDING AND FUNDING ACTIVITIES
Net interest income expressed on a taxable-equivalent basis increased 19% to
$671 million in 1998 from $563 million in 1997. This increase resulted from
growth in average earning assets, which rose $4.1 billion or 32% to $16.9
billion in 1998 from $12.8 billion in 1997. Taxable-equivalent net interest
-26-
income and average earning assets in 1996 were $536 million and $12.0 billion,
respectively. Growth in average earning assets in 1998 was largely attributable
to higher average loans and leases outstanding, which totaled $14.3 billion in
1998, up 30% from $11.0 billion in 1997. The primary reason for the higher loan
balances in 1998 was the $3.0 billion of loans obtained on April 1, 1998 from
the ONBANCorp acquisition, including approximately $450 million of commercial
loans, $380 million of commercial real estate loans, $1.2 billion of residential
mortgage loans and $930 million of consumer loans. Partially offsetting these
increases in average loans and leases was the impact of the July 1998 sale of
M&T's retail credit card business. Average credit card balances for 1998 were
$136 million, compared with $268 million in 1997 and $258 million in 1996.
Average loans in 1997 were 8% higher than the $10.1 billion in 1996. The
accompanying table 4 summarizes average loans and leases outstanding in 1998 and
percentage changes in the major components of the loan and lease portfolio over
the past two years.
Loans secured by real estate, including outstanding home equity loans
and lines of credit which are classified as consumer loans, represented
approximately 66% of the loan and lease portfolio during 1998, up from 64% in
1997 and 1996. At December 31, 1998, the Company held approximately $5.5 billion
of commercial real estate loans, $4.3 billion of consumer real estate mortgage
loans secured by one-to-four family residential properties and $739 million of
outstanding home equity loans and lines of credit, compared with $4.4 billion,
$2.5 billion and $654 million, respectively, at December 31, 1997.
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. Most
commercial real estate loans in the Company's portfolio are either fixed-rate
instruments with monthly payments and a balloon payment of the remaining
principal at maturity, often five years after loan origination, or adjustable
rate loans. For borrowers in good standing, the customer may extend the terms of
the loan agreement for an additional five years at the then-current market rate
of interest. In recent years, in response to customer needs, 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 accompanying table 6 presents commercial real
estate loans at December 31, 1998 by geographic area, type of collateral and
size of the loans outstanding. Of the $2.7 billion of commercial real estate
loans in the New York City metropolitan area, approximately 52% were secured by
multi-family residential properties, 22% by retail space and 9% 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 61% 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 22% 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 78% of the
aggregate dollar amount of loans in this segment of the portfolio 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 8% of total commercial
-27-
real estate loans.
Amounts presented as construction lending in the accompanying table
represent commercial construction loans for which the Company has not committed
to provide permanent financing. Such loans totaled $363 million, or 2% of total
loans and leases at December 31, 1998.
Real estate loans secured by one-to-four family residential properties
totaled $4.3 billion at December 31, 1998, including approximately 62% secured
by properties located in New York State. At December 31, 1998, $445 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 19% of the average
loan portfolio during 1998, compared with 21% in 1997 and 22% in 1996.
Automobile loans and home equity loans and lines of credit represent the largest
components of the consumer loan portfolio. At December 31, 1998, 52% of the
automobile loan portfolio was to borrowers in New York State, while the
remainder was largely to borrowers 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 1998, while no other consumer loan
product represented more than 5%. Due to poorer than expected results, during
1998 and 1997 the Company terminated all of its co-branded credit card programs
and, as already discussed, sold its retail credit card business on July 31,
1998, including outstanding balances of approximately $186 million.
The Company's investment securities portfolio averaged $2.4 billion in
1998, $1.7 billion in 1997 and $1.8 billion in 1996. Investment securities
obtained in the acquisition of ONBANCorp added approximately $800 million to the
average balance during 1998. 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. The investment securities
portfolio is largely comprised of mortgage-backed securities, collateralized
mortgage obligations, and shorter-term U.S. Treasury notes. 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, actual or anticipated prepayments, or
credit risk associated with a particular security.
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 $230 million in 1998, compared with
$123 million in 1997 and $110 million in 1996.
Core deposits represent the most significant source of funding to the
Company and generally carry lower interest rates than wholesale funds of
comparable maturities. Core deposits consist of noninterest-bearing deposits,
interest-bearing transaction accounts, savings deposits and nonbrokered domestic
time deposits under $100,000. 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 rose to $10.7 billion in 1998, up from $8.3 billion in 1997 and
$8.0 billion in 1996. Core deposits obtained on April 1, 1998 in the acquisition
of ONBANCorp totaled approximately $2.8 billion. Average core deposits of M&T
Bank, N.A. were $401 million in 1998, $432 million in 1997 and $261 million in
1996. Funding
-28-
provided by core deposits totaled 63% of average earning assets in
1998, compared with 65% in 1997 and 66% in 1996. An analysis of changes in the
components of core deposits is presented in the accompanying table 7.
Domestic time deposits of $100,000 or more, deposits originated through
the Company's offshore branch office, and brokered certificates of deposit also
provide funding to the Company. Domestic time deposits over $100,000, excluding
brokered certificates of deposit, averaged $1.3 billion in 1998, compared with
$1.0 billion and $892 million in 1997 and 1996, respectively. Offshore branch
deposits, comprised primarily of accounts with balances of $100,000 or more,
averaged $288 million in 1998, compared with $230 million in 1997 and $239
million in 1996. Brokered deposits averaged $1.4 billion in 1998 and 1997 and
$1.1 billion in 1996, and totaled $1.3 billion at December 31, 1998. Brokered
deposits are 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, 1998 was 2 years. However,
certain of the deposits have provisions that allow early redemption.
Nevertheless, 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 substantially similar to the amounts and terms 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 Banks ("FHLB") and others as funding sources. Short-term
borrowings averaged $1.9 billion in 1998, $812 million in 1997 and $1.1 billion
in 1996. In general, short-term borrowings have been used to fund the Company's
discretionary investments in money-market assets and investment securities, and,
if necessary, to replace deposit outflows or provide funding for loan growth.
Long-term borrowings averaged $835 million in 1998, $373 million in 1997 and
$189 million in 1996. Long-term borrowings include $250 million of trust
preferred securities issued by two special-purpose entities formed by M&T during
the first half of 1997 and similar securities with a carrying value of $69
million that were issued in the first quarter of 1997 by a special-purpose
entity formed by ONBANCorp. Further information regarding the trust preferred
securities is provided in note 8 of Notes to Financial Statements. Average
long-term borrowings included amounts borrowed from the FHLB of $343 million in
1998 and $2 million in 1997 and 1996, as well as $175 million of subordinated
capital notes issued in prior years by M&T Bank. Information regarding
contractual maturities of long-term borrowings is presented in note 8 of Notes
to Financial Statements.
In addition to changes in the composition of the Company's earning
assets and interest-bearing liabilities, as described herein, net interest
income is also affected by changes in interest rates and spreads. The increase
in net interest income resulting from growth in average earning assets in 1998
was partially offset by a narrowing of the net interest spread, or the
difference between the yield on earning assets and the rate paid on
interest-bearing liabilities. The net interest spread was 3.39% in 1998,
compared with 3.71% in 1997. The yield on earning assets decreased 34 basis
points (hundredths of one percent) to 8.03% in 1998 from 8.37% in 1997. 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. The rate paid on
interest-bearing liabilities was 4.64% in 1998, compared with 4.66% in 1997. In
1996, the net interest spread was 3.80%, the yield on earning assets was 8.33%
and the rate paid on interest-bearing liabilities was 4.53%.
-29-
Generally higher prevailing interest rates and the effect of the previously
discussed issuances of $250 million of trust preferred securities during 1997
contributed to the increase in the rate paid on interest-bearing liabilities in
1997 from 1996.
Interest-free funds, consisting largely of noninterest-bearing deposits
and stockholders' equity, contributed .58% to net interest margin in 1998,
compared with .69% in 1997 and .65% in 1996. Average interest-free funds were
$2.1 billion in 1998, $1.9 billion in 1997 and $1.7 billion in 1996. The decline
in the contribution to net interest margin of interest-free funds in 1998 from
1997 and 1996 was due, in part, to the goodwill and core deposit intangible
assets recorded in conjunction with the ONBANCorp acquisition, which averaged
$413 million during 1998, and the cash surrender value of bank-owned life
insurance, which averaged $314 million in 1998, compared with $41 million in
1997 and none in 1996. 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 noninterest-bearing deposits and
stockholders' equity resulting from the ONBANCorp transaction.
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, 1998
was approximately $2.4 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 $82 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, 1998, the Company had also
entered into forward-starting swaps with an aggregate notional amount of $391
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, 1998. The average notional amounts of
interest rate swaps entered into for interest rate risk management purposes and
the related effect on net interest income and margin are presented in the
accompanying table 8.
The Company estimates that as of December 31, 1998 it would have
received approximately $23 million if all interest rate swap agreements entered
into for interest rate risk management purposes had been terminated. This
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.
Changes in the estimated fair value of interest rate swaps entered into for
interest rate risk management purposes are not reflected in the consolidated
financial statements. Additional information about interest rate swaps is
included in note 17 of Notes to Financial Statements.
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PROVISION FOR POSSIBLE CREDIT LOSSES
The provision for possible credit losses was $43.2 million in 1998, compared
with $46.0 million in 1997 and $43.3 million in 1996. The purpose of the
provision is to replenish or build the Company's allowance for possible credit
losses to a level necessary to maintain an adequate reserve position that
reflects losses inherent in the loan portfolio as of the balance sheet date. Net
charge-offs for 1998 were $39.4 million, compared with $41.8 million in 1997 and
$35.2 million in 1996. Net charge-offs as a percentage of average loans
outstanding were .28% in 1998, .38% in 1997 and .35% in 1996. Nonperforming
loans totaled $117.0 million or .74% of loans outstanding at December 31, 1998,
compared with $80.7 million or .70% of loans a year earlier and $97.9 million or
.91% at December 31, 1996. Included in nonperforming loans at December 31, 1998
were $37.3 million of loans obtained in the acquisition of ONBANCorp. The
allowance for possible credit losses was $306.3 million or 1.94% of net loans
and leases at the end of 1998, compared with $274.7 million or 2.39% at December
31, 1997 and $270.5 million or 2.52% at December 31, 1996. The ratio of the
allowance to nonperforming loans at year-end 1998, 1997 and 1996 was 262%, 341%
and 276%, respectively.
The decline in the allowance as a percentage of total loans at December
31, 1998 as compared with prior years reflects management's evaluation of the
loan and lease portfolio, 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. Impacting the assessment as of
December 31, 1998 was the effect that volatile economic conditions in foreign
markets were having on the domestic economy. While the Company's direct
international exposure is not significant, volatile conditions in foreign
markets can cause instability in the domestic economy. 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 possible credit losses as of December 31, 1998. Based
upon the results of such review, management believes that the allowance for
possible credit losses at December 31, 1998 was adequate to absorb credit losses
from existing loans and leases.
The accompanying table 10 presents a comparative allocation of the
allowance for possible 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 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
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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. Nevertheless, the
allowance is general in nature and is available to absorb losses from any
loan category. Accordingly, the amounts presented in the table do not
necessarily indicate 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 $17.8
million, $17.4 million and $27.1 million at December 31, 1998, 1997 and 1996,
respectively. At December 31, 1998, $180 thousand of nonperforming commercial
real estate loans were secured by properties located in the New York City
metropolitan area, compared with $7.0 million and $10.3 million at December 31,
1997 and 1996, respectively. Net charge-offs of commercial real estate loans
were $3.6 million in 1998, $.9 million in 1997 and $1.5 million in 1996.
Included in these totals were net recoveries of $.2 million in 1998 and net
charge-offs of $1.1 million and $.6 million in 1997 and 1996, respectively, for
commercial real estate loans secured by properties in the New York City
metropolitan area.
Net charge-offs of consumer loans totaled $31.5 million in 1998, or
1.13% of average consumer loans outstanding during the year, compared with $35.8
million or 1.55% in 1997 and $28.5 million or 1.30% in 1996. Charge-offs of
credit card balances and indirect automobile loans 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 1998 were $14.4
million and $10.5 million, respectively, compared with $19.0 million and $11.2
million, respectively, in 1997 and $15.9 million and $9.6 million, respectively,
in 1996. Higher levels of consumer bankruptcies in recent years were a
contributing factor to the higher rate of consumer loan charge-offs experienced
which, in general, was consistent with trends reported by other financial
institutions. As previously noted, the Company sold its retail credit card
business in July 1998. Nonperforming consumer loans totaled $25.8 million or
.89% of outstanding consumer loans at December 31, 1998, compared with $21.9
million or .99% at December 31, 1997 and $17.6 million or .73% at December 31,
1996.
Commercial real estate loans secured by multi-family properties in the
New York City metropolitan area represented 9% of loans outstanding at December
31, 1998. However, the Company had no concentrations of credit extended to any
specific industry that exceeded 10% of total loans at December 31, 1998.
Furthermore, the Company had no exposure to less developed countries, and only
$25 million of foreign loans in total.
Assets acquired in settlement of defaulted loans totaled $11.1 million
at December 31, 1998, compared with $8.4 million a year earlier and $8.5 million
at the end of 1996.
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OTHER INCOME
Other income in 1998 included $15.3 million of tax-exempt income resulting from
the previously noted transfer of appreciated investment securities to an
affiliated, tax-exempt charitable foundation. Excluding that income, other
income rose 32% to $255 million in 1998 from $193 million in 1997. Approximately
40% of this increase was attributable to revenues related to operations and/or
market areas associated with the former ONBANCorp. Other income was $170 million
in 1996.
Mortgage banking revenues, which consist of residential mortgage loan
servicing fee income, gains from sales of residential mortgage loans and loan
servicing rights, and other residential mortgage loan-related fees, increased to
$65.6 million in 1998 from $51.5 million in 1997 and $44.5 million in 1996.
Revenues from servicing residential mortgage loans for others increased to $29.3
million in 1998, compared with $25.7 million in 1997 and $20.9 million in 1996.
Gains from sales of residential mortgage loans and loan servicing rights totaled
$32.4 million in 1998, $23.1 million in 1997 and $21.6 million in 1996. The
Company maintains residential mortgage loan production offices in New York
State, as well as in Arizona, Colorado, Idaho, Massachusetts, Ohio, Oregon,
Pennsylvania, Utah and Washington. Due, in part, to generally favorable interest
rates for borrowers, residential mortgage loans originated in 1998 increased to
$3.8 billion, compared with $2.1 billion and $1.9 billion in 1997 and 1996,
respectively. Residential mortgage loans serviced for others were $7.3 billion,
$7.5 billion and $5.8 billion at December 31, 1998, 1997 and 1996, respectively.
Capitalized servicing assets were $62 million at December 31, 1998, compared
with $61 million at December 31, 1997 and $38 million at December 31, 1996.
Service charges on deposit accounts rose 32% to $57.4 million in 1998
from $43.4 million in 1997, and 41% from $40.7 million in 1996. Fees for
services provided to customers in the areas formerly served by ONBANCorp
contributed approximately three-fourths of the increase from 1997. Trust income
increased 25% to $38.2 million in 1998 from $30.7 million in 1997 and 38% from
$27.7 million in 1996. The increase from 1997 was due largely to higher revenues
for investment management and personal trust services. Merchant discount and
other credit card fees in 1998 totaled $12.4 million, compared with $19.4
million in 1997 and $18.3 million in 1996. As noted earlier, during 1997 and
1998 the Company terminated all of its co-branded credit card programs, and on
July 31, 1998 sold its retail credit card business. Total credit card fees
included in merchant discount and credit card fees in 1998 were approximately $9
million, compared with approximately $16 million in 1997 and $15 million in
1996. Through the date of sale, the results of operations of the retail credit
card business in 1998, including internal allocations of the provision for
possible 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 each of 1997 and 1996. Trading
account and foreign exchange activity resulted in gains of $4.0 million in 1998,
$3.7 million in 1997 and $2.4 million in 1996.
Excluding the effect of the contribution of securities to the
affiliated foundation, other revenues from operations increased to $75.9 million
in 1998, compared with $44.7 million in 1997 and $36.8 million in 1996. Such
amounts include $17.6 million and $2.3 million in 1998 and 1997, respectively,
from tax-exempt income earned from increases in the cash surrender value of
bank-owned life insurance. There was no such income in 1996. Also included in
other revenues from operations were revenues from the sales of mutual funds and
annuities of $18.0 million, $15.3 million and $13.0 million in 1998, 1997 and
1996, respectively. Other items contributing to the increase in 1998 as compared
with 1997 include a $3.2 million gain from the sale of the retail credit card
business and higher revenues for automated
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teller machine service fees and for credit and other services provided to
borrowers and other customers. Income earned from venture capital and other
investments in 1997 also contributed to the increase in other revenues from
operations as compared with 1996.
OTHER EXPENSE
Excluding $21.3 million of nonrecurring merger-related expenses in 1998;
amortization of goodwill and core deposit intangible of $34.5 million in 1998,
$7.3 million in 1997 and $6.3 million in 1996; and $24.6 million of expense
related to the previously discussed transfer of securities to an affiliated
charitable foundation in 1998, other expense totaled $486 million in 1998, 17%
higher than $414 million in 1997 and 21% higher than $403 million in 1996.
Expenses related to the acquired operations of ONBANCorp significantly
contributed to the higher expense level in 1998. However, since all operating
systems and support operations of ONBANCorp have been converted to or combined
with those of the Company, the Company's operating expenses cannot be precisely
divided between or attributed directly to operations acquired from ONBANCorp or
to the Company as it existed prior to the merger.
Salaries and employee benefits expense was $259 million in 1998, 18%
higher than the $220 million in 1997 and 25% higher than the $208 million in
1996. Salaries and employee benefits relating 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 increase. Partially offsetting the impact of these
higher expenses was a $6.3 million decrease in 1998 from 1997 for expense
associated with stock appreciation rights. Factors contributing to the higher
expenses from 1996 to 1997 were higher incentive-based compensation
arrangements, including stock appreciation rights, and merit salary increases.
The number of full-time equivalent employees was 6,044 at December 31, 1998,
compared with 4,781 at December 31, 1997 and 4,832 at December 31, 1996.
Excluding one time merger-related expenses and the already discussed
charitable contributions expense in 1998, and amortization of goodwill and core
deposit intangible, nonpersonnel expense totaled $228 million in 1998, 17%
higher than $194 million in each of 1997 and 1996. The increases from 1997 were
largely the result of expenses related to the acquired operations of ONBANCorp
plus an increase in amortization of capitalized servicing rights. Including $3.7
million of amortization of residential mortgage servicing rights obtained in the
ONBANCorp acquisition, amortization of capitalized servicing rights increased to
$19.7 million in 1998 from $14.4 million in 1997. Partially offsetting these
increases in 1998 was a decline in co-branded credit card rebate and other
operating expenses based on card usage of $8.1 million. Excluding a $7 million
charge in 1996 for a special assessment by the Federal Deposit Insurance
Corporation to recapitalize the Savings Association Insurance Fund, nonpersonnel
expense increased 4% from 1996 to 1997. Higher costs associated with the
Company's mortgage banking business, including amortization of capitalized
servicing rights, contributed to the increase.
Income Taxes
The provision for income taxes in 1998 was $117.6 million, up from $105.9
million in 1997 and $97.9 million in 1996. The effective tax rates were 36% in
1998, 38% in 1997 and 39% in 1996. 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 12 of Notes to Financial Statements.
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INTERNATIONAL ACTIVITIES
The Company's net investment in international assets was $33 million and $12
million at December 31, 1998 and 1997, respectively. Total offshore deposits
were $303 million at December 31, 1998 and $251 million at December 31, 1997.
LIQUIDITY, MARKET RISK, AND INTEREST RATE SENSITIVITY
The Company is exposed to various risks as a financial intermediary, 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.
Historically, the Company's core deposits have provided a significant
source of funds. Such 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 62% of the
Company's earning assets at December 31, 1998, compared with 64% and 65% at
December 31, 1997 and 1996, respectively.
Funding from core deposits is supplemented by the Company with various
wholesale borrowings, including Federal funds purchased and securities sold
under agreements to repurchase, and brokered certificates of deposit.
Additionally, M&T Bank has a credit facility with the FHLB aggregating $1.6
billion of which borrowings outstanding at December 31, 1998 and 1997 totaled
$1.5 billion and $22 million, respectively. Such borrowings are secured by loans
and investment securities. 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. However, during 1997 M&T issued junior subordinated debt
to two special purpose subsidiaries which provided a substantial portion of
M&T's funding needs during 1998 and 1997. Additional information regarding the
junior subordinated debt is included in note 8 of Notes to Financial Statements.
M&T also maintains a $25 million line of credit with an unaffiliated commercial
bank, all of which was available for borrowing at December 31, 1998.
The Company expects to have access to sufficient liquid assets to fund
the cash portion of the previously discussed acquisition of FNB and,
accordingly, 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. Furthermore, management closely
monitors the Company's liquidity position for compliance with internal policies
and believes that available sources of liquidity are
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adequate to meet anticipated funding needs.
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. Interest rate risk occurs when assets and liabilities reprice at different
times as interest rates change. As a result of interest rate risk, 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
positioning the Company for interest rate movements is to attempt 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, 1998, the aggregate notional amount of
interest rate swaps entered into for interest rate risk management purposes was
approximately $2.8 billion, including approximately $391 million of forward
starting swaps. Information about interest rate swaps entered into for interest
rate risk management purposes is included herein under "Net Interest
Income/Lending and Funding Activities" and in note 17 of Notes to Financial
Statements.
The Asset-Liability Committee, which includes members of senior
management, monitors the Company's 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, 1998 and 1997 displays the
estimated impact on net interest income from non-trading financial instruments
resulting from changes in interest rates during the first modeling year. The
calculation of the impact of changes in interest rates on net interest income is
based upon many assumptions, including 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 assumes 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
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
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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 currency exchange 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 trading
contracts totaled $.4 billion and $2.0 billion, respectively, at December 31,
1998 and $1.4 billion and $2.1 billion, respectively, at December 31, 1997. 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 $173 million and $51
million, respectively, at December 31, 1998 and $57 million and $58 million,
respectively, at December 31, 1997. Given the Company's policies, limits and
positions, management believes that the potential loss exposure to the Company
resulting from trading activities was not material as of December 31, 1998 and
1997. Additional information related to trading derivative contracts is included
in note 17 of Notes to Financial Statements.
CAPITAL
Stockholders' equity at December 31, 1998 was $1.6 billion or 7.78% of total
assets, compared with $1.0 billion or 7.36% at December 31, 1997 and $906
million or 7.00% at December 31, 1996. Stockholders' equity per share was
$207.94 at December 31, 1998, an increase of 33% from $155.86 at December 31,
1997 and 54% from $135.45 at December 31, 1996. Excluding goodwill and core
deposit intangible, net of applicable tax effect, tangible equity per share was
$139.89 at December 31, 1998, compared with $153.24 at December 31, 1997 and
$132.62 at December 31, 1996. The ratio of average total stockholders' equity to
average total assets was 8.20%, 7.16% and 6.92% in 1998, 1997 and 1996,
respectively. To complete the acquisition of ONBANCorp 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 for 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, 1998 reflected a gain of $2.9
million, or $.37 per share, for the net after-tax impact of unrealized gains on
investment securities classified as available for sale, compared with unrealized
gains of $12.0 million, or $1.82 per common share, at December 31, 1997 and a
reduction for unrealized losses of $2.5 million, or $.37 per common share, at
December 31, 1996. The unrealized gains at December 31, 1998 represent the
amount by which the fair value of investment securities classified as available
for sale exceeded amortized cost, net of applicable
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income taxes. 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.
Cash dividends on M&T's common stock of $29.0 million were paid in
1998, compared with $21.2 million in 1997 and $18.6 million in 1996. In the
second quarter of 1998 M&T's quarterly common stock dividend rate was increased
to $1.00 per share from $.80 per share. In total, dividends per common share
increased to $3.80 in 1998 from $3.20 in 1997 and $2.80 in 1996.
In October 1998, M&T announced a plan to repurchase and hold as
treasury stock up to 200,674 shares of common stock for reissuance upon the
possible future exercise of outstanding stock options. As of December 31, 1998,
M&T had repurchased 199,093 common shares pursuant to such plan at an average
cost of $480.40 per share. Including prior repurchase plans completed in 1998
and 1997, M&T repurchased common shares totaling 479,532 in 1998, 207,073 in
1997 and 336,220 in 1996. The total cost of these common stock repurchases was
$231.8 million, $67.8 million and $80.8 million in 1998, 1997 and 1996,
respectively.
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 $250 million
of trust preferred securities issued by two special-purpose entities formed by
M&T during 1997 and similar securities having a carrying value of $69 million
issued by a special-purpose entity formed by ONBANCorp. As of December 31, 1998
total capital further included $145 million of the 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, 1998 and 1997 are
presented in note 22 of Notes to Financial Statements.
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 11.86% in 1998, 16.28% in 1997 and 15.25% in 1996.
YEAR 2000 INITIATIVES
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. The
Company is currently working to resolve the potential impact of the Year 2000
problem. The risk for the Company is that all of the corrections and testing
will not be adequately completed in time for its own Computer Systems and/or for
those of third parties doing business with or providing services to the Company.
Addressing the Year 2000 problem requires that the Company identify,
remediate and test its Computer Systems that have date sensitive functions. As
part of this process, the Company has identified those of its Computer Systems
which, if uncorrected, would have a material adverse impact on the Company's
customers, the Company's compliance with applicable regulations, or the
Company's financial statements ("Mission Critical Systems"). Management believes
that approximately seventy-five percent of all of the Company's
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Mission Critical Systems are Year 2000 compliant. Management anticipates that
testing of Year 2000 renovations related to the Company's remaining Mission
Critical Systems will be substantially complete by March 31, 1999. The Company
also expects that its remaining Computer Systems will be Year 2000 compliant
before the new millennium.
The Company could also be adversely affected if its vendors, customers
and other third parties that supply or rely on data processing systems are not
Year 2000 compliant prior to the end of 1999. The Company, therefore, is working
with its data processing vendors and providing information to its commercial
customers regarding Year 2000 issues. Specifically, lending officers have been
trained to address Year 2000 issues with customers, including assessing customer
needs for Year 2000 compliance. The Company is also addressing the Year 2000
risks posed by other third parties such as its funds providers and capital
market/asset management counterparties. Lack of corrective measures by
government agencies or service providers which the Company either receives data
from or provides data to could also have a negative impact on the Company's
operations. Notwithstanding the Company's efforts, a risk remains due to the
uncertainty that such third parties will be Year 2000 compliant before the new
millennium. As a result, it is possible that if all aspects of Year 2000 issues
are not adequately resolved by each of the third parties referred to above, the
Company's future business operations, financial position and results of
operations could be adversely impacted. For example, the credit quality of
commercial and other loans may be adversely affected by the failure of
customers' operating systems resulting from Year 2000 issues.
Management is monitoring the Company's progress regarding Year 2000
issues. The Company has established a Year 2000 Steering Committee consisting of
senior members of management to oversee all Year 2000 activities. In conjunction
with its assessment of the Company's Year 2000 remediation plans and the
remediation efforts of third parties such as those described in the preceding
paragraph, management is in the process of developing appropriate contingency
plans to mitigate risks associated with critical Year 2000 issues that could
arise during the period leading up to and after January 1, 2000. These
contingency plans, which are expected to be complete by the end of the second
quarter of 1999, will include business resumption contingency plans.
Through December 31, 1998, the Company has spent approximately $5
million (including approximately $4 million during 1998) in addressing its
potential Year 2000 problems. Management believes that the Company is continuing
to devote appropriate financial and human resources to resolve its Year 2000
issues in a timely manner, and currently estimates that it will expend an
additional $4 to $6 million in order to address Year 2000 issues. A majority of
the Company's past and future Year 2000 costs relate to internal costs and
constitute resources that would otherwise have been reallocated within the
Company. Such reallocation has not had a material adverse impact on the
Company's financial condition or results of operations, nor is it expected to
have a material adverse impact in future periods. Costs associated with Year
2000 issues are recognized in expense as incurred.
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
Net income in the fourth quarter of 1998 was $57.8 million, an increase of 25%
from the final quarter of 1997 when net income was $46.3 million.
-39-
Diluted earnings per share increased 7% to $7.14 from $6.66 earned in the
year-earlier quarter. Basic earnings per share increased 6% to $7.44 in the
fourth quarter of 1998 from $7.01 in the comparable 1997 quarter. Net income for
the recent quarter expressed as an annualized rate of return on average assets
was 1.14% compared with 1.33% in the year-earlier quarter. The annualized rate
of return on average common stockholders' equity was 14.20% compared with 18.25%
in 1997's fourth quarter. Cash net income in the fourth quarter was $67.3
million, an increase of 41% from the final quarter of 1997 when cash net income
was $47.8 million. Diluted cash earnings per share increased 21% to $8.31 in
1998's final quarter from $6.88 in the comparable period in 1997. Cash return on
average tangible assets was an annualized 1.36% in the recent quarter, compared
with 1.38% in the year-earlier quarter. Cash return on average tangible common
equity rose to an annualized 24.57% in the fourth quarter of 1998 from 19.20% in
the comparable 1997 quarter.
Taxable-equivalent net interest income increased to $175 million in the
fourth quarter of 1998, up $31 million or 22% from $144 million in the
corresponding 1997 quarter. Growth in average loans outstanding was the primary
factor contributing to the improvement in net interest income. Average loans for
the fourth quarter of 1998 totaled $15.4 billion, a 36% increase from the $11.3
billion average during the fourth quarter of 1997, largely due to the $3.0
billion of loans obtained on April 1, 1998 from the ONBANCorp acquisition. In
total, earning assets averaged $18.4 billion in the final quarter of 1998, up
40% from $13.1 billion in the corresponding 1997 quarter. The yield on earning
assets decreased to 7.73% in the final 1998 quarter from 8.36% in the
year-earlier period due, in part, to lower yielding loans and investment
securities acquired in the ONBANCorp transaction. The impact of lower interest
rates in the fourth quarter of 1998 as compared with the corresponding period in
1997, coupled with competitive pressure on interest rates charged for newly
originated loans during much of 1998, particularly commercial loans and
commercial real estate loans, also contributed to the decline in yield. The rate
paid on interest-bearing liabilities decreased to 4.50% in 1998's final quarter
from 4.72% in the year-earlier period due to generally lower market interest
rates that resulted following actions taken by the Federal Reserve to lower
interest rates in the third and fourth quarters of 1998. The resulting net
interest spread was 3.23% in the recent quarter, compared with 3.64% in the
fourth quarter of 1997. Similarly, net interest margin decreased to 3.77% in the
fourth quarter of 1998 from 4.34% in the year-earlier quarter. Although not
necessarily indicative of future results, the Company's net interest spread and
margin declined in the last three quarters of 1998. As a result, the net
interest spread and margin in the fourth quarter of 1998 were below those
achieved in any other quarter of 1998.
The provision for possible credit losses was $7.5 million in the
fourth quarter of 1998, compared with $12.0 million in the year-earlier
quarter. Net charge-offs totaled $10.7 million in 1998's fourth quarter,
compared with $9.7 million in the corresponding 1997 quarter. Net charge-offs
as an annualized percentage of average loans and leases were .28% in the
recent quarter, down from .34% in the corresponding 1997 quarter. Including
the impact of the ONBANCorp acquisition, other income rose 27% to $67.2
million in the fourth quarter of 1998 from $53.0 million in the year-earlier
quarter, largely due to increases of $3.5 million in the change in cash
surrender value associated with bank-owned life insurance, $4.6 million in
service charges on deposit accounts, and $2.4 million in mortgage banking
revenues. Other expense was $138.8 million in the fourth quarter of 1998, up
25% from $110.7 million in the fourth quarter of 1997, due largely to a $9.1
million increase in amortization of goodwill and core deposit intangible and
higher operating expense levels resulting from combining ONBANCorp with the
Company.
-40-
SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information," in
1998. The Company's reportable segments have been determined in accordance with
the provisions of SFAS No. 131 and are based upon the Company's internal
profitability reporting system, which is organized by strategic business unit.
Certain strategic business units have been combined for segment information
reporting purposes where the nature of the products and services, the type of
customer and the distribution of those products and services are similar. The
reportable segments are 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 21 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 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. Financial information about the Company's segments is presented in note 21
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 24% to $67.4
million in 1998 from $54.3 million in 1997. Commercial loans obtained from
ONBANCorp and loan growth in most of the markets already served by the Company
were the leading factors contributing to the increase. Net income in 1996 was
$44.4 million. The higher net income from 1996 to 1997 resulted largely from an
$11.6 million increase in net interest income resulting from a 13% increase in
average loans outstanding.
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 Pennsylvania. Commercial real estate
loans may be secured by apartment/multifamily buildings, office space, retail
space, industrial space or other types of collateral. In 1998, the Commercial
Real Estate segment reported net income of $57.3 million, up 8% from $53.0
million earned a year earlier, due in part to the commercial real estate loans
added to the Company's portfolio in the ONBANCorp transaction. An increase in
fees for credit and other services also contributed to the growth in this
segment's net income from 1997 to 1998. The Commercial Real Estate segment
earned $51.4 million in 1996. The increase in net income from 1996 to 1997 was
due largely to an increase in net interest income of $3.5 million resulting from
a 9% increase in average loans outstanding.
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 which include foreign exchange, securities trading and
municipal bond underwriting and sales. In 1998, this segment contributed net
income of $31.7 million, compared with $18.5 million in 1997 and $19.2 million
in 1996. Noninterest income increased $16.9 million from 1997 to
-41-
1998 largely due to tax-exempt income earned from increases in the cash
surrender value of bank-owned life insurance. In addition, the ONBANCorp
acquisition added approximately $0.9 billion of residential mortgage loans and
$0.8 billion of investment securities to the average balance of the Company's
discretionary portfolio. The decline in net income from 1996 to 1997 was due, in
part, to a reduction in net interest income resulting from lower average
balances of money-market assets and investment securities in 1997.
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 production 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. The Residential Mortgage Banking segment had net
income of $19.5 million in 1998, an increase of 77% from $11.0 million in 1997,
largely the result of an 81% increase in residential mortgage loans originated
and a 14% increase to $10.9 billion in loans serviced, including $3.6 billion of
loans serviced for the Company as of December 31, 1998. A favorable interest
rate environment during 1998 was the primary factor leading to the increase in
origination volume and the related increase in net income for this segment when
compared to 1997. In 1996, net income for the mortgage banking segment was $7.8
million. Higher servicing fee income was the leading factor in the increase from
1996 to 1997.
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 results of
the Company's retail credit card business and, in 1998, the $3.2 million gain
that resulted from the sale of that business. 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.
Retail Banking earned $100.1 million in 1998, up 52% from $65.7 million in 1997.
The increase 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. In 1996, Retail Banking had net
income of $53.1 million. The 24% increase in earnings from 1996 to 1997 was due
in part to higher net interest income earned in 1997, largely the result of an
7% increase in average loans outstanding and a 5% increase in average deposits.
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
-42-
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.
The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. An entity that
elects to apply hedge accounting is 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 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of SFAS No. 133 should 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 began after issuance of the statement. SFAS No. 133
should not be applied retroactively to financial statements of prior periods.
The Company intends to adopt SFAS No. 133 as of January 1, 2000;
however, it has not yet quantified the financial statement impact of adoption,
nor has the method of adoption been determined. 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.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 revises current
accounting and reporting standards to require that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking activities
classify the resulting mortgage-backed securities or other retained interests
based on its ability and intent to sell or hold those investments. SFAS No. 134
is effective for the first fiscal quarter beginning after December 15, 1998. The
Company will adopt the provisions of SFAS No. 134 on January 1, 1999. When
adopted, SFAS No. 134 is not expected to have a material impact on the Company.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires the capitalization of certain
costs incurred in connection with developing or obtaining internal-use computer
software. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998 and should be applied to internal-use software
costs incurred in the year of adoption, including costs relating to those
projects in progress upon initial application of the SOP. The Company intends to
adopt SOP 98-1 on January 1, 1999. When adopted, SOP 98-1 is not expected to
have a material impact on the Company's results of operations or financial
condition.
FORWARD-LOOKING STATEMENTS
This Financial Review and other sections of this Annual Report contain
forward-looking statements that are based on current expectations, estimates
-43-
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; 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.
-44-
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Table 1
FINANCIAL HIGHLIGHTS
1998 1997 Change
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
Net income (thousands) $ 207,974 176,241 + 18%
Return on
Average assets 1.14 % 1.32 %
Average common equity 13.86 % 18.49 %
Net interest margin 3.97 % 4.40 %
Net charge-offs/average loans .28 % .38 %
Efficiency ratio (a) 56.24 % 55.79 %
- -----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Basic earnings $ 27.30 26.60 + 3%
Diluted earnings 26.16 25.26 + 4%
Cash dividends 3.80 3.20 + 19%
- -----------------------------------------------------------------------------------------------------------------------------------
Cash (tangible) operating results (b)
Net income (thousands) (c) $ 251,922 182,387 + 38%
Diluted earnings per common share (c) 31.69 26.14 + 21%
Return on
Average tangible assets 1.41 % 1.37 %
Average tangible common equity 23.08 % 19.56 %
Efficiency ratio (a) 52.51 % 54.82 %
- -----------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (MILLIONS)
Loans and leases,
net of unearned discount $ 15,792 11,497 + 37%
Total assets 20,584 14,003 + 47%
Deposits 14,737 11,163 + 32%
Stockholders' equity 1,602 1,030 + 56%
- -----------------------------------------------------------------------------------------------------------------------------------
LOAN QUALITY
Allowance for credit losses/net loans 1.94 % 2.39 %
Nonperforming assets ratio .81 % .77 %
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL
Tier 1 risk-based capital ratio 8.40 % 10.69 %
Total risk-based capital ratio 10.56 % 13.32 %
Leverage ratio 7.02 % 9.09 %
Common equity/total assets 7.78 % 7.36 %
Common equity (book value) per share $ 207.94 155.86 + 33%
Tangible common equity per share 139.89 153.24 - 9%
Market price per share:
Closing 518.94 465.00 + 12%
High 582.00 468.00
Low 400.00 281.00
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Excludes impact of nonrecurring merger-related expenses, net securities
transactions and contribution of appreciated investment securities to
affiliated, tax-exempt charitable foundation in 1998.
(b) 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.
(c) Cash net income excludes the after-tax impact of nonrecurring
merger-related expenses of $14.0 million or $1.76 per diluted share in
1998.
-45-
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
Table 2
QUARTERLY TRENDS
1998 Quarters 1997 Quarters
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- -----------------------------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
Interest income (taxable-equivalent basis) $358,335 359,339 363,503 277,803 277,166 271,305 265,301 257,029
Interest expense 183,424 184,850 184,644 134,585 133,270 129,768 125,734 119,321
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 174,911 174,489 178,859 143,218 143,896 141,537 139,567 137,708
Less: provision for possible credit losses 7,500 10,500 13,200 12,000 12,000 12,000 11,000 11,000
Other income 67,221 66,568 66,410 70,396 52,979 50,182 43,983 45,923
Less: other expense 138,756 138,490 155,004 133,873 110,716 104,706 102,070 104,284
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 95,876 92,067 77,065 67,741 74,159 75,013 70,480 68,347
Applicable income taxes 36,064 33,693 30,587 17,245 26,246 27,518 26,329 25,825
Taxable-equivalent adjustment 1,969 1,897 1,779 1,541 1,613 1,604 1,360 1,263
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 57,843 56,477 44,699 48,955 46,300 45,891 42,791 41,259
- -----------------------------------------------------------------------------------------------------------------------------------
Per common share data
Net income
Basic $ 7.44 7.09 5.55 7.34 7.01 6.96 6.46 6.17
Diluted 7.14 6.81 5.32 7.01 6.66 6.62 6.17 5.81
Cash dividends $ 1.00 1.00 1.00 .80 .80 .80 .80 .80
Average common shares outstanding
Basic 7,778 7,966 8,051 6,666 6,599 6,592 6,627 6,685
Diluted 8,105 8,288 8,409 6,981 6,955 6,927 6,928 7,100
- -----------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS, ANNUALIZED
Return on
Average assets 1.14% 1.15% .92% 1.41% 1.33% 1.36% 1.31% 1.30%
Average common stockholders' equity 14.20% 13.48% 10.77% 18.86% 18.25% 18.92% 18.55% 18.24%
Net interest margin on average earning 3.77% 3.87% 3.99% 4.35% 4.34% 4.35% 4.41% 4.50%
assets (taxable-equivalent basis)
Nonperforming assets to total assets,
at end of quarter .62% .67% .69% .53% .64% .69% .79% .81%
- -----------------------------------------------------------------------------------------------------------------------------------
CASH (TANGIBLE) OPERATING RESULTS (1)
Net income (in thousands) $ 67,326 67,703 65,445 51,448 47,837 47,428 44,350 42,773
Diluted net income per common share 8.31 8.17 7.78 7.37 6.88 6.85 6.40 6.02
Annualized return on
Average tangible assets 1.36% 1.42% 1.38% 1.49% 1.38% 1.40% 1.36% 1.35%
Average tangible common stockholders'
equity 24.57% 23.90% 23.50% 20.13% 19.20% 19.98% 19.70% 19.39%
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Dollars in millions, except per share
Average balances
Total assets $ 20,101 19,455 19,547 14,055 13,785 13,424 13,148 12,866
Earning assets 18,401 17,881 17,992 13,357 13,148 12,905 12,700 12,420
Investment securities 2,617 2,533 2,858 1,614 1,721 1,747 1,715 1,611
Loans and leases, net of
unearned discount 15,389 15,124 14,978 11,602 11,327 11,002 10,842 10,715
Deposits 14,617 14,552 14,726 10,988 11,261 11,170 10,914 10,454
Stockholders' equity 1,616 1,662 1,664 1,053 1,007 962 925 917
- -----------------------------------------------------------------------------------------------------------------------------------
At end of quarter
Total assets $ 20,584 19,478 20,138 14,570 14,003 13,675 13,441 13,122
Earning assets 18,926 17,905 18,419 13,778 13,333 13,100 12,903 12,621
Investment securities 2,786 2,446 2,707 1,530 1,725 1,752 1,708 1,693
Loans and leases, net of
unearned discount 15,792 15,163 15,245 12,033 11,497 11,271 10,980 10,803
Deposits 14,737 14,394 14,813 11,085 11,163 11,205 11,186 10,533
Stockholders' equity 1,602 1,649 1,659 1,069 1,030 982 951 912
Equity per common share 207.94 209.03 207.18 160.06 155.86 149.31 143.64 137.33
Tangible equity per common share 139.89 141.43 139.37 157.75 153.24 146.40 140.43 133.84
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET PRICE PER COMMON SHARE
High $539 1/2 582 554 504 468 415 343 1/2 336
Low 400 410 480 429 401 335 303 281
Closing 518 15/16 461 554 499 7/8 465 415 337 320
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------
(1)Excludes amortization and balances related to goodwill and core deposit
intangible and nonrecurring merger-related expenses, net of applicable
income tax effects.
-46-
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
Table 3
EARNINGS SUMMARY
DOLLARS IN MILLIONS
Increase (decrease)* Compound
1997 to 1998 1996 to 1997 growth rate
----------------- --------------- 5 years
Amount % Amount % 1998 1997 1996 1995 1994 1993 to 1998
-------- ------ ------ ------ ------------------------------- --------- ---------- -------- ------- ------ -----------
$ 288.2 27 $ 68.9 7 Interest income** $ 1,359.0 1,070.8 1,001.9 932.8 751.4 13%
179.4 35 41.7 9 Interest expense 687.5 508.1 466.4 441.7 279.2 21
-------- ------ ------ ------ ------------------------------- --------- ---------- -------- ------- ------ ---------
108.8 19 27.2 5 Net interest income** 671.5 562.7 535.5 491.1 472.2 7
Less: provision for possible
(2.8) (6) 2.7 6 credit losses 43.2 46.0 43.3 40.4 60.5 (12)
Gain (loss) on sales of bank
2.1 - (.3) - investment securities 1.8 (.3) - 4.5 .1 -
75.5 39 23.1 14 Other income 268.8 193.3 170.3 145.1 123.6 20
Less:
39.5 18 11.7 6 Salaries and employee
benefits 259.5 220.0 208.3 188.2 161.2 11
104.8 52 1.1 1 Other expense 306.6 201.8 200.7 186.3 175.6 12
-------- ------ ------ ------ ------------------------------- --------- ---------- -------- ------- ------ ---------
44.9 16 34.5 14 Income before income taxes 332.8 287.9 253.5 225.8 198.6 13
Less:
1.4 24 1.3 30 Taxable-equivalent
adjustment** 7.2 5.8 4.5 4.7 4.1 -
11.7 11 8.1 8 Income taxes 117.6 105.9 97.9 90.1 77.2 10
-------- ------ ------ ------ ------------------------------- --------- ---------- -------- ------- ------ ---------
$ 31.8 18 $ 25.1 17 Net income $ 208.0 176.2 151.1 131.0 117.3 15%
-------- ------ ------ ------ ------------------------------- --------- ---------- -------- ------- ------ ---------
-------- ------ ------ ------ ------------------------------- --------- ---------- -------- ------- ------ ---------
- -------------
* 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 IS PRIMARILY TO INTEREST RECEIVED ON QUALIFIED MUNICIPAL
SECURITIES AND INDUSTRIAL REVENUE FINANCINGS AND IS BASED ON A COMPOSITE
INCOME TAX RATE OF APPROXIMATELY 41% FOR 1998 AND 1997, 42% FOR 1996 AND
1995, AND 43% FOR 1994.
-47-
- -----------------------------------------------------------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
Table 4
AVERAGE LOANS AND LEASES
(NET OF UNEARNED DISCOUNT) Percent increase
(decrease) from
---------------------
DOLLARS IN MILLIONS 1998 1997 to 1998 1996 to 1997
- ---------------------------- --------- ------------- -------------
Commercial, financial, etc. $2,831 25 % 11 %
Real estate - commercial 4,999 20 11
Real estate - consumer 3,683 65 5
Consumer
Automobile 1,301 25 3
Home equity 722 12 6
Credit cards 136 (49) 4
Other 614 73 14
- ---------------------------- --------- ------------- -------------
Total consumer 2,773 20 5
- ---------------------------- --------- ------------- -------------
Total $14,286 30 % 8 %
- ---------------------------- --------- ------------- -------------
- ---------------------------- --------- ------------- -------------
-48-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 5
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
1998 1997
---------------------------------------------- -------------
Average Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate balance
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 2,831 $ 235,027 8.30 % 2,257
Real estate 8,682 709,133 8.17 6,408
Consumer 2,773 249,045 8.98 2,308
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Total loans and leases, net 14,286 1,193,205 8.35 10,973
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Money-market assets
Interest-bearing deposits at banks 10 400 3.86 42
Federal funds sold and agreements
to resell securities 153 8,293 5.43 55
Trading account 67 4,524 6.79 26
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Total money-market assets 230 13,217 5.75 123
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Investment securities**
U.S. Treasury and federal agencies 1,448 88,030 6.08 1,122
Obligations of states and political subdivisions 73 4,566 6.29 43
Other 887 59,962 6.76 534
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Total investment securities 2,408 152,558 6.33 1,699
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Total earning assets 16,924 1,358,980 8.03 12,795
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Allowance for possible credit losses (302) (273)
Cash and due from banks 394 308
Other assets 1,293 479
- ------------------------------------------------------- -------------- ------------
Total assets $ 18,309 13,309
- ------------------------------------------------------- -------------- ------------
- ------------------------------------------------------- -------------- ------------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 327 4,851 1.48 257
Savings deposits 4,430 115,345 2.60 3,420
Time deposits 7,022 388,185 5.53 5,818
Deposits at foreign office 288 14,973 5.20 230
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Total interest-bearing deposits 12,067 523,354 4.34 9,725
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Short-term borrowings 1,923 105,582 5.49 812
Long-term borrowings 835 58,567 7.02 373
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Total interest-bearing liabilities 14,825 687,503 4.64 10,910
- ------------------------------------------------------- -------------- -------------- ------------ ------------
Noninterest-bearing deposits 1,666 1,228
Other liabilities 317 218
- ------------------------------------------------------- -------------- ------------
Total liabilities 16,808 12,356
- ------------------------------------------------------- -------------- ------------
Stockholders' equity 1,501 953
- ------------------------------------------------------- -------------- ------------
Total liabilities and stockholders' equity $ 18,309 13,309
- ------------------------------------------------------- -------------- ------------
- ------------------------------------------------------- -------------- ------------
Net interest spread 3.39
Contribution of interest-free funds .58
- ------------------------------------------------------- -------------- ------------
Net interest income/margin on earning assets $ 671,477 3.97 %
- ------------------------------------------------------- -------------- ------------
- ------------------------------------------------------- -------------- ------------
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 5
1997 1996
------------------------------ -----------------------------------
Average Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS Interest rate balance Interest rate
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. 189,455 8.39 % 2,031 166,022 8.17 %
Real estate 550,989 8.60 5,893 512,269 8.69
Consumer 213,942 9.27 2,190 204,831 9.35
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Total loans and leases, net 954,386 8.70 10,114 883,122 8.73
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Money-market assets
Interest-bearing deposits at banks 2,475 5.95 38 2,413 6.30
Federal funds sold and agreements
to resell securities 2,989 5.42 55 2,985 5.45
Trading account 1,937 7.27 17 1,100 6.53
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Total money-market assets 7,401 6.00 110 6,498 5.91
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Investment securities**
U.S. Treasury and federal agencies 70,968 6.33 1,200 74,023 6.17
Obligations of states and political subdivisions 2,832 6.61 41 2,678 6.57
Other 35,214 6.59 565 35,598 6.30
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Total investment securities 109,014 6.42 1,806 112,299 6.22
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Total earning assets 1,070,801 8.37 12,030 1,001,919 8.33
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Allowance for possible 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 3,455 1.34 659 9,430 1.43
Savings deposits 90,907 2.66 2,956 84,822 2.87
Time deposits 327,611 5.63 5,137 286,088 5.57
Deposits at foreign office 12,160 5.29 239 12,399 5.19
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Total interest-bearing deposits 434,133 4.46 8,991 392,739 4.37
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Short-term borrowings 44,341 5.46 1,121 59,442 5.30
Long-term borrowings 29,619 7.94 189 14,227 7.51
- ------------------------------------------------------ ------------ ------------ ---------- ----------------------
Total interest-bearing liabilities 508,093 4.66 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 3.71 3.80
Contribution of interest-free funds .69 .65
- ------------------------------------------------------ ------------ ------------ ----------- ---------
Net interest income/margin on earning assets 562,708 4.40 % 535,511 4.45%
- ------------------------------------------------------ ------------ ------------ ----------- ---------
- ------------------------------------------------------ ------------ ------------ ----------- ---------
- -----------------
*INCLUDES NONACCRUAL LOANS.
**INCLUDES AVAILABLE FOR SALE SECURITIES AT AMORTIZED COST.
(continued)
-49-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 5 (continued)
AVERAGE BALANCE SHEETS AND TAXABLE-EQUIVALENT RATES
1995 1994
--------------------------------- ----------------------------------
Average Average Average Average
AVERAGE BALANCE IN MILLIONS; INTEREST IN THOUSANDS balance Interest rate balance Interest rate
- ------------------------------------------------------- --------- ----------- -------- ------------ ---------- --------
Assets
Earning assets
Loans and leases, net of unearned discount*
Commercial, financial, etc. $ 1,804 $ 155,750 8.63 % 1,487 116,479 7.84 %
Real estate 5,301 471,714 8.90 4,562 390,681 8.56
Consumer 1,752 169,149 9.65 1,378 128,117 9.30
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Total loans and leases, net 8,857 796,613 8.99 7,427 635,277 8.55
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Money-market assets
Interest-bearing deposits at banks 110 8,181 7.44 48 2,212 4.58
Federal funds sold and agreements
to resell securities 48 3,007 6.29 109 4,751 4.35
Trading account 20 1,339 6.82 7 499 7.11
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Total money-market assets 178 12,527 7.06 164 7,462 4.54
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Investment securities**
U.S. Treasury and federal agencies 1,242 74,248 5.98 1,167 56,685 4.86
Obligations of states and political subdivisions 50 3,420 6.90 53 3,072 5.77
Other 743 45,988 6.19 852 48,933 5.74
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Total investment securities 2,035 123,656 6.08 2,072 108,690 5.24
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Total earning assets 11,070 932,796 8.43 9,663 751,429 7.78
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Allowance for possible credit losses (254) (223)
Cash and due from banks 326 307
Other assets 343 278
- ------------------------------------------------------- -------- -----------
Total assets $ 11,485 10,025
- ------------------------------------------------------- -------- -----------
- ------------------------------------------------------- -------- -----------
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
NOW accounts $ 761 11,902 1.56 746 11,286 1.51
Savings deposits 2,922 87,612 3.00 3,274 84,804 2.59
Time deposits 4,112 239,882 5.83 2,179 97,067 4.45
Deposits at foreign office 133 6,952 5.23 156 5,894 3.79
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Total interest-bearing deposits 7,928 346,348 4.37 6,355 199,051 3.13
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Short-term borrowings 1,423 84,225 5.92 1,772 73,868 4.17
Long-term borrowings 146 11,157 7.64 77 6,287 8.13
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Total interest-bearing liabilities 9,497 441,730 4.65 8,204 279,206 3.40
- ------------------------------------------------------- -------- ---------- ------- ----------- --------- -------
Noninterest-bearing deposits 1,093 1,011
Other liabilities 112 87
- ------------------------------------------------------- -------- -----------
Total liabilities 10,702 9,302
- ------------------------------------------------------- -------- -----------
Stockholders' equity 783 723
- ------------------------------------------------------- -------- -----------
Total liabilities and stockholders' equity $ 11,485 10,025
- ------------------------------------------------------- -------- -----------
- ------------------------------------------------------- -------- -----------
Net interest spread 3.78 4.38
Contribution of interest-free funds .66 .51
- ------------------------------------------------------- --------- -------- ---------- --------
Net interest income/margin on earning assets $ 491,066 4.44 % 472,223 4.89 %
- ------------------------------------------------------- --------- -------- ---------- --------
- ------------------------------------------------------- --------- -------- ---------- --------
- -----------------
*INCLUDES NONACCRUAL LOANS.
**INCLUDES AVAILABLE FOR SALE SECURITIES AT AMORTIZED COST.
-50-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 6
COMMERCIAL REAL ESTATE LOANS
(NET OF UNEARNED DISCOUNT)
DECEMBER 31, 1998
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 $ 1,393.1 11 % 24 % 8 % 9 %
Office 238.0 1 3 2 3
Retail 594.7 3 11 3 5
Construction 106.4 - 2 - 2
Industrial 42.7 - 1 - -
Other 325.3 1 4 4 3
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
Total Metropolitan New York City $ 2,700.2 16 % 45 % 17 % 22 %
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
Other New York State
Apartments/
Multifamily $ 330.5 5 % 7 % 2 % - %
Office 699.0 8 15 6 1
Retail 243.3 5 5 1 -
Construction 237.6 1 3 2 4
Industrial 198.2 4 4 1 -
Other 595.4 10 11 3 2
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
Total other New York State $ 2,304.0 33 % 45 % 15 % 7 %
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
Other
Apartments/
Multifamily $ 137.3 4 % 21 % 2 % 3 %
Office 13.4 1 2 - -
Retail 103.7 1 10 5 7
Construction 18.8 - 2 2 -
Industrial 52.5 1 8 3 -
Other 129.0 5 10 3 10
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
Total other $ 454.7 12 % 53 % 15 % 20 %
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
Total commercial real estate loans $ 5,458.9 23 % 45 % 16 % 16 %
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
- -------------------------------------------------- -------------- -------------- ----------- ----------- -----------
-51-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 7
AVERAGE CORE DEPOSITS
Percent increase
(decrease) from
Dollars in millions 1998 1997 to 1998 1996 to 1997
- -------------------------------- --------- ------------ ------------
NOW accounts $ 327 27 % (61)%
Savings deposits 4,430 30 16
Time deposits under $100,000 4,305 25 8
Noninterest-bearing deposits 1,666 36 5
- -------------------------------- --------- ------------ ------------
Total $ 10,728 29 % 5 %
- -------------------------------- --------- ------------ ------------
- -------------------------------- --------- ------------ ------------
-52-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 8
INTEREST RATE SWAPS
Year ended December 31
----------------------------------------------------------------------------------
1998 1997 1996
----------------------- ------------------------ ------------------------
DOLLARS IN THOUSANDS Amount Rate* Amount Rate* Amount Rate*
- ---------------------------------- ------------ ----------- ------------ ---------- ----------- -----------
Increase (decrease) in:
Interest income $ 3,378 .02 % $ (142) --- % $ (34) --- %
Interest expense (12,778) (.09) (14,231) (.13) (15,488) (.15)
- ---------------------------------- ------------ ----------- ------------ ---------- ----------- -----------
Net interest income/margin $ 16,156 .10 % $ 14,089 .11 % $ 15,454 .13 %
- ---------------------------------- ------------ ----------- ------------ ---------- ----------- -----------
Average notional amount** $ 2,521,426 $ 2,691,638 $ 2,410,547
Rate received*** 6.70 % 6.68 % 6.66 %
Rate paid*** 6.06 % 6.16 % 6.02 %
- ---------------------------------- ------- -------- ---------
- ---------------------------------- ------- -------- ---------
- ---------------
* COMPUTED AS AN ANNUALIZED 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.
-53-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 9
LOAN CHARGE-OFFS, PROVISION AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES
DOLLARS IN THOUSANDS 1998 1997 1996 1995 1994
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Allowance for possible credit losses
beginning balance $ 274,656 270,466 262,344 243,332 195,878
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Charge-offs during year
Commercial, financial, agricultural, etc. 5,457 4,539 6,120 5,475 5,505
Real estate - construction 950 - - - -
Real estate - mortgage 7,210 9,910 7,389 10,750 17,957
Consumer 42,684 44,880 36,037 14,982 8,981
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Total charge-offs 56,301 59,329 49,546 31,207 32,443
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Recoveries during year
Commercial, financial, agricultural, etc. 2,783 2,609 3,671 3,967 7,877
Real estate - construction - - 50 87 13
Real estate - mortgage 2,894 5,869 3,049 2,137 4,515
Consumer 11,210 9,041 7,573 3,678 3,418
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Total recoveries 16,887 17,519 14,343 9,869 15,823
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Net charge-offs 39,414 41,810 35,203 21,338 16,620
Provision for possible credit losses 43,200 46,000 43,325 40,350 60,536
Allowance for possible credit losses acquired during the year 27,905 - - - 3,538
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Allowance for possible credit losses
ending balance $ 306,347 274,656 270,466 262,344 243,332
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Net charge-offs as a percent of:
Provision for possible credit losses 91.24 % 90.89 % 81.25 % 52.88 % 27.45 %
Average loans and leases, net of
unearned discount .28 % .38 % .35 % .24 % .22 %
- --------------------------------------------------------------- --------- --------- --------- ----------- ---------
Allowance for possible credit losses as a
percent of loans and leases, net
of unearned discount, at year-end 1.94 % 2.39 % 2.52 % 2.75 % 2.96 %
- --------------------------------------------------------------- --------- ---------- ---------- ------------ ----------
- --------------------------------------------------------------- --------- ---------- ---------- ------------ ----------
-54-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 10
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES TO LOAN CATEGORIES
December 31
-------------------------------------------------------------------
DOLLARS IN THOUSANDS 1998 1997 1996 1995 1994
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
Commercial, financial, agricultural, etc. $ 57,744 42,816 39,556 36,793 44,092
Real estate - mortgage 91,692 70,354 73,879 75,894 72,285
Consumer 45,356 57,757 34,224 23,385 17,532
Unallocated 111,555 103,729 122,807 126,272 109,423
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total $ 306,347 274,656 270,466 262,344 243,332
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
As a percentage of gross loans
and leases outstanding
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
Commercial, financial, agricultural, etc. 1.76 % 1.78 % 1.79 % 1.83 % 2.62 %
Real estate - mortgage .99 1.04 1.19 1.34 1.43
Consumer 1.53 2.47 1.30 1.10 1.05
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
- -------------------------------------------- ----------- ----------- ----------- ----------- -----------
-55-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 11
NONPERFORMING ASSETS
DOLLARS IN THOUSANDS
-------------------------------------------------------------------------------------
December 31 1998 1997 1996 1995 1994
- ------------------------------------------- -------------- --------------- -------------- -------------- ----------
Nonaccrual loans $ 70,999 38,588 58,232 75,224 62,787
Loans past due
90 days or more 37,784 30,402 39,652 17,842 11,754
Renegotiated loans 8,262 11,660 - - 2,994
- ------------------------------------------- -------------- --------------- -------------- -------------- ----------
Total nonperforming loans 117,045 80,650 97,884 93,066 77,535
- ------------------------------------------- -------------- --------------- -------------- -------------- ----------
Real estate and other assets owned 11,129 8,413 8,523 7,295 10,065
- ------------------------------------------- -------------- --------------- -------------- -------------- ----------
Total nonperforming assets $ 128,174 89,063 106,407 100,361 87,600
- ------------------------------------------- -------------- --------------- -------------- -------------- ----------
Government guaranteed
nonperforming loans* $ 14,316 17,712 25,847 7,779 7,883
- ------------------------------------------- -------------------------------------------------------------------------------------
Nonperforming loans
to total loans and leases,
net of unearned discount .74 % .70 % .91 % .97 % .94 %
Nonperforming assets
to total net loans and leases and
real estate and other assets owned .81 % .77 % .99 % 1.05 % 1.06 %
- ------------------------------------------- -------------- --------------- -------------- -------------- ----------
- ------------------------------------------- -------------- --------------- -------------- -------------- ----------
- ---------------
* INCLUDED IN TOTAL NONPERFORMING LOANS.
-56-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 12
MATURITY OF DOMESTIC CERTIFICATES OF DEPOSIT AND TIME DEPOSITS
WITH BALANCES OF $100,000 OR MORE
DOLLARS IN THOUSANDS December 31, 1998
- ------------------------- -----------------
Under 3 months $ 983,582
3 to 6 months 420,650
6 to 12 months 313,235
Over 12 months 1,012,576
- ------------------------- -----------------
Total $ 2,730,043
- ------------------------- -----------------
- ------------------------- -----------------
-57-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 13
MATURITY DISTRIBUTION OF LOANS*
DOLLARS IN THOUSANDS
2000 - After
December 31, 1998 Demand 1999 2003 2003
- ------------------------------------------ ------------------- ------------------- --------------- -------------
Commercial, financial, agricultural, etc. $ 1,940,014 461,540 492,148 187,336
Real estate - construction 113,340 282,708 87,146 3,756
- ------------------------------------------ ------------------- ------------------- --------------- -------------
Total $ 2,053,354 744,248 579,294 191,092
- ------------------------------------------ ------------------- ------------------- --------------- -------------
- ------------------------------------------ ------------------- ------------------- --------------- -------------
Floating or adjustable interest rates $ 454,517 133,074
Fixed or predetermined interest rates 124,777 58,018
- ------------------------------------------ --------------- -------------
Total $ 579,294 191,092
- ------------------------------------------ --------------- -------------
- ------------------------------------------ --------------- -------------
*The data do not include nonaccrual loans.
-58-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table 14
Sensitivity of Net Interest Income to Changes in Interest Rates
(dollars in thousands)
Calculated increase (decrease)
in projected net interest income
December 31
Changes in Interest Rates 1998 1997
- ------------------------------- --------------------------------------------
+200 basis points $ (7,668) (4,914)
+100 basis points 335 748
- -100 basis points 5,161 2,434
- -200 basis points 4,498 3,768
- ------------------------------- --------------------------------------------
- ------------------------------- --------------------------------------------
-59-
- --------------------------------------------------------------------------------
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, 1998 or less months years years Total
- ----------------------------------------------------------------------------------------------------------------------------
Loans and leases, net $ 5,594,140 1,629,962 4,630,286 3,937,142 15,791,530
Money-market assets 293,735 54,703 -- -- 348,438
Investment securities 868,275 398,554 380,895 1,137,840 2,785,564
- ----------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,756,150 2,083,219 5,011,181 5,074,982 18,925,532
- ----------------------------------------------------------------------------------------------------------------------------
NOW accounts $ 509,307 -- -- -- 509,307
Savings deposits 4,830,678 -- -- -- 4,830,678
Time deposits 1,980,026 3,049,602 1,699,913 297,542 7,027,083
Deposits at foreign office 303,270 -- -- -- 303,270
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 7,623,281 3,049,602 1,699,913 297,542 12,670,338
- ----------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 2,165,508 129 64,339 -- 2,229,976
Long-term borrowings 63 160,580 855,727 551,173 1,567,543
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 9,788,852 3,210,311 2,619,979 848,715 16,467,857
- ----------------------------------------------------------------------------------------------------------------------------
Interest rate swaps $(1,604,730) 565,743 1,390,378 (351,391) --
- ----------------------------------------------------------------------------------------------------------------------------
Periodic gap $(4,637,432) (561,349) 3,781,580 3,874,876
Cumulative gap (4,637,432) (5,198,781) (1,417,201) 2,457,675
Cumulative gap as a %
of total earning assets (24.5)% (27.5)% (7.5)% 13.0 %
-60-
- --------------------------------------------------------------------------------
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, 1998 or less five years ten years ten years Total
- ----------------------------------------- ---------- ---------- --------- --------- -------
INVESTMENT SECURITIES AVAILABLE FOR SALE*
U.S. Treasury and federal agencies
Carrying value $ 318,520 133,173 -- -- 451,693
Yield 5.89 % 4.65 % -- -- 5.52 %
Mortgage-backed securities**
Government issued or guaranteed
Carrying value 61,034 168,167 162,820 477,286 869,307
Yield 5.97 % 6.15 % 6.37 % 5.99 % 6.09 %
Privately issued
Carrying value 137,381 289,772 221,219 305,751 954,123
Yield 5.97 % 5.88 % 5.82 % 6.43 % 6.06 %
Other debt securities
Carrying value 100 15,146 -- 144,098 159,344
Yield 7.23 % 6.48 % -- 5.64 % 5.72 %
Equity securities
Carrying value -- -- -- -- 149,273
Yield -- -- -- -- 8.14 %
- ----------------------------------------- ---------- ---------- --------- --------- -------
Total investment securities
available for sale
Carrying value $ 517,035 606,258 384,039 927,135 2,583,740
Yield 5.92 % 5.70 % 6.06 % 6.08 % 6.07 %
- ----------------------------------------- ---------- ---------- --------- --------- -------
- ----------------------------------------- ---------- ---------- --------- --------- -------
INVESTMENT SECURITIES HELD TO MATURITY
U.S. Treasury and federal agencies
Carrying value $ -- -- -- -- --
Yield -- -- -- -- --
Obligations of states and
political subdivisions
Carrying value 50,455 20,836 2,498 -- 73,789
Yield 5.58 % 6.53 % 7.03 % -- 5.90 %
Other debt securities
Carrying value -- -- 13,493 -- 13,493
Yield -- -- 10.92 % -- 10.92 %
Total investment securities
held to maturity
Carrying value $ 50,455 20,836 15,991 -- 87,282
Yield 5.58 % 6.53 % 10.31 % -- 6.68 %
- ----------------------------------------- ---------- ---------- --------- --------- -------
- ----------------------------------------- ---------- ---------- --------- --------- -------
OTHER INVESTMENT SECURITIES -- -- -- -- 114,542
- ----------------------------------------- ---------- ---------- --------- --------- -------
Total investment securities
Carrying value $ 567,490 627,094 400,030 927,135 2,785,564
Yield 5.89 % 5.72 % 6.23 % 6.08 % 5.84 %
- ----------------------------------------- ---------- ---------- --------- --------- -------
- ----------------------------------------- ---------- ---------- --------- --------- -------
* 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.
-61-
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 13.
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, 1998 and 1997
Consolidated Statement of Income -
Years ended December 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows -
Years ended December 31, 1998, 1997 and 1996
Consolidated Statement of Changes in
Stockholders' Equity - Years ended December 31,
1998, 1997 and 1996
Notes to Financial Statements
-62-
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, 1998 and 1997, 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, 1998. 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 generally accepted auditing
standards. 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 audited by us present
fairly, in all material respects, the financial position of M&T Bank Corporation
and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
Buffalo, New York
January 11, 1999
-63-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
December 31
----------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 493,792 333,805
Money-market assets
Interest-bearing deposits at banks 674 668
Federal funds sold and
agreements to resell securities 229,066 53,087
Trading account 173,122 57,291
---------------------------------------------------------------------------------------------------------
Total money-market assets 402,862 111,046
---------------------------------------------------------------------------------------------------------
Investment securities
Available for sale (cost: $2,578,940 in 1998;
$1,563,055 in 1997) 2,583,740 1,583,273
Held to maturity (market value: $87,365 in 1998;
$84,176 in 1997) 87,282 83,665
Other (market value: $114,542 in 1998;
$58,280 in 1997) 114,542 58,280
---------------------------------------------------------------------------------------------------------
Total investment securities 2,785,564 1,725,218
---------------------------------------------------------------------------------------------------------
Loans and leases 16,005,701 11,765,533
Unearned discount (214,171) (268,965)
Allowance for possible credit losses (306,347) (274,656)
---------------------------------------------------------------------------------------------------------
Loans and leases, net 15,485,183 11,221,912
---------------------------------------------------------------------------------------------------------
Premises and equipment 162,842 121,984
Goodwill and core deposit intangible 546,036 17,288
Accrued interest and other assets 707,612 471,682
---------------------------------------------------------------------------------------------------------
Total assets $ 20,583,891 14,002,935
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits $ 2,066,814 1,458,241
NOW accounts 509,307 346,795
Savings deposits 4,830,678 3,344,697
Time deposits 7,027,083 5,762,497
Deposits at foreign office 303,270 250,928
---------------------------------------------------------------------------------------------------------
Total deposits 14,737,152 11,163,158
---------------------------------------------------------------------------------------------------------
Federal funds purchased and agreements
to repurchase securities 1,746,078 930,775
Other short-term borrowings 483,898 120,143
Accrued interest and other liabilities 446,854 330,774
Long-term borrowings 1,567,543 427,819
---------------------------------------------------------------------------------------------------------
Total liabilities 18,981,525 12,972,669
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
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 in 1998;
8,097,472 shares issued in 1997 40,508 40,487
Common stock issuable, 8,028 shares in 1998 3,752 -
Additional paid-in capital 480,014 103,233
Retained earnings 1,271,071 1,092,106
Accumulated other comprehensive income, net 2,869 12,016
Treasury stock - common, at cost - 403,769 shares
in 1998; 1,487,123 shares in 1997 (195,848) (217,576)
---------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,602,366 1,030,266
---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 20,583,891 14,002,935
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
-64-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31
---------------------------------
IN THOUSANDS, EXCEPT PER SHARE 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
Interest income Loans and leases, including fees $ 1,190,983 952,436 881,002
Money-market assets
Deposits at banks 400 2,475 2,413
Federal funds sold and agreements
to resell securities 8,293 2,989 2,985
Trading account 4,403 1,781 980
Investment securities
Fully taxable 139,731 99,640 107,415
Exempt from federal taxes 7,984 5,640 2,637
---------------------------------------------------------------------------------------
Total interest income 1,351,794 1,064,961 997,432
- --------------------------------------------------------------------------------------------------------------
Interest expense NOW accounts 4,851 3,455 9,430
Savings deposits 115,345 90,907 84,822
Time deposits 388,185 327,611 286,088
Deposits at foreign office 14,973 12,160 12,399
Short-term borrowings 105,582 44,341 59,442
Long-term borrowings 58,567 29,619 14,227
---------------------------------------------------------------------------------------
Total interest expense 687,503 508,093 466,408
---------------------------------------------------------------------------------------
NET INTEREST INCOME 664,291 556,868 531,024
Provision for possible credit losses 43,200 46,000 43,325
---------------------------------------------------------------------------------------
Net interest income after provision
for possible credit losses 621,091 510,868 487,699
- --------------------------------------------------------------------------------------------------------------
Other income Mortgage banking revenues 65,646 51,547 44,484
Service charges on deposit accounts 57,357 43,377 40,659
Trust income 38,211 30,688 27,672
Merchant discount and other credit card fees 12,436 19,395 18,266
Trading account and foreign exchange gains 3,963 3,690 2,421
Gain (loss) on sales of bank investment securities 1,761 (280) (37)
Other revenues from operations 91,221 44,650 36,783
---------------------------------------------------------------------------------------
Total other income 270,595 193,067 170,248
- --------------------------------------------------------------------------------------------------------------
Other expense Salaries and employee benefits 259,487 220,017 208,342
Equipment and net occupancy 66,553 53,299 51,346
Printing, postage and supplies 17,603 13,747 15,167
Amortization of goodwill and core deposit intangible 34,487 7,291 6,292
Deposit insurance 2,710 1,935 9,337
Other costs of operations 185,283 125,487 118,494
---------------------------------------------------------------------------------------
Total other expense 566,123 421,776 408,978
---------------------------------------------------------------------------------------
Income before income taxes 325,563 282,159 248,969
Income taxes 117,589 105,918 97,866
---------------------------------------------------------------------------------------
NET INCOME $ 207,974 176,241 151,103
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
Basic $ 27.30 26.60 22.54
Diluted 26.16 25.26 21.08
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
-65-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31
--------------------------------------
IN THOUSANDS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from Net income $ 207,974 176,241 151,103
operating activities Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 43,200 46,000 43,325
Depreciation and amortization of premises
and equipment 25,432 20,745 19,457
Amortization of capitalized servicing rights 19,650 14,366 10,509
Amortization of goodwill and core deposit intangible 34,487 7,291 6,292
Provision for deferred income taxes (2,965) (7,331) (3,901)
Asset write-downs 3,905 1,501 1,043
Net gain on sales of assets (4,607) (1,002) (1,539)
Net change in accrued interest receivable, payable 13,991 11,806 1,248
Net change in other accrued income and expense 71,914 80,439 23,808
Net change in loans held for sale (255,791) 4,234 (8,662)
Net change in trading account assets and liabilities (120,542) 5,094 (8,508)
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 36,648 359,384 234,175
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from Proceeds from sales of investment securities
investing activities Available for sale 223,929 217,221 275,627
Other 3,976 - -
Proceeds from maturities of investment securities
Available for sale 1,071,889 255,498 390,563
Held to maturity 91,060 89,161 125,480
Other 7,930 - 721
Purchases of investment securities
Available for sale (846,020) (628,168) (532,106)
Held to maturity (42,930) (54,218) (58,274)
Other (21,872) (3,936) (2,776)
Net (increase) decrease in interest-bearing
deposits at banks (6) 46,657 78,175
Additions to capitalized servicing rights (16,741) (29,818) (14,846)
Net increase in loans and leases (1,299,195) (820,335) (1,189,033)
Proceeds from sale of retail credit card business 189,818 - -
Capital expenditures, net (16,785) (13,270) (20,333)
Acquisitions, net of cash acquired:
ONBANCorp, Inc. 20,790 - -
Deposits and banking offices - 123,043 -
Purchases of bank owned life insurance (150,000) (200,000) -
Other, net (2,137) (356) 19,278
----------------------------------------------------------------------------------------------------
Net cash used by investing activities (786,294) (1,018,521) (927,524)
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from Net increase (decrease) in deposits (190,445) 508,930 1,042,108
financing activities Net increase (decrease) in short-term borrowings 648,784 (77,931) (145,281)
Proceeds from long-term borrowings 875,000 250,000 -
Payments on long-term borrowings (3,136) (189) (14,900)
Purchases of treasury stock (231,779) (67,771) (80,810)
Dividends paid - common (28,977) (21,207) (18,617)
Dividends paid - preferred - - (900)
Other, net 16,165 4,212 (2,385)
----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,085,612 596,044 779,215
----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ 335,966 (63,093) 85,866
Cash and cash equivalents at beginning of year 386,892 449,985 364,119
Cash and cash equivalents at end of year $ 722,858 386,892 449,985
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Interest received during the year $ 1,357,583 1,051,556 985,287
disclosure of cash Interest paid during the year 683,467 487,576 459,963
flow information Income taxes paid during the year 47,188 43,562 83,929
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental schedule Real estate acquired in settlement of loans $ 8,503 9,142 8,214
of noncash investing Conversion of preferred stock to common stock - - 40,000
and financing activities Acquisition of ONBANCorp, Inc:
Common stock issued 587,819 - -
Fair value of:
Assets acquired (noncash) 5,206,168 - -
Liabilities assumed 4,619,715 - -
Stock options 19,424 - -
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
-66-
- --------------------------------------------------------------------------------
M&T BANK CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Additional
Preferred Common stock paid-in
DOLLARS IN THOUSANDS, EXCEPT PER SHARE stock stock issuable capital
- -----------------------------------------------------------------------------------------------------------------------
1996 Balance - January 1, 1996 $ 40,000 40,487 -- 98,657
Comprehensive income:
Net income -- -- -- --
Other comprehensive income, net of tax:
Unrealized gains on investment securities,
net of reclassification adjustment -- -- -- --
Purchases of treasury stock -- -- -- --
Exercise of stock options -- -- -- 4,474
Common stock cash dividends -
$2.80 per share -- -- -- --
Preferred stock cash dividends -- -- -- --
Conversion of preferred stock into
506,930 shares of common stock (40,000) -- -- (6,534)
-------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 $ -- 40,487 -- 96,597
- ----------------------------------------------------------------------------------------------------------------------
1997 Comprehensive income:
Net income -- -- -- --
Other comprehensive income, net of tax:
Unrealized gains on investment securities,
net of reclassification adjustment -- -- -- --
Purchases of treasury stock -- -- -- --
Exercise of stock options -- -- -- 6,636
Common stock cash dividends -
$3.20 per share -- -- -- --
-------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 $ -- 40,487 -- 103,233
- -----------------------------------------------------------------------------------------------------------------------
1998 Comprehensive income:
Net income -- -- -- --
Other comprehensive income, net of tax:
Unrealized losses on investment securities,
net of reclassification adjustment -- -- -- --
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)
Common stock cash dividends -
$3.80 per share -- -- -- --
-------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $ -- 40,508 3,752 480,014
- -----------------------------------------------------------------------------------------------------------------------
Accumulated
other
Retained comprehensive Treasury
earnings income, net stock Total
- ------------------------------------------------------------------------------------------------------------------------
1996 Balance - January 1, 1996 805,486 (3,155) (135,222) 846,253
Comprehensive income:
Net income 151,103 -- -- 151,103
Other comprehensive income, net of tax:
Unrealized gains on investment securities,
net of reclassification adjustment -- 670 -- 670
----------
151,773
Purchases of treasury stock -- -- (80,810) (80,810)
Exercise of stock options -- -- 3,486 7,960
Common stock cash dividends -
$2.80 per share (18,617) -- -- (18,617)
Preferred stock cash dividends (900) -- -- (900)
Conversion of preferred stock into
506,930 shares of common stock -- -- 46,534 --
-------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 937,072 (2,485) (166,012) 905,659
- -----------------------------------------------------------------------------------------------------------------------
1997 Comprehensive income:
Net income 176,241 -- -- 176,241
Other comprehensive income, net of tax:
Unrealized gains on investment securities,
net of reclassification adjustment -- 14,501 -- 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) -- -- (21,207)
-------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 1,092,106 12,016 (217,576) 1,030,266
- -----------------------------------------------------------------------------------------------------------------------
1998 Comprehensive income:
Net income 207,974 -- -- 207,974
Other comprehensive income, net of tax:
Unrealized losses on investment securities,
net of reclassification adjustment -- (9,147) -- (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 (32) -- 160 3,875
Common stock cash dividends -
$3.80 per share (28,977) -- -- (28,977)
-------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 1,271,071 2,869 (195,848) 1,602,366
-------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
-67-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
In May 1998, First Empire State Corporation changed its name to M&T Bank
Corporation ("M&T"). 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 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
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. 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 23 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 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 and Federal
Home Loan Bank of Pittsburgh (together, the "Federal Home Loan Banks").
Amortization of premiums and accretion of discounts for investment
securities available for sale and held to maturity are included in interest
-68-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investment securities, CONTINUED
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.
Allowance for possible credit losses
The allowance for possible credit losses represents the amount which, in
management's judgment, will be adequate to absorb credit losses from existing
loans and leases. The adequacy of the allowance is determined by management's
evaluation of the loan 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.
-69-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 on a
straight-line basis over twenty years. Core deposit intangibles are amortized on
an accelerated basis over an estimated useful life of 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, which is generally four years.
-70-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 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 and commitments 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.
-71-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 April 1, 1998, M&T consummated the merger ("Merger") of ONBANCorp, Inc.
("ONBANCorp") with and into Olympia Financial Corp.("Olympia"), a wholly owned
subsidiary of M&T. 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 Manufacturers and Traders
Trust Company ("M&T Bank"), M&T's principal banking subsidiary.
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 $873.6 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.
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 has been 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 amount of goodwill may change as certain estimates and
contingencies are finalized, although any adjustments are not expected to be
significant. The goodwill is being amortized on a straight-line basis over
twenty years and the core deposit intangible is being amortized on an
accelerated basis over ten years. 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 $21.3 million ($14.0
million net of applicable income taxes) during 1998. Since the systems
conversions and integration of operations is complete, the Company does not
expect to incur a material amount of additional integration costs. Expenses
related to systems conversions and other costs of integration are included in
the consolidated statement of income for the year ended December 31, 1998 as
follows:
(in thousands)
Salaries and employee benefits $ 2,141
Equipment and net occupancy 875
Printing, postage and supplies 1,079
Other costs of operations 17,250
-------
$21,345
-------
-------
-72-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS, CONTINUED
The $21.3 million of expenses 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 ONBANCorp
customers; and printing, supplies and other costs of commencing operations in
new market regions.
Presented below is certain pro forma information as if ONBANCorp had
been acquired on January 1, 1997. These results combine the historical results
of 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 acquisition taken place at that
time. In particular, expenses related to systems conversions and other costs of
integration are included in the 1998 periods in which such costs were incurred
and, additionally, the Company expects to achieve further operating cost savings
as a result of the Merger which are not reflected in the pro forma amounts
presented below.
Pro forma
Year ended December 31
1998 1997
---- ----
(in thousands, except per share)
Interest income $1,436,327 1,418,606
Other income 277,663 235,346
Net income 202,219 183,494
Diluted earnings per common share $ 24.34 21.77
On December 9, 1998, M&T entered into a definitive agreement with FNB
Rochester Corp. ("FNB"), a bank holding company headquartered in Rochester, New
York, providing for a merger between the two companies. FNB had total assets of
$588 million as of December 31, 1998. The merger, which will be accounted for as
a purchase, has been approved by the boards of directors of each company, and is
subject to certain conditions, including regulatory approvals and approval of
FNB's stockholders. It is anticipated that the merger will take place during the
second quarter of 1999. Under the terms of the merger agreement, stockholders of
FNB may elect to receive .06766 of a share of M&T common stock (and cash in lieu
of any fractional share) or $33.00 in cash for each outstanding share of FNB
common stock. Subject to certain adjustments set forth in the merger agreements,
50% of the 3,625,806 shares of FNB common stock outstanding on December 9, 1998
will be exchanged for shares of M&T common stock and the remaining shares will
be converted for cash. The elections of FNB's stockholders will be subject to
allocation and proration if either portion of the merger consideration is
oversubscribed. At December 31, 1998, FNB had 3,628,618 shares of common stock
issued and outstanding.
-73-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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, 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
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
December 31, 1997
Investment securities
available for sale:
U.S. Treasury and
federal agencies $ 408,462 595 -- 409,057
Mortgage-backed securities
Government issued
or guaranteed 641,266 8,805 9,766 640,305
Privately issued 234,144 922 346 234,720
Other debt securities 157,568 326 1,678 156,216
Equity securities 121,615 21,460 100 142,975
----------- ---------- ---------- ---------
1,563,055 32,108 11,890 1,583,273
----------- ---------- ---------- ---------
Investment securities
held to maturity:
U.S. Treasury and
federal agencies 31,885 139 -- 32,024
Obligations of states and
political subdivisions 38,018 289 16 38,291
Other debt securities 13,762 99 -- 13,861
----------- ---------- ---------- ---------
83,665 527 16 84,176
----------- ---------- ---------- ---------
Other securities 58,280 -- -- 58,280
----------- ---------- ---------- ---------
Total $1,705,000 32,635 11,906 1,725,729
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
-74-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES, CONTINUED
No investment in securities of a single non-U.S. Government or
government agency issuer exceeded ten percent of stockholders' equity at
December 31, 1998.
As of December 31, 1998, the latest available investment ratings of all
privately issued mortgage-backed securities were A or better.
Investment securities issued by U.S. Treasury and federal agencies and
classified as held to maturity at December 31, 1997 consisted of structured
notes issued by the Federal Home Loan Banks.
The amortized cost and estimated fair value of collateralized mortgage
obligations included in mortgage-backed securities were as follows:
December 31
1998 1997
---------- ---------
(in thousands)
Amortized cost $1,265,588 284,943
Estimated fair value 1,265,487 278,588
Gross realized gains on the sale of investment securities were
$1,808,000 in 1998, $1,179,000 in 1997 and $820,000 in 1996. Gross realized
losses on the sale of investment securities were $47,000 in 1998, $1,459,000 in
1997 and $857,000 in 1996.
At December 31, 1998, 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 $ 318,279 318,620
Due after one year through five years 148,308 148,319
Due after five years through ten years - -
Due after ten years 148,685 144,098
---------- ---------
615,272 611,037
Mortgage-backed securities available
for sale 1,819,363 1,823,430
---------- ---------
$2,434,635 2,434,467
---------- ---------
---------- ---------
Debt securities held to maturity:
Due in one year or less $ 50,455 50,766
Due after one year through five years 20,836 21,208
Due after five years through ten years 15,991 15,391
Due after ten years -- --
---------- ---------
$ 87,282 87,365
---------- ---------
---------- ---------
At December 31, 1998, investment securities with a carrying value of
$1,960,999,000, including $1,928,837,000 of investment securities available for
sale, were pledged to secure demand notes issued to the U.S. Treasury,
borrowings from the Federal Home Loan Banks, repurchase agreements, governmental
deposits and interest rate swap agreements.
-75-
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
1998 1997
----------- ----------
(in thousands)
Loans
Commercial, financial,
agricultural, etc. $ 3,101,016 2,318,468
Real estate:
Residential 4,163,818 2,457,508
Commercial 5,125,703 4,307,900
Construction 489,112 254,434
Consumer 2,569,726 2,203,890
----------- ----------
Total loans 15,449,375 11,542,200
----------- ----------
Leases
Commercial 169,824 88,172
Consumer 386,502 135,161
----------- ----------
Total leases 556,326 223,333
----------- ----------
Total loans and leases $16,005,701 11,765,533
----------- ----------
----------- ----------
One-to-four family residential mortgage loans held for sale were $445.0
million at December 31, 1998 and $189.4 million at December 31, 1997.
One-to-four family residential mortgage loans serviced for others totaled
approximately $7.3 billion and $7.5 billion at December 31, 1998 and 1997,
respectively. As of December 31, 1998, approximately $33.1 million of
one-to-four family residential mortgage loans serviced for others have been sold
with recourse. The total credit loss exposure resulting from 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 $117,045,000 at
December 31, 1998 and $80,650,000 at December 31, 1997. If nonaccrual and
renegotiated loans had been accruing interest at their originally contracted
terms, interest income on these loans would have amounted to $7,806,000 in 1998
and $7,264,000 in 1997. The actual amount included in interest income during
1998 and 1997 on these loans was $2,367,000 and $2,445,000, respectively.
The recorded investment in loans considered impaired was $47,248,000
and $32,772,000 at December 31, 1998 and 1997, respectively. The recorded
investment in loans for which there was a related valuation allowance for
possible impairment included in the allowance for possible credit losses and the
amount of such impairment allowance were $20,470,000 and $6,758,000,
respectively, at December 31, 1998 and $23,963,000 and $3,095,000, respectively,
at December 31, 1997. The recorded investment in loans considered impaired for
which there was no related valuation allowance for possible impairment was
$26,778,000 and $8,809,000 at December 31, 1998 and 1997, respectively. The
average recorded investment in impaired loans during 1998, 1997 and 1996 was
$42,485,000, $37,732,000 and $48,146,000, respectively. Interest income
recognized on impaired loans totaled $2,351,000, $2,051,000 and $1,571,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
-76-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. LOANS AND LEASES, CONTINUED
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 $22,115,000 and $29,870,000 at December 31, 1998
and 1997, respectively. During 1998, new borrowings by such persons amounted to
$10,387,000 (including borrowings of new directors or officers that were
outstanding at the time of their election) and repayments and other reductions
equaled $18,142,000.
At December 31, 1998, approximately $1.4 billion of one-to-four family
residential mortgage loans were pledged to secure borrowings.
5. ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Changes in the allowance for possible credit losses were as follows:
1998 1997 1996
-------- ------- -------
(in thousands)
Beginning balance $274,656 270,466 262,344
Provision for possible
credit losses 43,200 46,000 43,325
Allowance obtained
through acquisitions 27,905 -- --
Net charge-offs
Charge-offs (56,301) (59,329) (49,546)
Recoveries 16,887 17,519 14,343
-------- ------- -------
Net charge-offs (39,414) (41,810) (35,203)
-------- ------- -------
Ending balance $306,347 274,656 270,466
-------- ------- -------
-------- ------- -------
6. PREMISES AND EQUIPMENT
The detail of premises and equipment was as follows:
December 31
1998 1997
-------- -------
(in thousands)
Land $ 15,467 12,050
Buildings-owned 118,132 91,486
Buildings-capital leases 1,773 1,773
Leasehold improvements 39,800 31,103
Furniture and equipment-owned 152,301 127,687
Furniture and equipment-capital leases 429 429
-------- -------
327,902 264,528
Less: accumulated depreciation
and amortization
Owned assets 163,074 140,644
Capital leases 1,986 1,900
-------- -------
165,060 142,544
-------- -------
Premises and equipment, net $162,842 121,984
-------- -------
-------- -------
Net lease expense for all operating leases totaled $20,607,000 in 1998,
$16,983,000 in 1997 and $12,223,000 in 1996. The Company occupies certain
banking offices and uses certain equipment under noncancellable operating lease
agreements expiring at various dates over the next 22 years. Minimum
-77-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. PREMISES AND EQUIPMENT, CONTINUED
lease payments under noncancellable operating leases are summarized as follows:
Year ending December 31: (in thousands)
1999 $ 13,216
2000 12,950
2001 11,077
2002 8,756
2003 8,093
Later years 48,884
--------
Total minimum lease
payments $102,976
--------
--------
Payments required under capital leases are not material.
7. CAPITALIZED SERVICING ASSETS
Changes in capitalized servicing assets were as follows:
Year ended December 31
1998 1997 1996
-------- ------- ------
(in thousands)
Beginning balance $ 61,877 38,890 35,588
Originations 12,276 7,819 11,060
Purchases 16,014 26,262 3,786
Amortization (19,650) (14,366) (10,509)
Sales (6,522) -- (1,035)
Write-downs -- (802) --
Reclassification of excess
servicing receivables -- 4,074 --
-------- ------ ------
63,995 61,877 38,890
Valuation allowance (1,798) (798) (1,100)
-------- ------ ------
Ending balance, net $ 62,197 61,079 37,790
-------- ------ ------
-------- ------ ------
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 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 rights
was approximately $80 million at December 31, 1998 and $84 million at December
31, 1997. 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.
-78-
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, 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%
--------- ------- ---------
--------- ------- ---------
At December 31, 1996
Amount outstanding $1,015,408 112,492 1,127,900
Weighted-average
interest rate 7.03% 4.66% 6.79%
For the year ended
December 31, 1996
Highest amount
at a month-end $1,550,880 337,168
Daily-average
amount outstanding 1,014,923 106,545 1,121,468
Weighted-average
interest rate 5.29% 5.40% 5.30%
--------- ------- ---------
--------- ------- ---------
-79-
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, 1998 mature within four days following year-end.
Other short-term borrowings consisted of interest-bearing trading account
liabilities and borrowings from the U.S. Treasury, the Federal Home Loan Banks
and others having original maturities of one year or less.
At December 31, 1998, M&T and M&T Bank had lines of credit under formal
agreements as follows:
M&T M&T
Bank
------- ---------
(in thousands)
Outstanding borrowings $ -- 1,506,106
Unused 25,000 140,964
------- ---------
------- ---------
Long-term borrowings were as follows:
December 31
1998 1997
---------- -------
(in thousands)
Subordinated notes of
M&T Bank:
8 1/8% due 2002 $ 75,000 75,000
7% due 2005 100,000 100,000
Preferred capital securities:
First Empire Capital Trust I
- 8.234% 150,000 150,000
First Empire Capital Trust II
- 8.277% 100,000 100,000
OnBank Trust I
- 9.25% 69,128 --
Advances from Federal Home
Loan Banks
- variable rates 825,000 --
- fixed rates 231,094 2,375
Other 17,321 444
---------- -------
$1,567,543 427,819
---------- -------
---------- -------
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 5.19% to 5.44%. The weighted average contractual interest rate was 5.29% at
December 31, 1998. 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, 1998 and from 7.72% to 8.45% at December 31, 1997. The weighted average
contractual interest rates payable were 6.23% and 8.05% at December 31, 1998 and
1997, respectively. Advances from the Federal Home Loan Banks mature at various
dates through 2006 and are secured by residential mortgage loans.
In January 1997, First Empire Capital Trust I ("Trust I"), a Delaware
business trust organized by the Company on January 17, 1997, issued $150 million
of 8.234% preferred capital securities. In June 1997, First Empire Capital Trust
II ("Trust II"), a Delaware business trust organized by the
-80-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS, CONTINUED
Company on May 30, 1997, issued $100 million of 8.277% preferred capital
securities. As a result of the ONBANCorp acquisition, the Company assumed
responsibility for similar preferred capital securities previously issued by a
special-purpose entity formed by ONBANCorp. In February 1997, OnBank Capital
Trust I ("OnBank Trust I" and, together with Trust I and Trust II, the
"Trusts"), a Delaware business trust organized by ONBANCorp on January 24, 1997,
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 OnBank Trust I have a financial statement carrying value of
approximately $69 million at December 31, 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
OnBank Trust I 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 OnBank Trust I 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
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 OnBank
Trust I:
-81-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS, CONTINUED
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.
OnBank
Trust I $ 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
OnBank Trust I, 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 OnBank Trust I, 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.
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 OnBank Trust I, 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 OnBank Trust I (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
-82-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. BORROWINGS, CONTINUED
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 OnBank Trust I, 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, 1998 mature as follows:
Year ending December 31: (in thousands)
1999 $ 161,059
2000 30,981
2001 256,493
2002 78,959
2003 492,540
Later years 547,511
----------
$1,567,543
----------
----------
9. PREFERRED STOCK
On March 29, 1996, the holder of all of the then outstanding shares of M&T's 9%
convertible preferred stock converted such shares into 506,930 shares of M&T
common stock at a contractual conversion price of $78.90625 per common share.
Dividends paid on the 40,000 shares of preferred stock, which had been issued on
March 15, 1991 for $40 million, were deducted from net income in calculating
basic earnings per share. Calculations of diluted earnings per common share for
periods prior to the conversion reflect the assumption that the preferred stock
had been converted to 506,930 shares of common stock at issuance and that no
preferred stock dividends were paid.
10. 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.
Awards granted under the stock option plan generally vest over four years and
are exercisable over terms not exceeding ten years and one day. 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. Of the stock options
outstanding at December 31, 1998, 783,224 were granted with limited stock
appreciation rights attached thereto. A summary of related activity follows:
-83-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. STOCK-BASED COMPENSATION PLANS, CONTINUED
Stock option plan, continued
Weighted-average
Cash-only exercise price
Stock appreciation Cash-only
options rights Stock appreciation
outstanding outstanding options rights
----------- ------------ ------- ------------
1996
Beginning balance 719,997 61,600 $107.96 $59.93
Granted 173,246 -- 211.42 --
Exercised (115,378) (6,650) 109.14 56.48
Canceled (8,650) -- 155.86 --
-------- ------ ------ -----
At year-end 769,215 54,950 130.54 60.34
1997
Granted 151,077 -- 297.37 --
Exercised (138,723) (8,500) 87.66 57.00
Canceled (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
Canceled (25,045) -- 250.86 --
-------- ------ ------ -----
At year-end 809,913 35,400 229.70 61.40
-------- ------ ------ -----
-------- ------ ------ -----
Exercisable at:
December 31, 1998 384,494 35,400 144.97 61.40
-------- ------ ------ -----
-------- ------ ------ -----
December 31, 1997 344,757 46,450 110.39 60.95
-------- ------ ------ -----
-------- ------ ------ -----
December 31, 1996 352,571 54,950 86.17 60.34
-------- ------ ------ -----
-------- ------ ------ -----
At December 31, 1998 and 1997, respectively, there were 489,302 and
170,488 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.
A summary of stock options at December 31, 1998 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 92,696 $ 86.04 2.5 92,696 $ 86.04
133.88 to 198.76 269,491 141.81 5.3 217,261 140.92
211.00 to 290.00 289,917 245.99 7.4 72,592 226.74
310.00 to 554.13 157,809 434.27 9.0 1,945 355.06
------- ------- ------ ------- --------
809,913 $229.70 6.4 384,494 $144.97
------- ------- ------ ------- --------
------- ------- ------ ------- --------
The Company used a binomial option pricing model to estimate the grant
date present value of stock options granted in 1998, 1997 and 1996. The
estimated value per option was $114.60 in 1998, $79.26 in 1997 and $49.75 in
1996. The values were calculated using the following 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 5.53% in 1998, 6.37% in 1997 and 5.48% in 1996
-84-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. STOCK-BASED COMPENSATION PLANS, CONTINUED
Stock option plan, continued
(representing the yield on a U.S. Treasury security with a remaining term equal
to the expected option term), expected volatility of 14% in 1998 and 1997 and
15% in 1996, and estimated dividend yields of .72% in 1998, .97% in 1997 and
1.28% in 1996 (representing the approximate annualized cash dividend rate paid
with respect to a share of common stock at or near the grant date). The Company
also deducted 10% to reflect an estimate of the probability of forfeiture prior
to vesting. The estimated forfeiture rate was based on historical data since
inception of the stock option plan.
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 1998, 1997 and 1996 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
recognized for cash-only stock appreciation rights was $2,238,000 in 1998,
$8,510,000 in 1997 and $3,974,000 in 1996. Had compensation expense for stock
option awards granted since January 1, 1995 been determined consistent with SFAS
No. 123, net income and earnings per share would be reduced to the pro forma
amounts indicated below:
Year ended December 31
1998 1997 1996
-------- --------- --------
(in thousands,
except per share)
Net income:
As reported $207,974 176,241 151,103
Pro forma 198,323 169,432 146,394
Basic earnings per share:
As reported $27.30 26.60 22.54
Pro forma 26.03 25.57 21.83
Diluted earnings per share:
As reported $26.16 25.26 21.08
Pro forma 25.02 24.40 20.53
The pro forma effects presented above are 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 which allows
such employees to 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. As of December 31,
1998, 8,028 shares of M&T common stock were distributable pursuant to the terms
of the deferred bonus plan. In connection with the deferred bonus
-85-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. STOCK-BASED COMPENSATION PLANS, CONTINUED
Deferred bonus plan, continued
plan, 15,000 shares of M&T common stock were authorized for issuance, of which
334 shares were issued in 1998.
Directors' stock plan
Effective January 1, 1998, the Company initiated a compensation plan for
non-employee directors which provides that annual compensation payable to such
directors shall 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 451 shares were issued in
1998.
11. 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:
1998 1997 1996
-------- -------- -----
(in thousands)
Service cost $ 7,021 5,014 4,434
Interest cost on projected benefit
obligation 8,135 6,786 6,610
Expected return on plan assets (12,396) (9,723) (8,076)
Amortization of prior service cost (24) (24) (25)
Amortization of initial net asset (344) (858) (858)
Recognized net actuarial gain (38) (47) (22)
Settlements and curtailments 218 - -
------- ----- -----
Net periodic pension expense $ 2,572 1,148 2,063
------- ----- -----
------- ----- -----
Net postretirement benefits expense consisted of the following:
1998 1997 1996
-------- ------ ------
(in thousands)
Service cost $ 288 146 147
Interest cost on projected benefit
obligation 1,141 996 1,062
Expected return on plan assets (226) (288) (293)
Amortization of prior service cost (18) (204) (204)
Recognized net actuarial (gain) loss 25 (7) 87
------- ----- -----
Net postretirement benefits expense $ 1,210 643 799
------- ----- -----
------- ----- -----
-86-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS, CONTINUED
Data related to the funding position of the plans were as follows:
Pension Postretirement
Benefits Benefits
------------------ -------------------
1998 1997 1998 1997
-------- -------- ------- ---------
(in thousands)
Change in benefit obligation:
Benefit obligation at
beginning of year $107,035 95,461 13,933 15,344
Service cost 7,021 5,014 288 146
Interest cost 8,135 6,786 1,141 996
Plan participants'contributions - - 119 -
Amendments 20 - 2,356 -
Actuarial (gain) loss 5,864 4,253 1,119 (1,211)
Business combination 15,027 - 499 -
Benefits paid (6,389) (4,479) (1,432) (1,342)
Settlements and curtailments 218 - - -
-------- ------- ------ ------
Benefit obligation at
end of year $136,931 107,035 18,023 13,933
-------- ------- ------ ------
Change in plan assets:
Fair value of plan assets at
beginning of year $144,894 120,856 5,147 6,325
Actual return on plan assets 6,669 28,497 292 34
Employer contribution - 20 - -
Plan participants'contributions - - 269 130
Business combination 22,441 - - -
Benefits and other payments (4,787) (4,479) (1,432) (1,342)
Settlements (1,748) - - -
-------- ------- ------ ------
Fair value of plan assets at
end of year $167,469 144,894 4,276 5,147
-------- ------- ------ ------
-------- ------- ------ ------
Funded status $ 30,538 37,859 (13,747) (8,786)
Unrecognized net actuarial (gain)
loss (18,318) (30,142) 2,229 1,202
Unrecognized prior service cost (259) (304) 336 (2,039)
Unrecognized initial net asset - (344) - -
-------- ------- ------ ------
Prepaid (accrued) benefit cost $ 11,961 7,069 (11,182) (9,623)
-------- ------- ------ ------
-------- ------- ------ ------
Amounts recognized in the consolidated balance sheet were:
Prepaid benefit cost (asset) $ 14,489 9,453 - -
Accrued benefit cost (liability) (2,528) (2,384) (11,182) (9,623)
-------- ------- ------ ------
$ 11,961 7,069 (11,182) (9,623)
-------- ------- ------ ------
-------- ------- ------ ------
The Company has an unfunded supplemental pension plan for key
executives. The projected benefit obligation and accumulated benefit obligation
included in the preceding data related to such plan were $2,356,000 and
$1,863,000, respectively, as of December 31, 1998 and $1,992,000 and $1,495,000,
respectively, as of December 31, 1997.
-87-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS, CONTINUED
The assumed rates used in the actuarial computations were:
Pension Postretirement
Benefits Benefits
-------------- ------------------
1998 1997 1998 1997
----- ----- ------ -----
Discount rate 6.75% 7.00% 6.75% 7.00%
Long-term rate of return on
plan assets 9.00% 9.00% 8.00% 8.00%
Rate of increase in future
compensation levels 5.10% 5.10% - -
For measurement purposes, a 7.5% annual rate of increase in the cost of
covered health care benefits was assumed for 1999. The rate was assumed to
decrease gradually to 5% over 6 years. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
+1% -1%
----- -----
Increase (decrease) in: (in thousands)
Service and interest cost $ 52 (47)
Accumulated postretirement
benefit obligation 857 (767)
Pension plan assets included common stock of M&T with a fair value of
$14,674,000 and $13,072,000 at December 31, 1998 and 1997, 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
$6,085,000, $5,221,000 and $4,724,000 in 1998, 1997 and 1996, respectively.
12. INCOME TAXES
The components of income tax expense (benefit) were as follows:
1998 1997 1996
-------- ------- -------
(in thousands)
Current
Federal $105,751 96,819 85,220
State and city 14,803 16,430 16,547
-------- ------- ------
Total current 120,554 113,249 101,767
-------- ------- ------
Deferred
Federal (2,309) (5,334) (3,155)
State and city (656) (1,997) (746)
-------- ------- ------
Total deferred (2,965) (7,331) (3,901)
-------- ------- ------
Total income taxes
applicable to pre-tax income $117,589 105,918 97,866
-------- ------- ------
-------- ------- ------
-88-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. INCOME TAXES, CONTINUED
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, 1998 M&T Bank's tax bad debt reserve for which no
federal income taxes have been provided was $74,021,000, including $27,304,000
obtained in the acquisition of ONBANCorp. 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 $718,000 in 1998 and a benefit of
$114,000 in 1997. The effect on income taxes from sales of bank investment
securities was insignificant in 1996. No alternative minimum tax expense was
recognized in 1998, 1997 or 1996.
Total income taxes differed from the amount computed by applying the
statutory federal income tax rate to pre-tax income as follows:
1998 1997 1996
---- ---- ----
(in thousands)
Income taxes at statutory rate $113,947 98,756 87,139
Increase (decrease) in taxes:
Tax-exempt income (15,266) (3,794) (2,000)
State and city income taxes,
net of federal income
tax effect 9,196 9,381 10,271
Amortization of goodwill 8,158 1,571 1,593
Other 1,554 4 863
-------- ------- ------
$117,589 105,918 97,866
-------- ------- ------
-------- ------- ------
-89-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. INCOME TAXES, CONTINUED
Deferred tax assets (liabilities) were comprised of the following at
December 31:
1998 1997 1996
---- ---- ----
(in thousands)
Interest on loans $ - 5,165 5,603
Depreciation and amortization 10,489 8,130 7,900
Losses on loans and other assets 120,422 105,190 105,338
Postretirement and other
supplemental employee benefits 5,316 7,163 7,434
Incentive compensation plans 20,395 12,302 9,090
Unrealized investment losses - - 1,819
Other 3,140 11,140 10,060
--------- ------ ------
Gross deferred tax assets 159,762 149,090 147,244
--------- ------ ------
Interest on loans (5,025) - -
Retirement benefits (1,969) (3,459) (4,457)
Leasing transactions (107,187) (83,347) (81,300)
Restructured interest rate
swap agreements (181) (3,999) (8,564)
Capitalized servicing rights (6,868) (7,448) (7,597)
Unrealized investment gains (1,931) (8,202) -
Other (504) (45) (46)
--------- ------ ------
Gross deferred tax liabilities (123,665) (106,500) (101,964)
--------- ------ ------
Net deferred tax asset $ 36,097 42,590 45,280
--------- ------ ------
--------- ------ ------
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.
The income tax credits shown in the statement of income of M&T in note
23 arise principally from operating losses before dividends from subsidiaries.
-90-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. EARNINGS PER SHARE
The computations of basic earnings per share follow:
Year ended December 31
1998 1997 1996
---- ---- ----
(in thousands, except per share)
Net income $207,974 176,241 151,103
Less: preferred stock dividends - - (900)
-------- ------- -------
Income available to common
stockholders 207,974 176,241 150,203
Weighted-average shares
outstanding (including common
stock issuable) 7,619 6,625 6,663
Basic earnings per share $ 27.30 26.60 22.54
The computations of diluted earnings per share follow:
Year ended December 31
1998 1997 1996
---- ---- ----
(in thousands, except per share)
Income available to common
stockholders $207,974 176,241 150,203
-------- ------- -------
Plus: preferred stock dividends - - 900
Income available to common
stockholders plus assumed
conversion 207,974 176,241 151,103
Weighted-average shares
outstanding 7,619 6,625 6,663
Plus: incremental shares from
assumed conversions of
- stock options 331 352 385
- preferred stock - - 122
-------- ------- -------
Adjusted weighted-average shares
outstanding 7,950 6,977 7,170
Diluted earnings per share $ 26.16 25.26 21.08
14. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the first
quarter of 1998. SFAS No. 130 established standards for reporting and displaying
comprehensive income and its components. Adoption of SFAS No. 130 had no impact
on the Company's results of operations or its financial position. Financial
statements presented for periods prior to 1998 were required to be reclassified
to reflect application of the provisions of SFAS No. 130.
-91-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. COMPREHENSIVE INCOME, CONTINUED
The following table displays the components of other comprehensive income:
Year ended December 31, 1998
-----------------------------
Before-tax Income
amount taxes Net
------ ----- ---
(in thousands)
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)
-------- ------ ------
-------- ------ ------
(a) Including the effect of the contribution of appreciated investment
securities described in note 15.
Year ended December 31, 1997
-----------------------------
Before-tax Income
amount taxes Net
------ ----- ---
(in thousands)
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
------- ------ ------
------- ------ ------
Year ended December 31, 1996
-----------------------------
Before-tax Income
amount taxes Net
------ ----- ---
(in thousands)
Unrealized gains on investment securities:
Unrealized holding
gains $ 1,157 524 633
Reclassification
adjustment for losses
realized in net income (37) - (37)
------- --- ---
Net unrealized gains $ 1,194 524 670
------- --- ---
------- --- ---
-92-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
15. 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:
1998 1997 1996
---- ---- ----
(in thousands)
Other income:
Mutual fund and annuity sales $17,974 15,336 13,000
Change in cash surrender value
of bank-owned life insurance 17,629
Other expense:
Professional services 30,537 22,845 20,402
Advertising 11,933
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.
16. 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 $32,891,000 and
$11,514,000 at December 31, 1998 and 1997, respectively.
17. 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 loan and deposit portfolios. Under terms of
most of the agreements the Company receives a fixed rate of interest and pays a
variable rate based on London Inter-Bank Offered Rates ("LIBOR"). 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:
-93-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. 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
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
---------- --- ---- ---- -------
---------- --- ---- ---- -------
DECEMBER 31, 1997
- -----------------
Variable rate
loans:
Amortizing $ 99,287 .2 5.82% 5.75% $ 28
Non-amortizing 1,147,731 1.7 6.00% 5.84% 2,888
---------- --- ---- ---- -------
1,247,018 1.6 5.99% 5.83% 2,916
Fixed rate
loans:
Amortizing(a) 33,061 9.5 7.17% 5.97% (2,394)
Fixed rate time
deposits:
Non-amortizing 1,439,500 2.8 6.69% 5.73% 15,915
---------- --- ---- ---- -------
$2,719,579 2.3 6.37% 5.78% $16,437
---------- --- ---- ---- -------
---------- --- ---- ---- -------
Under all swap agreements, the Company receives interest at a fixed rate and
pays at a variable rate, except for:
(a) Under the terms of this swap, the Company receives interest at a variable
rate and pays at a fixed rate.
(b) Under the terms of these forward-starting swaps the Company will receive
interest at a variable rate and pay at a fixed rate beginning in the
years indicated below.
-94-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED
Notional
Year Amount
---- ------
(in thousands)
1999 $ 18,000
2000 186,044
2001 186,756
-------
$390,800
-------
-------
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.
The notional amount of the amortizing swaps linked to fixed rate loans
declines by the amount of scheduled principal payments of the loans. The
notional amounts of other amortizing swaps may, following an initial lock-out
period, vary depending on the level of interest rates or the repayment behavior
of mortgage-backed securities to which individual swaps are indexed. The
notional amount of a non-amortizing swap does not change during the term of an
agreement.
At December 31, 1998 the notional amount of interest rate swaps
outstanding mature as follows:
Amortizing Non-Amortizing
---------- --------------
(in thousands)
Year ending December 31:
1999 $ 930 804,000
2000 1,868 920,000
2001 8,184 263,000
2002 8,908 172,000
2003 10,693 105,000
Later years 392,426 125,000
-------- ---------
$423,009 2,389,000
-------- ---------
-------- ---------
The net effect of interest rate swaps was to increase net interest
income by $16,156,000 in 1998, $14,089,000 in 1997 and $15,454,000 in 1996.
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 $2,521,426,000 in 1998, $2,691,638,000 in 1997 and
$2,410,547,000 in 1996.
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 deferred losses and
-95-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
17. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED
purchase discounts totaled $.3 million and $6.7 million, respectively, at
December 31, 1998 and $9.5 million and $15.8 million, respectively, at December
31, 1997. The deferred losses are being amortized and the purchase discounts
accreted to interest income over the remaining terms of the original swaps and
restructured swaps, respectively. Such amortization and accretion were $9.2
million and $9.1 million, respectively, in 1998, $11.3 million and $9.6 million,
respectively, in 1997 and $12.1 million and $9.8 million, respectively, in 1996.
Net purchase discounts related to the restructured swaps remaining at December
31, 1998 were $6,363,000, of which $5,960,000 will accrete to interest income in
1999.
Derivative financial instruments used for trading purposes included
foreign exchange and other option contracts, foreign exchange forward and spot
contracts, interest rate contracts and financial futures. The following
table includes information about the estimated fair value of derivative
financial instruments used for trading purposes:
1998 1997
---- ----
December 31: (in thousands)
Gross unrealized gains $54,424 46,343
Gross unrealized losses 49,833 46,405
Year ended December 31:
Average gross unrealized gains $42,174 41,701
Average gross unrealized losses 39,083 41,302
------- ------
------- ------
Net gains arising from derivative financial instruments used for trading
purposes were $2,648,000 in 1998, $2,072,000 in 1997 and $2,689,000 in 1996.
18. 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, 1998
and 1997.
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.
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
-96-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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
1998 $2,785,564 2,785,647
1997 1,725,218 1,725,729
--------- ---------
--------- ---------
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, 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
----------- ----------
----------- ----------
December 31, 1997
Commercial loans and leases $ 2,378,827 2,378,248
Commercial real estate loans 4,436,014 4,487,740
Residential real estate loans 2,462,945 2,484,377
Consumer loans and leases 2,218,782 2,207,609
----------- ----------
$11,496,568 11,557,974
----------- ----------
----------- ----------
The allowance for possible credit losses represented the Company's
assessment of the overall level of credit risk inherent in the loan and lease
portfolio and totaled $306,347,000 and $274,656,000 at December 31, 1998 and
1997, respectively.
As described in note 19, in the normal course of business, various
commitments and contingent liabilities are outstanding, such as loan
commitments, credit guarantees and letters of credit. The Company's pricing of
such financial instruments is based largely on credit quality and relationship,
probability of funding and other requirements. 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 $7,630,000
and $4,911,000 at December 31, 1998 and 1997, respectively.
-97-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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, 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
---------- ---------
---------- ---------
December 31, 1997
Noninterest-bearing deposits $1,458,241 1,458,241
Savings deposits and NOW accounts 3,691,492 3,691,492
Time deposits 5,762,497 5,792,345
Deposits at foreign office 250,928 250,928
---------- ---------
---------- ---------
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 17, 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
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
1998 $2,812,009 35,640 (12,650) 22,990
1997 2,719,579 22,060 (5,623) 16,437
--------- ------ ------ ------
--------- ------ ------ ------
As described in note 17, 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
gains of $436 million and $723,000, respectively, at December 31, 1998 and
notional values and estimated fair value losses of $1.4 billion and $24,000,
respectively, at December 31, 1997. The Company also entered into
-98-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
foreign exchange and other option and futures contracts totaling approximately
$2.0 billion and $2.1 billion at December 31, 1998 and 1997, respectively. Such
contracts were valued at gains of $3,868,000 at December 31, 1998 and losses of
$38,000 at December 31, 1997. All trading account assets and liabilities are
recorded in the consolidated balance sheet at estimated fair value.
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 $1,567,543,000 and $1,613,040,000, respectively, at
December 31, 1998 and $427,819,000 and $453,113,000, respectively, at December
31, 1997.
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 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.
19. 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 $410,357,000 and $193,838,000 at December 31,
1998 and 1997, 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 loan commitments of
approximately $3.5 billion and $2.9 billion at December 31, 1998 and 1997,
respectively. Because many loan commitments and almost all credit guarantees and
"standby" letters of credit expire without being funded in whole or part, the
contract amounts are not estimates of future cash flows. Commitments to sell
one-to-four family residential mortgage loans totaled $695,444,000 at December
31, 1998 and $266,145,000 at December 31, 1997.
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.
-99-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
20. REVOLVING CREDIT AGREEMENT OF M&T
M&T has a revolving credit agreement with an unaffiliated commercial bank
whereby M&T may borrow up to $25,000,000 at its discretion through November 23,
1999. The agreement provides for a facility fee assessed on the entire amount of
the commitment (whether or not utilized) ranging from .08% to .187% depending on
the credit rating of the subordinated notes of M&T Bank. A usage fee equal to
.10% per annum is assessed whenever the balance of outstanding loans exceeds 50%
of the commitment amount during any quarter. Under the revolving credit
agreement, M&T may borrow at either a variable rate based upon the higher of the
Federal funds rate plus 1/2 of 1% or the lender's prime rate, or a fixed rate
based upon a premium over LIBOR ranging from .15% to .30% depending on the
credit rating of the subordinated notes of M&T Bank. At December 31, 1998 and
1997 there were no outstanding balances under such agreement.
21. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach focuses on internal financial information that is used by management to
assess performance and to make operating decisions. SFAS No. 131 also requires
disclosures about products, services, geographic areas, and major customers. The
adoption of SFAS No. 131 had no affect on the Company's results of operations or
financial position.
The Company's 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 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. The provision for possible 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 possible credit losses due to
changes in loan balances. In contrast, the level of the consolidated provision
for possible credit losses is determined using the methodologies described in
note 1 to assess the overall adequacy of the allowance for possible 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
-100-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
21. SEGMENT INFORMATION, CONTINUED
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.
-101-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
21. SEGMENT INFORMATION, CONTINUED
Residential
Commercial Commercial Discretionary Mortgage Retail All
In Thousands, Except Total Assets Banking Real Estate Portfolio Banking Banking Other Total
- --------------------------------------- ----------- ------------ --------------- ------------ ---------- ---------- --------
FOR THE YEAR ENDED
DECEMBER 31, 1998
Net interest income (a) $139,053 103,033 40,611 23,797 338,664 19,133 664,291
Noninterest income (b) 21,195 10,454 20,726 111,283 80,237 26,700 270,595
- --------------------------------------- -------- -------- -------- --------- --------- -------- --------
160,248 113,487 61,337 135,080 418,901 45,833 934,886
Provision for credit losses 2,964 1,243 2,330 (3) 19,557 17,109 43,200
Amortization of goodwill
and core deposit
intangible - - - 810 - 33,677 34,487
Depreciation and other
amortization 467 352 97 21,400 11,007 11,759 45,082
Other noninterest expense (b) 42,100 12,336 17,477 84,237 219,050 111,354 486,554
- --------------------------------------- -------- -------- -------- --------- --------- -------- --------
Income (loss) before taxes 114,717 99,556 41,433 28,636 169,287 (128,066) 325,563
Income tax expense (benefit)(b) 47,276 42,240 9,749 9,089 69,142 (59,907) 117,589
- --------------------------------------- -------- -------- -------- --------- --------- -------- --------
Net income (loss)(b) $ 67,441 57,316 31,684 19,547 100,145 (68,159) 207,974
- --------------------------------------- -------- -------- -------- --------- --------- -------- --------
-------- -------- -------- --------- --------- -------- --------
Average total
assets (in millions) $ 3,653 3,527 6,025 581 3,781 742 18,309
- --------------------------------------- -------- -------- -------- --------- --------- -------- --------
-------- -------- -------- --------- --------- -------- --------
Capital expenditures (in millions) $ - - - 1 7 9 17
-------- -------- -------- --------- --------- -------- --------
-------- -------- -------- --------- --------- -------- --------
FOR THE YEAR ENDED
DECEMBER 31, 1997
Net interest income (a) $112,460 99,736 43,898 17,847 279,800 3,127 556,868
Noninterest income 16,397 5,107 3,824 76,837 64,906 25,996 193,067
- --------------------------------------- --------- -------- --------- ----------- --------- -------- --------
128,857 104,843 47,722 94,684 344,706 29,123 749,935
Provision for credit losses 549 116 2,939 (19) 35,866 6,549 46,000
Amortization of goodwill
and core deposit
intangible - - - 810 - 6,481 7,291
Depreciation and other
amortization 410 407 107 16,357 7,231 10,599 35,111
Other noninterest expense 35,443 12,158 15,355 62,069 190,002 64,347 379,374
- --------------------------------------- ----------- --------- ---------- ----------- ---------- --------- --------
Income (loss) before taxes 92,455 92,162 29,321 15,467 111,607 (58,853) 282,159
Income tax expense (benefit) 38,194 39,204 10,856 4,453 45,876 (32,665) 105,918
- --------------------------------------- ----------- --------- ---------- ----------- ---------- --------- --------
Net income (loss) $ 54,261 52,958 18,465 11,014 65,731 (26,188) 176,241
- --------------------------------------- ---------- -------- --------- ----------- ---------- -------- --------
---------- -------- --------- ----------- ---------- -------- --------
Average total
assets (in millions) $ 2,777 3,151 3,883 360 3,066 72 13,309
- --------------------------------------- ----------- --------- ---------- ----------- ---------- --------- --------
----------- --------- ---------- ----------- ---------- --------- --------
Capital expenditures (in millions) $ - - - 1 5 7 13
----------- --------- ---------- ----------- ---------- --------- --------
----------- --------- ---------- ----------- ---------- --------- --------
-102-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
21. SEGMENT INFORMATION, CONTINUED
Residential
Commercial Commercial Discretionary Mortgage Retail All
In thousands, except total assets Banking Real Estate Portfolio Banking Banking Other Total
- ----------------------------------- ---------------- -------------- -------------- ----------- --------- ----------- ------------
For the year ended
December 31, 1996
Net interest income (a) $100,864 96,262 51,491 14,438 263,989 3,980 531,024
Noninterest income 14,701 5,177 958 66,666 59,491 23,255 170,248
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
115,565 101,439 52,449 81,104 323,480 27,235 701,272
Provision for credit losses 4,287 (104) 2,062 16 32,968 4,096 43,325
Amortization of goodwill
and core deposit
intangible - - - 826 - 5,466 6,292
Depreciation and other
amortization 356 290 107 12,240 6,310 10,663 29,966
Other noninterest expense 33,890 12,098 15,876 57,914 190,911 62,031 372,720
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes 77,032 89,155 34,404 10,108 93,291 (55,021) 248,969
Income tax expense (benefit) 32,663 37,794 15,203 2,281 40,204 (30,279) 97,866
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 44,369 51,361 19,201 7,827 53,087 (24,742) 151,103
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Average total
assets (in millions) $ 2,445 2,904 3,978 361 2,872 (81) 12,479
- ----------------------------------- -------- -------- ---------- -------- -------- -------- --------
-------- -------- ---------- -------- -------- -------- --------
Capital expenditures (in millions) $ - - - 1 7 12 20
-------- -------- ---------- -------- -------- -------- --------
-------- -------- ---------- -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
(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 $7,186,000
in 1998, $5,840,000 in 1997 and $4,487,000 in 1996 and is eliminated in
"All Other" net interest income and income tax expense (benefit).
(b) Including the impact in 1998 on the "All Other" category of the
contribution of appreciated investment securities described in note 15 and
nonrecurring merger-related expenses described in note 2.
-103-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
21. SEGMENT INFORMATION, CONTINUED
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 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 possible 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,
In Thousands 1998 1997 1996
- ------------ ---- ---- ----
Revenues $(52,137) (31,023) (26,420)
Expenses (19,916) (14,302) (14,857)
Income taxes (benefit) (13,111) (6,804) (4,705)
Net income (loss) (19,110) (9,917) (6,858)
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.
22. 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,
1998, approximately $318,161,000 was available for payment of dividends to M&T
from banking subsidiaries without prior regulatory approval.
-104-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
22. REGULATORY MATTERS, CONTINUED
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, 1998 and 1997, cash and due from banks included a
daily average of $158,696,000 and $124,132,000, 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, 1998, M&T and each of its banking subsidiaries
exceeded all applicable capital adequacy requirements.
As of December 31, 1998 and 1997, 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.
-105-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
22. REGULATORY MATTERS, CONTINUED
The capital ratios and amounts of the Company and its banking
subsidiaries as of December 31, 1998 and 1997 are presented below:
M&T M&T M&T
(Consolidated) Bank Bank, N.A.
-------------- ---- ----------
(dollars in thousands)
As of 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
As of December 31, 1997:
TIER 1 CAPITAL
Amount $1,250,330 1,000,963 50,771
Ratio(a) 10.69% 8.81% 14.73%
Minimum required amount(b) 467,942 454,353 13,787
TOTAL CAPITAL
Amount 1,558,147 1,304,528 55,084
Ratio(a) 13.32% 11.48% 15.98%
Minimum required amount(b) 935,884 908,705 27,574
LEVERAGE
Amount 1,250,330 1,000,963 50,771
Ratio(c) 9.09% 7.63% 7.11%
Minimum required amount(b) 412,649 393,602 21,429
(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.
-106-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
23. PARENT COMPANY FINANCIAL STATEMENTS SEE OTHER NOTES TO FINANCIAL STATEMENTS.
CONDENSED BALANCE SHEET
- --------------------------------------------------------------------------------
December 31
Dollars in thousands 1998 1997
- ------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------
Cash
In subsidiary bank $ 4,583 1,015
Other 20 19
- ------------------------------------------------------------------------------------------------
Total cash 4,603 1,034
Due from subsidiaries
Money-market assets 4,335 172,237
Current income tax receivable 4,757 12,927
- ------------------------------------------------------------------------------------------------
Total due from subsidiaries 9,092 185,164
Investments in subsidiaries
Banks and bank holding company 1,830,222 1,071,258
Other 7,734 7,736
Other assets 14,817 34,887
- ------------------------------------------------------------------------------------------------
Total assets $ 1,866,468 1,300,079
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 6,369 12,080
Long-term borrowings 257,733 257,733
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Total liabilities 264,102 269,813
- ------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 1,602,366 1,030,266
- ------------------------------------------------------------------------------------------------
Total Liabilities and stockholders' equity $ 1,866,468 1,300,079
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
Year ended December 31
Dollars in thousands, except per share 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
INCOME
- ---------------------------------------------------------------------------------------------------
Dividends from bank and bank holding
company subsidiaries $ 121,500 192 116,038
Other income 20,222 8,558 933
- ---------------------------------------------------------------------------------------------------
Total income 141,722 8,750 116,971
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
EXPENSE
- ---------------------------------------------------------------------------------------------------
Interest on short-term borrowings - - 242
Interest on long-term borrowings 21,516 16,762 -
Other expense 27,168 2,710 1,968
- ---------------------------------------------------------------------------------------------------
Total expense 48,684 19,472 2,210
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Income (loss) before income taxes and equity in
undistributed income of subsidiaries 93,038 (10,722) 114,761
Income tax credits 17,541 4,496 552
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 110,579 (6,226) 115,313
- ---------------------------------------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------
Net income
Banks and bank holding company subsidiaries 218,895 182,659 151,724
Other subsidiaries - - 104
Less: dividends received (121,500) (192) (116,038)
- ---------------------------------------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 97,395 182,467 35,790
- ---------------------------------------------------------------------------------------------------
Net income $ 207,974 176,241 151,103
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
BASIC $ 27.30 26.60 22.54
DILUTED $ 26.16 25.26 21.08
-107-
M&T BANK CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
23. PARENT COMPANY FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
Year ended December 31
Dollars in thousands 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 207,974 176,241 151,103
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiaries (97,395) (182,467) (35,790)
Dividend-in-kind from subsidiary - (83) (1,538)
Provision for deferred income taxes 793 810 (153)
Net change in accrued income and expense 3,558 (327) 530
Transfer of noncash assets to charitable foundation 9,272 - -
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 124,202 (5,826) 114,152
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Investment in subsidiary (60,000) (19,734) (7,000)
Other, net (808) (767) (39)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (60,808) (20,501) (7,039)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of junior subordinated debt
to subsidiaries - 257,733 -
Purchases of treasury stock (231,779) (67,771) (80,810)
Dividends paid - common (28,977) (21,207) (18,617)
Dividends paid - preferred - - (900)
Other, net 33,029 12,334 4,329
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (227,727) 181,089 (95,998)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ (164,333) 154,762 11,115
Cash and cash equivalents at beginning of year 173,271 18,509 7,394
Cash and cash equivalents at end of year $ 8,938 173,271 18,509
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
- ----------------------------------------------------------------------------------------------------------------------
Interest received during the year $ 2,496 4,743 686
Interest paid during the year 21,516 10,550 242
Income taxes received during the year 40,208 2,027 507
-108-
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 term in
office of Wilfred J. Larson as a director of the Registrant will
end on April 20, 1999, and he will not be a nominee for
reelection to the Board of Directors at the 1999 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 1999 Annual
Meeting of Stockholders, which was filed with the Securities
and Exchange Commission on March 11, 1999. 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 1999 Annual
Meeting of Stockholders which was filed with the Securities
and Exchange Commission on March 11, 1999.
Item 11. EXECUTIVE COMPENSATION. Incorporated by reference to the
Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, which was filed with the Securities
and Exchange Commission on March 11, 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Registrant's definitive Proxy
Statement for its 1999 Annual Meeting of Stockholders, which was
filed with the Securities and Exchange Commission on March 11,
1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by
reference to the Registrant's definitive Proxy Statement for its
1999 Annual Meeting of Stockholders, which was filed with the
Securities and Exchange Commission on March 11, 1999.
-109-
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 17, 1998, the Registrant filed a Current Report
on Form 8-K dated December 9, 1998, reporting on its
December 9, 1998 public announcement that the Registrant
would acquire FNB Rochester Corp.
(c) Exhibits required by Item 601 of Regulation S-K.
The exhibits listed on the Exhibit Index on pages 114
through 116 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.
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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 12th day of March,
1999.
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 March 12, 1999
Robert G. Wilmers
Principal Financial
Officer:
/s/ Michael P. Pinto Executive Vice President
- ------------------------------- and Chief Financial Officer March 12, 1999
Michael P. Pinto
Principal Accounting
Officer:
/s/ Michael R. Spychala Senior Vice President
- -------------------------------- and Controller March 12, 1999
Michael R. Spychala
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A majority of the board of directors:
/s/ William F. Allyn March 12, 1999
- -------------------------------------------- -------------------
William F. Allyn
/s/ Brent D. Baird March 12, 1999
- -------------------------------------------- -------------------
Brent D. Baird
/s/ John H. Benisch March 12, 1999
- -------------------------------------------- -------------------
John H. Benisch
/s/ Robert J. Bennett March 12, 1999
- -------------------------------------------- -------------------
Robert J. Bennett
/s/ C. Angela Bontempo March 12, 1999
- -------------------------------------------- -------------------
C. Angela Bontempo
/s/ Robert T. Brady March 12, 1999
- -------------------------------------------- -------------------
Robert T. Brady
/s/ Patrick J. Callan March 12, 1999
- -------------------------------------------- -------------------
Patrick J. Callan
/s/ Richard E. Garman March 12, 1999
- -------------------------------------------- -------------------
Richard E. Garman
/s/ James V. Glynn March 12, 1999
- -------------------------------------------- -------------------
James V. Glynn
- -------------------------------------------- -------------------
Roy M. Goodman
/s/ Patrick W.E. Hodgson March 12, 1999
- -------------------------------------------- -------------------
Patrick W.E. Hodgson
- -------------------------------------------- -------------------
Samuel T. Hubbard, Jr.
/s/ Russell A. King March 12, 1999
- -------------------------------------------- -------------------
Russell A. King
/s/ Lambros J. Lambros March 12, 1999
- -------------------------------------------- -------------------
Lambros J. Lambros
/s/ Wilfred J. Larson March 12, 1999
- -------------------------------------------- -------------------
Wilfred J. Larson
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/s/ Reginald B. Newman, II March 12, 1999
- -------------------------------------------- -------------------
Reginald B. Newman, II
/s/ Peter J. O'Donnell, Jr. March 12, 1999
- -------------------------------------------- -------------------
Peter J. O'Donnell, Jr.
/s/ Jorge G. Pereira March 12, 1999
- -------------------------------------------- -------------------
Jorge G. Pereira
/s/ Robert E. Sadler, Jr. March 12, 1999
- -------------------------------------------- -------------------
Robert E. Sadler, Jr.
/s/ John L. Vensel March 12, 1999
- -------------------------------------------- -------------------
John L. Vensel
/s/ Herbert L. Washington March 12, 1999
- -------------------------------------------- -------------------
Herbert L. Washington
/s/ John L. Wehle, Jr. March 12, 1999
- -------------------------------------------- -------------------
John L. Wehle, Jr.
/s/ Robert G. Wilmers March 12, 1999
- -------------------------------------------- -------------------
Robert G. Wilmers
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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. Filed herewith.
4.1 Instruments defining the rights of security holders,
including indentures. Incorporated by reference to Exhibit
Nos. 3.1, 3.2, 10.1, 10.2 and 10.3 hereof.
4.2 Amended and Restated Trust Agreement dated as of January
31, 1997 by and among First Empire State 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 Junior Subordinated Indenture dated as of January 31, 1997
by and between First Empire State 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).
4.4 Guarantee Agreement dated as of January 31, 1997 by and
between First Empire State 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).
4.5 Amended and Restated Trust Agreement dated as of June 6,
1997 by and among First Empire State 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).
4.6 Junior Subordinated Indenture dated as of June 6, 1997 by
and between First Empire State 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).
4.7 Guarantee Agreement dated as of June 6, 1997 by and
between First Empire State 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).
-114-
10.1 Revolving Credit Agreement, dated as of November 24, 1995,
between First Empire State Corporation and The First
National Bank of Boston. Incorporated by reference to
Exhibit No. 10.1 to the Form 10-K for the year ended
December 31, 1995 (File No. 1-9861).
10.2 First Amendment, dated November 24, 1998 to the Revolving
Credit Agreement, dated November 24, 1995, between M&T
Bank Corporation, formerly known as First Empire State
Corporation, and BankBoston, N.A., formerly known as The
First National Bank of Boston. Filed herewith.
10.3 M&T Bank Corporation 1983 Stock Option Plan as amended and
restated. Incorporated by reference to Exhibit 10.2 to
Form 10-Q for the quarter ended June 30, 1998 (File No.
1-9861).
10.4 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:
10.5 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);
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 M&T Bank Corporation Directors' Stock Plan, as amended and
restated. Filed herewith.
10.12 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).
-115-
10.13 Amended Franklin First Financial Corp. 1998 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).
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 13 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, 1998. Filed herewith.
-116-